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REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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UNITED STATES FILTER CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 33-0266015
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
40-004 COOK STREET
PALM DESERT, CALIFORNIA 92211
(619) 340-0098
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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DAMIAN C. GEORGINO
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
UNITED STATES FILTER CORPORATION
40-004 COOK STREET
PALM DESERT, CALIFORNIA 92211
(619) 340-0098
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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Copies to:
JANICE C. HARTMAN NICHOLAS P. SAGGESE
KIRKPATRICK & LOCKHART LLP SKADDEN, ARPS, SLATE, MEAGHER & FLOM
1500 OLIVER BUILDING 300 SOUTH GRAND AVENUE, SUITE 3400
PITTSBURGH, PENNSYLVANIA 15222 LOS ANGELES, CALIFORNIA 90071
(412) 355-6500 (213) 687-5000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(2) PRICE(2) REGISTRATION FEE
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Convertible Subordinated Notes due
2001................................ $201,250,000 100% $201,250,000 $60,985
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Common Stock, par value $.01 per
share............................... (3) -- -- --
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(1) Includes $26,250,000 principal amount of Convertible Subordinated Notes
due 2001 which may be issued upon exercise of an over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) There are also registered hereunder such indeterminate number of shares of
Common Stock, par value $.01 per share, of United States Filter
Corporation as may be issuable upon conversion of the Convertible
Subordinated Notes due 2001.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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SUBJECT TO COMPLETION, DATED OCTOBER 16, 1996
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS
, 1996
$175,000,000
[LOGO OF UNITED STATES FILTER CORPORATION]
% CONVERTIBLE SUBORDINATED NOTES DUE 2001
The % Convertible Subordinated Notes due 2001 (the "Notes") will be
convertible at the option of the holder into shares of common stock, par value
$.01 per share, of the Company (the "Common Stock"), at any time at or prior to
maturity, unless previously redeemed, at a conversion price (the "Conversion
Price") of $ per share (equivalent to a conversion rate of shares
per $1,000 principal amount of Notes), subject to adjustment in certain events.
Interest on the Notes is payable semi-annually on and of
each year, commencing on . On October 14, 1996, the closing sale
price of the Common Stock of the Company as reported on the New York Stock
Exchange Composite Tape (where it is traded under the symbol "USF") was $34.38
per share.
The Notes are redeemable, in whole or in part, at the option of the Company,
at any time on or after , 1999, at the redemption prices set forth
herein, plus accrued and unpaid interest to the date of redemption. The Company
will be required to offer to purchase the Notes upon a Change of Control (as
defined), at 100% of the principal amount thereof, plus accrued and unpaid
interest to the date of purchase.
The Notes are unsecured general obligations of the Company, subordinated in
right of payment to all existing and future Senior Indebtedness (as defined) of
the Company, and are subordinated by operation of law to all liabilities
(including trade payables) of the Company's subsidiaries. The Indenture will
not restrict the incurrence of Senior Indebtedness or other indebtedness by the
Company or its subsidiaries. At June 30, 1996, as adjusted to give effect to
the issuance and sale of the Notes and the application of estimated net
proceeds therefrom and consummation of the acquisition transactions described
herein, the Company would have had approximately $119.3 million of Senior
Indebtedness, and the Company's subsidiaries would have had approximately
$446.4 million of trade payables and accrued liabilities. See "Description of
the Notes."
Application will be made to list the Notes on the New York Stock Exchange.
Concurrently with this offering (the "Notes Offering"), the Company is
undertaking, pursuant to a separate Prospectus, domestic and international
offerings of shares of Common Stock (the "Common Stock Offerings"). The net
proceeds of the Notes Offering and the Common Stock Offerings are expected to
be used to fund or to repay indebtedness to be incurred to fund the pending
acquisitions by the Company of certain businesses and assets (collectively
referred to as the Water Systems and Manufacturing Group and referred to herein
as "WSMG") of Wheelabrator Technologies Inc. ("WTI") and the businesses of the
Process Equipment Division ("PED") of United Utilities PLC; the balance, if
any, will be used for working capital, capital expenditures and general
corporate purposes, including possible future acquisitions. See "Recent and
Pending Acquisitions" and "Use of Proceeds."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC(1) COMMISSIONS(2) COMPANY(3)
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Per Note................................. % % %
Total(4)................................. $ $ $
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(1) Plus accrued interest, if any, from the date of issuance.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting expenses payable by the Company estimated at $400,000.
(4) The Company has granted to the Underwriters an option exercisable within 30
days after the date of this Prospectus to purchase up to an additional
$26,250,000 aggregate principal amount of the Notes on the same terms as
set forth above, at the Price to the Public, less the Underwriting
Discounts and Commissions, solely for the purpose of covering over-
allotments, if any. If such option were exercised in full, the total Price
to the Public, total Underwriting Discounts and Commissions and total
Proceeds to the Company would be $ , $ and $ ,
respectively. See "Underwriting."
The Notes are offered by the several Underwriters when, as and if delivered
to and accepted by them, subject to certain conditions, including their rights
to withdraw, cancel or reject orders in whole or in part. It is expected that
delivery of the Notes will be made in New York, New York on or about ,
1996.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SALOMON BROTHERS INC
DEUTSCHE MORGAN GRENFELL
NATWEST SECURITIES LIMITED
SMITH BARNEY INC.
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[Map depicting sales and service facilities located in North America, Europe
and the Pacific Rim.]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AND THE
COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-
COUNTER MARKET, ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING,
IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including the Selected Consolidated Financial Data, the Company's
Consolidated Financial Statements and Notes thereto and the Unaudited Pro Forma
Combined Financial Information, included or incorporated by reference in this
Prospectus. Except as otherwise specified, all information in this Prospectus
has been adjusted to reflect a 3-for-2 split of the Common Stock effected July
15, 1996 and a 3-for-2 split of the Common Stock effected December 5, 1994, and
does not give effect to the over-allotment option described under the caption
"Underwriting."
THE COMPANY
The Company is a leading global provider of industrial and municipal water
and wastewater treatment systems, products and services, with an installed base
of systems that the Company believes is one of the largest worldwide. The
Company offers a single-source solution to industrial and municipal customers
through what the Company believes is the industry's broadest range of cost-
effective systems, products, services and proven technologies. In addition, the
Company has one of the industry's largest networks of sales and service
facilities. The Company capitalizes on its large installed base, extensive
distribution network and manufacturing capabilities to provide customers with
ongoing local service and maintenance. The Company is also a leading provider
of service deionization ("SDI") and outsourced water services, including the
operation of water and wastewater treatment systems at customer sites.
The Company has grown internally and through the strategic acquisition and
successful integration of more than 45 United States based and international
water and wastewater treatment companies since 1991. On a previously reported
basis, the Company's revenues increased to $472.5 million for the fiscal year
ended March 31, 1996 from $41.2 million for the fiscal year ended March 31,
1992, representing a compound annual growth rate of approximately 84%. The
Company's revenues for the fiscal year ended March 31, 1996 would have been
approximately $1.8 billion after giving effect to the completed acquisitions of
Zimpro Environmental, Inc. ("Zimpro") and Davis Water & Waste Industries, Inc.
("Davis") and including, on a pro forma basis, the pending acquisitions of
WSMG, PED, WaterPro Supplies Corporation ("WaterPro") and The Utility Supply
Group, Inc. ("USG") as if such acquisitions were completed at the beginning of
such year.
Global population growth, economic expansion, scarcity of available water
resources, heightened public concern about water quality and growing regulatory
requirements have resulted in: (i) continued growth of the multibillion dollar
water and wastewater treatment industry; and (ii) heightened demand for
increasingly complex water and wastewater treatment systems. The water
treatment industry is highly fragmented, with numerous regional participants
who provide customers with a limited range of water and wastewater treatment
solutions. The Company differentiates itself from competitors by serving as a
single-source water and wastewater treatment provider capable of designing,
manufacturing, operating, financing and maintaining water and wastewater
systems on a local basis for industrial and municipal customers. The Company's
customer base includes a broad range of major industrial customers, which
require treated water as a necessary component of many products and industrial
processes, and municipalities, which treat water and wastewater for their
communities. Industrial customers include Chinese Petroleum, Coca-Cola, Dow
Chemical, General Motors, Hyundai, Intel, Johnson & Johnson, Merck, Procter &
Gamble and Samsung. Municipal customers include the Cities of Los Angeles,
Minneapolis-St. Paul and St. Louis.
3
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In order to achieve earnings growth and expand its operations to enhance its
position as a leading global single-source provider of water and wastewater
treatment systems and services, the Company has developed the following
strategy:
.Provide single-source water and wastewater treatment solutions to
industrial and municipal customers
.Pursue acquisitions that provide a strategic fit and contribute to revenue
and earnings growth
.Realize synergies and economies of scale from acquisitions
.Expand global market presence, especially in the Pacific Rim region
.Expand penetration of the municipal market
.Capitalize on distribution strength to enhance local sales and service
capabilities
.Capitalize on outsourcing and privatization opportunities
RECENT AND PENDING ACQUISITIONS
The Company has become a leading single-source provider of cost-effective
water and wastewater treatment systems primarily through acquisitions of
businesses that have expanded the Company's geographic presence, industries
served, installed base and range of products and technologies. The Company's
acquisition strategy has also recently focused on establishing the Company as a
leading distributor of water and wastewater distribution products and services
to the industrial and municipal markets.
The Company has entered into a definitive agreement with WTI to acquire WSMG
for $369.6 million in cash, subject to adjustment. The Company and WTI have
also signed a non-binding letter of intent to continue negotiating the
formation of a joint venture (the "Joint Venture"). The Company has also
entered into a definitive agreement to acquire PED from United Utilities PLC
for approximately $195.3 million in cash and stock, subject to adjustment.
Additionally, the Company has acquired the stock of Davis for approximately
$100.0 million in stock and has entered into definitive agreements to acquire
WaterPro for approximately $101.6 million in stock and USG for approximately
$44.0 million (approximately $22.0 million in stock and approximately $22.0
million of assumed USG debt).
WATER SYSTEMS AND MANUFACTURING GROUP
WSMG provides a broad range of water and wastewater treatment products and
technologies, as well as other environmental products, worldwide. For the
fiscal year ended December 31, 1995, WSMG generated approximately $452.1
million of revenues, of which approximately 56% were attributable to sales in
North America, with the remainder generated principally in Europe, the Pacific
Rim and the Middle East.
The Company believes that the acquisition of WSMG will significantly broaden
the Company's product offerings, technological capabilities and municipal
market penetration. WSMG is also expected to provide the Company with cross-
selling opportunities as well as opportunities to rationalize operations and
increase asset utilization. In addition, the Company believes that WSMG will
provide it with the infrastructure required to capitalize on opportunities in
the Pacific Rim and further strengthens the Company's presence in European
markets.
4
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PROPOSED JOINT VENTURE
The Company and WTI are negotiating to form the Joint Venture to develop,
finance, own and operate water and wastewater treatment facilities for both
industrial and municipal customers in North America. The Company believes that
the contemplated Joint Venture would be well-positioned to capitalize on
opportunities in the growing industrial outsourcing and emerging municipal
privatization markets. It is expected that the operating strategy of the
contemplated Joint Venture would be to offer customers: (i) turnkey operation,
including system design, manufacture, operation and maintenance on a local
basis; (ii) warrantied performance; (iii) potential cost savings; and
(iv) customized financing options. The Company believes that the Joint Venture
would have several competitive advantages in securing industrial and municipal
contracts, including the Company's extensive network of local sales and service
facilities, and the Company's long-term industrial and municipal relationships.
There can be no assurance as to whether or when or on what specific terms the
Joint Venture will actually be formed. The Company is currently a 50% owner of
Treated Water Outsourcing, a Nalco/U.S. Filter Joint Venture ("TWO"), which
focuses on the outsourcing of industrial customers' water treatment needs.
PROCESS EQUIPMENT DIVISION
PED is a leading manufacturer and distributor of a broad range of water and
wastewater treatment equipment sold primarily to the municipal market. For the
fiscal year ended March 31, 1996, PED generated approximately $267.4 million of
revenues, of which approximately 60% were attributable to sales in North
America, with the remainder generated principally in Europe, Latin America and
the Pacific Rim. For the fiscal year ended March 31, 1996, a majority of PED's
revenues were attributable to sales in the municipal market.
The Company believes that the acquisition of PED will significantly
strengthen the Company's municipal water and wastewater treatment capabilities
and provide the Company with opportunities to rationalize operations and
increase asset utilization. Additionally, the Company believes that
opportunities exist to expand PED's industrial sales by distributing PED's
products through the Company's extensive network of sales and service
facilities.
DISTRIBUTION ACQUISITIONS
The Company believes that the recent acquisition of Davis and the pending
acquisitions of WaterPro and USG will establish the Company as a leading
distributor of water and wastewater distribution products and services to the
industrial and municipal markets. These recent and pending acquisitions are
expected to enhance the Company's geographic presence and, through the addition
of 105 distribution facilities, provide the Company with a strategically
important local sales and service presence in the markets being served.
Additionally, each of Davis, WaterPro and USG benefits from established
relationships with municipalities. The Company believes that these
relationships will provide it with an effective means of penetrating the
municipal market and permit the Company to capitalize on opportunities to
retrofit, replace and repair aging water infrastructure in the United States.
The Company intends to utilize its distribution channels, local presence and
single-source capabilities to sell its extensive product line, including
capital equipment, replacement parts, and services, to customers in both the
industrial and municipal markets. As a result, the Company believes that its
distribution infrastructure will provide a mechanism to leverage its
manufacturing capabilities and technology base. The Company also believes that
the distribution acquisitions will provide cost-saving opportunities through
rationalization of overhead expenses and realization of economies of scale and
operating efficiencies.
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The Company's principal executive offices are located at 40-004 Cook Street,
Palm Desert, California 92211, and its telephone number is (619) 340-0098.
References herein to the Company refer to United States Filter Corporation and
its subsidiaries, unless the context requires otherwise.
5
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THE OFFERING
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Securities Offered............... $175,000,000 principal amount of %
Convertible Subordinated Notes due ,
2001.
Maturity......................... , 2001, unless earlier redeemed or
converted.
Interest Payment Dates........... and commencing ,
1997.
Conversion Rights................ The Notes are convertible into shares of
Common Stock at any time prior to the close
of business on the second business day
prior to maturity, unless previously
redeemed, at a conversion price of $ per
share, subject to adjustment under certain
circumstances as described herein.
Accordingly, each $1,000 principal amount
of Notes is convertible into shares of
Common Stock, subject to adjustment,
initially for an aggregate of shares.
See "Capitalization."
Optional Redemption.............. The Notes are redeemable, in whole or in
part, at the option of the Company at any
time on or after , 1999, at the
redemption prices set forth herein, plus
accrued and unpaid interest, if any, to the
date of redemption.
Change of Control................ Upon a Change of Control, the Company will
be required to offer to purchase the Notes
at 100% of the principal amount thereof,
plus accrued and unpaid interest to the
date of purchase.
Subordination.................... The Notes will be general, unsecured
obligations of the Company, subordinated in
right of payment to all existing and future
Senior Indebtedness of the Company and will
be structurally subordinated to all
liabilities (including trade payables) of
the Company's Subsidiaries. At June 30,
1996, as adjusted to give effect to the
issuance and sale of the Notes and the
application of the estimated net proceeds
therefrom and consummation of the
acquisition transactions described herein,
the Company would have aggregate Senior
Indebtedness of approximately
$119.3 million and the Company's
Subsidiaries would have had approximately
$446.4 million of trade payables and
accrued liabilities. The Indenture will not
restrict the incurrence of Senior
Indebtedness or other indebtedness by the
Company or any of its Subsidiaries.
Use of Proceeds.................. The net proceeds from the Notes Offering,
together with the net proceeds from the
Common Stock Offerings, will be used to
fund or to repay indebtedness incurred to
fund the pending acquisitions by the
Company of WSMG and PED; the balance, if
any, will be used for working capital,
capital expenditures and general corporate
purposes, including possible future
acquisitions. If the net proceeds from the
Notes Offering and the Common Stock
Offerings are not available, the Company
expects to fund the acquisitions of WSMG
and PED from borrowings under committed
bank credit facilities. See "Recent and
Pending Acquisitions" and "Use of
Proceeds."
Listing.......................... Application will be made to list the Notes
on the New York Stock Exchange.
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6
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Common Stock Traded.............. The Common Stock is traded on the New York
Stock Exchange under the symbol "USF."
Concurrent Offering.............. The Company is offering concurrently,
pursuant to a separate Prospectus,
10,000,000 shares of Common Stock
(10,654,206 shares if the U.S.
underwriters' over-allotment option is
exercised in full). Consummation of the
Notes Offering is not a condition to
consummation of the Common Stock Offerings,
and consummation of the Common Stock
Offerings is not a condition to
consummation of the Notes Offering.
</TABLE>
For a description of the terms of the Notes, see "Description of the Notes."
For a description of the Common Stock, see "Description of Capital Stock."
7
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SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following data present selected historical consolidated financial data of
the Company (restated to reflect the acquisitions of Zimpro and Davis, which
were accounted for as poolings of interests) as of the date and for the periods
presented, and As Adjusted to give effect to: (i) the pending acquisitions of
WSMG, PED, WaterPro and USG as if they had been consummated as of the beginning
of the respective periods presented (in the case of Statement of Operations
Data and Other Data) and as of June 30, 1996 (in the case of Balance Sheet
Data); and (ii) the assumed borrowings under bank credit facilities of
approximately $537.2 million to fund the cash portion of the consideration for
such acquisitions. The As Further Adjusted column gives effect to: (i) the sale
by the Company of the Notes and the anticipated application of the net proceeds
therefrom; (ii) the sale by the Company of 10,000,000 shares of Common Stock in
the Common Stock Offerings at an assumed public offering price of $34.38 per
share and the anticipated application of the net proceeds therefrom; and
(iii) the conversion of the Company's $60.0 million aggregate principal amount
of 5% Convertible Subordinated Debentures due 2000 into 4,390,000 shares of
Common Stock.
The pro forma data is derived from the historical financial statements of the
Company, WSMG, PED, WaterPro and USG giving effect to such pending acquisitions
under the purchase method of accounting and based on assumptions and
adjustments described under the caption "Unaudited Pro Forma Combined Financial
Information." The pro forma adjustments are estimated and may differ from the
actual adjustments when they become known. The pro forma data does not reflect
certain cost savings that management believes may be realized following the
acquisitions, through rationalization of operations and economies of scale. See
"Unaudited Pro Forma Combined Financial Information."
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FISCAL YEAR ENDED THREE MONTHS ENDED
MARCH 31, 1996 JUNE 30, 1996
------------------------------ -------------------------------
AS AS FURTHER AS FURTHER
ACTUAL ADJUSTED ADJUSTED ACTUAL AS ADJUSTED ADJUSTED
-------- ---------- ---------- -------- ----------- ----------
(in thousands, except per share data)
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STATEMENT OF OPERATIONS
DATA:
Revenues................ $727,903 $1,838,624 $1,838,624 $208,509 $501,946 $501,946
Gross profit............ 189,330 423,370 423,370 56,335 121,803 121,803
Operating income........ 40,647 81,171 81,171 14,815 28,712 28,712
Interest expense........ 14,419 56,542 25,188 4,390 14,828 6,990
Net income.............. 19,307 21,455 40,894 8,003 9,141 14,000
Net income per common
share.................. $0.45 $0.44 $0.66 $0.16 $0.17 $0.20
Weighted average number
of common shares
outstanding............ 42,159 47,041 61,431 49,951 54,833 69,223
OTHER DATA:
EBITDA(1)............... $67,227 $132,067 $132,067 $24,636 $44,945 $44,945
Ratio of EBITDA to
interest expense....... 4.7x 2.3x 5.2x 5.6x 3.0x 6.4x
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
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ACTUAL AS ADJUSTED AS FURTHER ADJUSTED
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BALANCE SHEET DATA:
Working capital....................... $140,897 $ 389,320 $ 389,320
Total assets.......................... 888,870 1,947,172 1,951,728
Notes payable and long-term debt,
including current portion............ 59,205 618,676 118,123
Convertible subordinated debt......... 199,975 199,975 315,000
Shareholders' equity.................. 385,146 545,425 935,509
</TABLE>
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(1) "EBITDA" consists of operating income plus depreciation and amortization.
EBITDA data is presented because such data is used by certain investors to
determine the Company's ability to meet debt service requirements. The
Company considers EBITDA to be an indicative measure of the Company's
operating performance. However, such information should not be considered
as an alternative to net income, operating profit, cash flows from
operations, or any other operating or liquidity performance measure
prescribed by generally accepted accounting principles.
8
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RISK FACTORS
Prospective investors should consider carefully the following factors
relating to the businesses of the Company, WSMG, PED, WaterPro and USG and the
sale of the Notes, together with the other information and financial data
included or incorporated by reference in this Prospectus, before acquiring
Notes offered hereby. Information contained or incorporated by reference in
this Prospectus contains "forward-looking statements" which can be identified
by the use of forward-looking terminology such as "believes," "contemplates,"
"expects," "may," "will," "should," "would" or "anticipates" or the negative
thereof or other variations thereon or comparable terminology, or by
discussions of strategy. No assurance can be given that the future results
covered by the forward-looking statements will be achieved. The following
matters constitute cautionary statements identifying important factors with
respect to such forward-looking statements, including certain risks and
uncertainties, that could cause actual results to vary materially from the
future results covered in such forward-looking statements. Other factors could
also cause actual results to vary materially from the future results covered
in such forward-looking statements.
ACQUISITION STRATEGY
In pursuit of its strategic objective of becoming the leading global single-
source provider of water and wastewater treatment systems and services, the
Company has, since 1991, acquired and successfully integrated more than 45
United States based and international businesses with strong market positions
and substantial water and wastewater treatment expertise. The Company plans to
continue to pursue acquisitions that complement its technologies, products and
services, broaden its customer base and expand its global distribution
network. The Company's acquisition strategy entails the potential risks
inherent in assessing the value, strengths, weaknesses, contingent or other
liabilities and potential profitability of acquisition candidates and in
integrating the operations of acquired companies. Although the Company
generally has been successful in pursuing these acquisitions, there can be no
assurance that acquisition opportunities will continue to be available, that
the Company will have access to the capital required to finance potential
acquisitions, that the Company will continue to acquire businesses or that any
business acquired will be integrated successfully or prove profitable.
Consummation of the pending acquisitions of each of WSMG, PED, WaterPro and
USG are subject to the satisfaction of certain conditions, including
expiration or termination of applicable waiting periods under the United
States Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. The
Company has been notified that the waiting period with respect to USG has been
terminated. There can be no assurance that any one or more of the remaining
pending acquisitions will not be challenged on antitrust grounds, or if
challenged, that the Company will prevail. There can also be no assurance as
to whether or when the Company's pending acquisitions will be completed. The
net proceeds to the Company of the Offerings and the Notes Offering are
expected to be used to fund or to repay indebtedness used to fund the pending
acquisitions of WSMG and PED; the balance, if any, will be used for working
capital, capital expenditures and general corporate purposes, including
possible future acquisitions. If either or both of the pending acquisitions of
WSMG and PED are not completed, the net proceeds of the Offerings and the
Notes Offering not used for those acquisitions will be added to working
capital. See "Recent and Pending Acquisitions" and "Use of Proceeds."
PROPOSED JOINT VENTURE
The Company and WTI have entered into a non-binding letter of intent
providing that they will continue negotiations with a view to the formation of
the Joint Venture to develop, finance, own and operate water and wastewater
treatment facilities for both industrial and municipal customers in North
America. Formation of the Joint Venture as currently contemplated is subject
to, among other things, obtaining consents of third parties. There can be no
assurance as to whether or when or on what specific terms the Joint Venture
will actually be formed.
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INTERNATIONAL TRANSACTIONS
The Company has made and expects it will continue to make acquisitions and
expects to obtain contracts in markets outside the United States. While these
activities may provide important opportunities for the Company to offer its
products and services internationally, they also entail the risks associated
with conducting business internationally, including the risk of currency
fluctuations, slower payment of invoices, nationalization and possible social,
political and economic instability. In particular, the purchase price of
approximately $195.3 million for the acquisition by the Company of PED is
denominated in British pounds sterling. To the extent that the value of the
United States dollar declines relative to pounds sterling prior to the closing
of the acquisition, the cost to the Company of acquiring PED would increase
commensurately.
RELIANCE ON KEY PERSONNEL
The Company's operations are, and will, after consummation of the Company's
pending acquisitions, be dependent on the continued efforts of senior
management, in particular Richard J. Heckmann, its Chairman of the Board,
President and Chief Executive Officer. Should any of the senior managers be
unable to continue in their present roles, the Company's prospects could be
adversely affected.
PROFITABILITY OF FIXED PRICE CONTRACTS
A significant portion of the Company's revenues are, and will, after
consummation of the Company's pending acquisitions, be generated under fixed
price contracts. To the extent that original cost estimates are inaccurate,
costs to complete increase, delivery schedules are delayed or progress under a
contract is otherwise impeded, revenue recognition and profitability from a
particular contract may be adversely affected. The Company routinely records
upward or downward adjustments with respect to fixed price contracts due to
changes in estimates of costs to complete such contracts. There can be no
assurance that future downward adjustments will not be material.
CYCLICALITY AND SEASONALITY
The sale of capital equipment within the water treatment industry is
cyclical and influenced by various economic factors including interest rates
and general fluctuations of the business cycle. A significant portion of the
Company's revenues are, and will, after consummation of the Company's pending
acquisitions, be derived from capital equipment sales. While the Company sells
capital equipment to customers in diverse industries and in global markets,
cyclicality of capital equipment sales and instability of general economic
conditions could have an adverse effect on the Company's revenues and
profitability.
The sale of water and wastewater distribution equipment and supplies is also
cyclical and influenced by various economic factors including interest rates,
land development and housing construction industry cycles. Sales of such
equipment and supplies are also subject to seasonal fluctuation in northern
climates. As a result of the acquisition of Davis and the pending acquisitions
of WaterPro and USG, the sale of water and wastewater distribution equipment
and supplies is expected to become a significant component of the Company's
business. See "Recent and Pending Acquisitions." Cyclicality and seasonality
of water and wastewater distribution equipment and supplies sales could have
an adverse effect on the Company's revenues and profitability.
POTENTIAL ENVIRONMENTAL RISKS
The Company's business and products may be significantly influenced by the
constantly changing body of environmental laws and regulations, which require
that certain environmental standards be met and impose liability for the
failure to comply with such standards. The Company is also subject to inherent
risks associated with environmental conditions at facilities owned, and the
state of compliance with environmental laws, by businesses acquired by the
Company. While the Company endeavors at each of its facilities to assure
compliance with environmental laws and regulations, there can be no assurance
that the Company's operations or activities, or historical operations by
others at the Company's locations, will not result in civil or criminal
enforcement
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actions or private actions that could have a materially adverse effect on the
Company. In that regard, federal and state environmental regulatory
authorities have commenced civil enforcement actions related to alleged
multiple violations of applicable wastewater pretreatment standards by a
wholly owned subsidiary of the Company at a Connecticut ion exchange
regeneration facility acquired by the Company in October 1995 from Anjou
International Company ("Anjou"). A grand jury investigation is pending which
is believed to relate to the same conditions that were the subject of the
civil actions. The Company has certain rights of indemnification from Anjou
which may be available with respect to these matters. In addition, the
Company's activities as owner and operator of certain hazardous waste
treatment and recovery facilities are subject to stringent laws and
regulations and compliance reviews. Failure of these facilities to comply with
those regulations could result in substantial fines and the suspension or
revocation of the facility's hazardous waste permit. In other matters, the
Company has been notified by the United States Environmental Protection Agency
that it is a potentially responsible party under the Comprehensive
Environmental Response, Compensation, and Liability Act ("CERCLA"). It is
possible that the Company could receive other such notices under CERCLA or
analogous state laws in the future. The Company does not believe that its
liability, if any, relating to such matters will be material. In addition, to
some extent, the liabilities and risks imposed by environmental laws on the
Company's customers may adversely impact demand for certain of the Company's
products or services or impose greater liabilities and risks on the Company,
which could also have an adverse effect on the Company's competitive or
financial position.
COMPETITION
The water and wastewater treatment industry is fragmented and highly
competitive. The Company competes with many United States based and
international companies in its global markets. The principal methods of
competition in the markets in which the Company competes are technology,
prompt availability of local service capability, price, product
specifications, customized design, product knowledge and reputation, ability
to obtain sufficient performance bonds, timely delivery, the relative ease of
system operation and maintenance, and the prompt availability of replacement
parts. In the municipal contract bid process, pricing and ability to meet bid
specifications are the primary considerations. While no competitor is
considered dominant, there are competitors which have significantly greater
resources than the Company, which, among other things, could be a competitive
disadvantage to the Company in securing certain projects.
TECHNOLOGICAL AND REGULATORY CHANGE
The water and wastewater treatment business is characterized by changing
technology, competitively imposed process standards and regulatory
requirements, each of which influences the demand for the Company's products
and services. Changes in regulatory or industrial requirements may render
certain of the Company's treatment products and processes obsolete. Acceptance
of new products may also be affected by the adoption of new government
regulations requiring stricter standards. The Company's ability to anticipate
changes in technology and regulatory standards and to develop successfully and
introduce new and enhanced products on a timely basis will be a significant
factor in the Company's ability to grow and to remain competitive. There can
be no assurance that the Company will be able to achieve the technological
advances that may be necessary for it to remain competitive or that certain of
its products will not become obsolete. In addition, the Company is subject to
the risks generally associated with new product introductions and
applications, including lack of market acceptance, delays in development or
failure of products to operate properly.
MUNICIPAL MARKET
Completion of the Company's pending acquisitions will increase significantly
the percentage of the Company's revenues derived from municipal customers.
While municipalities represent an important market in the water and wastewater
treatment industry, contractor selection processes and funding for projects in
the municipal sector entail certain additional risks not typically encountered
with industrial customers. Competition for selection of a municipal contractor
typically occurs through a formal bidding process which can require the
commitment of significant resources and greater lead times than industrial
projects. In addition, demand in the municipal market is dependent upon the
availability of funding at the local level, which may be the subject of
increasing pressure as local governments are expected to bear a greater share
of the cost of public services. See "Recent and Pending Acquisitions" and
"Business."
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SHARES ELIGIBLE FOR FUTURE SALE
The market price of the Common Stock could be adversely affected by the
availability for public sale of shares held on September 30, 1996 by security
holders of the Company, including: (i) up to 3,899,393 shares (as of October
15, 1996) which may be delivered by Laidlaw Inc. or its affiliates
("Laidlaw"), at Laidlaw's option in lieu of cash, at maturity pursuant to the
terms of 5 3/4% Exchangeable Notes due 2000 of Laidlaw (the amount of shares
or cash delivered or paid to be dependent within certain limits upon the value
of the Common Stock at maturity); (ii) 3,919,646 shares issuable upon
conversion of the Company's 5% Convertible Subordinated Debentures due 2000
(called for redemption on October 25, 1996) at a conversion price of $13.67
per share of Common Stock; (iii) 7,636,363 shares issuable upon conversion of
the Company's 6% Convertible Subordinated Notes due 2005 at a conversion price
of $18.33 per share of Common Stock; (iv) shares issuable upon
conversion of the Notes at a conversion price of $ per share of Common
Stock; (v) 2,908,171 outstanding shares that are currently registered for sale
under the Securities Act of 1933, as amended (the "Securities Act"), pursuant
to two shelf registration statements; and (vi) 2,990,944 shares which are, and
an estimated 3,748,000 shares which, following consummation of the pending
acquisitions of WaterPro and USG, will be, subject to agreements pursuant to
which the holders have certain rights to request the Company to register the
sale of such holders' Common Stock under the Securities Act and/or, subject to
certain conditions, to include certain percentages of such shares in other
registration statements filed by the Company (1,980,000 of which shares also
may be sold from time to time by the holder thereof pursuant to Rule 144 under
the Securities Act. The shares referred to in clause (vi) include up to
845,794 shares that may be sold by Selling Stockholders upon exercise of the
U.S. Underwriters' over-allotment option. In addition, the Company has
registered for sale under the Securities Act 5,777,380 shares which may be
issuable by the Company from time to time in connection with acquisitions of
businesses from third parties.
SUBORDINATION
The Notes will be subordinated in right of payment to all existing and
future Senior Indebtedness and will be structurally subordinated to all
liabilities (including trade payables) of the Company's subsidiaries. The
Indenture will not restrict the incurrence of Senior Indebtedness or other
indebtedness by the Company or its subsidiaries. At June 30, 1996, the Company
would have had approximately $119.3 million of Senior Indebtedness outstanding
after giving effect to: (i) the acquisitions of WSMG, PED, USG and WaterPro;
(ii) the sale of the Notes and the anticipated application of the net proceeds
therefrom; (iii) the sale by the Company in the Common Stock Offerings of
10,000,000 shares of Common Stock at an assumed public offering price of
$34.38 per share (based on the closing sale price per share of Common Stock on
October 14, 1996 as reported on the New York Stock Exchange Composite Tape)
and the anticipated application of the net proceeds therefrom; and (iv) the
conversion of the Company's 5% Convertible Subordinated Debentures due 2000
into 4,390,000 shares of Common Stock. By reason of such subordination of the
Notes, in the event of the insolvency, bankruptcy, liquidation,
reorganization, dissolution or winding up of the business of the Company or
upon a default in payment with respect to any indebtedness of the Company or
an event of default with respect to such indebtedness resulting in the
acceleration thereof, the assets of the Company will be available to pay the
amounts due on the Notes only after all Senior Indebtedness has been paid in
full. The Notes will rank pari passu with other unsecured, subordinated
obligations of the Company, including the Company's 6% Convertible
Subordinated Notes due 2005. See "Description of the Notes--Subordination."
The Company conducts its operations through its subsidiaries. Accordingly,
the Company's ability to meet its cash obligations is dependent in part upon
the ability of its subsidiaries to make cash distributions to the Company. The
ability of its subsidiaries to make distributions to the Company is and will
continue to be restricted by, among other limitations, applicable provisions
of the laws of national or state governments and contractual provisions. The
Indenture will not limit the ability of the Company's subsidiaries to incur
such restrictions in the future. The right of the Company to participate in
the assets of any subsidiary (and thus the ability of holders of the Notes to
benefit indirectly from such assets) are generally subject to the prior claims
of creditors, including trade creditors, of that subsidiary except to the
extent that the Company is recognized as a creditor of such subsidiary, in
which case the Company's claims would still be subject to any security
interest of
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other creditors of such subsidiary. The Notes, therefore, will be subordinated
by operation of law to creditors, including trade creditors, of subsidiaries
of the Company with respect to the assets of the subsidiaries against which
such creditors have a claim. At June 30, 1996, as adjusted to give effect to
the acquisitions of WSMG, PED, WaterPro and USG, the Company's subsidiaries
would have had approximately $446.4 million of trade payables and accrued
liabilities.
ABSENCE OF EXISTING MARKET FOR NOTES
The Notes will constitute a new issue of securities with no established
trading market. Application has been made to list the Notes on the New York
Stock Exchange. The Company has been advised by the Underwriters that,
following completion of the offering of the Notes, they presently intend to
make a market in the Notes. However, the Underwriters are not obligated to do
so and any marketmaking activities may be discontinued at any time without
notice. In addition, such marketmaking activity will be subject to the limits
imposed by the Exchange Act. No assurance can be given that an active trading
market for the Notes will develop or, if such market develops, as to the
liquidity or sustainability of such market. If a trading market does not
develop or is not maintained, holders of the Notes may experience difficulty
in reselling the Notes or may be unable to sell them at all. If a market for
the Notes develops, any such market may be discontinued at any time. If a
public trading market develops for the Notes, future trading prices of the
Notes will depend on many factors, including, among other things, prevailing
interest rates, the Company's results of operations and the market for similar
securities. Depending on prevailing interest rates, the market for similar
securities and other factors, including the financial condition of the
Company, the Notes may trade at a discount from their principal amount.
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RECENT AND PENDING ACQUISITIONS
The Company has become a leading single-source provider of cost-effective
water and wastewater treatment systems primarily through acquisitions of
businesses that have expanded the Company's geographic presence, industries
served, installed base, and range of products and technologies. The Company's
pending acquisitions of WSMG and PED are expected to provide the Company with
important products and technologies which enhance the Company's single-source
provider capabilities. The Company believes that these acquisitions will also
significantly expand the Company's municipal and wastewater treatment
capabilities and international presence, particularly in the Pacific Rim and
Europe. The Company is negotiating the formation of the Joint Venture to
develop, finance, own and operate water and wastewater treatment facilities in
North America. The Company believes that the contemplated Joint Venture would
be well-positioned to capitalize on opportunities in the growing industrial
outsourcing and emerging municipal privatization markets.
The Company's acquisition strategy has also recently focused on establishing
the Company as one of the industry's leading distributors of water and
wastewater distribution products and services to both the industrial and
municipal markets. The recent acquisition of Davis and the pending
acquisitions of WaterPro and USG are expected to provide the Company with a
platform to: (i) enhance the Company's local sales and service infrastructure;
(ii) penetrate the municipal segment of the water and wastewater treatment
market by capitalizing on each distribution company's long-term municipal
relationships; (iii) leverage the Company's manufacturing capabilities and
technology base; and (iv) capitalize on efficiencies from consolidation of
operations and economies of scale. In addition, the Company believes that
these distribution acquisitions will permit the Company to capitalize on
opportunities to retrofit, replace and repair aging water infrastructure in
the United States.
Together, these recent and pending acquisitions are expected to distinguish
further the Company as a leading single-source provider capable of designing,
manufacturing, operating, financing and maintaining water and wastewater
treatment systems on a local basis for industrial and municipal customers
worldwide.
WATER SYSTEMS AND MANUFACTURING GROUP
On September 14, 1996, the Company entered into a definitive agreement to
acquire WSMG from WTI for $369.6 million in cash, subject to possible post-
closing adjustment. WSMG provides a broad range of water and wastewater
treatment products and technologies, as well as other environmental products,
worldwide. As of October 4, 1996, WSMG had 1,993 employees and 57 facilities
located in 17 countries.
For the fiscal year ended December 31, 1995, WSMG generated approximately
$452.1 million of revenues, of which approximately 56% were attributable to
sales in North America, with the remainder generated principally in Europe,
the Pacific Rim and the Middle East.
The Company believes that the acquisition of WSMG will significantly broaden
the Company's product offerings, technological capabilities and municipal
market penetration, WSMG is also expected to provide the Company with cross-
selling opportunities as well as opportunities to rationalize operations and
increase asset utilization. In addition, the Company believes that the
acquisition of WSMG will provide it with the infrastructure required to
capitalize on increasing opportunities in the Pacific Rim and will further
strengthen the Company's presence in European markets. A description of
certain of the WSMG business units follows.
NEW PRODUCTS AND TECHNOLOGIES
Johnson Screens. Johnson Screens is recognized as a leader in well screen
design and development and screen installation. Johnson Screens' welded
continuous-slot products are widely used in groundwater applications, oil and
gas wells, and other industrial filtration applications worldwide. Johnson
Screens is expected to provide the Company with an opportunity to sell
additional products through the Company's extensive distribution channel of
sales and service facilities.
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HPD. HPD's primary water treatment technologies include evaporation and
crystallization serving the pulp and paper, chemical, petrochemical, mining
and power industries. These technologies are expected to enhance the Company's
zero-discharge and product recovery techniques, thereby providing what the
Company believes to be an important addition to its single-source provider
capabilities.
CPC Engineering. CPC designs water and wastewater treatment systems for
municipalities on a standard or custom-engineered basis under the "Microfloc"
brand name. CPC also produces solids screening, dewatering, conveying and
grinding equipment used in municipal wastewater treatment, municipal storm
water collection, and industrial wastewater treatment in the meat and poultry,
food processing, pulp and paper, mining, petrochemical and power utility
markets.
Westates Carbon. Westates Carbon is a full-service granular activated carbon
company. Westates Carbon offers systems, service and support, including a
carbon reactivation facility. Westates Carbon is expected to provide the
Company with the ability to recycle and reuse spent carbon utilized for both
water and wastewater treatment applications.
Memtek. Memtek products remove inorganic solids and heavy metals from
contaminated wastewater for the microelectronics, metal finishing and
industrial laundry marketplace. Sophisticated cross-flow membrane
microfiltration products are expected to be an important addition to the
Company's product offerings. Memtek products are sold under the brand names
IX/ER(R), TOTALTREAT(TM), MEMCLEAN(TM), EVAP(TM), RMS(TM) and ACMS(TM).
The Wheelabrator Corporation. The Wheelabrator Corporation ("WTC") designs
and manufactures environmentally sound surface cleaning and preparation
equipment and supplies. WTC also manufactures metal screening and grating used
in wastewater separation and organic and inorganic waste handling.
EXPANDED GLOBAL MARKET PRESENCE
Darchet Engineering. Darchet serves the water and wastewater needs of the
microelectronics, metal finishing and other industries in the Pacific Rim,
with specific market presence in Singapore, Malaysia, Indonesia, Thailand and
the Philippines. Darchet specializes in ion-exchange, reverse osmosis,
ultrafiltration and conventional technologies. The Company believes Darchet
will enhance the Company's growing market presence in the Pacific Rim.
Sun Chi. Sun Chi, based in Taiwan, designs and installs wastewater treatment
systems primarily for municipal applications. Sun Chi offers a wide range of
biological treatment technologies, including dissolved air floatation, aerobic
and anaerobic fluidized beds, ion exchange, oxidation, sequential biological
reactors and denitrification. Sun Chi's installed base of systems in Taiwan,
Malaysia, Indonesia, Thailand, the Philippines and China is also expected to
enhance the Company's growing market presence in the Pacific Rim.
Rossmark. Rossmark is an industry leader in northern Europe serving the
industrial and municipal water and wastewater treatment markets. Rossmark's
services include process engineering, systems design, turnkey water and
wastewater treatment systems and equipment manufacturing. Rossmark has
operations in the Netherlands, Belgium, the United Kingdom and Germany.
PSS. PSS, based in Spain, uses evaporation, crystallization and membrane
separation technologies, primarily in the chemical and pulp and paper
industries. PSS is expected to expand the Company's zero-discharge
capabilities in Europe and the Middle East.
The Company anticipates that the acquisition of WSMG will be completed by
the end of November 1996, although there can be no assurance that the
acquisition will be consummated at such time or at all.
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PROPOSED JOINT VENTURE
The Company and WTI are negotiating to form the Joint Venture to develop,
finance, own and operate water and wastewater treatment facilities for both
industrial and municipal customers in North America. The Company anticipates
that WTI would contribute to the Joint Venture its contract operations group,
which is a leading operator of municipal water and wastewater treatment
facilities in North America, and its industrial outsourcing and municipal
privatization project development units, which contract with customers to
provide a full range of long-term, on-site water and wastewater services. The
Company expects to contribute certain build, own and operate industrial water
and wastewater treatment contracts.
The Company believes that the contemplated Joint Venture would be well-
positioned to capitalize on opportunities in the growing industrial
outsourcing and emerging municipal privatization markets. It is expected that
the operating strategy for the Joint Venture would be to offer customers: (i)
turnkey operation, including system design, manufacture, operation and
maintenance on a local basis; (ii) warrantied performance; (iii) potential
cost savings; and (iv) customized financing options. The Company believes that
the Joint Venture would have several competitive advantages in securing
industrial and municipal contracts, including the Company's extensive network
of sales and service facilities, and the Company's long-term industrial and
municipal relationships. There can be no assurance as to whether or when or on
what specific terms the Joint Venture will actually be formed. The Company is
currently a 50% owner of TWO, which focuses on the outsourcing of industrial
customers' water treatment needs.
PROCESS EQUIPMENT DIVISION
On October 7, 1996, the Company entered into a definitive agreement to
acquire PED from United Utilities PLC for approximately $195.3 million (based
on exchange rates for British pounds sterling as of October 14, 1996),
comprised of approximately $156.3 million in cash and approximately $39.0
million in shares of Common Stock, subject to possible post-closing
adjustment. PED is a leading manufacturer and distributor of water and
wastewater treatment equipment primarily to the municipal market. As of June
30, 1996, PED had approximately 1,935 employees and 17 facilities located in
seven countries.
For the fiscal year ended March 31, 1996, PED generated approximately $267.4
million of revenues, of which approximately 60% were attributable to sales in
North America, with the remainder generated principally in Europe, Latin
America and the Pacific Rim. For the fiscal year ended March 31, 1996, a
majority of PED's revenues were attributable to sales in the municipal market.
The Company believes that the acquisition of PED will significantly
strengthen the Company's municipal water and wastewater treatment capabilities
and provide the Company with opportunities to rationalize operations and
increase asset utilization. Additionally, the Company believes that
opportunities exist to expand PED's industrial sales by distributing PED's
products through the Company's sales, service and distribution facilities. A
description of certain PED business units follows.
Envirex. Envirex manufactures wastewater treatment equipment, including
screening, grit removal, biological treatment and solids collection equipment.
The Company believes that Envirex has one of the largest number of wastewater
treatment units installed worldwide as well as one of the broadest product
lines in the wastewater equipment market. The Company believes that by
integrating and rationalizing Envirex's product lines with the Company's
existing wastewater products, it will enhance its municipal wastewater product
lines, which in turn will enable the Company to establish more effective
municipal sales channels. The Company also believes that it may be able to
increase Envirex's sales to industrial markets through the Company's
industrial distribution channels.
Wallace & Tiernan. Wallace & Tiernan is one of the world leaders in the
manufacture of water and wastewater disinfection systems and components. The
Company believes that significant opportunities exist to use Wallace &
Tiernan's global presence and large installed base to cross-sell certain of
the Company's other products and services. Additionally, Wallace & Tiernan's
large installed base is expected to continue to generate revenue from the sale
of replacement parts and services.
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Edwards & Jones/Asdor. Edwards & Jones designs, manufactures and installs
biosolids handling equipment primarily for the municipal markets in Europe and
the Pacific Rim, while Asdor performs the same functions in North America. The
Company believes that the acquisition of Edwards & Jones will provide the
Company with a critical mass of wastewater expertise in the European market
and a channel to integrate further the Company's existing wastewater expertise
into its European operations.
General Filter/Acumem. General Filter is a leading provider of pre-treatment
equipment, granular media filtration systems and microfiltration systems
primarily to the municipal water markets in North America. Acumem sells
microfiltration systems for the treatment of surface and groundwater to
potable water standards for industrial and municipal users in the United
States, the United Kingdom and Australia. It also offers a range of cross-flow
microfiltration and ultrafiltration membrane systems for municipal tertiary
wastewater treatment.
Consolidated Electric. Consolidated Electric is a leading supplier of
automation and control systems for municipal water and wastewater treatment
equipment using liquid level pressure and flow sensors, automatic pump
controllers/alternators, and remote control technology capabilities. The
Company believes that these control systems will complement its existing
design-build capabilities in both industrial and municipal markets.
The Company anticipates that the acquisition of PED will be completed by the
end of December 1996, although there can be no assurance that the acquisition
will be consummated at such time or at all.
DISTRIBUTION ACQUISITIONS
The Company believes that the recent acquisition of Davis and the pending
acquisitions of WaterPro and USG will establish the Company as a leading
distributor of water and wastewater distribution products and services to the
industrial and municipal markets. These recent and pending acquisitions are
expected to enhance the Company's geographic presence and, through the
addition of 105 distribution facilities, provide the Company with a
strategically important local sales and service presence in the markets being
served. Additionally, each of Davis, WaterPro and USG benefits from
established relationships with municipalities. The Company believes that these
relationships will provide it with an effective means of penetrating the
municipal market and permit the Company to capitalize on opportunities to
retrofit, replace and repair aging water infrastructure in the United States.
The Company intends to utilize its distribution channels, local presence and
single-source capabilities to sell its extensive product line, including
capital equipment, replacement parts, and services to both the industrial and
municipal markets. As a result, the Company believes that its distribution
infrastructure will provide a mechanism to leverage its manufacturing
capabilities and technology base. The Company also believes that the
distribution acquisitions will provide cost-saving opportunities through
rationalization of overhead expenses and realization of economies of scale and
operating efficiencies.
Davis Water and Waste Industries, Inc. In August 1996, the Company completed
the acquisition of Davis, a leading distributor of water and wastewater
distribution products and services to the industrial and municipal markets.
Davis also designs, engineers, manufactures and installs water and wastewater
treatment and pumping equipment. Davis has 32 distribution facilities located
primarily in the southeastern United States which service more than 25,000
customers. For the fiscal year ended April 30, 1996, Davis generated
approximately $226.5 million of revenues, of which approximately $178.2
million, or 79%, were attributable to the sale of distribution products and
services, and approximately $48.3 million, or 21%, were attributable to
manufacturing, installing, processing and servicing water and wastewater
treatment and pumping equipment. The acquisition of Davis provides the Company
with a significant distribution channel in the southeastern United States to
market its line of products and services.
WaterPro Supplies Corporation. In September 1996, the Company entered into a
definitive agreement to acquire WaterPro, a leading distributor of water and
wastewater distribution products and services to the industrial and municipal
markets, for approximately $101.6 million in Common Stock (including the
repayment of approximately $63.0 million in outstanding WaterPro debt with
shares of Common Stock). WaterPro serves approximately 18,000 customers
through its 43 distribution facilities in 18 states, located primarily in the
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midwestern and mid-Atlantic United States. For the period April 7, 1995 to
December 31, 1995, WaterPro generated approximately $187.5 million of
revenues. The acquisition of WaterPro is expected to increase the Company's
distribution presence in the midwestern and mid-Atlantic United States and
expand the Company's presence in the municipal market. The Company expects
that the acquisition of WaterPro will be completed by the end of October 1996,
although there can be no assurance that the acquisition will be consummated by
such time or at all.
The Utility Supply Group, Inc. The Company has entered into a definitive
agreement to acquire USG, a leading distributor of water and wastewater
distribution products and services to the municipal market, for approximately
$44.0 million, (including approximately $22.0 million of Common Stock and the
assumption of approximately $22.0 million of USG debt by the Company), subject
to adjustment. USG serves approximately 6,000 customers through 30
distribution and sales facilities, located primarily in Texas, Florida and
California. For the fiscal year ended December 31, 1995, USG generated
revenues of approximately $156.8 million. The acquisition of USG is expected
to increase the Company's distribution presence in the western, southern and
southeastern United States and to expand the Company's municipal customer
base. The Company expects that the acquisition of USG will be completed by the
end of October 1996, although there can be no assurance that the acquisition
will be consummated by such time or at all.
18
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Notes are estimated to
be $170.4 million ($196.1 million if the Underwriters' over-allotment option
were exercised in full), after deducting estimated underwriting discounts and
commissions and estimated offering expenses. The net proceeds to the Company
from the Common Stock Offerings are estimated to be $330.1 million ($351.8
million if the underwriters' over-allotment option were exercised in full)
based on the closing sale price per share of Common Stock on October 14, 1996
as reported on the New York Stock Exchange Composite Tape and after deducting
estimated underwriting discounts and commissions and estimated offering
expenses. The aggregate net proceeds of the Notes Offering and the Common
Stock Offerings are expected to be used to fund or to repay indebtedness used
to fund the pending acquisition by the Company of WSMG and to fund or to repay
indebtedness used to fund the cash portion of the consideration for the
pending acquisition by the Company of PED, in each case depending on whether
such acquisition is completed after or before the consummation of the Notes
Offering and the Common Stock Offerings. Consummation of the Notes Offering is
not a condition to consummation of the Common Stock Offerings, and
consummation of the Common Stock Offerings is not a condition to consummation
of the Notes Offering. The balance of the net proceeds from the Notes Offering
and the Common Stock Offerings, if any, will be used for working capital,
capital expenditures and general corporate purposes, including possible future
acquisitions. If either or both of the WSMG acquisition and the PED
acquisition are not completed, the net proceeds from the Notes Offering and
the Common Stock Offerings not used for such acquisitions will be added to
working capital. See "Recent and Pending Acquisitions."
To the extent that net proceeds from the Notes Offering and the Common Stock
Offerings are not available, the Company expects to obtain all or part of the
funds necessary to complete the WSMG acquisition and the PED acquisition from
borrowings under bank credit facilities. The Company has received a commitment
letter from The First National Bank of Boston pursuant to which, subject to
the satisfaction of various conditions, credit facilities (the "Committed
Credit Facilities") of up to $700.0 million would be made available to the
Company to finance acquisitions (including the WSMG acquisition and the PED
acquisition), to refinance any borrowings under the Company's current credit
agreement, and for working capital and other general corporate purposes.
Borrowings under the Committed Credit Facilities would bear interest at
variable rates of up to 2.25% above certain Eurocurrency rates or 0.50% above
The First National Bank of Boston's base rate and have a five year maturity.
The Company anticipates that, following completion of the Notes Offering and
the Common Stock Offerings, its bank credit facilities will be reduced to a
level that the Company considers appropriate for its working capital and other
needs.
Pending utilization as described above, the net proceeds from the Notes
Offering and the Common Stock Offerings will be invested in short-term,
interest-bearing obligations.
19
<PAGE>
CAPITALIZATION
The following table sets forth the historical consolidated capitalization of
the Company at June 30, 1996 (restated to reflect the acquisitions of Zimpro
and Davis, which were accounted for as poolings of interests) and As Adjusted
to give effect to: (i) the acquisitions of WSMG, PED, WaterPro and USG; and
(ii) the assumed borrowing under the Committed Credit Facilities of
approximately $537.2 million to fund the cash portion of the consideration for
such acquisitions. The As Further Adjusted column gives effect to: (i) the
sale by the Company of the Notes and the anticipated application of the net
proceeds therefrom; (ii) the sale by the Company of 10,000,000 shares of
Common Stock in the Common Stock Offerings at an assumed public offering price
of $34.38 per share and the anticipated application of the net proceeds
therefrom; and (iii) the conversion of the Company's 5% Convertible
Subordinated Debentures due 2000 into 4,390,000 shares of Common Stock. This
table should be read in conjunction with and is qualified by reference to the
Company's Consolidated Financial Statements and related Notes thereto and the
Unaudited Combined Pro Forma Financial Information included elsewhere herein.
See "Recent and Pending Acquisitions" and "Use of Proceeds."
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------------
AS AS FURTHER
ACTUAL ADJUSTED ADJUSTED
-------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of long-term debt(1)............ $ 1,677 $ 1,677 $ 1,677
======== ========== ==========
Long-term debt:
Notes payable and long-term debt, excluding
current portion(1)............................. $ 57,528 $ 616,999 $ 116,446
5% Convertible Subordinated Debentures due 2000. 59,975 59,975 --
6% Convertible Subordinated Notes due 2005...... 140,000 140,000 140,000
% Convertible Subordinated Notes due 2001(2)... -- -- 175,000
-------- ---------- ----------
Total long-term debt, excluding current
portion...................................... 257,503 816,974 431,446
-------- ---------- ----------
Shareholders' equity:
Common Stock, 150,000,000 shares authorized,
48,555,920 shares (Actual), 53,438,331 shares
(As Adjusted) and 67,828,331 shares (As
Further Adjusted) issued and outstanding(3).. 343 392 535
Additional paid-in capital.................... 362,470 522,700 912,641
Currency translation adjustment............... 2,009 2,009 2,009
Retained earnings............................. 20,324 20,324 20,324
======== ========== ==========
Total shareholders' equity.................. 385,146 545,425 935,509
-------- ---------- ----------
Total capitalization...................... $642,649 $1,362,399 $1,366,955
======== ========== ==========
</TABLE>
- -------------------
(1) See Note 11 of Notes to Consolidated Financial Statements included
elsewhere herein for additional information regarding the Company's long-
term obligations.
(2) Assumes no exercise of the Underwriters' over-allotment option.
(3) The number of authorized shares of Common Stock was increased from
75,000,000 to 150,000,000 effective September 11, 1996. The 48,555,920
issued and outstanding shares do not include: (i) 4,390,000 shares
issuable upon conversion of the Company's 5% Convertible Subordinated
Debentures due 2000 (called for redemption on October 25, 1996);
(ii) 7,636,363 shares issuable upon conversion of the Company's 6%
Convertible Subordinated Notes due 2005; (iii) shares issuable upon
conversion of the Notes; and (iv) 3,447,561 shares issuable upon exercise
of stock options either outstanding or available for future grant under
the Company's stock option plans. The 53,438,331 shares issued and
outstanding on an As Adjusted basis includes an estimated 4,882,411 shares
issuable in connection with the acquisitions of PED, WaterPro and USG. The
67,828,331 shares issued and outstanding on an As Further Adjusted basis
includes the 10,000,000 shares to be issued in the Common Stock Offerings
and the 4,390,000 shares issuable upon conversion of the Company's 5%
Convertible Subordinated Debentures due 2000. Assumes no exercise of the
U.S. underwriters' over-allotment option to acquire shares of Common Stock
in the Common Stock Offerings.
20
<PAGE>
PRICE RANGE OF COMMON STOCK
The Common Stock of the Company is listed on the New York Stock Exchange and
traded under the symbol "USF." The following table sets forth for the fiscal
periods indicated the range of high and low sales prices of the Common Stock
as reported on the New York Stock Exchange Composite Tape.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Fiscal year ended March 31, 1995:
First Quarter................................................... $ 9.67 $ 8.11
Second Quarter.................................................. 9.78 8.17
Third Quarter................................................... 10.75 8.78
Fourth Quarter.................................................. 11.25 10.00
Fiscal year ended March 31, 1996:
First Quarter................................................... 13.09 9.92
Second Quarter.................................................. 16.09 12.50
Third Quarter................................................... 18.00 13.42
Fourth Quarter.................................................. 19.33 16.42
Fiscal year ended March 31, 1997:
First Quarter................................................... 23.75 18.42
Second Quarter.................................................. 34.75 18.50
Third Quarter (through October 14, 1996)........................ 36.25 31.75
</TABLE>
On October 14, 1996, the closing sale price of the Common Stock as reported
on the New York Stock Exchange Composite Tape was $34.38 per share.
DIVIDEND POLICY
The Company currently intends to retain earnings to provide funds for the
operation and expansion of its business and accordingly does not anticipate
paying cash dividends on the Common Stock in the foreseeable future. Any
payment of cash dividends on the Common Stock in the future will depend upon
the Company's financial condition, earnings, capital requirements and such
other factors as the Board of Directors deems relevant. Under the Company's
credit agreement with The First National Bank of Boston and First Interstate
Bank of California, no dividends may be paid on the Common Stock without the
consent of those banks.
21
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following Unaudited Pro Forma Combined Financial Information presents
the Pro Forma Combined Balance Sheet at June 30, 1996, giving effect to the
pending acquisitions of WSMG, PED, WaterPro and USG as if they had been
consummated on that date. Also presented are the Pro Forma Combined Statements
of Operations for the fiscal year ended March 31, 1996 and the three months
ended June 30, 1996, after giving effect to the pending acquisitions of WSMG,
PED, WaterPro and USG as if they had been consummated as of the beginning of
the respective periods presented. The Company's and PED's fiscal years end on
March 31 and WSMG's, WaterPro's and USG's fiscal years end on December 31. The
Pro Forma Balance Sheet combines the respective balance sheets of the Company,
WSMG, PED, WaterPro and USG as of June 30, 1996. The Pro Forma Statement of
Operations for the year ended March 31, 1996 combines the results of the
Company and PED for such year with the results of WSMG, WaterPro and USG for
the year ended December 31, 1995, and the Pro Forma Statement of Operations
for the three months ended June 30, 1996 combines the results of each of the
Company, WSMG, PED, WaterPro and USG for such three month period. All Company
historical consolidated financial data has been restated to reflect the
acquisitions in May 1996 and August 1996 of Zimpro and Davis, respectively,
which acquisitions have been accounted for as poolings of interests.
The As Adjusted column gives effect to: (i) the pending acquisitions of
WSMG, PED, WaterPro and USG; and (ii) the assumed borrowings under the
Committed Credit Facilities of approximately $537.2 million to fund the cash
portion of the consideration for such acquisitions. The As Further Adjusted
column gives effect to: (i) the sale by the Company of the Notes and the
anticipated application of the net proceeds therefrom to the reduction of
amounts outstanding under the Committed Credit Facilities; (ii) the sale by
the Company of 10,000,000 shares of Common Stock in the Offerings at an
assumed public offering price of $34.38 per share and the anticipated
application of the net proceeds therefrom to the reduction of amounts
outstanding under the Committed Credit Facilities; and (iii) the conversion of
the Company's $60.0 million aggregate principal amount of 5% Convertible
Subordinated Debentures due 2000 into 4,390,000 shares of Common Stock.
The pro forma data is based on the historical combined statements of the
Company, WSMG, PED, WaterPro and USG giving effect to such acquisitions under
the purchase method of accounting and the assumptions and adjustments (which
the Company believes to be reasonable) described in the accompanying Notes to
Unaudited Pro Forma Combined Financial Information. Under the purchase method
of accounting, assets acquired and liabilities assumed will be recorded at
their estimated fair value at the date of acquisition. The pro forma
adjustments set forth in the following Unaudited Pro Forma Combined Financial
Information are estimated and may differ from the actual adjustments when they
become known.
The following Unaudited Pro Forma Combined Financial Information does not
reflect certain cost savings that management believes may be realized
following the acquisitions. These savings are expected to be realized
primarily through rationalization of operations and implementation of strict
cost controls and standardized operating procedures. Additionally, the Company
believes the acquisitions will enable it to continue to achieve economies of
scale, such as enhanced purchasing power and increased asset utilization.
There can be no assurance that the acquisitions of WSMG, PED, WaterPro or USG
will be consummated.
The pro forma data is provided for comparative purposes only. It does not
purport to be indicative of the results that actually would have occurred if
the acquisitions of WSMG, PED, WaterPro and USG had been consummated on the
dates indicated or that may be obtained in the future. The Unaudited Pro Forma
Combined Financial Information should be read in conjunction with the notes
thereto, the audited financial statements of WSMG, PED and WaterPro and the
notes thereto, included elsewhere herein, and the Company's Consolidated
Financial Statements and Notes thereto, included elsewhere herein.
22
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
-----------------------------------------------------------------------------------------
HISTORICAL PRO FORMA
------------------------------------------- --------------------------------------------
ADJUSTMENTS
INCREASE AS AS FURTHER
COMPANY USG WATERPRO WSMG PED (DECREASE) NOTES ADJUSTED ADJUSTED
-------- ------- -------- -------- -------- ----------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash................... $ 9,523 $ 631 $ -- $ 21,464 $ 5,448 $ 37,066 $ 37,066
Short-term investments. 1,443 -- -- -- 1,751 3,194 3,194
Accounts receivable,
net................... 205,888 24,143 62,018 97,286 157,459 546,794 546,794
Cost and estimated
earnings in excess of
billings on
uncompleted contracts. 45,743 -- -- 18,942 -- 64,685 64,685
Inventories............ 77,865 16,306 28,443 46,720 56,099 225,433 225,433
Prepaid expenses....... 9,225 -- 1,673 -- -- 10,898 10,898
Deferred taxes......... 7,771 -- -- -- -- 7,771 7,771
Other current assets... 10,810 313 -- 3,216 -- 14,339 14,339
-------- ------- -------- -------- -------- ---------- ----------
Total current assets. 368,268 41,393 92,134 187,628 220,757 910,180 910,180
-------- ------- -------- -------- -------- ---------- ----------
Property, plant and
equipment, net......... 169,754 2,840 5,405 53,076 29,522 260,597 260,597
Investment in leasehold
interests, net......... 27,392 -- -- -- -- 27,392 27,392
Costs in excess of net
assets of businesses
acquired, net.......... 279,024 -- 14,203 155,801 -- $ 244,332 a(iii) 693,360 693,360
Other assets............ 44,432 981 -- 2,957 2,023 5,250 a(ii) 55,643 60,199
-------- ------- -------- -------- -------- ---------- ----------
Total assets......... $888,870 $45,214 $111,742 $399,462 $252,302 $1,947,172 $1,951,728
======== ======= ======== ======== ======== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable....... $ 86,785 $16,741 $ 34,601 $ 53,977 $ 71,678 $ 263,782 $ 263,782
Accrued liabilities.... 97,795 2,464 5,887 47,404 34,262 187,812 187,812
Current portion of
long-term debt........ 1,677 -- -- -- 78,201 $ (78,201) a(iv) 1,677 1,677
Revolving credit line
with parent........... -- -- 60,679 -- -- (60,679) a(iv) -- --
Billings in excess of
costs and estimated
earnings on
uncompleted contracts. 20,413 -- -- 24,149 -- 44,562 44,562
Other current
liabilities........... 20,701 28 1,865 -- 433 23,027 23,027
-------- ------- -------- -------- -------- ---------- ----------
Total current
liabilities......... 227,371 19,233 103,032 125,530 184,574 520,860 520,860
-------- ------- -------- -------- -------- ---------- ----------
Notes payable........... 48,281 16,731 -- -- -- 537,200 a(ii) 602,212 101,659
Long-term debt,
excluding current
portion................ 9,247 3,700 -- -- 1,840 14,787 14,787
Convertible subordinated
debt................... 199,975 -- -- -- -- 199,975 315,000
Loan payable-parent..... -- -- -- -- 230,080 (230,080) a(iv) -- --
Deferred taxes.......... 1,929 -- 151 -- -- 2,080 2,080
Other liabilities....... 16,921 -- -- 13,196 31,716 61,833 61,833
-------- ------- -------- -------- -------- ---------- ----------
Total liabilities.... 503,724 39,664 103,183 138,726 448,210 1,401,747 1,016,219
-------- ------- -------- -------- -------- ---------- ----------
Shareholders' equity:
Common stock........... 343 2,553 1 -- -- (2,505) a(i), a(v) 392 535
Additional paid-in
capital............... 362,470 149 4,999 258,976 17,094 (120,988) a(i), a(v) 522,700 912,641
Translation adjustment. 2,009 -- -- 1,760 -- (1,760) a(v) 2,009 2,009
Retained earnings
(accumulated deficit). 20,324 2,848 3,559 -- (213,002) 206,595 a(v) 20,324 20,324
-------- ------- -------- -------- -------- ---------- ----------
Total shareholders'
equity.............. 385,146 5,550 8,559 260,736 (195,908) 545,425 935,509
-------- ------- -------- -------- -------- ---------- ----------
$888,870 $45,214 $111,742 $399,462 $252,302 $1,947,172 $1,951,728
======== ======= ======== ======== ======== ========== ==========
</TABLE>
The accompanying notes are an integral part of this pro forma combined
financial information.
23
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31, 1996
---------------------------------------------------------------------------------------------
HISTORICAL PRO FORMA
----------------------------------------------- --------------------------------------------
ADJUSTMENTS
INCREASE AS AS FURTHER
COMPANY USG WATERPRO WSMG PED (DECREASE) NOTES ADJUSTED ADJUSTED
-------- -------- -------- -------- -------- ----------- ----- ---------- ----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $727,903 $156,838 $234,391 $452,134 $267,358 $1,838,624 $1,838,624
Cost of sales........... 538,573 130,432 195,258 361,462 189,529 1,415,254 1,415,254
-------- -------- -------- -------- -------- ---------- ----------
Gross profit........... 189,330 26,406 39,133 90,672 77,829 423,370 423,370
Selling, general and
administrative
expenses............... 148,683 21,821 32,767 68,170 76,163 $ (5,405) b(i) 342,199 342,199
-------- -------- -------- -------- -------- ---------- ----------
Operating income
(loss)................ 40,647 4,585 6,366 22,502 1,666 81,171 81,171
-------- -------- -------- -------- -------- ---------- ----------
Other income (expense):
Interest expense....... (14,419) (2,227) (3,593) -- (19,865) (16,438) b(ii) (56,542) (25,188)
Other.................. 5,134 (582) 657 4,767 -- 9,976 9,976
-------- -------- -------- -------- -------- ---------- ----------
(9,285) (2,809) (2,936) 4,767 (19,865) (46,566) (15,212)
-------- -------- -------- -------- -------- ---------- ----------
Income (loss) before
income taxes.......... 31,362 1,776 3,430 27,269 (18,199) 34,604 65,958
Provision (benefit) for
income taxes........... 12,055 727 1,477 10,908 2,165 (14,182) b(iii) 13,150 25,064
-------- -------- -------- -------- -------- ---------- ----------
Net income (loss)...... $ 19,307 $ 1,049 $ 1,953 $ 16,361 $(20,364) $ 21,455 $ 40,894
======== ======== ======== ======== ======== ========== ==========
Net income per common
share................. $ 0.45 $ 0.44 $ 0.66
======== ========== ==========
Weighted average number
of common shares
outstanding............ 42,159 47,041 61,431
======== ========== ==========
</TABLE>
The accompanying notes are an integral part of this pro forma combined
financial information.
24
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30, 1996
--------------------------------------------------------------------------------------
HISTORICAL PRO FORMA
--------------------------------------------- ---------------------------------------
ADJUSTMENTS
INCREASE AS AS FURTHER
COMPANY USG WATERPRO WSMG PED (DECREASE) NOTES ADJUSTED ADJUSTED
-------- ------- -------- -------- ------- ----------- ------ -------- ----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $208,509 $40,740 $86,422 $112,094 $54,181 $501,946 $501,946
Cost of sales........... 152,174 33,107 70,890 87,397 36,575 380,143 380,143
-------- ------- ------- -------- ------- -------- --------
Gross profit........... 56,335 7,633 15,532 24,697 17,606 121,803 121,803
Selling, general and
administrative
expenses............... 41,520 6,328 11,270 16,445 16,570 $ 958 b(i) 93,091 93,091
-------- ------- ------- -------- ------- -------- --------
Operating income
(loss)................ 14,815 1,305 4,262 8,252 1,036 28,712 28,712
-------- ------- ------- -------- ------- -------- --------
Other income (expense):
Interest expense....... (4,390) (464) (1,175) -- (4,714) (4,085) b(ii) (14,828) (6,990)
Other.................. 621 (1) 97 142 -- 859 859
-------- ------- ------- -------- ------- -------- --------
(3,769) (465) (1,078) 142 (4,714) (13,969) (6,131)
-------- ------- ------- -------- ------- -------- --------
Income (loss) before
income taxes.......... 11,046 840 (3,184) 8,394 (3,678) 14,743 22,581
Provision (benefit) for
income taxes........... 3,043 339 1,167 3,357 1,433 (3,737) b(iii) 5,602 8,581
-------- ------- ------- -------- ------- -------- --------
Net income (loss)...... $ 8,003 $ 501 $ 2,017 $ 5,037 $(5,111) $ 9,141 $ 14,000
======== ======= ======= ======== ======= ======== ========
Net income per common
share................. $ 0.16 $ 0.17 $ 0.20
======== ======== ========
Weighted average number
of common shares
outstanding........... 49,951 54,833 69,223
======== ======== ========
</TABLE>
The accompanying notes are an integral part of this pro forma combined
financial information.
25
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
AS ADJUSTED
a. The Pro Forma Combined Balance Sheet has been prepared to reflect the
pending acquisitions by the Company of WSMG, PED, USG and WaterPro for
aggregate estimated equity purchase prices comprised of the following:
<TABLE>
<CAPTION>
EQUITY
FORM OF PURCHASE
ACQUIRED COMPANY CONSIDERATION PRICE
---------------- ------------- -----------
(in thousands)
<S> <C> <C> <C>
USG.................................. Common Stock $ 22,000
WaterPro............................. Common Stock 38,600
WSMG................................. Cash 369,600
PED (assuming an exchange rate of
$1.56 per (Pounds))................. Cash $156,250
Common Stock 39,000 195,250
--------
Estimated transaction costs.......... 6,100
---------
$ 631,550
=========
</TABLE>
In addition to the purchase prices described above, the Company will assume
long-term indebtedness of approximately $22,000,000 ($20,431,000 at June 30,
1996) and $63,000,000 ($60,679,000 at June 30, 1996) in connection with the
acquisitions of USG and WaterPro, respectively. The $63,000,000 of
indebtedness related to WaterPro will be repaid with shares of Common Stock
concurrently with the closing of such acquisition.
The estimated net book value, as adjusted, of USG, WaterPro, WSMG and PED
and the estimated fair value of their net assets as of the closing date are
assumed to be $5,550,000, $8,559,000, $260,736,000 and $112,373,000,
respectively. The aggregate difference between the estimated equity purchase
prices and the estimated fair values of the net assets of USG, WaterPro, WSMG
and PED is approximately $244,332,000 which has been recorded as costs in
excess of net assets of businesses acquired attributable to such acquisitions
in the accompanying Pro Forma Combined Balance Sheet.
The As Adjusted column in the Pro Forma Combined Balance Sheet has been
adjusted to reflect the above as follows:
(i) To record the issuance of 4,882,411 shares of Common Stock for: (i) the
Common Stock portion of the equity purchase prices; and (ii) the
repayment of WaterPro parent company debt with Common Stock.
(ii) To record the assumed incurrence of $537,200,000 of indebtedness
(including bank commitment fees of $5,250,000) under the Committed
Credit Facilities with an assumed effective interest rate of 7.50% to
consummate the acquisitions of WSMG and PED. The Company, however,
intends to retire a portion of such debt with the net proceeds of the
Notes Offering and the Common Stock Offerings or, if completion of the
Notes Offering and the Common Stock Offerings occurs prior to the
completion of the acquisitions of WSMG and PED, to use such proceeds
directly to acquire WSMG and PED. See "Use of Proceeds."
(iii) To adjust goodwill for the difference between the estimated equity
purchase prices and the estimated fair values of the net assets
acquired.
(iv) To eliminate: (i) the net loan payable of WaterPro to its parent
company, which will be repaid by the Company with Common Stock; and
(ii) the net loan payable of PED to its parent company, which will be
contributed to PED's equity by such parent company.
(v) To eliminate the equity of USG, WaterPro, WSMG and PED.
AS FURTHER ADJUSTED
The As Further Adjusted column gives effect to the Notes Offering and the
Common Stock Offerings and the anticipated application of the net proceeds
therefrom, which results in a reduction in long-term notes payable of
$500,553,125 and a corresponding increase in shareholders' equity of
$330,109,375 and in
26
<PAGE>
convertible subordinated debt of $175,000,000 at June 30, 1996.
Additionally, the As Further Adjusted column gives effect to the conversion
of $60,000,000 aggregate principal amount of 5% Convertible Subordinated
Debentures due 2000 into 4,390,000 shares of Common Stock.
b. For the fiscal year ended March 31, 1996, the historical results of
operations of USG, WaterPro and WSMG reflect their results of operations
for the twelve months ended December 31, 1995 and reflect the results of
operations of PED and the Company for the year ended March 31, 1996. The
historical results of operations for the three months ended June 30, 1996
combines the results of each of the Company, WSMG, PED, WaterPro and USG
for such three-month period.
The Pro Forma Combined Statements of Operations gives effect to the
following adjustments:
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED
ENDED JUNE 30,
MARCH 31, 1996 1996
-------------- ------------
<C> <S> <C> <C>
(in thousands)
(i) Selling, general and administrative
expenses:
a) To eliminate the parent company
management fees charged to PED,
which charges would not have been
incremental costs incurred by the
Company; $ (2,253) $ (569)
b) To adjust for costs related to a PED
plant closure in the fiscal year
ended March 31, 1996; (9,260) --
c) To adjust goodwill amortization to
reflect the acquisitions of WSMG,
PED, WaterPro and USG, with such
goodwill amortized over 40 years. 6,108 1,527
-------- -------
$ (5,405) $ 958
======== =======
(ii) To adjust interest expense related to
the indebtedness that will be incurred
to finance the acquisitions of WSMG and
PED, net of historical interest expense
recorded by WaterPro and PED on parent
company debt, which interest expense
has been eliminated. Interest on the
indebtedness under the Committed Credit
Facilities is assumed to be at an
effective rate of 7.50% per annum. The
Company, however, intends to retire a
portion of such debt with the net
proceeds of the Notes Offering and the
Common Stock Offerings or, if
completion of the Notes Offering and
the Common Stock Offerings occurs prior
to the completion of the acquisitions
of WSMG and PED, to use such net
proceeds directly to acquire WSMG and
PED. See "Use of Proceeds." $(16,438) $(4,085)
======== =======
The As Further Adjusted column presented
gives effect to the Notes Offering and
the Common Stock Offerings and the
anticipated application of the net
proceeds therefrom, which results in a
reduction in interest expense of
$28,354,000 and $7,088,000 for the
fiscal year ended March 31, 1996 and
the three months ended June 30, 1996,
respectively. See "Use of Proceeds."
The As Further Adjusted column also
gives effect to the conversion of
$60,000,000 aggregate principal amount
of 5% Convertible Subordinated
Debentures due 2000 to Common Stock
which results in a reduction in
interest expense of $3,000,000 and
$750,000 for the fiscal year ended
March 31, 1996 and the three months
ended June 30, 1996, respectively, and
a resulting increase of 4,390,000 in
shares of Common Stock outstanding.
(iii) To adjust the provision for income taxes
to reflect the combined results of
operations. $(14,182) $(3,737)
======== =======
</TABLE>
27
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The Selected Consolidated Financial Data as of and for the fiscal years
ended March 31, 1994, 1995 and 1996 are derived from the Consolidated
Financial Statements and Notes thereto of the Company, which are included
elsewhere herein. The financial data as of and for the three months ended June
30, 1995 and 1996 are derived from unaudited consolidated financial statements
of the Company, which, in the opinion of the Company, reflect all adjustments
(consisting principally of normal, recurring accruals) necessary for the fair
statement of the financial position and results of operations for the periods
presented and are not necessarily indicative of the results for any other
interim period or for the full fiscal year. Historical consolidated financial
data for the fiscal years ended March 31, 1994, 1995 and 1996 and the three
months ended June 30, 1995 have been restated to reflect the acquisitions in
May 1996 and August 1996 of Zimpro and Davis, respectively, which acquisitions
have been accounted for as poolings of interests. Historical financial data
for the three months ended June 30, 1996 include the operations of Zimpro and
have been restated to reflect the operations of Davis. The data presented
below are qualified in their entirety by and should be read in conjunction
with the Company's Consolidated Financial Statements and Notes thereto
included elsewhere herein.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED MARCH 31,(1) JUNE 30,(1)
------------------------------ --------------------
1994(2) 1995(3) 1996(4)(5) 1995 1996
-------- -------- ---------- --------- ---------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................. $412,512 $519,359 $727,903 $ 158,173 $ 208,509
Cost of sales............................................. 326,848 398,755 538,573 119,323 152,174
-------- -------- -------- --------- ---------
Gross profit.............................................. 85,664 120,604 189,330 38,850 56,335
Selling, general and administrative expenses.............. 90,719 97,481 148,683 30,233 41,520
-------- -------- -------- --------- ---------
Operating income (loss)................................... (5,055) 23,123 40,647 8,617 14,815
Interest expense.......................................... (4,044) (7,514) (14,419) (3,012) (4,390)
Other income (expense).................................... (7,382) 1,442 5,134 730 621
-------- -------- -------- --------- ---------
Income (loss) before taxes................................ (16,481) 17,051 31,362 6,335 11,046
Provision (benefit) for income taxes...................... (7,087) 4,812 12,055 1,996 3,043
-------- -------- -------- --------- ---------
Net income (loss)......................................... $ (9,394) $ 12,239 $ 19,307 $ 4,339 $ 8,003
======== ======== ======== ========= =========
Net income (loss) per common share(6)..................... $(0.41) $0.41 $0.45 $0.12 $0.16
======== ======== ======== ========= =========
Weighted average number of common shares outstanding...... 24,375 28,235 42,159 35,699 49,951
OTHER DATA:
EBITDA(7)................................................. $6,237 $39,777 $67,227 $13,736 $24,636
Ratio of earnings to fixed charges(8)..................... -- 2.5x 2.5x 2.5x 3.1x
Net income (loss) before Davis and Zimpro acquisitions.... $(2,541) $8,331 $20,290 $3,359 $6,917
Net income (loss) per common share before Davis
and Zimpro acquisitions(6)............................... $(0.17) $0.34 $0.54 $0.11 $0.15
BALANCE SHEET DATA (AT PERIOD END):
Working capital........................................... $ 97,855 $113,972 $123,757 $ 106,546 $ 140,897
Total assets.............................................. 357,354 482,723 876,505 614,101 888,870
Notes payable and long-term debt, including current
portion.................................................. 29,758 57,116 53,436 66,531 59,205
Convertible subordinated debt............................. 60,000 105,000 200,000 105,000 199,975
Shareholders' equity...................................... 152,021 166,878 368,501 271,586 385,146
</TABLE>
28
<PAGE>
The historical consolidated financial data for the fiscal years ended March
31, 1994, 1995 and 1996 and for the three months ended June 30, 1995 have been
restated to include the accounts and operations of Zimpro and Davis, which
were merged with the Company in May 1996 and August 1996, respectively, and
accounted for as poolings of interests. The historical consolidated financial
data for the three months ended June 30, 1996 include the operations of Zimpro
and have been restated to reflect the accounts and operations of Davis.
Separate results of operations for each of the Company, Davis and Zimpro for
the years ended March 31, 1994, 1995 and 1996 and the three months ended June
30, 1995 and 1996 are presented below.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH THREE MONTHS ENDED
31,(1) JUNE 30,(1)
----------------------------- --------------------
1994(2) 1995(3) 1996(4)(5) 1995 1996
-------- -------- ---------- --------- ---------
(UNAUDITED)
REVENUES: (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Company (as previously
reported)................. $180,421 $272,032 $472,537 $ 91,539 $ 150,801
Davis...................... 202,621 215,649 226,489 59,684 57,708
Zimpro..................... 29,470 31,678 28,877 6,950 --
-------- -------- -------- --------- ---------
Combined................. $412,512 $519,359 $727,903 $ 158,173 $ 208,509
======== ======== ======== ========= =========
OPERATING INCOME (LOSS):
Company (as previously
reported)................. $ (4,874) $ 14,585 $ 34,955 $ 6,248 $ 13,243
Davis...................... 1,506 7,512 10,892 2,308 1,572
Zimpro..................... (1,687) 1,026 (5,200) 61 --
-------- -------- -------- --------- ---------
Combined................. $ (5,055) $ 23,123 $ 40,647 $ 8,617 $ 14,815
======== ======== ======== ========= =========
NET INCOME (LOSS):
Company (as previously
reported)................. $ (2,541) $ 8,331 $ 20,290 $ 3,359 $ 6,917
Davis...................... (5,340) 3,448 5,749 1,162 1,086
Zimpro..................... (1,513) 460 (6,732) (182) --
-------- -------- -------- --------- ---------
Combined................. $ (9,394) $ 12,239 $ 19,307 $ 4,339 $ 8,003
======== ======== ======== ========= =========
NET INCOME (LOSS) PER
COMMON SHARE:(6)
As previously reported..... $(0.17) $0.34 $0.54 $0.11 $0.15
As restated................ (0.41) 0.41 0.45 0.12 0.16
</TABLE>
- -------------------
(1) The historical consolidated financial data for the fiscal years ended
March 31, 1994, 1995 and 1996 and for the three months ended June 30, 1995
have been restated to include the accounts and operations of Zimpro and
Davis, which were merged with the Company in May 1996 and August 1996,
respectively, and accounted for as poolings of interests. The historical
consolidated financial data for the three months ended June 30, 1996
include the operations of Zimpro and have been restated to include the
accounts and operations of Davis.
(2) The fiscal year ended March 31, 1994 includes four months of results of
Ionpure Technologies Corporation and IP Holding Company ("Ionpure"),
acquired December 1, 1993 and accounted for as a purchase. Selling,
general and administrative expenses for the year ended March 31, 1994
reflect four months of integration of Ionpure and certain charges
totalling $2,359,000 related to the rationalization of certain wastewater
operations. Other expense for the year ended March 31, 1994 includes a
charge of $8,895,000 to reflect a plan to shutdown and reorganize certain
operations of Davis.
(3) The fiscal year ended March 31, 1995 includes the results of operations of
Smogless S.p.A., Crouzat S.A., Sation S.A., Seral Erich Alhauser GmbH and
the Ceraflo ceramic product line from the dates of their respective
acquisitions, accounted for as purchases. See Note 9 of Notes to
Consolidated Financial Statements.
(4) The fiscal year ended March 31, 1996 includes the results of operations of
The Permutit Company Limited and The Permutit Company Pty Ltd., Interlake
Water Systems, Arrowhead Industrial Water, Inc. and Polymetrics, Inc. from
the dates of their respective acquisitions, accounted for as purchases.
See Note 9 of Notes to Consolidated Financial Statements.
(5) Selling, general and administrative expenses for the year ended March 31,
1996 includes charges totalling $3,337,000 related to the write-down of
certain patents and equipment of Zimpro.
(6) Net income (loss) per common share amounts are after dividends on the
Series A Preferred Stock of $701,000 for the fiscal year ended March 31,
1994, $715,000 for the fiscal year ended March 31, 1995 and $537,000 for
the fiscal year ended March 31, 1996. The Series A Preferred Stock was
converted into shares of Common Stock in March 1996.
(7) "EBITDA" consists of operating income plus depreciation and amortization.
EBITDA data is presented because such data is used by certain investors to
determine the Company's ability to meet debt service requirements. The
Company considers EBITDA to be an indicative measure of the Company's
operating performance. However, such information should not be considered
as an alternative to net income, operating profit, cash flows from
operations, or any other operating or liquidity performance measure
prescribed by generally accepted accounting principles.
(8) The ratio of earnings to fixed charges has been computed by dividing
earnings available for fixed charges (income before provision for income
taxes, plus fixed charges) by fixed charges. Fixed charges consist of
interest expense (including amortization of deferred financing costs) and
the portion of rental expense that is representative of the interest
factor (deemed by the Company to be one-third). Fixed charges exceeded
earnings before fixed charges by $9,099,000 for the year ended March 31,
1994.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto included elsewhere in this
Prospectus.
GENERAL
The Company's strategy is to offer a single-source solution to industrial
and municipal customers through what the Company believes is the industry's
broadest range of cost-effective systems, products, services and proven
technologies. Accordingly, since July 1991, the Company has acquired and
integrated more than 45 businesses with substantial expertise in the design
and manufacture of systems for the filtration and treatment of water and
wastewater. Due to the magnitude of these acquisitions and the integration of
the acquired operations with the Company's existing businesses, results of
operations for prior periods are not necessarily comparable to or indicative
of results of operations for current or future periods.
RESULTS OF OPERATIONS
In May and August 1996, the Company merged with Zimpro and Davis,
respectively, in transactions accounted for as poolings of interests.
Historical consolidated financial data for the fiscal years ended March 31,
1994 through March 31, 1996 and the three months ended June 30, 1995 have been
restated to reflect the acquisitions in May 1996 and August 1996 of Zimpro and
Davis, respectively, which acquisitions have been accounted for as poolings of
interests. Historical financial data for the three months ended June 30, 1996
have been restated to reflect the operations of Davis.
The following table sets forth for the periods indicated certain Selected
Consolidated Financial Data as a percentage of total revenues.
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED ENDED
MARCH 31, JUNE 30,
-------------------- --------------
1994 1995 1996 1995 1996
----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
Revenues................................. 100.0 % 100.0% 100.0% 100.0% 100.0%
Cost of sales............................ 79.2 76.8 74.0 75.4 73.0
----- ----- ----- ------ ------
Gross profit............................. 20.8 23.2 26.0 24.6 27.0
Selling, general and administrative
expenses................................ 22.0 18.8 20.4 19.1 19.9
----- ----- ----- ------ ------
Operating income (loss).................. (1.2) 4.5 5.6 5.4 7.1
Interest expense......................... 1.0 1.4 2.0 1.9 2.1
Net income (loss)........................ (2.3) 2.4 2.7 2.7 3.8
</TABLE>
The following table sets forth, as a percentage of the Company's total
revenues, each of the Company's product categories by revenue for the periods
indicated:
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED ENDED
MARCH 31, JUNE 30,
--------------------- ---------------
1994 1995 1996 1995 1996
----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
Revenues by product category:
Capital equipment.................. 41% 42% 39% 36% 40%
Services and operations............ 9 9 20 15 21
Distribution....................... 37 33 25 31 22
Replacement parts, consumables and
other............................. 13 16 16 18 17
</TABLE>
THREE MONTHS ENDED JUNE 30, 1996 COMPARED WITH THREE MONTHS ENDED JUNE 30,
1995
REVENUES
Revenues for the three months ended June 30, 1996 were $208,509,000, an
increase of $50,336,000 from $158,173,000 for the comparable period of the
prior fiscal year. This 31.8% increase was due primarily to acquisitions
completed by the Company after the first quarter ended June 30, 1995.
30
<PAGE>
GROSS PROFIT
Gross profit increased 45.0% to $56,335,000 for the three months ended June
30, 1996 from $38,850,000 for the comparable period of the prior fiscal year.
Total gross profit as a percentage of revenue ("gross margin") increased to
27.0% for the three months ended June 30, 1996, compared to 24.6% for the
comparable period of the prior fiscal year. The increase in gross margin for
the three months ended June 30, 1996 was due to: (i) a continued strengthening
of gross margin in the recurring and higher margin service-based revenue
business; and (ii) rationalization of operations and increased economies of
scale from the integration of acquisitions.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $41,520,000 for
the three months ended June 30, 1996 from $30,233,000 for the comparable
period of the prior fiscal year. This increase was primarily due to the
addition of sales and administrative personnel accompanying the Company's
recent acquisitions. As a percentage of revenues, selling, general and
administrative expenses were 19.9% during the three months ended June 30,
1996, as compared to 19.1% for the comparable period of the prior year.
Notwithstanding the increase in selling, general and administrative expenses
as a percentage of revenues, operating income as a percentage of revenues
increased from 5.4% for the three months ended June 30, 1995 to 7.1% for the
corresponding period in fiscal 1996 due primarily to improvement in gross
margin.
INTEREST EXPENSE
Interest expense increased to $4,390,000 for the three months ended June 30,
1996 from $3,012,000 for the comparable period of the prior fiscal year.
Interest expense for the three months ended June 30, 1996 consists primarily
of interest on the Company's 5% Convertible Subordinated Debentures due 2000
issued October 20, 1993 and the Company's 6% Convertible Subordinated Notes
due 2005 issued September 18, 1995, respectively, and interest on increased
borrowings under the Company's bank line of credit, which was used to finance
the Company's revenue expansion and recent acquisitions.
INCOME TAX EXPENSE
Income tax expense increased to $3,043,000 for the three months ended June
30, 1996 from $1,996,000 for the comparable period of the prior fiscal year.
This increase was attributable to increased income. The Company's effective
tax rate for the three months ended June 30, 1996 was 27.5% and for the
comparable period of the prior year was 31.5%. This decrease in effective rate
is due primarily to the Company's utilization of certain net operating loss
carryforwards for the three months ended June 30, 1996. See "Twelve Months
Ended March 31, 1996 Compared with Twelve Months Ended March 31, 1995."
NET INCOME
Net income increased to $8,003,000 for the three months ended June 30, 1996
from $4,339,000 for the comparable period of the prior fiscal year. Net income
per common share increased to $0.16 per share (based upon 49,951,000 weighted
average common shares outstanding) for the three months ended June 30, 1996
from $0.12 per common share (based upon 35,699,000 weighted average common
shares outstanding) for the comparable period of the prior fiscal year, after
deducting $179,000 for dividends on the Company's preferred shares for the
three months ended June 30, 1995.
TWELVE MONTHS ENDED MARCH 31, 1996 COMPARED WITH TWELVE MONTHS ENDED MARCH 31,
1995
REVENUES
Revenues for fiscal 1996 were $727,903,000, an increase of $208,544,000 from
$519,359,000 for fiscal 1995. This 40.2% increase was due primarily to
acquisitions completed by the Company in fiscal 1995 and 1996. See Note 9 of
Notes to Consolidated Financial Statements related to acquisitions.
31
<PAGE>
GROSS PROFIT
Gross profit increased 57.0% to $189,330,000 for fiscal 1996 from
$120,604,000 for fiscal 1995. Gross margin increased to 26.0% for fiscal 1996
as compared to 23.2% for fiscal 1995. The increase in gross margin through
fiscal 1996 was due to: (i) a continued strengthening of gross margin in the
recurring and higher margin service-based revenue business;
(ii) rationalization of operations and economies of scale from the integration
of acquisitions; and (iii) a focus on products with higher gross margins in
Davis' distribution business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $148,683,000 for
fiscal 1996 from $97,481,000 for fiscal 1995. This increase was primarily due
to the addition of sales and administrative personnel accompanying the
Company's recent acquisitions. As a percentage of revenues, selling, general
and administrative expenses were 20.4% for fiscal 1996, as compared to 18.8%
for fiscal 1995. This increase was due primarily to a write-down of certain
patents and equipment totalling $3,193,000 at the Company's Zimpro subsidiary
and, to a lesser extent, increased levels of incentive compensation earned by
management and employees of Davis as compared to fiscal 1995.
Notwithstanding the increase in selling, general and administrative expenses
as a percentage of revenues, operating income as a percentage of revenues
increased from 4.5% for fiscal 1995 to 5.6% for fiscal 1996 due primarily to
improvement in gross margin.
INTEREST EXPENSE
Interest expense increased to $14,419,000 for fiscal 1996 from $7,514,000
for fiscal 1995. Interest expense for fiscal 1996 consisted primarily of
interest on the Company's 5% Convertible Subordinated Debentures due 2000
issued October 20, 1993 and approximately seven months of interest on the
Company's 6% Convertible Subordinated Notes due 2005 issued September 18,
1995, respectively, and interest on increased borrowings under the Company's
bank line of credit, which was used to finance the Company's revenue expansion
and recent acquisitions.
INCOME TAX EXPENSE
Income tax expense increased to $12,055,000 for fiscal 1996 from $4,812,000
for fiscal 1995. This increase was attributable to increased income. The
Company's effective tax rate for fiscal 1996 was 38.4% and for fiscal 1995 was
28.2%. This increase in effective rate in fiscal 1996 is due primarily to a
net loss before income taxes of $6,086,000 incurred at Zimpro (see "Selling,
General and Administrative Expenses") for which no income tax benefit was
recognized because its realization was not assured and because of the
nondeductibility of certain items. As of March 31, 1996, the Company had net
operating loss carryforwards in France of approximately $19,952,000 and other
European countries of approximately $7,338,000 for which no financial
statement benefit has been recognized. In addition, the Company had net
operating loss carryforwards generated from its Liquipure subsidiary of
approximately $14,362,000 for which financial statement benefit was recognized
in fiscal 1996. The Company also had net operating loss carryforwards
generated from Zimpro of approximately $2,905,000 for which financial
statement benefit has not been recognized. In addition, the benefit of the
French loss carryforwards must be shared equally between the Company and
Aluminum Corporation of America until March 31, 1997. See Note 14 of Notes to
Consolidated Financial Statements related to income taxes.
NET INCOME
Net income increased to $19,307,000 for fiscal 1996 from $12,239,000 for
fiscal 1995. Net income per common share increased to $0.45 per share (based
upon 42,159,000 weighted average common shares outstanding) for fiscal 1996
from $0.41 per common share (based upon 28,235,000 weighted average common
shares outstanding) for fiscal 1995, after deducting $536,000 and $715,000 for
dividends on the Company's preferred shares for fiscal 1996 and 1995,
respectively.
32
<PAGE>
TWELVE MONTHS ENDED MARCH 31, 1995 COMPARED WITH TWELVE MONTHS ENDED MARCH 31,
1994
REVENUES
Revenues for fiscal 1995 were $519,359,000, an increase of $106,847,000 from
$412,512,000 for fiscal 1994. This 25.9% increase was due primarily to
acquisitions completed by the Company in fiscal 1994 and 1995. See Note 9 of
Notes to Consolidated Financial Statements related to acquisitions.
GROSS PROFIT
Gross profit increased 40.8% to $120,604,000 for fiscal 1995 from
$85,664,000 for fiscal 1994. Gross margin increased to 23.2% for fiscal 1995
as compared to 20.8% for fiscal 1994. The increase in gross margin through
fiscal 1995 was due to: (i) a continued strengthening of gross margin in the
recurring and higher margin service-based revenue business; and
(ii) rationalization of operations and economies of scale from the Company's
acquisitions. Gross margin in the Company's distribution business remained
unchanged in fiscal 1995 as compared to fiscal 1994.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $97,481,000 for
fiscal 1995 from $90,719,000 for fiscal 1994. This increase was primarily due
to the addition of sales and administrative personnel accompanying the
Company's recent acquisitions. As a percentage of revenues, selling, general
and administrative expenses were 18.8% during fiscal 1995, as compared to
22.0% for fiscal 1994. This decrease in selling, general and administrative
expenses as a percentage of revenues for fiscal 1995 as compared to fiscal
1994 was due primarily to (i) the Company's emphasis on cost reductions and
administrative efficiencies gained through economies of scale, (ii) the write-
off of certain intangibles in the Company's Continental Penfield subsidiary
totalling $3,738,000 in fiscal 1994, and (iii) the exclusion from operating
results in fiscal 1995 of a division of Davis which was shut down in fiscal
1994. See Note 8 of Notes to Consolidated Financial Statements related to such
shutdown.
Due primarily to the decrease in selling, general and administrative
expenses as a percentage of revenues and the improvement in gross margin,
operating income as a percentage of revenues increased from a loss of 1.2% for
fiscal 1994 to 4.5% for fiscal 1995.
INTEREST EXPENSE
Interest expense increased to $7,514,000 for fiscal 1995 from $4,044,000 for
fiscal 1994. Interest expense for fiscal 1995 consisted primarily of interest
on the Company's 5% Convertible Subordinated Debentures due 2000 issued
October 20, 1993 and interest on increased borrowings under the Company's bank
line of credit, which was used to finance the Company's revenue expansion and
recent acquisitions.
INCOME TAX EXPENSE
Income tax expense increased to $4,812,000 for fiscal 1995 from a tax
benefit of $7,087,000 for fiscal 1994. This increase was attributable to
increased income and the Company's partial recognition during fiscal 1994 of
the future income tax benefit related to federal net operating loss
carryforwards. As of March 31, 1995, the Company had net operating loss
carryforwards in France of approximately $20,351,000 and other European
countries of approximately $6,400,000 for which no financial statement benefit
had been recognized. In addition, the Company had net operating loss
carryforwards generated from its Liquipure subsidiary of approximately
$13,500,000 for which no financial statement benefit was recognized. Future
recognition of these carryforwards will be reflected if the above operations
generate sufficient earnings before the expiration periods of the loss
carryforwards. In addition, the benefit of the French loss carryforwards must
be shared equally between the Company and Aluminum Corporation of America
until March 31, 1997. See Note 14 of Notes to Consolidated Financial
Statements related to income taxes.
NET INCOME
Net income increased to $12,239,000 for fiscal 1995 from a net loss of
$9,394,000 for fiscal 1994. Net income per common share increased to $0.41 per
share (based upon 28,235,000 weighted average common
33
<PAGE>
shares outstanding) for fiscal 1995 from a net loss of $0.41 per common share
(based upon 24,375,000 weighted average common shares outstanding) for fiscal
1994, after deducting $715,000 and $701,000 for dividends on the Company's
preferred shares for fiscal 1995 and 1994, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds are cash and other working capital,
cash flow generated from operations and borrowings under the Company's bank
line of credit. At June 30, 1996, the Company had working capital of
$140,897,000, including cash and short-term investments of $10,966,000. The
Company's long-term debt at June 30, 1996 included $59,975,000 of 5%
Convertible Subordinated Debentures due 2000, $140,000,000 of 6% Convertible
Subordinated Notes due 2005 and other long-term debt totalling $10,924,000 and
bearing interest at rates ranging from 2.0% to 11.5%.
As of June 30, 1996, the Company had an existing bank line of credit of
$135,000,000, of which there were outstanding borrowings of $48,281,000 and
outstanding letters of credit of $14,753,000. To the extent that net proceeds
of the Notes Offering and/or the Common Stock Offerings are not available, the
Company expects to obtain all or part of the funds necessary to complete the
WSMG acquisition and the PED acquisition from borrowings under bank credit
facilities. The Company has received a commitment letter from The First
National Bank of Boston pursuant to which, subject to the satisfaction of
various conditions, credit facilities of up to $700,000,000 would be made
available to the Company to finance acquisitions (including the WSMG
acquisition and the PED acquisition), to refinance any borrowings under the
Company's current credit agreement, and for working capital and other general
corporate purposes. Borrowings under these committed credit facilities would
bear interest at variable rates of up to 2.25% above certain Eurocurrency
rates or 0.50% above The First National Bank of Boston's base rate and have a
five year maturity. The Company anticipates that, following completion of the
Notes Offering and/or the Common Stock Offerings, the Company's facilities
will be reduced to a level that the Company considers appropriate for its
working capital and other needs.
As of March 31, 1996, the Company had net operating loss carryforwards
generated from Societe des Ceramiques Techniques S.A. ("SCT") of approximately
$19,952,000, for which no financial statement benefit has been recognized.
Approximately $1,946,000 of net operating loss carryforwards will expire in
fiscal years 1997 and 1998, while the remainder have an indefinite
carryforward period. The Company also has net operating loss carryforwards in
other European countries of approximately $7,338,000 which expire from fiscal
1997 to 2002 for which no financial statement benefit has been recognized. The
Company also has net operating loss carryforwards generated from Zimpro of
approximately $2,905,000 for which no financial statement benefit has been
recognized. No benefit has been given to these net operating loss carryfowards
because of the limited carryforward periods or the uncertain business
conditions relating to the operations giving rise to such carryforwards.
Future recognition of these net operating carryforwards will occur if the
operations of SCT and Zimpro generate sufficient earnings before the
expiration of the respective net operating loss carryforwards. In addition, in
the case of SCT, until March 31, 1997, the benefit, if any, of such
carryforwards is to be shared equally between the Company and Aluminum Company
of America.
The Company also has available at March 31, 1996, other net operating loss
carryforwards for Federal income tax purposes of approximately $13,552,000
which expire from fiscal 2007 to 2010.
Pursuant to an agreement to be entered into in conjunction with the pending
acquisition of WaterPro, WaterPro stockholders and certain WaterPro
debtholders to whom shares of Common Stock having an aggregate value (to be
determined pursuant to the acquisition agreement) of approximately
$100,000,000 are to be issued are to have the right, exercisable during the
90-day period commencing on the sixtieth day after the date of consummation of
the acquisition transaction (expected by the end of October 1996) to require
the Company to purchase all or any portion of such shares of Common Stock at a
purchase price equal to the average of the closing prices of the Common Stock
as reported by the New York Stock Exchange for each of the 25 trading days
ending on the sixth day preceding the date of consummation of the acquisition
transaction.
34
<PAGE>
Pursuant to an agreement to be entered into in conjunction with the pending
acquisition of PED, the Company has agreed to pay in cash the portion of the
purchase price otherwise payable in shares of Common Stock if such shares are
not at the time of issuance immediately saleable pursuant to the Company's
shelf Registration Statement on Form S-4. In addition, the Agreement provides
that if such shares are issued and then sold within a specified number of days
after consummation of the acquisition for aggregate net proceeds of less than
$39,000,000 (based on exchange rates for British pounds sterling as of
October 14, 1996), the Company will pay the deficiency to PED in cash, and if
the aggregate net proceeds exceed such amount, PED will pay the excess to the
Company in cash.
The Company believes its current cash position, cash flow from operations,
and available borrowings under the Company's line of credit will be adequate
to meet its anticipated cash needs for working capital, revenue growth,
scheduled debt repayment and capital investment objectives for at least the
next twelve months.
35
<PAGE>
THE WATER TREATMENT INDUSTRY
Global population growth, economic expansion, scarcity of available water
resources, heightened public concern about water quality and growing
regulatory and legislative requirements have resulted in the continued growth
in demand for water and wastewater treatment. In addition to the need for
potable water, industrial companies require treated water for most
manufactured products, whether as an ingredient in the finished product or as
part of the manufacturing process. Accordingly, most manufacturers utilize
water treatment systems to purify their incoming water ("influent"). Public
water departments, responsible for providing potable water, employ water
treatment technology to purify their water supply. Furthermore, government
regulations require most industrial companies and municipalities to treat
their outgoing wastewater ("effluent"). Growing demand for treated water
combined with the limited supply of usable water has created a significant
need for cost-effective, sophisticated water and wastewater treatment
solutions. Water and wastewater treatment has developed into a multi-billion
dollar global industry.
The global water and wastewater treatment industry is highly fragmented,
with numerous regional participants who are limited in their geographic scope.
This fragmentation is primarily due to local differences in water quality and
supply, different levels of demand for water resulting from varying
concentrations of industry and population, and local government regulation.
Most participants in the water and wastewater treatment industry provide a
limited number of treatment technologies, a limited number of products or
services, or focus on a particular industry. While the number of industry
participants ranges from several large companies to thousands of small local
companies, there are few competitors in the industry that offer a full range
of water and wastewater treatment equipment, technologies and services.
Customers of the water and wastewater treatment industry can be classified
into three broad categories: (i) industrial businesses, which include
companies in such markets as power generation, chemical process, oil,
pharmaceutical, microelectronics, automotive and steel; (ii) municipal and
private suppliers of public water and wastewater services; and (iii)
individual consumers of bottled water and household point-of-use products,
such as domestic filtration systems and parts.
INDUSTRIAL USERS
Industrial users have a significant need for treated water because it is a
necessary component in many products and industrial processes. The quality of
water varies dramatically across geographic regions, and water contains
impurities that, if untreated, can render it effectively useless for most
industrial purposes. The use of untreated water in manufacturing processes can
result not only in inconsistent product quality, but also in substantial
equipment degradation, which can lead to costly maintenance or replacement
costs. Consequently, most manufacturers treat their influent in order to
maintain a consistently acceptable degree of purity. For example, treated
water is an integral component of many consumer goods and is used in the
manufacture of pharmaceutical products, microelectronics and chemicals. Food
and beverage manufacturers require water with consistent quality to preserve
uniformity of taste and appearance in their products. As a result of these
process specifications, industrial customers often require a broad range of
treatment technologies to treat their influent.
In addition to treating their influent to ensure product quality, industrial
users are often required to treat their effluent. Government regulations
regarding the disposal of aqueous industrial waste, combined with public
concern regarding industrial pollution, have led to increased awareness on the
part of businesses and public utilities as to the benefits of wastewater
treatment and waste minimization. In response to higher water prices and
rising wastewater discharge fees, industrial manufacturers have also become
aware of the cost-effectiveness of recycling their effluent. As a result of
these factors, industrial companies increasingly require complex systems and
equipment to treat and recycle process water and wastewater.
Industrialization worldwide, manufacturers' desire to enhance productivity,
rising water prices, increased regulation and emphasis on water recycling and
reuse affect demand for industrial water and wastewater treatment and have
resulted in the need for increasingly sophisticated industrial water and
wastewater treatment
36
<PAGE>
systems. Rather than committing the significant resources required to operate
complex in-house systems, industrial customers are increasingly outsourcing
their water and wastewater treatment needs to water and wastewater treatment
companies to build, own and/or operate the customer's facilities or to provide
treated water under contract.
MUNICIPAL USERS
Public awareness and governmental concern regarding the increasing scarcity
of water, the quality of drinking water, and the potential health hazards
associated with waste products discharged into the environment, have resulted
in legislation, regulation and enforcement requiring strict standards for
potable water and restrictions on the discharge of pollutants in wastewater.
As a result, municipalities are experiencing increasing costs for water and
wastewater treatment.
The Company believes that, in many areas of the United States aged municipal
water and wastewater treatment infrastructure is operating at or near
capacity, is in need of substantial capital expenditures and is not well-
equipped to satisfy increasing regulatory and legislative requirements. In
addition, many municipalities are experiencing reduced economic resources. The
Company believes that, as a result, many such customers are seeking innovative
solutions to their water treatment needs, such as improved technologies and
equipment, and various outsourcing and service options, such as contract
operations and privatization. Privatization involves the transfer of ownership
and operation of water and wastewater treatment facilities to companies
capable of providing such services on a long-term basis.
INDIVIDUAL USERS
The market for individual users consists of bottled water and point-of-use
products, such as residential filtration systems and parts. Consumers' needs
vary by geographic location as a result of differing water qualities and level
of economic development. This segment of the industry is highly fragmented,
and the Company believes there are thousands of participants in the potable
water and point-of-use products markets.
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<PAGE>
BUSINESS
The Company is a leading global provider of industrial and municipal water
and wastewater treatment systems, products and services, with an installed
base of systems that the Company believes is one of the largest worldwide. The
Company offers a single-source solution to industrial and municipal customers
through what the Company believes is the industry's broadest range of cost-
effective systems, products, services and proven technologies. In addition,
the Company has one of the industry's largest global networks of sales and
service facilities. The Company capitalizes on its large installed base,
extensive distribution network and manufacturing capabilities to provide
customers with ongoing local service and maintenance. The Company is also a
leading provider of SDI and outsourced water services, including the operation
of water and wastewater treatment systems at customer sites.
The Company has grown internally and through the strategic acquisition and
successful integration of more than 45 domestic and international water and
wastewater treatment companies since 1991. On a previously reported basis, the
Company's revenues have grown to $472.5 million for the fiscal year ended
March 31, 1996 from $41.2 million for the fiscal year ended March 31, 1992,
representing a compound annual growth rate of approximately 84%. The Company's
revenues for the fiscal year ended March 31, 1996 would have been
approximately $1.8 billion after giving effect to the acquisitions of Zimpro
and Davis (accounted for as poolings of interests) and including, on a pro
forma basis, the pending acquisitions of WSMG, PED, WaterPro and USG as if
such acquisitions were completed at the beginning of such year.
Global population growth, economic expansion, scarcity of available water
resources, heightened public concern about water quality and growing
regulatory requirements have resulted in: (i) continued growth of the
multibillion dollar water and wastewater treatment industry; and (ii)
heightened demand for increasingly complex water and wastewater treatment
systems. The water and wastewater treatment industry is highly fragmented,
with numerous regional participants who provide customers with a limited range
of water and wastewater treatment solutions. The Company differentiates itself
from competitors by serving as a single-source water and wastewater treatment
provider capable of designing, manufacturing, operating, financing and
maintaining water and wastewater systems on a local basis for industrial and
municipal customers. The Company's customer base includes a broad range of
major industrial customers, which require treated water as a necessary
component of many products and industrial processes, and municipalities, which
treat water and wastewater for their communities. Industrial customers include
Chinese Petroleum, Coca-Cola, Dow Chemical, General Motors, Hyundai, Intel,
Johnson & Johnson, Merck, Procter & Gamble, and Samsung. Municipal customers
include the Cities of Los Angeles, Minneapolis-St. Paul, and St. Louis.
STRATEGY
In order to achieve earnings growth and expand its operations to enhance its
position as a leading global single-source provider of water and wastewater
treatment systems and services, the Company has developed the following
strategy:
PROVIDE SINGLE-SOURCE WATER AND WASTEWATER TREATMENT SOLUTIONS TO
INDUSTRIAL AND MUNICIPAL CUSTOMERS. The Company believes that industrial
and municipal users of water and wastewater treatment systems, products and
services increasingly desire to obtain from a single source a broad range
of systems, technologies and services. The Company addresses the full scope
of its customers' water and wastewater treatment needs through what the
Company believes is the industry's broadest line of cost-effective
treatment systems, services and proven technologies. In addition, the
Company has an extensive global distribution network through which it
offers customers convenient local service and support. The Company also
meets the diverse demands of its customers through its ability to sell
systems outright, to sell systems and operate them for its customers, or to
build, own, operate and finance such systems.
PURSUE ACQUISITIONS THAT PROVIDE A STRATEGIC FIT AND CONTRIBUTE TO REVENUE
AND EARNINGS GROWTH. In addition to growing internally, the Company has
grown significantly since 1991 through the strategic
38
<PAGE>
acquisition of more than 45 United States-based and international
businesses with strong market positions and substantial water and
wastewater treatment expertise. These acquisitions have enabled the Company
to expand its geographic presence, industries served, installed base, range
of products and technologies offered and network of sales and distribution
facilities. The Company plans to continue to pursue acquisitions that
complement its technologies, products and services, broaden its customer
base and expand its global distribution network.
REALIZE SYNERGIES AND ECONOMIES OF SCALE FROM ACQUISITIONS. The Company
operates its business through an organizational structure which provides
low overhead, minimizes redundancy and creates opportunities to achieve
cost savings and synergies in its acquisitions. The Company has significant
experience in integrating acquired businesses. The Company believes that
the acquisition of Davis and the pending acquisitions of WSMG, PED,
WaterPro and USG will provide cost savings through rationalization of
operations and economies of scale, including increased asset utilization.
The Company also believes that the integration of these recent and pending
acquisitions will provide synergies, such as cross-selling of product lines
to a broader customer base, expanded distribution and service capabilities
and exchange of experience and technology.
EXPAND GLOBAL MARKET PRESENCE, ESPECIALLY IN THE PACIFIC RIM REGION. The
Company expects that population growth, economic expansion and continued
degradation of water quality in both industrialized and less-developed
countries will result in strong growth in international markets. The
Company intends to further increase its international market presence by
expanding its international operations and by acquiring additional
international businesses. The Company believes that the proposed
acquisitions of WSMG and PED will significantly strengthen the Company's
capabilities in the Pacific Rim and Europe.
EXPAND PENETRATION OF THE MUNICIPAL MARKET. The Company believes that the
recent acquisition of Davis and the pending acquisitions of WSMG, PED,
WaterPro and USG and the contemplated Joint Venture will significantly
expand its presence in the municipal market. The Company intends to
strengthen its municipal presence by utilizing WSMG's and PED's strong
technologies, product offerings and reputation in the municipal market to
capitalize on cross-selling opportunities and improve its municipal sales
channels. Additionally, the Company intends to use its extensive
distribution network, including the long-term municipal relationships and
local service capabilities of Davis, WaterPro and USG, as a channel to
expand its penetration of the municipal market. The Company believes that
its combination of single-source provider capabilities, local service
capabilities and long-term municipal relationships will provide a
significant competitive advantage in penetrating the municipal market.
CAPITALIZE ON DISTRIBUTION STRENGTH TO ENHANCE LOCAL SALES AND SERVICE
CAPABILITIES. The Company believes that the acquisition of Davis and the
pending acquisitions of WaterPro and USG will establish the Company as a
leading distributor of water and wastewater distribution products and
services to both the industrial and municipal markets. These acquisitions
are expected to provide the Company with a platform to: (i) enhance the
Company's local sales and service infrastructure; (ii) penetrate the
municipal segment of the water and wastewater treatment market by
capitalizing on each distribution company's long-term municipal
relationships; (iii) leverage the Company's leading manufacturing
capabilities and technology base; and (iv) capitalize upon efficiencies
from consolidation of operations and economies of scale. In addition, the
Company believes that these distribution acquisitions will allow the
Company to capitalize on opportunities to retrofit, replace and repair
aging water infrastructure in the United States.
CAPITALIZE ON OUTSOURCING AND PRIVATIZATION OPPORTUNITIES. The Company
believes that the contemplated Joint Venture would be well-positioned to
capitalize on opportunities in the growing industrial outsourcing and
emerging municipal privatization markets. It is expected that the operating
strategy for the Joint Venture would be to offer customers: (i) turnkey
operation, including system design, manufacture, operation, and maintenance
on a local basis; (ii) warrantied performance; (iii) potential cost
savings; and (iv) customized financing options. The Company believes that
the Joint Venture would have several competitive advantages in securing
industrial and municipal contracts, including the Company's extensive
network of sales and
39
<PAGE>
service facilities, and the Company's long-term industrial and municipal
relationships. There can be no assurance as to whether or when or on what
specific terms the Joint Venture will actually be formed. The Company is
currently a 50% owner of TWO, which focuses on the outsourcing of
industrial customers' water treatment needs.
PRINCIPAL PRODUCTS AND SERVICES
The Company's principal products and services can be divided into the
following four groups: capital equipment, services, replacement parts and
consumables, and distribution.
CAPITAL EQUIPMENT. The Company manufactures both standard and customized
water and wastewater treatment equipment. The Company believes that its
systems utilize the industry's broadest range of proven physical, biological
and chemical treatment technologies including, among others, continuous
deionization, reverse osmosis, electrodialysis, adsorption and ion exchange,
that can be combined and configured to meet wide-ranging customer needs. The
Company designs, engineers, manufactures and assembles its systems at its
manufacturing facilities located in the United States and internationally.
Components that are not manufactured by the Company are purchased from vendors
in the United States and internationally. The Company utilizes its
distribution network including its global sales and service force, as well as
manufacturers' representatives, to provide direct contact and service to its
customers.
SERVICES. The Company's service business consists of the following: SDI,
outsourcing of water and wastewater treatment under long-term contracts,
mobile water treatment and, following the pending acquisition of WSMG, carbon
regeneration. SDI is a term given to portable water deionization treatment
equipment that uses ion exchange resins as a filtration medium and is designed
to connect easily to a local water supply. Resin is retrieved and transported
by a Company service representative to a Company regeneration plant for
chemical recharging when it is exhausted. Service-based revenues have been
generally recurring in nature, and have historically generated higher profit
margins than capital equipment sales.
TWO, which is 50% owned by a subsidiary of Nalco Chemical Company ("Nalco")
and 50% owned by a subsidiary of the Company, was formed to finance, build,
own and operate water treatment systems at customer sites under long-term
contracts and to focus on the outsourcing of industrial customers' water
treatment needs. The Company and Nalco have entered into long-term supply and
service agreements with TWO in order to support TWO's performance under such
contracts.
REPLACEMENT PARTS AND CONSUMABLES. The Company manufactures and sells
replacement parts and consumables, such as membranes, ion exchange resin and
carbon, manufactured by both the Company and other suppliers that are required
to support water treatment systems.
DISTRIBUTION. The Company believes that the acquisition of Davis and the
pending acquisitions of WaterPro and USG will establish the Company as a
leading distributor of water and wastewater distribution products and
services. The Company emphasizes convenient customer support, with each
distribution office servicing customers within approximately a 50 mile to 150
mile radius, depending on population density in the area.
40
<PAGE>
CUSTOMER MARKETS AND PRODUCT APPLICATIONS
The markets for the Company's services and products span many industries and
many geographic locations, including the United States, Europe, Pacific Rim
and Latin America. Information regarding the amount of revenue, operating
income and assets attributable to United States and international sales for
each of the past three fiscal years appears in Note 17 of Notes to
Consolidated Financial Statements, included elsewhere herein. The following
are industries that the Company serves and some of the products used therein:
PHARMACEUTICAL AND BIOTECHNOLOGY. Process water used in the pharmaceutical
and biotechnology industries must meet the highest standards of purity.
Reverse osmosis in conjunction with CDI ("RO/CDI") technology provides
high-purity water that meets the strictest quality specifications. The
Company's ceramic membranes, in combination with other membrane or ion
exchange equipment, meet these requirements by achieving nearly 100%
contaminant removal. This equipment is used in fermentation, purification
and recovery processes. Ion exchange technologies are also used to purify
process streams, as well as to purify and recover antibiotics, vitamins and
chemical elements. In addition, ion exchange is employed in industrial
fermentation to process substrates.
MICROELECTRONICS. Microelectronics manufacturing processes require ultra-
high purity water to avoid contamination from even the smallest microscopic
particles. The Company's ceramic membrane filters are advanced inorganic,
multilayered filter media that provide superior contaminant removal in the
most demanding environments. In addition, the Company's membrane and ion
exchange technology is used by electronic components manufacturers to
produce ultra-high purity water and to reduce the level of
microcontamination in rinse waters.
AUTOMOTIVE. The Company designs, manufactures, sells, services and
operates, on a global basis, a broad portfolio of technologies for the
automotive industry. The specific manufacturing processes include metal
processing, metal finishing, assembly and non-metal processing. Each of
these processes operates under the strictest of quality, process control
and regulatory requirements. The Company offers all of the technologies
necessary to meet these requirements including physical, chemical and
biological methods. The Company can deliver these technologies as bid-to-
specification equipment, full turnkey, service, build-own-operate or any
combination of the above. Of particular importance are the Company's
capabilities in the areas of water reuse and resource recovery.
CHEMICAL AND PETROCHEMICAL. Incoming water supplies for chemical and
petrochemical manufacturers require filtration and treatment to remove
solid particles and dissolved impurities. The Company manufactures
demineralizers, water softeners, clarifiers, multimedia filters and reverse
osmosis systems to deliver water of controlled quality and content.
Additionally, the Company's Membralox(R) and Ceraflo ceramic membranes are
used to accomplish the separation of chemical and petrochemical streams in
very harsh environments.
FOOD AND BEVERAGE. The food and beverage industries require high-quality
yet cost-effective water treatment systems. The Company offers physical and
chemical filtration and treatment technologies to purify incoming water and
refine and concentrate process fluids. Its ion exchange and ADSEP systems
are advanced technologies for the separation of sugars and corn syrups. In
the beverage industry, ceramic membrane filters achieve a high level of
fluid purity using nonchemical processing techniques.
METAL FINISHING. The Company's metal treatment and recovery systems
facilitate regulatory compliance of effluent and reduce the level of heavy
metals and solids generated from metal finishing operations such as printed
circuit board manufacturing, electroplating, galvanizing and anodizing. The
Company's key technology offerings include ion exchange, reverse osmosis,
electrolytic recovery, adsorption filtration, ceramic membrane
ultrafiltration, as well as a full complement of conventional precipitation
settling and filtration technologies.
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<PAGE>
POWER GENERATION. Nuclear and fossil-fueled electric power plants are
subject to steam generator and boiler corrosion and turbine fouling if
damaging contaminants are not removed from the incoming and recirculating
feedwater supplies. The Company's filtration membrane and ion exchange
systems provide power plants with high-quality, demineralized boiler
feedwater. The Company's tube filter and deep bed condensate polishing
systems employ advanced resin separation and regeneration technologies to
improve the quality of the condensate returned to the boiler. Sand and
other media filters are used in cogeneration and other power plant
applications. Nuclear-grade resins are available to meet the more stringent
water quality requirements of nuclear power plants.
OIL FIELD AND REFINERY. The petroleum industry uses large quantities of
water for steam and water flooding of oil fields for the secondary recovery
of oil. The Company's systems remove oil contaminants and suspended solids
from the resurfaced water for reuse for down-hole water and steam
injection. Refineries use the Company's oil/water separators to remove oil
and suspended solids from process water and refinery effluents, as well as
a full range of water purification equipment to remove dissolved solids.
MEDICAL/DIALYSIS. RO/CDI systems produce a continuous stream of ultra-high
purity water by removing organics, minerals and other contaminants while
providing the necessary bacteria and endotoxin control for high-flux
dialysis machines and other high-quality, high-capacity water requirements
in the medical field.
LABORATORY/RESEARCH AND DEVELOPMENT/QUALITY CONTROL/CHEMICAL
ANALYSIS. Cartridge-type reverse osmosis filters, deionization systems,
electrodialysis modules, ultrafiltration units, particle filters and
activated carbon filters remove contaminants, bacteria, pyrogens and odor
to provide point-of-use water polishing for critical and demanding
laboratory applications.
PULP AND PAPER. The Company's dissolved air flotation systems remove and
recover suspended solids from waste streams for pulp and paper
manufacturers and require considerably less floor space than conventional
separation units. The Company's boiler feedwater treatment systems are also
utilized in this industry.
GROUNDWATER REMEDIATION AND LANDFILL LEACHATE TREATMENT. The Company's
remediation systems are used to remove organic compounds and soluble metals
from contaminated groundwater. Biosystems employ a "pump and treat"
technology that incorporates equalization, separation of metals, biological
treatment and clarification processes. The Company's leachate systems,
combining chemical pre-treatment systems with biological treatment
technologies, address the treatment or elimination of wastewater drainage
into the groundwater and surrounding waterways.
POTABLE WATER. Hotels and other institutions require high-quality yet
affordable water treatment systems to meet consumer and regulatory
standards. In addition, suppliers of drinking water are seeking alternative
purification systems. The Company manufactures filtration, water treatment
and clarification systems for the drinking water industry that meet United
States Environmental Protection Agency ("EPA") standards under the Safe
Drinking Water Act. Pre-assembled systems capable of handling low- and
high-volume flows are also available.
MUNICIPAL WASTEWATER TREATMENT, RECOVERY AND REUSE. Municipal sewage plants
often utilize three stages of treatment (primary, secondary and tertiary)
before discharge to the environment. In addition to offering equipment and
systems to satisfy these requirements, the Company's membrane, reverse
osmosis and ion exchange technologies add a fourth stage by removing
remaining contaminants to a purity level that allows water to be recycled
and reused in additional industrial applications. These technologies are
cost-effective and reduce the adverse impact of industrial growth in
communities where water tables are low.
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<PAGE>
BACKLOG
The Company had the following backlog as of June 30, 1995 and 1996, which
includes capital equipment purchase orders and revenues expected to be
generated during the succeeding 12 months under certain long-term contracts.
The capital equipment orders are scheduled for delivery and installation
during the succeeding 12 months and are believed by the Company to be firm.
<TABLE>
<CAPTION>
DATE AMOUNT
------------- ------------
<S> <C>
June 30, 1995 $194,019,000
June 30, 1996 246,975,000
</TABLE>
The rate of booking new orders varies from month to month. In addition, the
orders have varying delivery schedules, and the Company's backlog as of any
particular date may not be representative of actual revenues for any
succeeding period.
Certain of the Company's contracts for engineered products and services
provide for progress payments during the engineering and manufacturing period.
The balance is due upon acceptance or start-up or, in the case of most
municipal and governmental purchasers, 90 to 180 days after delivery and
installation.
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<PAGE>
MANAGEMENT
The following table sets forth certain information regarding the directors
and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Richard J. 52 Chairman of the Board of Directors, Chief Executive Officer
Heckmann and President
Michael J. 42 Director and Executive Vice President
Reardon
Nicholas C. 35 Executive Vice President-Process Water Group
Memmo
Thierry 52 Executive Vice President-European Group
Reyners
Andrew D. 34 Executive Vice President-Wastewater Group
Seidel
R. Doyle 65 Director and Executive Vice President
White
Kevin L. 40 Vice President and Chief Financial Officer
Spence
Damian C. 36 Vice President, General Counsel and Secretary
Georgino
Tim L. Traff 38 Director and Senior Vice President
John S. 58 Senior Vice President-Corporate Development
Swartley
James W. 34 Vice President, Controller and Treasurer
Dierker
Michael E. 35 Assistant General Counsel and Assistant Secretary
Hulme, Jr.
James E. 67 Director
Clark
John L. 59 Director
Diederich
Robert S. 47 Director
Hillas
Arthur B. 56 Director
Laffer
Alfred E. 51 Director
Osborne,
Jr.
J. Danforth 49 Director
Quayle
C. Howard 58 Director
Wilkins,
Jr.
</TABLE>
Richard J. Heckmann was elected Chairman of the Board of Directors, Chief
Executive Officer and President of the Company on July 16, 1990. Mr. Heckmann
was a Senior Vice President at Prudential-Bache Securities in Rancho Mirage,
California from January 1982 to August 1990. He joined the U.S. Small Business
Administration in 1977 and served as Associate Administrator for Finance and
Investment from 1978 to 1979. Prior thereto he was founder and Chairman of the
Board of Tower Scientific Corporation, a manufacturer of custom prosthetic
devices, which was sold to Hexcel Corporation in 1977. Mr. Heckmann is a
member of the management board of TWO. He is also a director of USA Waste
Services, Inc.
Michael J. Reardon was appointed Executive Vice President of the Company in
June of 1995, having previously served as Executive Vice President and Chief
Operating Officer, and prior to that as the Chief Financial Officer and
Secretary of the Company. From May 1995 to April 1996, Mr. Reardon served as
President of Arrowhead Industrial Water, Inc. He became President and General
Manager of Illinois Water Treatment, Inc., a subsidiary of the Company, in
March 1992. From 1981 to July 1990 he was Chief Financial Officer of The C&C
Organization, a company engaged in restaurant ownership, management and
construction. Mr. Reardon is a certified public accountant and was a senior
auditor with Arthur Andersen & Co. from 1978 to 1981. Mr. Reardon is a member
of the management board of TWO. In June 1978, Mr. Reardon received a B.S. in
Business Administration from California State Polytechnic University, and in
1995 attended the Kellogg Management Institute, Northwestern University.
Nicholas C. Memmo was appointed Executive Vice President-Process Water Group
on July 1, 1995, having previously served as Senior Vice President and General
Manager of Ionpure since March 7, 1994. He had previously been Senior Vice
President-Sales & Marketing since December 8, 1992. Mr. Memmo had also been
the senior operating officer of U.S. Filter/Whittier, Inc. since January 1992,
having previously been Marketing Manager of that company since January 1991.
He was appointed General Manager in April 1992. Mr. Memmo was employed from
July 1984 to September 1988 with Hercules Incorporated, a New York Stock
Exchange
44
<PAGE>
specialty chemical and aerospace company, in sales, marketing and distribution
positions. Mr. Memmo received a B.S. degree in chemical engineering from
Drexel University. Between his employment with Hercules and the Company, he
completed an M.B.A. program at the John E. Anderson Graduate School of
Management at UCLA.
Thierry Reyners was appointed Executive Vice President-European Group on
July 1, 1995, having previously served as Senior Vice President-Europe since
March 7, 1994. He had previously been Senior Vice President-European Sales
since December 1, 1993, the date the Company acquired Ionpure. Mr. Reyners
served as Vice President and General Manager-Europe of Ionpure Technologies
Corporation from 1990 to December 1993, and from 1981 through 1989 he was
employed by Millipore Corporation, including as European Area Manager from
1987 through 1989. Mr. Reyners has a Ph.D. in Organic Chemistry from the
Research Institute in Natural Substances, University of Orsay, France and an
M.B.A. from INSEAD, Fontainebleau, France.
Andrew D. Seidel was appointed Executive Vice President-Wastewater Group on
July 1, 1995, having previously served as Senior Vice President-Wastewater
Group and General Manager of U.S. Filter, Inc., Warrendale, Pennsylvania,
since September 28, 1993. He had previously served as Vice President-Membralox
Group since December 8, 1992, and had been General Manager of Membralox since
March 1992. From October 1991 to March 1992, Mr. Seidel was Marketing Manager
for U.S. Filter/Marlboro, Inc. From October 1990 until his employment by the
Company, he was a senior consultant with Deloitte & Touche Management
Consulting. Mr. Seidel had various responsibilities with Hercules Incorporated
from 1984 through 1988, including technical marketing and product management
at Hercules Specialty Chemical Company and Quality Control/Process Engineering
in Hercules Aerospace Company. Mr. Seidel received a B.S. degree in chemical
engineering from the University of Pennsylvania. Between his employment with
Hercules and Deloitte & Touche, he completed an M.B.A. program at the Wharton
School, the University of Pennsylvania.
R. Doyle White was appointed Executive Vice President on September 13, 1996.
From 1993 to 1996, Mr. White served as Chairman of the Board of Directors,
President and Chief Executive Officer of Davis. Mr. White was elected to the
Board of Directors of Davis in 1981, promoted to President and Chief Operating
Officer in 1982 and to President and Chief Executive Officer in 1986. He
previously served as Vice President and General Manager of Irving-Moore
Division of U.S. Natural Resources, Inc., a public company engaged in
designing and manufacturing lumber dry kilns and automated lumber handling
equipment. Mr. White also served in the United States Air Force from 1952 to
1960, where he was an Instructor Pilot. Mr. White received a degree in
business administration from South Georgia College.
Kevin L. Spence was appointed Vice President of the Company on December 8,
1991 and has been Chief Financial Officer of the Company since January 6, 1992
and was Treasurer from February 17, 1992 until June 9, 1995. From October 1989
through 1991 he was Chief Financial Officer, first with Cal-Star Financial, a
mortgage banker, and then with American National Corporation, a manufacturer
of bedding materials. Mr. Spence is a certified public accountant and was with
KPMG Peat Marwick LLP from 1978 to September 1989 and a partner with that firm
from July 1988.
Damian C. Georgino was appointed Vice President, General Counsel and
Secretary of the Company on August 4, 1995. From September 1992 through July
31, 1995, he served as a General Attorney with Aluminum Company of America
("Alcoa"), where his primary responsibilities included mergers and
acquisitions and serving as chief legal counsel for several growing
international manufacturing and service businesses. From June 1988 through
August 1992, Mr. Georgino was an Attorney with Alcoa, where his primary
responsibilities included securities, mergers and acquisitions and corporate
finance. From June 1986 through May 1988, he was an associate with Houston
Harbaugh P.C. Mr. Georgino received a B.S. degree in economics and political
science from Dickinson College in 1982 and a received a JD/MBA joint degree
from Emory University in 1986.
Tim L. Traff was appointed Senior Vice President of the Company on December
8, 1992, having previously been Vice President-Corporate Development since
March 1992. He had been President of Traff Capital Management, a money
management company, since 1989. From 1985 to 1988 he was an analyst at SIT
Investment, a money management company. Mr. Traff received a B.S. degree in
business economics from the University of Minnesota.
45
<PAGE>
John S. Swartley was appointed Senior Vice President-Corporate Development
on July 1, 1995, having previously served as a Vice President since July 1994,
when the Company acquired Liquipure Technologies, Inc. Mr. Swartley had
started a new business in 1988 with venture capital backing from Warburg,
Pincus Capital Company, L.P., and made a series of water treatment company
acquisitions that ultimately became Liquipure. From 1982 through 1987 he was
at Olin Corporation as president of its consumer products group, which dealt
mainly with pool chemicals. From 1965 through 1982 he was with General Foods
in various marketing, development and management positions. He received a
degree in chemical engineering from Lehigh University and an M.B.A. degree
from Harvard Business School.
James W. Dierker was appointed Vice President, Controller and Treasurer on
June 9, 1995. From July 1985 to June 1995 he was with KPMG Peat Marwick LLP,
and was a senior manager with that firm at the time of his departure. Mr.
Dierker is a certified public accountant, and received a B.S. degree in
business administration with an emphasis in accounting from California State
Polytechnic University.
Michael E. Hulme, Jr. was appointed Assistant General Counsel and Assistant
Secretary on February 13, 1996. From December 1994 through January 1996, he
served as Vice President/Corporate Counsel of Forte Hotels, Inc., formerly a
wholly owned subsidiary of Forte Plc, and from October 1992 through December
1994 as Corporate Counsel of Forte Hotels, Inc. His primary responsibilities
included hotel and real estate development, acquisition and sale transactions.
From 1989 through 1992 he was a business associate with the law firm of Duckor
& Spradling, and from 1986 through 1989 he was an associate with the law firm
of Best, Best & Krieger. Mr. Hulme received an B.A. degree in economics from
the University of California at Davis in 1983 and received a JD from the
University of Southern California in 1986.
James E. Clark was President of Western Operations for Prudential Insurance
from 1978 to June 1990. Since June 1990, he has been a consultant and a
private investor. Mr. Clark is also Chairman of Asian-American Communication
Company, Inc., and a director of Asian American Association, Inc., a joint
venture with Sprint, and Durotest Corporation. He is also a trustee of the Yul
Brynner Foundation.
John L. Diederich has been Executive Vice President-Chairman's Counsel for
Aluminum Company of America since August 1991. Prior to assuming his present
position, he had been Group Vice President-Alcoa Metals and Chemicals since
1986 and a Vice President of Aluminum Company of America since 1982.
Mr. Diederich is a trustee of Shadyside Hospital and a director of Alcoa
Foundation.
Robert S. Hillas has served as a Managing Director of E.M. Warburg, Pincus &
Co., Inc., a private investment firm, since 1993. Previously, Mr. Hillas was a
partner of DSV Management Ltd., a venture capital investment firm, and its
affiliated venture capital partnerships. Mr. Hillas is currently a director of
Advanced Technology Materials, Inc., Transition Systems, Inc. and several
privately-held companies. Mr. Hillas was previously associated with Warburg,
Pincus from 1972 until he joined DSV Management Ltd. in 1981. Mr. Hillas was
graduated from Dartmouth College in 1970 with a Bachelor of Arts degree in
Mathematics, and was graduated from Stanford University with an M.B.A. degree
in 1972.
Dr. Arthur B. Laffer has been Chairman and Chief Executive Officer of A.B.
Laffer, V.A. Canto & Associates, an economic research and financial firm (and
its predecessor, A.B. Laffer Associates), since founding the firm in 1979. He
is also Chairman of Calport Asset Management, Inc., a money management firm.
Dr. Laffer has been Chief Executive Officer of Laffer Advisors, Inc., a
registered broker-dealer and investment advisor, since 1981. He was the
Charles B. Thornton Professor of Business Economics at the University of
Southern California from 1976 through 1984, Distinguished University Professor
at Pepperdine University from October 1984 to September 1987, and was a member
of President Reagan's economic policy advisory board. Dr. Laffer received a
B.A. degree in economics from Yale University and later received an M.B.A.
degree and a Ph.D. in economics from Stanford University. He is a director of
Coinmach Laundry Corporation, Mastec, Inc., Nicholas Applegate Mutual and
Growth Equity Funds and Value Vision, Inc.
46
<PAGE>
Dr. Alfred E. Osborne, Jr. is Director of the Harold Price Center for
Entrepreneurial Studies and Associate Professor of Business Economics at the
John E. Anderson Graduate School of Management at UCLA. He has been on the
UCLA faculty since 1972. Dr. Osborne was educated at Stanford University,
where he earned a B.S. degree in electrical engineering, an M.B.A. in finance,
a master's degree in economics and a Ph.D. in business-economics. He is a
director of Greyhound Lines, Inc., Nordstrom, Inc., ReadiCare, Inc., SEDA
Specialty Packaging Corporation and The Times Mirror Company.
J. Danforth Quayle was the forty-fourth Vice President of the United States.
He was graduated from DePaul University in 1969 with a B.A. degree in
political science and from Indiana University in 1974 with a law degree. In
1976, Mr. Quayle was elected to Congress and in 1980 to the United States
Senate, being reelected in 1986 and serving until 1989. As Vice President, he
headed the Competitiveness and Space Councils for the President. Since leaving
office in January 1993, Mr. Quayle served as Chairman of Circle Investors,
Inc. (a private financial services and insurance holding company), and BTC,
Inc. (a private company through which he operates certain of his personal
business interests). He is a director of Amtran, Inc., Central Newspapers,
Inc. and American Standard Companies, Inc. and is a member of the Board of
Trustees of The Hudson Institute.
C. Howard Wilkins, Jr. served as the United States Ambassador to the
Netherlands from June 1989 to July 10, 1992. Prior to being Ambassador and
thereafter, Mr. Wilkins has been Chairman of the Board of Maverick Restaurant
Corp., which owns and operates restaurants under franchise agreements, and
Maverick Development Corp. He was Vice Chairman of Pizza Hut, Inc. until 1975.
From 1981 to 1983 Mr. Wilkins served as a director of U.S. Synthetic Fuels
Corporation. Mr. Wilkins received a B.A. degree from Yale University in 1960.
47
<PAGE>
SECURITY OWNERSHIP
Set forth below is information as of September 30, 1996 concerning the
ownership of Common Stock by all persons or entities known to the Company to
be beneficial owners of more than five percent of the outstanding Common
Stock, each director of the Company, certain executive officers and all
directors and executive officers of the Company as a group. Unless otherwise
indicated, the holders of all shares shown in the table have sole voting and
investment power with respect to such shares.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME(1) BENEFICIALLY OWNED(2) PERCENT OF CLASS(3)
------- --------------------- -------------------
<S> <C> <C>
Laidlaw, Inc.(4).................. 4,054,093 8.1%
Warburg, Pincus Capital Company,
L.P.(5).......................... 2,719,618 5.4
The TCW Group, Inc.(6)............ 2,508,900 5.0
Richard J. Heckmann(7)............ 1,134,182 2.3
Michael J. Reardon(8)............. 213,705 *
R. Doyle White.................... 75,844 *
Tim L. Traff...................... 247,081 *
Nicholas C. Memmo(9).............. 91,892 *
Thierry Reyners(10)............... 45,000 *
Kevin L. Spence................... 90,000 *
James E. Clark.................... 126,000 *
John L. Diederich................. 65,250 *
Robert S. Hillas(11).............. 2,719,618 5.4
Arthur B. Laffer(12).............. 106,875 *
Alfred E. Osborne, Jr............. 108,525 *
J. Danforth Quayle................ 27,000 *
C. Howard Wilkins, Jr............. 103,500 *
All Directors and Executive Offi-
cers as a Group (19 persons)..... 5,346,607 10.7
</TABLE>
- -------------------
(1) The address of each person listed, except as otherwise indicated, is c/o
United States Filter Corporation, 40-004 Cook Street, Palm Desert,
California 92211.
(2) The number of shares shown includes shares that may be acquired upon the
exercise of options exercisable within 60 days of September 30, 1996 as
follows: Mr. Heckmann--440,325; Mr. Reardon--175,319; Mr. Traff--81,561;
Mr. Memmo--91,874; Mr. Reyners--45,000; Mr. Spence--90,000; Mr. Clark--
72,000; Mr. Diederich--63,000; Dr. Laffer--72,000; Dr. Osborne--72,000;
Mr. Quayle--27,000; Mr. Wilkins--72,000; all Directors and Executive
Officers as a Group--1,442,704. All options were granted pursuant to the
Company's 1991 Employee Stock Option Plan or the Company's 1991 Directors
Stock Option Plan.
(3) An asterisk (*) indicates ownership of less than 1% of the Common Stock.
(4) The address of Laidlaw, Inc. is 3221 North Service Road, Burlington,
Ontario, Canada L7R 3Y8. The Company believes that Laidlaw, Inc.
beneficially owns 3,899,393 shares as of October 15, 1996.
(5) The address of Warburg, Pincus Capital Company, L.P. is 466 Lexington
Avenue, New York, New York 10017.
(6) The address of The TCW Group, Inc. is 865 South Figueroa Street, Los
Angeles, California 90017.
(7) Includes 19,050 shares held by Mr. Heckmann's wife and by Mr. Heckmann as
custodian for his children as to which Mr. Heckmann may be deemed to have
indirect beneficial ownership.
(8) Includes 2,700 shares held in a trust for the benefit of Mr. Reardon's
father-in-law. As the trustee, Mr. Reardon has voting and investment
power with respect to the shares held by the trust and may be deemed to
have indirect beneficial ownership of them. Mr. Reardon disclaims
beneficial ownership of such shares.
(9) Constitutes 18 shares held by Mr. Memmo's wife as custodian for his minor
children.
(10) Includes 1,050 shares held by Mr. Reyners' wife.
(11) Constitutes shares owned by Warburg, Pincus Capital Company, L.P.
("Warburg"). The sole general partner of Warburg is Warburg, Pincus &
Co., a New York general partnership ("WP"). E.M. Warburg, Pincus & Co.,
Inc. ("EMW"), through a wholly owned subsidiary, manages Warburg. WP owns
all of the outstanding stock of EMW and, as the sole general partner of
Warburg, has a 20% interest in the profits of Warburg. EMW owns 0.9% of
the limited partnership interests in Warburg. Lionel I. Pincus is the
managing partner of WP and may be deemed to control it. Mr. Hillas, a
director of the Company, is a Managing Director of EMW and a general
partner of WP. As such, Mr. Hillas may be deemed to have an indirect
pecuniary interest in an indeterminate portion of the shares beneficially
owned by Warburg. All of the shares indicated as owned by Mr. Hillas are
owned directly by Warburg and are included herein because of Mr. Hillas'
affiliation with Warburg. Mr. Hillas disclaims "beneficial ownership" of
these shares within the meaning of Rule 13d-3 under the Exchange Act.
(12) Includes 30,000 shares held by A.B. Laffer, V.A. Canto & Associates, a
company controlled by Dr. Laffer.
48
<PAGE>
DESCRIPTION OF THE NOTES
Set forth below is a summary of certain provisions of the Notes. The Notes
will be issued pursuant to an indenture (the "Indenture") to be dated as of
, 1996, by and between the Company and State Street Bank and Trust Company
of California, N.A., as trustee (the "Trustee"), a copy of which is filed as
an exhibit to the Registration Statement of which this Prospectus is a part.
The terms of the Indenture are also governed by certain provisions contained
in the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act").
The following summary of the Notes and the Indenture does not purport to be
complete and is subject to, and is qualified in its entirety by, reference to
all of the provisions of the Indenture, including the definitions therein of
certain terms which are not otherwise defined in this Prospectus and those
terms made a part of the Indenture by reference to the Trust Indenture Act as
in effect on the date of the Indenture. Capitalized terms used herein without
definition have the meanings ascribed to them in the Indenture. As used in
this section "Description of the Notes," the "Company" refers to United States
Filter Corporation, exclusive of its subsidiaries. Wherever particular
provisions of the Indenture are referred to in this summary, such provisions
are incorporated by reference as a part of the statements made and such
statements are qualified in their entirety by such reference.
GENERAL
The Notes will be unsecured, subordinated, general obligations of the
Company, limited in aggregate principal amount to $175,000,000 ($201,250,000
if the Underwriters' over-allotment option is exercised in full). The Notes
will be subordinated in right of payment to all Senior Indebtedness of the
Company, as described under "Subordination" below. The Notes will be issued
only in fully registered form, without coupons, in denominations of $1,000 and
integral multiples thereof.
The Notes will mature on , 2001. The Notes will bear interest at the rate
per annum stated on the cover page of this Prospectus from the date of
issuance or from the most recent Interest Payment Date to which interest has
been paid or provided for, payable semiannually on and of each year,
commencing , 1997 to the persons in whose names such Notes are registered
at the close of business on or immediately preceding such Interest
Payment Date. Principal of, premium, if any, and interest on, the Notes will
be payable, the Notes will be convertible and the Notes may be presented for
registration of transfer or exchange, at the office or agency of the Company
maintained for such purpose, which office or agency shall be maintained in the
Borough of Manhattan, The City of New York. Interest will be calculated on the
basis of a 360-day year consisting of twelve 30-day months.
At the option of the Company, payment of interest may be made by check
mailed to the Holders of the Notes at the addresses set forth upon the
registry books of the Registrar. No service charge will be made for any
registration of transfer or exchange of Notes, but the Company may require
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith. Until otherwise designated by the Company,
the Company's office or agency will be the corporate trust office of the
Trustee presently located at 725 South Figueroa Street, Suite 3100, Los
Angeles, California 90017.
CONVERSION RIGHTS
The Holder of any Notes will have the right, at the Holder's option, to
convert any portion of the principal amount thereof that is an integral
multiple of $1,000 into shares of Common Stock, at any time prior to the close
of business on the second Business Day prior to the Stated Maturity of the
Notes (unless earlier redeemed or repurchased) at the Conversion Price set
forth on the cover page of this Prospectus (subject to adjustment as described
below). The right to convert a Note called for redemption or delivered for
repurchase will terminate at the close of business on the Business Day prior
to the Redemption Date or Repurchase Date for such Note, unless the Company
subsequently fails to pay the applicable Redemption Price or Repurchase Price,
as the case may be.
In the case of any Note that has been converted after any Record Date, but
on or before the next Interest Payment Date, interest the stated due date of
which is on such Interest Payment Date shall be payable on such Interest
Payment Date notwithstanding such conversion, and such interest shall be paid
to the Holder of such
49
<PAGE>
Note who is a Holder on such Record Date. Any Note so converted must be
accompanied by payment to the Company of an amount equal to the interest
payable on such Interest Payment Date on the principal amount of Notes being
surrendered for conversion (unless such Note shall have been called for
redemption, in which case no such payment shall be required). In all cases,
Holders as of the Record Date immediately preceding , 1999 will receive
the interest payment due on , 1999, even if such Holder surrenders a
Note for conversion after such Record Date as a result of the Company's
exercise of its right to redeem the Notes on or after , 1999. No
fractional shares will be issued upon conversion but, in lieu thereof, an
appropriate amount will be paid in cash by the Company based on the market
price of Common Stock (as determined in accordance with the Indenture) at the
close of business on the Date of Conversion.
The Conversion Price will be subject to adjustment upon the occurrence of
certain events, including: (a) any payment of a dividend (or other
distribution) payable in Common Stock on any class of Capital Stock of the
Company, (b) any issuance to all holders of Common Stock of rights, options or
warrants entitling them to subscribe for or purchase Common Stock at less than
the then current market price (as determined in accordance with the Indenture)
of Common Stock; provided, however, that if such options or warrants are only
exercisable upon the occurrence of certain triggering events, then the
Conversion Price will not be adjusted until such triggering events occur, (c)
any subdivision, combination or reclassification of Common Stock, (d) any
distribution to all holders of Common Stock of evidences of indebtedness,
shares of Capital Stock other than Common Stock, cash or other assets
(including securities, but excluding those dividends, rights, options,
warrants and distributions referred to above and excluding regular dividends
and distributions paid exclusively in cash), (e) any distribution consisting
exclusively of cash (excluding any cash portion of distributions referred to
in (d) above, or cash distributed upon a merger or consolidation to which the
second succeeding paragraph applies) to all holders of Common Stock in an
aggregate amount that, combined together with (i) all other such all-cash
distributions made within the then preceding 12 months in respect of which no
adjustment has been made and (ii) any cash and the fair market value of other
consideration paid or payable in respect of any tender offer by the Company or
any of its Subsidiaries for Common Stock concluded within the preceding 12
months in respect of which no adjustment has been made, exceeds 15% of the
Company's market capitalization (defined as being the product of the then
current market price of the Common Stock times the number of shares of Common
Stock then outstanding) on the record date of such distribution, and (f) the
completion of a tender or exchange offer made by the Company or any of its
Subsidiaries for Common Stock that involves an aggregate consideration that,
together with (i) any cash and other consideration payable in a tender or
exchange offer by the Company or any of its Subsidiaries for Common Stock
expiring within the 12 months preceding the expiration of such tender or
exchange offer in respect of which no adjustment has been made and (ii) the
aggregate amount of any such all-cash distributions referred to in (e) above
to all holders of Common Stock within the 12 months preceding the expiration
of such tender or exchange offer in respect of which no adjustments have been
made, exceeds 15% of the Company's market capitalization on the expiration of
such tender offer. No adjustment of the Conversion Price will be required to
be made until the cumulative adjustments amount to 1.0% or more of the
Conversion Price as last adjusted. The Company reserves the right to make such
reductions in the Conversion Price in addition to those required in the
foregoing provisions as it considers to be advisable in order that any event
treated for federal income tax purposes as a dividend of stock or stock rights
will not be taxable to the recipients. In the event the Company elects to make
such a reduction in the conversion price, the Company will comply with the
requirements of Rule 14e-1 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and any other securities laws and regulations
thereunder if and to the extent that such laws and regulations are applicable
in connection with the reduction of the Conversion Price.
In the event that the Company distributes rights or warrants (other than
those referred to in (b) in the preceding paragraph) pro rata to holders of
Common Stock, so long as any such rights or warrants have not expired or been
redeemed by the Company, the Holder of any Note surrendered for conversion
will be entitled to receive upon such conversion, in addition to the shares of
Common Stock issuable upon such conversion (the "Conversion Shares"), a number
of rights or warrants to be determined as follows: (i) if such conversion
occurs on or prior to the date for the distribution to the holders of rights
or warrants of separate certificates evidencing such rights or warrants (the
"Distribution Date"), the same number of rights or warrants to which a holder
of a
50
<PAGE>
number of shares of Common Stock equal to the number of Conversion Shares is
entitled at the time of such conversion in accordance with the terms and
provisions of and applicable to the rights or warrants, and (ii) if such
conversion occurs after such Distribution Date, the same number of rights or
warrants to which a holder of the number of shares of Common Stock into which
such Note was convertible immediately prior to such Distribution Date would
have been entitled on such Distribution Date in accordance with the terms and
provisions of and applicable to the rights or warrants. The conversion price
of the Notes will not be subject to adjustment on account of any declaration,
distribution or exercise of such rights or warrants.
In case of any reclassification, consolidation or merger of the Company with
or into another person or any merger of another person with or into the
Company (with certain exceptions), or in case of any sale, transfer or
conveyance of all or substantially all of the assets of the Company (computed
on a consolidated basis), each Note then outstanding will, without the consent
of any Holder of Notes, become convertible only into the kind and amount of
securities, cash and other property receivable upon such reclassification,
consolidation, merger, sale, transfer or conveyance by a holder of the number
of shares of Common Stock into which such Note was convertible immediately
prior thereto, after giving effect to any adjustment event, who failed to
exercise any rights of election and received per share the kind and amount
received per share by a plurality of non-electing shares.
SUBORDINATION
The Notes will be general, unsecured obligations of the Company,
subordinated in right of payment to all existing and future Senior
Indebtedness of the Company. At June 30, 1996, as adjusted to give effect to
the issuance and sale of the Notes and the application of the net proceeds
therefrom, the Company would have had approximately $119.3 million of Senior
Indebtedness outstanding. The Notes are subordinated by operation of law in
right of payment to all liabilities (including trade payables) of the
Company's Subsidiaries. The Company's Subsidiaries had approximately $446.4
million of trade payables and accrued liabilities outstanding at June 30,
1996. The Indenture will not restrict the incurrence of Senior Indebtedness or
other indebtedness by the Company or its Subsidiaries.
The Indenture will provide that no payment may be made by the Company on
account of the principal of, premium, if any, and interest on the Notes, or to
acquire any of the Notes (including repurchases of Notes at the option of the
Holder) for cash or property (other than Junior Securities), or on account of
the redemption provisions of the Notes, (i) upon the maturity of any Senior
Indebtedness of the Company by lapse of time, acceleration (unless waived) or
otherwise, unless and until all principal of, premium, if any, and interest on
such Senior Indebtedness are first paid in full (or such payment is duly
provided for), or (ii) in the event of default in the payment of any principal
of, premium, if any, or interest on any Senior Indebtedness of the Company
when it becomes due and payable, whether at maturity or at a date fixed for
prepayment or by declaration or otherwise (a "Payment Default"), unless and
until such Payment Default has been cured or waived or otherwise has ceased to
exist.
Upon (i) the happening of an event of default (other than a Payment Default)
that permits the holders of Senior Indebtedness or their representative
immediately to accelerate its maturity and (ii) written notice of such event
of default given to the Company and the Trustee by the holders of at least 25%
in the aggregate principal amount outstanding of such Senior Indebtedness or
their representative (a "Payment Notice"), then, unless and until such event
of default has been cured or waived or otherwise has ceased to exist, no
payment (by setoff or otherwise) may be made by or on behalf of the Company on
account of the principal of, premium, if any, interest on the Notes, or to
acquire or repurchase any of the Notes for cash or property, or on account of
the redemption provisions of the Notes, in any such case other than payments
made with Junior Securities of the Company. Notwithstanding the foregoing,
unless (i) the Senior Indebtedness in respect of which such Event of Default
exists has been declared due and payable in its entirety within 179 days after
the Payment Notice is delivered as set forth above (the "Payment Blockage
Period"), and (ii) such declaration has not been rescinded or waived, at the
end of the Payment Blockage Period, the Company shall be required to pay all
sums not paid to the Holders
51
<PAGE>
of the Notes during the Payment Blockage Period due to the foregoing
prohibitions and to resume all other payments as and when due on the Notes.
Any number of Payment Notices may be given; provided, however, that (i) not
more than one Payment Notice shall be given within a period of any 360
consecutive days, and (ii) no event of default that existed upon the date of
such Payment Notice or the commencement of such Payment Blockage Period
(whether or not such event of default is on the same issue of Senior
Indebtedness) shall be made the basis for the commencement of any other
Payment Blockage Period.
In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company (other than Junior Securities) shall be
received by the Trustee or the Holders at a time when such payment or
distribution is prohibited by the foregoing provisions, such payment or
distribution shall be held in trust for the benefit of the holders of Senior
Indebtedness of the Company, and shall be paid or delivered by the Trustee or
such Holders, as the case may be, to the holders of the Senior Indebtedness of
the Company remaining unpaid or unprovided for or their representative or
representatives, or to the trustee or trustees under any indenture pursuant to
which any instruments evidencing any of such Senior Indebtedness of the
Company may have been issued, ratably according to the aggregate amounts
remaining unpaid on account of the Senior Indebtedness of the Company held or
represented by each, for application to the payment of all Senior Indebtedness
of the Company remaining unpaid, to the extent necessary to pay or to provide
for the payment of all such Senior Indebtedness in full after giving effect to
any concurrent payment or distribution to the holders of such Senior
Indebtedness.
Upon any distribution of assets of the Company upon any dissolution, winding
up, total or partial liquidation or reorganization of the Company, whether
voluntary or involuntary, in bankruptcy, insolvency, receivership or a similar
proceeding or upon assignment for the benefit of creditors or any marshalling
of assets or liabilities, (i) the holders of all Senior Indebtedness of the
Company will first be entitled to receive payment in full (or have such
payment duly provided for) before the Holders are entitled to receive any
payment on account of the principal of, premium, if any, or interest on, the
Notes (other than Junior Securities) and (ii) any payment or distribution of
assets of the Company of any kind or character, whether in cash, property or
securities (other than Junior Securities) to which the Holders or the Trustee
on behalf of the Holders would be entitled (by setoff or otherwise), except
for the subordination provisions contained in the Indenture, will be paid by
the liquidating trustee or agent or other person making such a payment or
distribution directly to the holders of Senior Indebtedness of the Company or
their representative to the extent necessary to make payment in full of all
such Senior Indebtedness remaining unpaid, after giving effect to any
concurrent payment or distribution to the holders of such Senior Indebtedness.
No provision contained in the Indenture or the Notes will affect the
obligation of the Company, which is absolute and unconditional, to pay, when
due, principal of, premium, if any, and interest on the Notes. The
subordination provisions of the Indenture and the Notes will not prevent the
occurrence of any Default or Event of Default under the Indenture or limit the
rights of the Trustee or any Holder, subject to the two preceding paragraphs,
to pursue any other rights or remedies with respect to the Notes.
The Company conducts certain of its operations through its Subsidiaries.
Accordingly, the Company's ability to meet its cash obligations is dependent
upon the ability of its Subsidiaries to make cash distributions to the
Company. The ability of its Subsidiaries to make distributions to the Company
is and will continue to be restricted by, among other limitations, applicable
provisions of the laws of national and state governments and contractual
provisions. The Indenture will not limit the ability of the Company's
Subsidiaries to incur such restrictions in the future. The right of the
Company to participate in the assets of any Subsidiary (and thus the ability
of Holders of the Notes to benefit indirectly from such assets) is generally
subject to the prior claims of creditors, including trade creditors, of that
Subsidiary, except to the extent that the Company is recognized as a creditor
of such Subsidiary, in which case the Company's claims would still be subject
to any security interest of other creditors of such Subsidiary. The Notes,
therefore, will be subordinated by operation of law to creditors, including
trade creditors, of Subsidiaries of the Company with respect to the assets of
the Subsidiaries against which such creditors have a more direct claim.
52
<PAGE>
As a result of these subordination provisions, in the event of the
liquidation, bankruptcy, reorganization, insolvency, receivership or similar
proceeding or an assignment for the benefit of the creditors of the Company or
any of its Subsidiaries or a marshalling of assets or liabilities of the
Company and its Subsidiaries, Holders of the Notes may receive ratably less
than other creditors.
REDEMPTION AT THE COMPANY'S OPTION
The Notes will not be subject to redemption prior to , 1999. On and after
such date, the Notes will be redeemable at the option of the Company, in whole
or in part, upon not less than 30 nor more than 60 days notice to each Holder
of Notes, at the following redemption prices (expressed as percentages of the
principal amount) if redeemed during the 12-month period commencing of the
years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
1999.......................................................... %
2000 and thereafter........................................... %
</TABLE>
in each case (subject to the right of Holders of record on a Record Date to
receive interest due on an Interest Payment Date that is on or prior to such
Redemption Date) together with accrued and unpaid interest, if any, to the
Redemption Date.
In the case of a partial redemption, the Trustee shall select the Notes or
portions thereof for redemption on a pro rata basis, by lot or in such other
manner it deems appropriate and fair. The Notes may be redeemed in part in
multiples of $1,000 only.
The Notes will not have the benefit of any sinking fund.
Notice of any redemption will be sent, by first-class mail, at least 30 days
and not more than 60 days prior to the date fixed for redemption, to the
Holder of each Note to be redeemed to such Holder's last address as then shown
upon the registry books of the Registrar. The notice of redemption must state
the Redemption Date, the Redemption Price and the amount of accrued interest
to be paid. Any notice that relates to a Note to be redeemed in part only must
state the portion of the principal amount to be redeemed and must state that
on and after the Redemption Date, upon surrender of such Note, a new Note or
Notes in principal amount equal to the unredeemed portion thereof will be
issued. On and after the Redemption Date, interest will cease to accrue on the
Notes or portions thereof called for redemption, unless the Company defaults
in its obligations with respect thereto.
REPURCHASE OF NOTES AT THE OPTION OF THE HOLDER UPON A CHANGE OF CONTROL
The Indenture will provide that in the event that a Change of Control (as
defined) has occurred, each Holder of Notes will have the right, at such
Holder's option, pursuant to an irrevocable and unconditional offer by the
Company (the "Repurchase Offer"), to require the Company to repurchase all or
any part of such Holder's Notes (provided that the principal amount of such
Notes must be $1,000 or an integral multiple thereof) on the date (the
"Repurchase Date") that is no later than 45 Business Days after the occurrence
of such Change of Control at a cash price (the "Repurchase Price") equal to
100% of the principal amount thereof, together with accrued and unpaid
interest to the Repurchase Date. The Repurchase Offer shall be made within 25
Business Days following a Change of Control and shall remain open for 20
Business Days following its commencement (the "Repurchase Offer Period"). Upon
expiration of the Repurchase Offer Period, the Company shall purchase all
Notes tendered in response to the Repurchase Offer. If required by applicable
law, the Repurchase Date and the Repurchase Offer Period may be extended as so
required; however, if so extended, it shall nevertheless constitute an Event
of Default if the Repurchase Date does not occur within 60 Business Days of
the Change of Control.
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The Indenture will provide that a "Change of Control" occurs upon any of the
following events: (i) upon any merger or consolidation of the Company with or
into any person or any sale, transfer or other conveyance, whether direct or
indirect, of all or substantially all of the assets of the Company, on a
consolidated basis, in one transaction or a series of related transactions,
if, immediately after giving effect to such transaction, any "person" or
"group" is or becomes the "beneficial owner," directly or indirectly, of more
than 50% of the total voting power in the aggregate normally entitled to vote
in the election of directors, managers, or trustees, as applicable, of the
transferee or surviving entity, (ii) when any "person" or "group" is or
becomes the "beneficial owner," directly or indirectly, of more than 50% of
the total voting power in the aggregate normally entitled to vote in the
election of directors of the Company, (iii) when, during any period of
12 consecutive months after the Issue Date, individuals who at the beginning
of any such 12-month period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board or whose
nomination for election by the stockholders of the Company was approved by a
vote of a majority of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of the Company then in office, (iv) a sale
or disposition, whether directly or indirectly, by the Company of all or
substantially all of its assets, or (v) the pro rata distribution by the
Company to its stockholders of substantially all of its assets.
For purposes of this definition of "Change of Control," (i) the terms
"person" and "group" shall have the meaning used for purposes of Rules 13d-3
and 13d-5 of the Exchange Act as in effect on the Issue Date, whether or not
applicable; and (ii) the term "beneficial owner" shall have the meaning used
in Rules 13d-3 and 13d-5 under the Exchange Act as in effect on the Issue
Date, whether or not applicable, except that a "person" shall be deemed to
have "beneficial ownership" of all shares that any such person has the right
to acquire, whether such right is exercisable immediately or only after the
passage of time or upon the occurrence of certain events.
The phrase "all or substantially all" of the assets of the Company is likely
to be interpreted by reference to applicable state law at the relevant time,
and will be dependent on the facts and circumstances existing at such time. As
a result, there may be a degree of uncertainty in ascertaining whether a sale
or transfer is of "all or substantially all" of the assets of the Company.
On or before the Repurchase Date, the Company will (i) accept for payment
Notes or portions thereof properly tendered pursuant to the Repurchase Offer,
(ii) deposit with the Paying Agent cash sufficient to pay the Repurchase Price
(together with accrued and unpaid interest) of all Notes so tendered and (iii)
deliver to the Trustee Notes so accepted, together with an Officers'
Certificate listing the Notes or portions thereof being purchased by the
Company. The Paying Agent will promptly mail to the Holders of Notes so
accepted payment in an amount equal to the Repurchase Price (plus accrued and
unpaid interest), and the Trustee will promptly authenticate and mail or
deliver to such Holders a new Note or Notes equal in principal amount to any
unpurchased portion of the Notes surrendered. Any Notes not so accepted will
be promptly mailed or delivered by the Company to the Holder thereof. The
Company will publicly announce the results of the Repurchase Offer on or as
soon as practicable after the Repurchase Date.
The Change of Control purchase feature of the Notes may make more difficult
or discourage a takeover of the Company, and, thus, the removal of incumbent
management. The Change of Control purchase feature resulted from negotiations
between the Company and the Underwriters.
The provisions of the Indenture relating to a Change of Control may not
afford the Holders protection in the event of a highly leveraged transaction,
reorganization, restructuring, merger, spin-off or similar transaction that
may adversely affect Holders, if such transaction does not constitute a Change
of Control, as set forth above. In addition, the Company may not have
sufficient financial resources available to fulfill its obligation to
repurchase the Notes upon a Change of Control or to repurchase other debt
securities of the Company or its Subsidiaries providing similar rights to the
Holders thereof.
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To the extent applicable, the Company will comply with Section 14 of the
Exchange Act and the provisions of Regulation 14E and any other tender offer
rules under the Exchange Act and any other securities laws, rules and
regulations that may then be applicable to any offer by the Company to
purchase the Notes at the option of Holders upon a Change of Control.
LIMITATION ON MERGER, SALE OR CONSOLIDATION
The Indenture will provide that the Company may not, directly or indirectly,
consolidate with or merge with or into another person or sell, lease, convey
or transfer all or substantially all of its assets (computed on a consolidated
basis), whether in a single transaction or a series of related transactions,
to another person or group of affiliated persons, unless (i) either (a) in the
case of a merger or consolidation, the Company is the surviving entity or (b)
the resulting, surviving or transferee entity is a corporation organized under
the laws of the United States, any state thereof or the District of Columbia
and expressly assumes by supplemental indenture all of the obligations of the
Company in connection with the Notes and the Indenture; (ii) no Default or
Event of Default shall exist or shall occur immediately after giving effect on
a pro forma basis to such transaction; and (iii) the resulting, surviving or
transferee entity immediately thereafter has a Consolidated Net Worth no less
than that of the Company immediately prior thereto.
Upon any consolidation or merger or any transfer of all or substantially all
of the assets of the Company in accordance with the foregoing, the successor
corporation formed by such consolidation or into which the Company is merged
or to which such transfer is made, shall succeed to, and be substituted for,
and may exercise every right and power of, the Company under the Indenture
with the same effect as if such successor corporation had been named therein
as the Company, and the Company will be released from its obligations under
the Indenture and the Notes, except as to any obligations that arise from or
as a result of such transaction.
REPORTS
Whether or not the Company is subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act, the Company shall deliver to the
Trustee and to each Holder, within 15 days after it is or would have been
required to file such with the Securities and Exchange Commission (the
"Commission"), annual and quarterly consolidated financial statements
substantially equivalent to financial statements that would have been included
in reports filed with the Commission if the Company was subject to the
requirements of Section 13 or 15(d) of the Exchange Act, including, with
respect to annual information only, a report thereon by the Company's
certified independent public accountants as such would be required in such
reports to the Commission and, in each case, together with a management's
discussion and analysis of results of operations and financial condition as
such would be so required.
EVENTS OF DEFAULT AND REMEDIES
The Indenture will define an Event of Default as (i) the failure by the
Company to pay any installment of interest on the Notes as and when due and
payable and the continuance of any such failure for 30 days, (ii) the failure
by the Company to pay all or any part of the principal of, or premium, if any,
on the Notes when and as the same become due and payable at maturity,
redemption, by acceleration or otherwise, including, without limitation,
pursuant to any Repurchase Offer, (iii) the failure of the Company to perform
any conversion of Notes required under the Indenture and the continuance of
any such failure for 30 days, (iv) the failure by the Company to observe or
perform any other covenant or agreement contained in the Notes or the
Indenture and, subject to certain exceptions, the continuance of such failure
for a period of 60 days after written notice is given to the Company by the
Trustee or to the Company and the Trustee by the Holders of at least 25% in
aggregate principal amount of the Notes outstanding, (v) certain events of
bankruptcy, insolvency or reorganization in respect of the Company or any of
its Significant Subsidiaries, (vi) a default in the payment of principal,
premium or interest when due that extends beyond any stated period of grace
applicable thereto or an acceleration for any other reason of the maturity of
any Indebtedness of the Company or any of its Subsidiaries with an aggregate
principal amount in excess of $25 million, and (vii) final unsatisfied
judgments not covered by insurance aggregating in excess of $25 million, at
any one time rendered against the Company or any of its Subsidiaries and not
stayed,
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bonded or discharged within 75 days. The Indenture will provide that if a
Default occurs and is continuing, the Trustee must, within 90 days after the
occurrence of such default, give to the Holders notice of such default.
The Indenture will provide that if an Event of Default occurs and is
continuing (other than an Event of Default specified in clause (v) above),
then in every such case, unless the principal of all of the Notes shall have
already become due and payable, either the Trustee or the Holders of 25% in
aggregate principal amount of the Notes then outstanding, by notice in writing
to the Company (and to the Trustee if given by Holders) (an "Acceleration
Notice"), may declare all principal and accrued interest thereon to be due and
payable immediately. If an Event of Default specified in clause (v) above
occurs, all principal and accrued interest thereon will be immediately due and
payable on all outstanding Notes without any declaration or other act on the
part of the Trustee or the Holders. The Holders of no less than a majority in
aggregate principal amount of Notes generally are authorized to rescind such
acceleration if all existing Events of Default, other than the nonpayment of
the principal of, premium, if any, and interest on, the Notes that have become
due solely by such acceleration, have been cured or waived.
Prior to the declaration of acceleration of the maturity of the Notes, the
Holders of a majority in aggregate principal amount of the Notes at the time
outstanding may waive on behalf of all the Holders any default, except a
default in the payment of principal of, premium, if any, or interest on any
Note not yet cured, or a default with respect to any covenant or provision
that cannot be modified or amended without the consent of the Holder of each
outstanding Note affected. Subject to the provisions of the Indenture relating
to the duties of the Trustee, the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request, order
or direction of any of the Holders, unless such Holders have offered to the
Trustee reasonable security or indemnity. Subject to all provisions of the
Indenture and applicable law, the Holders of a majority in aggregate principal
amount of the Notes at the time outstanding will have the right to direct the
time, method and place of conducting any proceeding for any remedy available
to the Trustee, or exercising any trust or power conferred on the Trustee.
AMENDMENTS AND SUPPLEMENTS
The Indenture will contain provisions permiting the Company and the Trustee
to enter into a supplemental indenture for certain limited purposes without
the consent of the Holders. With the consent of the Holders of not less than a
majority in aggregate principal amount of the Notes at the time outstanding,
the Company and the Trustee are permitted to amend or supplement the Indenture
or any supplemental indenture or modify the rights of the Holders; provided,
further, that no such modification may, without the consent of each Holder
affected thereby: (i) change the Stated Maturity of any Note or reduce the
principal amount thereof or the rate (or extend the time for payment) of
interest thereon or any premium payable upon the redemption thereof, or change
the place of payment where, or the coin or currency in which, any Note or any
premium or the interest thereon is payable, or impair the right to institute
suit for the enforcement of any such payment or the conversion of any Note on
or after the due date thereof (including, in the case of redemption, on or
after the Redemption Date), or reduce the Repurchase Price, or alter the
change of control provisions or redemption provisions in a manner adverse to
the Holders, (ii) reduce the percentage in principal amount of the outstanding
Notes, the consent of whose Holders is required for any such amendment,
supplemental indenture or waiver provided for in the Indenture, (iii)
adversely affect the right of such Holder to convert Notes, or (iv) modify any
of the waiver provisions, except to increase any required percentage or to
provide that certain other provisions of the Indenture cannot be modified or
waived without the consent of the Holder of each outstanding Note affected
thereby.
NO PERSONAL LIABILITY OF STOCKHOLDERS, OFFICERS, DIRECTORS AND EMPLOYEES
The Indenture will provide that no past, present or future stockholder,
employee, officer or director, as such, of the Company or any successor
corporation shall have any personal liability in respect of the obligations of
the Company under the Indenture or the Notes by reason of his, her or its
status as such stockholder, employee, officer or director.
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TRANSFER AND EXCHANGE
A Holder may transfer or exchange the Notes in accordance with the
Indenture. The Company may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents, and to pay any taxes and fees
required by law or permitted by the Indenture. The Company is not required to
transfer or exchange any Notes selected for redemption. Also, the Company is
not required to transfer or exchange any Notes for a period of 15 days before
a selection of Notes to be redeemed.
The registered Holder of a Note may be treated as the owner of it for all
purposes.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below, the Notes will initially be issued in the form of
one or more registered Notes in global form (the "Global Notes"). Each Global
Note will be deposited on the date of the closing of the sale of the Notes
(the "Closing Date") with, or on behalf of, The Depository Trust Company (the
"Depositary") and registered in the name of Cede & Co., as nominee of the
Depositary.
The Company has been advised that the Depositary is a limited-purpose trust
company organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code, and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. The Depositary holds securities
that its participants ("Participants") deposit with it. The Depositary also
facilitates the settlement among Participants of securities transactions, such
as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations, and certain other organizations ("Direct Participants"). The
Depositary is owned by a number of its Direct Participants and by the New York
Stock Exchange, Inc., the American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc. Access to the Depository Trust Company
system is also available to others such as securities brokers and dealers,
banks and trust companies that clear through or maintain a custodial
relationship with a Direct Participant, either directly or indirectly
("Indirect Participants"). The rules applicable to the Depositary and its
Participants are on file with the Commission.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Notes, the Depositary will credit
the accounts of Participants designated by the Underwriters with an interest
in the Global Note and (ii) ownership of the Notes evidenced by the Global
Notes will be shown on, and the transfer of ownership thereof will be effected
only through, records maintained by the Depositary (with respect to the
interests of Participants), the Participants and the Indirect Participants.
The laws of some states require that certain persons take physical delivery in
definitive form of securities that they own and that security interests in
negotiable instruments can only be perfected by delivery of certificates
representing the instruments. Consequently, the ability to transfer Notes
evidenced by the Global Note will be limited to such extent.
So long as the Depositary or its nominee is the registered owner of a Note,
the Depositary or such nominee, as the case may be, will be considered the
sole owner or holder of the Notes represented by the Global Note for all
purposes under the Indenture. Except as provided below, owners of beneficial
interests in a Global Note will not be entitled to have Notes represented by
such Global Note registered in their names, will not receive or be entitled to
receive physical delivery of Certificated Notes, and will not be considered
the owners or holders thereof under the Indenture for any purpose, including
with respect to the giving of any directions, instructions or approvals to the
Trustee thereunder. As a result, the ability of a person having a beneficial
interest in Notes represented by a Global Note to pledge such interest to
persons or entities that do not participate in the Depositary's system, or to
otherwise take actions with respect to such interest, may be affected by the
lack of a physical certificate evidencing such interest.
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Neither the Company nor the Trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on
account of Notes by the Depositary, or for maintaining, supervising or
reviewing any records of the Depositary relating to such Notes.
Payments with respect to the principal of, premium, if any, and interest on,
any Note represented by a Global Note registered in the name of the Depositary
or its nominee on the applicable record date will be payable by the Trustee to
or at the direction of the Depositary or its nominee in its capacity as the
registered Holder of the Global Note representing such Notes under the
Indenture. Under the terms of the Indenture, the Company and the Trustee may
treat the persons in whose names the Notes, including the Global Notes, are
registered as the owners thereof for the purpose of receiving such payments
and for any and all other purposes whatsoever. Consequently, neither the
Company nor the Trustee has or will have any responsibility or liability for
the payment of such amounts to beneficial owners of Notes (including
principal, premium, if any, or interest), or to immediately credit the
accounts of the relevant Participants with such payment, in amounts
proportionate to their respective holdings in principal amount of beneficial
interests in the Global Note as shown on the records of the Depositary.
Payments by the Participants and the Indirect Participants to the beneficial
owners of Notes will be governed by standing instructions and customary
practice and will be the sole responsibility of the Participants or the
Indirect Participants.
Certificated Notes
If (i) the Company notifies the Trustee in writing that the Depositary is no
longer willing or able to act as a depositary and the Company is unable to
locate a qualified successor within 90 days or (ii) the Company, at its
option, notifies the Trustee in writing that it elects to cause the issuance
of Notes in definitive form under the Indenture, then, upon surrender by the
Depositary of the Global Notes, Certificated Notes will be issued to each
person that the Depositary identifies as the beneficial owner of the Notes
represented by Global Notes. In addition, subject to certain conditions, any
person having a beneficial interest in a Global Note may, upon request to the
Trustee, exchange such beneficial interest for Notes in the form of
Certificated Notes. Upon any such issuance, the Trustee is required to
register such Certificated Notes in the name of such person or persons (or the
nominee of any thereof), and cause the same to be delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay by the
Depositary or any Participant or Indirect Participant in identifying the
beneficial owners of the Notes, and the Company and the Trustee may
conclusively rely on, and shall be protected in relying on, instructions from
the Depositary for all purposes (including with respect to the registration
and delivery, and the respective principal amounts, of the Notes to be
issued).
The information in this section concerning the Depositary and the
Depositary's book-entry system has been obtained from sources that the Company
believes to be reliable. The Company will have no responsibility for the
performance by the Depositary or its Participants of their respective
obligations as described hereunder or under the rules and procedures governing
their respective operations.
SAME-DAY FUNDS SETTLEMENT AND PAYMENT
The Indenture will require that payments in respect of the Notes represented
by the Global Notes (including principal, premium, if any, and interest) be
made by wire transfer of immediately available funds to the accounts specified
by the Depositary. With respect to Notes represented by Certificated Notes,
the Company will make all payments of principal, premium, if any, and
interest, by mailing a check to each such Holder's registered address. The
Notes will trade in the Depositary's Same-Day Funds Settlement System until
maturity, or until the Notes are issued in certificated form, and secondary
market trading activity in the Notes will therefore be required by the
Depositary to settle in immediately available funds. No assurance can be given
as to the effect, if any, of settlement in immediately available funds on
trading activity in the Notes.
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CERTAIN DEFINITIONS
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to close.
"Capital Stock" means, with respect to any corporation, any and all shares,
interests, rights to purchase (other than convertible or exchangeable
Indebtedness), warrants, options, participations or other equivalents of or
interests (however designated) in stock issued by that corporation.
"Consolidated Net Worth" of any person at any date means the aggregate
consolidated stockholders' equity of such person (plus amounts of equity
attributable to preferred stock) and its consolidated Subsidiaries, as would
be shown on the consolidated balance sheet of such person prepared in
accordance with GAAP, adjusted to exclude (to the extent included in
calculating such consolidated stockholders' equity), (a) the amount of any
such stockholders' equity attributable to Disqualified Capital Stock or
treasury stock of such person and its consolidated Subsidiaries and (b) all
upward revaluations and other write-ups in the book value of any asset of such
person or a consolidated Subsidiary of such person subsequent to the Issue
Date.
"Disqualified Capital Stock" means (a) except as set forth in (b), with
respect to any person, Capital Stock of such person that, by its terms or by
the terms of any security into which it is convertible, exercisable or
exchangeable, is, or upon the happening of an event or the passage of time
would be, required to be redeemed or repurchased (including at the option of
the holder thereof) by such person or any of its Subsidiaries, in whole or in
part, on or prior to the Stated Maturity of the Securities and (b) with
respect to any Subsidiary of such person (including with respect to any
Subsidiary of the Company), any Capital Stock other than any common stock with
no preference, privileges, or redemption or repayment provisions.
"Indebtedness" of any person means, without duplication, (a) all liabilities
and obligations, contingent or otherwise, of any such person, (i) in respect
of borrowed money (whether or not the recourse of the lender is to the whole
of the assets of such person or only to a portion thereof), (ii) evidenced by
bonds, notes, debentures or similar instruments, (iii) representing the
balance deferred and unpaid of the purchase price of any property or services,
except such as would constitute trade payables to trade creditors in the
ordinary course of business, (iv) evidenced by bankers' acceptances or similar
instruments issued or accepted by banks, (v) for the payment of money relating
to a Capitalized Lease Obligation, or (vi) evidenced by a letter of credit or
a reimbursement obligation of such person with respect to any letter of
credit; (b) all net obligations of such person under Interest Swap and Hedging
Obligations; (c) all liabilities of others of the kind described in the
preceding clauses (a) or (b) that such person has guaranteed or that is
otherwise its legal liability and all obligations to purchase, redeem or
acquire any Capital Stock; and (d) any and all deferrals, renewals,
extensions, refinancings and refundings (whether direct or indirect) of any
liability of the kind described in any of the preceding clauses (a), (b) or
(c), or this clause (d), whether or not between or among the same parties.
"Issue Date" means the date of first issuance of the Notes under the
Indenture.
"Junior Securities" of any person means any Qualified Capital Stock and any
Indebtedness of such person that is subordinated in right of payment to the
Notes and has no scheduled installment of principal due, by redemption,
sinking fund payment or otherwise, on or prior to the Stated Maturity of the
Notes.
"Qualified Capital Stock" means any Capital Stock of the Company that is not
Disqualified Capital Stock.
"Senior Indebtedness" means any Indebtedness of the Company, whether
outstanding on the date of the Indenture or thereafter created, incurred,
assumed, guaranteed or in effect guaranteed by the Company, unless the
instrument creating or evidencing such Indebtedness provides that such
Indebtedness is not senior or superior in right of payment to the Notes or to
other Indebtedness which is pari passu with, or subordinated to, the Notes;
provided that in no event shall Senior Indebtedness include (a) Indebtedness
of the Company owed or owing to any Subsidiary of the Company or any officer,
director or employee of the Company or any Subsidiary of the
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Company, (b) Indebtedness to trade creditors, (c) the Company's 6% Convertible
Subordinated Notes due 2005 or (d) any liability for taxes owed or owing by
the Company.
"Significant Subsidiary" means any Subsidiary which is a "significant
subsidiary" of the Company within the meaning of Rule 1.02(w) of Regulation S-
X promulgated by the Commission as in effect as of the date of the Indenture.
"Stated Maturity" when used with respect to any Note means , 2001.
"Subsidiary" with respect to any person, means (i) a corporation a majority
of whose Capital Stock with voting power normally entitled to vote in the
election of directors is at the time. directly or indirectly. owned by such
person, by such person and one or more Subsidiaries of such person or by one
or more Subsidiaries of such person, (ii) a partnership in which such person
or a Subsidiary of such person is, at the time, a general partner and owns
alone or together with one or more Subsidiaries of such person a majority of
the partnership interests, or (iii) any other person (other than a
corporation) in which such person, one or more Subsidiaries of such person, or
such person and one or more Subsidiaries of such person, directly or
indirectly, at the date of determination thereof, has at least a majority
ownership interest.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
As of September 30, 1996, the Company was authorized to issue 150,000,000
shares of Common Stock, of which 50,009,131 shares were issued and
outstanding, and 3,000,000 shares of preferred stock, par value $.10 per
share, of which none were issued and outstanding. Of the unissued shares of
Common Stock as of such date, 3,919,646 shares were reserved for issuance upon
conversion of the Company's 5% Convertible Subordinated Debentures due 2000
(called for redemption on October 25, 1996), 7,636,363 shares were reserved
for issuance upon conversion of the Company's 6% Convertible Subordinated
Notes due 2005 and an aggregate of 3,447,561 shares were reserved for issuance
upon exercise of options either outstanding or available for future grant
under the Company's stock option plans for employees and directors.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record by them on all matters to be voted on by stockholders. There is no
cumulative voting with respect to the election of directors; thus, the holders
of shares having more than 50% of the Company's voting power (including both
common and voting preferred shares) voting for the election of directors can
elect all of the directors. The holders of Common Stock are entitled to
receive dividends when, as and if declared by the Board of Directors out of
funds legally available therefor, subject to the prior rights of preferred
stockholders. In the event of liquidation, dissolution or winding up of the
Company's affairs, the holders of Common Stock are entitled to share ratably
in all assets remaining available for distribution to them after payment of
liabilities and after provision has been made for each class of stock,
including any preferred stock, that has preference over the Common Stock.
Except as described below under "Stock Purchase Rights," holders of shares of
Common Stock, as such, have no conversion, preemptive or other subscription
rights, and there are no redemption or sinking fund provisions applicable to
the Common Stock.
PREFERRED STOCK
Shares of preferred stock may be issued without stockholder approval. The
Board of Directors is authorized to issue such shares in one or more series
and to fix the rights, preferences, privileges, qualifications, limitations
and restrictions thereof, including dividend rights and rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the
designation of such series, without any vote or action by the stockholders.
The Company has no current plans for the issuance of any shares of preferred
stock. Any preferred stock to be issued could rank prior to the Common Stock
with respect to dividend rights and rights of liquidation. The Board of
Directors, without stockholder approval, may issue preferred stock with voting
and conversion rights that could adversely affect the voting power of holders
of Common Stock or create impediments to persons seeking to gain control of
the Company.
STOCK PURCHASE RIGHTS
Laidlaw, which, as of October 15, 1996, held 3,899,393 shares of Common
Stock, has certain rights to purchase voting securities of the Company in
order to maintain its percentage voting interest. Except in connection with
mergers or other acquisitions or in the ordinary course under an employee
stock option or stock bonus plan, in the event the Company proposes to sell or
issue shares of voting securities, Laidlaw has the right to purchase, on the
same terms as the proposed sale or issuance, that number of shares or rights
as will maintain its percentage interest in the voting securities of the
Company, assuming the conversion of all convertible securities and the
exercise of all options and warrants then outstanding. In addition, Laidlaw
has other purchase rights with respect to sales or issuances of securities by
the Company at prices below 85% of current market price at the time of sale or
issuance or the prevailing customary price for such securities or their
equivalent.
CERTAIN VOTING ARRANGEMENTS
Pursuant to the agreements whereby the Company acquired Smogless S.p.A. in
September 1994, Laidlaw has agreed to vote all shares owned by it for the
nominees of the Company's Board for election to the Board,
61
<PAGE>
and on all other matters in the same proportion as the votes cast by other
holders of voting securities, other than those that relate to any business
combination or similar transaction involving the Company or any amendment to
the Company's Certificate of Incorporation or Bylaws.
CERTAIN CHARTER AND BYLAW PROVISIONS
The Company's Certificate of Incorporation (the "Certificate") places
certain restrictions on the voting rights of a "Related Person," defined
therein as any person who directly or indirectly owns 5% or more of the
outstanding voting stock of the Company. The founders and the original
directors of the Company are excluded from the definition of "Related
Persons," as are seven named individuals including Richard J. Heckmann, the
Chairman of the Board, President and Chief Executive Officer of the Company.
These voting restrictions apply in two situations. First, the vote of a
director who is also a Related Person is not counted in the vote of the Board
of Directors to call a meeting of stockholders where that meeting will
consider a proposal made by the Related Person director. Second, any
amendments to the Certificate that relate to specified Articles therein (those
dealing with corporate governance, limitation of director liability or
amendments to the Certificate), in addition to being approved by the Board of
Directors and a majority of the Company's outstanding voting stock, must also
be approved by either (i) a majority of directors who are not Related Persons,
or (ii) the holders of at least 80% of the Company's outstanding voting stock,
provided that if the change was proposed by or on behalf of a Related Person,
then approval by the holders of a majority of the outstanding voting stock not
held by Related Persons is also required. In addition, any amendment to the
Company's Bylaws must be approved by one of the methods specified in clauses
(i) and (ii) in the preceding sentence.
The Certificate and the Company's Bylaws provide that the Board of Directors
shall fix the number of directors and that the Board shall be divided into
three classes, each consisting of one-third of the total number of directors
(or as nearly as may be possible). Stockholders may not take action by written
consent. Meetings of stockholders may be called only by the Board of Directors
(or by a majority of its members). Stockholder proposals, including director
nominations, may be considered at a meeting only if written notice of that
proposal is delivered to the Company from 30 to 60 days in advance of the
meeting, or within ten days after notice of the meeting is first given to
stockholders.
DELAWARE ANTI-TAKEOVER LAW
Section 203 of the Delaware General Corporation Law ("Section 203")
provides, in general, that a stockholder acquiring more than 15% of the
outstanding voting shares of a corporation subject to the statute (an
"Interested Stockholder"), but less than 85% of such shares, may not engage in
certain "Business Combinations" with the corporation for a period of three
years subsequent to the date on which the stockholder became an Interested
Stockholder unless (i) prior to such date the corporation's board of directors
has approved either the Business Combination or the transaction in which the
stockholder became an Interested Stockholder or (ii) the Business Combination
is approved by the corporation's board of directors and authorized by a vote
of at least two-thirds of the outstanding voting stock of the corporation not
owned by the Interested Stockholder.
Section 203 defines the term "Business Combination" to encompass a wide
variety of transactions with or caused by an Interested Stockholder in which
the Interested Stockholder receives or could receive a benefit on other than a
pro rata basis with other stockholders, including mergers, certain asset
sales, certain issuances of additional shares to the Interested Stockholder,
transactions with the corporation that increase the proportionate interest of
the Interested Stockholder or transactions in which the Interested Stockholder
receives certain other benefits.
These provisions could have the effect of delaying, deferring or preventing
a change of control of the Company. The Company's stockholders, by adopting an
amendment to the Certificate or Bylaws of the Company, may elect not to be
governed by Section 203, effective twelve months after adoption. Neither the
Certificate nor the Bylaws of the Company currently excludes the Company from
the restrictions imposed by Section 203.
62
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain Federal income tax considerations for
original purchasers of the Notes and is based on the Federal income tax law
now in effect, which is subject to change, possibly retroactively. This
summary does not discuss all aspects of Federal income taxation that may be
relevant to particular holders of Notes in light of their individual
investment circumstances or to certain types of investors subject to special
tax rules (e.g., financial institutions, insurance companies, tax-exempt
organizations, and foreign taxpayers), nor does it discuss any aspects of
state, local or foreign tax law consequences. This summary assumes that
investors will hold their Notes as "capital assets" (generally, property held
for investment) under the Internal Revenue Code of 1986, as amended.
Prospective purchasers are urged to consult their tax advisors regarding the
specific Federal, state, local, and foreign income and other tax consequences
of purchasing, holding, converting, and disposing of the Notes.
SALE OR EXCHANGE
A holder will recognize capital gain or loss upon the sale or other
disposition of a Note in an amount equal to the difference between the amount
realized from such disposition and his tax basis in the Note. Such gain or
loss will be long-term if the Note has been held for more than one year.
CONVERSION
A holder's conversion of a Note into Common Stock is generally not a taxable
event (except with respect to cash received in lieu of a fractional share).
The holder's tax basis in the Common Stock received on conversion of a Note
will be the same as the holder's tax basis in the Note at the time of
conversion (exclusive of any tax basis allocable to a fractional share), and
the holding period for the Common Stock received on conversion will include
the holding period of the Note converted.
CONSTRUCTIVE DIVIDEND
If at any time the Company makes a distribution of property to shareholders
that would be taxable to such shareholders as a dividend for Federal income
tax purposes and, in accordance with the antidilution provisions of the Notes,
the Conversion Price of the Notes is decreased, the amount of such decrease
may be deemed to be the payment of a taxable dividend to holders. For example,
a decrease in the Conversion Price in the event of distributions of evidence
of indebtedness or assets of the Company will generally result in deemed
dividend treatment to holders, but generally a decrease in the event of stock
dividends or the distribution of rights to subscribe for shares will not. See
"Description of the Notes--Conversion Rights."
63
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the Underwriting Agreement
(the "Underwriting Agreement"), each of the several Underwriters named below
has severally agreed to purchase from the Company the principal amount of
Notes set forth opposite its name below, at the public offering price set
forth on the cover page of this Prospectus, less the underwriting discount:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
UNDERWRITERS NOTES
------------ ------------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation............ $
Salomon Brothers Inc...........................................
Deutsche Morgan Grenfell Inc...................................
NatWest Securities Limited.....................................
Smith Barney Inc. .............................................
------------
Total........................................................ $175,000,000
============
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the Notes offered hereby are
subject to approval of certain legal matters by counsel and to certain other
conditions. If any of the Notes are purchased by the Underwriters pursuant to
the Underwriting Agreement, all such Notes (other than those covered by the
over-allotment option described below) must be purchased.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments that the Underwriters may be required to make in respect thereof.
The Representatives have advised the Company that the Underwriters propose
to offer the Notes to the public initially at the price set forth on the cover
page of this Prospectus and to certain dealers (who may include the
Underwriters) at such price, less a concession not in excess of % of the
principal amount of the Notes. The Underwriters may allow, and such dealers
may re-allow, discounts not in excess of % of the principal amount of the
Notes to any other Underwriter and certain other dealers. After the Offerings,
the offering price and other selling terms may be changed by the Underwriters.
The Company has granted to the Underwriters an option to purchase up to an
additional $26,250,000 aggregate principal amount of the Notes, at the initial
public offering price less underwriting discounts and commissions, solely to
cover over-allotments. Such option may be exercised at any time until 30 days
after the date of this Prospectus. To the extent that the Underwriters
exercise such option, each of the Underwriters will be committed, subject to
certain conditions, to purchase an amount of Notes proportionate to such
Underwriter's initial commitment as indicated in the preceding table.
The Company and its executive officers and directors, and certain other
stockholders, who collectively are the beneficial owners of an aggregate of
12,389,192 shares of Common Stock, have agreed, subject to certain exceptions,
with the Underwriters not to, directly or indirectly, offer, sell, contract to
sell, grant any option to purchase or otherwise dispose of, without the prior
written consent of Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ"), any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for, or warrants, options or rights to purchase or
acquire, Common Stock or in any other manner transfer all or a portion of the
economic consequences associated with the ownership of any Common Stock, or
enter into any agreement to do any of the foregoing, for a period of 90 days
after the date of this Prospectus.
The Notes will constitute a new issue of securities with no established
trading market. The Underwriters presently intend to make a market in the
Notes. However, the Underwriters are not obligated to do so and any market-
making activities may be discontinued at any time without notice. Application
will be made to list the Notes on the New York Stock Exchange. However, no
assurance can be given that an active trading market for the Notes will
develop or, if such market develops, as to the liquidity or sustainability of
such market.
64
<PAGE>
DLJ has in the past provided, and may in the future provide, investment
banking services for the Company and an affiliate of DLJ has committed to
funding a portion of the Committed Credit Facilities. The Company has also
engaged DLJ to provide certain financial advisory services to the Company for
customary fees. Additionally, certain of the Underwriters are participating as
underwriters in the Common Stock Offerings.
LEGAL MATTERS
The valid issuance of the Notes offered hereby will be passed upon for the
Company by Damian C. Georgino, Vice President, General Counsel and Secretary
of the Company. Certain legal matters will be passed upon for the Company by
Kirkpatrick & Lockhart LLP, Pittsburgh, Pennsylvania, and for the Underwriters
by Skadden, Arps, Slate, Meagher & Flom, Los Angeles, California.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The consolidated financial statements of United States Filter Corporation
and its subsidiaries as of March 31, 1995 and 1996 and for each of the three
years in the period ended March 31, 1996, except for the consolidated
financial statements of Davis Water & Waste Industries, Inc. and its
subsidiaries as of April 30, 1996 and 1995 and for each of the three years in
the period ended April 30, 1996, have been audited by KPMG Peat Marwick LLP,
independent certified public accountants, as stated in their report appearing
herein and in the Registration Statement. The consolidated financial
statements of Davis Water & Waste Industries, Inc. and its subsidiaries, which
have been consolidated with those of the Company, have been audited by Price
Waterhouse LLP as stated in their report included herein. Such financial
statements of the Company and its consolidated subsidiaries are included
herein in reliance upon the report of such firms. Both of the foregoing
accounting firms are independent auditors.
The combined financial statements of the Systems and Manufacturing Group of
Wheelabrator Technologies Inc. as of December 31, 1994 and 1995 and for each
of the years in the three year period ended December 31, 1995 have been
included herein and in the Registration Statement in reliance upon the report
of KPMG Peat Marwick LLP, independent certified public accountants, which
report is included herein, and upon the authority of said firm as experts in
accounting and auditing.
The aggregated financial statements of the United Utilities PLC Process
Equipment Division as of March 31, 1996 and 1995 and for each of the years in
the two year period ended March 31, 1996 have been included herein and in the
Registration Statement in reliance upon the report of KPMG Audit Plc,
independent chartered accountants, which report is included herein, and upon
the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Davis Water & Waste Industries,
Inc. incorporated in this Prospectus by reference to the audited historical
financial statements included in United States Filter Corporation's Form 8-K
dated June 27, 1996 have been so incorporated in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
The consolidated financial statements of Zimpro Environmental, Inc. as of
December 31, 1995 and 1994 and for each of the three years in the period ended
December 31, 1995 incorporated herein by reference, have been audited by Ernst
& Young LLP, independent auditors, as set forth in their report thereon
incorporated by reference elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
The audited financial statements of WaterPro Supplies Corporation as of
December 31, 1995 and for the period from April 7, 1995 to December 31, 1995
included in this prospectus and elsewhere in the Registration Statement have
been audited by Arthur Andersen LLP, independent public accountants as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report.
65
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files periodic reports, proxy solicitation
materials and other information with the Commission. Such reports, proxy
solicitation materials and other information can be inspected and copied at
the public reference facilities maintained by the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
Regional Offices located at Seven World Trade Center, Suite 1300, New York,
New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such materials can also be obtained at prescribed rates from
the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. Such reports, proxy
and information statements and other information may be found at the
Commission's Web site address, http://www.sec.gov. The Common Stock is listed
on the New York Stock Exchange. Such reports, proxy solicitation materials and
other information can also be inspected and copied at the New York Stock
Exchange at 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission a registration statement on Form
S-3 (herein, together with all amendments and exhibits thereto, referred to as
the "Registration Statement") under the Securities Act, with respect to the
offering made hereby. This Prospectus does not contain all of the information
set forth in the Registration Statement, certain portions of which are omitted
in accordance with the rules and regulations of the Commission. Such
additional information may be obtained from the Commission's principal office
in Washington, D.C. as set forth above. For further information, reference is
hereby made to the Registration Statement, including the exhibits filed as a
part thereof or incorporated by reference therein. Statements made in this
Prospectus as to the contents of any documents referred to are not necessarily
complete, and in each instance reference is made to such exhibit for a more
complete description and each such statement is modified in its entirety by
such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission (File No.
1-10728) pursuant to the Exchange Act are incorporated herein by reference:
the Company's Annual Report on Form 10-K for the year ended March 31, 1996;
the Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1996; the Company's Current Reports on Form 8-K dated May 31, 1996 (as amended
on Form 8-K/A dated June 28, 1996), June 10, 1996, June 27, 1996, July 15,
1996 (two such Current Reports), August 23, 1996 and September 6, 1996; and
the description of the Common Stock contained in the Company's Registration
Statement on Form 8-A, as the same may be amended.
All reports and other documents filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering made by this
Prospectus shall be deemed to be incorporated by reference herein. Any
statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein or in any other subsequently filed document which also is incorporated
or deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of such person,
a copy of any or all of the documents that are incorporated herein by
reference, other than exhibits to such information (unless such exhibits are
specifically incorporated by reference into such documents). Requests should
be directed to the Vice President, General Counsel and Secretary of United
States Filter Corporation at 40-004 Cook Street, Palm Desert, California 92211
(telephone (619) 340-0098).
66
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNITED STATES FILTER CORPORATION
Independent Auditors' Report--KPMG Peat Marwick LLP....................... F-2
Report of Independent Accountants--Price Waterhouse LLP................... F-3
Financial Statements:
Consolidated Balance Sheets as of March 31, 1995 and 1996 and June 30,
1996 (unaudited)....................................................... F-4
Consolidated Statements of Operations for the Years Ended March 31,
1994, 1995 and 1996 and the three months ended June 30, 1995 and 1996
(unaudited)............................................................ F-6
Consolidated Statements of Shareholders' Equity for the Years Ended
March 31, 1994, 1995 and 1996 and the three months ended June 30, 1996
(unaudited)............................................................ F-7
Consolidated Statements of Cash Flows for the Years Ended March 31,
1994, 1995 and 1996 and the three months ended June 30, 1995 and 1996
(unaudited)............................................................ F-9
Notes to Consolidated Financial Statements.............................. F-11
WATERPRO SUPPLIES CORPORATION
Report of Independent Public Accountants--Arthur Andersen LLP............. F-29
Financial Statements:
Balance Sheets as of December 31, 1995 and June 30, 1996 (unaudited).... F-30
Statements of Operations For the Period From April 7, 1995 to December
31, 1995 and the six months ended June 30, 1996 (unaudited)............ F-31
Statements of Stockholders' Investment for the Period from April 7, 1995
to December 31, 1995 and the six months ended June 30, 1996
(unaudited)............................................................ F-32
Statements of Cash Flows for the Period April 7, 1995 to December 31,
1995 and the six months ended June 30, 1996 (unaudited)................ F-33
Notes to Financial Statements........................................... F-34
WHEELABRATOR TECHNOLOGIES INC.--SYSTEMS AND MANUFACTURING GROUP
Independent Auditors' Report--KPMG Peat Marwick LLP....................... F-37
Financial Statements:
Combined Balance Sheets as of December 31, 1994 and 1995 and June 30,
1996 (unaudited)....................................................... F-38
Combined Income Statements for the years ended December 31, 1993, 1994
and 1995 and the six months ended June 30, 1995 and 1996 (unaudited)... F-39
Combined Statements of Cash Flows for the years ended December 31, 1993,
1994 and 1995 and the six months ended June 30, 1995 and 1996
(unaudited)............................................................ F-40
Notes to Consolidated Financial Statements.............................. F-41
UNITED UTILITIES PLC--PROCESS DIVISION
Statement of United Utilities PLC directors' responsibilities............. F-47
Auditors' Report to the Board of Directors of United Utilities PLC--KPMG
Audit Plc ............................................................... F-48
Financial Statements:
Profit and Loss Account for the years ended March 31, 1996 and 1995 and
the three months ended June 30, 1995 and 1996 (unaudited).............. F-49
Balance Sheets as of March 31, 1996 and 1995 and June 30, 1996
(unaudited)............................................................ F-50
Cash Flow Statement for the year ended March 31, 1996................... F-51
Notes to Financial Statements .......................................... F-52
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
United States Filter Corporation:
We have audited the accompanying consolidated balance sheets of United
States Filter Corporation and subsidiaries as of March 31, 1995 and 1996, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the years in the three-year period ended March 31,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We did not audit the
consolidated financial statements of Davis Water & Waste Industries, Inc.,
which statements reflect total assets constituting 17 percent and 9 percent in
1995 and 1996, respectively, and total revenues constituting 49 percent, 42
percent and 31 percent in 1994, 1995 and 1996, respectively, of the related
consolidated totals. Those consolidated financial statements were audited by
other auditors whose report has been furnished to us, and our opinion, insofar
as it relates to the amounts included for Davis Water & Waste Industries,
Inc., is based solely on the report of the other auditors.
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 and the report of the other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of United States Filter Corporation
and subsidiaries as of March 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended March 31, 1996, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Orange County, California
June 7, 1996, except as to the
acquisitions of Davis Water & Waste
Industries, Inc. and Zimpro
Environmental Inc., which are as of
August 23, 1996 and May 31, 1996,
respectively, the common stock
split, which is as of July 15,
1996, and note 20 which is as of
October 7, 1996.
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of DAVIS WATER & WASTE INDUSTRIES, Inc.
In our opinion, the consolidated balance sheet and the related consolidated
statements of operations, of changes in stockholders' equity and of cash flows
of Davis Water & Waste Industries, Inc. and its subsidiaries (not presented
seperately herein) present fairly, in all material respects, their financial
position at April 30, 1996 and 1995, and the results of their operations and
their cash flows for each of the three years in the period ended April 30,
1996, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above. We have not audited the consolidated financial
statements of Davis Water & Waste Industries, Inc. and its subsidiaries for
any period subsequent to April 30, 1996.
Price Waterhouse LLP
Atlanta, Georgia
June 13, 1996
F-3
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1995 1996 JUNE 30, 1996
------------ ------------ -------------
(UNAUDITED)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents (note 2).... $ 20,020,000 $ 18,405,000 $ 9,523,000
Short-term investments (note 3)....... 2,418,000 65,000 1,443,000
Accounts receivable, less allowance
for doubtful accounts of $4,643,000
at March 31, 1995, $9,857,000 at
March 31, 1996 and $9,891,000 at June
30, 1996 (unaudited) (note 10)....... 138,891,000 218,855,000 205,888,000
Costs and estimated earnings in excess
of billings on uncompleted contracts
(note 10)............................ 21,808,000 33,575,000 45,743,000
Inventories (note 4).................. 55,328,000 75,313,000 77,865,000
Prepaid expenses...................... 3,489,000 7,922,000 9,225,000
Deferred taxes (note 14).............. 9,746,000 7,771,000 7,771,000
Other current assets.................. 6,882,000 10,073,000 10,810,000
------------ ------------ ------------
Total current assets............... 258,582,000 371,979,000 368,268,000
------------ ------------ ------------
Property, plant and equipment, net
(notes 5 and 11)...................... 79,495,000 165,989,000 169,754,000
Investment in leasehold interests, net
(note 6).............................. 20,390,000 27,688,000 27,392,000
Cost in excess of net assets of busi-
nesses acquired, net (notes 7 and 9).. 99,162,000 271,891,000 279,024,000
Other assets (note 8).................. 25,094,000 38,958,000 44,432,000
------------ ------------ ------------
$482,723,000 $876,505,000 $888,870,000
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--(CONTINUED)
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
JUNE 30,
1995 1996 1996
------------ ------------ ------------
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C>
Current liabilities:
Accounts payable...................... $ 64,478,000 $100,224,000 $ 86,785,000
Accrued liabilities (note 13)......... 50,684,000 102,415,000 97,795,000
Current portion of long-term debt
(note 11)............................ 4,336,000 7,892,000 1,677,000
Billings in excess of costs and
estimated earnings on uncompleted
contracts (note 10).................. 19,263,000 15,797,000 20,413,000
Other current liabilities............. 5,849,000 21,894,000 20,701,000
------------ ------------ ------------
Total current liabilities.......... 144,610,000 248,222,000 227,371,000
------------ ------------ ------------
Notes payable (note 11)................ 37,648,000 35,756,000 48,281,000
Long-term debt, excluding current por-
tion (note 11)........................ 15,132,000 9,788,000 9,247,000
Convertible subordinated debentures
(note 12)............................. 105,000,000 200,000,000 199,975,000
Deferred taxes (note 14)............... 8,293,000 1,223,000 1,929,000
Other liabilities...................... 5,162,000 13,015,000 16,921,000
------------ ------------ ------------
Total liabilities.................. 315,845,000 508,004,000 503,724,000
------------ ------------ ------------
Shareholders' equity (notes 9 and 15):
Series A voting cumulative convertible
preferred stock, $.10 par value, $25
liquidation preference. Authorized
and issued 880,000 shares at March
31, 1995............................. 22,071,000 -- --
Series B voting convertible preferred
stock, $.10 par value,
$27 liquidation preference.
Authorized 250,000 shares;
outstanding 185,185 shares at March
31, 1995............................. 3,506,000 -- --
Common stock, par value $.01.
Authorized 150,000,000 shares; issued
and outstanding 28,524,965 and
47,873,133 and 48,555,920 at March
31, 1995 and 1996, and June 30, 1996
(unaudited), respectively............ 209,000 338,000 343,000
Additional paid-in capital............ 145,224,000 351,254,000 362,470,000
Currency translation adjustment....... (2,026,000) 1,836,000 2,009,000
Retained earnings (accumulated defi-
cit)................................. (2,106,000) 15,073,000 20,324,000
------------ ------------ ------------
Total shareholders' equity......... 166,878,000 368,501,000 385,146,000
Commitments and contingencies (notes
11, 15, 16 and 18)
Subsequent events (notes 9 and 20).....
------------ ------------ ------------
$482,723,000 $876,505,000 $888,870,000
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE
YEARS ENDED MARCH 31, 30,
---------------------------------------- --------------------------
1994 1995 1996 1995 1996
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................ $412,512,000 $519,359,000 $727,903,000 $158,173,000 $208,509,000
Costs of sales.......... 326,848,000 398,755,000 538,573,000 119,323,000 152,174,000
------------ ------------ ------------ ------------ ------------
Gross profit.......... 85,664,000 120,604,000 189,330,000 38,850,000 56,335,000
Selling, general and
administrative
expenses............... 90,719,000 97,481,000 148,683,000 30,233,000 41,520,000
------------ ------------ ------------ ------------ ------------
Operating income
(loss)............... (5,055,000) 23,123,000 40,647,000 8,617,000 14,815,000
Other income (expense):
Interest expense....... (4,044,000) (7,514,000) (14,419,000) (3,012,000) (4,390,000)
Interest income and
other................. (7,382,000) 1,442,000 5,134,000 730,000 621,000
------------ ------------ ------------ ------------ ------------
(11,426,000) (6,072,000) (9,285,000) (2,282,000) (3,769,000)
------------ ------------ ------------ ------------ ------------
Income (loss) before
income tax expense
(benefit)............ (16,481,000) 17,051,000 31,362,000 6,335,000 11,046,000
Income tax expense
(benefit) (note 14).... (7,087,000) 4,812,000 12,055,000 1,996,000 3,043,000
------------ ------------ ------------ ------------ ------------
Net income (loss)..... $ (9,394,000) $ 12,239,000 $ 19,307,000 $ 4,339,000 $ 8,003,000
============ ============ ============ ============ ============
Net income (loss) per
common share (primary
and fully diluted)
(notes 1 and 15) after
reduction for dividends
on preferred stock of
$.03, $.02 and $.01 for
the years ended March
31, 1994, 1995 and
1996, respectively..... $ (0.41) $ 0.41 $ 0.45 $ 0.12 $ 0.16
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1994, 1995 AND 1996, AND THREE MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK RETAINED
--------------------- ------------------- ADDITIONAL CURRENCY EARNINGS
NUMBER OF NUMBER OF PAID-IN TRANSLATION (ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL ADJUSTMENT DEFICIT) TOTAL
--------- ----------- ---------- -------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31,
1993, as previously
reported............... 880,000 $22,071,000 16,622,261 $ 74,000 79,456,000 304,000 (22,274,000) 79,631,000
Restatement for
acquisitions of Zimpro
and Davis, acquired
through pooling of
interests (note 9)..... -- -- 5,694,960 57,000 13,656,000 -- 19,697,000 33,410,000
--------- ----------- ---------- -------- ----------- ---------- ----------- -----------
Balance at March 31,
1993, restated......... 880,000 22,071,000 22,317,221 131,000 93,112,000 304,000 (2,577,000) 113,041,000
Compensation related to
excess of fair value of
director stock options
over exercise price
(note 15).............. -- -- -- -- 80,000 -- -- 80,000
Exercise of common stock
options (note 15)...... -- -- 236,931 1,000 1,254,000 -- -- 1,255,000
Issuance of common stock
in connection with
acquisitions (note 9).. -- -- 4,585,122 20,000 48,469,000 -- -- 48,489,000
Dividends paid on
preferred stock
(note 15).............. -- -- -- -- -- -- (701,000) (701,000)
Shareholders' equity
transactions of
Liquipure, Zimpro and
Davis prior to merger.. -- -- -- -- 14,000 -- (203,000) (189,000)
Currency translation
adjustment............. -- -- -- -- -- (560,000) -- (560,000)
Net loss................ -- -- -- -- -- -- (9,394,000) (9,394,000)
--------- ----------- ---------- -------- ----------- ---------- ----------- -----------
Balance at March 31,
1994................... 880,000 22,071,000 27,139,274 152,000 142,929,000 (256,000) (12,875,000) 152,021,000
Net loss of Liquipure
for the three months
ended March 31, 1994
(note 9)............... -- -- -- -- -- -- (313,000) (313,000)
Compensation related to
excess of fair value of
director stock options
over exercise price
(note 15).............. -- -- -- -- 122,000 -- -- 122,000
Exercise of common stock
options (note 15)...... -- -- 241,040 2,000 1,420,000 -- -- 1,422,000
Issuance of common stock
in connection with
acquisitions (note 9).. -- -- 1,056,151 5,000 8,982,000 -- -- 8,987,000
Dividends paid on
preferred stock
(note 15).............. -- -- -- -- -- -- (715,000) (715,000)
Reduction in valuation
of common stock issued
in connection with
Ionpure acquisition
(note 9)............... -- -- -- -- (9,123,000) -- -- (9,123,000)
Preferred stock issued
in connection with
acquisition of Smogless
(note 9)............... 185,185 3,506,000 -- -- -- -- -- 3,506,000
Issuance of common stock
to pay off indebtedness
(note 9)............... -- -- 88,500 -- 700,000 -- -- 700,000
Par value of shares
issued in connection
with three-for-two
stock split (note 15).. -- -- -- 50,000 (50,000) -- -- --
Income tax benefit from
exercise of stock
options................ -- -- -- -- 387,000 -- -- 387,000
Shareholders' equity
transactions of Zimpro
and Davis prior to
merger................. -- -- -- -- (143,000) -- (442,000) (585,000)
Currency translation
adjustment............. -- -- -- -- -- (1,770,000) -- (1,770,000)
Net income.............. -- -- -- -- -- -- 12,239,000 12,239,000
--------- ----------- ---------- -------- ----------- ---------- ----------- -----------
Balance at March 31,
1995................... 1,065,185 $25,577,000 28,524,965 209,000 145,224,000 (2,026,000) (2,106,000) 166,878,000
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY--(CONTINUED)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK RETAINED
----------------------- ------------------- ADDITIONAL CURRENCY EARNINGS
NUMBER NUMBER OF PAID-IN TRANSLATION (ACCUMULATED
OF SHARES AMOUNT SHARES AMOUNT CAPITAL ADJUSTMENT DEFICIT) TOTAL
--------- ------------ ---------- -------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Compensation related to
excess of fair value of
director stock options
over exercise price
(note 15).............. -- $ -- -- $ -- 112,000 -- -- 112,000
Conversion of preferred
shares to common shares
(note 15).............. (925,667) (22,936,000) 2,082,750 14,000 22,922,000 -- -- --
Redemption of Series B
convertible preferred
stock (note 15)........ (139,518) (2,641,000) -- -- (2,068,000) -- -- (4,709,000)
Issuance of common stock
in connection with
acquisitions (note 9).. -- -- 2,453,411 16,000 36,284,000 -- -- 36,300,000
Shares issued through
public offering, net of
offering costs of
$6,106,000
(note 15).............. -- -- 10,350,000 69,000 97,325,000 -- -- 97,394,000
Conversion of
subordinated debentures
to common stock (note
12).................... -- -- 3,750,000 25,000 44,975,000 -- -- 45,000,000
Dividends paid on
preferred stock (note
15).................... -- -- -- -- -- -- (715,000) (715,000)
Exercise of common stock
options (note 15)...... -- -- 487,885 3,000 3,678,000 -- -- 3,681,000
Issuance of common stock
to acquire assets (note
15).................... -- -- 224,122 2,000 2,974,000 -- -- 2,976,000
Shareholders' equity
transactions of Zimpro
and Davis prior to
merger................. -- -- -- -- (172,000) -- (1,413,000) (1,585,000)
Currency translation
adjustment............. -- -- -- -- -- 3,862,000 -- 3,862,000
Net income.............. -- -- -- -- -- -- 19,307,000 19,307,000
-------- ------------ ---------- -------- ----------- --------- ---------- -----------
Balance at March 31,
1996................... -- -- 47,873,133 338,000 351,254,000 1,836,000 15,073,000 368,501,000
Net loss of Zimpro for
the three months ended
March 31, 1996 (note 9)
(unaudited) ........... -- -- -- -- -- -- (606,000) (606,000)
Exercise of common stock
options (unaudited) ... -- -- 74,546 1,000 687,000 -- -- 688,000
Issuance of common stock
in connection with
acquisitions
(unaudited) ........... -- -- 433,923 3,000 7,038,000 -- -- 7,041,000
Shareholders' equity
transactions of Zimpro
and Davis prior to
merger (unaudited) .... -- -- -- -- 132,000 -- (2,146,000) (2,014,000)
Issuance of common stock
to pay off indebtedness
(unaudited) ........... -- -- 172,491 1,000 3,334,000 -- -- 3,335,000
Conversion of
subordinated debentures
to common stock
(unaudited) ........... -- -- 1,827 -- 25,000 -- -- 25,000
Currency translation
adjustment (unaudited)
....................... -- -- -- -- -- 173,000 -- 173,000
Net income (unaudited) . -- -- -- -- -- -- 8,003,000 8,003,000
-------- ------------ ---------- -------- ----------- --------- ---------- -----------
Balance at June 30, 1996
(unaudited)............ -- $ -- 48,555,920 $343,000 362,470,000 2,009,000 20,324,000 385,146,000
======== ============ ========== ======== =========== ========= ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED MARCH 31, ENDED JUNE 30,
----------------------------------------- -------------------------
1994 1995 1996 1995 1996
------------ ------------ ------------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income (loss)..... $ (9,394,000) $ 12,239,000 $ 19,307,000 $ 4,339,000 $ 8,003,000
Adjustments to
reconcile net income
(loss) to net cash
provided by (used in)
operating activities:
Deferred income taxes. (9,281,000) 713,000 (4,479,000) 218,000 --
Depreciation and
amortization......... 11,292,000 16,654,000 26,580,000 5,119,000 10,076,000
Provision for doubtful
accounts............. 1,326,000 2,030,000 5,929,000 800,000 668,000
(Gain) loss on sale of
property and
equipment............ 81,000 388,000 (243,000) (161,000) 1,000
Stock and stock option
compensation......... 80,000 122,000 112,000 28,000 --
(Decrease) increase in
closure reserves and
write off of
intangible assets.... 12,633,000 (1,480,000) 768,000 (800,000) 151,000
Change in operating
assets and
liabilities:
(Increase) decrease
in accounts
receivable.......... (13,737,000) (6,966,000) (25,900,000) (4,602,000) 16,103,000
(Increase) decrease
in costs and
estimated earnings
in excess of
billings on
uncompleted
contracts........... (11,820,000) 2,046,000 (4,599,000) (10,970,000) (12,086,000)
Increase in
inventories......... (4,510,000) (5,016,000) (4,215,000) (6,290,000) (2,494,000)
(Increase) decrease
in prepaid expenses
and other assets.... 608,000 (3,763,000) (7,055,000) (4,500,000) (8,225,000)
Increase (decrease)
in accounts payable
and accrued
expenses............ 15,283,000 (14,110,000) (1,726,000) (8,555,000) (15,777,000)
Increase (decrease)
in billings in
excess of costs and
estimated earnings
on uncompleted
contracts........... 866,000 2,529,000 (4,096,000) (2,282,000) 4,574,000
Increase (decrease)
in other
liabilities......... 50,000 (2,117,000) (725,000) 7,078,000 (1,929,000)
------------ ------------ ------------- ------------ -----------
Net cash provided by
(used in) operating
activities......... (6,523,000) 3,269,000 (342,000) (20,578,000) (935,000)
------------ ------------ ------------- ------------ -----------
Cash flows from
investing activities:
Investment in
leasehold interests.. (15,766,000) (6,397,000) (8,347,000) -- --
Purchase of property,
plant and equipment.. (8,050,000) (18,304,000) (28,392,000) (4,100,000) (11,427,000)
Proceeds from disposal
of equipment......... 252,000 877,000 7,670,000 1,283,000 79,000
(Purchase) sale of
short-term
investments.......... (15,625,000) 13,207,000 9,938,000 (2,979,000) (1,378,000)
Payment for purchase
of acquisitions, net
of cash acquired..... (987,000) (2,240,000) (206,600,000) (91,739,000) (5,209,000)
------------ ------------ ------------- ------------ -----------
Net cash used in
investing
activities......... (40,176,000) (12,857,000) (225,731,000) (97,535,000) (17,935,000)
------------ ------------ ------------- ------------ -----------
Cash flows from
financing activities:
Net proceeds from sale
(purchase) of common
stock................ 14,000 (164,000) 97,232,000 97,862,000 924,000
Net proceeds from sale
of convertible
subordinated
debentures........... 57,923,000 -- 136,249,000 -- --
Proceeds from exercise
of common stock
options.............. 1,242,000 1,422,000 3,681,000 -- --
Principal payments of
debt................. (56,572,000) (65,409,000) (72,347,000) (13,912,000) (16,308,000)
Dividends paid........ (861,000) (1,136,000) (2,138,000) (494,000) (40,000)
Payment to repurchase
Series B preferred
stock................ -- -- (4,709,000) -- --
Net proceeds from
borrowings on note
payable.............. 57,638,000 74,678,000 66,490,000 23,629,000 25,412,000
------------ ------------ ------------- ------------ -----------
Net cash provided by
financing
activities......... 59,384,000 9,391,000 224,458,000 107,085,000 9,988,000
------------ ------------ ------------- ------------ -----------
Net increase
(decrease) in cash
and cash
equivalents........ 12,685,000 (197,000) (1,615,000) (11,028,000) (8,882,000)
Cash and cash
equivalents at
beginning of period... 7,532,000 20,217,000 20,020,000 20,020,000 18,405,000
------------ ------------ ------------- ------------ -----------
Cash and cash
equivalents at end of
period................ $ 20,217,000 $ 20,020,000 $ 18,405,000 $ 8,992,000 $ 9,523,000
============ ============ ============= ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED JUNE 30,
---------- ---------- ----------- ---------------------
1994 1995 1996 1995 1996
---------- ---------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Supplemental disclosures
of cash flow
information:
Cash paid during the
period for interest... $2,786,000 $7,603,000 $14,615,000 $3,341,000 $3,242,000
========== ========== =========== ========== ==========
Cash paid during the
period for income
taxes................. $1,709,000 $2,626,000 $ 6,807,000 $ 357,000 $1,424,000
========== ========== =========== ========== ==========
Noncash investing and
financing activities
consisted of the fol-
lowing:
Common stock issued:
Satisfaction of debt.. $ -- $ 700,000 $ -- $ -- $ --
Conversion of
debentures........... -- -- 45,000,000 -- --
Purchase of property.. -- -- 2,976,000 -- --
Property, plant and
equipment exchanged
for receivables....... -- -- 5,318,000 -- --
---------- ---------- ----------- ---------- ----------
$ -- $ 700,000 $53,294,000 $ -- $ --
========== ========== =========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1994, 1995 AND 1996 AND THE
THREE MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of
United States Filter Corporation and its wholly owned subsidiaries (the
"Company") (see note 9). All significant intercompany accounts and
transactions have been eliminated in consolidation.
REVENUE RECOGNITION
Method of Accounting for Contracts
The accounting records of the Company are maintained and income is reported
for financial reporting and income tax purposes for long-term contracts
principally under the percentage-of-completion method of accounting. Under
this method, an estimated percentage for each contract, based on the cost of
work performed to date that has contributed to contract performance compared
to the total estimated cost, is applied to total estimated revenue. Provision
is made for the entire amount of future estimated losses on contracts in
progress in the period in which such losses are determined. Claims for
additional contract compensation due the Company are not reflected in the
accounts until the year in which such claims are allowed, except where
contract terms specifically provide for certain claims.
Contract costs include all direct material and labor and those indirect
costs related to contract performance. General and administrative expenses are
charged to expense as incurred.
Products and Services
Sales of other products and services are recorded as products are shipped or
services rendered.
INCOME TAXES
The Company follows Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Under this method, deferred tax liabilities and
assets are determined based on the difference between the financial statement
and tax bases of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse.
United States income taxes are not provided on the undistributed earnings of
its foreign subsidiaries as such earnings are intended to be indefinitely
reinvested in those operations.
FOREIGN CURRENCY TRANSLATION
In accordance with Statement of Financial Accounting Standard No. 52,
"Foreign Currency Translation," the assets and liabilities denominated in
foreign currency are translated into U.S. dollars at the current rate of
exchange existing at period-end and revenues and expenses are translated at
the average monthly exchange rates. Translation adjustments are included as a
separate component of shareholders' equity. The transaction gains and losses
included in net income (loss) are immaterial.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.
F-11
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is calculated
on the straight-line method over the estimated useful lives of the respective
assets which range from 3 to 25 years. Leasehold improvements are amortized on
the straight-line method over the lesser of their estimated useful lives or
the related lease term.
COST IN EXCESS OF NET ASSETS OF BUSINESSES ACQUIRED
Cost in excess of net assets of businesses acquired is amortized on the
straight-line method principally over 40 years. The Company evaluates the
recoverability of these costs based upon expectations of nondiscounted cash
flows and operating income of each subsidiary. Based upon its most recent
analysis, the Company believes that no material impairment exists at March 31,
1996.
INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES
Investments in unconsolidated joint ventures are accounted for using the
equity method, under which the Company's share of earnings or losses from
these joint ventures is reflected in income as earned and dividends are
credited against the investment when received.
UNAMORTIZED DEBT ISSUANCE COSTS
Unamortized debt issuance costs, aggregating $1,735,000 and $5,450,000 at
March 31, 1995 and 1996, respectively, have been deferred and are being
amortized over the term of the related convertible subordinated debentures
(note 12).
WARRANTIES
The Company's products are generally under warranty against defects in
material and workmanship for a period of one year. The Company has accrued for
estimated future warranty costs.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, short-term investments,
accounts receivable, accounts payable, and accrued liabilities approximate
fair value because of the short maturity of these instruments. The carrying
amount of the Company's revolving credit facility approximates its fair value
because the interest rate on the instrument changes with market interest
rates. The fair value of the Company's long-term debt (including current
portion) is estimated to be equal to the carrying amounts based on quoted
market prices for similar issues or on the current rates offered to the
Company for debt of the same remaining securities.
RECLASSIFICATIONS
Certain amounts in the 1995 consolidated financial statements have been
reclassified to conform with the 1996 presentation.
F-12
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements for the three months ended June 30,
1995 and 1996 are unaudited. In the opinion of management, all adjustments,
consisting only of normal recurring items, considered necessary for a fair
presentation have been included. Certain information and footnote disclosures
normally included in financial statements have been condensed or omitted from
the interim consolidated financial statements. The results of operations for
the three months ended June 30, 1996 are not necessarily indicative of the
results that may be expected for the year ending March 31, 1997.
INCOME (LOSS) PER COMMON SHARE
Income (loss) per common share is computed based on the weighted average
number of shares outstanding. Common stock equivalents consisting of
convertible preferred stock and options are included in the computation of
income (loss) per share when their effect is dilutive.
Primary and fully diluted income (loss) per common share were calculated as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED MARCH 31, JUNE 30,
-------------------------------------- ----------------------
1994 1995 1996 1995 1996
------------ ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net income (loss)....... $ (9,394,000) $12,239,000 $19,307,000 $4,339,000 $8,003,000
Dividends on preferred
stock.................. (701,000) (715,000) (536,000) (179,000) --
------------ ----------- ----------- ---------- ----------
Adjusted net income
(loss) applicable to
common shares.......... $(10,095,000) $11,524,000 $18,771,000 $4,160,000 $8,003,000
============ =========== =========== ========== ==========
Weighted average shares
outstanding............ 23,934,000 27,866,000 41,036,000 35,009,000 48,370,000
Add:
Exercise of options
reduced by the number
of shares purchased
with proceeds......... 441,000 369,000 1,123,000 690,000 1,581,000
------------ ----------- ----------- ---------- ----------
Adjusted weighted
average shares
outstanding............ 24,375,000 28,235,000 42,159,000 35,699,000 49,951,000
============ =========== =========== ========== ==========
Income (loss) per common
share:
Net income (loss)..... $ (0.38) $ 0.43 $ 0.46 $ 0.12 $ 0.16
Dividends on preferred
stock................ (0.03) (0.02) (0.01) (0.00) (0.00)
------------ ----------- ----------- ---------- ----------
Adjusted income (loss)
per common share....... $ (0.41) $ 0.41 $ 0.45 $ 0.12 $ 0.16
============ =========== =========== ========== ==========
</TABLE>
On March 4, 1996, the preferred shareholder tendered its Series A Preferred
stock for conversion into Company common stock thus eliminating further
dividends (see note 15).
(2) CASH AND CASH EQUIVALENTS
Cash equivalents consist of demand deposits and certificates of deposit with
original maturities of 90 days or less.
(3) SHORT-TERM INVESTMENTS
Short-term investments consist of highly liquid municipal issues with
original maturities of more than 90 days when purchased, and are carried at
amortized cost, which approximates market value.
F-13
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(4) INVENTORIES
Inventories at March 31, 1995 and 1996 and June 30, 1996 (unaudited) consist
of:
<TABLE>
<CAPTION>
MARCH 31,
----------------------- JUNE 30,
1995 1996 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials............................ $15,298,000 $21,578,000 $24,303,000
Work-in-process.......................... 13,436,000 17,997,000 17,764,000
Finished goods........................... 26,594,000 35,738,000 35,798,000
----------- ----------- -----------
$55,328,000 $75,313,000 $77,865,000
=========== =========== ===========
</TABLE>
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at March 31, 1995 and 1996 consist of:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Land............................................. $ 4,352,000 $ 8,988,000
Buildings and improvements....................... 32,879,000 41,338,000
Equipment........................................ 55,068,000 129,903,000
Furniture and fixtures........................... 13,456,000 24,812,000
Vehicles......................................... 1,185,000 2,719,000
Construction in progress......................... 5,370,000 17,191,000
------------ ------------
112,310,000 224,951,000
Less accumulated depreciation.................... (32,815,000) (58,962,000)
------------ ------------
$ 79,495,000 $165,989,000
============ ============
</TABLE>
During fiscal 1996, the Company's Zimpro subsidiary (note 9) evaluated the
ongoing value of equipment in accordance with Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed Of ("FAS 121"). Based upon this
evaluation, it was determined that certain equipment with a carrying value of
$768,000 was impaired and was written down by $689,000 to its estimated fair
value.
(6) INVESTMENT IN LEASEHOLD INTERESTS
The Company has concession agreements to build and operate wastewater
treatment plants in Mexico. The terms of the concessions are approximately 15
to 18 years, as amended, and include monthly payments to be received by the
Company at various prices per cubic meter of sewage treated at the facilities
based upon the Company's initial investments, fixed operating expenses and
variable operating expenses. The Company is amortizing the investments on a
straight-line basis over the terms of the concessions. Accumulated
amortization at March 31, 1995 and 1996 totaled $955,000 and $2,026,000,
respectively. The investments are stated at cost which does not exceed market
based on projected non-discounted future cash flows.
(7) COST IN EXCESS OF NET ASSETS OF BUSINESSES ACQUIRED
Cost in excess of net assets of businesses acquired and accumulated
amortization at March 31, 1995 and 1996 consists of the following:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Cost in excess of net assets of businesses
acquired...................................... $104,831,000 $283,275,000
Less accumulated amortization.................. (5,669,000) (11,384,000)
------------ ------------
$ 99,162,000 $271,891,000
============ ============
</TABLE>
F-14
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) OTHER ASSETS
Other assets at March 31, 1995 and 1996 consist of:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Investment in unconsolidated joint ventures......... $ 7,592,000 $12,419,000
Long-term receivables and advances.................. 3,508,000 6,415,000
Other assets at amortized cost:
Operating permits and development costs........... 1,819,000 1,212,000
Deferred debt costs............................... 1,735,000 5,450,000
Patents........................................... 4,355,000 2,469,000
Other............................................... 6,085,000 10,993,000
----------- -----------
$25,094,000 $38,958,000
=========== ===========
</TABLE>
The above amounts reflect accumulated amortization of $4,600,000 and
$1,982,000 at March 31, 1995 and 1996, respectively. The carrying amount of
these other assets approximate their fair value.
During fiscal 1996, the Company's Zimpro subsidiary evaluated the ongoing
value of certain patents in accordance with FAS 121. Based upon this
evaluation, it was determined that patents with a carrying value of $3,556,000
were impaired and were written down by $2,648,000 to their estimated fair
value.
During the fourth quarter of fiscal 1994, the Company's Davis subsidiary
(note 9) adopted a plan to shutdown or reorganize the operations of its
wholly-owned subsidiary, The Taulman Company ("Taulman"). The pre-tax loss
provision for these actions recorded in fiscal 1994 includes the write-off of
intangible assets totaling $2,908,000 associated with Taulman and the accrual
of $5,987,000 to provide for anticipated losses during the shutdown period.
During fiscal 1995, an additional $678,000 was added to the accrual for future
anticipated losses.
The Taulman shutdown represents the discontinuation of a product line.
Therefore, Taulman's results of operations through the fourth quarter of
fiscal 1994 were included as components of continuing operations in the
consolidated statement of operations for fiscal 1994. Taulman's results of
operations during fiscal 1995, 1996 and in future periods have been or will be
charged against the reserve for anticipated losses during the shutdown period.
As of March 31, 1996 the balance in the reserve was $2,082,000. Certain
income, expense, asset and liability information with respect to Taulman for
the three most recent fiscal years is as follows:
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR
ENDED MARCH 31,
-------------------------------
1994 1995 1996
---------- ---------- ---------
<S> <C> <C> <C>
Net sales............... 15,871,000 11,252,000 4,843,000
Cost of products sold... 14,465,000 9,791,000 5,370,000
Selling, general and
administrative expense. 4,302,000 3,445,000 1,913,000
Assets.................. 12,523,000 5,252,000 3,626,000
Liabilities............. 10,111,000 2,614,000 2,730,000
</TABLE>
(9) ACQUISITIONS
On May 31, 1996, a wholly owned subsidiary of the Company merged with and
into Zimpro Environmental, Inc. ("Zimpro"), in a tax free reorganization. In
connection with this acquisition, the Company issued 877,611 shares of the
Company's common stock for all of the outstanding common and preferred shares
of Zimpro pursuant to an Agreement and Plan of Merger among the Company,
Landegger Environmental Holdings, Inc., The Black Clawson Company, a trust,
and two limited partnerships in the John Hancock Capital Growth Fund
F-15
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
("The Hancock Funds") (collectively the "Stockholders"). In addition, the
Company liquidated existing indebtedness to The Hancock Funds in exchange for
172,491 shares of Company common stock and $1,000,000 in cash.
Zimpro, based in Wisconsin, manufactures wastewater treatment equipment with
proprietary technologies in wet air oxidation, landfill leachate treatment
systems, ground water remediation, filtration and sludge treatment systems.
This transaction has been accounted for as a pooling of interests and,
accordingly, the consolidated financial statements and notes thereto for all
periods presented have been restated to include the accounts and operations of
Zimpro.
On August 23, 1996, the businesses of the Company and Davis Water & Waste
Industries, Inc. ("Davis"), were merged upon the exchange of 4,817,349 shares
of the Company's common stock for all of the outstanding common and shares of
Davis pursuant to an Agreement and Plan of Merger between the Company and
Davis.
Davis manufactures and markets products relating to the distribution of
water and wastewater. Davis also designs, engineers, manufactures, sells and
installs water and wastewater treatment equipment to comply with applicable
health and water quality standards.
This transaction has been accounted for as a pooling of interests and,
accordingly, the consolidated financial statements and notes thereto for all
periods presented have been restated to include the accounts and operations of
Davis.
Separate results of operations of the combined entities for the years ended
March 31, 1994, 1995 and 1996 and the three months ended June 30, 1995 and
1996 (unaudited) are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31, JUNE 30,
--------------------------------------- --------------------------
1994 1995 1996 1995 1996
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
U.S. Filter (as
previously reported).. $180,421,000 $272,032,000 $472,537,000 $ 91,539,000 $150,801,000
Zimpro................. 29,470,000 31,678,000 28,877,000 6,950,000 --
Davis.................. 202,621,000 215,649,000 226,489,000 59,684,000 57,708,000
------------ ------------ ------------ ------------ ------------
Combined............ $412,512,000 $519,359,000 $727,903,000 $158,173,000 $208,509,000
============ ============ ============ ============ ============
Net income (loss)
U.S. Filter (as
previously reported).. $ (2,541,000) $ 8,331,000 $ 20,290,000 $ 3,359,000 $ 6,917,000
Zimpro................. (1,513,000) 460,000 (6,732,000) (182,000) --
Davis.................. (5,340,000) 3,448,000 5,749,000 1,162,000 1,086,000
------------ ------------ ------------ ------------ ------------
Combined............ $ (9,394,000) $ 12,239,000 $ 19,307,000 $ 4,339,000 $ 8,003,000
============ ============ ============ ============ ============
Net income (loss) per
common share and common
equivalent share:
As previously reported. $ (0.17) $ 0.34 $ 0.54 $ 0.11 $ 0.15
============ ============ ============ ============ ============
As restated............ $ (0.41) $ 0.41 $ 0.45 $ 0.12 $ 0.16
============ ============ ============ ============ ============
</TABLE>
F-16
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On October 2, 1995, the Company completed the acquisition of all of the
outstanding capital stock of Polymetrics, Inc., and subsidiaries, a California
corporation ("Polymetrics"), pursuant to a Stock Purchase Agreement dated as
of August 30, 1995, as amended, between the Company and Anjou International
Company, a U.S. subsidiary of Compagnie Generale des Eaux of France. The total
purchase price for the acquisition of Polymetrics including acquisition costs,
was approximately $60,200,000 consisting of $51,700,000 in cash and the
delivery of 586,844 shares of Company common stock. The transaction was
effective as of October 1, 1995.
Polymetrics designs, manufactures, installs and services water treatment
systems for the electronics, pharmaceutical, laboratory, power generation and
cogeneration industries. Polymetrics also provides water treatment services,
including service deionization ("SDI"). The acquisition of Polymetrics has
been accounted for as a purchase and, accordingly, the results of operations
of Polymetrics are included in the Company's consolidated statement of
operations from the date of acquisition. The excess of fair value of net
assets acquired was approximately $47,600,000 and is being amortized on a
straight-line basis over 40 years.
On August 11, 1995, the Company purchased substantially all of the assets
and assumed certain liabilities of Continental H/2/O Services, Inc., d/b/a
Interlake Water Systems, an Illinois corporation ("Interlake"), pursuant to an
Asset Purchase Agreement among the Company, Interlake and the Stockholders of
Interlake. The acquisition was effective as of August 1, 1995. The purchase
price for the acquisition of Interlake, including acquisition costs, was
approximately $27,100,000 consisting of $20,100,000 in cash and the delivery
of 498,054 shares of Company common stock.
Interlake provides water treatment services, including SDI, in Illinois and
Michigan. In addition, Interlake sells and services a broad range of complex
water treatment systems and was the largest distributor of the
Company's Continental product line in the United States. The acquisition of
Interlake has been accounted for as a purchase and, accordingly, the results
of operations of Interlake are included in the Company's consolidated
statements of operations from the date of acquisition. The excess of fair
value of net assets acquired was approximately $19,000,000, and is being
amortized on a straight-line basis over 40 years.
On April 3, 1995, the Company acquired all of the outstanding capital stock
of The Permutit Company Limited, a U.K. corporation, and The Permutit Company
Pty. Ltd., an Australian corporation (collectively "The Permutit Group"),
pursuant to a Share Purchase Agreement between the Company and Thames Water
PLC, a U.K. corporation. The aggregate purchase price was approximately
$10,000,000 and was paid entirely in cash.
The Permutit Group provides a range of products, including pre-engineered
water treatment systems for the pharmaceutical, laboratory and chemical
markets and other commercial customers. The acquisition of The Permutit Group
has been accounted for as a purchase and, accordingly, the results of
operations of The Permutit Group are included in the Company's consolidated
statements of operations from the date of acquisition. The excess of cost over
fair value of net assets acquired was approximately $7,200,000 and is being
amortized on a straight-line basis over 40 years.
On May 4, 1995, the Company completed the acquisition of all of the
outstanding capital stock of Arrowhead Industrial Water, Inc. ("AIW") from The
B.F. Goodrich Company ("Goodrich") pursuant to a Stock Purchase Agreement
dated as of February 27, 1995, as amended. The acquisition was effective as of
April 30, 1995. The purchase price, as adjusted, was $84,300,000 consisting of
$82,000,000 in cash and the delivery of 131,616 shares of Company common
stock.
AIW, headquartered in Lincolnshire, Illinois, is a supplier of owned and
operated on-site industrial water treatment systems in the United States and
also provides emergency and temporary mobile water treatment systems.
F-17
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The acquisition of AIW has been accounted for as a purchase and,
accordingly, the results of operations of AIW are included in the Company's
consolidated statements of operations from the date of acquisition. The excess
of fair value of net assets acquired was approximately $36,400,000 and is
being amortized on a straight-line basis over 40 years.
During the year ended March 31, 1996, the Company completed other
acquisitions with an aggregate purchase price of approximately $58,900,000,
consisting of $40,084,000 in cash and the delivery of 1,232,166 shares of
Company Common Stock. The excess of fair value of net assets acquired was
approximately $68,200,000, and is being amortized on a straight-line basis
over 40 years.
Supplementary information related to the acquisitions of Polymetrics,
Interlake, The Permutit Group and AIW for the March 31, 1996 consolidated
statement of cash flows is as follows:
<TABLE>
<S> <C>
Assets acquired................................................ $230,986,000
Liabilities assumed............................................ (50,911,000)
Common stock issued............................................ (17,484,000)
------------
Cash paid...................................................... 162,591,000
Fees and expenses.............................................. 1,514,000
Less cash acquired............................................. (894,000)
------------
Net cash paid................................................ $163,211,000
============
</TABLE>
Summarized below are the unaudited pro forma results of operations of the
Company as though Polymetrics, Interlake, The Permutit Group and AIW had been
acquired on April 1, 1994:
<TABLE>
<CAPTION>
1995 1996
------------ -------------
<S> <C> <C>
Revenue.......................................... $398,187,000 $ 508,783,000
============ =============
Net income....................................... $ 7,039,000 $ 21,164,000
============ =============
Net income per common share...................... $ 0.27 $ 0.55
============ =============
</TABLE>
On August 10, 1994, the Company acquired from Millipore Corporation the
Ceraflo(R) ceramic product line. The total price of the product line was
approximately $2,500,000 and consisted of 304,094 shares of Company common
stock.
On July 27, 1994, the Company acquired Seral Erich Alhauser GmbH ("Seral")
by means of a purchase of Seral's outstanding capital stock. The total
purchase price was $8,100,000 and consisted of $4,250,000 in cash and 450,000
shares of Company common stock. Seral, located in Germany, designs,
manufactures, installs and services water purification products and systems.
The acquisition has been accounted for as a purchase and, accordingly, the
results of operations of Seral are included in the Company's consolidated
statement of operations for the period from the date of acquisition to March
31, 1995.
The excess cost over the fair value of net assets acquired was approximately
$8,222,000 and is being amortized on a straight-line basis over 40 years.
On November 30, 1994, the Company completed the acquisition of the Crouzat
Group ("Crouzat") by means of a purchase of all of Crouzat's outstanding
capital stock. The total purchase price was $5,750,000, of which $4,640,000
was paid in cash at closing, with three annual payments of $370,000 in 1995,
1996 and 1997. Crouzat comprises three sites in France and primarily services
ultrapure water purification products and had revenues in 1994 of
approximately $6,000,000. The acquisition has been accounted for as a purchase
and,
F-18
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
accordingly, the results of the operations of Crouzat are included in the
consolidated statement of operations for the period from the date of
acquisition to March 31, 1995. The excess cost over the fair value of net
assets acquired was approximately $3,800,000 and is being amortized on a
straight-line basis over 40 years.
On May 27, 1994, the Company completed the acquisition of Sation, S.A.
("Sation") by means of a purchase of all of Sation's outstanding capital
stock. The total purchase price of $1,546,000 consisted of $755,000 in cash
and 84,375 shares of Company stock. Sation, located in Barcelona, Spain,
primarily services ultrapure water purification products. The acquisition has
been accounted for as a purchase and, accordingly, the results of operations
of Sation are included in the Company's consolidated statement of operations
for the period from the date of acquisition to March 31, 1995. The excess cost
over the fair value of net assets acquired was $1,148,000 and is being
amortized on a straight-line basis over 40 years.
Effective August 31, 1994, the Company, through two of the Company's
subsidiaries, acquired all of the outstanding capital stock of Smogless S.p.A.
("Smogless") from Laidlaw, Inc. The total consideration for the acquisition of
Smogless (excluding acquisition costs of $396,000) consists of the following:
(i) $45,000,000 in aggregate principal amount of subordinated debt of Ionpure
Italy due August 31, 2001 and bearing interest at 6.5% for the period January
1, 1995 through September 30, 1995 and 4.5% thereafter, (ii) common stock
purchase warrants exercisable in whole or part at any time on or before August
31, 2001 by the surrender of the subordinated debt at the rate of $12.00 in
principal amount of subordinated debt for each share of common stock, (iii)
185,185 shares of a new Series B Voting Convertible Preferred Stock, (iv)
27,000 shares of the Company's common stock, and (v) $700,000 in cash.
Smogless is headquartered in Milan, Italy and provides a broad range of
services for wastewater treatment, including feasibility studies, process
evaluation, plant design, construction and commissioning and design of
specialized machinery.
The acquisition of Smogless has been accounted for as a purchase and,
accordingly, the results of operations of Smogless for the 7 months ended
March 31, 1995 are included in the Company's consolidated statement of
operations for the year ended March 31, 1995. The excess of cost over fair
value of net assets acquired was approximately $39,340,000 and is being
amortized on a straight-line basis over 40 years. Supplementary information
related to the acquisitions of Seral, Crouzat, Sation and Smogless for the
consolidated statement of cash flows for the year ended March 31, 1995 is as
follows:
<TABLE>
<S> <C>
Assets acquired............................................... $ 136,327,000
Liabilities assumed........................................... (117,641,000)
Preferred stock issued........................................ (3,506,000)
Common stock issued........................................... (4,835,000)
-------------
Cash paid..................................................... 10,345,000
Fees and expenses............................................. 1,117,000
Less cash acquired............................................ (9,707,000)
-------------
Net cash acquired........................................... $ 1,755,000
=============
</TABLE>
Summarized below are the unaudited pro forma results of operations of the
Company as though Smogless had been acquired on April 1, 1993:
<TABLE>
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
Revenues......................................... $230,538,000 $293,104,000
============ ============
Net income....................................... $ 526,000 $ 10,400,000
============ ============
Net income (loss) per common share............... $ (0.01) $ 0.43
============ ============
</TABLE>
F-19
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On July 8, 1994, the business of the Company and Liquipure Technologies,
Inc. ("Liquipure") were merged upon the exchange of 2,778,332 shares of the
Company's common stock for all of the outstanding common and preferred shares
of Liquipure. In addition, the Company issued 67,500 shares of its common
stock to one of the shareholders of Liquipure in satisfaction of a $700,000
loan, plus accrued interest.
Liquipure, based in Connecticut, provides SDI products and services through
company operated and franchised dealers, and designs, manufactures, installs
and services ultrapure water purification products and systems primarily for
the pharmaceutical market and also manufactures standard, ultrapure water
products for the laboratory market.
This transaction has been accounted for as a pooling of interests and,
accordingly, the consolidated financial statements and notes thereto for all
periods presented have been restated to include the accounts and operations of
Liquipure. Separate results of operations of the combined entities for the
year ended March 31, 1994 are as follows:
<TABLE>
<CAPTION>
1994
------------
<S> <C>
Revenues:
U.S. Filter (as previously reported)......................... $147,870,000
Liquipure.................................................... 32,551,000
------------
Combined.................................................. $180,421,000
============
Net income (loss):
U.S. Filter (as previously reported)......................... $ 4,986,000
Liquipure.................................................... (7,527,000)
------------
Combined.................................................. $ (2,541,000)
============
</TABLE>
Separate unaudited results of operations of the combined entities for the
period April 1, 1994 to the effective date of the merger and included in the
consolidated statement of operations for the year ended March 31, 1995 are as
follows:
<TABLE>
<CAPTION>
NET INCOME
REVENUES (LOSS)
----------- ----------
<S> <C> <C>
U.S. Filter.......................................... $47,857,000 $1,414,000
Liquipure............................................ 7,206,000 (307,000)
----------- ----------
Combined......................................... $55,063,000 $1,107,000
=========== ==========
</TABLE>
All pro forma information presented above is in response to applicable
accounting rules relating to business acquisitions. This pro forma information
does not purport to be indicative of the results that actually would have been
obtained if the combined operations had been conducted during the periods
presented and is not intended to be a projection of future results due to
extensive changes being made in the organization, facilities, personnel and
other costs of the acquired companies.
F-20
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(10) CONTRACT BILLING STATUS
Information with respect to the billing status of contracts in process at
March 31, 1995 and 1996 is as follows:
<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Contract costs incurred to date............... $ 143,886,000 $ 243,976,000
Estimated profits............................. 47,904,000 80,700,000
------------- -------------
Contract revenue earned to date............... 191,790,000 324,676,000
Less billings to date......................... (189,245,000) (306,898,000)
------------- -------------
Cost and estimated earnings in excess of bill-
ings, net.................................... $ 2,545,000 $ 17,778,000
============= =============
</TABLE>
The above amounts are included in the accompanying consolidated balance sheets
as:
<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Costs and estimated earnings in excess of
billings on uncompleted contracts............ $ 21,808,000 $ 33,575,000
Billings in excess of costs and estimated
earnings on uncompleted contracts............ (19,263,000) (15,797,000)
------------- -------------
$ 2,545,000 $ 17,778,000
============= =============
</TABLE>
Accounts receivable include retainage which has been billed, but is not due
pursuant to retainage provisions in construction contracts until completion of
performance and acceptance by the customer. This retainage aggregated $5,729,000
and $4,760,000 at March 31, 1995 and 1996, respectively. Substantially all
retained balances are collectible within one year.
(11) LONG-TERM DEBT
Long-term debt at March 31, 1995 and 1996 consists of the following:
<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Mortgage notes payable, secured by land and
buildings, interest rates ranging from 2% to
8.5%, due in 1999 through 2009............... $ 7,396,000 $ 7,180,000
Guaranteed bank notes, interest rates ranging
from 6.0% to 9.2%, due in 1997 through 2004.. 1,911,000 1,276,000
Unsecured notes payable, interest rates
ranging from 7% to 11.5%, due in 1997 through
1999......................................... 1,353,000 1,007,000
Other......................................... 8,808,000 8,217,000
------------- -------------
19,468,000 17,680,000
Less current portion.......................... (4,336,000) (7,892,000)
------------- -------------
$ 15,132,000 $ 9,788,000
============= =============
</TABLE>
The aggregate maturities of long-term debt for each of the five years
subsequent to March 31, 1996 are as follows: 1997, $7,892,000; 1998, $1,494,000;
1999, $815,000; 2000, $598,000; 2001, $580,000; and thereafter, $6,301,000.
The Company has a long-term, unsecured revolving line of credit with a bank
of up to $135,000,000, of which $30,413,000 was outstanding at March 31, 1996.
The line of credit expires November 30, 1999 and bears interest at the bank's
prime rate plus 0.25% or, in certain circumstances, Eurodollar rate. The line
of credit is
F-21
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
subject to certain covenants for which the Company was in compliance at March
31, 1996. At March 31, 1996, $14,036,000 of standby letters of credit were
issued under this line of credit.
The Company's Davis subsidiary had a long-term, secured revolving line of
credit with a bank of up to $30,000,000, of which $5,343,000 was outstanding
at March 31, 1996. This line of credit bore interest at the bank's prime rate
or, in certain circumstances, LIBOR plus or minus various basis points.
(12) CONVERTIBLE SUBORDINATED DEBENTURES
On October 20, 1993, the Company sold $60,000,000 aggregate principal amount
of 5% convertible subordinated debentures due October 15, 2000. The debentures
are convertible into common stock at any time prior to maturity, redemption or
repurchase at a conversion price of $13.67 per share, subject to adjustment in
certain circumstances. The debentures are not redeemable prior to October 25,
1996, at which time the debentures are redeemable at the option of the
Company, in whole or in part, at specified redemption prices plus accrued and
unpaid interest to the date of redemption. Interest is payable on April 15 and
October 15, commencing April 15, 1994.
On September 18, 1995 the Company sold $140,000,000 aggregate principal
amount of 6% Convertible Subordinated Notes due September 15, 2005. The notes
are convertible into common stock at any time prior to maturity, redemption or
repurchase at a conversion price of $18.33 per share, subject to adjustment in
certain circumstances. The notes are not redeemable prior to September 23,
1998 at which time the notes are redeemable at the option of the Company, in
whole or in part, at specified redemption prices plus accrued and unpaid
interest to the date of redemption. Interest is payable semi-annually on March
15 and September 15 of each year, commencing on March 15, 1996.
Effective August 31, 1994, the Company issued $45,000,000 of subordinated
debt with common stock purchase warrants in connection with the acquisition of
Smogless (see note 9). On September 18, 1995, these warrants to purchase
3,750,000 shares of Company common stock were exercised in exchange for the
delivery of the $45,000,000 principal amount of subordinated debt.
(13) ACCRUED LIABILITIES
Accrued liabilities at March 31, 1995 and 1996 consist of the following:
<TABLE>
<CAPTION>
1995 1996
----------- ------------
<S> <C> <C>
Accrued job costs, start-up and customer deposits. $10,916,000 $ 26,329,000
Payroll, benefits and related taxes............... 9,008,000 18,450,000
Warranty.......................................... 3,866,000 6,631,000
Sales, property and other taxes................... 5,653,000 5,335,000
Interest.......................................... 1,771,000 3,204,000
Sales commission.................................. 2,949,000 3,674,000
Future remediation, relocation & closure costs.... 4,807,000 21,968,000
Other............................................. 11,714,000 16,824,000
----------- ------------
$50,684,000 $102,415,000
=========== ============
</TABLE>
F-22
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(14) INCOME TAXES
Income tax expense (benefit) from continuing operations for the years ended
March 31, 1994, 1995 and 1996 consist of:
<TABLE>
<CAPTION>
1994 1995 1996
----------- ---------- -----------
<S> <C> <C> <C>
Federal:
Current.............................. $ 1,343,000 $2,274,000 $ 3,484,000
Deferred............................. (7,864,000) 736,000 1,872,000
State:
Current.............................. 265,000 682,000 878,000
Deferred............................. (850,000) (454,000) (504,000)
Foreign:
Current.............................. 19,000 20,000 4,085,000
Deferred............................. -- 1,554,000 2,240,000
----------- ---------- -----------
$(7,087,000) $4,812,000 $12,055,000
=========== ========== ===========
</TABLE>
Total income tax expense (benefit) differed from the amounts computed by
applying the U.S. Federal corporate tax rate of 34% for 1994 and 1995 and 35%
for 1996 to income from continuing operations before income taxes as a result
of the following:
<TABLE>
<CAPTION>
1994 1995 1996
----------- ---------- -----------
<S> <C> <C> <C>
Expected income tax provision
(benefit)............................ $(5,603,000) $5,797,000 $10,976,000
Permanent differences................. (300,000) 24,000 1,573,000
State franchise tax, net of Federal
tax benefit.......................... (406,000) 346,000 666,000
Change in balance of valuation
allowance for deferred tax assets
allocated to income tax expense...... (2,930,000) (1,392,000) (2,590,000)
Net operating loss carryforward unable
to be utilized....................... 2,559,000 -- --
Difference in U.S. tax rate and
foreign tax rates.................... -- 511,000 2,032,000
Benefit of foreign net operating loss
carryforwards........................ (255,000) (581,000) (761,000)
Other................................. (152,000) 107,000 159,000
----------- ---------- -----------
$(7,087,000) $4,812,000 $12,055,000
=========== ========== ===========
</TABLE>
As of March 31, 1996, the Company has net operating loss carryforwards in
France of approximately $19,952,000. Approximately $1,946,000 of the operating
losses expire in the years 1997-1998, while the remainder have an indefinite
carryforward period. Any benefit of the French loss carryforward must be
shared equally between the Company and Alcoa until March 31, 1997. As of March
31, 1996, the Company also has net operating loss carryforwards in other
European countries of approximately $7,338,000 which expire from 1997 to 2002.
As of March 31, 1996, the Company also has net operating loss carryforwards
generated from Liquipure of $14,362,000, which has been recognized in fiscal
1996. These loss carryforwards expire from 2002 to 2007. In addition, the
Company has net operating loss carryforwards generated from Zimpro of
$2,905,000, which have not been recognized due to the uncertainty as to future
realizability of these carryforwards. These loss carryforwards expire in 2009.
The Company also has available, at March 31, 1996, other net operating loss
and foreign tax credit carryforwards for U.S. Federal income tax purposes of
approximately $13,552,000 which expire in 1999 to 2010.
F-23
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The sources and tax effects of temporary differences between the financial
statement carrying amounts and tax basis of assets and liabilities are as
follows:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Deferred tax assets:
Operating loss carryforwards.................... $ 17,077,000 $ 27,664,000
Pension......................................... 725,000 832,000
Inventory....................................... 2,288,000 3,540,000
Allowance for doubtful accounts................. 1,196,000 1,776,000
Long-term contracts............................. 1,084,000 175,000
Warranty........................................ 822,000 1,837,000
Vacation........................................ 712,000 1,030,000
Other accruals.................................. 668,000 1,134,000
Tax credits..................................... 258,000 501,000
Closure reserves................................ 2,488,000 1,524,000
Other........................................... 1,677,000 3,936,000
------------ ------------
28,995,000 43,949,000
Valuation allowance............................. (10,503,000) (19,946,000)
------------ ------------
Total deferred tax assets.................... 18,492,000 24,003,000
Deferred tax liabilities:
Depreciation and amortization................... 7,148,000 12,129,000
Prepaid expenses................................ 243,000 500,000
Long-term contracts............................. -- 4,206,000
Other........................................... 9,648,000 620,000
------------ ------------
17,039,000 17,455,000
------------ ------------
Net deferred tax assets...................... $ 1,453,000 $ 6,548,000
============ ============
</TABLE>
The Company believes that it is more likely than not that the net deferred
tax assets, including Federal net operating loss carryforwards, will be
realized prior to their expiration. This belief is based on recent and
anticipated future earnings and, in part, on the fact that the Company has
completed several acquisitions during and including the three years ended
March 31, 1996 of companies with strong earnings potential. A valuation
allowance of $19,946,000 at March 31, 1996 has been recognized and consists
primarily of state and foreign net operating losses which may not be realized
prior to their expiration periods.
(15) SHAREHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
In January 1992 and September 1994, the Company issued 880,000 shares of a
new Series A Cumulative Convertible Preferred Stock and 185,185 shares of a
new Series B Convertible Preferred Stock, respectively, in connection with
acquisitions. On September 18, 1995, the Company repurchased and canceled
139,518 shares of Series B Preferred stock for $4,709,000, and converted
45,667 shares of Series B Preferred Stock into 102,750 shares of Company
common stock. On March 4, 1996, the holder of the Company's Series A Preferred
Stock tendered the 880,000 preferred shares for conversion into 1,980,000
shares of Company common stock pursuant to terms of the security.
F-24
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
COMMON STOCK
On December 5, 1994, the Company paid in the form of a stock dividend a 3-
for-2 split of the Company's common stock. The par value of the new shares
issued was $50,000 which was transferred from additional paid-in-capital to
the common stock account. All references to income (loss) per share and other
common stock
information in the accompanying consolidated financial statements and notes
thereto have been restated to reflect the 3-for-2 split.
On May 3, 1995, the Company completed an underwritten public offering of
10,350,000 shares of its common stock at a price equal to $10.00 per share.
The net proceeds to the Company, after underwriting discounts and commissions
and before other related expenses, were $98,118,000.
On July 15, 1996, the Company paid in the form of a stock dividend a 3-for-2
split of the Company's common stock. All references to income (loss) per share
and other common stock information in the accompanying consolidated financial
statements and notes thereto have been restated to reflect the 3-for-2 split.
OPTIONS
Under the Company's 1991 Employee Stock Option Plan (the "Plan"), the
exercise price of options granted is equal to their fair market value at the
date of grant and the maximum term of the option may not exceed 10 years. If
the optionee is a holder of more than 10% of the outstanding common stock of
the Company, the option price per share is increased to at least 110% of fair
market value, and the option term is limited to 5 years. The total number of
shares of common stock authorized under the Plan is 3,881,250 shares. Each
option granted becomes exercisable on a cumulative basis, 25% six months
following the date of grant and 25% on each subsequent anniversary of the
grant date.
Under the Company's 1991 Director Stock Option Plan (the "Directors Plan"),
the exercise price of options granted was equal to the higher of $2.00 below
the market price or 60% of the market price on the date of grant. Effective
April 1, 1996 the Directors Plan was amended to grant options equal to their
fair market value at the date of grant. Under the Plan, each director of the
Company who is not a full-time employee of the Company will receive each year
an option to purchase 12,000 shares of common stock. The total number of
shares available under the Directors Plan is 562,500 shares. Compensation
expense of $80,000, $122,000 and $112,000 was recorded in 1994, 1995 and 1996,
respectively, related to the Directors Plan.
Transactions involving the Plan and Directors Plan are summarized as
follows:
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE
SHARES EXERCISE PRICE VALUE
--------- -------------- -----------
<S> <C> <C> <C>
Balance at March 31, 1993............. 1,499,793 $1.35 to 22.67 $10,525,000
Options granted....................... 719,459 1.35 to 10.95 6,904,000
Options exercised..................... (236,931) 2.45 to 9.28 (1,255,000)
Options canceled...................... (56,439) 7.33 to 22.67 (532,000)
--------- -------------- -----------
Balance at March 31, 1994............. 1,925,882 1.35 to 10.95 15,642,000
Options granted....................... 898,290 1.35 to 10.59 7,650,000
Options exercised..................... (241,040) 2.45 to 9.83 (1,422,000)
Options canceled...................... (40,785) 7.33 to 9.83 (375,000)
--------- -------------- -----------
Balance at March 31, 1995............. 2,542,347 1.35 to 10.95 21,495,000
Options granted....................... 1,013,250 9.04 to 18.67 12,764,000
Options exercised..................... (487,886) 1.35 to 10.95 (3,678,000)
Options canceled...................... (20,626) 8.53 to 10.58 (183,000)
--------- -------------- -----------
Balance at March 31, 1996............. 3,047,085 $1.35 to 18.67 $30,398,000
========= ============== ===========
</TABLE>
F-25
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In connection with the warrants, options, convertible debentures and
preferred stock, the Company has reserved 13,342,754 shares at March 31, 1995
and 15,474,000 shares at March 31, 1996 for future issuance.
(16) RETIREMENT PLANS
Pursuant to the terms of a collective bargaining agreement, one of the
Company's U.S. subsidiaries has a defined benefit pension plan covering
substantially all of its hourly employees. Pension plan benefits are
generally based upon years of service and compensation. The Company's funding
policy is to contribute at least the minimum amounts required by the Employee
Retirement Income Security Act of 1974 or additional amounts to assure that
plan assets will be adequate to provide retirement benefits. Plan assets are
invested in broadly diversified portfolios of government obligations, mutual
funds and fixed income and equity securities. The accumulated benefit
obligation under this plan is not material to the consolidated financial
statements.
The Company has a defined contribution plan (under IRC Section 401(k))
covering substantially all U.S. salaried and hourly participating employees
which provide for contributions based primarily upon compensation levels and
employee contributions. The Company funds its contributions to these plans as
accrued. Defined contribution plan expense to the Company was $519,000,
$810,000 and $1,631,000 for the years ended March 31, 1994, 1995 and 1996,
respectively.
The Company's Davis subsidiary had a defined benefit pension plan covering
substantially all of its employees. Upon acquisition of Davis by the Company,
the defined benefit pension plan was frozen and all liabilities have been
fully accrued. The pension plan expense for prior years was not significant.
(17) BUSINESS SEGMENT DATA AND EXPORT SALES
The Company's sole business segment is the design, manufacture, operation,
distribution and service of equipment and supplies for filtration, water
treatment and wastewater treatment for industrial and municipal customers.
There were no sales to any individual customers which accounted for 10% or
more of revenue in fiscal 1994, 1995 and 1996.
Export sales accounted for $28,881,000, $37,940,000 and $58,560,000 in
fiscal 1994, 1995 and 1996, respectively.
Information about the Company's operations in different geographic locations
for the years ended March 31, 1994, 1995 and 1996 is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------------- ------------ ------------
<S> <C> <C> <C>
Revenues from unaffiliated
customers:
United States.................. $ 364,593,000 $406,593,000 $515,036,000
Foreign........................ 47,919,000 112,766,000 212,867,000
------------- ------------ ------------
$412,512,000 $519,359,000 $727,903,000
============= ============ ============
Operating income (loss):
United States.................. $ (6,318,000) $ 16,695,000 $ 23,566,000
Foreign........................ 1,263,000 6,428,000 17,081,000
------------- ------------ ------------
$ (5,055,000) $ 23,123,000 $ 40,647,000
============= ============ ============
Identifiable assets:
United States.................. $ 332,700,000 $318,594,000 $574,838,000
Foreign........................ 24,654,000 164,129,000 301,667,000
------------- ------------ ------------
$ 357,354,000 $482,723,000 $876,505,000
============= ============ ============
</TABLE>
F-26
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(18) COMMITMENTS AND CONTINGENT LIABILITIES
COMMITMENTS
The Company and its subsidiaries lease certain facilities and equipment
under various noncancelable and month-to-month leases. These leases are
accounted for as operating leases. Rent expense aggregated $6,521,000,
$8,033,000 and $8,991,000 in 1994, 1995 and 1996, respectively.
A summary of the future minimum annual rental commitments as of March 31,
1996, under operating leases follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
-----------
<S> <C>
Fiscal year ending:
1997........................................................... $ 7,481,000
1998........................................................... 5,852,000
1999........................................................... 5,073,000
2000........................................................... 2,591,000
2001........................................................... 1,180,000
Thereafter..................................................... 960,000
-----------
Total minimum lease payments................................... $23,137,000
===========
</TABLE>
CONTINGENT LIABILITIES
In December of 1995, allegations were made by federal and state
environmental regulatory authorities of multiple violations in connection with
wastewater discharges at a facility owned by the Company. The facility was
acquired by the Company as part of its acquisition of Polymetrics on October
2, 1995 (note 9). The Company has rights of indemnity from the seller which
could be available if monetary damages and penalties are incurred in
connection with any alleged violations occurring prior to the Company's
acquisition of Polymetrics. In the opinion of management, the ultimate
liability that may result from the above matter will not have a material
adverse effect on the Company's consolidated financial position or results of
operations.
Legal proceedings pending against the Company consist of litigation
incidental to the Company's business and in the opinion of management, based
in part upon the opinion of counsel, the outcome of such litigation will not
materially affect the Company's consolidated financial position or results of
operations.
(19) QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
GROSS NET INCOME
REVENUES PROFIT NET INCOME PER SHARE*
------------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
1995
First quarter................ $113,638,000 $24,761,000 $1,801,000 $0.06
Second quarter............... 130,522,000 30,324,000 3,215,000 0.11
Third quarter................ 133,027,000 31,195,000 3,192,000 0.11
Fourth quarter............... 142,172,000 34,324,000 4,031,000 0.13
1996
First quarter................ $158,173,000 $38,850,000 $4,339,000 $0.12
Second quarter............... 173,927,000 46,156,000 6,371,000 0.15
Third quarter................ 186,663,000 49,172,000 7,002,000 0.15
Fourth quarter............... 209,140,000 55,152,000 1,595,000 0.03
1997
First quarter................ $208,509,000 $56,335,000 $8,003,000 $0.16
</TABLE>
- ---------------------
* Per common and common equivalent share
F-27
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(20) SUBSEQUENT EVENTS
On September 6, 1996, the Company entered into an agreement and plan of
merger with various parties in connection with a proposed acquisition by the
Company of all of the outstanding capital stock of the Utility Supply Group,
Inc. ("USG"). The purchase price for USG will be approximately $44,000,000,
consisting of approximately $22,000,000 of the Company's common stock and
assumption of USG debt of approximately $22,000,000. USG is a leading provider
of water and wastewater related products and services to industrial and
municipal customers through 30 offices in the United States.
USG had revenues of $156,838,000 and net income of $1,048,000 for the year
ended December 31, 1995. The proposed transaction is expected to be completed
in October 1996, and will be accounted for as a purchase.
On September 10, 1996, the Company entered into a stock purchase agreement
in connection with a proposed acquisition of WaterPro Supplies Corporation
("WaterPro"). The purchase price for WaterPro will be approximately
$101,600,000, consisting entirely of the Company's common stock. WaterPro is
the largest national distributor of water and wastewater related products and
services for municipal water, sewer authorities and underground contractors,
and has 43 locations throughout the United States.
WaterPro had revenues of $187,540,000 and net income of $2,329,000 for the
period April 7, 1995 to December 31, 1995. The proposed transaction is
expected to be completed in October 1996, and will be accounted for as a
purchase.
On September 14, 1996, the Company entered into a purchase and sale
agreement with Wheelabrator Technologies Inc. ("Wheelabrator") in connection
with a proposed acquisition by the Company of Wheelabrator's Water Systems and
Manufacturing Group ("WSMG"). Pursuant to the terms of the definitive
agreement, the Company will pay approximately $369,600,000 in cash for WSMG,
which provides a broad range of water and wastewater engineering, technology
and systems.
In addition, the Company and Wheelabrator announced an agreement in
principle to establish a joint venture to develop, finance, own and operate
water and wastewater infrastructure in North America.
WSMG had revenues of $293,207,000, $364,335,000 and $452,134,000 for the
years ended December 31, 1993, 1994 and 1995, respectively. In addition, WSMG
had net income of $13,454,000, $13,226,000 and $16,361,000 for the years ended
December 31, 1993, 1994 and 1995, respectively. The proposed transaction is
expected to be completed in November 1996, and will be accounted for as a
purchase.
On October 7, 1996, the Company entered into a purchase and sale agreement
with United Utilities PLC and certain of its subsidiaries in connection with a
proposed acquisition by the Company of its Process Equipment Division ("PED").
In accordance with the terms of the definitive agreement, the Company will pay
approximately $150,000,000 in cash and approximately $35,000,000 in common
stock for PED, which provides a broad range of water and wastewater
engineering technology and systems.
PED had revenues of $254,955,000 and $267,358,000 for the years ended
March 31, 1995 and 1996, respectively, and net loss of $13,576,000 and
$39,496,000 for the years ended March 31, 1995 and 1996, respectively. The
proposed transaction is expected to be completed in December 1996, and will be
accounted for as a purchase.
F-28
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
WaterPro Supplies Corporation:
We have audited the accompanying balance sheet of WaterPro Supplies
Corporation as of December 31, 1995, and the related statements of operations,
stockholders' investment and cash flows for the period from April 7, 1995 to
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our 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 financial statements referred to above present fairly,
in all material respects, the financial position of WaterPro Supplies
Corporation as of December 31, 1995, and the results of its operations and its
cash flows for the period from April 7, 1995 to December 31, 1995, in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Minneapolis, Minnesota,
February 8, 1996
F-29
<PAGE>
WATERPRO SUPPLIES CORPORATION
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER JUNE 30,
31, 1995 1996
-------- -----------
(UNAUDITED)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................... $ 1,508 $ --
Trade accounts receivable, less allowance for doubtful
accounts of $233 in 1995 and $338 in 1996.............. 46,730 62,018
Inventories............................................. 19,707 28,443
Other current assets.................................... 1,780 1,673
------- --------
Total current assets.................................. 69,725 92,134
------- --------
PROPERTY AND EQUIPMENT:
Land, buildings and leasehold improvements.............. 2,189 2,224
Machinery and equipment................................. 9,763 9,722
Accumulated depreciation................................ (5,622) (6,541)
------- --------
Net property and equipment............................ 6,330 5,405
OTHER ASSETS, principally goodwill........................ 14,715 14,203
------- --------
$90,770 $111,742
======= ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Revolving credit line with Parent....................... $56,400 $ 60,679
Accounts payable........................................ 18,567 34,601
Accrued liabilities..................................... 5,331 5,887
Income taxes payable.................................... 3,092 1,865
------- --------
Total current liabilities............................. 83,390 103,032
DEFERRED INCOME TAXES..................................... 51 151
------- --------
Total liabilities..................................... 83,441 103,183
------- --------
COMMITMENTS AND CONTINGENCIES (Note 6)....................
STOCKHOLDERS' INVESTMENT:
Common stock, $.01 par value, 200,000 shares authorized;
50,000 shares issued and outstanding 1 1
Paid-in capital......................................... 4,999 4,999
Retained earnings....................................... 2,329 3,559
------- --------
Total stockholders' investment........................ 7,329 8,559
------- --------
$90,770 $111,742
======= ========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-30
<PAGE>
WATERPRO SUPPLIES CORPORATION
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 7, 1995 TO SIX MONTHS ENDED
DECEMBER 31,1995 JUNE 30, 1996
---------------- ----------------
(UNAUDITED)
<S> <C> <C>
NET SALES................... $187,540 $137,304
COST OF SALES............... 156,180 112,893
-------- --------
Gross profit............ 31,360 24,411
-------- --------
OPERATING EXPENSES:
Warehouse and delivery.... 4,182 3,375
Selling................... 5,878 5,032
General and
administrative........... 13,992 11,809
-------- --------
Total operating
expenses............... 24,052 20,216
-------- --------
Income from operations.. 7,308 4,195
OTHER INCOME (EXPENSE):
Interest expense.......... (3,593) (2,282)
Other income, net......... 291 229
-------- --------
Income before provision
for income taxes....... 4,006 2,142
PROVISION FOR INCOME TAXES.. 1,677 912
-------- --------
NET INCOME.................. $ 2,329 $ 1,230
======== ========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-31
<PAGE>
WATERPRO SUPPLIES CORPORATION
STATEMENTS OF STOCKHOLDERS' INVESTMENT
FOR THE PERIOD FROM APRIL 7, 1995 TO DECEMBER 31, 1995 AND THE
SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS INVESTMENT
------ ------ ------- -------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, April 7, 1995............ 50,000 $ 1 $4,999 $ -- $5,000
Net income...................... -- -- -- 2,329 2,329
------ --- ------ ------ ------
BALANCE, December 31, 1995........ 50,000 1 4,999 2,329 7,329
Net income (unaudited).......... -- -- -- 1,230 1,230
------ --- ------ ------ ------
BALANCE, June 30, 1996
(unaudited)...................... 50,000 $1 $4,999 $3,559 $8,559
====== === ====== ====== ======
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-32
<PAGE>
WATERPRO SUPPLIES CORPORATION
STATEMENT OF CASH FLOWS (IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
APRIL 7, 1995 TO ENDED JUNE 30,
DECEMBER 31, 1995 1996
----------------- --------------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income.................................. $ 2,329 $ 1,230
Adjustments to reconcile net income to net
cash provided by operating activities--
Depreciation and amortization............. 2,050 1,282
Deferred income taxes..................... (1,416) 164
Change in current operating items:
Trade accounts receivable............... (3,057) (15,462)
Inventories............................. 5,276 (8,922)
Other current assets.................... 53 43
Accounts payable........................ 3,195 16,034
Accrued liabilities..................... 1,931 556
Provision for losses on accounts
receivable............................. 233 175
Provision for inventory devaluation..... 77 186
Income taxes payable.................... 3,094 (1,228)
-------- -------
Net cash provided by operating
activities........................... 13,765 (5,942)
-------- -------
INVESTING ACTIVITIES:
Acquisition, net of cash paid............... (16,596) --
(Purchases)/disposals of property and
equipment (net)............................ (341) 155
-------- -------
Net cash used by investing activities. (16,937) 155
-------- -------
FINANCING ACTIVITIES:
Net borrowings from Parent.................. 5,955 4,279
-------- -------
Net cash used by financing activities. 5,955 4,279
-------- -------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................. 2,783 (1,508)
CASH AND CASH EQUIVALENTS, beginning of
period....................................... (1,275) 1,508
-------- -------
CASH AND CASH EQUIVALENTS, end of period...... $ 1,508 $ --
======== =======
NONCASH DISCLOSURES:
Interest paid............................... $ 3,219 $ 2,287
Taxes paid.................................. $ 25 $ 1,949
======== =======
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-33
<PAGE>
WATERPRO SUPPLIES CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. DESCRIPTION OF BUSINESS:
WaterPro Supplies Corporation (the Company), a Massachusetts corporation, is
principally engaged in the wholesale distribution of components for repairing
and expanding municipal water supply and wastewater collections systems.
Management has made estimates that affect the reported amounts and disclosure
of contingencies at the date of the financial statements. The ultimate results
could differ from those estimates.
WaterPro Supplies Corporation was acquired by Edmundson International, Inc.
(the Parent), along with related parties, effective April 7, 1995 under an
agreement dated March 2, 1995. Under the agreement, the Parent paid $52.8
million in cash for 100% of the stock of the Company. The amount of the
purchase price was pushed down to the Company in the form of a note totaling
$47.8 million and equity of $5.0 million. The acquisition was accounted for
using the purchase method of accounting, and as such, the purchase price was
allocated to the assets and liabilities acquired based on the estimated fair
values at the acquisition date. The acquisition price exceeded the underlying
equity in net assets by $12.9 million, which is being amortized over a period
of 15 years. The statement of operations is presented for the period from the
acquisition date of April 7, 1995 to December 31, 1995.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash Equivalents
The Company considers all financial instruments which are highly liquid, are
readily convertible to cash and have original maturities of three months or
less to be cash equivalents. Cash and cash equivalents include cash and money
market funds.
Inventories
Inventories are stated at the lower of cost or market using the weighted-
average pricing method, which approximates the first-in, first-out (FIFO)
method. At December 31, 1995, inventory is stated net of reserves of $876,000
which are provided based on a formula to recognize slow-moving and obsolete
inventory.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided
principally using the straight-line method over the estimated useful lives of
the related assets for financial reporting purposes and, in certain instances,
on an accelerated basis for income tax reporting purposes. Lives used for
computing depreciation are as follows:
<TABLE>
<S> <C>
Land improvements.............................................. 5-15 years
Buildings...................................................... 40 years
Machinery and equipment........................................ 3-5 years
</TABLE>
Other Assets
Other assets consists principally of goodwill which is being amortized over
15 years. Amounts are shown on the accompanying balance sheet net of $638,000
of accumulated amortization.
Income Taxes
The Company is a part of the Parent's consolidated federal income tax
return. Under a tax sharing arrangement with the Parent, the proportionate
share of all benefits and liabilities are allocated back and recorded
F-34
<PAGE>
WATERPRO SUPPLIES CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
by the Company. As such, all related tax assets and liabilities are recorded
as if the Company were filing a return on a stand-alone basis.
The Company maintains its income taxes under the liability method, whereby
deferred income tax assets and liabilities are recognized for the differences
between financial and income tax reporting bases of assets and liabilities
based on enacted tax rates and laws.
Accounting Pronouncements
During 1995, the Company adopted Financial Accounting Standards Board
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" (SFAS 121). SFAS 121 establishes
accounting standards for the recognition and measurement of impairment of
long-lived assets to be held or disposed. The adoption of SFAS 121 did not
have a material impact on the Company's financial position or results of
operations.
Unaudited Interim Financial Statements
The financial statements for the six months ended June 30, 1996 are
unaudited. In the opinion of management, all adjustments, consisting only of
normal recurring items, considered necessary for a fair presentation have been
included. Certain information and footnote disclosures normally included in
financial statements have been condensed or omitted from the interim financial
statements. The results of operations for the six months ended June 30, 1996
are not necessarily indicative of the results that may be expected for the
year ending December 31, 1996.
3. ACQUISITION:
On December 17, 1995, the Company acquired the Utility Systems Division of
Price Brothers Company (Price Brothers) in an asset purchase agreement. Under
the arrangement, the Company paid $16.6 million in cash. Certain real estate
was also purchased directly by the Parent and leased back to the Company. The
acquisition was accounted for using the purchase method of accounting, and as
such, the purchase price was allocated to the assets and liabilities acquired
based on their estimated fair values at the date of the acquisition. The
acquisition cost exceeded the underlying equity in net assets by approximately
$2.5 million, which is being amortized over a period of 15 years.
4. FINANCING ARRANGEMENTS:
The Company has a $75.0 million revolving credit line with the Parent
available to meets its working capital needs and for acquisition activity. The
Company had $56.4 million outstanding on the line of credit as of December 31,
1995. Interest is charged based on the prime rate in effect at the beginning
of each month.
5. INCOME TAXES:
A summary of the components of the provision for income taxes for the period
April 7 to December 31, 1995 is as follows (in thousands):
<TABLE>
<S> <C>
Current:
Federal........................................................ $ 2,444
State.......................................................... 649
Deferred......................................................... (1,416)
-------
$ 1,677
=======
</TABLE>
F-35
<PAGE>
WATERPRO SUPPLIES CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995
A reconciliation of income taxes computed using the statutory federal income
tax rate and recorded provision for income taxes during the period April 7 to
December 31, 1995 is as follows (in thousands):
<TABLE>
<S> <C>
Federal income taxes.............................................. $1,501
State income taxes, net of federal tax benefit.................. 229
Other differences............................................... (53)
------
Provision for income taxes...................................... $1,677
======
</TABLE>
The significant components of the deferred tax asset and liability accounts
are as follows as of December 31, 1995 (in thousands):
<TABLE>
<S> <C>
Current deferred tax assets:
Accruals and reserves not currently deductible.................. $1,465
------
Total......................................................... $1,465
======
Noncurrent deferred tax liabilities:
Depreciation.................................................... $ 151
------
Total......................................................... $ 151
======
</TABLE>
6. COMMITMENTS AND CONTINGENCIES:
Operating Leases
The Company has entered into operating lease agreements, principally for
warehouse and office space. Certain of these lease agreements are with related
entities. Rent expense related to these leases was $36,000 in 1995. Rent
expense and other costs associated with all leases were $1,549,000 in the
period April 7 to December 31, 1995. Combined future minimum lease payments
are as follows (in thousands):
<TABLE>
<S> <C>
1996............................................................... $1,772
1997............................................................... 1,731
1998............................................................... 1,572
1999............................................................... 1,029
2000............................................................... 744
Thereafter......................................................... 1,422
------
$8,270
======
</TABLE>
Litigation Matters
The Company has been named as a defendant in lawsuits in the normal course
of business. Management believes that the ultimate resolution of these matters
will not have a material adverse effect on the Company's financial position or
results of operations.
F-36
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Wheelabrator Technologies Inc.:
The Board of Directors
United States Filter Corporation:
We have audited the accompanying combined balance sheets of the Systems and
Manufacturing Group of Wheelabrator Technologies Inc. (the "Businesses") as of
December 31, 1994 and 1995, and the related combined statements of income and
cash flows for each of the years in the three-year period ended December 31,
1995. These financial statements are the responsibility of the management of
the Businesses. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Systems and
Manufacturing Group of Wheelabrator Technologies Inc. as of December 31, 1994
and 1995 and the results of its operations and its cash flows for each of the
years in the three-year period ended December 31, 1995, in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Chicago, Illinois
October 15, 1996
F-37
<PAGE>
WHEELABRATOR TECHNOLOGIES INC.
SYSTEMS AND MANUFACTURING GROUP
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
ASSETS 1994 1995 1996
------ -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents.......................... $ 25,122 $ 25,092 $ 21,464
Accounts receivable, net........................... 81,490 87,526 97,286
Inventories........................................ 31,527 48,407 46,720
Costs and estimated earnings in excess of billings
on uncompleted contracts.......................... 20,498 22,710 18,942
Other current assets............................... 2,920 2,028 3,216
-------- -------- --------
Total current assets............................. 161,557 185,763 187,628
-------- -------- --------
Property, plant, and equipment, net.................. 48,253 47,354 53,076
Goodwill, net........................................ 151,483 158,074 155,801
Other assets......................................... 5,365 3,756 2,957
-------- -------- --------
Total assets..................................... $366,658 $394,947 $399,462
======== ======== ========
<CAPTION>
LIABILITIES AND GROUP EQUITY
----------------------------
<S> <C> <C> <C>
Current Liabilities:
Accounts payable................................... $ 56,485 $ 53,163 $ 53,977
Accrued liabilities................................ 51,615 47,816 47,404
Advance payment on contracts....................... 19,802 19,966 24,149
-------- -------- --------
Total current liabilities........................ 127,902 120,945 125,530
-------- -------- --------
Other long-term liabilities.......................... 17,732 16,003 13,196
Commitments and contingencies........................
Group Equity:
Group equity....................................... 220,527 255,816 258,976
Cumulative translation adjustment.................. 497 2,183 1,760
-------- -------- --------
Total group equity................................. 221,024 257,999 260,736
-------- -------- --------
Total liabilities and group equity............... $366,658 $394,947 $399,462
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-38
<PAGE>
WHEELABRATOR TECHNOLOGIES INC.
SYSTEMS AND MANUFACTURING GROUP
COMBINED INCOME STATEMENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------- ------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue........................ $293,207 $364,335 $452,134 $226,613 $222,648
Operating expenses............. 222,384 281,946 361,462 180,279 173,709
-------- -------- -------- -------- --------
Gross margin................. 70,823 82,389 90,672 46,334 48,939
Selling, general &
administrative expenses....... 47,261 62,224 68,170 34,387 32,962
-------- -------- -------- -------- --------
Operating income............. 23,562 20,165 22,502 11,947 15,977
Gain (loss) on sale of assets.. (5) 955 4,212 (8) 28
Interest, net.................. 288 168 423 178 310
Other income (expense), net.... (1,421) 755 132 80 (34)
-------- -------- -------- -------- --------
Income before pro forma
income tax provision........ 22,424 22,043 27,269 12,197 16,281
Pro forma income tax provision. 8,970 8,817 10,908 4,879 6,512
-------- -------- -------- -------- --------
Net income................... $ 13,454 $ 13,226 $ 16,361 $ 7,318 $ 9,769
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-39
<PAGE>
WHEELABRATOR TECHNOLOGIES INC.
SYSTEMS AND MANUFACTURING GROUP
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------- ------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net income................. $ 13,454 $ 13,226 $ 16,361 $ 7,318 $ 9,769
Adjustment to reconcile net
income to cash flows from
operating activities:.....
Depreciation and
amortization............ 5,581 9,608 11,211 5,514 5,960
Changes in assets and
liabilities, net of
effects of acquired
businesses:.............
Accounts receivable.... (2,088) (8,116) (5,292) (17,999) (9,700)
Inventories............ 5,254 (6,423) (11,222) (1,540) 1,687
Costs and estimated
earnings in excess of
billings on
uncompleted contracts. (17,182) 3,014 (2,212) (827) 3,768
Accounts payable....... 5,865 4,327 (4,143) (5,300) 814
Accrued liabilities.... 3,213 (2,889) (4,182) 1,681 (412)
Advance payments on
contracts............. (982) (239) (6,358) (6,564) 4,183
Other, net................. 4,603 2,310 (2,973) 3,476 (2,968)
-------- -------- -------- -------- --------
Net cash provided by
(used for) operating
activities............ 17,718 14,818 (8,810) (14,241) 13,101
-------- -------- -------- -------- --------
Investing Activities:
Capital expenditures....... (4,202) (5,075) (9,817) (3,768) (11,974)
Sale of property, plant,
and equipment............. 5,805 3,834 8,054 2,704 419
Cash paid for acquisitions,
net of acquired cash...... (24,790) (18,848) (5,746) -- --
Other, net................. -- (1,375) 46 (765) --
-------- -------- -------- -------- --------
Net cash provided by
(used for) investing
activities.............. (23,187) (21,464) (7,463) (1,829) (11,555)
-------- -------- -------- -------- --------
Financing Activities:
Increase (decrease) in
group equity.............. 6,073 20,073 20,614 12,048 (7,032)
Other, net................. -- 3,423 (4,371) (554) 1,858
-------- -------- -------- -------- --------
Net cash provided by
(used for) investing
activities.............. 6,073 23,496 16,243 11,494 (5,174)
-------- -------- -------- -------- --------
Increase (decrease) in cash
and cash equivalents........ 604 16,850 (30) (4,576) (3,628)
Cash and cash equivalents at
beginning of period......... 7,668 8,272 25,122 25,092 25,092
-------- -------- -------- -------- --------
Cash and cash equivalents at
end of period............... $ 8,272 $ 25,122 $225,092 $220,516 $ 21,464
======== ======== ======== ======== ========
Significant noncash investing
activities
Liabilities assumed in
acquisitions.............. $ 29,883 $ 74,067 $ 8,232 $ -- $ --
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-40
<PAGE>
WHEELABRATOR TECHNOLOGIES INC.
SYSTEMS AND MANUFACTURING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 BUSINESS DESCRIPTION AND BASIS OF PRESENTATION
The Systems and Manufacturing Group (the "Businesses") of Wheelabrator
Technologies Inc. ("WTI") provide products and services to customers in the
water, wastewater and general industrial markets, primarily in the United
States, Europe and Asia. The majority of the Businesses have been acquired by
WTI in the last three years. Certain other Businesses have been owned by WTI
or its predecessors since prior to 1993. The Businesses have no separate legal
status or existence. The assets and liabilities comprising the majority of the
U.S. based Businesses are owned by a wholly owned subsidiary of WTI.
In connection with a proposed transaction whereby WTI would sell the
Businesses to United States Filter Corporation ("USF"), WTI and USF have
entered into a definitive Purchase and Sale Agreement dated September 14, 1996
(the "Agreement"), the terms of which provide for certain assets to be
purchased and certain liabilities assumed by USF in connection with Businesses
based in the United States. Additionally, the Agreement provides for certain
liabilities relating to the Businesses to be retained by WTI and for WTI to
indemnify USF in connection with certain other matters (collectively the
"Retained Liabilities"). These financial statements reflect the financial
condition, results of operations and cash flows for the Businesses on a
combined basis, excluding the Retained Liabilities, for all periods presented.
NOTE 2 SIGNIFICANT ACCOUNT POLICIES
Combined Financial Statements
The combined financial statements include the accounts of the Businesses and
the majority-owned subsidiaries. All significant intercompany transactions and
balances have been eliminated. Investments in affiliates WTI does not control
are accounted for using the equity method.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of assets, liabilities, income,
expenses and disclosures of contingencies. Future events could alter such
estimates.
Concentrations
The Businesses offer a multitude of products and services to a diverse
customer base. Management believes the Businesses have no significant
customer, supplier, product line, credit risk, geographic or other
concentrations that could expose the Businesses to adverse, near-term severe
financial impacts.
Revenue Recognition
Revenues from certain long-term engineering and equipment supply contracts
are recognized on the percentage-of-completion basis, with estimated losses
recognized in full when identified. All other revenues are recognized when
services are rendered or products are shipped.
Foreign Currency
Foreign subsidiaries' income statement accounts are translated at the
average exchange rates in effect during the period, while assets and
liabilities are translated at the rates of exchange at the balance sheet date.
The resulting balance sheet translation adjustments are charged or credited
directly to group equity. Foreign exchange transaction gains and losses
realized during 1993, 1994 and 1995 were not significant.
F-41
<PAGE>
WHEELABRATOR TECHNOLOGIES INC.
SYSTEMS AND MANUFACTURING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Combined Statements of Cash Flows
For purposes of the Combined Statements of Cash Flows, all highly liquid
instruments purchased with an original maturity of three months or less are
considered to be cash equivalents.
Derivative Financial Instruments
From time to time, the Businesses use derivative instruments to manage
currency risk. Immaterial amounts of various currencies were sold forward for
delivery at various dates in 1995 to hedge foreign exchange exposure on
specifically identified transactions. Gains or losses on these transactions
are included in the measurement of the subsequent transaction. Where deemed
advantageous, management will enter similar hedges in the future to mitigate
foreign exchange exposure.
Fair Value of Financial Instruments
Financial instruments of the Businesses consist primarily of cash and cash
equivalents, receivables and accounts payable. The book values of such
instruments are considered to be representative of their respective fair
values.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market (net realizable value).
Property, Plant and Equipment
Property, plant, and equipment (including major improvements) are
capitalized and stated at cost. Items of an ordinary maintenance or repair
nature are charged directly to operating expense. The cost less estimated
salvage value of property, plant, and equipment is generally depreciated on a
straight-line basis over estimated useful lives that range from 3 to 35 years.
Goodwill
The excess of cost over fair value of the net assets of acquired businesses
("goodwill") is amortized on a straight-line basis over 40 years. The
accumulated amortization balances as of December 31, 1994 and 1995 were $8.2
million and $12.2 million, respectively. On an ongoing basis, the
realizability of goodwill is measured by the ability of the acquired
businesses to generate current and undiscounted expected future cash flows in
excess of unamortized goodwill. If such realizability were in doubt, an
adjustment would be made to reduce the carrying value of the goodwill. No such
adjustments have been made with respect to the Businesses.
Pro Forma Income Taxes
Certain of the assets and liabilities comprising the Businesses are not
stand alone, taxable entities (see Note 1). The taxable income from Businesses
operating in the United States have been included in the consolidated federal
tax returns of WTI for all periods presented. Entities outside the United
States are taxable in the jurisdictions in which they are organized or are
doing business. For the purposes of the accompanying combined financial
statements, a pro forma income tax expense has been provided at 40 percent of
reported combined pretax income.
F-42
<PAGE>
WHEELABRATOR TECHNOLOGIES INC.
SYSTEMS AND MANUFACTURING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Contracts in Process
Information with respect to contracts in process at December 31, 1994 and
1995 follows. Contracts in process are included in the combined balance sheets
under the following captions (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------
1994 1995
------- -------
<S> <C> <C>
Costs and earnings in excess of billings................ $20,498 $22,710
Advance payments on contracts........................... (19,802) (19,966)
------- -------
Total contracts in process............................ $ 696 $ 2,744
======= =======
</TABLE>
All contracts in process are expected to be billed and collected within two
years.
Accounts receivable include retainage that has been billed but is not due
until completion pursuant to the terms of the contract. Such retainage at
December 31, 1995 was $3.7 million, all of which (except for amounts provided
for) is expected to be collected within one year. At December 31, 1994,
retainage was $3.0 million.
Accounting Pronouncements
Effective January 1, 1994, the Businesses adopted Statement of Financial
Accounting Standards No. 112 "Employers' Accounting for Postemployment
Benefits" ("FAS 112"). This new statement established accounting standards for
employers who provide benefits to former or inactive employees after
employment but before retirement. The adoption of FAS 112 did not have a
material impact on the combined financial statements of the Businesses since
its accounting prior to adoption of FAS 112 was substantially in compliance
with the new standard. Also effective during 1994 was Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Debt and Equity
Securities" ("FAS 115"). The Businesses do not have significant investments
and does not contemplate acquiring significant investments of the type covered
in FAS 115.
The Businesses are required to adopt Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" ("FAS 121"), beginning in 1996.
Management does not believe the adoption of FAS 121 will have a material
impact on the combined financial statements of the Businesses.
Unaudited Interim Information
The combined financial statements as of June 30, 1996 and for the six months
ended June 30, 1995 and 1996 are unaudited. In the opinion of management, the
unaudited combined financial statements reflect all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation.
Certain information and footnote disclosures normally included in financial
statements have been condensed or omitted from the interim combined financial
statements. The results of operations for the six months ended June 30, 1996
are not necessarily indicative of the results that may be expected for the
year ending December 31, 1996.
F-43
<PAGE>
WHEELABRATOR TECHNOLOGIES INC.
SYSTEMS AND MANUFACTURING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3. GROUP EQUITY, ALLOCATIONS AND OTHER RELATED PARTY TRANSACTIONS
Group Equity
The group equity account reflects the activity between WTI and the
Businesses, a summary of which follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Beginning balance............................ $168,198 $187,725 $221,024
Net income................................... 13,454 13,226 16,361
Net intercompany transactions................ 6,969 18,680 18,928
Translation adjustment....................... (896) 1,393 1,686
-------- -------- --------
Ending balance............................. $187,725 $221,024 $257,999
======== ======== ========
</TABLE>
Cash Management
Certain of the Businesses participate in WTI's centralized cash management
system and, as such, their cash funding requirements have been met by WTI and
all excess cash has been transferred to WTI.
Allocations
The combined income statements includes all direct costs of the Businesses
as well as certain corporate costs directly identified with the Businesses.
WTI has not allocated interest income or expense to the Businesses. In the
opinion of management, these allocations have been made on a basis which is
believed to be reasonable for a group of businesses operating within the
structure of a larger parent organization. However, the allocations are not
necessarily indicative of the level of expenses which might have been incurred
by the Businesses operating as a stand-alone entity.
NOTE 4. ACQUISITIONS
The Businesses include three environmental services businesses acquired in
1993, six acquired in 1994 and one acquired in 1996 in exchange for
consideration, net of cash acquired and including assumed debt, of
approximately $24.8 million, $21.5 million and $5.7 million, respectively. The
Businesses utilize the purchase method of accounting, and the purchase price
of the acquisitions has been allocated to their respective net assets based
upon estimated fair market values. The results of operations of acquired
entities have been included in the Businesses' combined financial statements
from their respective dates of acquisition. The pro forma effect of the
acquisitions made during 1993, 1994 and 1995 was not material.
NOTE 5. PRO FORMA INCOME TAXES
The Businesses reported income before income tax for each of the years
indicated on the accompanying combined statements of income. During such
periods, the Businesses operating in the United States were included in WTI's
consolidated federal income tax returns. Those Businesses located outside of
the United States are taxable in the jurisdictions in which they are
organized. For the purposes of the accompanying combined financial statements,
a pro forma income tax expense has been provided at 40% of reported combined
pretax income.
F-44
<PAGE>
WHEELABRATOR TECHNOLOGIES INC.
SYSTEMS AND MANUFACTURING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6. BENEFIT PLANS
Substantially all employees based in the United States are participants in
the Wheelabrator-Rust Savings and Retirement Plan, which is a qualified
defined contribution plan consisting of a contributory component and a non-
contributory component. Under the terms of the contributory component,
eligible employees may elect to contribute a portion of their annual
compensation and the Businesses are required to match a minimum of 30 percent
of the first six percent of eligible compensation contributed by an employee.
Under the terms of the non-contributory component, eligible employees receive
an annual contribution equal to a minimum of three percent of their eligible
earnings. The Businesses' contributions to such plans during 1993, 1994 and
1995 amounted to approximately $1.7 million, $2.1 million and $2.4 million,
respectively.
The Businesses based outside the United States have in place various other
plans that are not significant that provide pension and welfare benefits to
certain active and former employees.
NOTE 7. ADDITIONAL FINANCIAL INFORMATION
The allowance for doubtful accounts was $3.7 million and $4.3 million as of
December 31, 1994 and 1995, respectively.
The following is a summary of inventories (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1994 1995
------- -------
<S> <C> <C>
Raw materials............................................. $ 7,697 $21,429
Work in process........................................... 14,276 15,259
Finished goods............................................ 9,554 11,719
------- -------
Total inventories....................................... $31,527 $48,407
======= =======
</TABLE>
The following is a summary of property, plant and equipment (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1995
-------- --------
<S> <C> <C>
Land.................................................. $ 847 $ 743
Machinery and equipment............................... 51,005 53,484
Buildings and improvements............................ 39,174 37,661
Less: accumulated depreciation........................ (42,773) (44,534)
-------- --------
Total property, plant, and equipment................ $ 48,253 $ 47,354
======== ========
</TABLE>
Depreciation of property, plant, and equipment for the years ended December
31, 1993, 1994 and 1995 was $4.9 million, $5.9 million, and $7.0 million,
respectively.
The following is a summary of accrued liabilities (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1994 1995
------- -------
<S> <C> <C>
Wages, salaries and benefits............................. $ 8,453 $ 8,936
Warranties and contract reserves......................... 9,149 11,100
Other.................................................... 34,013 27,780
------- -------
Total accrued liabilities.............................. $51,615 $47,816
======= =======
</TABLE>
F-45
<PAGE>
WHEELABRATOR TECHNOLOGIES INC.
SYSTEMS AND MANUFACTURING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Noncancelable operating lease payments at December 31, 1995 are due as
follows (in thousands):
<TABLE>
<CAPTION>
OPERATING
LEASES
---------
<S> <C>
1996............................... $ 4,290
1997............................... 3,613
1998............................... 3,172
1999............................... 2,670
2000............................... 2,648
Thereafter......................... 15,290
-------
Total............................ $31,683
=======
</TABLE>
Total rent expense was $2.2 million, $2.6 million and $2.8 million in 1993,
1994 and 1995, respectively.
NOTE 8. COMMITMENTS AND CONTINGENCIES
There are various lawsuits and claims pending against the Businesses that
have arisen in the normal course of business and related mainly to matters of
product liability, personal injury, and property damage. The outcomes of these
matters are not presently determinable, but in the opinion of management,
based on the advice of counsel, the ultimate resolution of these matters will
not have a material adverse effect on the financial condition or results of
operations of the Businesses.
The Businesses are self-insured for general liability claims up to $2.0
million per occurrence. Liability insurance in effect during the last several
years provides coverage for environmental matters only to a limited extent. In
the normal course of business, the Businesses have issued or are parties to
bank letters of credit, performance bonds, and other guarantees.
Certain of the Businesses operate in the environmental industry and are
involved with the protection of the environment. As such, a significant
portion of the Businesses' operating costs and capital expenditures could be
characterized as costs of environmental protection. While the Businesses are
faced, in the normal course of its business, with the need to expend funds for
environmental protection, it is not expected that such expenditures will have
a material adverse effect on financial condition or results of operations.
F-46
<PAGE>
UNITED UTILITIES PLC PROCESS DIVISION
STATEMENT OF UNITED UTILITIES PLC DIRECTORS' RESPONSIBILITIES
The directors have assumed the responsibility to prepare financial
statements for each financial year which present fairly the financial position
of the division and of the profit or loss of the division for that period. In
preparing those financial statements, the directors are required to:
. select suitable accounting policies and then apply them consistently;
. make judgements and estimates that are reasonable and prudent;
. state whether applicable accounting standards have been followed,
subject to any material departures disclosed and explained in the
financial statements;
. prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the companies within the division will
continue in business.
The directors are responsible for maintaining proper accounting records
which disclose with reasonable accuracy at any time the financial position of
the division and to enable them to ensure that the financial statements comply
with relevant aspects of the Companies Act 1985. They are also responsible for
safeguarding the assets of the division and hence for taking reasonable steps
for the prevention and detection of fraud and other irregularities.
F-47
<PAGE>
AUDITORS' REPORT TO THE BOARD OF DIRECTORS OF UNITED UTILITIES PLC
We have audited the accompanying aggregated balance sheets of the United
Utilities PLC Process Division as at 31 March 1996 and 31 March 1995, the
related aggregated profit and loss accounts for each of the years in the two
year period ended 31 March 1996 and the cash flow for the year ended 31 March
1996. These aggregated financial statements are the responsibility of the
Directors of United Utilities PLC. Our responsibility is to express an opinion
on these aggregated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United Kingdom which are substantially the same as auditing
standards generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free from material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the aggregated financial statements referred to above
present fairly, in all material respects, the financial position of the United
Utilities PLC Process Division at 31 March 1996 and 31 March 1995, the results
of its operations for each of the years in the two year period ended 31 March
1996 and the cash flow for the year ended 31 March 1996 in conformity with
generally accepted accounting principles in the United Kingdom.
KPMG AUDIT PLC Manchester
Chartered Accountants
Registered Auditors
16 October 1996
F-48
<PAGE>
UNITED UTILITIES PLC PROCESS DIVISION
PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
US $ US $
AUDITED UNAUDITED
YEAR ENDED 3 MONTHS ENDED
-------------------- ------------------
31 MARCH 31 MARCH 30 JUNE 30 JUNE
NOTE 1996 1995 1996 1995
---- --------- --------- -------- --------
$000 $000 $000 $000
<S> <C> <C> <C> <C> <C>
Turnover........................ 2 267,358 254,955 54,181 46,190
Cost of sales................... (189,529) (179,057) (36,575) (33,877)
--------- --------- -------- --------
Gross profit.................... 77,829 75,898 17,606 12,313
Net operating costs and
administrative expenses........ 3 (63,983) (65,321) (16,662) (16,134)
Business restructuring.......... 4 (31,312) -- -- --
--------- --------- -------- --------
Operating (loss)/profit......... (17,466) 10,577 944 (3,821)
Profit on disposal of fixed
assets......................... 5 -- 1,833 -- --
--------- --------- -------- --------
(Loss)/profit on ordinary
activities..................... (17,466) 12,410 944 (3,821)
Net interest.................... 6 (19,865) (19,925) (4,714) (4,914)
--------- --------- -------- --------
Loss on ordinary activities
before taxation................ (37,331) (7,515) (3,770) (8,735)
Taxation on loss on ordinary
activities..................... 8 (2,165) (6,061) (1,433) (8)
--------- --------- -------- --------
Loss on ordinary activities
after taxation................. (39,496) (13,576) (5,203) (8,743)
--------- --------- -------- --------
Retained loss for the financial
year/period.................... (39,496) (13,576) (5,203) (8,743)
========= ========= ======== ========
</TABLE>
A statement of movements on the profit and loss account is given in note 17.
The above results all arise from continuing activities.
There is no difference between the loss on ordinary activities before taxation
and the retained loss for the period stated above, and their historical cost
equivalents.
There are no recognised gains or losses other than those included in the
results above and therefore no separate statement of total recognised gains
and losses has been presented.
F-49
<PAGE>
UNITED UTILITIES PLC PROCESS DIVISION
BALANCE SHEETS
<TABLE>
<CAPTION>
US $
US $ AUDITED UNAUDITED
------------------ ---------
31 MARCH 31 MARCH 31 JUNE
NOTE 1996 1995 1996
---- -------- -------- ---------
$000 $000 $000
<S> <C> <C> <C> <C>
Fixed assets
Tangible assets............................ 9 34,865 35,734 37,216
Investments................................ 10 1,526 1,780 1,546
Intangible assets.......................... 11 869 -- 1,302
-------- -------- --------
37,260 37,514 40,064
-------- -------- --------
Current assets
Stocks..................................... 12 55,556 57,729 56,099
Debtors.................................... 13 184,249 152,118 157,459
Cash at bank and in hand................... 2,438 7,393 7,199
-------- -------- --------
242,243 217,240 220,757
Creditors: (amounts falling due within one
year)...................................... 14 (197,760) (170,055) (184,574)
-------- -------- --------
Net current assets.......................... 44,483 47,185 36,183
-------- -------- --------
Total assets less current liabilities....... 81,743 84,699 76,247
Creditors: (amounts falling due after more
than one year)............................. 14 (231,325) (225,064) (231,920)
Provisions for liabilities and charges...... 15 (33,178) (2,450) (31,716)
-------- -------- --------
Net liabilities............................. (182,760) (142,815) (187,389)
======== ======== ========
Capital and reserves
Aggregated called up share capital......... 16 4,426 4,698 4,477
Share premium account...................... 17 12,262 12,262 12,262
Capital redemption reserve................. 17 350 373 355
Revaluation reserve........................ 17 7,580 9,798 7,679
Profit and loss account.................... 17 (207,378) (169,946) (212,162)
-------- -------- --------
Shareholders' funds........................ (182,760) (142,815) (187,389)
======== ======== ========
</TABLE>
Approved by the Board of directors on 16 October 1996 and signed on its behalf
by:
R. Ferguson
Director
F-50
<PAGE>
UNITED UTILITIES PLC PROCESS DIVISION
CASH FLOW STATEMENT
<TABLE>
<CAPTION>
US $
AUDITED
YEAR ENDED
NOTE 31 MARCH 1996
---- -------------
$000
<S> <C> <C>
Net cash inflow from operating activities............. 20 (30,320)
-------
Returns on investments and servicing of finance.......
Interest received................................... 600
Interest paid....................................... (2,880)
-------
Net cash outflow from returns on investments and
servicing of finance................................. (2,280)
-------
Taxation..............................................
Corporation tax paid................................ (1,007)
-------
Cash flow from operations after tax................... (33,607)
-------
Investing activities..................................
Purchase of tangible fixed assets................... (6,394)
Expenditure on capitalized development costs........ (869)
Receipts from sales of tangible fixed assets........ 364
-------
Net cash outflow from investing activities............ (6,899)
-------
Decrease in cash and cash equivalents................. 20 (40,506)
=======
</TABLE>
F-51
<PAGE>
UNITED UTILITIES PLC PROCESS DIVISION
NOTES
(FORMING PART OF THE FINANCIAL STATEMENTS)
1. ACCOUNTING POLICIES
BASIS OF PREPARATION OF FINANCIAL STATEMENTS
The aggregated financial statements incorporate the financial statements of
each of the entities which constitute the Process Division of United Utilities
PLC as detailed in note 21. The financial statements have been prepared under
the historical cost convention and in accordance with applicable accounting
standards and with UK generally accepted accounting principles.
BASIS OF AGGREGATION
The Process Division is composed of the entities set out in note 21, all of
which are owned by United Utilities PLC. There is no single holding company
for the Process Division.
The figures presented in these financial statements have been prepared by
combining the results of all these entities. All intra group Process Division
transactions and balances have been eliminated. As the Process Division is not
a statutory entity, directors emoluments have not been disclosed.
CASH FLOW STATEMENT
As its parent undertaking, United Utilities PLC, publishes a consolidated
cash flow statement, the Process Division is exempt, under Financial Reporting
Standard 1, from preparing such a statement. Notwithstanding this exemption, a
cash flow statement has been provided for the year ended 31 March 1996.
Comparative cash flow information, which would have been required had the
exemption not been available, has not been provided.
UNAUDITED INTERIM AGGREGATED FINANCIAL STATEMENTS
The aggregated financial statements for the three months ended 30 June, 1995
and 1996 are unaudited. In the opinion of management, all adjustments,
consisting only of normal recurring items, considered necessary for a fair
presentation have been included. Certain information and all footnote
disclosures normally included in financial statements have been excluded from
the interim aggregated financial statements. The results of operations for the
three months ended 30 June, 1996 are not necessarily indicative of the results
that may be expected for the year ending 31 March, 1997.
TURNOVER
Turnover represents the income receivable in the ordinary course of business
for goods or services provided and excludes VAT and foreign sales tax.
RESEARCH AND DEVELOPMENT
Expenditure on research and development is written off against profits in
the year in which it is incurred. Development expenditure incurred on projects
which meet the criteria of SSAP 13 is capitalized and amortized over 5 years.
GOODWILL
The net assets of companies and businesses acquired are incorporated into
the aggregated financial statements at their fair value to the Process
Division and after adjustments to bring the accounting policies of the
companies and businesses acquired into alignment with those of the Division.
Past fair value adjustments include provisions for reorganisation and
restructuring costs. In the year ended 31 March 1996, in accordance with
F-52
<PAGE>
UNITED UTILITIES PLC PROCESS DIVISION
NOTES
(FORMING PART OF THE FINANCIAL STATEMENTS)
Financial Reporting Standard 7, reorganisation and restructuring costs have
not been included in fair value adjustments. If the estimates on which these
provisions are based prove to be in excess of actual expenditure, the
unutilised surplus provisions will not be taken to profit and loss, but will
be credited to reserves as a recalculation of goodwill.
TANGIBLE FIXED ASSETS
Additions are included at cost.
Freehold land is not depreciated. Other assets are depreciated evenly over
their estimated economic lives which are principally as follows:
<TABLE>
<S> <C>
Buildings........................................................ 30-60 years
Fixtures, fittings, tools, equipment and motor vehicles.......... 3-40 years
Capitalised computer software costs.............................. 3-10 years
</TABLE>
LEASED ASSETS
Assets financed by leasing arrangements which transfer substantially all the
risks and rewards of ownership to the lessee (finance leases) are capitalised
in the balance sheet and the corresponding capital cost is shown as an
obligation to the lessor. Leasing repayments comprise both a capital and a
finance element. The finance element is written off to the profit and loss
account so as to produce an approximately constant periodic rate of charge on
the outstanding obligation. Such assets are depreciated over the shorter of
their estimated useful lives and the period of the lease.
Operating lease rentals are charged to the profit and loss account on a
straight line basis over the period of the lease.
FIXED ASSET INVESTMENTS
Investments held as fixed assets are stated at cost less amounts written off
for permanent diminution.
STOCKS
Stocks are stated at cost less any provision necessary to recognise damage
and obsolescence.
Long term contract work in progress is stated at cost, net of amounts
transferred to cost of sales, after deducting payments received in advance and
making provision for foreseeable losses.
Finished goods and goods for resale are stated at the lower of cost,
including appropriate production overheads, and net realisable value.
PENSIONS
Approximately half of the Division's employees belong to pension schemes
which provide for defined benefits based on final pensionable pay. Pension
costs are charged against profits over the estimated remaining service lives
of employees.
FOREIGN CURRENCY
For the convenience of the reader, these financial statements have been
stated in US dollars. The balance sheets have been translated into dollars at
exchange rates applicable at the year end. The profit and loss accounts are
translated into dollars using the average rate. Differences arising from the
application of the closing rate to opening net assets, offset by translation
differences on foreign currency loans which finance investments in overseas
subsidiary undertakings, together with differences between profits and losses
translated at average rates and at closing rates, are recorded as a movement
in reserves.
F-53
<PAGE>
UNITED UTILITIES PLC PROCESS DIVISION
NOTES
(FORMING PART OF THE FINANCIAL STATEMENTS)
DEFERRED TAXATION
Provision is made for deferred taxation where a liability is considered
likely to arise in the foreseeable future.
ASSOCIATED UNDERTAKINGS
The appropriate share of the results of associated undertakings is recognised
in the aggregated profit and loss account where the directors consider that the
Division is in a position to exert significant influence over the associated
undertakings.
REVALUATION RESERVE
Surpluses or deficits arising as a result of the incorporation of land and
buildings valuations in the accounts are taken to the revaluation reserve
unless the deficit exceeds the accumulated surpluses when it would be taken
directly to the profit and loss account.
2. TURNOVER, PROFIT AND NET ASSETS BY BUSINESS
Turnover, loss or profit before interest and taxation and net assets were all
attributable to the same class of business namely Process Equipment.
The geographical analysis of these items is shown below:
By geographical origin:
<TABLE>
<CAPTION>
PROFIT/(LOSS)
BEFORE
INTEREST AND NET OPERATING
TURNOVER TAX ASSETS
--------------- --------------- ---------------
1996 1995 1996 1995 1996 1995
------- ------- ------- ------ ------- -------
$000 $000 $000 $000 $000 $000
<S> <C> <C> <C> <C> <C> <C>
United Kingdom.................. 47,344 45,401 3,763 4,427 29,337 30,539
Europe.......................... 30,117 29,077 2,737 3,368 12,774 11,348
The Americas.................... 181,916 172,525 (24,313) 4,207 84,573 80,888
Rest of the world............... 7,981 7,952 347 408 3,406 2,919
------- ------- ------- ------ ------- -------
267,358 254,955 (17,466) 12,410 130,090 125,694
======= ======= ======= ====== ======= =======
</TABLE>
The geographical destination of turnover does not differ materially from the
geographical origin analysis above.
Net operating assets comprise fixed assets and net current
(liabilities)/assets and provisions excluding net borrowings, investments and
taxation.
F-54
<PAGE>
UNITED UTILITIES PLC PROCESS DIVISION
NOTES
(FORMING PART OF THE FINANCIAL STATEMENTS)
3. NET OPERATING COSTS AND ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
31 MARCH 31 MARCH
-------- --------
1996 1995
-------- --------
$000 $000
<S> <C> <C>
Distribution costs......................................... 33,117 29,230
Administrative expenses.................................... 30,866 36,091
------ ------
63,983 65,321
====== ======
</TABLE>
<TABLE>
<CAPTION>
31 MARCH 31 MARCH
-------- --------
1996 1995
-------- --------
$000 $000
<S> <C> <C>
Net operating costs and administrative expenses include:
Operating lease rentals--hire of plant and machinery..... 1,187 1,148
--other........................................ 1,286 1,223
Depreciation............................................. 4,016 3,196
Auditors remuneration
--audit................................................ 247 207
--other fees........................................... 48 127
--Research and development costs....................... 2,410 481
----- -----
</TABLE>
Additional non-audit fees of $424,000 were charged against provisions for
liabilities and charges in 1996.
4. BUSINESS RESTRUCTURING
The exceptional business restructuring expense charged in 1996 of $31,312,000
relates to the relocation of the operations of Wallace & Tiernan Inc.
5. PROFIT ON DISPOSAL OF FIXED ASSETS
The profit disposal of fixed assets in the year ended 31 March 1995 relates
wholly to the disposal of land and buildings held by Wallace & Tiernan Limited.
6. NET INTEREST
<TABLE>
<CAPTION>
31 MARCH 31 MARCH
-------- --------
1996 1995
-------- --------
$000 $000
<S> <C> <C>
Interest payable:
To non Process Division Group undertakings............... 23,003 22,662
To external parties...................................... 4,604 3,054
Interest receivable:
From non Process Division Group undertakings............. (7,452) (5,267)
From external parties.................................... (290) (524)
------ ------
19,865 19,925
====== ======
</TABLE>
F-55
<PAGE>
UNITED UTILITIES PLC PROCESS DIVISION
NOTES
(FORMING PART OF THE FINANCIAL STATEMENTS)
7. EMPLOYEE COSTS
The aggregate remuneration of all employees of the Division comprised:
<TABLE>
<CAPTION>
31 MARCH 31 MARCH
-------- --------
1996 1995
-------- --------
$000 $000
<S> <C> <C>
Wages and salaries......................................... 71,477 68,970
Social security costs...................................... 11,389 10,613
Other pension costs & payroll expenses..................... 5,960 6,318
------ ------
88,826 85,901
====== ======
</TABLE>
<TABLE>
<CAPTION>
31 MARCH 31 MARCH
-------- --------
1996 1995
-------- --------
<S> <C> <C>
Average number of employees during the year were........... 1,976 2,071
===== =====
</TABLE>
8. TAXATION ON PROFIT ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
31 MARCH 31 MARCH
-------- --------
1996 1995
-------- --------
$000 $000
<S> <C> <C>
UK corporation tax at 33% (1995:33%)....................... 1,217 3,279
Overseas corporate taxes................................... 948 2,782
----- -----
2,165 6,061
===== =====
</TABLE>
9. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
FIXTURES,
LAND FITTINGS, ASSETS IN
& TOOLS & COURSE OF
BUILDINGS EQUIPMENT VEHICLES CONSTRUCTION TOTAL
--------- --------- -------- ------------ ------
$000 $000 $000 $000 $000
<S> <C> <C> <C> <C> <C>
Cost or Valuation
At 1 April 1995.......... 23,028 32,014 1,175 876 57,093
Revaluations............. (1,775) -- -- -- (1,775)
Additions................ 1,357 4,659 378 -- 6,394
Disposals................ -- (756) (101) -- (857)
Transfers................ -- 15 -- (287) (272)
Foreign exchange......... (941) (1,031) (34) (17) (2,023)
------ ------ ----- ---- ------
At 31 March 1996......... 21,669 34,901 1,418 572 58,560
------ ------ ----- ---- ------
Depreciation
At 1 April 1995.......... 3,167 17,376 816 -- 21,359
Charge for the year...... 321 3,551 144 -- 4,016
Revaluations............. (104) -- -- -- (104)
Disposals................ -- (677) (93) -- (770)
Foreign exchange......... (192) (587) (27) -- (806)
------ ------ ----- ---- ------
At 31 March 1996......... 3,192 19,663 840 -- 23,695
------ ------ ----- ---- ------
Net book value
At 31 March 1996......... 18,477 15,238 578 572 34,865
====== ====== ===== ==== ======
At 31 March 1995......... 19,861 14,638 359 876 35,734
====== ====== ===== ==== ======
</TABLE>
F-56
<PAGE>
UNITED UTILITIES PLC PROCESS DIVISION
NOTES
(FORMING PART OF THE FINANCIAL STATEMENTS)
A revaluation of the freehold land and buildings at the Tonbridge site of
Wallace & Tiernan Limited as at 31 March 1996 was undertaken by King Sturge &
Co., an independent firm of qualified chartered surveyors. The valuation was
made in accordance with the Royal Institute of Chartered Surveyors Statements
of Asset Valuation Practice. The valuation of the operational part of the site
was on a depreciated replacement cost basis and the non-operational part on an
open market value basis.
No capital gains tax is expected to arise in the event of a sale of the site
and hence no deferred tax is currently provided in respect of this revaluation.
If the land and buildings had not been revalued to $8,700,000 (1995:
$10,850,000) they would have been shown at their historical cost net book value
of $1,120,000 (1995: $1,052,000).
10. FIXED ASSET INVESTMENTS
<TABLE>
<CAPTION>
31 MARCH 31 MARCH
1996 1995
-------- --------
$000 $000
<S> <C> <C>
Investments in associated companies........................ 1,526 1,780
======= =======
</TABLE>
A schedule of the Division's principal operating entities and associated
undertakings is given in note 21.
11. INTANGIBLE ASSETS
The intangible asset of $869,000 (1995: nil) represents development costs
incurred and capitalised by one of the entities in the Process Division during
the year.
12. STOCKS
<TABLE>
<CAPTION>
31 MARCH 31 MARCH
1996 1995
-------- --------
$000 $000
<S> <C> <C>
Raw materials and consumables.............................. 17,760 18,308
Work in progress........................................... 15,233 16,558
Finished goods and goods for resale........................ 22,563 22,863
------- -------
55,556 57,729
======= =======
</TABLE>
13. DEBTORS
<TABLE>
<CAPTION>
31 MARCH 31 MARCH
1996 1995
-------- --------
$000 $000
<S> <C> <C>
Amounts falling due within one year:
Trade debtors............................................. 101,615 80,317
Amounts owed by non Process Division Group undertakings... 72,663 61,449
Other debtors............................................. 8,634 9,550
Prepayments and accrued income............................ 1,337 802
------- -------
184,249 152,118
======= =======
</TABLE>
F-57
<PAGE>
UNITED UTILITIES PLC PROCESS DIVISION
NOTES
(FORMING PART OF THE FINANCIAL STATEMENTS)
14 CREDITORS
<TABLE>
<CAPTION>
31 MARCH 31 MARCH
1996 1995
-------- --------
$000 $000
<S> <C> <C>
Amounts falling due within one year:
Bank loans and overdrafts.......................... 85,489 52,618
Payments received on account....................... 4,670 1,223
Trade creditors.................................... 23,385 22,435
Amounts owed to non-Process Division Group
undertakings...................................... 56,613 50,571
UK Corporation tax................................. 156 --
Other taxation and social security................. -- 3,200
Accruals and deferred income....................... 27,447 40,008
------- -------
197,760 170,055
======= =======
Amounts falling due after more than one year:
Bank loans and overdrafts.......................... 1,839 2,059
Amounts owed to non-Process Division Group
undertakings................................... 220,516 213,760
Other creditors.................................... 8,970 9,245
------- -------
231,325 225,064
======= =======
</TABLE>
Bank loans and overdrafts outstanding at 31 March 1996 and 31 March 1995 are
all repayable within one year.
15. PROVISIONS FOR LIABILITIES AND CHARGES
<TABLE>
<CAPTION>
DEFERRED
RESTRUCTURING TAXATION OTHER TOTAL
------------- -------- ----- ------
$000 $000 $000 $000
<S> <C> <C> <C> <C>
Division
Balance at 1 April 1995.............. -- 1,846 604 2,450
Applied during the year.............. -- -- (450) (450)
Provided in the year................. 31,312 -- -- 31,312
Foreign exchange..................... -- (97) (37) (134)
------ ----- ---- ------
Balance at March 31, 1996.............. 31,312 1,749 117 33,178
====== ===== ==== ======
</TABLE>
16. SHARE CAPITAL
The total share capital of the Process Division represents the summation of
the share capital of all the Process Division companies not eliminated by sub
consolidations. These share capitals are converted to US dollars at the
appropriate year end exchange rate.
<TABLE>
<CAPTION>
1996 1995 1996 1995
---- ---- ---- ----
$000 $000 $000 $000
<S> <C> <C> <C> <C>
WALLACE & TIERNAN INC
Authorised
100 ordinary shares of $1 each.......................... -- -- -- --
Allotted, called up and fully paid
100 ordinary shares of $1 each.......................... -- -- -- --
</TABLE>
F-58
<PAGE>
UNITED UTILITIES PLC PROCESS DIVISION
NOTES
(FORMING PART OF THE FINANCIAL STATEMENTS)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
(Pounds)000 (Pounds)000
<S> <C> <C> <C> <C>
WALLACE & TIERNAN LTD
Authorised
3,000,000 ordinary shares of (Pounds)1
each.................................. 3,000 3,000
----- -----
Allotted, called up and fully paid
2,588,066 ordinary shares of (Pounds)1
each.................................. 2,588 2,588 3,963 4,215
----- -----
<CAPTION>
1996 1995
----------- -----------
A$000 A$000
<S> <C> <C> <C> <C>
WALLACE & TIERNAN PACIFIC PTY LTD
Authorised
75,000 ordinary shares of A$2.......... 150 150
----- -----
Allotted, called up and fully paid
55,000 ordinary shares of A$2.......... 110 110 86 81
----- -----
<CAPTION>
1996 1995
----------- -----------
$000 $000
<S> <C> <C> <C> <C>
GENERAL FILTER
Authorised
1,000 ordinary shares of $0.01......... -- --
----- -----
Allotted, called up and fully paid
1,000 ordinary shares of $0.01......... -- --
----- -----
<CAPTION>
1996 1995
----------- -----------
$000 $000
<S> <C> <C> <C> <C>
ENVIREX LTD
Authorised
100,000 ordinary shares of $0.01....... 1 1
----- -----
100,000 preference shares of $1........ 100 100
----- -----
Allotted, called up and fully paid
100,000 ordinary shares of $0.01....... 1 1 1 1
<CAPTION>
1996 1995 1996 1995
----------- ----------- ----- -----
(Pounds)000 (Pounds)000 $000 $000
<S> <C> <C> <C> <C>
EDWARDS & JONES HOLDINGS LTD
Authorised
157,000 ordinary shares of (Pounds)1... 157 157
----- -----
74,000 10.5% cumulative convertible
participating preferred ordinary
shares of (Pounds)1................... 74 74
----- -----
Allotted, called up and fully paid
136,000 ordinary shares of (Pounds)1... 136 136 208 222
----- -----
<CAPTION>
1996 1995
----------- -----------
(Pounds)000 (Pounds)000
<S> <C> <C> <C> <C>
EDWARDS & JONES LTD
Authorised
110,000 ordinary shares of (Pounds)1... 110 110
----- -----
Allotted, called up and fully paid
110,000 ordinary shares of (Pounds)1... 110 110 168 179
----- -----
</TABLE>
F-59
<PAGE>
UNITED UTILITIES PLC PROCESS DIVISION
NOTES
(FORMING PART OF THE FINANCIAL STATEMENTS)
<TABLE>
<CAPTION>
1996 1995 1996 1995
---- ---- ----- -----
$000 $000 $000 $000
<S> <C> <C> <C> <C>
CONSOLIDATED ELECTRIC CO.
Authorised
100 ordinary shares of $1............................. -- --
--- ---
Allotted, called up and fully paid
100 ordinary shares of $1............................. -- -- -- --
----- -----
4,426 4,698
===== =====
</TABLE>
17. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
GROUP
SHARE CAPITAL PROFIT
SHARE PREMIUM REDEMPTION REVALUATION AND LOSS SHAREHOLDERS'
CAPITAL ACCOUNT RESERVE RESERVE ACCOUNT FUNDS
------- ------- ---------- ----------- -------- -------------
$000 $000 $000 $000 $000 $000
<S> <C> <C> <C> <C> <C> <C>
Balance at 1 April 1995. 4,698 12,262 373 9,798 (169,946) (142,815)
Retained loss for the
year................... -- -- -- -- (39,496) (39,496)
Revaluation in year..... -- -- -- (1,671) -- (1,671)
Foreign exchange........ (272) -- (23) (547) 2,064 1,222
----- ------ --- ------ -------- --------
Balance at 31 March
1996................... 4,426 12,262 350 7,580 (207,378) (182,760)
===== ====== === ====== ======== ========
</TABLE>
The cumulative amount of goodwill written off to reserves at 31 March 1996
was $191,709,000 (1995: $204,239,000).
18. LEASE OBLIGATIONS
The following annual obligations under operating leases for plant and
machinery vehicle and other equipment expire:
<TABLE>
<CAPTION>
31 MARCH 31 MARCH
1996 1995
-------- --------
$000 $000
<S> <C> <C>
Within one year............................................ 597 368
In the second to fifth year inclusive...................... 1,998 2,359
After five years........................................... 323 --
----- -----
2,918 2,727
===== =====
The following annual obligations under operating leases for land and buildings
expire:
<CAPTION>
31 MARCH 31 MARCH
1996 995
-------- --------
$000 $000
<S> <C> <C>
Within one year............................................ 17 160
In the second to fifth year inclusive...................... 676 463
----- -----
693 623
===== =====
</TABLE>
19. CAPITAL AND OTHER COMMITMENTS
Capital investment authorised by the directors of entities within the Process
Division but not contracted nor provided for as at 31 March 1996 amounted to
$768,000 (1995: $1,019,000). Capital commitments which had been contracted but
not provided for as at 31 March 1996 amounted to $412,000 (1995: $1,009,000).
F-60
<PAGE>
UNITED UTILITIES PLC PROCESS DIVISION
NOTES
(FORMING PART OF THE FINANCIAL STATEMENTS)
20. NOTES TO THE CASH FLOW STATEMENT
Reconciliation of operating profit to net cash inflow from operating
activities.
<TABLE>
<CAPTION>
31 MARCH
1996
--------
$000
<S> <C> <C>
Operating loss........................................... (17,466)
-------
Non cash items
Depreciation............................................. 4,016
Profit on sale of fixed assets........................... (5)
Increase in provisions................................... 30,728
Foreign exchange adjustment to profit in the year........ (336)
-------
34,403
=======
Movement in working capital
Decrease in stocks....................................... 2,173
(Increase) in debtors.................................... (32,131)
(Decrease) in creditors.................................. (20,746)
Increase in advance payments............................. 3,447
-------
(47,257)
=======
Net cash inflow from operating activities................ (30,320)
=======
Analysis of cash and cash equivalents
<CAPTION>
31 MARCH 31 MARCH
1996 1995
-------- --------
$000 $000
<S> <C> <C>
Cash at bank and in hand................................. 2,438 7,393
Bank overdraft........................................... (87,328) (54,677)
------- -------
(84,890) (47,284)
======= =======
Analysis of changes in cash and cash equivalents
<CAPTION>
1996
--------
$000
<S> <C> <C>
At 1 April 1995.......................................... (47,284)
Net cash outflow from financing.......................... (40,506)
Exchange adjustments..................................... 2,900
-------
At 31 March 1996......................................... (84,890)
=======
</TABLE>
F-61
<PAGE>
UNITED UTILITIES PLC PROCESS DIVISION
NOTES
(FORMING PART OF THE FINANCIAL STATEMENTS)
21. PROCESS DIVISION
Details of principal operating entities in the Process Division, all of which
are unlisted, are detailed below. These undertakings are included within the
aggregated Process Division financial statements.
<TABLE>
<CAPTION>
NATURE OF BUSINESS
----------------------------------------
<C> <S>
Great Britain:
Wallace & Tiernan Limited Manufacture of equipment
Edwards and Jones Limited for water and wastewater
Acumem UK (unincorporated) treatment processes
USA:
Envirex Inc Manufacture of equipment
General Filter Company Inc for water and wastewater
Wallace & Tiernan Inc treatment processes
Consolidated Electric Company
Asdor Inc.
Australia:
Wallace & Tiernan Pacific Pty Manufacture of equipment
Limited for water and wastewater
treatment processes
Canada:
Asdor Limited Suppliers of equipment
Wallace & Tiernan Canada Inc for water and wastewater
Filtration Seco Inc. treatment processes
Germany:
Wallace & Tiernan GmbH Manufacture of equipment
Edwards & Jones GmbH for water and wastewater
treatment processes
Associated undertakings include:
Spain:
CIDA Hidroquimica SA Design and installation of equipment and
systems for water and wastewater
treatment
</TABLE>
The country under which each undertaking appears is both the country of its
incorporation and of its principal operations. All of the Great Britain
undertakings are registered in England and Wales. Shares are held indirectly by
United Utilities PLC.
22. PENSIONS
The Process Division operates a number of pension schemes in the UK, the USA,
Europe, Australia and Canada. The major schemes are of the defined benefit
type.
Edwards & Jones Limited operated two pension schemes in 1993 providing
retirement benefits for its employees and directors. The funds of both schemes
were transferred into the Water Pension Scheme, a defined benefit scheme,
operated by United Utilities PLC, during 1993/94. Contributions are based on
the pension costs of all United Kingdom subsidiary undertakings of United
Utilities PLC participating in the Water Pension Scheme. The accounts of United
Utilities PLC contain particulars of the current actuarial position of the
Water Pension Scheme.
Since 1 January 1990, Wallace & Tiernan Limited and substantially all its
employees have subscribed to the Wallace & Tiernan Pension Scheme, which is a
funded defined benefit scheme providing benefits based on
F-62
<PAGE>
UNITED UTILITIES PLC PROCESS DIVISION
NOTES
(FORMING PART OF THE FINANCIAL STATEMENTS)
final pensionable pay. Contributions to the scheme are charged to the profit
and loss account so as to spread the cost of pensions over employees' working
lives with the company. The contributions are determined by a qualified
actuary. The most recent valuation was undertaken as at 1 July 1994 by the
scheme's actuary. The valuation method used for the calculation of normal costs
and liabilities was the projected unit method, while that used for the assets
was the discounted expected cash flow method. The assumptions which have the
most significant effect on the results of the valuation are those relating to
the rates of return on investments and salary and pension increases. It was
assumed that the investment returns would be 9% per annum, that the rate of
salary increase would be 7% per annum, and that pensions would increase at the
rate of 3% per annum.
The market value of scheme assets at the date of the valuation was
(Pounds)9,638,000 and the actuarial value of those assets represented
approximately 95% of the benefits that had accrued to members after allowing
for expected future increases in earnings. It is intended that this deficit,
amounting to (Pounds)543,000 will be eliminated by additional company
contributions over a period of 13 years.
For the non UK schemes the defined benefit arrangements have been reviewed on
consistent assumptions and any balance of surplus spread forward to derive the
pension cost.
23. ULTIMATE PARENT COMPANY
The ultimate parent undertaking of all the entities in the Process Division
is United Utilities PLC, a company registered in England. Copies of the United
Utilities PLC accounts are available from the registered office at Dawson
House, Great Sankey, Warrington, WA5 3LW, United Kingdom. The accounts of
United Utilities PLC represent the largest and smallest consolidation within
which all the companies in the Process Division are consolidated.
24. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
These aggregated financial statements have been prepared in accordance with
UK GAAP which differs in certain significant respects from US GAAP. The
significant differences as they relate to the United Utilities PLC Process
Division, are summarised in the following paragraphs.
Statement of cash flows: Basis of Preparation
United Utilities PLC Process Division's statement of cash flows is prepared
in accordance with UK Financial Reporting Standard 1 (FRS 1), the objectives
and principles of which are similar to those set out in Statement of Financial
Accounting Standards 95 (SFAS 95), "Statement of Cash Flows" under US GAAP. The
principal differences between FRS 1 and SFAS 95 relate to classification.
Cash flows from taxation and returns on investments and servicing of finance
under FRS 1 would be included as operating activities under SFAS 95. Under FRS
1 net cash and cash equivalents include short-term borrowings repayable within
three months from the date of their advance. Under SFAS 95 short-term
borrowings repayable within three months from the date of their advance and
overdraft balances would not be included within cash and cash equivalents and
movements on those borrowings and overdraft balances would be included in
financing activities.
PROVISIONS
In the US there are strict rules about the timing of recognition of on-going
restructuring costs; whereas in the UK there is at present some flexibility.
Given that restructuring provisions can involve very large costs, the
differences can be significant.
F-63
<PAGE>
UNITED UTILITIES PLC PROCESS DIVISION
NOTES
(FORMING PART OF THE FINANCIAL STATEMENTS)
FIXED ASSET REVALUATION
In the US fixed assets must be carried at depreciated cost whereas in the UK
fixed assets may be revalued. Depreciation would then be booked on the revalued
amount.
DEVELOPMENT EXPENDITURE
In the US the rules prohibit the carrying of development costs as an asset.
In the UK they may, at the company's option, be carried as an asset if the
following criteria are met:
. there is a clearly defined project;
. the related costs are separately identifiable;
. there is a reasonable certainty that the project is technically feasible
and commercially viable;
. future revenues are reasonably expected to exceed future development,
production, selling and administration costs;
. adequate financial resources exist to complete the project.
GOODWILL
In the US positive goodwill is treated in the same way as any other acquired
intangible. Such assets must be capitalised and subsequently amortised over
their expected useful lives which may not exceed 40 years.
In the UK positive goodwill may be written off directly against reserves
which is the policy adopted by the Process Division.
F-64
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PRO-
SPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRIT-
ERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIV-
ERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY IMPLICA-
TION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSE-
QUENT TO ITS DATE.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 9
Recent and Pending Acquisitions........................................... 14
Use of Proceeds........................................................... 19
Capitalization............................................................ 20
Price Range of Common Stock............................................... 21
Dividend Policy........................................................... 21
Unaudited Pro Forma Combined Financial Information........................ 22
Selected Consolidated Financial Data...................................... 28
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 30
The Water Treatment Industry.............................................. 36
Business.................................................................. 38
Management................................................................ 44
Security Ownership........................................................ 48
Description of the Notes.................................................. 49
Description of Capital Stock.............................................. 61
Certain Federal Income Tax Consequences................................... 63
Underwriting.............................................................. 64
Legal Matters............................................................. 65
Independent Certified Public Accountants.................................. 65
Available Information..................................................... 66
Incorporation of Certain Documents by Reference........................... 66
Index to Financial Statements............................................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$175,000,000
LOGO
UNITED STATES FILTER CORPORATION
% CONVERTIBLE SUBORDINATED NOTES DUE 2001
----------------
PROSPECTUS
----------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SALOMON BROTHERS INC
DEUTSCHE MORGAN GRENFELL
NATWEST SECURITIES LIMITED
SMITH BARNEY INC.
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses to be incurred by the
Company in connection with the issuance and distribution of the securities
being registered, other than underwriting discounts and commissions.
<TABLE>
<S> <C>
Registration fee...................................................... $ 60,985
NASD fee.............................................................. 20,625
Printing.............................................................. *
Accounting fees....................................................... *
Legal fees............................................................ *
Blue sky qualification fees........................................... *
Trustee fees.......................................................... *
Rating agency fees.................................................... *
Miscellaneous......................................................... *
--------
Total............................................................. $400,000
========
</TABLE>
- ---------------------
*To be furnished by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate of Incorporation and the By-laws of the Company provide for
the indemnification of directors and officers to the fullest extent permitted
by the General Corporation Law of the State of Delaware, the state of
incorporation of the Company.
Section 145 of the General Corporation Law of the State of Delaware
authorizes indemnification when a person is made a party or is threatened to
be made a party to any proceeding by reason of the fact that such person is or
was a director, officer, employee or agent of the corporation or is or was
serving as a director, officer, employee or agent of another enterprise, at
the request of the corporation, and if such person acted in good faith and in
a manner reasonably believed by him or her to be in, or not opposed to, the
best interests of the corporation. With respect to any criminal proceeding,
such person must have had no reasonable cause to believe that his or her
conduct was unlawful. If it is determined that the conduct of such person
meets these standards, he or she may be indemnified for expenses incurred
(including attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or her in connection with such
proceeding.
If such a proceeding is brought by or in the right of the corporation (i.e.,
a derivative suit), such person may be indemnified against expenses actually
and reasonably incurred if he or she acted in good faith and in a manner
reasonably believed by him or her to be in, or not opposed to, the best
interests of the corporation. There can be no indemnification with respect to
any matter as to which such person is adjudged to be liable to the
corporation; however, a court may, even in such case, allow such information
to such person for such expenses as the court deems proper.
Where such person is successful in any such proceeding, he or she is
entitled to be indemnified against expenses actually and reasonably incurred
by him or her. In all other cases, indemnification is made by the corporation
upon determination by it that indemnification of such person is proper because
such person has met the applicable standard of conduct.
The Company maintains an errors and omissions liability policy for the
benefit of its officers and directors, which may cover certain liabilities of
such individuals to the Company.
II-1
<PAGE>
ITEM 16. EXHIBITS.
The following exhibits are filed with or incorporated by reference in this
Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <S>
1.1 Form of Underwriting Agreement (to be filed by amendment)
2.1 Purchase and Sale Agreement, dated as of September 14, 1996,
between Wheelabrator Technologies Inc. and United States Filter
Corporation
2.2 Agreement, dated October 7, 1996, between United Utilities PLC and
certain of its subsidiaries and United States Filter Corporation
(to be filed by amendment)
2.3 Stock Purchase Agreement, dated as of September 10, 1996, among
Edmundson International, Inc., United States Filter Corporation
and WaterPro Supplies Corporation
4.1 Indenture, dated as of , 1996, between United States
Filter Corporation and State Street Bank and Trust Company of
California, N.A., as Trustee (to be filed by amendment)
4.2 Form of Convertible Subordinated Note due 2001 (included in
Indenture to be filed as Exhibit 4.1)
5.1 Opinion of Damian C. Georgino as to the legality of the securities
being registered (to be filed by amendment)
12.1 Computation of Ratio of Earnings to Fixed Charges
23.1 Consents of KPMG Peat Marwick LLP and KPMG Audit Plc
23.2 Consent of Price Waterhouse LLP
23.3 Consent of Ernst & Young LLP
23.4 Consent of Arthur Andersen LLP
23.5 Consent of Damian C. Georgino (to be included in Exhibit 5.1)
24.1 Power of Attorney
25.1 Statement of Eligibility and Qualification of State Street Bank
and Trust Company of California, N.A., as Trustee (to be filed by
amendment)
</TABLE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
II-2
<PAGE>
The undersigned registrant hereby undertakes that:
(1) For the purpose of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Palm Desert, State of California, on October 15,
1996.
UNITED STATES FILTER CORPORATION
By: /s/ Richard J. Heckmann
___________________________________
Richard J. Heckmann
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
POWER OF ATTORNEY
Know all persons by these presents, that each person whose signature appears
below constitutes and appoints Kevin L. Spence and Damian C. Georgino, and each
of them, his true and lawful attorney-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this registration
statement (including pursuant to Rule 462(b)), and to file the same with all
exhibits thereto, and other documents in connection therewith, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agents, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
CAPACITY DATE
<S> <C> <C>
/s/ Richard J. Heckmann Chairman of the Board, October 15, 1996
____________________________________ President and Chief
Richard J. Heckmann Executive Officer
(Principal Executive
Officer)
and a Director
/s/ Kevin L. Spence Vice President and Chief October 15, 1996
____________________________________ Financial Officer
Kevin L. Spence (Principal Financial and
Accounting Officer)
/s/ Michael J. Reardon Executive Vice President and October 15, 1996
____________________________________ a Director
Michael J. Reardon
/s/ Tim L. Traff Senior Vice President and a October 15, 1996
____________________________________ Director
Tim L. Traff
/s/ R. Doyle White Executive Vice President and October 15, 1996
____________________________________ a Director
R. Doyle White
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CAPACITY DATE
<S> <C> <C>
/s/ James E. Clark Director October 15, 1996
____________________________________
James E. Clark
Director October , 1996
____________________________________
John L. Diederich
/s/ Robert S. Hillas Director October 15, 1996
____________________________________
Robert S. Hillas
/s/ Arthur B. Laffer Director October 15, 1996
____________________________________
Arthur B. Laffer
/s/ Alfred E. Osborne, Jr. Director October 15, 1996
____________________________________
Alfred E. Osborne, Jr.
/s/ J. Danforth Quayle Director October 15, 1996
____________________________________
J. Danforth Quayle
/s/ C. Howard Wilkins, Jr. Director October 15, 1996
____________________________________
C. Howard Wilkins, Jr.
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NO.
<C> <S> <C>
2.1 Purchase and Sale Agreement, dated as of September 14,
1996, between Wheelabrator Technologies Inc. and
United States Filter Corporation......................
2.3 Stock Purchase Agreement, dated as of September 10,
1996, among Edmundson International, Inc., United
States Filter Corporation and WaterPro Supplies
Corporation...........................................
12.1 Computation of Ratio of Earnings to Fixed Charges.....
23.1 Consents of KPMG Peat Marwick LLP and KPMG Audit Plc..
23.2 Consent of Price Waterhouse LLP.......................
23.3 Consent of Ernst & Young LLP..........................
23.4 Consent of Arthur Andersen LLP........................
24.1 Power of Attorney (included on signature page)........
</TABLE>
<PAGE>
Exhibit 2.1
EXECUTION COPY
AMENDED AND RESTATED
PURCHASE AND SALE AGREEMENT
between
WHEELABRATOR TECHNOLOGIES INC.
("Seller")
and
UNITED STATES FILTER CORPORATION
("Purchaser")
September 14, 1996
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS
1.1 Defined Terms . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
PURCHASE AND SALE
2.1 Purchase and Sale of Shares and Domestic
Assets. . . . . . . . . . . . . . . . . . . . . . 11
2.2 Payment at Closing .. . . . . . . . . . . . . . . 14
2.3 Closing Balance Sheet . . . . . . . . . . . . . . 15
2.4 Procedures for Assets not Transferable . . . . . 17
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
3.1 Authority of Seller . . . . . . . . . . . . . . . 18
3.2 Shares and Subsidiaries . . . . . . . . . . . . . 19
3.3 Real Property . . . . . . . . . . . . . . . . . . 20
3.4 Leases . . . . . . . . . . . . . . . . . . . . . 20
3.5 Intellectual Property . . . . . . . . . . . . . . 21
3.6 Title to Assets . . . . . . . . . . . . . . . . . 21
3.7 No Adverse Change . . . . . . . . . . . . . . . . 22
3.8 Tax Matters . . . . . . . . . . . . . . . . . . . 22
3.9 Litigation . . . . . . . . . . . . . . . . . . . 23
3.10 ERISA . . . . . . . . . . . . . . . . . . . . . 23
3.11 Material Contracts . . . . . . . . . . . . . . . 25
3.12 Brokers . . . . . . . . . . . . . . . . . . . . 25
3.13 Environmental . . . . . . . . . . . . . . . . . 26
3.14 Qualification . . . . . . . . . . . . . . . . . 28
3.15 Compliance with Law; Regulatory Compliance. . . 28
3.16 Financial Statements . . . . . . . . . . . . . . 29
3.17 Indebtedness; Parent Guarantees. . . . . . . . . 29
3.18 Employment . . . . . . . . . . . . . . . . . . . 30
3.19 Labor Relations . . . . . . . . . . . . . . . . 31
3.20 Inventory . . . . . . . . . . . . . . . . . . . 31
3.21 Receivables. . . . . . . . . . . . . . . . . . . 31
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
4.1 Authority of Purchaser . . . . . . . . . . . . . 32
4.2 Brokers . . . . . . . . . . . . . . . . . . . . . 33
4.3 Securities . . . . . . . . . . . . . . . . . . . 33
-i-
<PAGE>
4.4 Financing . . . . . . . . . . . . . . . . . . . . 33
ARTICLE V
COVENANTS OF SELLER
5.1 Corporate and Other Actions. . . . . . . . . . . 33
5.2 Full Access. . . . . . . . . . . . . . . . . . . 33
5.3 Ordinary Course of Business. . . . . . . . . . . 34
5.4 Payment of Taxes . . . . . . . . . . . . . . . . 36
5.5 HSR Filings . . . . . . . . . . . . . . . . . . 36
5.6 Litigation Support and Access After Closing. . . 36
5.7 No Solicitation. . . . . . . . . . . . . . . . . 36
5.8 Employment Solicitation. . . . . . . . . . . . . 37
5.9 Failure to Close . . . . . . . . . . . . . . . . 37
5.10 Filings. . . . . . . . . . . . . . . . . . . . . 38
5.11 Insurance. . . . . . . . . . . . . . . . . . . . 38
ARTICLE VI
COVENANTS OF PURCHASER
6.1 Corporate and Other Actions. . . . . . . . . . . 38
6.2 Confidentiality. . . . . . . . . . . . . . . . . 38
6.3 Employees; Benefit Plans. . . . . . . . . . . . 38
6.4 Full Access. . . . . . . . . . . . . . . . . . . 40
6.5 Insurance. . . . . . . . . . . . . . . . . . . . 40
6.6 Use of Name. . . . . . . . . . . . . . . . . . . 40
6.7 HSR Filings. . . . . . . . . . . . . . . . . . . 40
6.8 Litigation Support and Access After Closing. . . 40
6.9 Parent Guarantees. . . . . . . . . . . . . . . . 41
6.10 Knowledge. . . . . . . . . . . . . . . . . . . . 41
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS
OF PURCHASER
7.1 Warranties True . . . . . . . . . . . . . . . . . 41
7.2 Compliance with Agreements and Covenants . . . . 41
7.3 HSR Act . . . . . . . . . . . . . . . . . . . . . 42
7.4 Injunctions . . . . . . . . . . . . . . . . . . . 42
7.5 Deliveries by Seller . . . . . . . . . . . . . . 42
7.6 No Material Adverse Change . . . . . . . . . . . 42
7.7 Materiality Standard . . . . . . . . . . . . . . 42
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
8.1 Warranties True . . . . . . . . . . . . . . . . 42
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<PAGE>
8.2 Compliance with Agreements and Covenants . . . . 43
8.3 HSR Act . . . . . . . . . . . . . . . . . . . . . 43
8.4 Injunctions . . . . . . . . . . . . . . . . . . . 43
8.5 Deliveries by Purchaser . . . . . . . . . . . . . 43
ARTICLE IX
CLOSING
9.1 Closing . . . . . . . . . . . . . . . . . . . . . 43
9.2 Seller's Deliveries . . . . . . . . . . . . . . . 43
9.3 Purchaser's Deliveries . . . . . . . . . . . . . 44
9.4 Termination . . . . . . . . . . . . . . . . . . . 45
ARTICLE X
SURVIVAL AND INDEMNIFICATION
10.1 Survival . . . . . . . . . . . . . . . . . . . . 46
10.2 Indemnification by Seller . . . . . . . . . . . 46
10.3 Limitations . . . . . . . . . . . . . . . . . . 47
10.4 Indemnification by Purchaser . . . . . . . . . . 48
10.5 Procedures . . . . . . . . . . . . . . . . . . . 48
10.6 Calculations . . . . . . . . . . . . . . . . . . 49
ARTICLE XI
TAXES
11.1 Filing Tax Returns; Payment of Taxes . . . . . . 49
11.2 Tax Benefits . . . . . . . . . . . . . . . . . . 50
11.3 Tax Cooperation . . . . . . . . . . . . . . . . 50
11.4 Section 338(h)(1) Election . . . . . . . . . . . 51
11.5 Tax Sharing Arrangements . . . . . . . . . . . . 51
ARTICLE XII
MISCELLANEOUS
12.1 Expenses . . . . . . . . . . . . . . . . . . . 51
12.2 Amendment . . . . . . . . . . . . . . . . . . . 52
12.3 Notices . . . . . . . . . . . . . . . . . . . . 52
12.4 Waivers . . . . . . . . . . . . . . . . . . . . 53
12.5 Counterparts . . . . . . . . . . . . . . . . . 53
12.6 Headings . . . . . . . . . . . . . . . . . . . 53
12.7 Applicable Law . . . . . . . . . . . . . . . . 53
12.8 Assignment . . . . . . . . . . . . . . . . . . 53
12.9 No Third Party Beneficiaries . . . . . . . . . 53
12.10 Arbitration . . . . . . . . . . . . . . . . . . 53
12.11 Schedules . . . . . . . . . . . . . . . . . . . 54
12.12 Incorporation . . . . . . . . . . . . . . . . . 54
-iii-
<PAGE>
12.13 Knowledge Defined . . . . . . . . . . . . . . . 54
12.14 Public Announcements . . . . . . . . . . . . . 54
12.15 Complete Agreement . . . . . . . . . . . . . . 55
12.16 Interpretation . . . . . . . . . . . . . . . . 55
12.17 Further Assurances . . . . . . . . . . . . . . 55
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<PAGE>
Schedule 1.2 - Minority Subsidiaries
Schedule 1.3 - The Shares
Schedule 1.4 - Subsidiaries
Schedule 2.1(b) - Certain Retained Matters
Schedule 2.1(c)(I) - Environmental Liabilities
Schedule 2.1(c)(II) - Retained Claims
Schedule 2.1(c)(III) - Certain Litigation
Schedule 2.1(d) - Transferred Assets
Schedule 2.2 - Payment Allocation
Schedule 2.3 - Accounting Conventions
Schedule 3.1 - Authority of Seller
Schedule 3.2 - Ownership
Schedule 3.3 - Real Property
Schedule 3.4 - Leases
Schedule 3.5 - Intellectual Property
Schedule 3.6 - Title to Assets
Schedule 3.7 - No Adverse Change
Schedule 3.8 - Tax Matters
Schedule 3.9 - Litigation
Schedule 3.10 - ERISA
Schedule 3.11 - Material Contracts
Schedule 3.13 - Environmental
Schedule 3.15 - Compliance
Schedule 3.16 - Financial Statements
Schedule 3.17 - Indebtedness
Schedule 3.18 - Employment
Schedule 3.19 - Labor Relations
Schedule 5.3(I) - Capital Expenditures
Schedule 6.3(e) - Excluded Employees
Schedule 12.13(a) - Knowledge of Seller
Schedule 12.13(b) - Knowledge of Purchaser
Exhibit A - Insurance Agreement
Exhibit B - Stock Retention Agreement
Exhibit C - Trade Name and Service Mark License
Agreement
Exhibit D - Business Development Agreement
Exhibit E - Non-Competition Agreement
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<PAGE>
AMENDED AND RESTATED
PURCHASE AND SALE AGREEMENT
---------------------------
THIS AMENDED AND RESTATED PURCHASE AND SALE AGREEMENT is entered into as of
the 14th day of September, 1996, between Wheelabrator Technologies Inc., a
Delaware corporation ("Seller"), and United States Filter Corporation, a
Delaware corporation ("Purchaser").
WHEREAS, subject to the terms and conditions set forth herein, Seller
desires to cause the sale, assignment and transfer to Purchaser, and Purchaser
desires to purchase, assume and take assignment and delivery of, (A) the stock
of certain of Seller's indirect subsidiaries and certain other entities, and
(B) substantially all of the assets and liabilities of the Johnson Screens,
Wheelabrator Corporation and Water Process divisions of Seller's wholly owned
subsidiary, Wheelabrator Water Technologies Inc. ("WWTI"). Certain capitalized
terms used herein shall have the meanings ascribed to such terms below.
WHEREAS, on September 14, 1996, the parties entered into a Purchase and
Sale Agreement providing for the foregoing, which Agreement the parties now wish
to amend in certain respects and restate in its entirety, which Amended and
Restated Purchase and Sale Agreement shall be deemed to be entered into as of
the 14th day of September, 1996.
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein contained, it is hereby agreed as follows:
ARTICLE I
DEFINITIONS
1.1 Defined Terms. The following terms shall have the following meanings:
-------------
"Accounting Conventions" shall mean the agreements, assumptions and
conventions used in connection with preparing the Financial Statements and
to be used in connection with preparing the Closing Balance Sheet, as set
forth on Schedule 2.3.
------------
"Acquisition Proposal" shall have the meaning set forth in Section 5.7.
-----------
"Affiliate" means any Person controlling, controlled by, or under
common control with, another Person; for purposes of this definition (and
for such purposes only), "control" shall
<PAGE>
mean the ownership, directly or indirectly, of 50% or more of the
outstanding equity securities or ownership interests of a Person.
"Agreement" means this Agreement, including all Schedules and Exhibits
hereto, as it may be amended from time to time in accordance with its
terms.
"Allocation" shall have the meaning set forth in Section 11.4.
------------
"Balance Sheet" means the unaudited combined balance sheet of the
Business as of August 31, 1996.
"Base Tangible Net Book Value" means (a) $110,600,000, if the Closing
occurs on or as of October 31, 1996; (b) $113,600,000, if the Closing
occurs on or as of November 30, 1996; or (c) $116,600,000, if the Closing
occurs on or as of December 31, 1996.
"Benefit Plans" means written and unwritten "employee benefit plans"
within the meaning of Section 3(3) of ERISA, and any other written and
unwritten profit sharing, pension, savings, deferred compensation, fringe
benefits, insurance, medical, medical reimbursement, life, disability,
accident, post-retirement health or welfare benefit, stock option, stock
purchase, sick pay, vacation, employment, severance, termination or other
plan, agreement, contract, policy, trust fund or arrangement, whether or
not funded, in each case only to the extent maintained in the United States
by or for the benefit of the Divisions. The term "Benefit Plans" does not
include plans maintained or required by governmental authorities.
"Business" shall mean, collectively, the following: (a) the businesses
of the Subsidiaries (after the transfer contemplated at Section 2.1(d)
--------------
below); (b) the business of the Johnson Screens division of WWTI; (c) the
business of the Wheelabrator Corporation division of WWTI; and (d) the
businesses of the Water Process division of WWTI, including the HPD, CPC
Engineering, Wiesemann, McCormick and Memtek business lines. "Business"
does not include the Excluded Businesses.
"Closing" shall mean the closing of the purchase and sale
transactions contemplated by this Agreement.
"Closing Balance Sheet" shall have the meaning set forth in
Section 2.3.
------------
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<PAGE>
"Closing Date" shall have the meaning set forth in Section 9.1.
-----------
"Code" means the Internal Revenue Code of 1986, as amended.
"Controlled Group Member" shall have the meaning set forth in
Section 3.10.
------------
"Default" means, with respect to any contract, lease or agreement, a
breach of any obligation thereunder that would give the counterparty
thereto (a) the right to terminate such contract, lease or agreement, (b)
the right to accelerate all payments due under such contract, lease or
agreement or (c) a bona fide claim for damages in excess of $250,000.
"Default" shall not include claims under warranties or process guarantees.
"Divisions" means the Johnson Screens, Wheelabrator Corporation, and
Water Process (including the HPD, CPC Engineering, Wiesemann and Memtek
business lines) divisions of WWTI.
"DOL" shall have the meaning set forth in Section 5.10.
-------------
"Domestic Assets" shall have the meaning set forth in Section 2.1(b).
--------------
"Employment Agreements" shall have the meaning set forth in
Section 3.18.
------------
"Environmental Action" shall mean any civil, criminal or administrative
action, suit, summons, citation, complaint, claim, demand, judgment, order,
Lien, notice of violation, proceeding or hearing, or investigation based
upon or related to (i) any Environmental Law or Environmental Condition, or
(ii) the presence, manufacture, generation, processing, distribution, use,
sale, receipt, storage, disposal, transport, treatment, handling, Release
or threatened Release of any Hazardous Material.
"Environmental Approvals" shall mean collectively all Governmental
Approvals required under Environmental Laws.
"Environmental Condition" shall mean the presence of a Hazardous
Material (other than a naturally occurring substance) on, at or in a
property (including, but not limited to, the presence in surface water,
groundwater, soils or subsurface strata).
-3-
<PAGE>
"Environmental Laws" means all applicable Federal, state, local or
foreign Laws relating primarily to pollution or protection of the
environment, as such Laws exist on the Closing Date, including, without
limitation, Laws relating to Releases of pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes
(including, without limitation, Hazardous Materials) into the indoor or
outdoor environment (including, without limitation, ambient air, surface
water, ground water or land), or otherwise relating primarily to the
manufacture, use, treatment, storage, transportation or disposal of
Hazardous Materials.
"Environmental Liabilities" mean the liabilities set forth on Schedule
2.1(c)(I).
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Excluded Assets" shall have the meaning set forth in
Section 2.1(b).
--------------
"Excluded Businesses" means (a) those assets, liabilities and
operations of Wheelabrator Clean Air Systems Inc. and Wheelabrator Canada
Inc. to be transferred pursuant to Section 2.1(d) below and retained by
--------------
Seller, (b) all of the BioGro line of business of WWTI, (c) the EOS line
of business of WWTI, (d) the contracts, operations, and businesses and
other assets included within the Excluded Assets and (e) the privatization
and industrial outsourcing development group of WWTI.
"Financial Statements" shall have the meaning set forth in
Section 3.16.
------------
"GAAP" means United States generally accepted accounting principles, as
in effect on the date of this Agreement.
"Governmental Approvals" shall have the meaning set forth in
Section 3.15(b).
---------------
"Governmental Filings" means any plans, filings, reports,
notifications, or other submissions required to be made to any governmental
authority.
"Hazardous Material" means any substance which is defined as a
hazardous substance, hazardous material, hazardous chemical, hazardous
waste, toxic substance, pollutant, solid waste, municipal waste, industrial
waste or contaminant under any Environmental Law, or any substance which is
regulated
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<PAGE>
under any Environmental Law, and including, without limitation, petroleum
and related materials.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"Indebtedness" shall have the meaning set forth in Section 3.17.
------------
"Insurance Agreement" shall mean the Insurance Agreement set forth on
Exhibit A hereto.
---------
"Intellectual Property" means all domestic and foreign patents and
registered and unregistered trade names, fictitious names, logos and brand
names, copyrights, trademarks (and associated goodwill), processes,
software, know-how, trade secrets, service marks and patents, and other
proprietary rights, and licenses and applications for any of the foregoing,
used exclusively by the Divisions or Subsidiaries in the operation of the
Business or owned by any Subsidiary.
"IRS" shall have the meaning set forth at Section 3.10
------------
"Law" means any law, statute, regulation, ordinance, rule, order,
decree, judgment, consent decree, settlement agreement or governmental
requirement (including, without limitation, common laws) enacted,
promulgated, entered into, agreed to or imposed by any court or other
governmental authority or body; provided, that the term "Law" shall not
--------
include any Environmental Law.
"Liabilities" means all liabilities (excluding all Retained
Liabilities) of, or arising from the operation of, the Subsidiaries, the
Divisions, the Business and the Domestic Assets, whether absolute or
contingent, known or unknown, including, without limitation:
(a) all the obligations under any agreements, contracts, leases,
instruments, purchase orders, sales orders, warranties, guaranties and
commitments (including, without limitation, outstanding bids and
contracts in process) to which any of Seller, WWTI (with respect to the
Business) or the Subsidiaries are a party or otherwise bound
(including, without limitation, matters relating to both open and
completed contracts);
(b) current liabilities, including such liabilities (i) reflected
on the Balance Sheet to the extent not paid on the Closing Date or (ii)
incurred in the ordinary course of business (or otherwise, with the
written
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<PAGE>
consent of Purchaser) after the date of the Balance Sheet;
(c) all claims arising from products sold or services provided on
or prior to the Closing Date, including, without limitation, warranty
claims, process guaranty claims, property damage claims, and personal
injury claims;
(d) any claims by employees of the Business, including, without
limitation, worker's compensation claims, disability claims, severance
claims, retirement claims, claims for termination pay, vacation pay,
profit sharing, thirteenth month or other statutory or non-statutory
bonus, or any claim for violation of applicable Law pertaining to
employment (provided, that it is understood that the parties'
--------
allocations of liabilities set forth in Section 6.3 with respect to the
-----------
matters set forth therein shall be controlling);
(e) all Taxes that have been accrued and are not payable and that
accrue after the Closing Date;
(f) any other liability, absolute, contingent, known or unknown,
related to the assets, liabilities, operations or products of the
Subsidiaries, the Divisions, the Business and the Domestic Assets.
"Lien" means any lien, security interest, mortgage, deed of trust,
pledge, conditional sale agreement, easement, lease or other charge or
encumbrance.
"Loss" or "Losses" mean any and all damages, losses, actions,
proceedings, causes of action, obligations, liabilities, claims,
encumbrances, penalties, demands, assessments, judgments, Reserve Losses,
costs and expenses including, without limitation, court costs and
reasonable attorneys' and consultants' fees and costs of litigation but
shall not include (a) any interest with respect thereto or (b) economic,
consequential, punitive or incidental damages claimed, incurred or suffered
by Purchaser or its Affiliates; provided, that the exclusion set forth in
this clause (b) shall not apply with respect to economic, consequential,
punitive or indirect damages required to be actually paid by Purchaser to
any Person not affiliated with Purchaser.
"Material" when used (a) to describe or modify a reference to the
Business, the Subsidiaries and/or Divisions, and/or (b) to describe or
modify the effect of any event or situation or state of affairs, means
material to the assets, operations or financial condition of the Business
taken as a
-6-
<PAGE>
whole unless otherwise specifically limited or defined, and whether or not
initial capitalization is used.
"Material Adverse Change" means a Material adverse change in the
assets, operations or financial condition of the Business taken as a whole,
for or during the period indicated.
"Material Adverse Effect" means a Material adverse effect on the
assets, operations or financial condition of the Business taken as a whole.
"Material Contracts" means any (a) joint venture or partnership
agreement pursuant to which WWTI (with respect to the Business) or any of the
Subsidiaries (other than any Minority Subsidiary) hold an equity interest in any
entity (but excluding any project-specific joint venture agreements not included
elsewhere in this definition), (b) agreement pursuant to which WWTI (with
respect to the Business) or any of the Subsidiaries (other than any Minority
Subsidiary) have the right to use any Intellectual Property that is Material,
(c) collective bargaining agreement (other than such arrangements imposed or
mandated by applicable foreign Law) to which WWTI (with respect to the Business)
or any of the Subsidiaries (other than any Minority Subsidiary) are a party, (d)
contract, agreement, commitment or obligation relating to the Business and by
which WWTI (with respect to the Business) or any of the Subsidiaries (other than
any Minority Subsidiary) are bound for the purchase or sale of goods or services
and which could reasonably be expected to provide for payments to or from WWTI
(with respect to the Business) or any of the Subsidiaries over the life of such
contract, agreement, commitment or obligation, in an amount of $1,000,000 (or
foreign currency equivalent) or more (other than any such items (i) terminable
by WWTI or the Subsidiary party thereto on 30 days or less notice without
liability, penalties or additional cost, (ii) that are agreements providing for
the acquisition of the stock or assets of another entity by Seller, WWTI (with
respect to the Business) or any Subsidiary, which acquisition has closed, (iii)
that are contracts, the provision of goods and services under which has been
substantially completed and that does not have future billings in excess of
$1,000,000, notwithstanding that retainage may be held under such contracts,
that contractual warranty periods thereunder may not have expired or that such
contracts may be considered "open" from an accounting or other non-operational
standpoint, or (iv) that constitute a sales representative or distribution
agreement under which there have not, during the most recent fiscal year, been
payments made by WWTI or the Subsidiary party thereto in excess of $1,000,000),
or (e) contract or agreement of WWTI (with respect to the Business) or the
Subsidiaries which, if terminated or lost,
-7-
<PAGE>
could reasonably be expected to have a Material Adverse Effect.
"Minority Subsidiaries" shall mean the Subsidiaries noted as such on
Schedule 1.2 hereto.
------------
"Non-Competition Agreement" means the Non-Competition Agreement in the
form of Exhibit E.
----------
"Non-U.S. Pension Plans" shall have the meaning set forth in
Section 3.10.
------------
"Parent Guarantees" means all guarantees, agreements, pledges,
mortgages, letters of credit, bonds or other instruments of Seller and its
Affiliates (other than the Subsidiaries and WWTI (with respect to the
Business)) guaranteeing, securing or becoming otherwise obligated with
respect to any actual or contingent liabilities of the Business, WWTI or
any of the Subsidiaries.
"Permitted Exceptions" shall have the meaning set forth in
Section 3.6(a).
--------------
"Person" means any individual, corporation, partnership, association,
limited liability company, trust, governmental or quasi-governmental
authority or body or other entity or organization.
"Post-Closing Adjustment" shall have the meaning set forth in
Section 2.3(b). The Post-Closing Adjustment may be a positive or negative
--------------
amount (i.e., resulting in a payment to either the Seller or Purchaser).
"Purchase Price" shall have the meaning set forth in Section 2.2,
-----------
subject to adjustment as set forth in Section 2.3.
-----------
"Purchaser" shall have the meaning specified in the preamble hereof.
"Purchaser Indemnified Party" shall have the meaning set forth in
Section 10.2.
------------
"Purchaser Plans" shall have the meaning set forth in Section 6.3.
-----------
"Qualified Plan" shall have the meaning set forth in Section 3.10.
------------
"Real Property" shall have the meaning set forth in Section 3.3.
-----------
-8-
<PAGE>
"Release" shall mean the spilling, leaking, pumping, pouring, emitting,
discharging, injecting, escaping, leaching, dumping or disposal of any
Hazardous Material into surface water, groundwater, soil, the land surface
or subsurface, or ambient air.
"Reserve Losses" shall have the meaning set forth in Section 10.2(b).
---------------
"Reserved Matters" shall mean the following matters with respect to the
Business, each as of the Closing Date: (a) accounts receivable, (b) amounts
relating to the completion of the contracts in process of the Business,
Divisions and Subsidiaries, (c) claims arising from products sold or
services provided, including product or service warranty claims and process
guaranty claims, (d) worker's compensation claims, disability claims,
personal injury claims and severance claims, (e) inventory (including,
without limitation, finished goods, supplies and raw materials) and (f)
litigation; provided, however, that Reserved Matters shall not include
-------- -------
matters known to Seller which should have been, but are not, included on
Schedule 3.9 or 3.11.
------------ ----
"Reserves" means the aggregate amount of the reserves established on
the Closing Balance Sheet specifically identified with, or available to be
utilized for, the Reserved Matters as of the Closing Date, established in
accordance with GAAP (as modified by the Accounting Conventions) and in
accordance with the Accounting Conventions.
"Response Action" shall mean any action taken in the investigation,
removal, confinement, remediation or cleanup of a Release or any
Environmental Condition. "Response" and "Response Actions" include, without
limitation, any action which constitutes a "removal" action or "remedial"
action as defined by (s) 101 of the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. (s) 9601(23) and (24) and which
is necessary and consistent with the National Contingency Plan promulgated
thereunder.
"Retained Claims" shall have the meaning set forth in Section 2.1(c).
--------------
"Retained Liabilities" shall have the meaning set forth in
Section 2.1(c).
--------------
"Section 338(h)(10) Elections" shall have the meaning specified in
Section 11.4.
------------
"Seller" shall have the meaning specified in the preamble hereof.
--------
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<PAGE>
"Seller Indemnified Party" shall have the meaning set forth in Section 10.4.
------------
"Seller Tax Period" means the period (including all prior taxable years)
ending on and including the Closing Date.
"Seller Plans" shall have the meaning set forth in Section 3.10.
-------------
"Shares" means all the shares of capital stock and quotas of share capital
set forth on Schedule 1.3.
-------------
"Stock Retention Agreement" shall have the meaning set forth in
Section 2.4(c).
- --------------
"Subsidiary" or "Subsidiaries" means the entities listed on Schedule 1.4.
-------------
"Tangible Net Book Value" shall mean total assets (excluding goodwill) less
total liabilities of the Business as of the date of the Closing Balance Sheet.
The Tangible Net Book Value shall be calculated according to the Accounting
Conventions and in a manner consistent with the calculation thereof on the
Balance Sheet.
"Taxes" mean all taxes, charges, fees, duties, levies or other assessments,
including (without limitation) income, gross receipts, capital stock, net
proceeds, ad valorem, turnover, real, personal and other property (tangible and
intangible), sales, use, franchise, excise, value added, stamp, leasing, lease,
user, transfer, fuel, excess profits, occupational, interest equalization,
windfall profits, unitary, severance and employees' income withholding,
unemployment and Social Security taxes, duties, assessments and charges
(including the recapture of any tax items such as investment tax credits) which
are imposed by the United States, or any state, local or foreign government or
subdivision or agency thereof, including, without limitation, any interest,
penalties or additions to tax related thereto imposed by any taxing authority
(including any interest or penalties with respect to such Taxes), it being
understood that any Taxes, penalties or interest attributable to the operations
of any Subsidiary (including, without limitation, penalties or interest payable
as a result of an audit of any tax return) shall be deemed to have accrued in
the period to which such Taxes, penalties or interest are attributable.
"Trade Name and Service Mark License Agreement" shall have the meaning set
forth at Section 6.6.
-----------
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<PAGE>
"UK Microfloc Contracts" means all agreements, contracts and arrangements
entered into prior to the date hereof and relating to Microfloc projects to
which JFS (UK) Limited, Tilghman-Wheelabrator Ltd. or any other Subsidiary is a
named party.
"WCAI" shall have the meaning set forth in Section 2.2(b).
"WWTI" shall have the meaning set forth in the recital hereof.
ARTICLE II
PURCHASE AND SALE
2.1 Purchase and Sale of Shares and Domestic Assets. Subject to the terms
------------------------------------------------
and conditions hereof, at the Closing:
(a) Seller shall cause the sale, assignment and delivery to Purchaser, and
Purchaser shall purchase and take assignment and delivery of, the Shares.
(b) Seller shall cause the sale, assignment and delivery to Purchaser, and
Purchaser shall purchase and take assignment and delivery of, the assets, real,
personal, tangible or intangible, used primarily by the Divisions in the
operation of the Business (collectively, the "Domestic Assets"). The Domestic
Assets include, but are not limited to:
(i) all assets of the Divisions reflected on the Balance Sheet (except
assets reflected thereon which have been disposed of or used in the ordinary
course of business after the date of the Balance Sheet);
(ii) all assets acquired by the Divisions after the date of the Balance
Sheet and reflected on the Closing Balance Sheet;
(iii) all accounts and notes receivable relating to the Business as
operated by the Divisions or arising from the operation of the Divisions;
(iv) all inventory, stock in trade, work-in-process, and raw materials,
including supplies inventory and unbilled costs on engineering contracts
relating exclusively to the Business as operated by the Divisions or
resulting from the operation of the Divisions;
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<PAGE>
(v) all sales order files, systems order files, purchase order files,
manufacturing records, customer lists and business files and records in
Seller's control to the extent relating to the Business;
(vi) all Intellectual Property owned by WWTI and relating exclusively to
the Business, including, without limitation, all royalties, rights and
interests in connection with any license of such Intellectual Property;
(vii) all rights and interest to or in all agreements, contracts,
guarantees, letters of credit, sales contracts, leases, purchase orders,
sales orders, purchase contracts, service contracts, outstanding bids and
contracts in process, or sales representative or distributorship contracts,
in each case relating exclusively to the Business and regardless of
whether currently in process or completed, including, without limitation,
Material Contracts and Leases;
(viii) all machinery and equipment used by the Divisions in the Business;
(ix) all rights of WWTI, to the extent relating exclusively to or arising
out of the operation of the Business, with respect to any claims, demands,
causes of action, judgments and pending litigation;
(x) the Real Property (and all improvements thereon) and Leases (as
defined in Sections 3.3 and 3.4) of WWTI relating exclusively to the
------------ ---
operation of the Divisions;
(xi) all right, title and interest in the Governmental Approvals of WWTI
relating exclusively to the operation of the Divisions, to the extent
transferable; and
(xii) all assets of the Divisions located on (i) the Real Property and
(ii) the real property that is the subject of the Leases of WWTI relating
exclusively to the operation of the Divisions, on the date hereof and on the
Closing Date.
The Domestic Assets shall not include, and Purchaser shall not purchase and take
assignment and delivery of, the following (the "Excluded Assets"):
(1) all rights of WWTI (relating to the operation of the Business) for
rebates or refunds related to Taxes;
(2) all securities of any Person not constituting a Subsidiary;
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<PAGE>
(3) the "triangle" mark (blue triangle) and all names, trade names and
trademarks containing the name "Wheelabrator" (other than as provided in the
Trade Name and Service Mark License Agreement), it being further understood
that any marks owned by any Subsidiary with respect to the "triangle" mark
(blue triangle) and all names, trade names and trademarks containing the
name "Wheelabrator"' will be retained by Seller and transferred to Seller by
each Subsidiary prior to Closing;
(4) all legal, accounting and tax records pertaining primarily to the
Retained Liabilities and Excluded Assets;
(5) all minute books, stock books and corporate records related primarily
to the Affiliates of Seller operating the Divisions;
(6) any intercompany balances due to or from Seller or any Affiliate of
Seller, as in effect on the Closing Date;
(7) the rights of WWTI and its Affiliates pursuant to the agreements
listed on Schedule 2.1(b)(I), other than the rights to be assigned to
------------------
Purchaser identified thereon;
(8) the rights and interests described on Schedule 2.1(b)(II);
(9) all assets of the Excluded Businesses, including, without limitation,
all equity interests, revenue rights, contract business prospects, customer
lists, other confidential information, privatization and industrial
outsourcing development projects, and other assets of the municipal and
industrial wastewater facilities management business of the EOS division
and the privatization and outsourcing development groups of WWTI;
(10) the capital stock of JFS (UK) Limited; and
(11) the assets relating to the grate blocks of Wheelabrator
Environmental Systems Inc. set forth on Schedule 2.1(b)(III).
(c) Purchaser shall assume and agree to pay, perform or satisfy, in
accordance with their respective terms, all of the Liabilities.
Notwithstanding clause (c) above, Purchaser shall not assume and shall not
be liable for the following liabilities of Seller, WWTI, the Subsidiaries or
the Divisions (collectively, the "Retained Liabilities"): (i) the
Environmental Liabilities, (ii) all liabilities under or with respect to the
Seller Plans, including but not limited to liabilities for post-retirement
health
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<PAGE>
benefits and life insurance under such plans, (iii) all liabilities and
obligations of, or arising out of, the Excluded Businesses, including, without
limitation, claims against Wheelabrator Clean Air Systems Inc. and Wheelabrator
Canada Inc. relating to the operation, ownership or use of the assets
transferred to a subsidiary of Seller in accordance with Section 2.1(d) below,
--------------
(iv) all claims or obligations with respect to, or arising out of, the Excluded
Assets, (v) all intercompany payables due to Seller or any Affiliate of Seller,
(vi) all liabilities and obligations of WWTI or its Affiliates arising in
connection with the litigation set forth on Schedule 2.1(c)(III), (vii) all
--------------------
liabilities and obligations of WWTI or its Affiliates arising in connection with
the matters set forth on Schedule 2.1(c)(II) (the "Retained Claims"), and
-------------------
(viii) severance and termination obligations retained by Seller under
Section 6.3.
- ------------
(d) Prior to Closing, Wheelabrator Clean Air Systems Inc. shall transfer to
a subsidiary of Seller all of its assets which do not constitute part of its (i)
ARI LoCat sulfur recovery business, (ii) AMCEC solvent recovery business, (iii)
Altech Measurement Systems business, (iv) Huntington Energy Systems regenerative
thermal oxidation and the ARI EconAbator catalytic oxidation businesses, or (v)
Westates Carbon business. Such transferred assets are described on
Schedule 2.1(d) and shall include all assets used in the Wheelabrator Air
- ---------------
Pollution Control business of Wheelabrator Clean Air Systems Inc. The transferee
entity shall assume all liabilities or obligations of, or claims against,
Wheelabrator Clean Air Systems Inc. relating to the operation, ownership or use
of such assets. Prior to Closing, Wheelabrator Canada Inc. shall transfer to a
subsidiary of Seller all capital stock owned in Glegg Industries, Inc., all
rights and obligations under that certain Strategic Alliance Agreement and other
agreements entered into in connection with the acquisition of the capital stock
investment in Glegg Industries Inc., and all of the assets used in the
Wheelabrator Air Pollution Control business. Such entity shall assume all
liabilities or obligations of, or claims against, Wheelabrator Canada Inc.
relating to the operation, ownership or use of such assets. Prior to Closing,
Seller shall cause the transfer or dividend of the shares of JFS (UK) Limited to
Seller or one of its subsidiaries or Affiliates. The instruments of transfer and
assumption necessary to effect the matters contemplated by this Section 2.1(d)
--------------
shall be substantially in the same form as the other instruments of transfer
between Seller and Purchaser pursuant to this Agreement.
2.2 Payment at Closing. (a) Subject to the terms and conditions hereof, at
------------------
the Closing, Purchaser shall pay by wire transfer of same-day funds, the sum of
$369,600,000 (the "Purchase Price") to Seller, less any amount to be paid into
escrow pursuant to Section 2.2(b) below. The Purchase Price may be adjusted
-------------
following the Closing pursuant to Section 2.3. The Purchase Price
------------
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<PAGE>
shall be allocated as set forth on Schedule 2.2 among the Shares, the Domestic
------------
Assets and the non-competition covenant set forth in the Non-Competition
Agreement, which Schedule 2.2 shall be agreed to by the parties as soon as
------------
practical (but in no event greater than 30 days) after the Closing Date and
thereafter immediately constitute a part of this Agreement as if attached hereto
on the date hereof. The parties shall adhere to Schedule 2.2 for purposes of any
------------
tax report or filing made by any such party.
(b) Seller shall retain the shares of common stock of Westates Carbon-
Arizona, Inc. ("WCAI") until (i) all necessary Environmental Approvals have been
received in connection with a change of control of WCAI and the transfer of its
"Part A" RCRA permit and (ii) the Seller has received the consents of the
Colorado River Indian Tribes ("CRIT") and the duly authorized representative of
the Secretary of the Interior to the assignment of the Lease between WCAI and
CRIT dated July 20, 1990 (if required), so as to enable the Seller to cause the
transfer of such shares to Purchaser. Upon receipt of such Environmental
Approvals and such consents, Seller shall promptly cause the transfer to
Purchaser of such shares upon payment of the amount withheld by Purchaser under
this Section 2.2(b) (with interest thereon as provided below). Such payment and
--------------
transfer shall occur within three (3) business days of Seller's delivery of
written notice to Purchaser that such Environmental Approvals and consents have
been obtained.
Seller and Purchaser agree that $10,000,000 of the Purchase Price shall be
paid by Purchaser into escrow at Closing with an escrow agent mutually agreeable
to Seller and Purchaser on the Closing Date, to be held by such escrow agent
pursuant to an escrow agreement with mutually agreeable terms. Such amount shall
be paid to Seller, with interest thereon, upon the transfer of the shares of
WCAI to Purchaser. Promptly after the date of this Agreement (and in any event
within 15 days thereof), Purchaser (with the cooperation of Seller) shall make
all necessary filings to obtain such Environmental Approvals and both such
consents, and shall use its best efforts to obtain such Environmental Approvals
and consents as promptly as practicable, including the posting of necessary
financial assurances in connection therewith.
In the event that the required Environmental Approvals and consents are
obtained prior to Closing, the portion of the Purchase Price described above
shall not be retained by Purchaser and paid into escrow, and the shares of WCAI
shall not be retained by Seller. In the event that the shares of WCAI are
retained by Seller, the Tangible Net Book Value on the Closing Balance Sheet,
and the applicable Base Tangible Net Book Value shall not be adjusted,
notwithstanding the fact that such shares have not been transferred.
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<PAGE>
2.3 Closing Balance Sheet. (a) Within thirty (30) days following the Closing
----------------------
Date, Seller shall deliver to Purchaser a consolidated balance sheet for the
Business dated as of the Closing Date (the "Closing Balance Sheet"). The
Closing Balance Sheet shall be prepared by Seller at its own expense with the
assistance of the former personnel of the Divisions and personnel of the
Subsidiaries, each as may be reasonably requested by Seller. The parties agree
that the Closing Balance Sheet shall be prepared in accordance with GAAP (as
modified by the Accounting Conventions) and giving effect to the Accounting
Conventions. The Closing Balance Sheet shall not take into consideration any
events occurring after the Closing Date. Following the delivery of the Closing
Balance Sheet to Purchaser, Seller shall permit Purchaser's accountants access
to and review of all work papers and other pertinent information requested from
time to time and used in connection with the preparation of the Closing Balance
Sheet.
(b) The Purchase Price shall be increased by the amount that the Tangible
Net Book Value as shown on the Closing Balance Sheet is greater, or shall be
reduced by the amount that the Tangible Net Book Value as shown on the Closing
Balance Sheet is less, than the Base Tangible Net Book Value. Such increase or
decrease, as finally determined, shall be referred to herein as the "Post-
Closing Adjustment." The Post-Closing Adjustment shall be remitted by wire
transfer of same-day funds, not later than the tenth (10th) day after the
Closing Balance Sheet becomes final and binding pursuant to Section 2.3(c)
--------------
below. The Purchase Price shall be deemed to be (i) decreased to the extent that
the Post-Closing Adjustment is due from Seller to Purchaser or (ii) increased to
the extent that the Post-Closing Adjustment is due from Purchaser to Seller.
(c) If Purchaser notifies Seller in writing within thirty (30) days after
receipt of the Closing Balance Sheet that Purchaser believes that the Closing
Balance Sheet fails to present fairly in all material respects the financial
condition of the Business in accordance with GAAP (as modified by the Accounting
Conventions) and in accordance with the Accounting Conventions and that the
resolution of such dispute in the manner proposed by Purchaser would result in
an adjustment to the Tangible Net Book Value reflected on the Closing Balance
Sheet of at least $500,000, and such notice states with reasonable specificity
the basis for such disagreement and the amount of the adjustment to Tangible Net
Book Value that would result, Seller and Purchaser shall attempt in good faith
to resolve such dispute as soon as possible. If Purchaser fails to object as
required by this Section 2.3(c), the Closing Balance Sheet as prepared by
--------------
Seller, and the Net Tangible Book Value shown thereon, shall be conclusive and
binding on the parties. If the Purchaser so objects and the parties are unable
to resolve such dispute within thirty (30) days after Seller's receipt of such
notice, the dispute shall be submitted for determination to
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<PAGE>
a certified public accounting firm mutually acceptable to Seller and Purchaser.
(If the parties cannot agree on such an accounting firm, the dispute shall be
submitted for determination to the Chicago office of Coopers & Lybrand.) Any
portion of the Post-Closing Adjustment that is not in dispute shall be paid
within five (5) business days after the date Purchaser presents its notice of
objection, regardless of the pendency of such dispute. Such public accounting
firm shall review and decide the issues that are the subject of such dispute
as specified in such notice within thirty (30) days after such submission. The
decision of such accounting firm shall be set forth in writing and delivered to
Seller and Purchaser. The decision of such accounting firm shall be final and
binding on Seller and Purchaser, and the Closing Balance Sheet and the Tangible
Net Book Value reflected thereon shall constitute the final and binding
"Closing Balance Sheet" and "Tangible Net Book Value" for purposes of
determining the Post-Closing Adjustment (as defined above); provided, that the
--------
Closing Balance Sheet and the Tangible Net Book Value reflected thereon shall
not be adjusted unless the decision of such public accounting firm would result
in an adjustment to the Tangible Net Book Value of at least $500,000. The fees
and costs of such public accounting firm shall be borne by Purchaser and Seller
in proportion to the amount by which the final Post-Closing Adjustment reflects
their respective positions before commencing the dispute resolution process;
provided, that, if no adjustment is permitted due to the immediately preceding
- --------
sentence, Purchaser shall bear all such fees and costs. Any payment awarded by
the expert accounting firm to either party shall bear interest at the rate of
8% per annum, accruing from the date that Purchaser delivers its notice of
objection pursuant to this part (c) until the date payment is made.
2.4 Procedures for Assets not Transferable. (a) If any contract, agreement,
---------------------------------------
property or right (including, without limitation, any Governmental Approval)
included in the Domestic Assets is not assignable or transferable without the
consent of any third party, and such consent has not been obtained prior to the
Closing Date and the Closing occurs, this Agreement and the related instruments
of transfer shall not constitute an assignment or transfer thereof and
Purchaser shall not assume Seller's obligations with respect thereto. In such
case, Seller shall use commercially reasonable efforts to obtain such consent as
soon as possible after the Closing Date or otherwise obtain for Purchaser the
practical benefit of such contract, agreement, property or right and Purchaser
shall cooperate with Seller in that endeavor. If any order for the purchase of
goods or services included in the Domestic Assets is not assignable by Seller,
Purchaser agrees to purchase from Seller at the purchase order price all
property or services thereunder and Seller agrees to sell the same to Purchaser
at such price, on the terms set forth therein. If any sales order or service
order included in the Domestic Assets is not assignable by Seller, Purchaser
agrees to sell to Seller any products required
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<PAGE>
to complete such sales order or service order at the same price provided for
therein and otherwise to complete such contracts on behalf of Seller and Seller
agrees to purchase the same from Purchaser at such price. Purchaser shall
provide all services necessary to complete such contracts and orders, and Seller
shall hold for Purchaser's account and promptly remit to Purchaser all amounts
payable with respect to such contracts. Prior to and after the Closing,
Purchaser and Seller shall cooperate to obtain all necessary consents to the
transfer of the Domestic Assets.
(b) If Purchaser and Seller are unable to obtain any required consents to
assign or subcontract any particular contract, or Seller and Purchaser agree
that no such consent will be obtained, and no other mutually satisfactory
arrangements are agreed to, then (i) such contract shall be deemed not to have
been transferred to Purchaser, and (ii) the Seller and Purchaser shall treat
such unassigned contract as if Seller and Purchaser had entered into a seconding
arrangement with respect to such unassigned contract as of the Closing Date. To
implement the retroactive treatment of any unassigned contract as a seconded
contract, Seller and Purchaser will enter into a seconding agreement in
mutually agreeable form at the appropriate time.
(c) At Closing, Purchaser and Seller shall enter into a Stock Retention
Agreement in the form of Exhibit B hereto (the "Stock Retention Agreement") with
---------
respect to the Subsidiaries listed on Schedule 1.3. Pursuant to the Stock
------------
Retention Agreement, (i) Seller (either directly or through one of its wholly
owned subsidiaries) shall continue to hold legal title to any capital stock
included in the Shares for which a necessary consent to transfer has not been
obtained, (ii) Purchaser shall have all beneficial ownership of such capital
stock, and (iii) legal title to such capital stock shall transfer to Purchaser
upon such necessary consent having been granted. Prior to and after the Closing,
Purchaser and Seller shall cooperate to obtain all necessary consents to the
transfer of the Shares that are subject to the Stock Retention Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Purchaser as follows:
3.1 Authority of Seller. Seller is a corporation duly organized, validly
--------------------
existing and in good standing under the laws of Delaware. Seller has all
requisite corporate power and authority to carry out the transactions
contemplated herein. The execution and delivery of this Agreement by Seller has
been duly authorized by all necessary corporate action. This Agreement has
been duly
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<PAGE>
and validly executed and delivered by Seller and constitutes the legal, valid
and binding obligation of Seller, enforceable against Seller in accordance with
its terms, except as may be limited by (a) applicable bankruptcy, insolvency,
moratorium, reorganization or similar Laws from time to time in effect which
affect creditors' rights generally, or (b) legal and equitable limitations on
the availability of specific remedies. The execution and delivery of this
Agreement by Seller does not, and the consummation of the transactions
contemplated hereby and performance of the obligations hereunder, assuming the
receipt of the consents, approvals and waivers listed on Schedule 3.1, will not:
------------
(i) violate or conflict with any term, condition or provision of (A) the
charter, by-laws or analogous organizational documents of Seller or any entity
that will be making any sale, transfer or assignment hereunder, or (B) any
applicable Law or contract binding on Seller or Material Contract, which
violation could reasonably be expected to have a Material Adverse Effect; or
(ii) result in the creation of any Lien upon any of the Shares or the Domestic
Assets or any property of any of the Subsidiaries. Except as set forth on
Schedule 3.1, the failure of any Person claiming through Seller to authorize or
- ------------
approve this Agreement or the transactions contemplated hereby will not give any
Person the right to enjoin, rescind or otherwise prevent or impede the sale of
each and every asset and share constituting the Domestic Assets and the Shares.
3.2 Shares and Subsidiaries. (a) All of the Shares are duly authorized,
------------------------
validly issued, fully paid and nonassessable. Upon transfer of the Shares,
Purchaser will receive (a) directly or indirectly, all issued and outstanding
capital stock or share capital of the Subsidiaries listed on Schedule 1.4,
-------------
except the Minority Subsidiaries and except as disclosed on Schedule 3.2 and (b)
------------
to Seller's knowledge, an ownership interest in the Minority Subsidiaries such
that Purchaser will own a percentage of the equity and voting power of each
Minority Subsidiary as set forth on Schedule 3.2 hereto (it being understood
------------
that Seller would not have knowledge of the shares held by other shareholders of
the Minority Subsidiaries currently or as of any particular time). At Closing,
(i) Purchaser shall receive legal (except as contemplated by Section 2.4(c))
--------------
and beneficial title to the Shares listed on Schedule 1.3, free and clear of all
------------
Liens, except for Permitted Exceptions or as set forth on Schedule 3.2 and (ii)
------------
all of the property owned by the Subsidiaries (other than the Minority
Subsidiaries) shall be free and clear of all Liens, except for Permitted
Exceptions or as set forth on Schedule 3.2.
------------
(b) Set forth on Schedule 3.2 is a complete list of each Subsidiary and
------------
interest therein that Purchaser is acquiring by purchase of the Shares, and a
list of all entities in which such acquired Subsidiaries (other than Minority
Subsidiaries) own capital stock or share capital. All of the Shares listed on
Schedule 1.3, and all of the capital stock or share capital of the
- ------------
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<PAGE>
Subsidiaries (other than the Minority Subsidiaries) are duly authorized and
issued, fully paid and nonassessable and held free of Liens, other than
Permitted Exceptions or as set forth on Schedule 3.2.
-------------
(c) Except as set forth on Schedule 3.2 and except with respect to Minority
------------
Subsidiaries, there are no outstanding options, rights, warrants, contracts or
commitments for the issuance or sale by any Subsidiary of, or any securities
of any Subsidiary convertible into or exchangeable for, any shares of capital
stock or other share capital of any Subsidiary.
(d) Except as set forth on Schedule 3.2, each Subsidiary (other than any of
------------
the Minority Subsidiaries) is a corporation or limited liability company duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, with all requisite corporate power to own,
lease and operate its properties and to carry on its business as now being
conducted, except where the failure to be so qualified could not reasonably be
expected to have a Material Adverse Effect.
(e) Each of the Subsidiaries (other than the Minority Subsidiaries) is an
indirect, wholly owned subsidiary of Seller. The capital stock or share capital
of the Minority Subsidiaries included in the Shares and listed on Schedule 1.3
------------
are held beneficially by a wholly owned subsidiary of Seller.
3.3 Real Property. Set forth on Schedule 3.3 is a list of all real property
-------------- ------------
owned by WWTI (with respect to the Business) and included in the Domestic Assets
or owned by a Subsidiary (other than any Minority Subsidiary) (the "Real
Property"). The Real Property is owned by the title holder thereof, free and
clear of all Liens, except Permitted Exceptions. Legal title to all Real
Property (other than Real Property owned by the Subsidiaries) shall be conveyed
to Purchaser at Closing, free and clear of all Liens, except Permitted
Exceptions. The use and operation of all Real Property conforms to all
restrictive covenants, zoning restrictions and restrictions and conditions
affecting title, except for such non-conformity that could not reasonably be
expected to materially interfere with the continued use of such Real Property in
the conduct of normal business operations.
3.4 Leases. Set forth on Schedule 3.4 is a list of all real property leases
------- ------------
which are included in the Domestic Assets or to which any Subsidiary (other than
any Minority Subsidiary) is party as lessee and a list of all leases of personal
property which are included in the Domestic Assets or to which any Subsidiary
(other than any Minority Subsidiary) is a party as a lessee, in any case having
remaining rental value of at least $250,000 (the "Leases"). All rentals
currently due under such Leases have been paid. Seller, WWTI and/or each
Subsidiary (as the case may be) has a
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<PAGE>
valid leasehold interest in each Lease, in each case free and clear of all
Liens, except Permitted Exceptions. Seller has made available to Purchaser a
copy of each Lease (as amended). The Leases are the valid and binding
obligations of WWTI or the Subsidiaries (as the case may be). Neither Seller,
WWTI nor any of the Subsidiaries has received any notice of Default by any
Subsidiary thereunder which has not been remedied or waived and which Default
could reasonably be expected to have a Material Adverse Effect. Neither Seller,
WWTI nor any of the Subsidiaries nor any Affiliate thereof has received any
notice or has any knowledge of any pending or threatened condemnation proceeding
or assessment for public improvements affecting any Real Property or any real
property leased pursuant to a Lease or of any sale or other disposition thereof
in lieu of condemnation, which proceeding, assessment, sale or other disposition
could reasonably be expected to materially interfere with the continued use of
any Real Property or any real property subject to a Material Lease in the
conduct of normal business operations. Except as set forth on Schedule 3.4, no
------------
approval or consent of any Person is needed in order for the Leases (excluding
Leases for sales offices) to continue in full force and effect following
consummation of the transactions contemplated by this Agreement.
3.5 Intellectual Property. Set forth on Schedule 3.5 is a list of the
--------------------- ------------
registered patents, copyrights and trademarks included in the Intellectual
Property (the "Registered Intellectual Property"). Except as set forth on
Schedule 3.5, no adverse claim in any Registered Intellectual Property is
- ------------
pending or, to Seller's knowledge, has been threatened, which claim could
reasonably be expected to have a Material Adverse Effect. Seller, WWTI or one or
more of the Subsidiaries, as the case may be, has title to all Registered
Intellectual Property, free and clear of all Liens other than Permitted
Exceptions, and all such title of WWTI in the Registered Intellectual Property
shall be conveyed to Purchaser at Closing. No Registered Intellectual Property
is the subject of any interference, oppositions, re-examinations, or
cancellation, except as set forth on Schedule 3.5. To the knowledge of Seller,
------------
no Person is infringing upon, nor has any Person misappropriated any Registered
Intellectual Property, which infringement could reasonably be expected to have a
Material Adverse Effect. Seller has received no notice of infringement by any of
the Divisions or any of the Subsidiaries upon the intellectual property rights
of any other person, which notice of infringement could reasonably be expected
to have a Material Adverse Effect.
3.6 Title to Assets. (a) Each of the Subsidiaries (other than any Minority
---------------
Subsidiary) has, and at the Closing will have, title to its property (including,
without limitation, real, personal and intangible and contract rights), free and
clear of all Liens, except: (i) Liens reflected in the Balance Sheet; (ii) Liens
that could not reasonably be expected to materially interfere
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<PAGE>
with the continued use of such properties in the conduct of normal business
operations; (iii) mortgages, Liens, pledges, charges or encumbrances listed on
any Schedule hereto; (iv) imperfections or irregularities of title, easements
and covenants running with the land that could not reasonably be expected to
materially interfere with the continued use of such properties in the conduct of
normal business operations; and (v) (A) contractor's, materialman's, supplier's,
worker's, carrier's, employee's, installment sale, title retention and similar
Liens arising by operation of applicable Law; (B) the rights of customers,
suppliers and subcontractors in the ordinary course of business under general
principles of commercial law; and (C) Liens for current Taxes not yet due,
provided that none of the foregoing, in the aggregate, could reasonably be
expected to materially interfere with the continued use of such properties in
the conduct of normal business operations. The Liens described at clauses (i)
through (v) above shall be collectively referred to as the "Permitted
Exceptions."
(b) Subject to Sections 2.4(a) and (b), at Closing, Purchaser shall acquire
--------------- ---
title to the Domestic Assets, free and clear of all Liens, other than Permitted
Exceptions. The Domestic Assets and property owned by the Subsidiaries (other
than any Minority Subsidiary) includes all property (including, without
limitation, real, personal, and intangible property and contract rights)
required for the operation of the Business in substantially the same manner as
it has been operated prior to Closing.
3.7 No Adverse Change. Except as set forth on Schedule 3.7, since the date
----------------- ------------
of the Balance Sheet there has not occurred: (a) any Material Adverse Change;
(b) any loss of or damage to any of the properties of WWTI (with respect to the
Business) or any of the Subsidiaries (other than any Minority Subsidiary) that
could reasonably be expected to Materially interfere with the continued use of
such properties in the conduct of normal business operations; (c) any Lien
placed on any of the properties of the Subsidiaries (other than any Minority
Subsidiary), other than Permitted Exceptions; (d) any amendment to or change in
the charter, by-laws or analogous organizational documents of any Subsidiary
(other than any Minority Subsidiary); (e) the execution by WWTI (with respect to
the Business) or any of the Subsidiaries (other than any Minority Subsidiary) of
any Material Contract, other than (i) in the ordinary course of business, (ii)
with the permission of Purchaser, or (iii) in connection with the transactions
contemplated hereby; or (f) any strike, picket or work stoppage by any
employees of the Subsidiaries (other than any Minority Subsidiary) or Divisions
that has Materially interfered, or could reasonably be expected to Materially
interfere, with the continued conduct of normal operations of the Business.
3.8 Tax Matters. WWTI (with respect to the Business) has filed or has
-----------
caused to be filed all Federal, state, local and
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<PAGE>
foreign tax returns and reports required to have been filed relating to the
Business. The Subsidiaries (other than the Minority Subsidiaries) have filed or
caused to be filed all tax returns and reports required to have been filed
relating to the Business, except for failures to file returns and reports which
could not reasonably be expected to have a Material Adverse Effect. All amounts
shown on such returns and reports are accurate and Seller has or will have
caused to be paid all Taxes shown as due and payable on such returns and
reports, except for the portion of such Taxes being contested in good faith.
Except as set forth on Schedule 3.8, neither Seller, WWTI nor any of the
------------
Subsidiaries (other than any Minority Subsidiary) nor any Affiliate of any of
them has received notice of: (a) any audit or examination of any tax return
relating to the Business; or (b) any material adjustment proposed by any
governmental agency of any liability for Taxes relating to the Business.
3.9 Litigation. Except as set forth on Schedule 3.9, there is no demand,
---------- ------------
suit, action, arbitration or legal, administrative or other proceeding, or claim
known to Seller, pending or, to Seller's knowledge, threatened against any of
the Subsidiaries (other than any Minority Subsidiary) and WWTI (with respect to
the Business) which could individually or collectively reasonably be expected to
have a Material Adverse Effect. Except as set forth on Schedule 3.9, none of the
------------
Subsidiaries (other than any Minority Subsidiary) and WWTI (with respect to the
Business) are subject to any order, judgment, decree, stipulation or consent of
or with any court, governmental body, agency or instrumentality, domestic or
foreign, which could reasonably be expected to have a Material Adverse Effect.
3.10 ERISA. (a) Schedule 3.10 contains a list of all Benefit Plans (i)
-----
maintained or sponsored by Seller for employees of WWTI and its Divisions or
(ii) with respect to which Seller is obligated to contribute for employees of
WWTI and its Divisions, or (iii) that otherwise cover any of the current or
former employees of WWTI and its Divisions, or their beneficiaries ("Seller
Plans").
(b) With respect to each Seller Plan, Seller has made available to
Purchaser a true and correct copy of (i) such Seller Plan (or in the case of an
unwritten Seller Plan, a written summary thereof); (ii) the most recent annual
report (Form 5500) filed with the Internal Revenue Service ("IRS"), (iii) each
trust agreement, if any, relating to such Seller Plan and (iv) the most recent
actuarial report or valuation relating to a Seller Plan subject to Title IV of
ERISA.
(c) Except as set forth on Schedule 3.10, each of the Seller Plans and all
-------------
related trusts, insurance contracts and funds have been created, maintained,
funded and administered in all respects in material compliance with all
applicable Laws and in material
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<PAGE>
compliance with the Plan document, trust agreement, insurance policy or other
writing creating the same or applicable thereto. No Seller Plan is or is
proposed to be under audit or investigation, and no completed audit of any
Seller Plan has resulted in the imposition of any tax, fine or penalty which has
not been satisfied. To the knowledge of the Seller, no prohibited transaction
(within the meaning of Section 406 of ERISA and Section 4975 of the Code) with
respect to any Seller Plan exists or has occurred which could impose any
material liability on the Purchaser. To the knowledge of the Seller, neither
Seller nor any member of Seller's controlled group of corporations (within the
meaning of Sections 414(b), 414(c) and 414(m) of the Code ("Controlled Group
Member")) nor any administrator or fiduciary of any Seller Plan, nor any agent
of any of the foregoing, has engaged in any transaction or acted or failed to
act in a manner that will subject Seller, any Subsidiary, or any Controlled
Group Member to any material liability for a breach of fiduciary duty or other
duty under ERISA or any other applicable Law. Except as set forth in Schedule
--------
3.10, no post-retirement benefits are provided under any Seller Plan that is a
- ----
welfare benefit plan as described in ERISA Section 3(1) except as required under
Section 4980B of the Code.
(d) Except as set forth in Schedule 3.10, no Seller Plan is a multiemployer
-------------
plan within the meaning of Section 3(37) or Section 4001(a)(30) of ERISA or a
defined benefit plan as defined in Section 3(35) of ERISA.
(e) With respect to the Seller Plans, individually and in the aggregate, no
event has occurred, and to the knowledge of Seller, there exists no condition or
set of circumstances, that is reasonably likely to have a Material Adverse
Effect under ERISA, the Code, or any applicable law, in connection with the
Seller Plans.
(f) With respect to the Seller Plans, individually and in the aggregate,
there are no funded benefit obligations for which contributions have not been
made or properly accrued and there are no unfunded benefit obligations which
have not been accounted for by reserves, or otherwise properly footnoted in
accordance with GAAP, in the Financial Statements.
(g) Except as set forth on Schedule 3.10, WWTI and the Divisions have no
-------------
obligation to contribute to any Benefit Plan of the type described Title IV of
ERISA, including but not limited to, in Sections 4062, 4063 or 4064 of ERISA or
Section 413(c) of the Code (any of which shall be hereinafter called a "Title IV
Plan"). Except as set forth on Schedule 3.10, Seller does not have any
-------------
liability, and after the Closing Date Seller will not have any liability (i)
under Code Section 412(n), with respect to any Benefit Plan sponsored or
maintained by a Controlled Group Member, and (ii) under Title IV of ERISA with
respect to any Benefit Plan
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<PAGE>
sponsored or maintained by a Controlled Group Member, including, but not limited
to, any withdrawal liability under a Multiemployer Plan, as defined below,
incurred within the five-year period ending on the date of execution of this
Agreement and any liability for unfunded benefits under a defined benefit
pension plan terminated or transferred out of any corporation that may be
aggregated with Seller under ERISA Section 4001(a)(14) or ERISA Section 4001(b)
(the "Controlled Group") within the five-year period ending on the date of
execution of this Agreement.
(h) Schedule 3.10 discloses each Seller Plan that purports to be a
qualified plan under Section 401(a) of the Code and exempt from United States
federal income tax under Section 501(a) of the Code ("Qualified Plan"). With
respect to each Qualified Plan, a determination letter (or opinion or
notification letter, if applicable) has been received from the IRS that such
plan is qualified under Section 401(a) of the Code, as amended by the Tax Reform
Act of 1986 and all subsequent Code amendments, and the Treasury Regulations
thereunder, and exempt from federal income tax under Section 501(a) of the Code.
To the knowledge of the Seller, no fiduciary of any Qualified Plan, nor any
agent of the foregoing, has done or failed to do anything that would adversely
affect the qualified status of the Qualified Plan or the qualified status of any
related trust.
(i) Schedule 3.10 contains a list of all Material Non-U.S. Pension Plans
(as defined below) (i) maintained or sponsored by the Subsidiaries for their
non-U.S. employees or (ii) with respect to which the Subsidiaries are obligated
to contribute for their non U.S. employees, or (iii) that otherwise cover any of
the current or former non-U.S. employees of the Subsidiaries and their
beneficiaries. For purposes of this Agreement, a "Non-U.S. Pension Plan" is a
written employee benefit plan that provides retirement or pension benefits to
the non-U.S. employees of any of the Subsidiaries, excluding any plans
maintained or required by applicable law or governmental authorities. The Seller
has heretofore delivered or made available to Purchaser copies or summaries of
all such plans.
(j) Except as set forth on Schedule 3.10, each of the Non U.S. Pension
Plans and all related trusts, insurance contracts and funds have been created,
maintained, funded and administered in all respects in material compliance with
all applicable Laws and in material compliance with the governing document,
trust agreement, insurance policy or other writing creating the same or
applicable thereto.
3.11 Material Contracts. Set forth on Schedule 3.11 is a list of all
------------------ -------------
Material Contracts. There have been made available to Purchaser copies of all
Material Contracts that are in writing (including all amendments thereto, if
any). The Material Contracts
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<PAGE>
are the valid and binding obligation of Seller, WWTI or the Subsidiaries (as the
case may be). None of Seller, WWTI or the Subsidiaries (as the case may be) is
in Default thereunder, nor, to the knowledge of Seller, is any other party to
any such Material Contract in Default thereunder except any such Default (i) as
to which requisite waivers or consents have been obtained, (ii) which is curable
and is cured within the applicable period for cure permitted under the contract,
(iii) relating to the matters disclosed on Schedule 3.9, or (iv) that could not
------------
reasonably be expected to have a Material Adverse Effect.
3.12 Brokers. No broker or investment banker acting on behalf of Seller or
-------
its Affiliates or under the authority of any of them is or will be entitled to
any broker's or finder's fee or any other commission or similar fee directly or
indirectly from Purchaser in-connection with any of the transactions
contemplated herein.
3.13 Environmental. Except as disclosed on Schedule 3.13 or Schedule
------------- --------
2.1(c)(I):
- ---------
(a) To Seller's knowledge, there have been, and there exist, no
events, incidents, conditions, actions, agreements or circumstances which
could reasonably be expected to give rise to any liability, loss or expense
under any Environmental Law, or form the basis for any Environmental
Action, with respect to Seller or WWTI (with respect to the Business) or
the Subsidiaries, or any Real Property or property subject to the Leases,
which liability, loss or expense or Environmental Action could reasonably
be expected to have a Material Adverse Effect. None of Seller, WWTI, or any
of the Subsidiaries (during the period affiliated with Seller and excluding
Minority Subsidiaries) has received any written notice from any
governmental authority or other person, and to the knowledge of Seller, no
such notice has been issued to any other Person which indicates the
occurrence or existence of events, incidents, conditions, actions,
agreements or circumstances which could reasonably be expected to give rise
to any liability, loss or expense under any Environmental Law or form the
basis for any Environmental Action with respect to Seller or WWTI (with
respect to the Business), the Divisions or Subsidiaries (other than any
Minority Subsidiary) or the Real Property or property subject to the
Leases, in each case which liability, loss or expense or Environmental
Action could reasonably be expected to have a Material Adverse Effect.
(b) No Hazardous Material is being or, to Seller's knowledge, has
been, Released on or to any property or facility owned, leased, or operated
by Seller or WWTI (with respect to the Business), the Subsidiaries (other
than any Minority Subsidiary) or the Divisions in such manner that
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<PAGE>
under any Environmental Law: (i) would impose liability for damages,
investigation, or Response Actions that could reasonably be expected to
have a Material Adverse Effect; (ii) would affect the value of the Domestic
Assets, Divisions or Subsidiaries (other than any Minority Subsidiary) (or
their respective businesses, property or assets) that could reasonably be
expected to have a Material Adverse Effect; or (iii) would result in the
imposition of a Lien (other than Permitted Exceptions) on the property or
assets of the Divisions or Subsidiaries (other than any Minority
Subsidiary). No notice of any restriction on present or future use is
required to be placed at any Real Property or property subject to a Lease
or in any deed to any Real Property, which restriction could reasonably be
expected to materially interfere with the continued use of such Real
Property or property subject to a Lease in the conduct of normal business
operations.
(c) No Hazardous Material has been Released at any other site by the
Divisions or Subsidiaries (during the period affiliated with Seller and
excluding Minority Subsidiaries) or by any contractor or agent acting on
their behalf during the applicable period (including but not limited to any
person transporting or distributing Hazardous Materials on behalf of the
Divisions or Subsidiaries, other than any Minority Subsidiary) in such
manner that under any Environmental Law would impose liability for damages,
investigation, or Response Actions, which liability could reasonably be
expected to have a Material Adverse Effect.
(d) To Seller's knowledge, any underground or aboveground storage
tanks and associated piping currently on the Real Property are in sound
condition and have been properly maintained, tested and monitored in
compliance with applicable Environmental Laws in all material respects, and
no spills or leaks have occurred from or in relation with such tanks and
piping on the Real Property or property subject to a Lease, which spills or
leaks could reasonably be expected to have a Material Adverse Effect. To
Seller's knowledge, any tanks on the Real Property or property subject to a
Lease which were previously removed from service while such property was
controlled by a Division or Subsidiary (while affiliated with Seller and
excluding Minority Subsidiaries) have been properly closed, in compliance
with all applicable Environmental Laws. With respect to each such tank
which has been removed from service or closed, except for instances which
would not have a Material Adverse Effect, testing and observations confirm
either that there were no spills, leaks or other contamination related to
such tanks and associated piping, or that any such contamination has been
removed.
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<PAGE>
(e) Seller, WWTI (with respect to the Business), and the Subsidiaries
(other than any Minority Subsidiary) possess all Environmental Approvals
required for the conduct of the Business and the operations on, and uses
of, the Real Property and property subject to the Material Leases, in the
manner in which the Business, operations and uses are currently being
conducted, except where the failure to do so could not reasonably be
expected to materially interfere with such Business, operations or use.
Schedule 3.13 sets forth a list of all such Environmental Approvals,
-------------
identifying the nature thereof. All such Environmental Approvals are in
full force and effect, and each such Environmental Approval is final, any
fixed period for appeal or review having elapsed. To the knowledge of
Seller, WWTI and the Subsidiaries, no suit, action, proceeding or appeal is
pending or threatened to revoke, suspend or materially and adversely modify
(except the permitting process at WCAI) any such Environmental Approval.
Neither Seller, WWTI, nor any Division or Subsidiary (other than a Minority
Subsidiary has received notice from a Governmental Authority that it is in
material violation of any such Governmental Approval.
(f) Seller, WWTI (with respect to the Business), the Divisions and
Subsidiaries (other than any Minority Subsidiary) have made all
Governmental Filings required under all applicable Environmental Laws with
respect to the conduct of the Business and the operations on, and use of,
the Real Property and property subject to the Leases, in the manner in
which the Business, operations and use are currently being conducted,
expect for such filings, the absence of which could not reasonably be
expected to materially interfere with such Business, operations or use.
3.14 Qualification. Each of the Subsidiaries (other than any Minority
-------------
Subsidiary) is duly qualified to do business in each jurisdiction where the
conduct of its business or ownership of its properties requires such
qualification, except where the failure to qualify could not reasonably be
expected to have a Material Adverse Effect. None of Seller, WWTI, (with respect
to the Business) or the Subsidiaries (other than any Minority Subsidiary) is
subject to any contractual restriction that prohibits it from carrying on the
Business in the areas of the world where the Business has been conducted, except
for such restrictions that could not reasonably be expected to have a Material
Adverse Effect.
3.15 Compliance with Law: Regulatory Compliance. (a) Except as set forth in
------------------------------------------
Schedule 3.15, none of WWTI or Seller (with respect to the Business), the
- -------------
Divisions or the Subsidiaries (other than any Minority Subsidiary) is or has
within the past three years (or such shorter period of time that the Subsidiary
in question has been an Affiliate of Seller) been in violation of any applicable
Law
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<PAGE>
(excluding Environmental Laws), ordinance or other requirement of any
governmental authority relating to it or its securities, property, operations or
business, which has resulted in a fine or penalty in excess of $10,000, nor does
Seller have notice of any such violation.
(b) Seller and WWTI (with respect to the Business), and the Divisions and
Subsidiaries possess (other than any Minority Subsidiary), or have made timely
application for, all governmental approvals with and under all Laws (excluding
Environmental Laws) required to carry on the Business as presently conducted
(the "Governmental Approvals"), except for such Governmental Approvals the
absence of which could not reasonably be expected to materially interfere with
the continued conduct of the Business in the normal course. Schedule 3.15 sets
-------------
forth a list of all Governmental Approvals (other than Environmental Approvals)
referred to in the foregoing sentence, identifying each such Governmental
Approval by number and indicating the holder, the issuer and the nature thereof.
All such Governmental Approvals referred to in the foregoing sentence are in
full force and effect. Neither Seller, WWTI (with respect to the Business) nor
any Division or Subsidiary (other than any Minority Subsidiary) is in violation
of any such Governmental Approval, which violation could reasonably be expected
to materially interfere with the continued conduct of the Business in the
ordinary course. Except as disclosed in Schedule 3.15, no proceeding is pending
-------------
or, to the knowledge of Seller, threatened to revoke, suspend or materially
modify any Governmental Approval (other than Environmental Approvals) or deny
any renewal thereof, except any such matter that could not reasonably be
expected to Materially interfere with the continued conduct of the Business in
the ordinary course.
(c) Except as disclosed in Schedule 3.15, Seller, WWTI, the Divisions and
-------------
the Subsidiaries (other than any Minority Subsidiary) have made all governmental
filings required to be made with any governmental authority with respect to the
operation of the Business, except for filings under Environmental Laws and such
filings the absence of which could not reasonably be expected to Materially
interfere with the continued conduct of the Business in the ordinary course.
3.16 Financial Statements. Schedule 3.16 is a true and complete copy of the
-------------------- -------------
unaudited, combined Balance Sheet as of August 31, 1996 and the related
unaudited, combined statement of income, before tax, for the eight-month period
then ended for the Business (including the Minority Subsidiaries) (together, the
"Financial Statements"). Except as disclosed in Schedule 2.3 hereto, the
------------
Financial Statements were prepared in accordance with GAAP applied on a
consistent basis throughout the period involved (except as may be indicated in
the Accounting Conventions) and in accordance with the Accounting Conventions
and fairly present the
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<PAGE>
financial position of the Business as at such date and the results of the
operation of the Business for the period then ended.
3.17 Indebtedness; Parent Guarantees. (a) Schedule 3.17 sets forth a list
------------------------------- -------------
of each instrument which evidences Indebtedness, and the aggregate principal
amount thereof outstanding as of the date hereof, and lists each such instrument
that contains a restriction, limitation or encumbrance, of any kind, on the
ability of any Subsidiary (other than any Minority Subsidiary) to pay dividends
on its respective capital stock. All of such instruments are the valid and
binding obligation of the Subsidiaries or Divisions (as the case may be). None
of Seller, WWTI, the Subsidiaries (other than any Minority Subsidiary) or
Divisions (as the case may be) is in Default thereunder nor, to the knowledge of
Seller, is any other party to any such instrument in Default thereunder, nor, to
the knowledge of Seller, does any condition exist that, with the giving of
notice or lapse of time or both, would constitute a Default thereunder, which
Default could reasonably be expected to have a Material Adverse Effect.
"Indebtedness" as used herein shall mean, with respect to Seller or WWTI (in
connection with the Business), the Subsidiaries (other than any Minority
Subsidiary) or Divisions (other than, in each case, amounts due to Seller or any
Affiliate of Seller or other amounts constituting intercompany accounts): (i)
all indebtedness as of August 31, 1996 for borrowed money, draws under letters
of credit or amounts due under bonds; (ii) all indebtedness for borrowed money
of any Person secured by any Lien upon any Domestic Asset or property or asset
of any Subsidiary or guaranteed by any Subsidiary (other than customary rights
of off-set or other rights with respect to funds or documents in possession of a
bank); and (iii) all amendments, renewals, extensions or refundings of any of
the foregoing. Schedule 3.17 sets forth a list of the Parent Guarantees.
-------------
(b) Except as described in Schedule 3.17, to the knowledge of Seller, there
-------------
are no claims for indemnity asserted by any officer, director or employee of the
Subsidiaries (other than any Minority Subsidiary) or Divisions which remain
unresolved.
(c) None of the Subsidiaries (other than any Minority Subsidiary) has
guaranteed or assumed any Indebtedness or liability of Seller or any Affiliate
of Seller.
3.18 Employment. (a) Schedule 3.18 sets forth a list of all employment
---------- -------------
agreements with any officer, director or employee of the Divisions or
Subsidiaries (other than any Minority Subsidiary) (a) entered into outside the
ordinary course of business in the case of non-United States Subsidiaries (as
evaluated by reference to the custom and practice of the jurisdiction of
incorporation of the Subsidiary at issue) or (b) providing for severance
payments exceeding $100,000 in excess of statutorily required amounts (the
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<PAGE>
"Employment Agreements"). Seller has previously furnished to Purchaser copies of
all Employment Agreements, together with all amendments thereto (if any). Since
the date of the Balance Sheet, none of Seller or WWTI (with respect to the
Business) or any Subsidiary (other than any Minority Subsidiary) or Division has
(i) effected any Material increase in salary, wage or other compensation of any
kind, whether current or deferred, to any officer, director or employee, other
than in the ordinary course of business in accordance with past practice, or as
required by applicable Law or any Employment Agreement, or (ii) made any
contribution to any trust or plan for the benefit of employees except as
required by the terms thereof as now in effect. Set forth at Schedule 3.18 is a
list of (or Seller will provide prior to Closing a list of) all officers and
directors of the Subsidiaries.
3.19 Labor Relations. Except as set forth on Schedule 3.9 or Schedule 3.19,
--------------- ------------ -------------
no employee of the Subsidiaries (other than any Minority Subsidiary) or
Divisions is represented by any union or other labor organization and no
collective bargaining agreements with respect to the Business are in effect. No
representation election, arbitration proceeding, grievance, labor strike,
slowdown or stoppage is pending or, to the knowledge of Seller, threatened
against, the Subsidiaries (other than any Minority Subsidiary) or Divisions,
which in any case could reasonably be expected to materially interfere with the
continued conduct of the Business in the ordinary course. No complaint with
respect to the Subsidiaries (other than any Minority Subsidiary) or Divisions is
pending or, to the knowledge of Seller, threatened before the National Labor
Relations Board, the Equal Employment Opportunity Commission or any similar
state or local or foreign agency, by or on behalf of any employee of the
Subsidiaries (other than any Minority Subsidiary) or Divisions, other than as
disclosed on any Schedule hereto, which complaint could reasonably be expected
to have a Material Adverse Effect.
3.20 Inventory. All of the finished goods inventories of the Subsidiaries
---------
(other than any Minority Subsidiary) or Divisions are, net of reserves on the
Balance Sheet, saleable in the ordinary course of the business within a
reasonable time.
3.21 Receivables. All receivables of the Subsidiaries (other than any
-----------
Minority Subsidiary) and Divisions arose or will arise from transactions of such
Subsidiaries and Divisions in the ordinary course of business.
DISCLAIMERS:
- -----------
The representations and warranties set forth in this Article III shall not apply
with respect to any Minority Subsidiary or the Excluded Businesses. No
representation is made, and all
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<PAGE>
representations, express, implied or otherwise, are disclaimed, with respect to
any Minority Subsidiary including, without limitation, the operations, assets,
capitalization, stock or liabilities thereof. The foregoing disclaimer shall not
apply to the representations set forth in the last sentence of Section 3.2(a).
--------------
EXCEPT TO THE EXTENT OF THE EXPRESS REPRESENTATIONS AND WARRANTIES CONTAINED IN
THIS AGREEMENT, PURCHASER IS ACQUIRING THE SHARES AND THE DOMESTIC ASSETS SOLELY
IN RELIANCE ON ITS OWN INVESTIGATION. SELLER DISCLAIMS ALL EXPRESS WARRANTIES
NOT CONTAINED IN THIS AGREEMENT AND ALL IMPLIED WARRANTIES INCLUDING, WITHOUT
LIMITATION, WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE
WITH RESPECT TO MACHINERY, EQUIPMENT AND OTHER TANGIBLE ASSETS. PURCHASER IS
ACQUIRING ALL TANGIBLE ASSETS ON AN "AS-IS, WHERE-IS"' BASIS. EXCEPT AS
EXPRESSLY SET FORTH IN SECTION 3.13 HEREOF, PURCHASER WAIVES ALL RIGHTS TO
INDEMNIFICATION OR CONTRIBUTION FOR ENVIRONMENTAL CONDITIONS AGAINST SELLER ON,
AT, OR MIGRATING FROM THE REAL PROPERTY OR PROPERTY SUBJECT TO THE LEASES,
INCLUDING, WITHOUT LIMITATION, ANY RIGHTS TO INDEMNIFICATION OR CONTRIBUTION
PURSUANT TO THE COMPREHENSIVE ENVIRONMENTAL RESPONSE COMPENSATION AND LIABILITY
ACT AND ANY SIMILAR STATE LAWS.
Seller disclaims any representations or warranties to Purchaser, except as
specifically set forth in this Agreement. In particular, Seller disclaims any
representation or warranty with respect to any information concerning the
Subsidiaries and Divisions, the Business or the Domestic Assets including,
without limitation, any financial projection or forecast relating to the
Business, the Domestic Assets or the Subsidiaries and Divisions. With respect to
any such projection or forecast delivered to Purchaser, Purchaser acknowledges
that (a) there are uncertainties inherent in such projections and forecasts and
(b) Purchaser is familiar with such uncertainties and takes full responsibility
for making its own evaluation of the adequacy and accuracy of all such
projections and forecasts. Purchaser shall have no claim against Seller, and
Seller shall have no liability to Purchaser, with respect to any such disclaimed
information, including, without limitation, any financial projection or forecast
relating to the Subsidiaries and Divisions, the Business or the Domestic Assets.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller as follows:
4.1 Authority of Purchaser. Purchaser is a corporation duly organized,
----------------------
validly existing and in good standing under the laws of Delaware, with all
requisite corporate power and authority to carry
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<PAGE>
out its obligations under this Agreement. The execution, delivery and
performance of this Agreement by Purchaser has been duly authorized by all
necessary corporate action. This Agreement has been duly and validly executed
and delivered by Purchaser and constitutes the legal, valid and binding
obligation of Purchaser, enforceable against Purchaser in accordance with its
terms, except as may be limited by: (a) applicable bankruptcy, insolvency,
moratorium, reorganization or similar laws from time to time in effect that
affect creditors' rights generally; or (b) legal and equitable limitations on
the availability of specific remedies. The execution and delivery of this
Agreement by Purchaser does not, and the consummation of the transactions
contemplated hereby and performance by Purchaser of its obligations hereunder
will not violate or conflict with any provision of: (A) the Certificate of
Incorporation or by-laws of Purchaser; or (B) any applicable Law or agreement
which violation could reasonably be expected to have a material adverse effect
on the financial condition of Purchaser. The failure of any Person claiming
through Purchaser and not a party hereto to authorized or approve this Agreement
or the transactions contemplated hereby will not give any-Person the right to
enjoin, rescind or otherwise prevent or impede the purchase or the other
transactions contemplated hereby.
4.2 Brokers. No broker or investment banker acting on behalf of Purchaser
-------
is or will be entitled to any broker's or finder's fee or any other commission
or similar fee directly or indirectly from Seller or any of its Affiliates in
connection with any of the transactions contemplated hereby. Purchaser shall pay
all fees due to Donaldson, Lufkin & Jenrette Securities Corporation arising in
connection with this Agreement.
4.3 Securities. Purchaser hereby acknowledges that the Shares being
----------
purchased by Purchaser hereunder are not registered under the Securities Act of
1933 or registered or qualified for sale under any state or foreign securities
Law and cannot be resold without registration thereunder or exemption therefrom.
Purchaser is acquiring such Shares for its own account as principal, for
investment and not with a view toward the sale or distribution thereof.
Purchaser has sufficient knowledge and experience in financial and business
matters to enable it to evaluate the risks of investment in such Shares and has
the ability to bear the economic risks of such investment.
4.4 Financing. At Closing, Purchaser shall have sufficient funds available
---------
to effect the purchases and other obligations of Purchaser hereunder.
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<PAGE>
ARTICLE V
COVENANTS OF SELLER
Seller hereby covenants to and agrees with Purchaser as follows:
5.1 Corporate and Other Actions. Prior to the Closing Date, Seller shall
---------------------------
use all commercially reasonable efforts to fulfill its obligations under this
Agreement and to consummate the transactions contemplated hereby.
5.2 Full Access. Prior to the Closing Date, Seller shall cause the
-----------
Subsidiaries and Divisions to afford Purchaser and its counsel, accountants and
other authorized representatives, with reasonable prior notice, reasonable
access during normal business hours (when accompanied by an authorized
representative of the Subsidiaries and Divisions) to the respective premises,
properties, personnel, books and records of the Business. Purchaser shall
cooperate with Seller to minimize the disruption occasioned by such access.
5.3 Ordinary Course of Business. Prior to the Closing Date, Seller shall
---------------------------
cause the Subsidiaries (other than the Minority Subsidiaries) and Divisions to
be operated in the usual and ordinary course of business in substantially the
same manner as heretofore conducted, to pay all debts and Taxes when due
(subject to good faith disputes over such debts or Taxes) and to pay or perform
all other obligations when due (subject to good faith disputes). Except as
otherwise consented to in writing by Purchaser, Seller shall use its
commercially reasonable efforts consistent with past practices and policies to
(a) preserve intact the assets and properties of the Business, (b) keep
available the services of the present officers and key employees of the
Business, and (c) preserve relationships with customers, suppliers,
distributors, licensors, licensees, and others having dealings with the
Business; it being understood that the matters referred to in clauses (a), (b)
and (c) above may be adversely affected by the announcement of the transactions
contemplated hereby. Seller shall promptly notify Purchaser of any occurrence
not in the ordinary course of business of the Business, which occurrence could
reasonably be expected to have a Material Adverse Effect. In particular, and not
by means of limitation, none of the Subsidiaries (excluding the Minority
Subsidiaries) shall, except as permitted by this Agreement or as required by
applicable Law, (i) issue any shares of, or any securities convertible into any
shares of, their respective capital stock or share capital, or any other
securities, accept any subscription for shares of their respective capital
stock, issue options, warrants or similar instruments granting the right to
purchase any shares of their respective capital stock, (ii) declare, pay or set
aside for payment, any
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<PAGE>
dividend or other distribution on their respective capital stock or share
capital, (iii) directly or indirectly, redeem, purchase or otherwise acquire any
shares of their respective capital stock or share capital, (iv) alter, amend or
repeal any provision of its articles of incorporation or bylaws or other organic
documents, (v) change the number or identity of its directors (other than as a
result of the death, retirement or resignation of a director), or (vi) form or
acquire any subsidiaries not existing as of the date of this Agreement. In
addition, and not in limitation of the foregoing, between the date hereof and
the Closing Date, Seller shall cause WWTI (with respect to the Business) and
Subsidiaries (other than the Minority Subsidiaries) to:
(A) preserve and maintain the corporate existence of Seller, WWTI and
the Subsidiaries (other than the Minority Subsidiaries) and all rights,
privileges and franchises reasonably necessary or desirable in the normal
conduct of the Business, except to the extent contemplated by any
transactions permitted by this Agreement;
(B) not (except in the ordinary course of business) purchase any
assets or stock of any corporation, partnership, association or other
business organization or entity or any division thereof for use in the
Business or by the Subsidiaries (other than the Minority Subsidiaries), nor
agree to do so;
(C) not sell, lease, assign, transfer or otherwise dispose of any of
the assets of the Business (including, without limitation, Intellectual
Property), nor suffer to exist or create any Lien on any of the assets of
the Business, except as permitted by this Agreement or in the ordinary
course of business and except that assets which are obsolete may be
disposed of;
(D) not incur any Indebtedness in excess of $1,000,000, (other than
intercompany Indebtedness with respect to the Divisions) or the issuance of
or drawings under letters of credit or utilization of overdraft facilities,
each in the ordinary course of Business;
(E) not, except in the ordinary course of business, enter into,
modify or terminate any Material Contracts or Leases or Employment
Agreements, or agree to do so;
(F) maintain the books, accounts and records of the Business in the
usual, ordinary and regular manner and in material compliance with all
applicable Laws;
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<PAGE>
(G) use its commercially reasonable efforts to meet its obligations
under all Material Contracts and Leases and not become in Default
thereunder;
(H) maintain the assets of the Business in good repair, order and
condition, reasonable wear and tear excepted, and maintain insurance upon
the Business and assets thereof at least comparable in amount and kind to
that in effect on the date hereof;
(I) not authorize or make any capital expenditure in connection with
the Business in excess of $1,000,000 individually, except for the matters
set forth on Schedule 5.3(I); and
---------------
(J) use its commercially reasonable efforts not to violate any Law
applicable to the Business, nor violate any order, injunction or decree
applicable thereto.
5.4 Payment of Taxes. Prior to Closing, Seller shall pay or cause to be
----------------
paid on a timely basis, or provide an adequate reserve for, all Taxes that have
accrued with respect to the operations of the Subsidiaries (other than the
Minority Subsidiaries) for the Seller Tax Period.
5.5 HSR Filings. As promptly as practicable, Seller shall (in cooperation
-----------
with Purchaser) make all filings and submissions under the HSR Act and any
foreign competition, investment, foreign exchange, tax or other foreign laws.
5.6 Litigation Support and Access After Closing. In the event and for so
-------------------------------------------
long as Purchaser or any of its Affiliates is a party to any action, suit,
proceeding, hearing, investigation, complaint, claim or demand ("Litigation") in
connection with (i) any transaction contemplated under this Agreement or (ii)
any fact, situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on, prior to
or after the Closing Date, involving the Business, the Domestic Assets or the
Subsidiaries, Seller will cooperate with Purchaser and its counsel, make
available its personnel, and provide such testimony and access to its books and
records as shall be necessary in connection with the Litigation. Seller
acknowledges and agrees that, from and after the Closing, Purchaser will be
entitled to possession of all documents, books, records, agreements, and
financial data of any sort relating exclusively to the Business, other than the
Excluded Assets or Retained Liabilities. Furthermore, for a period of five (5)
years following the Closing Date, Seller shall preserve the books and records of
the Business (to the extent possession thereof is not taken by Purchaser) and
shall provide such access to such books and records as Purchaser shall
reasonably request.
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<PAGE>
5.7 No Solicitation. (a) Subject to Section 5.7(b) below, from and after
--------------- --------------
the date hereof until the Closing Date, Seller shall not, directly or
indirectly, through any officer, director, key employee, representative,
Affiliate, or agent of Seller, the Divisions or any of the Subsidiaries, (i)
solicit, initiate, or encourage any inquiries or proposals that constitute, or
could reasonably be expected to lead to, a proposal or offer for a merger,
consolidation, business combination, sale of assets, sale of shares of capital
stock or similar transactions to the extent involving the Domestic Assets or the
Shares, other than the transactions with Purchaser contemplated by this
Agreement (any of the foregoing inquiries or proposals being referred to in this
Agreement as an "Acquisition Proposal"), (ii) engage in negotiations or
discussions concerning, or provide any non-public information to any person or
entity reacting to, any Acquisition Proposal, or (iii) agree to approve or
recommend any Acquisition Proposal. Seller shall notify Purchaser immediately
upon receipt by Seller (or its advisors) of any Acquisition Proposal or any
request for non-public information in connection with a possible Acquisition
Proposal or for access to the properties, books or records of the Business by
any person or entity. Such notice shall be made orally and in writing and shall
indicate in reasonable detail the identity of the offeror and the terms and
conditions of such proposal, inquiry or contact.
(b) Nothing in this Agreement shall prohibit Seller from furnishing
information to, or entering into discussions or negotiations with, or completing
any transaction with any person or entity that makes an unsolicited written bona
fide proposal to acquire all or any of the Domestic Assets or any of the
Subsidiaries (whether pursuant to a merger, consolidation, share exchange,
business combination, tender or exchange offer or stock or asset purchase) and
in respect of which such person or entity has the necessary funds or written
commitments therefor if, and only to the extent that, the Board of Directors of
Seller, after consultation with and based upon the written advice of counsel
reasonably acceptable to Purchaser and the written advice of a banking firm
reasonably acceptable to Purchaser that the Acquisition Proposal is more
favorable to Seller from a financial point of view then the transaction
contemplated by this Agreement, determines in good faith that such action is
necessary for the Board of Directors of Seller to comply with its fiduciary
duties to stockholders under applicable Law.
5.8 Employee Solicitation. Until the second anniversary of the Closing
---------------------
Date, neither the Seller nor any subsidiary of Seller shall solicit any
management employee employed by any of the Divisions or any of the Subsidiaries,
at the time of the solicitation, to leave the employ of any of the Divisions or
any of its Subsidiaries; provided, that nothing contained herein shall prevent
--------
or restrict the Seller or any of its subsidiaries from (i)
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<PAGE>
soliciting or employing any individual to be employed by Seller or one of its
subsidiaries in a business that is not competitive with the Business, (ii)
employing any individual who responds to a general solicitation for employment
made by or on behalf of the Seller or any of its subsidiaries, or (iii)
employing any individual who, after the Closing, initiates contact with the
Seller or any of its subsidiaries for purposes of seeking employment.
5.9 Failure to Close. If (i) the transactions contemplated hereby are not
----------------
consummated by December 31, 1996, (ii) Purchaser terminates this Agreement
pursuant to Section 9.4(b), and (iii) Seller is in breach of its obligations
--------------
under Section 5.7, then Seller shall pay Purchaser the amount of $20,000,000 as
-----------
liquidated damages and not as a penalty. Seller shall pay such liquidated
damages to Purchaser within three (3) business days after its receipt of
Purchaser's notice of termination by wire transfer to an account designated by
Purchaser in its notice of termination. Interest on any delinquent portion of
such payment shall accrue at the rate of 10% per annum. Recovery of such
liquidated damages shall be the sole and exclusive remedy of Purchaser against
Seller if the events described in clauses (i), (ii) and (iii) above occur.
Purchaser shall be entitled to recover such liquidated damages regardless of the
amount of damages actually incurred, the parties agreeing that actual damages
would be difficult to determine and that the amount set forth herein is a fair
and equitable amount to compensate Purchaser.
5.10 Filings. Seller shall be solely responsible for (i) all late filing
-------
penalties assessed by the IRS and the U.S. Department of Labor ("DOL")
respecting any 5500 form for any Benefit Plan and (ii) taxes or penalties levied
by the IRS or DOL respecting the lack of a written plan document containing any
Benefit Plan, including but not limited to Seller's severance pay plan.
5.11 Insurance. Seller will comply with its obligations under the Insurance
---------
Agreement as if such obligations were set forth fully herein.
ARTICLE VI
COVENANTS OF PURCHASER
Purchaser hereby covenants to and agrees with Seller as follows:
6.1 Corporate and Other Actions. Prior to the Closing Date, Purchaser shall
---------------------------
use all commercially reasonable efforts to fulfill its obligations under this
Agreement and to consummate the transactions contemplated hereby. Purchaser
shall promptly file
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<PAGE>
and prosecute applications for any licenses and permits required for it to
own the Domestic Assets or own the Shares.
6.2 Confidentiality. Purchaser affirms its obligations under the letter
---------------
agreement dated July 23, 1996 between WWTI and Purchaser.
6.3 Employees; Benefit Plans. (a) For periods on and after the Closing
------------------------
Date, Purchaser shall employ, or cause the Subsidiaries to continue to employ,
the employees of the Subsidiaries and Divisions, and to allow such employees to
participate in Purchaser's current employee benefit plans. Notwithstanding the
foregoing, Purchaser shall not be required to so employ any of the employees
listed on Schedule 6.3(e)(I) but may offer employment to any such employee prior
------------------
to October 3l, 1996 and, if such offer is accepted, such employee shall become
an employee of Purchaser on the Closing Date; and provided that without the
--------
prior written consent of the Seller, Purchaser shall not employ, and shall not
solicit for employment, those employees of the Business listed on Schedule
--------
6.3(e)(II) hereto.
- ----------
Effective as of the Closing Date, employees of the Subsidiaries and
Divisions shall cease to participate in all Seller Plans. Employees of the
Subsidiaries and Divisions shall be given credit for their service with the
Seller and its Affiliates under the employee benefit plans, programs and
arrangements maintained by Purchaser (the "Purchaser Plans") for their service
with the Seller and its affiliates for purposes of any eligibility requirements
and waiting periods, and such employees shall be treated as having satisfied any
applicable pre-existing condition limitations, deductibles, copayments and out-
of-pocket limits under the Purchaser Plans to the extent that such items would
have been satisfied under the Benefit Plan in which the employee participated
immediately prior to the Closing Date that provided the same category or type of
benefit.
(b) As soon after the Closing hereunder as is reasonably possible, the
assets and liabilities under the Wheelabrator-Rust Savings and Retirement Plan
("Seller's 401(k) Plan") allocable to the employees of Seller who will be
employed by Purchaser subsequent to the Closing hereunder ("Transferred
Employees") shall be transferred directly from the Seller's 401(k) Plan and the
trust fund thereunder to the United States Filter Corporation 401(k) Plan
("Purchasers 401(k) Plan") and the trust fund thereunder in accordance with the
requirements of Section 401(a)(12) of the Code, and subject further to the 30-
day advance-notification-to-the-IRS requirement under Section 6058(b) of the
Code if required by the existence of a suspense account under the Seller's
401(k) Plan or for any other reason. After the date of such transfer of assets
and liabilities under the Seller's 401(k) Plan and trust fund thereunder to the
Purchaser's 401(k) Plan and trust fund
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<PAGE>
thereunder, all of the rights and options applicable to the Transferred
Employees' account balances under the Seller's 401(k) Plan shall be preserved as
to such account balances under the Purchaser's 401(k) Plan, and all subsequent
benefit accruals allocable to the Transferred Employees under the Purchaser's
401(k) Plan shall be based on the terms and provisions of the Purchaser's 401(k)
Plan. Seller and Purchaser shall take all corporate actions and execute all
documents, including, but not limited to, Plan amendments and 5310-A filings, as
are necessary to effect the foregoing spin-off from the Seller's 401(k) Plan to
the Purchaser's 401(k) Plan.
(c) The parties acknowledge and agree that all provisions contained in this
Agreement with respect to Benefit Plans or employee compensation are included
for the sole benefit of the respective parties hereto and shall not create any
right in any other Person, including, without limitation, any employees of the
Divisions and Subsidiaries, any participant in any Benefit Plan or any
beneficiary thereof.
(d) The Purchaser agrees that it shall be responsible for all termination
and severance payments with respect to employees of the Divisions and
Subsidiaries (including the employees listed on Schedule 6.3(e)(I) who become
------------------
employees of Purchaser on the Closing Date, but excluding the employees listed
on Schedule 6.3(e)(II) and the employees listed on Schedule 6.3(e)(I) who do not
------------------- ------------------
become employees of Purchaser on the Closing Date) arising on account of events
occurring after the Closing Date.
6.4 Full Access. From and after the Closing Date, Purchaser shall cause the
-----------
Subsidiaries and Divisions to afford Seller and its counsel, accountants and
other authorized representatives, with two days' prior notice, reasonable access
during normal business hours (when accompanied by an authorized representative
of the Subsidiaries and Divisions) to the respective premises, properties,
personnel, books and records of the Subsidiaries and Divisions and any other
assets or information that Seller reasonably deems necessary to prepare the
Closing Balance Sheet and any report or return required to be filed by Seller
including, without limitation, any tax return. Personnel of the Subsidiaries and
Divisions shall assist Seller in the preparation of the Closing Balance Sheet;
however, Seller shall not be obligated to compensate such personnel, Purchaser
- -------
or Subsidiaries and Divisions for such assistance.
6.5 Insurance. Purchaser will comply with its obligations under the
---------
Insurance Agreement as if such obligations were set forth fully herein.
6.6 Use of Name. Purchaser shall refrain, and shall cause its Affiliates to
-----------
refrain, from using the name "Wheelabrator" or
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<PAGE>
any derivation thereof, except in accordance with the provisions of the "Trade
Name and Service Mark License Agreement" to be executed by the parties in the
form of Exhibit D hereto.
---------
6.7 HSR Filings. As promptly as practicable, Purchaser shall (in
-----------
cooperation with Seller) make all filings and submissions under the HSR Act and
any foreign competition, investment, foreign exchange, tax or other foreign
laws.
6.8 Litigation Support and Access After Closing. In the event and for so
-------------------------------------------
long as Seller or any of its Affiliates is a party to any action, suit,
proceeding, hearing, investigation, complaint, claim or demand ("Litigation") in
connection with (i) any transaction contemplated under this Agreement or (ii)
any fact, situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on, prior to
or after the Closing Date, involving the Business, the Domestic Assets or the
Subsidiaries, Purchaser will cooperate with Seller and its counsel, make
available its personnel, and provide such testimony and access to its books and
records as shall be necessary in connection with the Litigation. Purchaser
acknowledges and agrees that, from and after the Closing, Seller will be
entitled to possession of all documents, books, records, agreements, and
financial data of any sort relating exclusively to the Excluded Assets or
Retained Liabilities, to the extent that such items are in Purchaser's control.
6.9 Parent Guarantees. Purchaser will use its best efforts to obtain the
-----------------
release of all Parent Guarantees as of the Closing Date, whether by substituting
its own credit or guarantee therefor, or otherwise. In the event that any Parent
Guarantees nevertheless remain outstanding following the Closing Date, Purchaser
shall indemnify and hold harmless the Seller from any Losses or other payments
made or demanded to be made thereunder, and shall not take any action that
increases the amount of any Parent Guarantee.
6.10 Knowledge. Purchaser shall promptly inform Seller, by written notice,
---------
of any breach of Seller's representations and warranties of which Purchaser
obtains knowledge.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS
OF PURCHASER
The obligation of Purchaser to purchase the Shares and Domestic Assets as
provided herein is, at the option of Purchaser, subject to satisfaction of each
of the following conditions precedent on or before the Closing Date:
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<PAGE>
7.1 Warranties True. The representations and warranties of Seller contained
---------------
herein shall be true and correct in all Material respects as of the date of this
Agreement and (except to the extent such representations and warranties are made
as of an earlier date, which representations and warranties shall be true and
correct in all Material respects at and as of such date) as of the Closing Date
as though made on and as of the Closing Date, in each case giving effect to any
updates of Schedules delivered by Seller to Purchaser reflecting events
occurring or arising between the date of this Agreement and the Closing Date
(which updates shall not include any updates to Schedule 3.6, and shall not
------------
identify matters that are, individually or in the aggregate, Materially
adverse).
7.2 Compliance with Agreements and Covenants. Seller shall have performed
----------------------------------------
and complied with, in all Material respects, its obligations and agreements
hereunder.
7.3 HSR Act. All required notice and waiting periods under the HSR Act
-------
shall have expired or otherwise been terminated.
7.4 Injunctions. No court or governmental authority shall have issued an
-----------
order which shall then be in effect restraining or prohibiting the completion of
the sale of any substantial part of the Domestic Assets and the Shares.
7.5 Deliveries by Seller. Seller shall be able to effect the deliveries
--------------------
required pursuant to Section 9.2 below.
-----------
7.6 No Material Adverse Change. There shall not have occurred, between the
--------------------------
date of this Agreement and the Closing Date, any Material Adverse Change.
7.7 Materiality Standard. For purposes of Section 7.1 and Section 7.6
-------------------- ----------- -----------
above (and only for such purposes), the parties agree that one or more
circumstances or events shall not be deemed to be "Material" if the aggregate
adverse economic effect of such circumstances or events does not exceed 10% of
the Purchase Price. The parties agree that the 10% standard in this Section 7.7
-----------
shall not be an admission on the part of either of them that any other issues
involving an interpretation of the term "material" or any derivation thereof as
it appears other than in Section 7.1 or Section 7.6 hereof shall be addressed in
----------- -----------
the context of such standard, and the parties expressly and forever covenant and
agree that they will not use this Section 7.7 in making any such interpretation.
-----------
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<PAGE>
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
The obligation of Seller to cause the sale of the Shares and the Domestic
Assets as provided herein is, at the option of Seller, subject to the
satisfaction of each of the following conditions precedent on or before the
Closing Date:
8.1 Warranties True. The representations and warranties of Purchaser
---------------
contained herein shall be true and correct in all Material respects as of the
date of this Agreement and (except to the extent such representations and
warranties are made as of an earlier date, which representations and warranties
shall be true and correct in all Material respects at and as of such date) as of
the Closing Date as though made on and as of the Closing Date, in each case
except for changes expressly contemplated by this Agreement.
8.2 Compliance with Agreements and Covenants. Purchaser shall have
----------------------------------------
performed and complied with, in all material respects, its obligations and
agreements hereunder.
8.3 HSR Act. All required notice and waiting periods under the HSR Act
-------
shall have expired or been waived.
8.4 Injunctions. No court or governmental authority shall have issued an
-----------
order which shall then be in effect restraining or prohibiting the completion of
the sale of any substantial part of Domestic Assets and the Shares.
8.5 Deliveries by Purchaser. Purchaser shall be able to effect the
-----------------------
deliveries required pursuant to Section 9.3 below.
-----------
ARTICLE IX
CLOSING
9.1 Closing. The Closing shall take place at the offices of Mayer, Brown &
-------
Platt, 190 South LaSalle Street, Chicago, Illinois 60603 at 10:00 A.M. on or as
of the last business day of a calendar month. The Closing shall take place
within 10 days of the date on which all of the conditions precedent set forth in
Article VII and Article VIII have been satisfied or waived, or such other date
- ----------- ------------
as is mutually agreeable to Seller and Purchaser (the "Closing Date").
9.2 Seller's Deliveries. At the Closing, Seller shall deliver to Purchaser:
-------------------
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<PAGE>
(a) a certificate, signed by an officer of Seller, certifying
satisfaction of the condition at Section 7.1 above;
-----------
(b) certificates evidencing the Shares, duly endorsed in blank or
accompanied by duly executed stock powers or ordres de mouvement, notarial
deeds and/or such other transfer documents as may be necessary to transfer
to Purchaser the Shares;
(c) resignations of the respective Boards of Directors and officers
of each of the Subsidiaries (other than the Minority Subsidiaries) as shall
be designated by Purchaser in writing not less than five (5) days prior to
the Closing Date;
(d) a duly executed copy of the Trade Name and Service Mark License
Agreement;
(e) a bill of sale, deeds and instrument of assignment and other
instruments reasonably deemed necessary by Purchaser for the conveyance of
the Domestic Assets;
(f) an assignment of all transferable licenses or permits included in
the Domestic Assets;
(g) a duly executed copy of the Business Development Agreement in the
form of Exhibit E hereto;
(h) updates of Seller's Schedules to this Agreement reflecting events
occurring or arising between the date of this Agreement and the Closing
Date (which Schedules shall supplement the Schedules attached hereto but
shall not include any updates of Schedule 3.6, and shall not identify
------------
matters that are, individually or in the aggregate, Materially adverse);
(i) a duly executed copy of the Insurance Agreement;
(j) a duly executed copy of the Stock Retention Agreement, if
required;
(k) a duly executed copy of the Non-Competition Agreement;
(l) documentation reasonably acceptable to Purchaser, making
available to Purchaser the right to use the JD Edwards software currently
utilized by Seller in the conduct of the Business;
(m) any other items required to be delivered by Seller under the
terms and provisions of this Agreement; and
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<PAGE>
(n) any releases obtained of the Parent Guarantees.
9.3 Purchasers Deliveries. At the Closing, the Purchaser shall deliver to
---------------------
Seller:
(a) a certificate, signed by an officer of Purchaser, certifying
satisfaction of the condition at Section 8.1 above;
-----------
(b) confirmation of the wire transfer to Seller of same-day funds in
the amount of the Purchase Price;
(c) a duly executed copy of the Trade Name and Service Mark License
Agreement;
(d) a duly executed copy of the Business Development Agreement;
(e) a duly executed copy of the Non-Competition Agreement;
(f) a duly executed copy of the Insurance Agreement;
(g) a duly executed copy of the Stock Retention Agreement, if
required;
(h) a certificate, signed by a duly authorized officer of Purchaser
on behalf of Purchaser, certifying that Purchaser has no knowledge of any
breach of or inaccuracy in, any of the representations and warranties of
Seller set forth in this Agreement, except as set forth in such certificate
(it being understood that upon delivery of such certificate, the contents
thereof shall be deemed to be a representation and warranty of Purchaser);
(i) assumption agreement, relating to the assumption by Purchaser of
the Liabilities;
(j) notarial deeds and/or such other transfer documents as may be
necessary to transfer to Purchaser the Shares of certain of the
Subsidiaries;
(k) a duly executed copy of the Non-Competition Agreement;
(l) any other items required to be delivered by Purchaser under the
terms and provisions of this Agreement; and
(m) any releases obtained of the Parent Guarantees.
9.4 Termination. This Agreement shall terminate:
-----------
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<PAGE>
(a) upon the mutual agreement of Seller and Purchaser;
(b) upon written notice from Purchaser to Seller if each of the conditions
precedent set forth in Article VII has not been satisfied on or before
-----------
December 31, 1996; or
(c) upon written notice from Seller to Purchaser if each of the conditions
precedent set forth in Article VIII has not been satisfied on or before
------------
December 31, 1996.
No termination of this Agreement shall release Seller from any liability under
Section 5.9. No party shall be relieved of liability for any breach of this
- -----------
Agreement, unless such breach is otherwise excused by the express terms hereof.
Sections 5.6, 6.2, 12.1 and 12.14 shall survive the termination of this
- ----------------------- -----
Agreement.
ARTICLE X
SURVIVAL AND INDEMNIFICATION
10.1 Survival. The representations and warranties of the
--------
parties contained herein or in any certificate or writing delivered
pursuant hereto shall survive the Closing until the first
anniversary of the Closing Date; provided, that, the
-------- ----
representations and warranties contained at the last sentence of
Section 3.2(a) and the first sentence of Section 3.6(b) shall
-------------- --------------
survive the Closing forever. The covenants and agreements
contained herein shall survive the Closing for the period
designated or, if no period is so designated, forever.
10.2 Indemnification by Seller. (a) Subject to the terms of
-------------------------
Section 10.3, Seller agrees to indemnify, defend and hold harmless
------------
Purchaser, its officers, directors, Affiliates, successors and
assigns (the "Purchaser Indemnified Parties") against any and all
Losses suffered by any Purchaser Indemnified Party from and after
the point at which such Losses in the aggregate exceed $2,000,000
(at which point Seller shall indemnify Purchaser for all such
Losses, beginning from the first dollar of such Losses) and
(i) are caused by any breach of the representations,
warranties, covenants (including, without limitation, Seller's
failure to pay, perform and satisfy the Retained Liabilities)
or agreements of Seller set forth in this Agreement, or
(ii) constitute Reserve Losses (as defined below), or
(iii) result from a claim or cause of action brought by Betz
Dearborn with respect to the matters identified on Schedule 2.1(b)(II);
-------------------
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<PAGE>
provided, that, (A) no claim may be made, and no Losses shall be applied
- --------------
against the foregoing deductible amount, with respect to any matter that
individually does not cause a Loss in excess of $50,000, exclusive of
attorney's fees, court costs and costs of litigation; (B) the foregoing $50,000
and $2,000,000 limitations will not apply to Seller's obligations with respect
to the Insurance Agreement (or any other agreement entered into in connection
therewith), Seller's payment obligation under Section 2.3(c) above, any breach
--------------
of the representations and warranties contained in the last sentence of
Section 3.2(a), the first sentence of Section 3.6(b), or Section 3.12 or any
- -------------- -------------- ------------
Losses incurred with respect to the Retained Liabilities (other than the
Retained Claims, as to which such limitations shall apply); and (C) Purchaser's
right of recovery for Reserve Losses is subject to Section 10.2(b) below; and
---------------
provided, further, that Purchaser shall not be entitled to indemnification
- -------- -------
pursuant to Section 10.2(a)(i) above in respect of Reserved Matters, it being
------------------
understood that the parties' agreement with respect to indemnification for
Reserved Matters is set forth in Section 10.2(a)(ii).
-------------------
(b) On or before the first anniversary of the Closing Date, Purchaser may
assert claims for aggregate Losses incurred in respect of Reserved Matters, to
the extent that such aggregate Losses exceed the aggregate amount of the
Reserves (the "Reserve Losses"). Purchaser shall assert any such claim by
written notice to Seller, which notice must be delivered on or before the first
anniversary of the Closing Date. Purchaser's claim notice shall specify, in
reasonable detail, (i) the aggregate amount of Losses incurred in respect of
Reserved Matters and (ii) the reason that Purchaser asserts that the total
Reserves were not established as of the Closing Date on a basis consistent with
the Balance Sheet and in accordance with the Accounting Conventions. Purchaser
shall be entitled to indemnification with respect to the claimed Losses (A)
only if it prevails on its assertion that the Reserves were not established on
a basis consistent with the Balance Sheet and in accordance with the Accounting
Conventions, and (B) only to the extent that such Losses would have been
covered by the Reserves, had the Reserves been so established.
(c) In addition to the indemnification obligations set forth in Section
-------
10.2(a) above, Seller agrees to indemnify, defend and hold harmless the
- -------
Purchaser Indemnified Parties against 50% of any and all Losses (which, for
purposes of this Section 10.2(c) only, shall include project costs net of
---------------
project billings after the Closing Date) suffered by any Purchaser Indemnified
Party, without application of the $50,000, $2,000,000, 10% or one-year
limitations set forth elsewhere in this Section 10.2, arising from or relating
------------
to (i) a salt crystallization system being installed for FRIMA, B.V., and (ii)
the HPD Division's Sudwestdeutsche Saltwerk project; provided, that the
--------
foregoing indemnity shall only be applicable to the extent that the aggregate
Losses suffered by the Purchaser
-47-
<PAGE>
Indemnified Parties with respect to items (i) and (ii) above exceed the
estimated costs-to-complete, net of remaining billings, for such projects as
reflected in the calculation of earned revenues for such projects on the books
of HPD as of August 31, 1996.
10.3 Limitations. The aggregate liability of Seller to the Purchaser
-----------
Indemnified Parties under Section 10.2 or otherwise under this Agreement, or of
------------
Purchaser to the Seller Indemnified Parties under Section 10.4(a) (but only
---------------
with respect to a breach of the representations and warranties set forth in
Sections 4.1, 4.2 or 4.3) shall not exceed ten percent (10%) of the Purchase
- ------------ --- ---
Price, as such Purchase Price is finally determined in accordance with the
procedures set forth in Section 2.3; provided, that, such limitation shall not
----------- -------- ----
apply with respect to any obligation of Seller under the Insurance Agreement
(or any other agreement entered into in connection herewith), payment
obligations of Seller set forth at Section 2.3(c) above, any breach of Section
-------------- -------
3.12, the indemnity set forth in Section 10.2(c) above or any Losses incurred
- ---- ---------------
with respect to the Retained Liabilities (other than the Retained Claims, as to
which such limitation shall apply) by Purchaser or any Losses incurred with
respect to the Liabilities or the Parent Guarantees by Seller. No claim for
indemnification may be made hereunder unless written notice of such claim, in
reasonable detail, is given to Seller or Purchaser, as the case may be, on or
prior to the expiration of the survival period set forth in Section 10.1. The
------------
indemnification provided by Section 10.2 shall not apply in the case of any
------------
breach of any representation or warranty of which Purchaser had knowledge prior
to the Closing. The rights and remedies set forth in this Article X shall
---------
constitute the sole and exclusive rights and remedies of Seller and any Seller
Indemnified Party against Purchaser and Purchaser and any Purchaser Indemnified
Party against Seller with respect to this Agreement, the events giving rise to
this Agreement and the transactions contemplated herein.
10.4 Indemnification by Purchaser. Purchaser agrees to indemnify, defend
----------------------------
and hold harmless Seller, its officers, directors, Affiliates, successors and
assigns (the "Seller Indemnified Parties") against any and all Losses suffered
by any Seller Indemnified Party and which:
(a) are caused by any breach of the representations, warranties,
covenants or agreements of Purchaser set forth in this Agreement
including, without limitation, Purchaser's failure to pay, perform and
satisfy, and hold Seller and its Affiliates harmless from, the
Liabilities;
(b) arise under any of the Parent Guarantees; or
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<PAGE>
(c) otherwise arise from the operation of the Business, the Divisions,
the Subsidiaries or the Domestic Assets from and after the Closing Date.
10.5 Procedures. The indemnified party shall promptly notify the
----------
indemnifying party in writing of all matters which may give rise to the right
to indemnification hereunder. If the indemnifying party does not receive notice
of any matter known to the indemnified party and as to which the indemnified
party is entitled to indemnification hereunder in time to contest the
determination of any such liability, the indemnifying party shall not be
obligated to indemnify the indemnified party with respect thereto, to the
extent that such delay is actually prejudicial to the rights or obligations of
the indemnifying party. The indemnifying party shall have the right: (a) with
the consent of the indemnified party, which shall not be unreasonably withheld
or delayed, to settle all indemnifiable matters related to claims by third
parties which are susceptible to being settled and (b) to defend through
counsel of its own choosing, at its own expense, any action which may be
brought by a third party in connection therewith. The indemnified party shall
have the right to have its counsel participate fully in such defense at its own
expense but shall have no right to settle any indemnifiable matter without the
written consent of the indemnifying party. The indemnified party and the
indemnifying party shall keep each other reasonably informed of the progress of
any litigation or settlement negotiations with third parties in connection with
a matter indemnified against hereunder. The indemnifying party and the
indemnified party shall permit each other reasonable access to books and
records and otherwise cooperate with all reasonable requests of each other in
connection with any indemnifiable matter resulting from a claim by any third
party.
10.6 Calculations. The amount of indemnity payable under Section 10.2 or
------------ ------------
Section 10.4 above shall be reduced by proceeds received by the Purchaser
- ------------
Indemnified Party or the Seller Indemnified Party, as the case may be, from
insurance policies or other indemnities covering the damage, loss, liability or
expense that is the subject of the claim for indemnity. To the extent that
insurance proceeds are received in a year other than the year in which the
indemnity is paid, the indemnified party shall make a payment to the
indemnifying party in the amount of such insurance proceeds in the year in
which they are received.
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<PAGE>
ARTICLE XI
TAXES
11.1 Filing Tax Returns; Payment of Taxes. (a) As soon as practicable after
------------------------------------
the Closing Date, Seller will prepare and file all appropriate tax returns for
the operations of the Subsidiaries (other than the Minority Subsidiaries) for
all tax periods ending on or before the Closing Date, including, for those
jurisdictions and tax authorities that permit or require a short period tax
return, for the period ending on the Closing Date, and Seller will pay any tax
due thereon and will indemnify the Purchaser for any such taxes and for any
taxes imposed by reason of section 1502-6 of the Treasury regulations or
similar provisions under state, local or foreign Law. In the case of a
jurisdiction that does not permit a short period tax return with respect to a
subsidiary incorporated in the United States, the Closing Date will be treated
as the end of the subsidiary's taxable year and the Seller will pay any taxes
that would be due for such hypothetical taxable year. Any item that would
affect the determination of taxes for this hypothetical taxable year that
cannot be identified as being attributable to the time prior to the Closing
Date, will be allocated pro rata throughout the Subsidiary's entire taxable
year. Without undue disruption to the operations of such Subsidiaries,
Purchaser shall cause the Subsidiaries to cooperate fully and promptly in
connection with Seller's preparation and filing of such returns. The books and
records of the Subsidiaries will be maintained, and the Federal, state and
other income tax returns of Seller's consolidated group will be filed, so as to
accurately reflect the operations of the Subsidiaries through the end of the
Closing Date. Seller shall have no responsibility for filing any tax return for
the operations of the Subsidiaries for any period ending after the Closing
Date.
(b) Seller shall be entitled to any refunds of Taxes (including interest
received thereon) paid with respect to the operations of the Subsidiaries for
any period included in the Seller Tax Period, except for any such refunds
reflected on the Closing Balance Sheet. Purchaser shall be entitled to all
other refunds of Taxes (including interest received thereon) with respect to
the operations of the Subsidiaries. Refunds to which Seller is not entitled
shall be retained by the Subsidiaries, and shall not be paid to Seller, and if
received by Seller, shall be paid over to Purchaser within ten (10) business
days after receipt. Purchaser shall cause the Subsidiaries to cooperate, at no
cost to Purchaser, with Seller in any petition for or proceeding relating to
any refund.
11.2 Tax Benefits. If, as the result of a final determination or other
action by any taxing authority, the tax liability of any Subsidiary for a
period after the Closing Date is
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<PAGE>
increased because of the erroneous timing of an item of income, deduction,
or credit which, when corrected, produces a realized tax benefit available to
Seller or any of its Affiliates in a tax period including or ending before the
Closing Date, Seller shall pay to Purchaser upon its receipt or application of
all or any portion of such tax benefit an amount equal to the amount of such
tax benefit or portion thereof (including any interest related thereto). If, as
the result of a final determination or other action by any taxing authority,
the tax liability of any Subsidiary for a period prior to the Closing Date is
increased because of the erroneous timing of an item of income, deduction, or
credit which, when corrected, produces a tax benefit available to Purchaser or
any of its Affiliates in a tax period beginning after the Closing Date,
Purchaser shall pay to Seller upon its receipt or application of all or any
portion of such tax benefit an amount equal to the amount of such tax benefit
or portion thereof (including any interest related thereto).
11.3 Tax Cooperation. Purchaser and Seller will cooperate fully with each
---------------
other in connection with (a) the preparation and filing of any Federal, state,
local or foreign tax returns for the operations of the Subsidiaries within the
Seller Tax Period, and (b) any audit examination by any government taxing
authority of the returns referred to in clause (a). Such cooperation shall
include, without limitation, the furnishing or making available of records,
books of account or other materials of the Subsidiaries necessary or helpful
for the defense against assertions of any taxing authority as to any tax
returns which include operations of the Subsidiaries within the Seller Tax
Period. However, nothing herein shall entitle Purchaser to interfere with
Seller's right to make any judgments or to take any actions it deems
appropriate in connection with the disposition of any audits. Seller shall
control, and have the sole right to contest or settle, any audit or other tax
matter attributable to the Seller Tax Period.
11.4 Section 338(h)(1) Election. If the Purchaser requests, Seller will
--------------------------
join with the Purchaser in making timely elections under Section 338(h)(10)
of the Code (and any corresponding elections under state or local Tax law)
(collectively, the "Section 338(h)(10) Elections") with respect to the purchase
and sale of the Shares of Wheelabrator Water Technologies International
Holdings Inc. Initial drafts of the materials required to make such joint
elections will be prepared by Seller. Purchaser and Seller shall (i) take, and
cooperate with each other to take, all actions necessary and appropriate to
effect and preserve the timely Section 338(h)(10) Elections in accordance with
Section 338 of the Code and the Treasury Regulations thereunder and (ii)
Purchaser and Seller shall report the sale of such shares pursuant to this
Agreement consistent with the Section 338(h)(10) Elections and shall take no
position contrary thereto or inconsistent therewith in any Tax return, any
discussion with or proceeding before any
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<PAGE>
governmental authority, or otherwise. The allocation of the "adjusted grossed-
up basis" (within the meaning of Treas. Reg. (s) 1.338(b)-l(c)) among the
tangible and intangible assets (the "Allocation") market values of such
assets as agreed upon by the Purchaser and the Seller. The Allocation shall be
used by Seller and Purchaser for purposes of allocating the "deemed selling
price" and neither party shall file any Tax return or schedule that is
inconsistent with the Allocation. Seller shall be responsible for and shall
indemnify and hold Purchaser harmless from any Taxes that arise from or as a
result of the Section 338(h)(10) Election.
11.5 Tax Sharinq Arrangements. Any tax sharing arrangement between the
------------------------
Seller or its Affiliates, on the one hand, and any of the Subsidiaries, on the
other hand, will be null and void immediately following the Closing.
ARTICLE XII
MISCELLANEOUS
12.1 Expenses. Except as provided below, each party hereto shall bear its
--------
own expenses with respect to this transaction. The parties shall jointly share
any sales, stamp, documentary, registration, recording, conveyancing, transfer
or similar taxes and notarial and filing fees applicable to the transfer of the
Domestic Assets and the Shares. Purchaser shall bear the costs and expenses of
any title insurance.
12.2 Amendment. This Agreement may be amended, modified or supplemented
---------
only in writing signed by each of the parties hereto.
12.3 Notices. Any written notice to be given hereunder shall be deemed
-------
given: (a) when received, if given in person or by courier; (b) on the date of
transmission, if sent by telex, telecopy or other wire transmission (receipt
confirmed); (c) three (3) days after being deposited in the U.S. mail, certified
or registered mail, postage prepaid; and (d) if sent by a nationally recognized
overnight delivery service, the day following the date given to such overnight
delivery service (specified for overnight delivery). All notices shall be
addressed as follows:
If to Seller, addressed as follows:
Wheelabrator Water Technologies Inc.
3003 Butterfield Road
Oak Brook, IL 60521
Attention: General Counsel
Telephone: (630) 572-2422
Facsimile: (630) 572-1415
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<PAGE>
with a copy to:
Wheelabrator Technologies Inc.
3003 Butterfield Road
Oak Brook, IL 60521
Attention: General Counsel
Telephone: (630) 572-8840
Facsimile: (630) 218-1553
If to Purchaser, addressed as follows:
United States Filter Corporation
40-004 Cook Street
Palm Desert, California 92211
Attention: General Counsel
Telephone: (619) 340-0098
Facsimile: (619) 341-9368
with a copy to:
Kirkpatrick & Lockhart
1500 Oliver Building
Pittsburgh, Pennsylvania 15222
Attention: Janice C. Hartman, Esq.
Telephone: (412) 355-6444
Facsimile: (412) 355-6501
12.4 Waivers. The failure of a party to require performance of any
-------
provision hereof shall not affect its right at a later time to enforce the same.
No waiver by a party of any term, covenant, representation or warranty contained
herein shall be effective unless in writing. No such waiver in any one instance
shall be deemed a further or continuing waiver of any such term, covenant,
representation or warranty in any other instance.
12.5 Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
12.6 Headings. The headings preceding the text of Articles and Sections
--------
of this Agreement and the Schedules and Exhibits thereto are for convenience
only and shall not be deemed part of this Agreement.
12.7 Applicable Law. This Agreement shall be governed by and construed
--------------
and enforced in accordance with the internal laws, and not the laws of
conflicts, of the State of Illinois.
12.8 Assignment. This Agreement shall be binding upon and inure to the
----------
benefit of the parties and their respective successors and assigns; provided,
--------
that no assignment of either party's rights
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<PAGE>
or obligations may be made without the written consent of the other party,
which consent shall not be unreasonably withheld or delayed. Notwithstanding
the foregoing, Purchaser may assign all rights hereunder to any one or more
wholly owned subsidiaries; provided that Purchaser shall continue to be bound
--------
in all respects hereunder.
12.9 No Third Party Beneficiaries. This Agreement is solely for the benefit
----------------------------
of the parties hereto and no provision of this Agreement shall be deemed to
confer any remedy, claim or right upon any third party.
12.10 Arbitration. All disputes arising in connection with this Agreement
-----------
or any modification or extension hereof, or the breach or invalidity hereof
(other than disputes relating to the termination of this Agreement or the
failure to close) shall be settled by binding arbitration in Chicago under the
UNCITRAL arbitration rules in effect on the date hereof, such arbitration to be
conducted by a single arbitrator appointed by the parties or, failing agreement
within one month of the demand for arbitration, by the American Arbitration
Association (AAA) at the request of one of the parties. The AAA shall administer
the arbitration under its "Procedure for Cases under the UNCITRAL Arbitration
Rules."
In addition to the rules governing such arbitration, the parties shall have
at their disposal the pretrial discovery rights as are then available under
applicable law; provided that any dispute between the parties relating to
--------
discovery shall be submitted to the arbitrator for resolution.
The arbitrator may, for his convenience or that of the parties, take
evidence at places other than Chicago without changing the situs of the
proceedings. The arbitrator shall dispose of any dispute in such manner as he,
in his discretion, shall determine, but in so doing he shall be required to
receive the submission of the parties with respect to said dispute. The
arbitrator shall base his award with respect to the matter before him on the
contents of this Agreement and on the provisions of the applicable law as
herein provided. The decision of the arbitrator shall be rendered in writing
with all reasonable expedition and shall be final and binding on the parties
hereto. Judgment upon the arbitration award rendered may be entered in any
court having jurisdiction, or application may be made to any such court for
judicial acceptance of the award and an order of enforcement of execution, as
the case may be.
12.11 Schedules. Purchaser agrees that any disclosure by Seller in any
---------
Schedule attached hereto shall constitute a disclosure under each other
Schedule referred to herein, whether or not such disclosure is specifically
referenced within such other Schedule. The parties also acknowledge that an
effect of this
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<PAGE>
Amended and Restated Purchase and Sale Agreement is to amend and restate, in
their entirety, Schedules 2.1(d), 2.3, 3.2 and 3.16, in the form attached
hereto; all other Schedules shall be in the form delivered on September 14,
1996.
12.12 Incorporation. The respective Schedules and Exhibits attached hereto
-------------
and referred to herein are incorporated into and form a part of this Agreement.
12.13 Knowledge Defined. For purposes of this Agreement, the term
-----------------
"knowledge of Seller" or variations thereof shall be limited to the actual
knowledge of those individuals listed on Schedule 12.13(a), and the term
-----------------
"knowledge of Purchaser" or variations thereof shall be limited to the actual
knowledge of those individuals listed on Schedule 12.13(b); and the knowledge of
-----------------
each shall reflect due inquiry by such individuals in connection with the
statement qualified by such knowledge.
12.14 Public Announcements. Seller and Purchaser each agree that they and
--------------------
their Affiliates will not issue any press release with respect to this Agreement
or the transactions contemplated hereby without the prior approval of other
party, which shall not be unreasonably withheld, except as may be required by
Law or by any stock exchanges having jurisdiction over Seller, Purchaser or
their Affiliates.
12.15 Complete Agreement. This Agreement constitutes the complete
------------------
agreement of the parties with respect to the subject matter hereof and
supersedes all prior discussions, negotiations and understandings. The preamble
and recitals set forth at the beginning of this Agreement are incorporated in
and form a part of this Agreement.
12.16 Interpretation. When a reference is made in this Agreement to
--------------
Sections, such reference shall be to a Section of this Agreement unless
indicated. Whenever the words "include," "includes" or "including" are used in
this Agreement they shall be deemed to be followed by the words "without
limitation," whether or not expressly stated.
12.17 Further Assurances. Each of the parties hereto agrees to use its
------------------
commercially reasonable efforts, both before and after the Closing, to take, or
cause to be taken, all action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable Laws and existing agreements or
otherwise required to be taken or done by it to consummate the transactions
contemplated hereby and to more fully and effectively vest in Purchaser title
to the Domestic Assets and the Shares.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first written above.
WHEELABRATOR TECHNOLOGIES INC.
By: /s/ William Keightly
----------------------------
Name: William Keightley
Title: Authorized Representative
UNITED STATES FILTER CORPORATION
By:
----------------------------
Name: Kevin L. Spence
Title: Vice President and Chief
Financial Officer
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first written above.
WHEELABRATOR TECHNOLOGIES INC.
By:
---------------------------
Name: William Keightley
Title: Authorized Representative
UNITED STATES FILTER CORPORATION
By: /s/ Kevin L. Spence
----------------------------
Name: Kevin L. Spence
Title: Vice President and Chief
Financial Officer
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<PAGE>
EXHIBIT 2.3
Stock Purchase Agreement (this "Agreement"),
dated as of September 10, 1996, by and among
EDMUNDSON INTERNATIONAL, INC., a California
corporation ("Seller"), UNITED STATES FILTER
CORPORATION, a Delaware corporation ("Buyer"),
and WATERPRO SUPPLIES CORPORATION, a
Massachusetts corporation (the "Company").
Seller desires to sell all of the issued and outstanding shares of capital
stock of the Company, consisting of 50,000 shares of common stock (the "Company
Shares"), to Buyer, and Buyer desires to purchase the Company Shares, on the
terms and subject to the conditions set forth below. In consideration of the
representations, warranties, covenants and agreements contained herein, Seller,
Buyer and the Company, each intending to be legally bound hereby, agree as set
forth below.
ARTICLE I
DEFINITIONS; CONSTRUCTION
-------------------------
1.01. Definitions. As used in this Agreement, the following terms have the
-----------
meanings specified in this Section 1.01. All accounting terms not specifically
------------
defined herein shall be construed in accordance with GAAP.
"Affiliate" means, with respect to any Person, any other Person that,
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with such Person.
"Agreement" means this Stock Purchase Agreement, as it may be amended from
time to time.
"Balance Sheet Date" means December 31, 1995.
"Benefit Plan" has the meaning given that term in Section 3.23(a).
---------------
"Business" means the business of selling and distributing products and
services used in the installation and operation of underground water, wastewater
and natural gas systems, as conducted by the Company.
"Buyer" means United States Filter Corporation, a Delaware corporation.
"Buyer Damages" has the meaning given that term in Section 7.02.
------------
"Buyer Indemnitees" has the meaning given that term in Section 7.02.
------------
"CERCLIS" means the U.S. Comprehensive Environmental Response Compensation
Liability Information System List pursuant to Superfund.
<PAGE>
"Closing" has the meaning given that term in Section 2.03.
------------
"Closing Date" has the meaning given that term in Section 2.03.
------------
"Code" means the U.S. Internal Revenue Code of 1986, as amended, and the
applicable rulings and regulations thereunder.
"Company" means WaterPro Supplies Corporation, a Massachusetts corporation.
"Company Group" means any corporation that may be aggregated with the
Company under Sections 414(b), (c), (m) or (o) of the Code.
"Company Plan" has the meaning given that term in Section 3.23(a).
---------------
"Company Shares" has the meaning given that term in the introductory
paragraph of this Agreement.
"Company Stockholder Ownership Percentage" means the percentage of
ownership of aggregate Company Shares held by each Company Stockholder as
identified in Schedule 3.03.
-------------
"Company Stockholders" means Seller and the entity and individuals for
which Seller is agent, each as identified in Schedule 3.03.
-------------
"Contract" and "Contracts" have the respective meanings given those terms
in Section 3.15.
------------
"Damages" has the meaning given that term in Section 7.06.
------------
"Debt Repayment USF Shares" has the meaning given that term in
Section 2.04.
- ------------
"Defined Benefit Plan" has the meaning given that term in Section 3.23(e).
---------------
"Encumbrance" means any liability, debt, mortgage, deed of trust, pledge,
security interest, encumbrance, option, right of first refusal, agreement of
sale, adverse claim, easement, lien, lease, assessment, restrictive covenant,
encroachment, right-of-way, burden or charge of any kind or nature whatsoever or
any item similar or related to the foregoing.
"Environmental Law" means any applicable Law relating to public health and
safety or protection of the environment, including common law nuisance, property
damage and similar common law theories.
"ERISA" means the U.S. Employee Retirement Income Security Act of 1974, as
amended, and the applicable rulings and regulations thereunder.
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<PAGE>
"FASB" means the U.S. Financial Accounting Standards Board or its
successor.
"Financial Statements" has the meaning given that term in Section 3.07(b).
---------------
"FNB" means the First National Bank of Boston.
"GAAP" means U.S. generally accepted accounting principles.
-3-
<PAGE>
"Governing Documents" means, with respect to any Person who is not a
natural Person, the certificate or articles of incorporation, bylaws, deed of
trust, formation or governing agreement and other charter documents or
organization or governing documents or instruments of such Person.
"Governmental Body" means any court, government (federal, state, local or
foreign), department, commission, board, bureau, agency, official or other
regulatory, administrative or governmental authority or instrumentality.
"HSR Act" means the U.S. Hart-Scott-Rodino Antitrust Improvements Act, as
amended.
"Indemnified Party" has the meaning given that term in Section 7.06.
------------
"Indemnifying Party" has the meaning given that term in Section 7.06.
------------
"Insider Company Debt" means the Company's aggregate outstanding
indebtedness (including principal, interest and any other amounts due
thereunder) to Seller evidenced by that certain letter agreement dated between
Seller and the Company, a copy of which was delivered to Buyer as set forth in
Section 3.27 and Section 5.01(b).
- ------------ ---------------
"Intellectual Property" has the meaning given that term in Section 3.22.
------------
"IRS" means the U.S. Internal Revenue Service.
"Law" means any applicable federal, state, municipal, local or foreign
statute, law, ordinance, rule, regulation, judgment or order of any kind or
nature whatsoever including any public policy, judgment or order of any
Governmental Body or principle of common law.
"Litigation" has the meaning given that term in Section 3.14.
------------
"Multiemployer Plan" has the meaning given that term in Section 3.23(f).
---------------
"NYSE" means the New York Stock Exchange.
"Other Agreement" means each other agreement or document contemplated
hereby to be executed and delivered in connection with the transactions
contemplated by this Agreement on or before Closing.
"PBGC" means the U.S. Pension Benefit Guaranty Corporation.
"Permit" and "Permits" have the respective meanings given those terms in
Section 3.16.
- ------------
"Person" means and includes a natural person, a corporation, an
association, a partnership, a limited liability company, a trust, a joint
venture, an unincorporated organization, a
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<PAGE>
business, any other legal entity, and a Governmental Body.
"Purchase Price" has the meaning given that term in Section 2.02.
------------
"Purchase Price USF Shares" has the meaning given that term in
Section 2.04.
- ------------
"Qualified Plan" has the meaning given that term in Section 3.23(d).
---------------
"Real Property" has the meaning given that term in Section 3.17.
------------
"Receivables" has the meaning given that term in Section 3.12.
------------
"Regulated Material" means any hazardous substance as defined by any
Environmental Law and any other material regulated by any applicable
Environmental Law, including, polychlorinated biphenyls, petroleum, petroleum-
related material, crude oil or any fraction thereof.
"Related Party" means (i) the Company Stockholders, (ii) any Affiliate of
Seller, (iii) any officer or director of any Person identified in clauses (i) or
(ii) preceding, and (iv) any spouse, sibling, ancestor or lineal descendant of
any natural Person identified in any one of the preceding clauses.
"Required Authorizations" means, with respect to any Person, (i) all
consents, authorizations, approvals or other orders or actions of, or filings or
registrations with, any national, local or foreign governmental authority or
agency, including pre-closing or post-closing notifications or deed restrictions
required under state law, (ii) board and, if required, stockholder approval, or
approval of any other governing Person, group or entity, (iii) all notices, per-
mits, approvals, consents, qualifications, waivers or other actions of third
parties under any lease, note, mortgage, indenture, loan agreement, other
agreement or other instrument or under any other third-party franchise, license
or permit, including the consent of institutional lenders, and (iv), to the
extent not otherwise addressed above, the consents referred to in Schedule 3.06.
-------------
"Security Right" means, with respect to any security, any option, warrant,
subscription right, preemptive right, other right, proxy, put, call, demand,
plan, commitment, agreement, understanding or arrangement of any kind relating
to such security, whether issued or unissued, or any other security convertible
into or exchangeable for any such security. "Security Right" includes any right
relating to issuance, sale, assignment, transfer, purchase, redemption,
conversion, exchange, registration or voting and includes rights conferred by
statute, by the issuer's Governing Documents or by agreement.
"Seller Damages" has the meaning given that term in Section 7.03.
------------
"Seller Indemnitees" has the meaning given that term in Section 7.03.
------------
"Selling Group" means a member, whether past or present, of Seller's
Affiliated group
-5-
<PAGE>
of corporations within the meaning of Code Section 1504(a).
"Stock Adjustment Event" has the meaning given that term in Section 2.05.
------------
"Superfund" means the U.S. Comprehensive Environmental Response
Compensation and Liability Act of 1980, as amended.
"Tax" means any domestic or foreign federal, state, county or local tax,
levy, impost or other charge of any kind whatsoever, including any interest or
penalty thereon or addition thereto, whether disputed or not.
-6-
<PAGE>
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to any Tax, including any schedule or
attachment thereto, and including any amendment thereof.
"Transfer Agreement" means the Option, Transfer and Registration Agreement
substantially in the form of Exhibit A.
---------
"USF Shares" means Buyer's common stock, par value $.01 per share.
"USF Shares Average Value" means the average (rounded to the nearest eighth
of a point) of the closing prices for USF Shares as reported by the New York
Stock Exchange for the 25 consecutive trading days ending on the sixth to last
trading day immediately preceding the Closing Date.
"WaterPro" means WaterPro Supplies Corporation, a Massachusetts
corporation.
1.02. Construction. As used herein, unless the context otherwise requires:
------------
(i) references to "Article" or "Section" are to an article or section hereof;
(ii) all "Exhibits" and "Schedules" referred to herein are to Exhibits and
Schedules attached hereto and are incorporated herein by reference and made a
part hereof; (iii) "include", "includes" and "including" are deemed to be
followed by "without limitation" whether or not they are in fact followed by
such words or words of like import and (iv) the headings of the various
articles, sections and other subdivisions hereof are for convenience of
reference only and shall not modify, define or limit any of the terms or
provisions hereof. As used herein, the term "to the best of the Company's
"knowledge" or words to terms similar thereto includes the knowledge of Mr.
Richard J. Klau and Mr. Christopher Pappo.
ARTICLE II
THE TRANSACTION
---------------
2.01. Sale and Purchase of Company Shares. Upon the terms and subject to
-----------------------------------
the conditions of this Agreement and in consideration of the Purchase Price,
Seller, as agent for itself and for the Company Stockholders, shall sell,
assign, transfer and deliver the Company Shares to Buyer, and Buyer shall
purchase from Seller and take delivery of the Company Shares, at the Closing,
free of all Encumbrances.
2.02. Purchase Price. The aggregate purchase price for the Company Shares
--------------
shall be $38.6 million (the "Purchase Price").
2.03. Closing. The consummation of the purchase and sale of the Company
-------
Shares and the other transactions contemplated hereby (the "Closing") shall take
place on October 25, 1996 or within 10 business days after all of the conditions
to Closing under Article VI are satisfied or waived, but in no event after
----------
November 30, 1996, at 10:00 a.m. local time at the offices of Buyer, or at such
other time, date or place as the parties agree (the "Closing Date").
-7-
<PAGE>
2.04. Payment. Upon the terms and subject to the conditions of this
-------
Agreement, at Closing, (i) Buyer shall deliver to Seller as agent for itself and
for the Company Stockholders, prorated among each Company Stockholder in
accordance with its Company Stockholder Percentage Ownership, certificates
representing that number of USF Shares (collectively, the "Purchase Price USF
Shares") equal to the quotient obtained by dividing (a) $38.6 million by (b) the
USF Shares Average Value; and (ii) Buyer shall deliver to Seller certificates
for that number of USF Shares (collectively, the "Debt Repayment USF Shares")
equal to the quotient obtained by dividing (y) the aggregate outstanding Insider
Company Debt as of the close of business on the date immediately preceding the
Closing by (z) the USF Shares Average Value; in each case (i) and (ii) together
with cash sufficient to pay for fractional shares. Upon delivery of the Debt
Repayment USF Shares, the Insider Company Debt shall be deemed paid in full.
2.05. Anti-Dilution Provisions. If between the date hereof and Closing the
------------------------
issued and outstanding USF Shares shall have been changed into a different
number of shares as a result of a stock split, reverse stock split, stock
dividend, recapitalization, reclassification or other similar transaction (a
"Stock Adjustment Event") with a record or effective date within such period,
the Purchase Price USF Shares and the Debt Repayment USF Shares shall be
adjusted proportionately.
2.06. Transfer Agreement. The Debt Repayment USF Shares and the Purchase
------------------
Price USF Shares shall be entitled to the benefits of and subject to the
restrictions contained in the Transfer Agreement.
ARTICLE
REPRESENTATIONS AND WARRANTIES
OF SELLER
---------
As an inducement to Buyer to enter into this Agreement and consummate the
transactions contemplated hereby, Seller represents and warrants to Buyer as
follows:
3.01. Organization. Each of Seller and the Company is a corporation duly
------------
organized, validly existing and in good standing under the laws of its
jurisdiction of organization, and has the corporate power and authority to own
or lease its properties, carry on its business as now conducted, enter into this
Agreement and the Other Agreements to which it is or is to become a party and
perform its obligations hereunder and thereunder.
3.02. Authorization; Enforceability. This Agreement and each Other
-----------------------------
Agreement to which Seller or the Company, or both, is a party have been duly
executed and delivered by and constitute the legal, valid and binding
obligations of such party, enforceable against it in accordance with their
respective terms. Each Other Agreement to which either Seller or the Company, or
both, is to become a party pursuant to the provisions hereof, when executed and
delivered by such party, will constitute the legal, valid and binding obligation
of such party, enforceable against such party in accordance with the terms of
such Other Agreement. All actions contemplated by this Section have been duly
and validly authorized by all necessary proceedings by Seller and the Company.
-8-
<PAGE>
3.03. Company Shares; Capitalization. The authorized capital stock of the
------------------------------
Company consists solely of 200,000 shares of common stock, $0.01 par value per
share, of which 50,000 shares are issued and outstanding and none is held in its
treasury. The Company Shares constitute all of the issued and outstanding shares
of capital stock of the Company. All of the Company Shares are owned of record,
legally, beneficially and exclusively by the Company Stockholders in the amounts
identified on Schedule 3.03. The Company Shares are free and clear of any and
-------------
all Encumbrances, and upon delivery of the Company Shares hereunder, Buyer will
acquire good and valid legal and exclusive title thereto, free and clear of any
and all Encumbrances. There are no Security Rights relating to any of the
Company Shares. All rights and powers to vote the Company Shares are held
exclusively by the Company Stockholders. All
-9-
<PAGE>
of the Company Shares are validly issued, fully paid and nonassessable, were not
issued in violation of the terms of any agreement or other understanding, and
were issued in material compliance with all applicable federal and state
securities or "blue sky" laws and regulations.
3.04. Subsidiaries and Investments. The Company does not own, nor has it
----------------------------
ever owned while under control of Seller, any shares of capital stock of or
other equity interest in any corporation, partnership, joint venture or other
entity.
3.05. Qualification. To the best of the Company's knowledge, the Company is
-------------
duly qualified and in good standing as a foreign corporation and is duly
authorized to transact business in each jurisdiction wherein the character of
the properties owned or leased by it or the nature of the activities conducted
by it makes such qualification and good standing necessary.
3.06. No Violation of Laws or Agreements; Consents. Except as set forth on
--------------------------------------------
Schedule 3.06 and to the best of the Company's knowledge, neither the execution
- --------------------------------------------------------
and delivery of this Agreement or any Other Agreement to which Seller or the
Company, or both, is or is to become a party, the consummation of the
transactions contemplated hereby or thereby nor the compliance with or
fulfillment of the terms, conditions or provisions hereof or thereof by Seller
or the Company, or both, will: (i) contravene any provision of the Governing
Documents of Seller or the Company, (ii) conflict with, result in a breach of,
constitute a material default or an event of default (or an event that might,
with the passage of time or the giving of notice or both, constitute a material
default or event of default) under any of the terms of, result in the
termination of, result in the loss of any right under, or give to any other
Person the right to cause such a termination of or loss under, any material
asset of Seller or the Company, including any Permit, Intellectual Property,
license, franchise, indenture, mortgage or any other contract, agreement or
instrument to which either Seller or the Company is a party or by which any of
their assets may be bound or affected, (iii) result in the creation, maturation
or acceleration of any material liability or obligation of Seller or the Company
(or give to any other Person the right to cause such a creation, maturation or
acceleration), (iv) violate any Law or violate any judgment or order of any
Governmental Body to which Seller or the Company is subject or by which any of
their respective assets may be bound or affected, or (v) result in the creation
or imposition of any Encumbrance upon any of the Company Shares or any asset of
Seller or the Company or give to any other Person any interest or right therein.
Subject to the expiration of the waiting period under the HSR Act, no consent,
approval or authorization of, or registration or filing with, any Person is
required in connection with the execution or delivery by Seller or the Company,
or both, of this Agreement or any of the Other Agreements to which either, or
both, is or is to become a party pursuant to the provisions hereof or the
consummation by Seller or the Company, or both, of the transactions contemplated
hereby or thereby.
3.07. Financial Information.
---------------------
(a) Records. The books of account and related records of the Company
-------
reflect accurately and in detail its assets, liabilities, revenues, expenses and
other transactions.
(b) Financial Statements. Attached as Schedule 3.07(b) are the audited
-------------------- ----------------
balance sheet,
-10-
<PAGE>
income statement and statement of cash flows for the Company as of the Balance
Sheet Date and for the period then ended, and attached hereto as Schedule
--------
3.07(b) are the unaudited interim balance sheet and income statement for the
- -------
Company at July 26, 1996 and for the period then ended (collectively, the
"Financial Statements"). Except as disclosed on Schedule 3.07(b), the Financial
----------------
Statements (i) are accurate, correct and complete in all material respects in
accordance with the books of account and records of the Company, (ii) have been
prepared in all material respects in accordance with GAAP on a consistent basis
throughout the indicated periods, except that the interim financial statements
contain no statement of cash flows, footnotes or year-end adjustments, and (iii)
present fairly in all material respects the financial condition, assets and
liabilities and results of operations of the Company at the Balance Sheet Date
and for the period then ended in accordance with GAAP on a consistent basis
throughout the indicated periods.
3.08. Undisclosed Liabilities. The Company has no material debt, obligation
-----------------------
or liability, absolute, fixed, contingent or otherwise, of any nature
whatsoever, whether due or to become due, including any unasserted claim,
whether incurred directly or by any predecessor thereto, and whether arising out
of any act, omission, transaction, circumstance, sale of goods or services,
state of facts or other condition, except: (i) those reflected or reserved
against on the Financial Statements; (ii) those not required under GAAP to be
reflected or reserved against in the Financial Statements that are expressly
quantified and set forth in the Contracts identified pursuant to Section 3.15;
------------
(iii) those disclosed on Schedule 3.08; and (iv) those of the same nature as
-------------
those set forth on the Financial Statements that have arisen in the ordinary
course of business of the Company after the Balance Sheet Date through the date
hereof, all of which have been consistent in amount and character with past
practice and experience, and none of which, individually or in the aggregate,
has had or will have, to the best of the Company's knowledge, a material adverse
effect on the business, financial condition or prospects of the Company and none
of which, to the best of the Company's knowledge, is a liability for breach of
contract or warranty or has arisen out of tort, infringement of any intellectual
property rights, or violation of Law or is claimed in any pending or threatened
legal proceeding. The representations and warranties contained in this Section
-------
3.09 do not apply to the consequences of events occurring prior to April 7,
- ----
1995, except in instances as to which the Company had knowledge of such events.
3.09. No Changes. Since July 26, 1996, the Company has conducted its
----------
business only in the ordinary course. Without limiting the generality of the
foregoing sentence, since July 26, 1996, there has not been any: (i) material
adverse change in the financial condition, assets, liabilities, net worth,
earning power, business or prospects of the Company; (ii) material damage or
destruction to any asset of the Company, whether or not covered by insurance;
(iii) strike or other labor trouble at the Company; (iv) creation of any
Encumbrance on any asset of the Company; (v) declaration or payment of any
dividend or other distribution on or with respect to or redemption or purchase
by the Company of any shares of capital stock of the Company, including any of
the Company Shares; (vi) increase in the salary, wage or bonus of any employee
of the Company, other than normal or routine increases; (vii) asset acquisition
or expenditure, including capital expenditure, in excess of $250,000 in the
aggregate, other than the purchase of inventory in the ordinary course of
business; (viii) change in any Company Plan; (ix) change in any method of
accounting; (x) payment to or transaction with any Related Party, which payment
-11-
<PAGE>
or transaction is not specifically disclosed on Schedule 3.l8; (xi)
-------------
disposition of any asset (other than inventory in the ordinary course of
business) for more than $250,000 in the aggregate or for less than fair market
value; (xii) payment, prepayment or discharge of any material liability other
than in the ordinary course of business or any failure to pay any liability when
due, other than in accordance with past practice; (xiii) write-offs or write-
downs of any assets of the Company in excess of $250,000 in the aggregate; (xiv)
creation, termination or amendment of, or waiver of any right under, any
material agreement of the Company; or (xv) agreement or commitment to do any of
the foregoing.
-12-
<PAGE>
3.10. Taxes.
-----
(a) Tax Returns; Payment. Since April 7, 1995, except as disclosed on
--------------------
Schedule 3.10(a), the Company has filed or caused to be filed on a timely basis,
- ----------------
or will file or cause to be filed on a timely basis, all Tax Returns that are
required to be filed by it prior to or on the Closing Date, pursuant to the Law
of each governmental authority with taxing power over it. All such Tax Returns
were or will be, as the case may be, materially correct and complete. The
Company has paid all Taxes, to the best of the Company's knowledge, that have
become due as shown on such Tax Returns or pursuant to any assessment received
as an adjustment to such Tax Returns, except (i) such Taxes, if any, as are
being contested in good faith and disclosed on Schedule 3.10, (ii) such Taxes
-------------
that are reserved, in material respects, against on the Financial Statements,
and (iii) Taxes accruing after the Balance Sheet Date that are not yet due.
Other than as set forth on Schedule 3.10(a), the Company is not currently the
----------------
beneficiary of any extension of time within which to file any Tax Return. To the
best of the Company's knowledge, no claim has been made by a taxing authority of
a jurisdiction where the Company does not file Tax Returns that it is or may be
subject to taxation in that jurisdiction. Without limiting the foregoing and to
the best of the Company's knowledge, the Company has no material liability for
any Tax except (x) Taxes disclosed on Schedule 3.10,(y) Taxes fully reserved on
-----------------
the Financial Statements, and (z) Taxes accrued after the Balance Sheet Date.
(b) Withholding. To the best of the Company's knowledge, since April 7,
-----------
1995, the Company has withheld and paid all Taxes required to have been withheld
and paid in connection with amounts paid or owing to any employee, independent
contractor, creditor, stockholder or other third party.
(c) Assessments. Except as disclosed on Schedule 3.10(c), there is no
----------- ----------------
pending, or, to the knowledge of Seller or the Company, threatened or
anticipated, assessment of any additional Tax relating to any period subsequent
to April 7, 1995 against the Company. The Company has not waived any statute of
limitations in respect of any Taxes or agreed to any extension of time with
respect to a Tax assessment or deficiency for any taxable period subsequent to
April 7, 1995. Except as set forth on Schedule 3.10, no Tax audit or examination
-------------
is now pending or currently in progress with respect to the Company.
(d) Other Matters. Since April 7, 1995, the Company has been a party to an
-------------
income tax sharing agreement as disclosed on Schedule 3.10 and none other. The
----------------------------
Company has not filed a consent under Code Section 341(f) concerning collapsible
corporations. The Company has not made any payment, nor is it obligated to make
any payment, nor is it a party to any agreement that under certain circumstances
could obligate it to make any payment, that will not be deductible under Code
Sections 280G or 162(m).
3.11. Inventory. All of the inventory owned by the Company is valued on the
---------
books and records of the Company and in the Financial Statements at lower of
cost or market, the cost thereof being determined on a weighted average cost
basis in accordance with GAAP. To the best of the Company's knowledge and
subject to reserves for inventory contained in the Financial Statements, (i)
none of the Company's inventory is obsolete, slow-moving, has been
-13-
<PAGE>
consigned to others or is on consignment from others and (ii) all inventory of
the Company is in good, merchantable and usable condition and is saleable in the
ordinary course of business within a reasonable time.
3.12. Receivables. The Company's books and records disclose all trade and
-----------
other accounts receivable of the Company ("Receivables") outstanding as of July
26, 1996 presented on an aged basis and separately identifies the name of each
account debtor and the total amount of each related Receivable. All Receivables,
whether reflected on the Financial Statements or created after the July 26,
1996, arose from bona fide sale transactions of the Company.
3.13. Condition of Assets; Title; Business. The Company is engaged in the
------------------------------------
Business and no other business. To the best of the Company's knowledge, the
buildings, fixtures, improvements, machinery, equipment, tools, furniture,
improvements and tangible Personal property of the Company, including those
reflected on the Financial Statements, are in good operating condition and
repair, normal wear and tear excepted, and are suitable for the purposes for
which they are used in the Business. The Company has good, marketable and
exclusive title to all of such assets shown on the Financial Statements and its
other assets which it uses and does not lease; all of such assets are reflected
on the Financial Statements or, under GAAP, are not required to be reflected
thereon; such owned assets include all assets that are necessary for use in and
operation of the Business; and, except as disclosed on Schedule 3.13, none of
-------------
such assets is subject to any Encumbrance or impairment, whether due to its
condition, utility, collectability or otherwise.
3.14. No Pending Litigation or Proceedings. Except as set forth in Schedule
------------------------------------ --------
3.14, no action, suit, investigation, claim or proceeding of any nature or kind
- ----
whatsoever, whether civil, criminal or administrative, by or before any
Governmental Body or arbitrator ("Litigation") is pending or, to the knowledge
of Seller and the Company, threatened against or affecting the Company, the
Business, any of the Company's assets, any of the Company Shares, or any of the
transactions contemplated by this Agreement or any Other Agreement, and there is
no basis for any Litigation. Except for credit and collection matters in which
the Company is plaintiff and except as disclosed on Schedule 3.14, the Company
-------------
has not been a party to any other Litigation since April 7, 1995. There is
presently no outstanding judgment, decree or order of any Governmental Body
against or affecting the Company, the Business, any of the Company's assets, any
of the Company Shares, or any of the transactions contemplated by this Agreement
or any Other Agreement. Except for credit and collection matters, the Company
does not have pending any Litigation against any third party.
3.15. Contracts; Compliance. Disclosed on Schedule 3.15. 3.17. 3.21. 3.22
--------------------- -------------------------------
or 3.23 is a brief description of each contract, lease, indenture, mortgage,
- -------
instrument, commitment or other agreement, arrangement or understanding, oral or
written, formal or informal, to which the Company is a party or by which it or
its assets may be affected and that (i) is material to the Business or the
Company's assets or operations, individually or in the aggregate, (ii) involves
the purchase, sale or lease of any asset, materials, supplies, inventory or
services in excess of $250,000 per year, (iii) has an unexpired term of more
than six months from the date hereof, taking into account the effect of any
renewal options, (iv) relates to the borrowing or lending of
-14-
<PAGE>
any money or guarantee of any obligation in excess of $250,000, (v) limits the
right of the Company to compete in any line of business or otherwise restricts
any right the Company may have, (vi) is an employment or consulting contract
involving payment of compensation and benefits in excess of $40,000 per year, or
(vii) was not entered into in the ordinary course (each, a "Contract" and
collectively, the "Contracts"). Each Contract is a legal, valid and binding
obligation of the Company and is in full force and effect. The Company and each
other party to each Contract has substantially performed all obligations
required to be performed by it thereunder and is not in material breach or
default, and is not alleged to be in material breach or default, in any respect
thereunder, and no event has occurred and no condition or state of facts exists
(or would exist upon the giving of notice or the lapse of time or both) that
would become or cause a material breach, default or event of default thereunder,
would give to any Person the right to cause such a termination or would cause an
acceleration of any obligation thereunder.
3.16. Permits; Compliance With Law. To the best of the Company's knowledge
----------------------------
and except as disclosed on Schedule 3.16: (a) the Company holds all permits,
-------------
certificates, licenses, franchises, privileges, approvals, registrations and
authorizations required under any applicable Law or otherwise advisable in
connection with the operation of its assets and Business (each, a "Permit" and
collectively, "Permits"); (b) each Permit is valid, subsisting and in full force
and effect; (c) the Company is in material compliance with and has fulfilled and
performed its obligations under each Permit, and no event or condition or state
of facts exists (or would exist upon the giving of notice or lapse of time or
both) that could constitute a material breach or default under any Permit; (d)
the Company has not been since April 7, 1995 nor is it currently in violation of
any Law and has received no notice of any violation of Law, and no event has
occurred or condition or state of facts exists that could give rise to any such
violation which would have a material adverse effect; and (e) the Company has
not received any notice of non-renewal of any Permit.
3.17. Real Property. Schedule 3.17 discloses and summarizes all real
----------------------------
properties currently owned, used or leased by the Company or in which the
Company has an interest (collectively, the "Real Property") and identifies the
record title holder or lessor of all of the Real Property. The Company has good
and marketable fee simple title to all Real Property shown as owned by it on
Schedule 3.17, free and clear of all Encumbrances, other than (i) easements,
- -------------
covenants, rights-of-way and other encumbrances or restrictions of record, (ii)
zoning restrictions, (iii) liens for current taxes not yet due and (iv) such
other Encumbrances as do not either adversely affect the value of the Real
Estate or prohibit or materially interfere with the operations of the Business.
To the best of the Company's knowledge, the Company has the right to quiet
enjoyment of all Real Property in which it holds a leasehold interest for the
full term, including all renewal rights, of the lease or similar agreement
relating thereto. Copies of all title insurance policies written in favor of the
Company and all surveys relating to the Real Property owned by the Company have
been delivered to Buyer. Except as shown on such surveys and to the best of the
Company's knowledge, all structures and other improvements on all Real Property
owned by the Company are within the lot lines and do not encroach on the
properties of any other Person. The Company has not received any written notice
that its use and operation of any Real Property does not conform to all
applicable building, zoning, safety and subdivision Laws, Environmental Laws and
other Laws, and any restrictive covenants and restrictions and
-15-
<PAGE>
conditions affecting title. Except as shown on such surveys and in Schedule
--------
3.17, the Company has not received any written or oral notice of assessments for
- ----
public improvements or condemnation against any Real Property.
3.18. Transactions With Related Parties. No Related Party is or has been
---------------------------------
since April 7, 1995 a party to any transaction, agreement or understanding with
the Company except pursuant to arrangements disclosed on Schedule 3.18 and
-------------
except for dividends properly reflected as such in the Financial Statements.
Except as disclosed on Schedule 3.18, no Related Party uses any assets of the
-------------
Company except directly in connection with the Business, and no Related Party
owns any asset used in the Business. Except as disclosed on Schedule 3.18, no
-------------
Related Party has any claim of any nature, including any inchoate claim, against
the Company, and the Company has no claim of any nature, including any inchoate
claim, against any Related Party. Except as disclosed on Schedule 3.18, as
-------------
otherwise expressly provided hereby or by any Other Agreement or as otherwise
may be mutually agreed after Closing, (i) no Related Party will at any time
after Closing for any reason, directly or indirectly, be or become entitled to
receive any payment or transfer of money or other property of any kind from the
Company, and (ii) the Company will not at any time after Closing for any reason,
directly or indirectly, be or become subject to any obligation to any Related
Party.
3.19. Labor Relations. To the best of the Company's knowledge, the
---------------
relations of the Company with its employees are good. Except as disclosed on
Schedule 3.19, no employee of the Company is represented by any union or other
- -------------
labor organization. No representation election, arbitration proceeding,
grievance, labor strike, dispute, slowdown, stoppage or other labor trouble is
pending or, to the knowledge of the Company, threatened against, involving,
affecting or potentially affecting the Company. No complaint against the Company
is pending or, to the knowledge of the Company, threatened before the National
Labor Relations Board, the Equal Employment Opportunity Commission or any
similar state or local agency, by or on behalf of any employee of the Company.
The Company has no contingent liability for sick leave, vacation time, severance
pay or any similar item not fully reserved on the Financial Statements, unless
under GAAP any such item is not required to be reserved. To the best of the
Company's knowledge, the Company has no contingent liability for any
occupational disease of any of its employees, former employees or others. To the
best of the Company's knowledge, neither the execution and delivery of this
Agreement, the performance of the provisions hereof nor the consummation of the
transactions contemplated hereby will trigger any severance pay obligation under
any contract or under any Law.
3.20. Intentionally left blank
3.21. Insurance. Schedule 3.21 discloses all insurance policies with
--------- -------------
respect to which the Company is the owner, insured or beneficiary. Such policies
are reasonable, in both scope and amount, in light of the risks attendant to the
Business and are substantially comparable in coverage to policies customarily
maintained by others engaged in similar lines of business. To the best of the
Company's knowledge, except as disclosed in Schedule 3.21, the Company will not
-------------
have any liability after the Closing for retrospective or retroactive premium
adjustments. Since April 7, 1995, all insurance policies covering products
liability and general liability
-16-
<PAGE>
maintained by or for the benefit of the Company are "occurrence" policies and
not "claims made" policies. Schedule 3.21 discloses the manner in which the
-------------
Company provides coverage for workers' compensation claims.
3.22. Intellectual Property Rights. Schedule 3.22 discloses all of the
---------------------------- -------------
trademark and service mark rights, applications and registrations, trade names,
fictitious names, service marks, logos and brand names, copyrights, copyright
applications, letters patent, patent applications and licenses of any of the
foregoing owned or used by the Company in or applicable to the Business. To the
best of the Company's knowledge and in its opinion, the Company has the entire
right, title and interest in and to, or has the exclusive perpetual royalty-free
right to use, the intellectual property rights disclosed on Schedule 3.22 and
-------------
all other processes, know-how, show-how, formulae, trade secrets, inventions,
discoveries, improvements, blueprints, specifications, drawings, designs, and
other proprietary rights necessary or applicable to or advisable for use in the
Business ("Intellectual Property"), free and clear of all Encumbrances. Schedule
--------
3.22 separately discloses all Intellectual Property under license. To the best
- ----
of the Company's knowledge and in its opinion, the Intellectual Property is
valid and not the subject of any interference, opposition, reexamination or
cancellation. To the best of the Company's knowledge, no Person is infringing
upon nor has any Person misappropriated any Intellectual Property. To the best
of the Company's knowledge and in its opinion, except as disclosed on Schedule
--------
3.22, the Company is not infringing upon the intellectual property rights of any
- ----
other Person.
-17-
<PAGE>
3.23. Employee Benefits.
-----------------
(a) Benefit Plans; Company Plans. Schedule 3.23 discloses all written and
---------------------------- -------------
unwritten "employee benefit plans" within the meaning of Section 3(3) of ERISA,
and any other written and unwritten profit sharing, pension, savings, deferred
compensation, fringe benefit, insurance, medical, medical reimbursement, life,
disability, accident, post-retirement health or welfare benefit, stock option,
stock purchase, sick pay, vacation, employment, severance, termination or other
plan, agreement, contract, policy, trust fund or arrangement (each, a "Benefit
Plan"), whether or not funded and whether or not terminated, (i) maintained or
sponsored by the Company since April 7, 1995, or (ii) with respect to which the
Company (or Seller with respect to the Company) has or may have liability or is
obligated to contribute, or (iii) that otherwise covers any of the current or
former employees of the Company or their beneficiaries, or (iv) as to which any
such current or former employees or their beneficiaries participated or were
entitled to participate or accrue or have accrued any rights thereunder (each, a
"Company Plan"). To the best of the Company's knowledge, the Company has no
liability for any Benefit Plan covering its employees based on the consequence
of events occurring after April 7, 1995.
(b) Company Group Matters; Funding. No member of the Company Group has any
------------------------------
obligation to contribute to or any direct or indirect liability under or with
respect to any Benefit Plan of the type described in Sections 4063 and 4064 of
ERISA or Section 413(c) of the Code. The Company does not have any liability,
and after the Closing the Company will not have any liability, with respect to
any Benefit Plan of any other member of the Company Group, whether as a result
of delinquent contributions, distress terminations, fraudulent transfers,
failure to pay premiums to the PBGC or otherwise, and based on circumstances
existing from and after April 7, 1995 up to and including the date hereof and
the Closing Date, the Company does not have any withdrawal liability. No
accumulated funding deficiency (as defined in Section 302 of ERISA and Section
412 of the Code) exists nor has any funding waiver from the IRS been received or
requested with respect to any Company Plan or any Benefit Plan of any member of
the Company Group and no excise or other Tax is due or owing because of any
failure to comply with the minimum funding standards of the Code or ERISA with
respect to any of such plans.
(c) Compliance. Each of the Company Plans and all related trusts, insurance
----------
contracts and funds have been created, maintained, funded and administered in
all respects in compliance, in all material respects, with all applicable Laws
and in compliance, in all material respects, with the plan document, trust
agreement, insurance policy or other writing creating the same or applicable
thereto. No Company Plan is or is proposed to be under audit or investigation,
and no completed audit of any Company Plan has resulted in the imposition of any
Tax, fine or penalty.
(d) Qualified Plans. Schedule 3.23 discloses each Company Plan that
--------------- -------------
purports to be a qualified plan under Section 401(a) of the Code and exempt
from United States federal income tax under Section 501(a) of the Code (a
"Qualified Plan"). With respect to each Qualified Plan, a determination letter
(or opinion or notification letter, if applicable) has been received or is
pending from the IRS that such plan is qualified under Section 401(a) of the
Code and exempt from federal income tax under Section 501(a) of the Code. No
Qualified Plan has been amended since the date of the most recent such letter.
To the best of the Company's knowledge, no
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<PAGE>
member of the Company Group, nor any fiduciary of any Qualified Plan, nor any
agent of any of the foregoing, has done anything that would adversely affect the
qualified status of a Qualified Plan or the qualified status of any related
trust.
(e) Defined Benefit Plans. Schedule 3.23 also discloses each Company Plan
------------------------------------
that is a defined benefit plan as defined in Section 3(35) of ERISA (a "Defined
Benefit Plan"). The present value of vested and nonvested accrued benefits under
each Defined Benefit Plan does not exceed the present fair market value of the
assets of such plan, based on the actuarial assumptions and methodology used for
funding purposes (i) as set forth in such plan's most recent actuarial report;
(ii) as required by the PBGC on a termination basis; and (iii) as set forth in
FASB 87. From and after April 7, 1995, no Defined Benefit Plan sponsored by any
member of or covering any employee of the Company has been terminated or
partially terminated. To the best of the Company's knowledge, no event has
occurred and no condition has existed that could constitute grounds under
Section 4042 of ERISA for termination of or appointment of a trustee to
administer any Defined Benefit Plan. No member of the Company Group has
transferred, in whole or in part, a Defined Benefit Plan to a corporation that
was at the time of transfer a member of a different controlled group of
corporations (within the meaning of Section 4001(a)(14) of ERISA) than the
transferor. To the best of the Company's knowledge, the Company has no liability
for any Company Plan that is not accrued on the Financial Statements.
(f) Multiemployer Plans. Except as disclosed in Schedule 3.23, no Company
------------------- -------------
Plan is a multiemployer plan within the meaning of Section 3(37) or Section
4001(a)(3) of ERISA (a "Multiemployer Plan"). The Company does not and not have
any withdrawal liability to or under any Multiemployer Plan. No Company Plan
covers any employees of any member of the Company Group in any foreign country
or territory.
(g) Prohibited Transactions; Fiduciary Duties; Post-Retirement Benefits. No
-------------------------------------------------------------------
prohibited transaction (within the meaning of Section 406 of ERISA and Section
4975 of the Code) with respect to any Company Plan exists or has occurred that
could subject the Company to any liability or Tax under Part 5 of Title I of
ERISA or Section 4975 of the Code. Neither the Company, nor any administrator or
fiduciary of any Company Plan, nor any agent of any of the foregoing, has
engaged in any transaction or acted or failed to act in a manner that will
subject the Company to any liability for a breach of fiduciary or other duty
under ERISA or any other applicable Law. With the exception of the requirements
of Section 4980B of the Code, no postretirement benefits are provided under any
Company Plan that is a welfare benefit plan as described in ERISA Section 3(1).
3.24. Environmental Matters. Except as disclosed in Schedule 3.24:
--------------------- -------------
(a) Compliance; No Liability. To the best of the Company's knowledge, the
------------------------
Company has operated the Business and each parcel of Real Property in
compliance, in all material respects, with all applicable Environmental Laws. To
the best of the Company's knowledge, the Company is not subject to any
liability, penalty or expense (including legal fees) and will not hereafter
suffer or incur any loss, liability, penalty or expense (including legal fees)
by virtue of any violation of any Environmental Law occurring prior to the
Closing, any environmental
-19-
<PAGE>
activity conducted on or with respect to any property at or prior to the Closing
or any environmental condition existing on or with respect to any property at or
prior to the Closing, in each case whether or not the Company permitted or
participated in such act or omission.
(b) Treatment; CERCLIS. The Company has not treated, stored, recycled or
------------------
disposed of any Regulated Material on any real property. To the best of the
Company's knowledge, there has been no release of and there is not present any
Regulated Material at, on or under any Real Property. To the best of the
Company's knowledge, the Company has not transported any Regulated Material or
arranged for the transportation of any Regulated Material to any location that
is listed or proposed for listing on the National Priorities List pursuant to
Superfund, on CERCLIS or any other location that is the subject of federal,
state or local enforcement action or other investigation that may lead to claims
against the Company for cleanup costs, remedial action, damages to natural
resources, to other property or for Personal injury including claims under
Superfund. To the best of the Company's knowledge, none of the Real Property is
listed or, to the knowledge of Seller or the Company, proposed for listing on
the National Priorities List pursuant to Superfund, CERCLIS or any state or
local list of sites requiring investigation or cleanup.
(c) Notices; Existing Claims; Certain Regulated Materials; Storage Tanks.
--------------------------------------------------------------------
The Company has not received any request for information, notice of claim,
demand or other notification that it is or may be potentially responsible with
respect to any investigation, abatement or cleanup of any threatened or actual
release of any Regulated Material. The Company is not required to place any
notice or restriction relating to the presence of any Regulated Material at any
Real Property or in any deed to any Real Property. The Company has provided to
Buyer a list of all sites to which the Company has transported any Regulated
Material for recycling, treatment, disposal, other handling or otherwise. There
has been no past, and there is no pending or contemplated, claim by the Company
under any Environmental Law or Laws based on actions of others that may have
impacted on the Real Property, and the Company has not entered into any
agreement with any Person regarding any Environmental Law, remedial action or
other environmental liability or expense. To the best of the Company's
knowledge, all storage tanks located on the Real Property, whether underground
or aboveground, are disclosed on Schedule 3.24, and all such tanks and
-------------
associated piping are in sound condition and are not leaking and have not
leaked.
3.25. Customer Relations. There exists no condition or state of facts or
------------------
circumstances involving the Company's customers, suppliers, distributors or
sales representatives that the Company can reasonably foresee could materially
and adversely affect the Business after the Closing Date.
3.26. Finders' Fees. Neither Seller nor the Company nor any of their
-------------
respective officers, directors or employees has employed any broker or finder or
incurred any liability for any brokerage fee, commission or finders' fee in
connection with any of the transactions contemplated hereby or by any Other
Agreement.
3.27. Insider Company Debt. The Insider Company Debt outstanding as of
--------------------
July 26,
-20-
<PAGE>
1996 is equal to $63,586,920, consisting of $62,278,895 in principal amount,
$361,727 in accrued interest and $946,298 in accrued income taxes, subject to
the provisions of Section 5.01(b) hereof permitting amendment to the Revolving
---------------
Credit Note evidencing said indebtedness as set forth on Schedule 3.27.
-------------
3.28. Securities Matters. Each of the Company Stockholders is an
------------------
"accredited investor" within the meaning of Rule 501 of the Securities Act.
Seller is acquiring the Debt Repayment USF Shares and the Company Stockholders
are acquiring the Purchase Price USF Shares not with a view to or in connection
with any distribution of such shares.
3.29. Disclosure. To the best knowledge of the Company, none of the
----------
representations or warranties of Seller and the Company contained herein and
none of the information contained in the Schedules referred to in Article III is
-----------
false or misleading in any material respect or omits to state a fact herein or
therein necessary to make the statements herein or therein not misleading in any
material respect.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
As an inducement to Seller to enter into this Agreement and consummate the
transactions contemplated hereby, Buyer represents and warrants to Seller as
follows:
4.01. Organization. Buyer is a corporation duly organized, validly
------------
existing and in good standing under the laws of its jurisdiction of
organization, and has the corporate power and authority to own or lease its
properties, carry on its business, enter into this Agreement and the Other
Agreements to which it is or is to become a party and perform its obligations
hereunder and thereunder.
4.02. Authorization; Enforceability. This Agreement and each Other
-----------------------------
Agreement to which Buyer is a party have been duly executed and delivered by and
constitute the legal, valid and binding obligations of Buyer, enforceable
against it in accordance with their respective terms. Each Other Agreement to
which Buyer is to become a party pursuant to the provisions hereof, when
executed and delivered by Buyer, will constitute the legal, valid and binding
obligation of Buyer, enforceable against Buyer in accordance with the terms of
such Other Agreement. All actions contemplated by this Section have been duly
and validly authorized by all necessary proceedings by Buyer.
4.03. No Violation of Laws; Consents. Neither the execution and delivery
------------------------------
of this Agreement or any Other Agreement to which Buyer is or is to become a
party, the consummation of the transactions contemplated hereby or thereby nor
the compliance with or fulfillment of the terms, conditions or provisions hereof
or thereof by Buyer will: (i) contravene any provision of the Governing
Documents of Buyer, or (ii) violate any Law or any judgment or order of any
Governmental Body to which Buyer is subject or by which any of its assets may be
bound or affected. No consent, approval or authorization of, or registration or
filing with, any Person is required in connection with the execution or delivery
by Buyer of this Agreement or any of the
-21-
<PAGE>
Other Agreements to which Buyer is or is to become a party pursuant to the
provisions hereof or the consummation by Buyer of the transactions contemplated
hereby or thereby, except (A) compliance under the HSR Act, (B) the approval, if
required, of FNB in connection with Buyer's credit facility with FNB, (C)
listing of the Purchase Price USF Shares and Company Debt Repayment USF Shares
on the New York Stock Exchange, and (D) registration with the Securities and
Exchange Commission as contemplated by the Transfer Agreement.
4.04. No Pending Litigation or Proceedings. No Litigation is pending or,
------------------------------------
to the knowledge of Buyer, threatened against or affecting Buyer in connection
with any of the transactions contemplated by this Agreement or any Other
Agreement to which Buyer is or is to become a party. There is presently no
outstanding judgment, decree or order of any Governmental Body against or
affecting Buyer in connection with the transactions contemplated by this
Agreement or any Other Agreement to which Buyer is or is to become a party.
4.05. Capitalization. Buyer's authorized capital consists of (i)
--------------
75,000,000 USF Shares, of which 28,118,782 shares were issued and outstanding as
of March 31, 1996, and (ii) 3,000,000 shares of Preferred Stock, none of which
is issued and outstanding.
4.06. SEC Filings. Buyer has delivered or made available to Seller all
-----------
material filings made by USF under the Securities Exchange Act of 1934 since the
end of its most recent fiscal year.
4.07. Authorization of USF Shares. The issuance of the Purchase Price USF
---------------------------
Shares and the Debt Repayment USF Shares has been duly authorized by Buyer's
Board of Directors, and upon issuance and delivery under the terms hereof, all
such shares shall be duly authorized by all necessary corporate action, validly
issued, fully paid and nonassessable.
4.08. Finders' Fees. Neither Buyer nor any of its officers, directors or
-------------
employees has employed any broker or finder or incurred any liability for any
brokerage fee, commission or finders' fee in connection with any of the
transactions contemplated hereby.
ARTICLE V
CERTAIN COVENANTS
-----------------
5.01. Conduct of Business Pending Closing. From and after the date hereof
-----------------------------------
and until the Closing Date, unless Buyer shall otherwise consent in writing, the
Company shall, and Seller shall cause the Company to, conduct its affairs as
follows:
(a) Ordinary Course; Compliance. The Business shall be conducted only in
---------------------------
the ordinary course and consistent with past practice. The Company shall
maintain its property, equipment and other assets consistent with past practice
and shall comply in a timely fashion with the provisions of all Contracts and
Permits and its other agreements and commitments. The Company shall use its best
efforts to keep its business organization intact, keep available the services of
its present employees and preserve the goodwill of its suppliers, customers and
others having business relations with it. The Company shall maintain in full
force and effect the
-22-
<PAGE>
policies of insurance disclosed on Schedule 3.21, subject only to variations
-------------
required by the ordinary operations of the Business, or else shall obtain, prior
to the lapse of any such policy, substantially similar coverage with insurers of
recognized standing.
(b) Transactions. The Company shall not: (i) amend its Governing
------------
Documents; (ii) change its authorized or issued capital stock or issue any
Security Rights with respect to shares of its capital stock; (iii) enter into
any contract or commitment the performance of which may extend beyond the
Closing, except those made in the ordinary course of business, the terms of
which are consistent with past practice; (iv) enter into any employment or
consulting contract or arrangement that is not terminable at will and without
penalty or continuing obligation; (v) fail to pay any Tax or any other liability
or charge when due, other than charges contested in good faith by appropriate
proceedings; (vi) make, change or revoke any Tax election or make any agreement
or settlement with any taxing authority; (vii) take any action that is
reasonably likely to result in the occurrence of any event described in Section
-------
3.09; or (viii) take any action or omit to take any action that will cause a
- ----
breach or termination of any Contract, other than termination by fulfillment of
the terms thereunder. The foregoing to the contrary notwithstanding, the Company
shall be permitted to amend the terms of the Insider Company Debt with the prior
consent of Buyer and on terms mutually acceptable to the parties.
(c) Access, Information and Documents. Seller and the Company shall give
---------------------------------
to Buyer and to Buyer's employees and representatives (including accountants,
actuaries, attorneys, environmental consultants and engineers) access during
normal business hours to all of the properties, books, Tax Returns, contracts,
commitments, records, officers, Personnel and accountants (including independent
public accountants and their audit workpapers concerning the Company) of the
Company and shall furnish to Buyer all such documents and copies of documents
and all information with respect to the properties, liabilities and affairs of
the Company as Buyer may reasonably request.
5.02. Monthly Financial Statements. The Company shall promptly deliver to
----------------------------
Buyer copies of any monthly, balance sheet, income statement and statement of
cash flow of the Company for each such period after July 26, 1996 through the
Closing Date. Such financial statements shall be in conformity with GAAP,
consistently applied, and shall fairly present, in all material respects, the
financial position and results of operations of the Company as at the dates and
for the periods indicated. The delivery to Buyer of such financial statements
shall constitute Seller's representation and warranty to Buyer that such
financial statements present fairly in all material respects the financial
position, assets and liabilities of the Company as of their respective dates and
the results of their operations and changes in financial position for the
periods covered thereby in accordance with GAAP, consistently applied (excepting
period-end accruals and footnotes). Such representation and warranty shall be
deemed to have been made under Article III.
-----------
5.03. Acquisition Proposals. Neither Seller nor the Company shall (nor
---------------------
shall Seller permit any of their Affiliates to) directly or indirectly, solicit,
initiate or encourage any inquiries or the making of any proposals from, engage
or participate in any negotiations or discussions with, provide any confidential
information or data to, or enter into (or authorize) any agreement
-23-
<PAGE>
or agreement in principle with any Person or announce any intention to do any of
the foregoing, with respect to any offer or proposal to acquire all or any
substantial part of the assets, properties, or the Business of the Company or
the Company Shares, whether by merger, purchase of capital stock or assets or
otherwise.
5.04. Notification of Certain Matters. Each party shall give prompt notice
-------------------------------
to the other parties hereto of: (i) any event or circumstance with regard to
such party that has resulted or may result in any representation or warranty of
such party made herein being untrue in any material respect or in the failure of
such party to satisfy any of its conditions specified in Article VI, or (ii) any
----------
event which, so far as reasonably can be foreseen at the time of its occurrence,
is reasonably likely to result in any material adverse effect on such party.
Each party hereto shall give prompt notice to the other parties hereto of any
notice or other communication from any third party alleging that the consent of
such third party not disclosed herein is or may be required in connection with
the transactions contemplated by this Agreement.
5.05. Publicity. Seller and Buyer shall not issue any press release or
---------
otherwise make any announcements to the public or the employees of the Company
with respect to this Agreement without the prior written consent of the other,
except as required by Law. In each instance, all such public announcements shall
be mutually acceptable to the parties. This Section shall expire on the 10th day
after the Closing Date.
5.06. Fulfillment of Agreements. Each party hereto shall use its best
-------------------------
efforts to cause all of those conditions to the obligations of the other under
Article VI that are not beyond its reasonable control to be satisfied on or
- ----------
prior to the Closing and shall use its best efforts to take, or cause to be
taken, all action 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. Without limiting the effect of the foregoing, each party hereto
shall, and Seller shall cause the Company to, use its best efforts to give or
obtain, as promptly as practicable, all Required Authorizations required to be
given or obtained by it, respectively, to permit the consummation of the
transactions contemplated by this Agreement and to realize the respective
benefits to each party contemplated hereby. Without limiting the generality of
the foregoing, Seller shall cause the Company to use its best efforts to obtain
all approvals or consents of any Person needed in order that the Contracts
continue in full force and effect under the same terms and conditions currently
in effect following the consummation of the transactions contemplated by the
Agreement.
5.07. The HSR Act. Without limiting the effect of Section 5.06, the parties
----------- ------------
hereto shall file promptly with the Federal Trade Commission notifications
required under the HSR Act. The parties hereto shall not intentionally or
negligently delay submission of information requested by the Federal Trade
Commission or the Antitrust Division of the Department of Justice under the HSR
Act and shall use their respective best efforts promptly to supply, or cause to
be supplied, such information and shall use their respective best efforts to
obtain early termination of the applicable waiting period.
5.08. Covenant Not to Compete.
-----------------------
-24-
<PAGE>
(a) Covenant. Except as hereinafter provided, for a period of thirty months
--------
from and after the Closing Date, Seller shall not, directly or indirectly, own,
manage, operate, join, control or participate in the ownership, management,
operation or control of, or be connected as an officer, employee, stockholder,
partner or otherwise with, (i) any business conducting business under any name
similar to the name of Company or Buyer, or (ii) any business which directly or
indirectly competes with the Business of the Company in the United States;
provided, however, that the foregoing covenant shall not apply to (Y) ownership
interests of Seller or any of its Affiliates in the common stock of Buyer or in
the common stock or assets of any other entity whose common stock was or is
publicly traded and whose business may be deemed competitive with the Company,
and (Z) conduct of business in the usual and ordinary course as presently
conducted by Seller and its Affiliates (other than the Company), including the
making of acquisitions and other growth of such business on a consistent basis
(i.e., not including with respect to any acquired entity more than 33% of its
revenue from any activity in which the Business is engaged) which may be deemed
competitive with the Company.
(b) Enforcement. The restrictive covenant contained in this Section is a
-----------
covenant independent of any other provision of this Agreement and the existence
of any claim that Seller may allege against any other party to this Agreement,
whether based on this Agreement or otherwise, shall not prevent the enforcement
of this covenant. Seller agrees that Buyer's remedies at law for any breach or
threat of breach by Seller of the provisions of this Section will be inadequate,
and that Buyer shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Section and to enforce specifically the terms
and provisions hereof, in addition to any other remedy to which Buyer may be
entitled at law or equity. In the event of litigation regarding the covenant not
to compete, the prevailing party in such litigation shall, in addition to any
other remedies the prevailing party may obtain in such litigation, be entitled
to recover from the other party its legal fees and out of pocket costs incurred
by such party in enforcing or defending its rights hereunder. The length of time
for which this covenant not to compete shall be in force shall not include any
period of violation or any other period required for litigation during which
Buyer seeks to enforce this covenant. Should any provision of this Section be
adjudged to any extent invalid by any competent tribunal, such provision will be
deemed modified to the extent necessary to make it enforceable.
5.09 Income Tax Returns; Section 338(h)(10) Election; Liability for Income
---------------------------------------------------------------------
Taxes. For purposes of this section (i) "Income Taxes" shall mean all Federal,
- -----
state, and local income or franchise taxes and assessments, including all
interest, penalties and additions imposed with respect to such amounts, (ii)
"Seller Consolidated Returns" shall mean all income or franchise tax returns,
forms and reports required to be filed for periods ending on or before the
Closing Date in which the Company is included as a member of Seller's
consolidated group, and (iii) "Separate Company Returns" is defined in section
5.09(c).
-25-
<PAGE>
(a) Buyer intends to make an election pursuant to Section 338(g) of the
Code with respect to the Company Shares purchased hereunder (the "Section 338
Election"). Seller shall join with Buyer in the timely filing of a joint
election pursuant to Section 338(h)(10) of the Code under which, for federal
(and for certain states) income tax purposes, the sale of the Company Shares is
treated as if it were a sale of all of the assets of such Company in a single
transaction on the Closing Date, with the Company being treated as a member of
Seller's consolidated group with respect to such sale. Seller and Buyer agree to
cooperate fully in order to make such election pursuant to Section 338(h)(10)
valid, including, but not limited to, the filing of Form 8023-A and any
accompanying statements or schedules that may be required on a timely basis. The
allocation of Buyer's "adjusted grossed-up basis" (within the meaning of Treas.
Reg. Sec. 1.338(b)-l(c)) among the tangible and intangible assets of the Company
shall be mutually determined by the parties within 30 days after the Closing
Date. Such allocation shall be used by Seller, Buyer, and the Company for
purposes of allocating the "deemed sale price" (as described in Treas. Reg. Sec.
1.338(h)(10)-1(f)(2)(ii)), and Seller, Buyer, and the Company shall not file any
tax return or schedule that is inconsistent with such allocation.
(b) Seller shall timely prepare and file with the appropriate authorities
all Seller Consolidated Returns or amendments thereof (including, without
limitation, Federal change reports filed with states). Seller shall promptly pay
all Income Taxes due with respect to Seller Consolidated Returns, including the
tax liability occasioned by a Section 338 Election. Seller hereby indemnifies
Buyer against all liability for Income Taxes due on Seller Consolidated Returns,
including without limitation, any Income Taxes due as a result of examination
adjustments made by the Internal Revenue Service or by the applicable state or
local taxing authorities.
(c) With respect to all jurisdictions with which Company is required to
file income or franchise tax returns, forms and reports on a separate company
basis, Buyer and Seller agree to file all such returns on the basis that the
relevant taxable period ended as of the close of business on the Closing Date.
Seller shall timely prepare and file all such separate company income or
franchise tax returns, forms and reports for periods beginning before and ending
on or before the Closing Date (such returns hereinafter referred to as "Company
Separate Returns"). Buyer shall file all such separate company income or
franchise returns, forms and reports for all other periods (such returns
hereinafter referred to as "Buyer Separate Returns"). Income, gains, deductions
and losses attributable to a Section 338 Election and reportable to separate
company jurisdictions shall be included in Buyer Separate Returns, and Buyer
shall be solely responsible for the resulting tax liability. Seller shall
promptly pay all Income Taxes due with respect to Company Separate Returns,
other than the tax liability occasioned by a Section 338 Election. Seller hereby
indemnifies Buyer against all liability for Income Taxes due on Company Separate
Returns, including without limitation, any Income Taxes due as a result of
examination adjustments made by the applicable state or local taxing
authorities, other than the tax liability occasioned by a Section 338 Election.
(d) Seller shall have full responsibility for and control over (including
the power to settle or litigate) any audit or other proceeding relating to a
Seller Consolidated Return or Company Separate Return. If Buyer or the Company
receives notice of the commencement of any such
-26-
<PAGE>
audit or proceeding, it shall promptly inform Seller thereof in writing. Any
failure to promptly give such notice will relieve Seller of liability hereunder
to the extent that such failure adversely affects the ability of Seller to
defend its interests with respect thereto. If Sellers receive notice of the
commencement of an audit or proceeding involving an income or franchise tax
return for a period which includes the Company, other than a Seller Consolidated
Return or Company Separate Return, it shall promptly inform Buyer or the Company
thereof in writing.
(e) With respect to any Seller Consolidated Return or Company Separate
Return, any refunds of income Taxes, other than a refund attributable solely to
a loss carryback from a taxable period beginning on or after and ending on or
after the Closing Date, shall be for the account of Seller.
(f) Buyer and Seller recognize that each of them may need access from time
to time, after the Closing Date, to certain tax records and information held by
Seller and the Company to the extent such records and information pertain to
events occurring prior to the Closing Date; therefore, Buyer, Seller and the
Company agree to use their best efforts to properly retain and maintain such
records for a reasonable period of time and, upon written request, to provide
records to the other party that such other party deems necessary or appropriate.
(g) The tax-sharing agreement, as set forth in Schedule 3.10 shall remain
in full force and effect until the Closing Date, at which date such agreement
shall be terminated, null and void and of no effect. Prior to the termination of
such agreement and in accordance with its terms, the Company shall be charged or
receive credits for income tax liabilities in the same manner and to the same
extent as the Company would have been charged or received credits for income tax
liabilities if the sale of its stock were not being contemplated or effectuated
pursuant to this Agreement. Except to the extent provided in Section 5.09(h),
the Company shall not receive a charge or credit for income tax liabilities
attributable to a Section 338 Election.
(h) Immediately prior to the Closing Date, Seller shall estimate, with
respect to each jurisdiction in which a Seller Consolidated Return is filed, the
amount of Federal, state or local income or franchise taxes (1) that arise from
Seller's joining with Buyer in the timely filing of a joint election pursuant to
Section 338(h)(10) of the Code, and (2) for which Seller would have been liable
had it not joined in the making of an election pursuant to Section 338(h)(10) of
the Code, i.e., the tax liability associated with a sale of the Company stock
(the amount of the excess of (1) over (2), if any, shall be hereinafter referred
to as the "Excess Section 338(h)(10) Tax Liability", and the amount of the
excess of (2) over (1), if any, shall be hereinafter referred to as the "Section
338(h)(10) Tax Credit"). Immediately prior to the Closing Date, Seller shall
charge the Company for an amount equal to the Excess Section 338(h)(10) Tax
Liability or credit the Company for an amount equal to the Section 338(h)(10)
Tax Credit, as the case may be. As soon as practical after the Closing Date,
Seller shall finally determine the amount of the excess Section 338(h)(10) Tax
Liability or Section 338(h)(10) Tax Credit. Seller shall promptly reimburse
Buyer or Buyer shall promptly reimburse Seller, as the case may be, to the
extent the Excess Section 338(h)(10) Tax Liability or Section 338(h)(10) Tax
Credit, as finally determined, differs from the original estimate of such
amounts. For purposes of determining the tax liability associated with a sale of
the Company stock (for purposes of the first sentence of this section
-27-
<PAGE>
5.09(h)), any reduction in the basis of the Company stock held by Seller at the
Closing Date as required under Treas. Reg. Sec. 1.1502-32(b) and which is
attributable to compensation deductions taken by the Company pursuant to Section
421(b) of the Code during the taxable period ending on the closing date, shall
be disregarded.
5.9. Certain Benefit and Employee Matters. As of the Closing Date, the
------------------------------------
Company's financial records will reflect an accrued liability for payments to
eligible employees of the Company who have earned profit sharing under its
Performance Pays Profit Sharing Plan ("PPPSP") and who are listed and disclosed
in Schedule 5.10(a) (to be prepared and delivered within 21 days from the date
of this Agreement) pursuant to the terms of PPPSP. Any employee of the Company
whose employment with the Company is terminated on the Closing Date or whose
employment with the Company is terminated after the Closing Date but prior to
December 31, 1996 will be entitled to receive payment under the PPPSP within
five business days after Closing Date or termination of employment, as the case
may be, to the extent accrued on the Financial Statements. Payments to all other
employees pursuant to PPPSP who are listed and disclosed on Schedule 5.10(a)
----------------
shall be made by the Company on or about January 10, 1997. Seller hereby
represents to Buyer that the accrued liability on the Financial Statements
accurately reflects the liability of the Company under the PPPSP as of the dates
thereof. At the Closing Date, all employees of the Company shall at Buyer's
option remain employees of the Company and shall be allowed to participate as of
the Closing Date in the medical and dental benefit plans and life and disability
insurance plans and 401(k) plan paid by for the Company as employees of the
Company with a waiver of any waiting period and of any pre-existing condition
limitations. To the extent permitted by applicable law and their terms of such
plans, their period of service with the Company of all such retained employees
shall be recognized for eligibility purposes under the Company Benefit Plans
according to established eligibility requirements. In addition, if the Closing
Date falls within an annual period of coverage under any group health plan or
group dental plan of the Company, each such retained employee shall be given
credit for covered expenses paid by that employee under the comparable benefit
plans, other than benefit plans the cost of which are paid entirely by the
employee, during the applicable coverage period through the Closing Date towards
satisfaction of any deductible limitation and out-of-pocket maximum that may
apply under the group health plan or group dental plan of the company excluding
any and all plan co-payments. Attached as Schedule 5.10(c) is a list of key
----------------
executives of the Company that currently have employment agreements with the
Company. Except for payments accrued and payable under the PPPSP, Seller will be
responsible for and shall hold Buyer harmless for any and all payments,
obligations, liabilities thereunder. At the Closing, Buyer shall cause the
Company to offer employment to those employees listed on Schedule 5.10 in the
--------------------
form of a letter agreement attached hereto as Schedule 5.10(d).
- ---------------------------------------------
5.11. Benefits Under Stock Purchase Agreement. Seller hereby assigns to
---------------------------------------
Buyer any and all benefits of that certain written Stock Purchase Agreement
dated March 2, 1995 by and among Seller, Consolidated Electrical Distribution,
Inc., Eastern Enterprises and Water Products Group, Inc.
ARTICLE VI
CONDITIONS TO CLOSING; TERMINATION
----------------------------------
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<PAGE>
6.01. Conditions Precedent to Obligation of Buyer. The obligation of Buyer
-------------------------------------------
to proceed with the Closing under this Agreement is subject to the fulfillment
prior to or at Closing of the following conditions, any one or more of which may
be waived in whole or in part by Buyer at Buyer's sole option:
(c) Bringdown of Representations and Warranties; Covenants. Each of the
------------------------------------------------------
representations and warranties of Seller and the Company contained in this
Agreement shall be true and correct in all material respects on and as of the
Closing Date, with the same force and effect as though such representations and
warranties had been made on, as of and with reference to the Closing Date. Each
of Seller and the Company shall have performed in all respects all of the
covenants and complied with all of the provisions required by this Agreement to
be performed or complied with by it at or before the Closing.
(d) Litigation. No statute, regulation or order of any Governmental Body
----------
shall be in effect that restrains or prohibits the transactions contemplated
hereby or that would limit or adversely affect Buyer's ownership of the Company
Shares or control of the Company, and there shall not have been threatened, nor
shall there be pending, any action or proceeding by or before any Governmental
Body challenging the lawfulness of or seeking to prevent or delay any of the
transactions contemplated by this Agreement or any of the Other Agreements or
seeking monetary or other relief by reason of the consummation of any of such
transactions.
(e) No Material Adverse Change. Between the date hereof and the Closing
--------------------------
Date, there shall have been no material adverse change, regardless of insurance
coverage therefor, in the Business or any of the assets, results of operations,
liabilities, prospects or condition, financial or otherwise, of the Company.
(f) Closing Certificate. Seller shall have delivered a certificate, dated
-------------------
the Closing Date, in such detail as Buyer shall request, certifying to the
fulfillment of the conditions set forth in subparagraphs (a), (b) and (c) of
this Section 6.01. Such certificate shall constitute a representation and
------------
warranty of Seller with regard to the matters therein for purposes of this
Agreement.
(g) Required Authorizations. All Required Authorizations necessary for the
-----------------------
consummation of the transactions contemplated by this Agreement and the Other
Agreements shall have been obtained; provided, however, that the consent of FNB
-----------------
shall not be a condition to the obligation of Buyer to proceed with the
transactions contemplated hereby. Without limiting the foregoing, (i) any
applicable waiting period (and any extension thereof) required under any law to
consummate the transactions contemplated by this Agreement and the Other
Agreements shall have expired or been terminated without any indication by the
relevant governmental body, such as the Federal Trade Commission or the Justice
Department, that it intends to take any further action, (ii) the Company shall
have complied in all respects with any applicable state notification laws, and
(iii) neither Buyer nor the Company shall have any continuing liability or
obligation with respect to the matters contained in clauses (i) or (ii)
immediately preceding as a result of the consummation of the transactions
contemplated hereby.
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<PAGE>
(h) Resignation of Officers and Directors. Each director and officer of the
-------------------------------------
Company shall have tendered his or her written resignation from such position
with the Company effective as of the Closing.
(i) Closing Documents. Buyer shall have received the other documents
-----------------
referred to in Section 6.03(a). All agreements, certificates, opinions and other
---------------
documents delivered by Seller or the Company to Buyer hereunder shall be in form
and substance satisfactory to counsel for Buyer, in the exercise of such
counsel's reasonable professional judgment.
(j) Private Placement. Buyer shall be satisfied that there shall be a valid
-----------------
private placement of the USF Shares to be delivered pursuant hereto under the
Securities Act and under any applicable state securities laws, including
representations or questionnaires or both from each Company Stockholder to the
effect that each has such knowledge and experience in financial and business
matters that would permit him to be capable of evaluating the merits and risks
of an investment in the USF Shares.
(k) Transfer Agreement. The Transfer Agreement shall have been executed and
------------------
delivered by Seller.
(l) Listing on NYSE. The USF Shares to be issued pursuant hereto shall have
---------------
been authorized for listing on the NYSE, subject to official notice of
issuance.
(m) Consents. The Company shall have received the consents, approvals and
--------
actions of the Persons referred to in Section 3.06 and Schedule 3.06.
------------ -------------
(n) Estoppel Certificates. Seller shall have used its best efforts to
---------------------
obtain received estoppel certificates in form and substance satisfactory to
Buyer from each of the lessors of the leases identified in Schedule 3.17.
-------------
(o) USF Shares Average Value. The USF Shares Average Value shall equal or
------------------------
exceed $21.375.
(p) New Jersey ISRA. The Company shall have obtained a letter of non-
---------------
applicability under the New Jersey Industrial Site Recovery Act (PL 1993,
Ch. 39) with respect to the Company's operations in New Jersey.
6.02. Conditions Precedent to Obligation of Seller. The obligation of
--------------------------------------------
Seller to proceed with the Closing under this Agreement is subject to the
fulfillment prior to or at Closing of the following conditions, any one or more
of which may be waived in whole or in part by Seller at Seller's sole option:
(a) Bringdown of Representations and Warranties; Covenants. Each of the
------------------------------------------------------
representations and warranties of Buyer contained in this Agreement shall be
true and correct in all material respects on and as of the Closing Date, with
the same force and effect as though such
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<PAGE>
representations and warranties had been made on, as of and with reference to the
Closing Date. Buyer shall have performed all of the covenants and complied in
all respects with all of the provisions required by this Agreement to be
performed or complied with by it at or before the Closing.
(b) Litigation. No statute, regulation or order of any Govermnental Body
----------
shall be in effect that restrains or prohibits the transactions contemplated
hereby, and there shall not have been threatened, nor shall there be pending,
any action or proceeding by or before any Governmental Body challenging the
lawfulness of or seeking to prevent or delay any of the transactions
contemplated by this Agreement or the Other Agreements or seeking monetary or
other relief by reason of the consummation of such transactions.
(c) Closing Certificate. Buyer shall have delivered a certificate, dated
-------------------
the Closing Date, in such detail as Seller shall request, certifying to the
fulfillment of the conditions set forth in subparagraphs (a) and (b) of this
Section 6.02. Such certificate shall constitute a representation and warranty of
- ------------
Buyer with regard to the matters therein for purposes of this Agreement.
(d) Required Authorizations. All Required Authorizations necessary for the
-----------------------
consummation of the transactions contemplated by this Agreement and the Other
Agreements shall have been obtained; provided, however, that the consents of the
-----------------
parties identified on Schedule 3.06 shall not be a condition to the obligation
-------------
of Seller to Close state notification or similar laws. Without limiting the
foregoing, any applicable waiting period (and any extension thereof) required
under any law to consummate the transactions contemplated by this Agreement and
the Other Agreements shall have expired or been terminated without any
indication by the relevant governmental body, such as the Federal Trade
Commission or the Justice Department, that it intends to take any further
action.
(e) Closing Documents. Seller shall also have received the other documents
-----------------
referred to in Section 6.03(b). All agreements, certificates, opinions and other
---------------
documents delivered by Buyer to Seller hereunder shall be in form and substance
satisfactory to counsel for Seller, in the exercise of such counsel's reasonable
professional judgment.
(f) Transfer Agreement. Buyer shall have executed and delivered the
------------------
Transfer Agreement.
(g) Listing on NYSE. The USF Shares to be issued pursuant hereto shall have
---------------
been authorized for listing on the NYSE, subject to official notice of issuance.
(h) Bonds. All bid bonds and performance bonds maintained by the Company on
-----
the Closing Date shall be replaced with bonds of Buyer.
(i) USF Shares Average Value. The USF Shares Average Value shall not exceed
------------------------
$32.125.
6.03. Deliveries and Proceedings at Closing.
-------------------------------------
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<PAGE>
(a) Deliveries by Seller. Seller shall deliver or cause to be delivered to
--------------------
Buyer at the Closing:
(i) Certificates representing the Company Shares duly endorsed in
negotiable form or accompanied by stock powers duly executed in blank, with all
transfer taxes, if any, paid in full.
(ii) Certificates of the appropriate public officials to the effect
that each of Seller, the Company was a validly existing corporation in good
standing in its state of incorporation as of a date not more than 10 days prior
to the Closing Date.
(iii) Incumbency and specimen signature certificates dated the
Closing Date, signed by the officers of Seller and the Company and certified by
their respective Secretaries.
(iv) True and correct copies of (A) the Governing Documents (other
than the bylaws) of Seller and the Company as of a date not more than 10 days
prior to the Closing Date, certified by the Secretaries of State of their
respective states of incorporation and (B) the bylaws of Seller and the Company
as of the Closing Date, certified by their respective Secretaries.
(v) Certificates of the respective Secretaries of Seller and the
Company (A) setting forth all resolutions of the Board of Directors of Seller,
the Company and, if necessary, the stockholders of Seller, as the case may be,
authorizing the execution and delivery of this Agreement and the performance by
Seller or the Company of the transactions contemplated hereby, and (B) to the
effect that the Governing Documents of Seller or the Company, as the case may
be, delivered pursuant to Section 6.03(a)(iv) were in effect at the date of
-------------------
adoption of such resolutions, the date of execution of this Agreement and the
Closing Date.
(vi) General releases by all directors of the Company and by Seller
of all liability of the Company to them and of any claim that they or any of
them may have against the Company (exclusive of taxes, salaries and fringe
benefits disclosed on Schedule 6.03(a)(vi) or as otherwise disclosed herein),
------------------------------------------------------
and general releases by the Company and Buyer to the Company's directors and
Seller of all liability of the Company's directors and Seller to the Company and
any claim that the Company may have against them.
(vii) The minute books, stock ledgers and corporate seal of the
Company.
(viii) The opinion of Bernard E. Lyons, legal counsel to Seller and
the Company, in form and substance satisfactory to Buyer.
(ix) Resignations of the officers and directors of the Company
effective at the Closing.
(x) Powers of Attorneys or agency agreements, in form and substance
satisfactory to Buyer, granting to Seller the right, obligation and power to
deliver the Company Shares held
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<PAGE>
by each Company Stockholder.
(xi) Such other agreements and documents as Buyer may reasonably
request.
(b) Deliveries by Buyer. Buyer shall deliver or cause to be delivered to
-------------------
Seller at the Closing:
(i) Certificates representing the Debt Repayment USF Shares and the
Purchase Price USF Shares with applicable legends.
(ii) A certificate of the appropriate public official to the effect
that Buyer is a validly existing corporation in its state of incorporation as of
a date not more than 10 days prior to the Closing Date.
(iii) Incumbency and specimen signature certificates signed by the
officers of Buyer and certified by the Secretary of Buyer.
(iv) True and correct copies of the Governing Documents, certified by
the Secretary of Buyer.
(v) A certificate of the Secretary of Buyer (A) setting forth all
resolutions of the Board of Directors of Buyer authorizing the execution and
delivery of this Agreement and the performance by Buyer of the transactions
contemplated hereby, certified by the Secretary of Buyer and (B) to the effect
that the Governing Documents of Buyer delivered pursuant to Section 6.03(b)(iv)
-------------------
were in effect at the date of adoption of such resolutions, the date of
execution of this Agreement and the Closing Date.
(vi) The opinion of Damian C. Georgino, General Counsel to Buyer, in
form and substance satisfactory to Seller;
(vii) Such other agreements and documents as Seller may reasonably
request.
6.04. Termination. This Agreement may be terminated at any time prior to
-----------
Closing by: (i) mutual consent of Buyer, Seller and the Company; (ii) Buyer, if
any of the conditions specified in Section 6.01 hereof shall not have been
------------
fulfilled by November 30, 1996 and shall not have been waived by Buyer; or (iii)
Seller, if any of the conditions specified in Section 6.02 hereof shall not have
------------
been fulfilled by November 30, 1996 and shall not have been waived by Seller. In
the event of termination of this Agreement by either Buyer or Seller pursuant to
clause (ii) or (iii) of the immediately preceding sentence, Buyer, on the one
hand, and Seller and the Company, on the other hand, shall be liable to the
other for any breach hereof by such party, which breach led to such termination,
and the rights and obligations of the parties set forth in Sections 7.02, 7.03
-------------------
and 8.01 shall survive such termination. Buyer, on the one hand, and Seller and
----
the Company, on the other hand, shall also be entitled to seek any other remedy
to which it may be entitled at law or in equity in the event of such
termination, which remedies shall include injunctive relief and specific
performance. Notwithstanding the foregoing, in the event that this
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<PAGE>
Agreement is terminated by one party hereto pursuant to clause (ii) or (iii) of
the first sentence of this Section solely as a result of a breach by another
party hereto of a representation or warranty of such other party as of a date
after the date of this Agreement, which breach could not have been reasonably
anticipated by such other party and was beyond the reasonable control of such
other party, then the remedy of the party terminating this Agreement shall be
limited solely to recovery of all of such party's costs and expenses incurred in
connection herewith.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
--------------------------------------------
7.01. Survival of Representations. All representations, warranties and
---------------------------
agreements made by any party in this Agreement or pursuant hereto shall survive
the Closing, but all claims for damages made by virtue of such representations,
warranties and agreements shall be made under, and subject to the limitations
set forth in, this Article VII. The representations and warranties set forth in
-----------
Articles III and IV are cumulative, and any limitation or qualification set
- ------------ --
forth in any one representation and warranty therein shall not limit or qualify
any other representation and warranty therein. After Closing, the Company shall
have no liability to Seller for any breach of any representation or warranty
made by Seller to Buyer in this Agreement, in any certificate or document
furnished pursuant hereto by Seller or the Company or any Other Agreement to
which Seller or the Company, or both, is or is to become a party.
7.02. Indemnification by Seller. Seller and, if there shall be no Closing,
-------------------------
the Company shall indemnify, defend, save and hold Buyer and its officers,
directors, employees, agents and Affiliates (including, after the Closing, the
Company; collectively, "Buyer Indemnitees") harmless from and against all
demands, claims, allegations, assertions, actions or causes of action,
assessments, losses, damages, deficiencies, liabilities, costs and expenses
(including reasonable legal fees, interest, penalties, and all reasonable
amounts paid in investigation, defense or settlement of any of the foregoing,
whether or not any such demands, claims, allegations, etc., of third parties are
meritorious; collectively, "Buyer Damages") asserted against, imposed upon,
resulting to, required to be paid by or incurred by any Buyer Indemnitees,
directly or indirectly, in connection with, arising out of, which could result
in, or which would not have occurred but for, (i) a breach of any representation
or warranty made by Seller in this Agreement, in any certificate or document
furnished pursuant hereto by Seller or any Other Agreement to which Seller is or
is to become a party, and (ii) a breach or nonfulfillment of any covenant or
agreement made by Seller or the Company in or pursuant to this Agreement or in
any Other Agreement to which Seller or the Company, or both, is or is to become
a party.
7.03. Indemnification by Buyer. Buyer shall indemnify, defend, save and
------------------------
hold Seller and its officers, directors, employees, Affiliates and agents
(collectively, "Seller Indemnitees") harmless from and against any and all
demands, claims, actions or causes of action, assessments, losses, damages,
deficiencies, liabilities, costs and expenses (including reasonable legal fees,
interest, penalties, and all reasonable amounts paid in investigation, defense
or settlement of any of the foregoing, whether or not any such demands, claims,
allegations, etc., of third parties are meritorious; collectively, "Seller
Damages") asserted against, imposed upon, resulting to, required to be paid by
or incurred by any Seller Indemnitees, directly or indirectly, in connection
-34-
<PAGE>
with, arising out of, which could result in, or which would not have occurred
but for, (i) a breach of any representation or warranty made by Buyer in this
Agreement or in any certificate or document furnished pursuant hereto by Buyer
or any Other Agreement to which Buyer is a party and (ii) a breach or
nonfulfillment of any covenant or agreement made by Buyer in or pursuant to this
Agreement and in any Other Agreement to which Buyer is a party.
7.04. Limitation of Liability. Notwithstanding the foregoing, Seller's
-----------------------
obligations to indemnify Buyer Indemnitees against any Buyer Damages shall be
subject to all of the following limitations:
(a) Threshold. No indemnification shall be made under either Sections 7.02
--------- -------------
or 7.03 until the aggregate amount of Buyer Damages thereunder exceeds $250,000
----
if the aggregate amount of Buyer Damages thereunder exceeds $250,000,
indemnification shall be made by Seller thereunder to the full extent of Buyer
Damages.
(b) Ceiling. Subject to Section 7.04(a), no indemnification shall be made
------- ---------------
either Sections 7.02 or 7.03 to the extent that Buyer's Damages exceed, in the
------------- ----
aggregate, $3.0 million.
(c) Time Period. Seller shall be obligated to indemnify Buyer Indemnitees
-----------
by virtue of either Sections 7.02 or 7.03 only for those Buyer Damages as to
------------- ----
which Buyer has given Seller written notice thereof within one year after the
Closing Date; provided, however, that, with respect to any claim for Buyer
-------- -------
Damages sustained by reason of a breach of any representation and warranty
governed by Sections 3.03 and 3.10 Seller's liability hereunder shall survive
for 5 years after the Closing Date.
(d) Fraud; Intentional Misrepresentation. The limitations set forth in
Sections 7.04(a), (b) and (c) shall not apply to Buyer Damages arising out of
- -----------------------------
(i) fraud, (ii) the breach of any representation or warranty contained herein or
pursuant hereto if such representation or warranty was made with actual
knowledge that it contained an untrue statement of a fact or omitted to state a
fact necessary to make the statements of facts contained therein not misleading,
or (iii) the breach by Seller of the representations and warranties set out in
Section 3.18.
- ------------
(e) Form of Payment. All Buyer Damages and Seller Damages (collectively
---------------
"Damages") payable hereunder at any time shall be paid in cash.
7.05. Intentionally left blank.
7.06. Notice of Claims. If any Buyer Indemnitee or Seller Indemnitee (an
----------------
"Indemnified Party") believes that it has suffered or incurred or will suffer or
incur any Buyer Damages or Seller Damages, as the case may be ("Damages"), for
which it is entitled to indemnification under this Article VII, such Indemnified
-----------
Party shall so notify the party or parties from whom indemnification is being
claimed (the "Indemnifying Party") with reasonable promptness and reasonable
particularity in light of the circumstances then existing. If any action at law
or suit in equity is instituted by or against a third party with respect to
which any Indemnified Party intends to claim any Damages, such Indemnified Party
shall promptly notify
-35-
<PAGE>
the Indemnifying Party of such action or suit. The failure of an Indemnified
Party to give any notice required by this Section shall not affect any of such
party's rights under this Article VII or otherwise except and to the extent that
-----------
such failure is actually prejudicial to the rights or obligations of the
Indemnified Party.
7.07. Third Party Claims. The Indemnified Party shall have the right to
------------------
conduct and control, through counsel of its choosing, the defense of any third
party claim, action or suit, and the Indemnified Party may compromise or settle
the same, provided that the Indemnified Party shall give the Indemnifying Party
advance notice of any proposed compromise or settlement. The Indemnified Party
shall permit the Indemnifying Party to participate in the defense of any such
action or suit through counsel chosen by the Indemnifying Party, provided that
the fees and expenses of such counsel shall be borne by the Indemnifying Party.
If the Indemnified Party permits the Indemnifying Party to undertake, conduct
and control the conduct and settlement of such action or suit, (i) the
Indemnifying Party shall not thereby permit to exist any Encumbrance upon any
asset of the Indemnified Party; (ii) the Indemnifying Party shall not consent to
any settlement that does not include as an unconditional term thereof the giving
of a complete release from liability with respect to such action or suit to the
Indemnified Party; (iii) the Indemnifying Party shall permit the Indemnified
Party to participate in such conduct or settlement through counsel chosen by the
Indemnified Party; and (iv) the Indemnifying Party shall agree promptly to
reimburse the Indemnified Party for the full amount of any Damages including
fees and expenses of counsel for the Indemnified Party incurred after giving the
foregoing notice to the Indemnifying Party and prior to the assumption of the
conduct and control of such action or suit by the Indemnifying Party.
7.08. Good Faith Efforts to Settle Disputes. The parties agree that, prior
-------------------------------------
to commencing any litigation against the other concerning any matter with
respect to which such party intends to claim a right of indemnification in such
proceeding, the chief executive officers of Buyer and Seller shall meet in a
timely manner and attempt in good faith to negotiate a settlement of such
dispute during which time such individuals shall disclose to the others all
relevant information relating to such dispute. If a dispute arises relating to
this Agreement which is not settled or resolved by the parties as aforesaid, it
will be decided finally by three arbitrators in an arbitration proceeding
conforming to the rules of the American Arbitration Association applicable to
commercial arbitrations; said arbitrators shall be appointed as follows: one by
Seller, one by Buyer and the third by said two arbitrators, or, if they cannot
agree, then the third arbitrator shall be appointed by the American Arbitration
Association. Said arbitration shall take place in Los Angeles, California, and
the decision of a majority of said arbitrators shall be binding and final upon
the parties, and their decision shall be enforceable as a judgment in a court of
competent jurisdiction. At the request of either party, the American Arbitration
Association shall mediate the dispute between the parties prior to commencing
arbitration. The cost of such mediation and/or arbitration shall be shared
equally between the parties hereto, except that each party shall pay its own
attorneys' and witness fees.
7.09 Failure to Close. In the event that Buyer elects not to consummate the
----------------
transactions contemplated hereby as provided in Section 6.01(m), then Buyer
---------------------------
shall pay to Seller a lump sum fee equal to $2.0 million. In the event that
- ---------------------------------------------------------
Seller elects not to consummate the
-36-
<PAGE>
transactions contemplated hereby as provided in Section 6.02(i), then Seller
----------------------------
shall pay to Buyer a lump sum fee equal to $2.0 million. Such payment shall be
- --------------------------------------------------------
made within 30 days after receipt of written notice that such party is unwilling
to proceed with the transaction as provided in Section 6.01(m) or Section
--------------- -------
6.02(i), respectively.
- --------
ARTICLE VIII
MISCELLANEOUS
-------------
8.01. Costs and Expenses. Buyer and Seller shall each pay its respective
------------------
expenses, brokers' fees and commissions, and Seller shall pay all of the
expenses of the Company incurred in connection with this Agreement and the
transactions contemplated hereby, including all accounting, legal and appraisal
fees and settlement charges.
8.02. Further Assurances. Seller shall, at any time and from time to time
------------------
on and after the Closing Date, upon request by Buyer and without further
consideration, take or cause to be taken such actions and execute, acknowledge
and deliver, or cause to be executed, acknowledged and delivered, such
instruments, documents, transfers, conveyances and assurances as may be required
or desirable for the better conveying, transferring, assigning, delivering,
assuring and confirming the Company Shares to Buyer or any of the assets used in
the Business to the Company.
8.03. Notices. All notices and other communications given or made pursuant
-------
to this Agreement shall be in writing and shall be deemed to have been duly
given or made (i) the second business day after the date of mailing, if
delivered by registered or certified mail, postage prepaid, (ii) upon delivery,
if sent by hand delivery, (iii) upon delivery, if sent by prepaid courier, with
a record of receipt, or (iv) the next day after the date of dispatch, if sent by
cable, telegram, facsimile or telecopy (with a copy simultaneously sent by
registered or certified mail, postage prepaid, return receipt requested), to the
parties at the following addresses:
(i) if to Buyer, to:
United States Filter Corporation
40-004 Cook Street
Palm Desert, CA 92211
Attention: Chief Executive Officer
Telecopier: (619)341-9368
with a copy to:
Damian C. Georgino, Esq.
Vice President, General Counsel and Secretary
United States Filter Corporation
40-004 Cook Street
Palm Desert, CA 92211
Telecopy: (619) 341-1060
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<PAGE>
(ii) if to Seller, to:
Keith W. Colburn, President
Edmundson International, Inc.
P.O. Box 1287
Northbrook, lL 60065
Telecopy: (847) 498-7893
with a required copy to:
Bernard E. Lyons
Attorney at Law
1516 Pontius Avenue
Los Angeles, CA 90025
Telecopy: (310) 473-1746
Notices to the Company shall be addressed in care of Seller before Closing and
in care of Buyer after Closing. Any party hereto may change the address to which
notice to it, or copies thereof, shall be addressed, by giving notice thereof to
the other parties hereto in conformity with the foregoing.
8.04. Currency. All currency references herein are to United States
--------
dollars.
-38-
<PAGE>
8.05. Offset; Assignment; Governing Law. Buyer shall be entitled to offset
---------------------------------
or recoup from any amounts due to Seller from Buyer hereunder or under any Other
Agreement against any obligation of Seller to Buyer hereunder or under any Other
Agreement. This Agreement and all the rights and powers granted hereby shall
bind and inure to the benefit of the parties hereto and their respective
permitted successors and assigns. This Agreement and the rights, interests and
obligations hereunder may not be assigned by any party hereto without the prior
written consent of the other parties hereto, except that Buyer may make such
assignments to any Affiliate of Buyer provided that Buyer remains liable
hereunder. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York without regard to its conflict of law
doctrines.
8.06. Amendment and Waiver; Cumulative Effect. To be effective, any
---------------------------------------
amendment or waiver under this Agreement must be in writing and be signed by the
party against whom enforcement of the same is sought. Neither the failure of any
party hereto to exercise any right, power or remedy provided under this
Agreement or to insist upon compliance by any other party with its obligations
hereunder, nor any custom or practice of the parties at variance with the terms
hereof shall constitute a waiver by such party of its right to exercise any such
right, power or remedy or to demand such compliance. The rights and remedies of
the parties hereto are cumulative and not exclusive of the rights and remedies
that they otherwise might have now or hereafter, at law, in equity, by statute
or otherwise.
8.07. Entire Agreement; No Third Party Beneficiaries. This Agreement and
----------------------------------------------
the Schedules and Exhibits set forth all of the promises, covenants, agreements,
conditions and undertakings between the parties hereto with respect to the
subject matter hereof, and supersede all prior or contemporaneous agreements and
understandings, negotiations, inducements or conditions, express or implied,
oral or written. This Agreement is not intended to confer upon any Person other
than the parties hereto any rights or remedies hereunder, except the provisions
of Sections 7.02 and 7.03 relating to Buyer Indemnitees and Seller Indemnitees.
8.08. Severability. If any term or other provision of this Agreement is
------------
held by a court of competent jurisdiction to be invalid, illegal or incapable of
being enforced under any rule of Law in any particular respect or under any
particular circumstances, such term or provision shall nevertheless remain in
full force and effect in all other respects and under all other circumstances,
and all other terms, 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
materially 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.
8.09. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together shall be deemed to be one and the same instrument.
-39-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
EDMUNDSON INTERNATIONAL,
INC.
By: /s/ Signature
-------------------------------
Title: Vice President
--------------------------
UNITED STATES FILTER
CORPORATION
By: /s/ Signature
-------------------------------
Title: Chairman/CEO
--------------------------
WATERPRO SUPPLIES
CORPORATION
By: /s/ Signature
-------------------------------
Title: President
--------------------------
-40-
<PAGE>
EXHIBIT 12.1
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months
Ended
Fiscal Year Ended March 31, June 30,
--------------------------------- -----------------
1994 1995 1996 1995 1996
------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Income before interest and income taxes $(5,055) 23,123 40,647 8,617 14,815
Portion of rental expense deemed to represent interest 2,174 2,678 2,997 647 625
------- ------ ------ ----- ------
Earnings (loss) before fixed charges $(2,881) 25,801 43,644 9,264 15,440
======= ====== ====== ===== ======
Interest expense $ 4,044 7,514 14,419 3,012 4,390
Portion of rental expense deemed to represent interest 2,174 2,678 2,997 647 625
------- ------ ------ ----- ------
Fixed charges $(2,881) 25,801 43,644 9,264 15,440
======= ====== ====== ===== ======
Ratio of earnings to fixed charges n/a 2.5x 2.5x 2.5x 3.1x
======= ====== ====== ===== ======
Deficiency of earnings to fixed charges $(9,099) n/a n/a n/a n/a
======= ====== ====== ===== ======
</TABLE>
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Shareholders
United States Filter Corporation
We consent to the use of our reports included herein and the reference to
our firm under the heading "Independent Certified Public Accountants" in the
prospectus.
KPMG Peat Marwick LLP
Orange County, California
October 16, 1996
To the Board of Directors and Shareholders
United States Filter Corporation
We consent to the use of our reports included herein and the reference to
our firm under the heading "Independent Certified Public Accountants" in the
prospectus.
KPMG Peat Marwick LLP
Chicago, Illinois
October 16, 1996
To the Board of Directors and Shareholders
United Utilities PLC
We consent to the use of our report included herein and the reference to our
firm under the heading "Independent Certified Public Accountants" in the
prospectus.
KPMG Audit Plc
Manchester, England
October 16, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-3 of United States Filter Corporation of our
report dated June 13, 1996 relating to the consolidated financial statements
of Davis Water & Waste Industries, Inc., which appears in such Prospectus. We
also consent to the reference to us under the heading "Independent Certified
Public Accountants" in such Prospectus.
Price Waterhouse LLP
Atlanta, Georgia
October 16, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Independent
Certified Public Accountants" in the Registration Statement (Form S-3) and
related Prospectus of United States Filter Corporation for the registration of
$201,250,000 of Convertible Subordinated Notes and to the incorporation by
reference therein of our report dated February 8, 1996, except for Notes 4 and
10, as to which the date is May 10, 1996, with respect to the consolidated
financial statements of Zimpro Environmental, Inc. included in the Current
Report on Form 8-K of United States Filter Corporation dated May 31, 1996,
filed with the Securities and Exchange Commission.
Ernst & Young LLP
Minneapolis, Minnesota
October 15, 1996
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all references to our Firm included in or made a part of this
registration statement.
Arthur Andersen LLP
Minneapolis, Minnesota
October 16, 1996