<PAGE>
REGISTRATION NO. 333-14281
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT
NO. 1
TO
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)
---------------
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 LLP
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. [X]
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
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
REGISTERED REGISTERED(1)(2) PER UNIT(3) PRICE(3) REGISTRATION FEE(4)
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<S> <C> <C> <C> <C>
Convertible Subordinated
Notes due 2001......... $230,000,000 100% $230,000,000 $69,697
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Common Stock, par value
$.01 per share......... shares -- -- --
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</TABLE>
(1) Includes $30,000,000 principal amount of Convertible Subordinated Notes
due 2001 which may be issued upon exercise of an over-allotment option.
(2) There are also registered hereunder such additional indeterminate number
of shares of Common Stock, par value $.01 per share, of United States
Filter Corporation as may become issuable upon conversion of the
Convertible Subordinated Notes due 2001 by reason of adjustments in the
conversion rate.
(3) Estimated solely for the purpose of calculating the registration fee.
(4) Of such amount, $60,985 was previously paid.
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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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<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 21, 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
$200,000,000
[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 November 20, 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 $33.125
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 September 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 $137.9 million of Senior
Indebtedness, and the Company's subsidiaries would have had approximately
$473.0 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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<TABLE>
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PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC(1) COMMISSIONS(2) COMPANY(3)
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<S> <C> <C> <C>
Per Note................................. % % %
Total(4)................................. $ $ $
</TABLE>
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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
$30,000,000 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.
<PAGE>
[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
and PED and the recent acquisitions of 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
<PAGE>
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 possible adjustment. The Company has
also entered into a definitive agreement to acquire PED from United Utilities
PLC for (Pounds)125.5 million in cash and stock, subject to possible
adjustment. Additionally, the Company has acquired Davis in exchange for
4,187,349 shares of Common Stock, WaterPro in exchange for 3,201,507 shares of
Common Stock and USG in exchange for 771,157 shares of Common Stock.
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.
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.
4
<PAGE>
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 acquisitions of Davis, WaterPro and USG
establish the Company as a leading distributor of water and wastewater
distribution products and services to the industrial and municipal markets.
Through the addition of 105 distribution facilities, these recent acquisitions
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
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Securities Offered............... $200,000,000 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 September
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
$137.9 million and the Company's
Subsidiaries would have had approximately
$473.0 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.
</TABLE>
6
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<TABLE>
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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
<PAGE>
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 recent acquisitions of
WaterPro and USG and the pending acquisitions of WSMG and PED 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 September
30, 1996 (in the case of Balance Sheet Data); and (ii) the assumed borrowings
under bank credit facilities of approximately $541.0 million to fund the cash
portion of the consideration for such acquisitions and estimated transaction
costs. 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 $33.125 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 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."
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
MARCH 31, 1996 SEPTEMBER 30, 1996(1)
-------------------------------- -----------------------------------
AS AS FURTHER AS FURTHER
ACTUAL ADJUSTED(2) ADJUSTED(2) ACTUAL AS ADJUSTED(2) ADJUSTED(2)
-------- ----------- ----------- -------- -------------- -----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $727,903 $1,838,624 $1,838,624 $433,719 $1,054,197 $1,054,197
Gross profit............ 189,330 423,370 423,370 118,321 253,149 253,149
Operating income........ 40,647 69,189 69,189 26,600 52,739 52,739
Interest expense........ 14,419 57,224 25,754 7,972 29,193 13,458
Net income.............. 19,307 13,603 33,114 14,228 15,970 25,726
Net income per common
share.................. $ 0.45 $ 0.28 $ 0.53 $ 0.28 $ 0.29 $ 0.37
Weighted average number
of common shares
outstanding............ 42,159 47,400 61,790 50,629 55,870 70,260
OTHER DATA:
EBITDA(2)............... $ 67,227 $ 120,554 $ 120,554 $ 47,109 $ 86,748 $ 86,748
Ratio of EBITDA to
interest expense....... 4.7x 2.1x 4.7x 5.9x 3.0x 6.4x
Ratio of earnings to
fixed charges.......... 2.5x 1.2x 2.4x 3.0x 1.7x 3.4x
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
-------------------------------
AS FURTHER
ACTUAL AS ADJUSTED ADJUSTED
-------- ----------- ----------
(in thousands)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................ $168,606 $ 402,433 $ 402,433
Total assets................................... 936,659 2,007,482 2,012,632
Notes payable and long-term debt, including
current portion............................... 90,159 650,674 137,746
Convertible subordinated debt.................. 193,565 193,565 340,000
Shareholders' equity........................... 400,003 561,282 932,925
</TABLE>
- -------------------
(1) The six months ended September 30, 1996 includes merger expenses of
$5,581,000 related to the acquisition of Davis.
(2) The fiscal year ended March 31, 1996 and the six months ended September 30,
1996 include restructuring charges of $9,260,000 and $1,992,000,
respectively, related to the plant closure and relocation of the operations
of Wallace & Tiernan, Inc., a subsidiary of PED.
(3) "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. The EBITDA measure
presented by the Company may not be comparable to similarly titled measures
used by other companies.
8
<PAGE>
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 and PED 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 waiting period with
respect to WSMG has expired. There can be no assurance that the pending
acquisition of PED 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 of WSMG and PED 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
these pending acquisitions; 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."
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 for the
pending acquisition by the Company of PED is (Pounds)125.5 million, comprised
of approximately (Pounds)100.5 million in cash and (Pounds)25.0 million in
shares of Common Stock. The Company has entered into a forward contract
pursuant to which it is obligated to purchase 100.0 million British pounds
sterling for approximately $159.3 million at any time between December 16,
1996 and February 14, 1997, for the purpose of hedging the cash portion of the
purchase price of
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its acquisition of PED. With respect to the remaining (Pounds)0.5 million cash
portion of the consideration and the (Pounds)25.0 million in shares of Common
Stock, to the extent 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. In addition, if the acquisition of
PED is not consummated, or the acquisition is consummated after February 14,
1997, the Company would be at risk with respect to the (Pounds)100.0 million
it purchased pursuant to such forward contract to the extent that the value of
the pound sterling decreases relative to the value of other currencies.
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, the Company's Chairman of the
Board, President and Chief Executive Officer. There are no employment
agreements between the Company and the members of its senior management,
except Thierry Reyners, the Company's Executive Vice President-European Group.
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 acquisitions of Davis, WaterPro and USG, the sale
of water and wastewater distribution equipment and supplies is 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 cleanup obligations,
civil or
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criminal enforcement actions or private actions that could have a material
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") at certain
sites to which the Company or its predecessors allegedly sent waste in the
past. 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.
However, there can be no assurance that such matters will not 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 AND WASTEWATER MARKET
Completion of the Company's recent and 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
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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."
Zimpro is party to certain agreements (entered into in 1990 at the time
Zimpro was acquired from unrelated third parties by the entities from which it
was later acquired by the Company), pursuant to which Zimpro agreed, among
other things, to pay the original sellers a royalty of 3.0% of its annual
consolidated net sales of certain products in excess of $35.0 million through
October 25, 2000. Under certain interpretations of such agreements, with which
the Company disagrees, Zimpro could be liable for such royalties with respect
to the net sales attributable to products, systems and services of certain
defined wastewater treatment businesses acquired by Zimpro or the Company or
the Company's other subsidiaries after May 31, 1996. The defined businesses
include, among others, manufacturing machinery and equipment, and engineering,
installation, operation and maintenance services related thereto, for the
treatment and disposal of waste liquids, toxic waste and sludge. One of the
prior sellers has revealed in a letter to the Company an interpretation
contrary to that of the Company. The Company believes that it would have
meritorious defenses to any claim based upon any such interpretation and would
vigorously pursue the elimination of any threat to expand what it believes to
be its obligations pursuant to such agreements.
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 November 10, 1996 by security
holders of the Company, including: (i) up to 3,750,093 shares 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) 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; (iii) shares issuable upon conversion of the
Notes at a conversion price of $ per share of Common Stock; (iv)
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 (v) 7,036,939 shares which are 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 (v) 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 September 30, 1996, the
Company would have had approximately $137.9 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 $33.125 per share (based on the closing sale price per share of
Common Stock on November 20, 1996 as reported on the New York Stock Exchange
Composite Tape) and the anticipated application of the net proceeds
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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 agree to
be bound by such contractual restrictions in the future. Although the
jurisdictions in which the Company's subsidiaries now conduct substantially all
of their business generally do not restrict the removal or conversion of local
or foreign currency, such restrictions, if enacted, could create substantial
barriers to the conversion or repatriation of funds, and such restrictions
could adversely affect the Company's ability to meet its debt service and other
liquidity requirements. In addition, various jurisdictions place limits on the
amount and source of dividends that may be paid by companies under certain
circumstances. 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 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 September 30, 1996, as adjusted to give effect to
the acquisitions of WSMG, PED, WaterPro and USG, the Company's subsidiaries
would have had approximately $473.0 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 will be 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 activities 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 possible formation of a joint venture
with WTI (the "Joint Venture") to develop, finance, own and operate water and
wastewater treatment facilities for both industrial and municipal customers in
North America. See "--Possible Joint Venture."
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 acquisitions of Davis, 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
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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.
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.
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The Company anticipates that the acquisition of WSMG will be completed by
early December 1996, although there can be no assurance that the acquisition
will be consummated at such time or at all.
POSSIBLE JOINT VENTURE
The Company and WTI are negotiating the possible 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. It is
expected that the operating strategy for the Joint Venture, if formed, 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. 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
On October 7, 1996, the Company entered into a definitive agreement to
acquire PED from United Utilities PLC for (Pounds)125.5 million, comprised of
approximately (Pounds)100.5 million in cash and (Pounds)25.0 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.
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.
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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 acquisitions of Davis, WaterPro and USG
establish the Company as a leading distributor of water and wastewater
distribution products and services to the industrial and municipal markets.
Through the addition of 105 distribution facilities, these recent acquisitions
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 October 1996, the Company completed the
acquisiton of WaterPro, a leading distributor of water and wastewater
distribution products and services to the industrial and municipal markets, in
exchange for 3,201,507 shares of Common Stock (including the repayment of
approximately $67.9 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 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 increases the Company's distribution presence in the midwestern
and mid-Atlantic United States and expands the Company's presence in the
municipal market.
The Utility Supply Group, Inc. In October 1996, the Company completed the
acquisition of USG, a leading distributor of water and wastewater distribution
products and services to the municipal market, in exchange for 771,157 shares
of Common Stock, 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
increases the Company's distribution presence in the western, southern and
southeastern United States and expands the Company's municipal customer base.
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<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Notes are estimated to
be $194.9 million ($224.1 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 $318.1 million ($338.9
million if the underwriters' over-allotment option were exercised in full)
based on the closing sale price per share of Common Stock on November 20, 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. The purchase price for WSMG is $369.6
million in cash, subject to possible adjustment, and the cash portion of the
purchase price for PED is approximately (Pounds)100.5 million, subject to
possible adjustment. The Company has entered into a forward contract pursuant
to which it is obligated to purchase (Pounds)100.0 million for approximately
$159.3 million at any time between December 16, 1996 and February 14, 1997.
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." 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.
To the extent that net proceeds from the Notes Offering and the Common Stock
Offerings are not available or are insufficient, 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.
18
<PAGE>
CAPITALIZATION
The following table sets forth the historical consolidated capitalization of
the Company at September 30, 1996 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 $541.0 million to fund
the cash portion of the consideration for such acquisitions and estimated
transaction costs. 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 $33.125 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>
SEPTEMBER 30, 1996
------------------------------
AS AS FURTHER
ACTUAL ADJUSTED ADJUSTED
-------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of long-term debt(1)............ $ 1,386 $ 1,386 $ 1,386
======== ========== ==========
Long-term debt:
Notes payable and long-term debt, excluding
current portion(1)............................. $ 88,773 $ 649,288 $ 136,360
5% Convertible Subordinated Debentures due 2000. 53,565 53,565 --
6% Convertible Subordinated Notes due 2005...... 140,000 140,000 140,000
% Convertible Subordinated Notes due 2001(2)... -- -- 200,000
-------- ---------- ----------
Total long-term debt, excluding current
portion...................................... 282,338 842,853 476,360
-------- ---------- ----------
Shareholders' equity:
Common Stock, 150,000,000 shares authorized,
49,280,734 shares (Actual), 54,521,323 shares
(As Adjusted) and 68,911,323 shares (As
Further Adjusted) issued and outstanding(3).. 493 545 689
Additional paid-in capital.................... 370,625 531,852 903,351
Currency translation adjustment............... 2,691 2,691 2,691
Retained earnings............................. 26,194 26,194 26,194
-------- ---------- ----------
Total shareholders' equity.................. 400,003 561,282 932,925
-------- ---------- ----------
Total capitalization...................... $682,341 $1,404,135 $1,409,285
======== ========== ==========
</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 49,280,734
shares issued and outstanding on an Actual basis do not include:
(i) 4,390,000 shares issuable upon conversion of the Company's 5%
Convertible Subordinated Debentures due 2000 (fully converted into shares
of Common Stock as of 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) 4,396,594 shares issuable upon exercise of stock options either
outstanding or available for future grant under the Company's stock option
plans. The 54,521,323 shares issued and outstanding on an As Adjusted
basis includes 3,972,664 shares issued in connection with the acquisitions
of WaterPro and USG and an estimated 1,267,925 shares issuable in
connection with the acquisition of PED. The 68,911,323 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 issued
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.
19
<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................................................... 13.08 9.92
Second Quarter.................................................. 16.08 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 November 20, 1996)....................... 36.25 31.13
</TABLE>
On November 20, 1996, the closing sale price of the Common Stock as reported
on the New York Stock Exchange Composite Tape was $33.125 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.
20
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following Unaudited Pro Forma Combined Financial Information presents
the Pro Forma Combined Balance Sheet at September 30, 1996, giving effect to
the acquisitions of WaterPro and USG and the pending acquisitions of WSMG and
PED 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 six months ended September 30, 1996, after giving effect to the
recent acquisitions of WaterPro and USG and the pending acquisitions of WSMG
and PED 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 September 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 six months ended September 30, 1996 combines the results of each of
the Company, WSMG, PED, WaterPro and USG for such six 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 recent acquisitions of
WaterPro and USG and the pending acquisitions of WSMG and PED; and (ii) the
assumed borrowings under the Committed Credit Facilities of approximately
$541.0 million to fund the cash portion of the consideration for such
acquisitions and estimated transaction costs. 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 $33.125 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, however, no material differences are anticipated.
The historical financial statements of PED were prepared in accordance with
UK GAAP, which differs in certain respects from US GAAP. The historical PED
financial statements included in the following Unaudited Pro Forma Combined
Financial Information have been restated to reflect PED's financial position
and results of operations in accordance with US GAAP.
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 or PED 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.
21
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
----------------------------------------------------------------------------------------------
HISTORICAL PRO FORMA
-------------------------------------------- ------------------------------------------------
ADJUSTMENTS
INCREASE AS AS FURTHER
COMPANY USG WATERPRO WSMG PED (DECREASE) NOTES ADJUSTED ADJUSTED NOTES
-------- ------- -------- -------- --------- ----------- ------ ---------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash.............. $ 19,488 $ 280 $ -- $ 12,619 $ 2,055 $ 34,442 $ 34,442
Short-term
investments...... 816 -- -- -- 1,275 2,091 2,091
Accounts
receivable, net.. 213,594 25,622 70,751 93,325 166,042 569,334 569,334
Cost and estimated
earnings in
excess of
billings on
uncompleted
contracts........ 52,802 -- -- 19,785 -- 72,587 72,587
Inventories....... 88,230 15,812 26,448 41,622 51,127 223,239 223,239
Prepaid expenses.. 11,981 -- 292 -- -- 12,273 12,273
Deferred taxes.... 7,771 -- -- -- -- 7,771 7,771
Other current
assets........... 9,614 417 -- 3,790 -- 13,821 13,821
-------- ------- -------- -------- --------- ---------- ----------
Total current
assets......... 404,296 42,131 97,491 171,141 220,499 935,558 935,558
-------- ------- -------- -------- --------- ---------- ----------
Property, plant and
equipment, net.... 178,362 2,686 5,062 55,752 31,420 273,282 273,282
Investment in
leasehold
interests, net.... 27,057 -- -- -- -- 27,057 27,057
Costs in excess of
net assets of
businesses
acquired, net..... 276,627 -- 13,968 155,578 -- $ 263,091 a(ii) 709,264 709,264
Other assets....... 50,317 736 -- 4,044 1,974 5,250 a(i) 62,321 67,471 a(v)
-------- ------- -------- -------- --------- ---------- ----------
Total assets.... $936,659 $45,553 $116,521 $386,515 $ 253,893 $2,007,482 $2,012,632
======== ======= ======== ======== ========= ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
liabilities:
Accounts payable.. $101,329 $16,113 $ 35,439 $ 53,338 $ 82,467 $ 288,686 $ 288,686
Accrued
liabilities...... 102,000 3,491 11,341 43,822 31,375 192,029 192,029
Current portion of
long-term debt... 1,386 -- -- -- 91,276 $ (91,276) a(iii) 1,386 1,386
Revolving credit
line with parent. -- -- 58,679 -- -- (58,679) a(iii) -- --
Billings in excess
of costs and
estimated
earnings on
uncompleted
contracts........ 19,631 -- -- 18,911 -- 38,542 38,542
Other current
liabilities...... 11,344 332 -- -- 806 12,482 12,482
-------- ------- -------- -------- --------- ---------- ----------
Total current
liabilities.... 235,690 19,936 105,459 116,071 205,924 533,125 533,125
-------- ------- -------- -------- --------- ---------- ----------
Notes payable...... 81,156 16,025 -- -- -- 541,040 a(i) 638,221 125,293 a(vi)
Long-term debt,
excluding current
portion........... 7,617 3,450 -- -- -- 11,067 11,067
Convertible
subordinated debt. 193,565 -- -- -- -- 193,565 340,000 a(vii)
Loan payable-
parent............ -- -- -- -- 225,704 (225,704) a(iii) -- --
Deferred taxes..... 1,223 -- 151 -- -- 1,374 1,374
Other liabilities.. 17,405 -- -- 13,962 37,481 68,848 68,848
-------- ------- -------- -------- --------- ---------- ----------
Total
liabilities.... 536,656 39,411 105,610 130,033 469,109 1,446,200 1,079,707
-------- ------- -------- -------- --------- ---------- ----------
Shareholders'
equity:
Common stock...... 493 2,553 1 -- -- (2,502) a(iv) 545 689 a(viii)
Additional paid-in
capital.......... 370,625 149 4,999 254,400 17,168 (115,489) a(iv) 531,852 903,351 a(viii)
Translation
adjustment....... 2,691 -- -- 2,082 -- (2,082) a(iv) 2,691 2,691
Retained earnings
(accumulated
deficit)......... 26,194 3,440 5,911 -- (232,384) 223,033 a(iv) 26,194 26,194
-------- ------- -------- -------- --------- ---------- ----------
Total
shareholders'
equity......... 400,003 6,142 10,911 256,482 (215,216) 561,282 932,925
-------- ------- -------- -------- --------- ---------- ----------
$936,659 $45,553 $116,521 $386,515 $ 253,893 $2,007,482 $2,012,632
======== ======= ======== ======== ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of this pro forma combined
financial information.
22
<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 NOTES
-------- -------- -------- -------- -------- ----------- ----- ---------- ---------- ------
(in thousands, except per share data)
<S> <C> <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 66,903 $ 6,577 b(i) 344,921 344,921
Restructuring expense... -- -- -- -- 9,260 9,260 9,260
-------- -------- -------- -------- -------- ---------- ----------
Operating income....... 40,647 4,585 6,366 22,502 1,666 69,189 69,189
-------- -------- -------- -------- -------- ---------- ----------
Other income (expense):
Interest expense....... (14,419) (2,227) (3,593) -- (19,865) (17,120) b(ii) (57,224) (25,754) b(iii)
Other.................. 5,134 (582) 657 4,767 -- 9,976 9,976
-------- -------- -------- -------- -------- ---------- ----------
(9,285) (2,809) (2,936) 4,767 (19,865) (47,248) (15,778)
-------- -------- -------- -------- -------- ---------- ----------
Income (loss) before
income taxes.......... 31,362 1,776 3,430 27,269 (18,199) 21,941 53,410
Provision (benefit) for
income taxes........... 12,055 727 1,477 10,908 2,165 (18,995) b(iv) 8,337 20,296 b(v)
-------- -------- -------- -------- -------- ---------- ----------
Net income (loss)...... $ 19,307 $ 1,049 $ 1,953 $ 16,361 $(20,364) $ 13,603 $ 33,114 c
======== ======== ======== ======== ======== ========== ==========
Net income per common
share................. $ 0.45 $ 0.28 $ 0.53 c
======== ========== ==========
Weighted average number
of common shares
outstanding............ 42,159 47,400 61,790
======== ========== ==========
</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>
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996
------------------------------------------------------------------------------------------------
HISTORICAL PRO FORMA
---------------------------------------------- ------------------------------------------------
ADJUSTMENTS
INCREASE AS AS FURTHER
COMPANY USG WATERPRO WSMG PED (DECREASE) NOTES ADJUSTED ADJUSTED NOTES
-------- ------- -------- -------- -------- ----------- ----- ---------- ---------- -----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $433,719 $85,899 $185,199 $218,973 $130,407 $1,054,197 $1,054,197
Cost of sales........... 315,398 70,011 151,238 171,673 92,728 801,048 801,048
-------- ------- -------- -------- -------- ---------- ----------
Gross profit........... 118,321 15,888 33,961 47,300 37,679 253,149 253,149
Selling, general and
administrative
expenses............... 86,140 13,595 24,689 32,854 32,270 $ 3,289 b(i) 192,837 192,837
Merger and restructuring
expenses................ 5,581 -- -- -- 1,992 7,573 7,573
-------- ------- -------- -------- -------- ---------- ----------
Operating income....... 26,600 2,293 9,272 14,446 3,417 52,739 52,739
-------- ------- -------- -------- -------- ---------- ----------
Other income (expense):
Interest expense....... (7,972) (932) (2,433) -- (9,469) (8,387) b(ii) (29,193) (13,458) b(iii)
Other.................. 1,004 411 358 439 -- 2,212 2,212
-------- ------- -------- -------- -------- ---------- ----------
(6,968) (521) (2,075) 439 (9,469) (26,981) (11,246)
-------- ------- -------- -------- -------- ---------- ----------
Income (loss) before
income taxes.......... 19,632 1,772 7,197 14,885 (6,052) 25,758 41,493
Provision (benefit) for
income taxes........... 5,404 711 2,829 5,954 (310) (4,800) b(iv) 9,788 15,767 b(v)
-------- ------- -------- -------- -------- ---------- ----------
Net income (loss)...... $ 14,228 $ 1,061 $ 4,368 $ 8,931 $ (5,742) $ 15,970 $ 25,726 c
======== ======= ======== ======== ======== ========== ==========
Net income per common
share................. $ 0.28 $ 0.29 $ 0.37 c
======== ========== ==========
Weighted average number
of common shares
outstanding........... 50,629 55,870 70,260
======== ========== ==========
</TABLE>
The accompanying notes are an integral part of this pro forma combined
financial information.
24
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
a. The Pro Forma Combined Balance Sheet has been prepared to reflect the
acquisitions by the Company of USG and WaterPro and the pending
acquisitions of WSMG and PED for aggregate estimated equity purchase prices
comprised of the following:
<TABLE>
<CAPTION>
EQUITY
FORM OF PURCHASE
COMPANY CONSIDERATION PRICE
------- ------------- -----------
(in thousands)
<S> <C> <C> <C>
USG................................... Common Stock $ 22,000
WaterPro.............................. Common Stock 38,600
WSMG.................................. Cash 369,600
PED................................... Cash $160,090
.................................... Common Stock 42,000 202,090
--------
Estimated transaction costs........... 6,100
---------
$ 638,390
=========
</TABLE>
In addition to the purchase prices described above, the Company assumed
long-term indebtedness of approximately $22,000,000 ($19,475,000 at
September 30, 1996) and $67,935,000 ($58,679,000 at September 30, 1996) in
connection with the acquisitions of USG and WaterPro, respectively. The
$67,935,000 of indebtedness related to WaterPro was repaid with shares of
Common Stock concurrently with the closing of such acquisition.
The cash portion of the purchase price for PED is approximately
(Pounds)100,500,000. The Company has entered into a forward contract pursuant
to which it has the obligation to purchase (Pounds)100,000,000 for
approximately $159,250,000 at any time between December 16, 1996 and February
14, 1997. The remaining (Pounds)500,000 cash portion of the consideration and
the (Pounds)25,000,000 in shares of Common Stock are based on exchange rates
for British pounds sterling as of November 20, 1996. The estimated shares of
Common Stock to be issued is also based on an assumed price per share of
$33.125, the closing price of the Common Stock on the New York Stock Exchange
on November 20, 1996.
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 $6,142,000, $10,911,000, $256,482,000 and $101,764,000,
respectively. PED's estimated fair value of net assets excludes the net loan
payable of PED to its parent company of $316,980,000, which will be
contributed to PED's shareholders' equity (negative $215,216,000 at
September 30, 1996) by such parent company. The aggregate difference between
the estimated equity purchase prices and the estimated fair values of the
identified net assets of USG, WaterPro, WSMG and PED is approximately
$263,091,000, 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 Pro Forma Combined Balance Sheet has been adjusted to reflect the above
as follows:
(i) To record the assumed incurrence of $541,040,000 of indebtedness under
the Committed Credit Facilities with an assumed effective interest rate
of 7.50%. The incurrence of such additional indebtedness includes:
(i) the cash consideration for the acquisition of WSMG of $369,600,000;
(ii) the cash portion of the consideration for the acquisition of PED
of $160,090,000; (iii) estimated transaction costs of $6,100,000; and
(iv) estimated bank commitment fees of $5,250,000. The Company intends
to retire a portion of such debt with the net proceeds of the Offerings
and the Notes Offering or, if completion of the Common Stock Offerings
and the Notes Offering 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."
25
<PAGE>
(ii) To adjust goodwill for the difference between the estimated equity
purchase prices and the estimated fair values of the identified net
assets acquired. The adjustment is calculated as follows: (in
thousands)
<TABLE>
<S> <C>
Aggregate estimated equity purchase prices..................... $638,390
Aggregate estimated fair value of identified net assets
acquired...................................................... 375,299
--------
Adjustment................................................. $263,091
========
</TABLE>
(iii) To eliminate: (i) the net loan payable of WaterPro of $58,679,000 to
its parent company, which will be repaid by the Company with Common
Stock; and (ii) the net loan payable of PED of $316,980,000 to its
parent company, which will be contributed to PED's equity by such
parent company.
(iv) To eliminate the equity of USG, WaterPro, WSMG and PED and record the
issuance of Common Stock for the stock portion of the consideration
for the acquisitions of USG (771,157 shares), WaterPro (3,201,507
shares) and PED (1,267,925 shares).
<TABLE>
<CAPTION>
ELIMINATE ISSUANCE
EQUITY OF EQUITY ADJUSTMENT
--------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Common Stock............................ $ (2,554) $ 52 $ (2,502)
Additional paid-in capital.............. (276,716) 161,227 (115,489)
Translation adjustment.................. (2,082) -- (2,082)
Retained earnings (accumulated deficit). 223,033 -- 223,033
</TABLE>
(v) To record the incurrence of approximately $5,150,000 of capitalized
costs related to the Notes Offering.
(vi) To record the assumed reduction of $512,928,000 of indebtedness under
the Committed Credit Facilities with the estimated net proceeds of
$318,078,000 from the Common Stock Offerings and $194,850,000 from the
Notes Offering. See "Use of Proceeds."
(vii) To record: (i) the issuance of $200,000,000 of convertible
subordinated debt in the Notes Offering; and (ii) the conversion of
$60,000,000 aggregate principal amount of 5% Convertible Subordinated
Debt due 2000 into 4,390,000 shares of Common Stock.
(viii) To record: (i) the conversion of the Company's $60,000,000 aggregate
principal amount of 5% Convertible Subordinated Debentures due 2000
into 4,390,000 shares of Common Stock and; (ii) the assumed issuance
of 10,000,000 shares of Common Stock in the Common Stock Offerings.
Adjustments are calculated as follows:
<TABLE>
<CAPTION>
CONVERSION OF
5% CONVERTIBLE
SUBORDINATED
DEBENTURES OFFERINGS ADJUSTMENT
-------------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Common Stock......................... $ 44 $ 100 $ 144
Additional paid-in capital........... 53,521 317,978 371,499
</TABLE>
26
<PAGE>
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 six months ended September 30,
1996 combines the results of each of the Company, WSMG, PED, WaterPro and
USG for such six-month period.
The Pro Forma Combined Statements of Operations gives effect to the
following adjustments:
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS
ENDED ENDED
MARCH 31, 1996 SEPTEMBER 30, 1996
-------------- ------------------
<C> <S> <C> <C>
(IN THOUSANDS)
(i) To adjust selling, general and
administrative expenses to
reflect the goodwill amortization
from the acquisitions of WSMG,
PED, WaterPro and USG, with such
goodwill of approximately
$263,091,000 amortized over 40
years. $ 6,577 $ 3,289
======== =======
(ii) To adjust interest expense related
to the indebtedness of
approximately $541,040,000 to be
incurred to finance the
acquisitions of WSMG and PED, net
of historical interest expense
recorded by WaterPro and PED on
parent company debt. WaterPro and
PED incurred interest on such
parent company debt at the prime
rate and approximately 11%,
respectively, and incurred
interest expense of $3,593,000
and $19,865,000, respectively,
for the fiscal year ended March
31, 1996, and $2,433,000 and
$9,469,000, respectively, for the
six months ended September 30,
1996, which interest expense has
been eliminated because such debt
would not have been in existence
at the beginning of such periods.
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 Common Stock Offerings and
the Notes Offering or, if
completion of the Common Stock
Offerings and the Notes Offering
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."
The assumed effective interest
rate of 7.50% on the Committed
Credit Facilities is subject to
variability. A 0.125% increase/
decrease in the assumed effective
interest rate incrementally
decreases/increases As Adjusted
net income by $419,000 and
$210,000 for the year ended March
31, 1996 and six months ended
September 30, 1996, respectively,
and As Further Adjusted net
income by $22,000 and $11,000 for
the year ended March 31, 1996 and
the six months ended September
30, 1996, respectively. $(17,120) $(8,387)
======== =======
(iii) The As Further Adjusted column
presented gives effect to the
Common Stock Offerings and the
Notes Offering and the
anticipated application of the
net proceeds therefrom, which
results in a reduction in
interest expense of $28,470,000
and $14,235,000 for the fiscal
year ended March 31, 1996 and the
six months ended September 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 5%
Convertible Subordinated
Debentures due 2000 to Common
Stock which results in a
reduction in interest expense of
$3,000,000 and $1,500,000 for the
fiscal year ended March 31, 1996
and the six months ended
September 30, 1996, respectively,
and a resulting increase of
4,390,000 in shares of Common
Stock outstanding. $ 31,470 $15,735
======== =======
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS
ENDED ENDED
MARCH 31, 1996 SEPTEMBER 30, 1996
-------------- ------------------
<S> <C> <C>
(iv) To adjust the provision for income
taxes to reflect the combined
results of operations assuming a
combined tax rate of 38%. $(18,995) $(4,800)
======== =======
(v) To adjust the provision for income
taxes to reflect the combined
results of operations assuming a
combined tax rate of 38%. $ 11,959 $ 5,979
======== =======
</TABLE>
c. During the fiscal year ended March 31, 1996 and the six months ended
September 30, 1996, PED incurred significant restructuring charges relating
to the plant closure and relocation of the operations of Wallace & Tiernan,
Inc., a subsidiary, from Belleville, N.J., to Vineland, N.J. These
restructuring charges totaled $9,260,000 and $1,992,000 for the fiscal year
ended March 31, 1996 and the six months ended September 30, 1996,
respectively. The Company believes that the restructuring and relocation
will be completed prior to the acquisition of PED by the Company. The terms
of the Stock Purchase Agreement between the Company and the United Utilities
PLC provides that the Company will assume no ownership interest in and no
liability associated with the Belleville, N.J. facility. Excluding the
effects of these charges, net income and net income per common share for the
fiscal year ended March 31, 1996 and the six months ended September 30, 1996
would have been:
<TABLE>
<CAPTION>
AS AS FURTHER
ADJUSTED ADJUSTED
-------- ----------
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
<S> <C> <C>
Fiscal Year Ended March 31, 1996:
Net income............................................. $19,344 $38,856
Net income per common share............................ $ 0.40 $ 0.62
Six Months Ended September 30, 1996:
Net income............................................. $17,205 $26,961
Net income per common share............................ $ 0.31 $ 0.38
</TABLE>
28
<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 six months ended
September 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 six months ended September 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. 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>
SIX MONTHS ENDED
YEARS ENDED MARCH 31,(1) SEPTEMBER 30,(1)
------------------------------ ------------------
1994(2) 1995(3) 1996(4)(5) 1995 1996(9)
-------- -------- ---------- -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................................... $412,512 $519,359 $727,903 $332,099 $433,719
Cost of sales................................. 326,848 398,755 538,573 247,093 315,398
-------- -------- -------- -------- --------
Gross profit.................................. 85,664 120,604 189,330 85,006 118,321
Selling, general and administrative expenses.. 90,719 97,481 148,683 64,368 86,140
Merger expenses............................... -- -- -- -- 5,581
-------- -------- -------- -------- --------
Operating income (loss)....................... (5,055) 23,123 40,647 20,638 26,600
Interest expense.............................. (4,044) (7,514) (14,419) (6,548) (7,972)
Other income (expense)........................ (7,382) 1,442 5,134 1,363 1,004
-------- -------- -------- -------- --------
Income (loss) before taxes.................... (16,481) 17,051 31,362 15,453 19,632
Provision (benefit) for income taxes.......... (7,087) 4,812 12,055 4,743 5,404
-------- -------- -------- -------- --------
Net income (loss)............................. $ (9,394) $ 12,239 $ 19,307 $ 10,710 $ 14,228
======== ======== ======== ======== ========
Net income (loss) per common share(6)......... $ (0.42) $ 0.41 $ 0.45 $ 0.27 $ 0.28
======== ======== ======== ======== ========
Weighted average number of common shares
outstanding.................................. 23,934 28,235 42,159 37,911 50,629
BALANCE SHEET DATA (AT PERIOD END):
Working capital............................... $ 97,855 $113,972 $123,757 $223,856 $168,606
Total assets.................................. 357,354 482,723 876,505 729,551 936,659
Notes payable and long-term debt,
including current portion.................... 29,758 57,116 53,436 29,545 90,159
Convertible subordinated debt................. 60,000 105,000 200,000 200,000 193,565
Shareholders' equity.......................... 152,021 166,878 368,501 325,552 400,003
OTHER DATA:
EBITDA(7)..................................... $ 6,237 $ 39,777 $ 67,227 $ 32,238 $ 47,109
Cash provided by (used in) Operating
activities................................. (6,523) 3,269 (342) (13,014) (1,972)
Investing activities........................ (40,176) (12,857) (225,731) (123,392) (37,822)
Financing activities........................ 59,384 9,391 224,458 206,787 40,877
Ratio of earnings to fixed charges(8)......... -- 2.5x 2.5x 2.8x 3.0x
Net income (loss) before Davis and
Zimpro acquisitions.......................... $ (2,541) $ 8,331 $ 20,290 $ 7,868 $ 14,228
Net income (loss) per common share before
Davis and Zimpro acquisitions(6)............. (0.17) 0.34 0.54 0.23 -
</TABLE>
29
<PAGE>
The historical consolidated financial data for the fiscal years ended March
31, 1994, 1995 and 1996 and for the six months ended September 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. Separate results of operations for
each of the Company, Davis and Zimpro for the years ended March 31, 1994, 1995
and 1996 and the six months ended September 30, 1995 and 1996 are presented
below.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED MARCH 31,(1) SEPTEMBER 30,(1)
----------------------------- -----------------
1994(2) 1995(3) 1996(4)(5) 1995 1996(9)
-------- -------- ---------- -------- --------
(UNAUDITED)
REVENUES: (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Company (as previously
reported).................... $180,421 $272,032 $472,537 $199,847 $433,719
Davis......................... 202,621 215,649 226,489 118,550 --
Zimpro........................ 29,470 31,678 28,877 13,702 --
-------- -------- -------- -------- --------
Combined.................... $412,512 $519,359 $727,903 $332,099 $433,719
======== ======== ======== ======== ========
OPERATING INCOME (LOSS):
Company (as previously
reported).................... $ (4,874) $ 14,585 $ 34,955 $ 14,760 $ 26,600
Davis......................... 1,506 7,512 10,892 5,497 --
Zimpro........................ (1,687) 1,026 (5,200) 381 --
-------- -------- -------- -------- --------
Combined.................... $ (5,055) $ 23,123 $ 40,647 $ 20,638 $ 26,600
======== ======== ======== ======== ========
NET INCOME (LOSS):
Company (as previously
reported).................... $ (2,541) $ 8,331 $ 20,290 $ 7,868 $ 14,228
Davis......................... (5,340) 3,448 5,749 2,978 --
Zimpro........................ (1,513) 460 (6,732) (136) --
-------- -------- -------- -------- --------
Combined.................... $ (9,394) $ 12,239 $ 19,307 $ 10,710 $ 14,228
======== ======== ======== ======== ========
NET INCOME (LOSS) PER COMMON
SHARE:(6)
As previously reported........ $ (0.17) $ 0.34 $ 0.54 $ 0.23 $ --
As restated................... (0.42) 0.41 0.45 0.27 0.28
</TABLE>
- -------------------
(1) The historical consolidated financial data for the fiscal years ended
March 31, 1994, 1995 and 1996 and for the six months ended September 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 six months ended September 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, certain charges totalling
$2,359,000 related to the rationalization of certain wastewater operations
and write-off of certain intangibles in the Company's Continental Penfield
subsidiary totalling $3,738,000. In addition, 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 $3,193,000 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. The EBITDA measure
presented by the Company may not be comparable to similarly titled
measures by other companies.
(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 $7,693,000 and $9,099,000 for the years
ended March 31, 1992 and March 31, 1994, respectively. The ratio of
earnings to fixed charges was 1.0x for the year ended March 31, 1993.
(9) The six months ended September 30, 1996 includes merger expenses of
$5,581,000 related to the acquisition of Davis, which was accounted for
as a pooling of interests.
30
<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 six months ended September 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 six months ended
September 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>
SIX MONTHS
ENDED
FISCAL YEAR ENDED SEPTEMBER
MARCH 31, 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 74.4 72.7
----- ----- ----- ----- -----
Gross profit............................... 20.8 23.2 26.0 25.6 27.3
Selling, general and administrative
expenses.................................. 22.0 18.8 20.4 19.4 19.9
Merger expense............................. -- -- -- -- 1.3
----- ----- ----- ----- -----
Operating income (loss).................... (1.2) 4.5 5.6 6.2 6.1
Interest expense........................... 1.0 1.4 2.0 2.0 1.8
Net income (loss).......................... (2.3) 2.4 2.7 3.2 3.3
</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>
SIX MONTHS
FISCAL YEAR ENDED ENDED
MARCH 31, SEPTEMBER 30,
--------------------- ---------------
1994 1995 1996 1995 1996
----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
Revenues by product category:
Capital equipment.................. 41% 42% 39% 39% 39%
Services and operations............ 9 9 20 22 22
Distribution....................... 37 33 25 21 21
Replacement parts, consumables and
other............................. 13 16 16 17 18
</TABLE>
31
<PAGE>
SIX MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH SIX MONTHS ENDED SEPTEMBER
30, 1995
REVENUES
Revenues for the six months ended September 30, 1996 were $433,719,000, an
increase of $101,620,000 from $332,099,000 for the comparable period of the
prior fiscal year. This 30.6% increase was due primarily to acquisitions
completed by the Company after September 30, 1995. For the six months ended
September 30, 1996, revenues from capital equipment sales represented 39% of
total revenues, while revenues from services and operations represented 22% of
total revenues, revenues from distribution represented 21% of total revenues
and revenues from replacement parts and consumables represented 18% of total
revenues.
GROSS PROFIT
Gross profit increased 39.2% to $118,321,000 for the six months ended
September 30, 1996 from $85,006,000 for the comparable period of the prior
fiscal year. Total gross profit as a percentage of revenue ("gross margin")
increased to 27.3% for the six months ended September 30, 1996, compared to
25.6% for the comparable period of the prior fiscal year. The increase in
gross margin for the six months ended September 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
For the six months ended September 30, 1996, selling, general and
administrative expenses, excluding merger expenses, increased $21,772,000 to
$86,140,000 as compared to the $64,368,000 in the comparable period in the
prior year. During this period, selling, general and administrative expenses,
excluding merger expenses, were 19.9% of revenues compared to 19.4% for the
comparable period in the prior year.This increase was primarily due to the
addition of sales and administrative personnel accompanying the Company's
recent acquisitions.
Excluding merger expenses, operating income as a percentage of revenues
increased to 7.4% for the six months ended September 30, 1996 from 6.2% for
the corresponding period in fiscal 1995 due primarily to improvement in gross
margin.
MERGER EXPENSES
Merger expenses were incurred during the six months ended September 30, 1996
relating to the Company's acquisition of Davis which was accounted for as a
pooling of interests. These merger expenses, which totaled $5,581,000,
consisted primarily of investment banking fees, printing, stock transfer fees,
legal fees, accounting fees, governmental filing fees and certain other costs
related to existing Davis pension plans and change of control payments.
INTEREST EXPENSE
Interest expense increased to $7,972,000 for the six months ended September
30, 1996 from $6,548,000 for the corresponding period in the prior year.
Interest expense for the six months ended September 30, 1996 consisted
primarily of interest on the Company's: (i) 5% Convertible Subordinated
Debentures due 2000 (all of which have been, as of October 25, 1996, converted
into shares of Common Stock); (ii) 6% Convertible Subordinated Notes issued on
September 18, 1995 due 2005; and (iii) borrowings under the Company's bank
line of credit. At September 30, 1996, the Company had cash and short-term
investments of $20,304,000.
INCOME TAX EXPENSE
Income tax expense increased to $5,404,000 in the six months ended September
30, 1996, from $4,743,000 in the corresponding period in the prior year. The
Company's effective tax rate for the three and six months ended September 30,
1996 was 27.5% as compared to 30.7% in the corresponding period in the prior
year.
32
<PAGE>
NET INCOME
For the six months ended September 30, 1996, net income increased
$3,518,000 to $14,228,000 from $10,710,000 for the same period in the prior
year. Excluding Davis merger expenses, net income for the six months ended
September 30, 1996 totaled $18,279,000, an increase of 70.6% over the same
period in the prior year. Net income per common share for the six months ended
September 30, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
-----------------
1996 1995
-------- --------
<S> <C> <C>
Before merger expenses................................. $ 0.36 $ 0.27
After merger expenses.................................. $ 0.28 $ 0.27
</TABLE>
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.
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.
33
<PAGE>
OTHER INCOME (EXPENSE)
Other income (expense) increased to $5,134,000 of income for fiscal 1996
from $1,442,000 of income for fiscal 1995. Other income consisted primarily of
interest income on short-term investments, which increased during fiscal 1996
primarily as a result of the Company's sale of $140,000,000 aggregate
principal amount of 6% Convertible Subordinated Notes on September 18, 1995
and the Company's issuance of 10,350,000 shares of Common Stock on May 3, 1995
with net proceeds of approximately $98,118,000.
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.
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
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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, (iii) the exclusion from operating results in fiscal 1995 of a
division of Davis which was shut down in fiscal 1994, and (iv) certain charges
totalling $2,359,000 related to the rationalization of certain wastewater
operations. 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.
OTHER INCOME (EXPENSE)
Other income (expense) increased $8,824,000 in fiscal 1995 from an expense
of $7,382,000 in fiscal 1994 to income of $1,442,000 in fiscal 1995. During
the fourth quarter of fiscal 1994, the Company's Davis subsidiary 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
was recorded in fiscal 1994 and included 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.
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 shares outstanding) for
fiscal 1995 from a net loss of $0.42 per common share (based upon 23,934,000
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.
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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 September 30, 1996, the Company had working capital of
$168,606,000, including cash and short-term investments of $20,304,000. The
Company's long-term debt at September 30, 1996 included $53,565,000 aggregate
principal amount of 5% Convertible Subordinated Debentures due 2000 (all of
which were converted into 4,390,000 shares of Common Stock on October 25,
1996), $140,000,000 of 6% Convertible Subordinated Notes due 2005 and other
long-term debt totalling $9,003,000 and bearing interest at rates ranging from
2.0% to 11.5%.
Capital expenditures totaled $8,050,000, $18,304,000 and $28,392,000 for
fiscal years ended March 31, 1994, 1995, and 1996, respectively. Although the
Company has no material firm commitments for capital expenditures, capital
expenditure requirements are expected to increase as a result of the Company's
anticipated growth, including from the acquisitions of USG and WaterPro and
the pending acquisitions of WSMG and PED. The Company has no plans for further
investments in leasehold interests.
As of September 30, 1996, the Company had an existing multicurrency bank
line of credit of $135,000,000, of which there were outstanding borrowings of
$81,156,000 and outstanding letters of credit of $14,446,000. 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. The existing bank line of credit is, and the anticipated
credit facilities would be, secured by the stock of certain of the Company's
United States subsidiaries. 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 entered into in conjunction with the acquisition of
WaterPro, all former WaterPro stockholders and former WaterPro debtholders,
who together hold an aggregate of 3,201,507 shares of the Common Stock, have
the right, exercisable during the 90-day period commencing on December 27,
1996, to require the Company to purchase all or any portion of such shares of
Common Stock at a purchase price equal to $33.24 per share.
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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 any or all of them are sold within a
specified number of days after consummation of the acquisition for net
proceeds per share of less than an amount determined by dividing
(Pounds)25,000,000 by the number of shares issued, the Company will pay the
aggregate deficiency to PED in cash, and if the net proceeds per share exceed
such amount, PED will pay the aggregate 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.
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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
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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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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 and PED and the recent
acquisitions of 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
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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 acquisitions of Davis, WaterPro and USG and the pending acquisitions of
WSMG and PED 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 acquisitions of Davis, WaterPro and USG and the pending acquisitions
of WSMG and PED 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 acquisitions of Davis, WaterPro
and USG 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 is
currently a 50% owner of TWO, which focuses on the outsourcing of
industrial customers' water treatment needs. The operating strategy for
TWO, or, if formed, the Joint Venture, is or 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.
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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 acquisitions of Davis, of
WaterPro and USG 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.
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.
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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.
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.
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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.
BACKLOG
The Company had the following backlog as of September 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>
September 30, 1995 $199,500,000
September 30, 1996 254,000,000
</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.
44
<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
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 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.
45
<PAGE>
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.
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.
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
46
<PAGE>
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.
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
47
<PAGE>
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.
48
<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 3,750,093 shares as of October 31, 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. As reported in a Schedule 13G/A dated February
12, 1996, The TCW Group, Inc. had sole voting and dispositive power with
respect to the shares and Robert Day, an individual whose address is 200
Park Avenue, Suite 2200, New York, New York 10166, may be deemed to
control The TCW Group, Inc.
(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) Includes 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.
49
<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 $200,000,000 ($230,000,000
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
50
<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
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<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 September 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 $137.9 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 $473.0
million of trade payables and accrued liabilities outstanding at September 30,
1996. The Indenture will not restrict the incurrence of Senior Indebtedness or
other indebtedness by the Company or its Subsidiaries. The Notes will
effectively rank pari passu with the Company's 6% Convertible Subordinated
Notes due 2005.
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
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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.
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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.
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
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"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.
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.
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<PAGE>
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, 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
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<PAGE>
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.
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.
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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.
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
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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.
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.
59
<PAGE>
"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 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.
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<PAGE>
"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.
61
<PAGE>
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, 4,390,000 shares were reserved for issuance upon
conversion of the Company's 5% Convertible Subordinated Debentures due 2000
(all of which were issued on October 25, 1996 in connection with a redemption
call), 7,636,363 shares were reserved for issuance upon conversion of the
Company's 6% Convertible Subordinated Notes due 2005 and an aggregate of
4,396,594 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 31, 1996, held 3,750,093 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,
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<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.
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<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 a review and analysis of 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."
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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........................................................ $200,000,000
============
</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 $30,000,000 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
9,532,217 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.
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<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 LLP, 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.
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<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 Reports on Form 10-Q for the quarters ended June 30,
1996 and September 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,
September 6, 1996, October 28, 1996 and November 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).
67
<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 September
30, 1996 (unaudited)................................................... F-4
Consolidated Statements of Operations for the Years Ended March 31,
1994, 1995 and 1996 and the six months ended September 30, 1995 and
1996 (unaudited)....................................................... F-6
Consolidated Statements of Shareholders' Equity for the Years Ended
March 31, 1994, 1995 and 1996 and the six months ended September 30,
1996 (unaudited)....................................................... F-7
Consolidated Statements of Cash Flows for the Years Ended March 31,
1994, 1995 and 1996 and the six months ended September 30, 1995 and
1996 (unaudited)....................................................... F-9
Notes to Consolidated Financial Statements.............................. F-11
WHEELABRATOR TECHNOLOGIES INC.--SYSTEMS AND MANUFACTURING GROUP
Independent Auditors' Report--KPMG Peat Marwick LLP....................... F-30
Financial Statements:
Combined Balance Sheets as of December 31, 1994 and 1995 and September
30, 1996 (unaudited)................................................... F-31
Combined Income Statements for the years ended December 31, 1993, 1994
and 1995 and the nine months ended September 30, 1995 and 1996
(unaudited)............................................................ F-32
Combined Statements of Cash Flows for the years ended December 31, 1993,
1994 and 1995 and the nine months ended September 30, 1995 and 1996
(unaudited)............................................................ F-33
Notes to Consolidated Financial Statements.............................. F-34
UNITED UTILITIES PLC--PROCESS DIVISION
Statement of United Utilities PLC directors' responsibilities............. F-40
Auditors' Report to the Board of Directors of United Utilities PLC--KPMG
Audit Plc ............................................................... F-41
Financial Statements:
Profit and Loss Account for the years ended March 31, 1996 and 1995 and
the six months ended September 30, 1995 and 1996 (unaudited)........... F-42
Balance Sheets as of March 31, 1996 and 1995 and September 30, 1996
(unaudited)............................................................ F-43
Cash Flow Statement for the year ended March 31, 1996................... F-44
Notes to Financial Statements .......................................... F-45
</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.
/s/ KPMG PEAT MARWICK LLP
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 28, 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.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Atlanta, Georgia
June 13, 1996
F-3
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
------------------------- SEPTEMBER 30,
1995 1996 1996
------------ ------------ -------------
(UNAUDITED)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents (note 2).... $ 20,020,000 $ 18,405,000 $ 19,488,000
Short-term investments (note 3)....... 2,418,000 65,000 816,000
Accounts receivable, less allowance
for doubtful accounts of $4,643,000
at March 31, 1995, $9,857,000 at
March 31, 1996 and $9,797,000 at
September 30, 1996 (unaudited)
(note 10)............................ 138,891,000 218,855,000 213,594,000
Costs and estimated earnings in excess
of billings on uncompleted contracts
(note 10)............................ 21,808,000 33,575,000 52,802,000
Inventories (note 4).................. 55,328,000 75,313,000 88,230,000
Prepaid expenses...................... 3,489,000 7,922,000 11,981,000
Deferred taxes (note 14).............. 9,746,000 7,771,000 7,771,000
Other current assets.................. 6,882,000 10,073,000 9,614,000
------------ ------------ ------------
Total current assets............... 258,582,000 371,979,000 404,296,000
------------ ------------ ------------
Property, plant and equipment, net
(notes 5 and 11)...................... 79,495,000 165,989,000 178,362,000
Investment in leasehold interests, net
(note 6).............................. 20,390,000 27,688,000 27,057,000
Cost in excess of net assets of busi-
nesses acquired, net (notes 7 and 9).. 99,162,000 271,891,000 276,627,000
Other assets (note 8).................. 25,094,000 38,958,000 50,317,000
------------ ------------ ------------
$482,723,000 $876,505,000 $936,659,000
============ ============ ============
</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,
-------------------------- SEPTEMBER 30,
1995 1996 1996
------------ ------------ -------------
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C>
Current liabilities:
Accounts payable..................... $ 64,478,000 $100,224,000 $101,329,000
Accrued liabilities (note 13)........ 50,684,000 102,415,000 102,000,000
Current portion of long-term debt
(note 11)........................... 4,336,000 7,892,000 1,386,000
Billings in excess of costs and
estimated earnings on uncompleted
contracts (note 10)................. 19,263,000 15,797,000 19,631,000
Other current liabilities............ 5,849,000 21,894,000 11,344,000
------------ ------------ ------------
Total current liabilities......... 144,610,000 248,222,000 235,690,000
------------ ------------ ------------
Notes payable (note 11)............... 37,648,000 35,756,000 81,156,000
Long-term debt, excluding current por-
tion (note 11)....................... 15,132,000 9,788,000 7,617,000
Convertible subordinated debentures
(note 12)............................ 105,000,000 200,000,000 193,565,000
Deferred taxes (note 14).............. 8,293,000 1,223,000 1,223,000
Other liabilities..................... 5,162,000 13,015,000 17,405,000
------------ ------------ ------------
Total liabilities................. 315,845,000 508,004,000 536,656,000
------------ ------------ ------------
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 49,280,734 at
March 31, 1995 and 1996, and
September 30, 1996 (unaudited),
respectively........................ 209,000 338,000 493,000
Additional paid-in capital........... 145,224,000 351,254,000 370,625,000
Currency translation adjustment...... (2,026,000) 1,836,000 2,691,000
Retained earnings (accumulated defi-
cit)................................ (2,106,000) 15,073,000 26,194,000
------------ ------------ ------------
Total shareholders' equity........ 166,878,000 368,501,000 400,003,000
Commitments and contingencies (notes
11, 15, 16 and 18)
Subsequent events (notes 9 and 20)....
------------ ------------ ------------
$482,723,000 $876,505,000 $936,659,000
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED MARCH 31, SEPTEMBER 30,
---------------------------------------- --------------------------
1994 1995 1996 1995 1996
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................ $412,512,000 $519,359,000 $727,903,000 $332,099,000 $433,719,000
Costs of sales.......... 326,848,000 398,755,000 538,573,000 247,093,000 315,398,000
------------ ------------ ------------ ------------ ------------
Gross profit.......... 85,664,000 120,604,000 189,330,000 85,006,000 118,321,000
Selling, general and
administrative
expenses............... 90,719,000 97,481,000 148,683,000 64,368,000 86,140,000
Merger expenses......... -- -- -- -- 5,581,000
------------ ------------ ------------ ------------ ------------
Operating income
(loss)............... (5,055,000) 23,123,000 40,647,000 20,638,000 26,600,000
Other income (expense):
Interest expense....... (4,044,000) (7,514,000) (14,419,000) (6,548,000) (7,972,000)
Interest income and
other................. (7,382,000) 1,442,000 5,134,000 1,363,000 1,004,000
------------ ------------ ------------ ------------ ------------
(11,426,000) (6,072,000) (9,285,000) (5,185,000) (6,968,000)
------------ ------------ ------------ ------------ ------------
Income (loss) before
income tax expense
(benefit)............ (16,481,000) 17,051,000 31,362,000 15,453,000 19,632,000
Income tax expense
(benefit) (note 14).... (7,087,000) 4,812,000 12,055,000 4,743,000 5,404,000
------------ ------------ ------------ ------------ ------------
Net income (loss)..... $ (9,394,000) $ 12,239,000 $ 19,307,000 $ 10,710,000 $ 14,228,000
============ ============ ============ ============ ============
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..... $ (0.42) $ 0.41 $ 0.45 $ 0.27 $ 0.28
============ ============ ============ ============ ============
</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 SIX MONTHS ENDED SEPTEMBER 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) ... -- -- 252,635 2,000 1,214,000 -- -- 1,216,000
Issuance of common stock
in connection with
acquisitions
(unaudited) ........... -- -- 511,412 4,000 8,404,000 -- -- 8,408,000
Shareholders' equity
transactions of Zimpro
and Davis prior to
merger (unaudited) .... -- -- -- -- 132,000 -- (2,501,000) (2,369,000)
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) ........... -- -- 471,063 5,000 6,430,000 -- -- 6,435,000
Par value of shares
issued in connection
with three-for-two
stock split (note 15)
(unaudited)............ -- -- -- 143,000 (143,000) -- -- 0
Currency translation
adjustment (unaudited)
....................... -- -- -- -- -- 855,000 -- 855,000
Net income (unaudited) . -- -- -- -- -- -- 14,228,000 14,228,000
-------- ------------ ---------- -------- ----------- --------- ---------- -----------
Balance at September 30,
1996 (unaudited)....... -- $ -- 49,280,734 $493,000 370,625,000 2,691,000 26,194,000 400,003,000
======== ============ ========== ======== =========== ========= ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED MARCH 31, ENDED SEPTEMBER 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 $ 10,710,000 $ 14,228,000
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) 194,000 --
Depreciation and
amortization......... 11,292,000 16,654,000 26,580,000 11,439,000 20,509,000
Provision for doubtful
accounts............. 1,326,000 2,030,000 5,929,000 1,320,000 1,049,000
(Gain) loss on sale of
property and
equipment............ 81,000 388,000 (243,000) 128,000 (5,000)
Stock and stock option
compensation......... 80,000 122,000 112,000 56,000 --
(Decrease) increase in
closure reserves and
write off of
intangible assets.... 12,633,000 (1,480,000) 768,000 (1,175,000) --
Change in operating
assets and
liabilities:
(Increase) decrease
in accounts
receivable.......... (13,737,000) (6,966,000) (25,900,000) (2,446,000) 9,016,000
(Increase) decrease
in costs and
estimated earnings
in excess of
billings on
uncompleted
contracts........... (11,820,000) 2,046,000 (4,599,000) (12,409,000) (19,227,000)
Increase in
inventories......... (4,510,000) (5,016,000) (4,215,000) (11,361,000) (12,859,000)
(Increase) decrease
in prepaid expenses
and other assets.... 608,000 (3,763,000) (7,055,000) (752,000) (15,684,000)
Increase (decrease)
in accounts payable
and accrued
expenses............ 15,283,000 (14,110,000) (1,726,000) (3,477,000) 3,726,000
Increase (decrease)
in billings in
excess of costs and
estimated earnings
on uncompleted
contracts........... 866,000 2,529,000 (4,096,000) (3,968,000) 3,834,000
Increase (decrease)
in other
liabilities......... 50,000 (2,117,000) (725,000) (1,273,000) (6,559,000)
------------ ------------ ------------- ------------ ------------
Net cash provided by
(used in) operating
activities......... (6,523,000) 3,269,000 (342,000) (13,014,000) (1,972,000)
------------ ------------ ------------- ------------ ------------
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) (13,520,000) (29,905,000)
Proceeds from disposal
of equipment......... 252,000 877,000 7,670,000 1,287,000 203,000
Purchase of short-term
investments.......... (58,411,000) (605,000) (2,591,000) (2,578,000) (755,000)
Proceeds upon maturity
of short-term
investments.......... 42,786,000 13,812,000 12,529,000 2,461,000 4,000
Payment for purchase
of acquisitions, net
of cash acquired..... (987,000) (2,240,000) (206,600,000) (111,042,000) (7,369,000)
------------ ------------ ------------- ------------ ------------
Net cash used in
investing
activities......... (40,176,000) (12,857,000) (225,731,000) (123,392,000) (37,822,000)
------------ ------------ ------------- ------------ ------------
Cash flows from
financing activities:
Net proceeds from sale
(purchase) of common
stock................ 14,000 (164,000) 97,232,000 97,510,000 --
Net proceeds from sale
of convertible
subordinated
debentures........... 57,923,000 -- 136,249,000 136,249,000 --
Proceeds from exercise
of common stock
options.............. 1,242,000 1,422,000 3,681,000 799,000 1,215,000
Principal payments of
debt................. (56,572,000) (65,409,000) (72,347,000) (54,690,000) (5,342,000)
Dividends paid........ (861,000) (1,136,000) (2,138,000) (891,000) (396,000)
Payment to repurchase
Series B preferred
stock................ -- -- (4,709,000) (4,709,000) --
Net proceeds from
borrowings on note
payable.............. 57,638,000 74,678,000 66,490,000 32,519,000 45,400,000
------------ ------------ ------------- ------------ ------------
Net cash provided by
financing
activities......... 59,384,000 9,391,000 224,458,000 206,787,000 40,877,000
------------ ------------ ------------- ------------ ------------
Net increase
(decrease) in cash
and cash
equivalents........ 12,685,000 (197,000) (1,615,000) 70,381,000 1,083,000
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 $ 90,401,000 $ 19,488,000
============ ============ ============= ============ ============
</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>
SIX MONTHS
YEARS ENDED MARCH 31, ENDED SEPTEMBER 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 $5,087,000 $8,654,000
========== ========== =========== ========== ==========
Cash paid during the
period for income
taxes................. $1,709,000 $2,626,000 $ 6,807,000 $2,519,000 $4,553,000
========== ========== =========== ========== ==========
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
SIX MONTHS ENDED SEPTEMBER 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 six months ended September 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>
SIX MONTHS ENDED
YEARS ENDED MARCH 31, SEPTEMBER 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 $10,710,000 $14,228,000
Dividends on preferred
stock.................. (701,000) (715,000) (536,000) (358,000) --
------------ ----------- ----------- ----------- -----------
Adjusted net income
(loss) applicable to
common shares.......... $(10,095,000) $11,524,000 $18,771,000 $10,352,000 $14,228,000
============ =========== =========== =========== ===========
Weighted average shares
outstanding............ 23,934,000 27,866,000 41,036,000 37,019,000 48,671,000
Add:
Exercise of options
reduced by the number
of shares purchased
with proceeds......... -- 369,000 1,123,000 892,000 1,958,000
------------ ----------- ----------- ----------- -----------
Adjusted weighted
average shares
outstanding............ 23,934,000 28,235,000 42,159,000 37,911,000 50,629,000
============ =========== =========== =========== ===========
Income (loss) per common
share:
Net income (loss)..... $ (0.38) $ 0.43 $ 0.46 $ 0.28 $ 0.28
Dividends on preferred
stock................ (0.03) (0.02) (0.01) (0.01) (0.00)
------------ ----------- ----------- ----------- -----------
Adjusted income (loss)
per common share....... $ (0.42) $ 0.41 $ 0.45 $ 0.27 $ 0.28
============ =========== =========== =========== ===========
</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 September 30, 1996 (unaudited)
consist of:
<TABLE>
<CAPTION>
MARCH 31,
----------------------- SEPTEMBER 30,
1995 1996 1996
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials.......................... $15,298,000 $21,578,000 $25,525,000
Work-in-process........................ 13,436,000 17,997,000 25,906,000
Finished goods......................... 26,594,000 35,738,000 36,799,000
----------- ----------- -----------
$55,328,000 $75,313,000 $88,230,000
=========== =========== ===========
</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 six months ended September 30, 1995 and
1996 (unaudited) are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 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 $199,847,000 $433,719,000
Zimpro................. 29,470,000 31,678,000 28,877,000 13,702,000 --
Davis.................. 202,621,000 215,649,000 226,489,000 118,550,000 --
------------ ------------ ------------ ------------ ------------
Combined............ $412,512,000 $519,359,000 $727,903,000 $332,099,000 $433,719,000
============ ============ ============ ============ ============
Net income (loss)
U.S. Filter (as
previously reported).. $ (2,541,000) $ 8,331,000 $ 20,290,000 $ 7,868,000 $ 14,228,000
Zimpro................. (1,513,000) 460,000 (6,732,000) (136,000) --
Davis.................. (5,340,000) 3,448,000 5,749,000 2,978,000 --
------------ ------------ ------------ ------------ ------------
Combined............ $ (9,394,000) $ 12,239,000 $ 19,307,000 $ 10,710,000 $ 14,228,000
============ ============ ============ ============ ============
Net income (loss) per
common share and common
equivalent share:
As previously reported. $ (0.17) $ 0.34 $ 0.54 $ 0.23 $ 0.28
============ ============ ============ ============ ============
As restated............ $ (0.41) $ 0.41 $ 0.45 $ 0.27 $ 0.28
============ ============ ============ ============ ============
</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.
On December 1, 1993, the Company acquired all of the outstanding capital
stock of Ionpure Technologies Corporation and IP Holdings Company. The total
purchase price consisted of $100,000 in cash and 4,561,638 shares of Company
Common Stock. In fiscal 1995, the Company received an independent appraisal of
the value of the Company's Common Stock. As a result of the appraisal, shares
issued in connection with this acquisition had a value $9,123,000 less than
originally ascribed to the Common Stock at the time of acquisition.
Accordingly, additional paid in capital and excess cost over fair value of net
assets acquired were reduced in fiscal 1995.
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
============= =============
The above amounts are included in the accompanying consolidated balance
sheets as:
<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
============= =============
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:
<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.
F-26
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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
============= ============ ============
Income (loss) before income tax
expense:
United States................... $ (17,226,000) $ 12,273,000 $ 17,733,000
Foreign......................... 745,000 4,778,000 13,629,000
------------- ------------ ------------
$ (16,481,000) $ 17,051,000 $ 31,362,000
============= ============ ============
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>
(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>
F-27
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
Zimpro is party to certain agreements (entered into in 1990 at the time
Zimpro was acquired from unrelated third parties by the entities from which it
was later acquired by the Company), pursuant to which Zimpro agreed, among
other things, to pay the original sellers a royalty of 3.0% of its annual
consolidated net sales of certain products in excess of $35.0 million through
October 25, 2000. Under certain interpretations of such agreements, with which
the Company disagrees, Zimpro could be liable for such royalties with respect
to the net sales attributable to products, systems and services of certain
defined wastewater treatment businesses acquired by Zimpro or the Company or
the Company's other subsidiaries after May 31, 1996. The defined businesses
include, among others, manufacturing machinery and equipment, and engineering,
installation, operation and maintenance services related thereto, for the
treatment and disposal of waste liquids, toxic waste and sludge. One of the
prior sellers has revealed in a letter to the Company an interpretation
contrary to that of the Company. The Company believes that it would have
meritorious defenses to any claim based upon any such interpretation and would
vigorously pursue the elimination of any threat to expand what it believes to
be its obligations pursuant to such agreements.
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
Second quarter............... 225,210,000 61,986,000 6,225,000 0.12
</TABLE>
- ---------------------
* Per common and common equivalent share
F-28
<PAGE>
UNITED STATES FILTER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(20) SUBSEQUENT EVENTS
On October 25, 1996, the Company acquired all of the outstanding capital
stock of The Utility Supply Group, Inc. ("USG") pursuant to an Agreement and
Plan of Merger. USG is a provider of water and wastewater related products and
services to industrial and municipal customers throughout the United States.
The purchase price was approximately $44 million. The transaction was
accounted for as a purchase.
On October 28, 1996, the Company acquired all of the outstanding capital
stock of WaterPro Supplies Corporation ("WaterPro") pursuant to a Stock
Purchase Agreement. WaterPro is a national distributor of water and wastewater
related products and services for municipal water, sewer authorities and
underground contractors, and has locations throughout the United States.
The purchase price was approximately $102 million paid in shares of Company
Common Stock. The transaction was accounted for as a purchase. In connection
with this transaction and subject to certain conditions, the WaterPro
shareholders have the right to require the Company to repurchase the shares at
$33.24 per share.
On September 14, 1996, the Company entered into a Purchase and Sale
Agreement with Wheelabrator Technologies Inc. in connection with a proposed
acquisition by the Company of Wheelabrator's Water Systems and Manufacturing
Group ("WSMG"). Pursuant to the terms of the agreement, the Company will pay
approximately $369 million in cash for WSMG, subject to possible adjustment,
which provides a broad range of water and wastewater engineering, technology
and systems. The proposed transaction is expected to be completed in December
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 ("UU") and certain of its subsidiaries in connection
with a proposed acquisition by the Company of UU's Process Equipment Division
("PED"). In accordance with the terms of the definitive agreement, the Company
will pay approximately (Pounds)125 million for PED, which provides a broad
range of water and wastewater engineering technology and systems. In
connection with this proposed transaction, the Company entered into a forward
contract to purchase 100 million British pounds sterling for approximately
$159.3 million between December 16, 1996 and February 14, 1997. The proposed
transaction is expected to be completed in January 1997, and will be accounted
for as a purchase.
On September 12, 1996, the Company provided notice, pursuant to terms of its
Indenture dated October 20, 1993, of its intent to redeem on October 25, 1996
all of its outstanding 5% Convertible Subordinated Debentures due 2000. As of
October 25, 1996, all holders of the debentures converted the debentures into
a total of approximately 4.4 million shares of Company Common Stock pursuant
to the terms of the Debentures.
F-29
<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.
/s/ KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Chicago, Illinois
October 15, 1996
F-30
<PAGE>
WHEELABRATOR TECHNOLOGIES INC.
SYSTEMS AND MANUFACTURING GROUP
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- SEPTEMBER 30,
ASSETS 1994 1995 1996
------ -------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents........................ $ 25,122 $ 25,092 $ 12,619
Accounts receivable, net......................... 81,490 87,526 93,325
Inventories...................................... 31,527 48,407 41,622
Costs and estimated earnings in excess of
billings on uncompleted contracts............... 20,498 22,710 19,785
Other current assets............................. 2,920 2,028 3,790
-------- -------- --------
Total current assets........................... 161,557 185,763 171,141
-------- -------- --------
Property, plant, and equipment, net................ 48,253 47,354 55,752
Goodwill, net...................................... 151,483 158,074 155,578
Other assets....................................... 5,365 3,756 4,044
-------- -------- --------
Total assets................................... $366,658 $394,947 $386,515
======== ======== ========
<CAPTION>
LIABILITIES AND GROUP EQUITY
----------------------------
<S> <C> <C> <C>
Current Liabilities:
Accounts payable................................. $ 56,485 $ 53,163 $ 53,338
Accrued liabilities.............................. 51,615 47,816 43,822
Advance payment on contracts..................... 19,802 19,966 18,911
-------- -------- --------
Total current liabilities...................... 127,902 120,945 116,071
-------- -------- --------
Other long-term liabilities........................ 17,732 16,003 13,962
Commitments and contingencies......................
Group Equity:
Group equity..................................... 220,527 255,816 254,400
Cumulative translation adjustment................ 497 2,183 2,082
-------- -------- --------
Total group equity............................... 221,024 257,999 256,482
-------- -------- --------
Total liabilities and group equity............. $366,658 $394,947 $386,515
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-31
<PAGE>
WHEELABRATOR TECHNOLOGIES INC.
SYSTEMS AND MANUFACTURING GROUP
COMBINED INCOME STATEMENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- -----------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue.......................... $293,207 $364,335 $452,134 $337,589 $329,527
Operating expenses............... 222,384 281,946 361,462 269,479 257,985
-------- -------- -------- -------- --------
Gross margin................... 70,823 82,389 90,672 68,110 71,542
Selling, general & administrative
expenses........................ 47,261 62,224 68,170 50,180 49,371
-------- -------- -------- -------- --------
Operating income............... 23,562 20,165 22,502 17,930 22,171
Gain (loss) on sale of assets.... (5) 955 4,212 15 18
Interest, net.................... 288 168 423 244 487
Other income (expense), net...... (1,421) 755 132 127 96
-------- -------- -------- -------- --------
Income before pro forma income
tax provision................. 22,424 22,043 27,269 18,316 22,772
Pro forma income tax provision... 8,970 8,817 10,908 7,326 9,109
-------- -------- -------- -------- --------
Net income..................... $ 13,454 $ 13,226 $ 16,361 $ 10,990 $ 13,663
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-32
<PAGE>
WHEELABRATOR TECHNOLOGIES INC.
SYSTEMS AND MANUFACTURING GROUP
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------- ------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net income................. $ 13,454 $ 13,226 $ 16,361 $ 10,990 $ 13,663
Adjustment to reconcile net
income to cash flows from
operating activities:.....
Depreciation and
amortization............ 5,581 9,608 11,211 8,492 9,145
Changes in assets and
liabilities, net of
effects of acquired
businesses:.............
Accounts receivable.... (2,088) (8,116) (5,292) (8,739) (5,799)
Inventories............ 5,254 (6,423) (11,222) (10,313) 6,785
Costs and estimated
earnings in excess of
billings on
uncompleted contracts. (17,182) 3,014 (2,212) 255 2,925
Accounts payable....... 5,865 4,327 (4,143) (8,068) 175
Accrued liabilities.... 3,213 (2,889) (4,182) (2,940) (3,994)
Advance payments on
contracts............. (982) (239) (6,358) (5,376) (1,055)
Other, net................. 4,603 2,310 (2,973) 3,764 293
-------- -------- -------- -------- --------
Net cash provided by
(used for) operating
activities............ 17,718 14,818 (8,810) (11,935) 22,138
-------- -------- -------- -------- --------
Investing Activities:
Capital expenditures....... (4,202) (5,075) (9,817) (5,612) (22,443)
Sale of property, plant,
and equipment............. 5,805 3,834 8,054 4,259 477
Cash paid for acquisitions,
net of acquired cash...... (24,790) (18,848) (5,746) -- (850)
Other, net................. -- (1,375) 46 (1,459) --
-------- -------- -------- -------- --------
Net cash provided by
(used for) investing
activities.............. (23,187) (21,464) (7,463) (2,792) (22,816)
-------- -------- -------- -------- --------
Financing Activities:
Increase (decrease) in
group equity.............. 6,073 20,073 20,614 17,015 (15,180)
Other, net................. -- 3,423 (4,371) (2,906) 3,385
-------- -------- -------- -------- --------
Net cash provided by
(used for) investing
activities.............. 6,073 23,496 16,243 14,109 (11,795)
-------- -------- -------- -------- --------
Increase (decrease) in cash
and cash equivalents........ 604 16,850 (30) (618) (12,473)
Cash and cash equivalents at
beginning of period......... 7,668 8,272 25,122 25,122 25,092
-------- -------- -------- -------- --------
Cash and cash equivalents at
end of period............... $ 8,272 $ 25,122 $225,092 $ 24,504 $ 12,619
======== ======== ======== ======== ========
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-33
<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-34
<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-35
<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 September 30, 1996 and for the nine
months ended September 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 nine
months ended September 30, 1996 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1996.
F-36
<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-37
<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-38
<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-39
<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-40
<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-41
<PAGE>
UNITED UTILITIES PLC PROCESS DIVISION
PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
US $ US $
AUDITED UNAUDITED
YEAR ENDED 6 MONTHS ENDED
-------------------- -------------------------
31 MARCH 31 MARCH 30 SEPTEMBER 30 SEPTEMBER
NOTE 1996 1995 1996 1995
---- --------- --------- ------------ ------------
$000 $000 $000 $000
<S> <C> <C> <C> <C> <C>
Turnover.................. 2 267,358 254,955 130,407 119,309
Cost of sales............. (189,529) (179,057) (92,728) (85,230)
--------- --------- ------- -------
Gross profit.............. 77,829 75,898 37,679 34,079
Net operating costs and
administrative expenses.. 3 (63,983) (65,321) (32,460) (32,166)
Business restructuring.... 4 (31,312) -- -- --
--------- --------- ------- -------
Operating (loss)/profit... (17,466) 10,577 5,219 1,913
Profit on disposal of
fixed assets............. 5 -- 1,833 -- --
--------- --------- ------- -------
(Loss)/profit on ordinary
activities............... (17,466) 12,410 5,219 1,913
Net interest.............. 6 (19,865) (19,925) (9,469) (9,788)
--------- --------- ------- -------
Loss on ordinary
activities before
taxation................. (37,331) (7,515) (4,250) (7,875)
Taxation on loss on
ordinary activities...... 8 (2,165) (6,061) 309 (570)
--------- --------- ------- -------
Loss on ordinary
activities after
taxation................. (39,496) (13,576) (3,941) (8,445)
Dividends................. -- -- (18,038) --
--------- --------- ------- -------
Retained loss for the
financial year/period.... (39,496) (13,576) (21,979) (8,445)
========= ========= ======= =======
</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-42
<PAGE>
UNITED UTILITIES PLC PROCESS DIVISION
BALANCE SHEETS
<TABLE>
<CAPTION>
US $
US $ AUDITED UNAUDITED
------------------ ------------
31 MARCH 31 MARCH 30 SEPTEMBER
NOTE 1996 1995 1996
---- -------- -------- ------------
$000 $000 $000
<S> <C> <C> <C> <C>
Fixed assets
Tangible assets......................... 9 34,865 35,734 39,114
Investments............................. 10 1,526 1,780 1,557
Intangible assets....................... 11 869 -- 1,242
-------- -------- --------
37,260 37,514 41,913
-------- -------- --------
Current assets
Stocks.................................. 12 55,556 57,729 51,127
Debtors................................. 13 184,249 152,118 166,042
Cash at bank and in hand................ 2,438 7,393 3,329
-------- -------- --------
242,243 217,240 220,498
Creditors: (amounts falling due within
one year)............................... 14 (197,760) (170,055) (205,923)
-------- -------- --------
Net current assets....................... 44,483 47,185 14,575
-------- -------- --------
Total assets less current liabilities.... 81,743 84,699 56,488
Creditors: (amounts falling due after
more than one year)..................... 14 (231,325) (225,064) (234,454)
Provisions for liabilities and charges... 15 (33,178) (2,450) (28,731)
-------- -------- --------
Net liabilities.......................... (182,760) (142,815) (206,697)
======== ======== ========
Capital and reserves
Aggregated called up share capital...... 16 4,426 4,698 4,309
Share premium account................... 17 12,262 12,262 12,502
Capital redemption reserve.............. 17 350 373 357
Revaluation reserve..................... 17 7,580 9,798 7,729
Profit and loss account................. 17 (207,378) (169,946) (231,594)
-------- -------- --------
Shareholders' funds..................... (182,760) (142,815) (206,697)
======== ======== ========
</TABLE>
Approved by the Board of directors on 16 October 1996 and signed on its behalf
by:
R. Ferguson
Director
F-43
<PAGE>
UNITED UTILITIES PLC PROCESS DIVISION
CASH FLOW STATEMENT
<TABLE>
<CAPTION>
US $ UNAUDITED
US $ SIX MONTHS ENDED
AUDITED -------------------------
YEAR ENDED 30 SEPTEMBER 30 SEPTEMBER
NOTE 31 MARCH 1996 1996 1995
---- ------------- ------------ ------------
$000 $000 $000
<S> <C> <C> <C> <C>
Net cash (outflow) inflow from
operating activities............. 20 (30,320) 16,102 (11,545)
------- ------- -------
Returns on investments and
servicing of finance.............
Interest received............... 600 422 460
Interest paid................... (2,880) (2,609) (2,132)
------- ------- -------
Net cash outflow from returns on
investments and servicing of
finance.......................... (2,280) (2,187) (1,672)
------- ------- -------
Taxation..........................
Corporation tax paid............ (1,007) (125) (660)
------- ------- -------
Cash (outflow) inflow from
operations after tax............. (33,607) 13,790 (13,877)
------- ------- -------
Investing activities..............
Purchase of tangible fixed
assets......................... (6,394) (5,141) (2,515)
Expenditure on capitalized
development costs.............. (869) (8) (230)
Receipts from sales of tangible
fixed assets................... 364 12 100
------- ------- -------
Net cash outflow from investing
activities....................... (6,899) (5,137) (2,645)
------- ------- -------
Increase (decrease) in cash and
cash equivalents................. 20 (40,506) 8,653 (16,522)
======= ======= =======
</TABLE>
F-44
<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 six months ended 30 September,
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
six months ended 30 September, 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-45
<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-46
<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-47
<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
In December 1995, United Utilities PLC announced its plans to relocate a
certain obsolete facility of its Wallace & Tiernan, Inc. subsidiary. In
connection with this plan, a business restructuring expense totaling
$31,312,000 was charged to operations during the year ended 31 March 1996. The
charges consist of severance costs, professional fees, relocation of existing
employees, inventory and equipment, a provision for impaired property, plant
and equipment and other related restructuring costs.
5. PROFIT ON DISPOSAL OF FIXED ASSETS
The profit on 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-48
<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 LOSS 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-49
<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
======= =======
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
<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
======= =======
13. DEBTORS
<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-50
<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-51
<PAGE>
UNITED UTILITIES PLC PROCESS DIVISION
NOTES
(FORMING PART OF THE FINANCIAL STATEMENTS)
<TABLE>
<CAPTION>
1996 1995 1996 1995
----------- ----------- ----- -----
(Pounds)000 (Pounds)000 $000 $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-52
<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 1995
-------- --------
$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-53
<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>
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 outflow 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>
At 1 April 1995.......................................... (47,284)
Net cash outflow for the year............................ (40,506)
Exchange adjustments..................................... 2,900
-------
At 31 March 1996......................................... (84,890)
=======
</TABLE>
F-54
<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-55
<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-56
<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-57
<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........................................................... 18
Capitalization............................................................ 19
Price Range of Common Stock............................................... 20
Dividend Policy........................................................... 20
Unaudited Pro Forma Combined Financial Information........................ 21
Selected Consolidated Financial Data...................................... 29
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 31
The Water Treatment Industry.............................................. 38
Business.................................................................. 40
Management................................................................ 45
Security Ownership........................................................ 49
Description of the Notes.................................................. 50
Description of Capital Stock.............................................. 62
Certain Federal Income Tax Consequences................................... 64
Underwriting.............................................................. 65
Legal Matters............................................................. 66
Independent Certified Public Accountants.................................. 66
Available Information..................................................... 67
Incorporation of Certain Documents by Reference........................... 67
Index to Financial Statements............................................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$200,000,000
[LOGO OF 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................................................... $ 69,697
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 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
2.1 Purchase and Sale Agreement, dated as of September 14, 1996,
between Wheelabrator Technologies Inc. and United States Filter
Corporation (previously filed)
2.2 Agreement, dated October 7, 1996, between United Utilities PLC and
certain of its subsidiaries and United States Filter Corporation
(incorporated by reference to Exhibit 2.2 to Form 8-K dated
October 28, 1996 (File No. 1-10728))
2.3 Stock Purchase Agreement, dated as of September 10, 1996, among
Edmundson International, Inc., United States Filter Corporation
and WaterPro Supplies Corporation (previously filed)
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
4.2 Form of Convertible Subordinated Note due 2001 (included in
Indenture filed as Exhibit 4.1)
5.1 Opinion of Damian C. Georgino as to the legality of the securities
being registered
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 (included in Exhibit 5.1)
24.1 Power of Attorney (previously filed)
25.1 Statement of Eligibility and Qualification of State Street Bank
and Trust Company of California, N.A., as Trustee
</TABLE>
II-1
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
Provided, however, that paragraphs (a)(i) and (a)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
section 13 or section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(b) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof.
(c) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
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
has duly caused this amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Palm Desert, State of California, on
November 19, 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 amendment
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
<S> <C> <C>
/s/ Richard J. Heckmann Chairman of the Board, November 19, 1996
- ------------------------------------ President and Chief
Richard J. Heckmann Executive Officer
(Principal Executive
Officer) and a Director
/s/ Kevin L. Spence Vice President and Chief November 19, 1996
- ------------------------------------ Financial Officer
Kevin L. Spence (Principal Financial and
Accounting Officer)
* Executive Vice President and November 19, 1996
- ------------------------------------ a Director
Michael J. Reardon
* Senior Vice President and a November 19, 1996
- ------------------------------------ Director
Tim L. Traff
* Director November 19, 1996
- ------------------------------------
James E. Clark
Director November 19, 1996
- ------------------------------------
John L. Diederich
* Director November 19, 1996
- ------------------------------------
Robert S. Hillas
* Director November 19, 1996
- ------------------------------------
Arthur B. Laffer
* Director November 19, 1996
- ------------------------------------
Alfred E. Osborne, Jr.
* Director November 19, 1996
- ------------------------------------
J. Danforth Quayle
* Director November 19, 1996
- ------------------------------------
C. Howard Wilkins, Jr.
By: /s/ Damian C. Georgino
---------------------------
Damian C. Georgino
Attorney-In-Fact
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NO.
<C> <S> <C>
1.1 Form of Underwriting Agreement.......................
2.1 Purchase and Sale Agreement, dated as of September
14, 1996, between Wheelabrator Technologies Inc. and
United States Filter Corporation (previously filed)..
2.2 Agreement, dated October 7, 1996, between United
Utilities PLC and certain of its subsidiaries and
United States Filter Corporation (incorporated by
reference to Exhibit 2.2 to Form 8-K dated
October 28, 1996 (File No. 1-10728)).................
2.3 Stock Purchase Agreement, dated as of September 10,
1996, among Edmundson International, Inc., United
States Filter Corporation and WaterPro Supplies
Corporation (previously filed).......................
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..............................................
4.2 Form of Convertible Subordinated Note due 2001
(included in Indenture filed as Exhibit 4.1).........
5.1 Opinion of Damian C. Georgino as to the legality of
the securities being registered......................
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 (included in Exhibit
5.1).................................................
24.1 Power of Attorney (previously filed).................
25.1 Statement of Eligibility and Qualification of State
Street Bank and Trust Company of California, N.A., as
Trustee..............................................
</TABLE>
<PAGE>
EXHIBIT 1.1
UNITED STATES FILTER CORPORATION
% Convertible Subordinated Notes due 2001
UNDERWRITING AGREEMENT
----------------------
December [ ], 1996
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
DEUTSCHE MORGAN GRENFELL INC.
NATWEST SECURITIES LIMITED
SALOMON BROTHERS INC
SMITH BARNEY INC.
As representatives of the several
Underwriters named in Schedule I hereto
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172
Ladies and Gentlemen:
United States Filter Corporation, a Delaware corporation (the
"Company"), confirms its agreement with the several underwriters listed in
Schedule I hereto (the "Underwriters"), for whom Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ"), Deutsche Morgan Grenfell Inc., NatWest
Securities Limited ("NatWest"), Salomon Brothers Inc and Smith Barney Inc.
("Smith Barney") have been duly authorized to act as representatives (the
"Representatives"), as follows:
1. The Securities. Subject to the terms and conditions herein set
--------------
forth, the Company proposes to sell to the Underwriters an aggregate of
$200,000,000 principal amount of its ____% Convertible Subordinated Notes due
2001 (the "Firm Securities"). The Company also proposes to sell to the U.S.
<PAGE>
Underwriters not more than $30,000,000 aggregate principal amount of additional
___% Convertible Subordinated Notes due 2001, of the Company (the "Additional
Securities" and, together with the Firm Securities, the "Securities"), if
requested by the Underwriters as provided in Sections 3 and 4 hereof. The
Securities are to be issued pursuant to the provisions of an 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") (the
"Indenture"), pursuant to which the Securities will be convertible at the option
of the holders thereof, into Shares of the Common Stock (as defined below).
Prior to or concurrently with the issuance and sale of the Securities (as
defined below) the Company will issue and sell 10,000,000 shares of Common
Stock, par value $.01 per share, of the Company (the "Common Stock") (excluding
1,500,000 additional shares of Common Stock subject to an overallotment option)
(the "Common Stock Offering").
2. Registration Statement and Prospectus. The Company has prepared
-------------------------------------
and filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission promulgated pursuant thereto
(collectively, the "Act"), a registration statement on Form S-3 (No. 333-[
]), with respect to the Securities including the Common Stock issuable upon
conversion thereof, including a preliminary prospectus, subject to completion,
relating to the Securities including the Common Stock issuable upon conversion
thereof. The registration statement, as amended at the time it becomes
effective or, if a post-effective amendment is filed with respect thereto, as
amended by such post-effective amendment at the time of its effectiveness
(including in each case all documents incorporated or deemed incorporated by
reference therein, if any, all financial statements and exhibits, and the
information, if any, contained in a prospectus or term sheet subsequently filed
with the Commission pursuant to Rule 424(b) under the Act and deemed to be a
part of the registration statement at the time of its effectiveness pursuant to
Rule 430A or Rule 434 under the Act (as applicable), and any additional
registration statement relating to the issuance of additional Securities filed
pursuant to Rule 462(b) under the Act, is hereinafter referred to as the
"Registration Statement;" and the prospectus, constituting a part of the
Registration Statement at the time it became effective, or such revised
prospectus as shall be provided to the Underwriters for use in connection with
the offering of the Securities including the Common Stock issuable upon
conversion thereof that differs from the prospectus on file with the Commission
at the time the Registration Statement became effective including, in each case,
all documents incorporated or deemed incorporated by reference therein, if any,
and including
2
<PAGE>
any prospectus subject to completion and any term sheet meeting the requirements
of Rule 434(c), filed pursuant to Rule 424(b), in the form used to confirm sales
of the Securities, whether or not filed with the Commission pursuant to Rule
424(b) under the Act, is hereinafter referred to as the "Prospectus."
3. Agreements to Sell and Purchase. On the basis of the
-------------------------------
representations and warranties contained in this Agreement, and subject to its
terms and conditions, the Company agrees to issue and sell, and each Underwriter
agrees, severally and not jointly, to purchase from the Company, the Firm
Securities in the respective amounts set forth opposite their names on Schedule
I hereto, at a purchase price equal to [_____%] of the principal amount thereof
(the "Purchase Price").
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to issue
and sell to the Underwriters, and the Underwriters shall have a right to
purchase, severally and not jointly, up to all of the Additional Securities from
the Company at the Purchase Price. Additional Securities may be purchased, from
time to time, as provided in Section 4 hereof solely for the purpose of covering
over-allotments made in connection with the offering of the Firm Securities.
Each Underwriter, severally and not jointly, agrees to purchase the principal
amount of Additional Securities (subject to such adjustment to eliminate partial
Securities as the Underwriters may determine) which bears the same proportion to
the total principal amount of Additional Securities to be purchased as the
principal amount of Firm Securities set forth opposite the name of such
Underwriter in Schedule I hereto bears to the total principal amount of Firm
Securities.
The Company shall deliver, concurrently with the execution of this
Agreement, an agreement executed by (i) each of the Company's directors,
officers and stockholders listed on Schedule II hereto, pursuant to which each
such person agrees, not to, directly or indirectly, offer, sell, contract to
sell, grant any warrant, right, or option to purchase or sell or otherwise
dispose of without the prior written consent of 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 owned by such
person, 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 or file a registration statement with
respect to any of the foregoing, for a period of 90 days after the date of the
Prospectus, except pursuant to this Agreement.
3
<PAGE>
4. Delivery and Payment. Delivery to you of and payment for the Firm
--------------------
Securities shall be made at 9:00 A.M., New York City time, on the third business
day, unless otherwise permitted by the Commission pursuant to Rule 15c6-1 under
the Securities Exchange Act of 1934, as amended, and the rules and regulations
of the Commission thereunder (collectively, the "Exchange Act") (such time and
date being referred to as the "Closing Date") following the date of the public
offering of the Firm Securities as advised by the Representatives to the
Company, at such place as you shall reasonably designate. The Closing Date and
the location of delivery of the Firm Securities may be varied by agreement
between the Representatives and the Company.
Delivery to the Underwriters of and payment for any Additional
Securities to be purchased by the Underwriters shall be made at such place as
the Representatives shall designate in writing, at 9:00 A.M., New York City
time, on such date or dates (individually, an "Option Closing Date"), which may
be the same as the Closing Date but shall in no event be earlier than the
Closing Date, as shall be specified in a written notice from the Representatives
to the Company of the Underwriters' determination to purchase a certain
principle amount, specified in said notice, of Additional Securities. The date
or dates specified in any such notice shall be a business day no later than ten
business days after such notice has been given and no earlier than two business
days after such notice has been given. Any such notice may be given at any time
not later than 30 days after the date of this Agreement. Any Option Closing
Date and the location of delivery of and payment for the Additional Securities
may be varied by agreement among the Representatives and the Company.
The Securities in definitive form shall be registered in such names
and issued in such denominations as you shall request in writing not later than
two full business days prior to the Closing Date or the applicable Option
Closing Date, as the case may be, and shall be made available to you at such
place as you shall reasonably request for inspection not later than 9:30 A.M.,
New York City time, on the business day next preceding the Closing Date or the
applicable Option Closing Date, as the case may be. The Securities shall be
delivered to you on the Closing Date or the applicable Option Closing Date, as
the case may be, with any transfer taxes payable upon initial issuance thereof
duly paid by the Company, for your account against payment of the Purchase Price
in currently available funds to the order of the Company.
4
<PAGE>
5. Agreements of the Company. The Company agrees with each of the
-------------------------
Underwriters and the Selling Stockholders that:
(a) It will, if the Registration Statement has not heretofore become
effective under the Act, file an amendment to the Registration Statement
or, if necessary pursuant to Rule 430A under the Act, a post-effective
amendment to the Registration Statement, in each case as soon as
practicable after the execution and delivery of this Agreement, and will
use its best efforts to cause the Registration Statement or such post-
effective amendment to become effective at the earliest possible time. The
Company will comply fully and in a timely manner with the applicable
provisions of Rule 424, Rule 430A, and, if applicable, Rule 434, and Rule
462, under the Act.
(b) It will advise you promptly and, if requested by you, confirm such
advice in writing, (i) when the Registration Statement has become
effective, if and when the Prospectus is sent for filing pursuant to Rule
424 under the Act and when any post-effective amendment to the Registration
Statement becomes effective, (ii) of the receipt of any comments from the
Commission or any state securities commission or regulatory authority that
relate to the Registration Statement or requests by the Commission or any
state securities commission or regulatory authority for amendments to the
Registration Statement or amendments or supplements to the Prospectus or
for additional information, (iii) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement, or
of the suspension of qualification of the Securities, including the Common
Stock issuable upon conversion thereof, for offering or sale in any
jurisdiction, or the initiation of any proceeding for such purpose by the
Commission or any state securities commission or other regulatory
authority, and (iv) of the happening of any event during such period as in
your judgment the Underwriters are required to deliver a prospectus in
connection with sales of the Securities, including the Common Stock
issuable upon conversion thereof, which makes any statement of a material
fact made in the Registration Statement untrue or which requires the making
of any additions to or changes in the Registration Statement (as amended or
supplemented from time to time) in order to make the statements therein not
misleading or that makes any statement of a material fact made in the
Prospectus (as amended or supplemented from time to time) untrue or which
requires the making of any additions to or changes in the Prospectus
5
<PAGE>
(as amended or supplemented from time to time) in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading. The Company shall use its best efforts to prevent the
issuance of any stop order by the Commission or order suspending the
qualification or exemption of the Securities, including the Common Stock
issuable upon conversion thereof, under any state securities or Blue Sky
laws, and, if at any time the Commission shall issue any stop order
suspending the effectiveness of the Registration Statement, or any state
securities commission or other regulatory authority shall issue an order
suspending the qualification or exemption of the Securities, including the
Common Stock issuable upon conversion thereof, under any state securities
or Blue Sky laws, the Company shall use every reasonable effort to obtain
the withdrawal or lifting of such order at the earliest possible time.
(c) It will furnish to you without charge five (5) copies of the
signed copies of the Registration Statement as first filed with the
Commission and of each amendment to it, including all exhibits filed
therewith, and will furnish to you such number of conformed copies of the
Registration Statement as so filed and of each amendment to it, without
exhibits, as you may reasonably request.
(d) It will not file any amendment or supplement to the Registration
Statement, whether before or after the time when it becomes effective, or
make any amendment or supplement to the Prospectus, of which you shall not
previously have been advised and provided a copy within two business days
prior to the filing thereof or to which you shall reasonably object; and it
will prepare and file with the Commission, promptly upon your reasonable
request, any amendment to the Registration Statement or supplement to the
Prospectus which may be necessary or advisable in connection with the
distribution of the Securities by you, and will use its best efforts to
cause any amendment to the Registration Statement to become effective
promptly.
(e) Promptly after the Registration Statement becomes effective, and
from time to time thereafter for such period as in the opinion of counsel
for the Underwriters a prospectus is required by law to be delivered in
connection with sales of the Securities by the Underwriters, it will
furnish to each Underwriter and dealer without charge as many copies of the
Prospectus (and of any amendment or supplement to the Prospectus) as such
6
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Underwriters and dealers may reasonably request for the purposes
contemplated by the Act. So long as the same is delivered or used pursuant
to applicable law, the Company consents to the use of the Prospectus and
any amendment or supplement thereto by any Underwriter or any dealer, both
in connection with the offering or sale of the Securities and for such
period of time thereafter as the Prospectus is required by the Act or the
Exchange Act to be delivered in connection therewith.
(f) If during such period specified in paragraph (e) any event shall
occur as a result of which, in the opinion of counsel for the Underwriters,
it becomes necessary to amend or supplement the Prospectus in order to make
the statements therein, in the light of the circumstances existing when the
Prospectus is delivered to a purchaser, not misleading, or if it is
necessary to amend or supplement the Prospectus to comply with any law, it
will promptly prepare and file with the Commission an appropriate amendment
or supplement to the Prospectus so that the statements in the Prospectus,
as so amended or supplemented, will not, in the light of the circumstances
when the Prospectus is so delivered, be misleading, and will comply with
law, and will furnish to each Underwriter and dealer without charge such
number of copies thereof as such Underwriters and dealers may reasonably
request.
(g) Prior to any public offering of the Securities, it will cooperate
with you and your counsel in connection with the registration or
qualification of the Securities, including the Common Stock to be issued
upon conversion thereof, for offer and sale by the Underwriters under the
state securities or Blue Sky laws of such jurisdictions as you may
reasonably request (provided, that the Company shall not be obligated to
--------
qualify as a foreign corporation in any jurisdiction in which it is not so
qualified or to take any action that would subject it to general consent to
service of process in any jurisdiction or subject it to taxation generally
in respect of doing business in any jurisdiction in which it is not now so
subject). The Company will continue such qualification in effect so long
as required by law for distribution of the Securities, including the Common
Stock to be issued upon conversion thereof. The Company will inform the
Florida Department of Banking and Finance if, prior to the completion of
the distribution of the Securities by the Underwriters, the Company
commences engaging in business with the government of Cuba or with any
person or affiliate located in Cuba. Such information will be provided
within 90 days of the com-
7
<PAGE>
mencement thereof or after a change to any such previously reported
information.
(h) It will make generally available to its security holders as soon
as reasonably practicable a consolidated earnings statement covering a
period of at least twelve months beginning after the "effective date" (as
defined in Rule 158 under the Act) of the Registration Statement (but in no
event commencing later than 90 days after such date) which shall satisfy
the provisions of Section 11(a) of the Act and Rule 158 thereunder and will
advise you in writing when such statement has been so made available.
(i) During the period of five years after the date of this Agreement,
(i) it will furnish as soon as reasonably practicable after the end of each
fiscal year to the record holders of its Common Stock a financial report of
the Company and its subsidiaries on a consolidated basis (and a similar
financial report of all unconsolidated subsidiaries, if any), all such
financial reports to include a consolidated balance sheet, a consolidated
statement of operations, a consolidated statement of cash flows and a
consolidated statement of stockholders' equity as of the end of and for
such fiscal year, together with comparable information as of the end of and
for the preceding year, certified by independent certified public
accountants, and (ii) it will make generally available as soon as
reasonably practicable after the end of each quarterly period (except for
the last quarterly period of each fiscal year) to such holders, a
consolidated balance sheet, a consolidated statement of operations and a
consolidated statement of cash flows (and similar financial reports of all
unconsolidated subsidiaries, if any) as of the end of and for such period,
and for the period from the beginning of such year to the close of such
quarterly period, together with comparable information for the
corresponding periods of the preceding year.
(j) During the period referred to in paragraph (i), it will furnish to
you as soon as available a copy of each report or other publicly available
information of the Company mailed to the holders of Common Stock or filed
with the Commission and such other publicly available information
concerning the Company and its subsidiaries as you may reasonably request.
(k) Whether or not the transactions contemplated hereby are
consummated or this Agreement is terminated, it will pay and be responsi-
8
<PAGE>
ble for all costs, expenses and fees in connection with or incident to (i)
the printing, processing, filing, distribution and delivery under the Act
or the Exchange Act of the Registration Statement (including financial
statements and exhibits), each preliminary prospectus, the Prospectus and
all amendments or supplements thereto, (ii) the printing and delivery of
this Agreement, any memoranda describing state securities or Blue Sky laws
and all other agreements, memoranda, correspondence and other documents
printed, distributed and delivered in connection with the offering of the
Securities (including in each case any disbursements of counsel for the
Underwriters relating to such printing and delivery), (iii) the
registration with the Commission and the issuance and delivery of the
Securities, including the Common Stock issuable upon conversion thereof,
(iv) the registration or qualification of the Securities, including the
Common Stock issuable upon conversion thereof, for offer and sale under the
securities or Blue Sky laws of the jurisdictions referred to in paragraph
(g) above (including, in each case, the fees and disbursements (including
filing fees) of counsel relating to such registration or qualification and
blue sky memoranda relating thereto), (v) furnishing such copies of the
Registration Statement, Prospectus and preliminary prospectus, and all
amendments and supplements to the Underwriters or any dealers to whom
Securities may be sold prior to or during the period specified in paragraph
5(e), as may be reasonably requested by you, (vi) any filing fees incurred
in connection with the filing, registration and clearance with the National
Association of Securities Dealers, Inc. (the "NASD") in connection with the
offering of the Securities, including the Common Stock issuable upon
conversion thereof, (vii) the listing of the Securities, including the
Common Stock issuable upon conversion thereof, on the New York Stock
Exchange, and (viii) the performance by the Company of its other
obligations under this Agreement, the cost of its personnel and other
internal costs and the cost of printing and engraving the certificates
representing the Securities and any shares of Common Stock to be issued
upon Conversion of the Securities and all expenses and taxes incident to
the Sale and delivery of the Securities to the Underwriters; provided, that
--------
the Company shall have no liability or obligation with respect to any fees
or expenses of counsel to the Underwriters, except as provided in clause
(iv) above, or for any costs of personnel or other internal costs of the
Underwriters.
(l) It will use the proceeds from the sale of the Securities in the
manner described in the Prospectus under the caption "Use of Proceeds."
9
<PAGE>
(m) It will cause the Securities to be listed on the New York Stock
Exchange and will use its reasonable best efforts to maintain such listing
while any of the Securities are outstanding.
(n) It will cause the Common Stock issuable upon conversion of the
Securities to be listed on the New York Stock Exchange and will use its
best efforts to maintain such listing for a period of five years after the
effective date of the Registration Statement.
(o) It will not voluntarily claim, and will not actively resist any
attempts to claim, the benefit of any usury laws against the holders of the
Securities.
(p) It will use all reasonable efforts to do and perform all things
required or necessary to be done and performed under this Agreement by it
prior to or after the Closing Date or any Option Closing Date, as the case
may be, and to satisfy all conditions precedent on its part to the delivery
of the Securities.
6. Representations and Warranties of the Company. The Company
---------------------------------------------
represents and warrants to each Underwriter that:
(a) The Company and the transactions contemplated by this Agreement
meet the requirements for using Form S-3 under the Act. The Registration
Statement has become effective; no stop order suspending the effectiveness
of the Registration Statement is in effect, and no proceedings for such
purpose are pending before or threatened by the Commission.
(b) Each part of the Registration Statement where such part became
effective, did not contain and each such part, as amended or supplemented,
it applicable, will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, (ii) the Registration Statement
and the Prospectus comply and, as amended or supplemented, if applicable,
will comply in all material respects with the requirements of the Act, and
(iii) the Prospectus does not contain and, as amended or supplemented, if
applicable, will not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were
10
<PAGE>
made, not misleading, except that the representations and warranties set
forth in this paragraph (b) do not apply to statements or omissions from
the Registration Statement or the Prospectus based upon and in conformity
with information relating to any Underwriter furnished to the Company in
writing by such Underwriter through you expressly for use therein or the
Statement of Eligibility and Qualification of the Trustee on Form T-1 (the
"Form T-1"). The Company acknowledges for all purposes under this Agreement
(including this paragraph and Section 7 hereof) that the statements with
respect to price and underwriting discount and the last paragraph on the
cover page of the Prospectus and the statements set forth in the [_________
paragraph] under the caption "Underwriting" in the Prospectus constitute
the only written information furnished to the Company by the Underwriters
for use in the Registration Statement or the Prospectus or any preliminary
prospectus, or any amendment or supplement to them (the "Underwriter
Information") and that the Underwriters shall not be deemed to have
provided any information (and therefore are not responsible for any
statement or omission) pertaining to any arrangement or agreement with
respect to any parties other than the Underwriters for use in the
Registration Statement or the Prospectus or any preliminary prospectus (or
any amendment or supplement to them). When the Registration Statement
becomes effective, including at the date of any post-effective amendment,
at the date of the Prospectus and any amendment or supplement thereto (if
different), at the Closing Date and at each Option Closing Date, as the
case may be, the Indenture will have been qualified under and will conform
in all material respects to the requirements of the Trust Indenture Act of
1939, as amended, and the rules and regulations promulgated pursuant
thereto (collectively, the "TIA").
(c) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Act, complied when so filed in all material
respects with the requirements of the Act; and did not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
(d) The Company and each of its subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation and has the corporate power
11
<PAGE>
and authority to carry on its business as it is currently being conducted
and to own, lease and operate its properties, and each is duly qualified
and is in good standing as a foreign corporation authorized to do business
in each jurisdiction in which the nature of its business or its ownership
or leasing of property requires such qualification, except where the
failure to be so qualified would not have a material adverse effect on the
condition, financial or otherwise, or the earnings, cash flow, business
affairs or business prospects of the Company and its subsidiaries, taken as
a whole (the foregoing exception herein defined as a "Material Adverse
Effect").
(e) All of the outstanding shares of capital stock of, or other
ownership interests in, each of the Company's subsidiaries have been duly
authorized and validly issued and are fully paid and nonassessable, and,
except for the pledge to [THE FIRST NATIONAL BANK OF BOSTON AND FIRST
INTERSTATE BANK OF CALIFORNIA, OTHERS?] (the "Banks") of capital stock of
certain of the Company's subsidiaries [PURSUANT TO THE COMPANY'S CREDIT
FACILITIES WITH THE BANKS (THE "CREDIT FACILITIES") -- DEFINE NEW CREDIT
FACILITIES AS WILL BE DEFINED IN THE REGISTRATION STATEMENT], are owned by
the Company (except as provided in the last sentence of this paragraph
(e)), free and clear of any security interest, claim, lien, encumbrance or
adverse interest of any nature. The Company owns all of the outstanding
capital stock of each of its subsidiaries, except with respect to
subsidiaries that, when taken as a whole, do not account for a material
proportion of the Company's business, operations or assets, and the loss of
which would not result in a Material Adverse Effect upon the Company.
(f) The Indenture has been duly authorized by the Company and, when
duly executed and delivered in accordance with its terms (assuming the due
execution and delivery thereof by the Trustee), will be a valid and legally
binding agreement of the Company, enforceable against the Company in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws affecting
creditors' rights and remedies generally and to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law
or in equity) and except to the extent that a waiver of rights under any
usury laws may be unenforceable.
(g) The Securities (including the Common Stock issuable upon
conversion thereof) have been duly authorized by the Company and, on the
12
<PAGE>
Closing Date and the Option Closing Date, if any, the Securities will have
been duly executed by the Company and will, when issued, executed,
authenticated and delivered in accordance with the Indenture and paid for
in accordance with the terms of this Agreement, constitute legal, valid and
binding obligations of the Company, enforceable against the Company
according to their terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws affecting
creditors' rights and remedies generally and to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law
or in equity) and except to the extent that a waiver of rights under any
usury laws may be unenforceable, will be entitled to the benefits of the
Indenture and will conform in all material respects to the description
thereof in the Prospectus.
(h) All the issued and outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are fully paid,
nonassessable and, except as otherwise set forth in the Prospectus, not
subject to any preemptive or similar rights; the Shares have been duly
authorized for issuance and sale to the Underwriters pursuant to this
Agreement and, when issued and delivered by the Company pursuant to this
Agreement against payment of the consideration set forth herein, will be
validly issued, fully paid and nonassessable; and the issuance of the
Shares by the Company will not be subject to preemptive or other similar
rights.
(i) The authorized capital stock of the Company, including the Common
Stock, conforms to the description thereof contained in or incorporated by
reference into the Prospectus.
(j) Neither the Company nor any of its subsidiaries is in violation of
its respective charter or by-laws or other equivalent instruments, as the
case may be, or, except as such as would not have a Material Adverse
Effect, in default in the performance of any obligation, agreement or
condition contained in any bond, debenture, note or any other evidence of
indebtedness or in any other agreement, lease, contract, indenture or
instrument to which the Company or any of its subsidiaries is a party or by
which it or any of its subsidiaries or their respective property is bound,
and there exists no condition which, with the passage of time or otherwise,
would constitute such a default under any such document or instrument.
13
<PAGE>
(k) The execution, delivery and performance of this Agreement, the
Indenture and the Securities, compliance by the Company with all the
provisions hereof and thereof and the consummation of the transactions
contemplated hereby and thereby will not require any consent, approval,
authorization or other order of any court, regulatory body, administrative
agency or other governmental body (except as such may be required under the
securities or Blue Sky laws of the various states) and will not conflict
with or constitute a breach of any of the terms or provisions of, or a
default (with the passage of time or otherwise) under, the charter or by-
laws or other equivalent instruments, as the case may be, of the Company or
any of its subsidiaries or, except such as would not have a Material
Adverse Effect, any agreement, lease, contract, indenture or other
instrument to which it or any of its subsidiaries is a party or by which it
or any of its subsidiaries or their respective property is bound, or
violate or conflict with any laws, administrative regulations or rulings or
court decrees applicable to the Company, any of its subsidiaries or their
respective property.
(l) Except as would not result in a Material Adverse Effect, there are
no legal or governmental proceedings pending to which the Company or any of
its subsidiaries is a party or of which any of their respective property is
subject, and, to the best of the Company's knowledge, no such proceedings
are threatened or contemplated. No contract or document of a character
required to be described in the Registration Statement or the Prospectus or
to be filed as an exhibit to the Registration Statement is not so described
or filed as required.
(m) Except as disclosed or incorporated by reference in the
Prospectus, neither the Company nor any of its subsidiaries nor, to the
best knowledge of the Company, any other person or entity for whom either
is or may be liable is in violation of any Federal, state, local,
provincial or foreign laws or regulations relating to pollution or
protection of human health or the environment (including, without
limitation, ambient air, surface water, ground water, land surface or
subsurface strata), including, without limitation, laws and regulations
relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants, contaminants, wastes, toxic substances, hazardous
substances, petroleum or petroleum products, asbestos or asbestos-
containing materials, or polychlorinated biphenyls ("Materials of
Environmental Concern"), or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal,
14
<PAGE>
transport or handling of Materials of Environmental Concern (collectively,
"Environmental Laws"), which violation would have a Material Adverse Effect
or would otherwise require disclosure in the Prospectus pursuant to Item
103 of Regulation S-K under the Act ("Item 103"). "Violation" includes, but
is not limited to, noncompliance with any permit or other governmental
authorization required under applicable Environmental Laws and
noncompliance with the terms and conditions of any such permit or
authorization.
(n) Except as disclosed or incorporated by reference in the
Prospectus, neither the Company nor any of its subsidiaries has received
any communication (written or, to the knowledge of the Company or any of
its subsidiaries, oral), whether from a governmental authority, citizens'
group, employee or otherwise, asserting that the Company or any of its
subsidiaries or any other person or entity for whom either is or may be
liable is not in compliance with any Environmental Laws or permit or
authorization required under applicable Environmental Laws where such
failure to comply would have a Material Adverse Effect or would otherwise
require disclosure in the Prospectus pursuant to Item 103, and there are no
circumstances that may prevent or interfere with such full compliance in
the future, except where failure so to comply would not have a Material
Adverse Effect.
(o) Except as disclosed or incorporated by reference in the
Prospectus, there is no claim, action, cause of action, investigation or
notice (written or oral) by any person or entity alleging potential
liability (including, without limitation, potential liability for
investigatory costs, natural resources damages, property damages, personal
injuries or penalties) arising out of, based on or resulting from (i) the
presence in or release into the environment of any Materials of
Environmental Concern at any location owned, leased or operated, now or in
the past, by the Company or any of its subsidiaries or, to the best
knowledge of the Company, any other person or entity for whom either is or
may be liable, or (ii) circumstances forming the basis of any violation or
alleged violation of any Environmental Law (collectively, "Environmental
Claims") pending or threatened against the Company or any of its
subsidiaries or, to the best knowledge of the Company, any other person or
entity whose liability for any Environmental Claim the Company or any of
its subsidiaries has retained or assumed either contractually or by
operation of law, except any such matter that would not
15
<PAGE>
have a Material Adverse Effect or would not otherwise require disclosure in
the Prospectus pursuant to Item 103.
(p) Except as disclosed or incorporated by reference in the
Prospectus, there are no past or present actions, activities,
circumstances, conditions, events or incidents, including, without
limitation, the release, emission, discharge, presence or disposal of any
Materials of Environmental Concern, that could form the basis of any
Environmental Claim against the Company or any of its subsidiaries with
respect to property owned, leased or operated by or for the Company or any
of its subsidiaries, now or in the past, or, to the best knowledge of the
Company, against any person or entity whose liability for any Environmental
Claim the Company or any of its subsidiaries has retained or assumed either
contractually or by operation of law, except any such matter that would not
have a Material Adverse Effect or would not otherwise require disclosure in
the Prospectus pursuant to Item 103.
(q) In the ordinary course of its business, the Company addresses its
environmental compliance obligations with respect to the business,
operations and properties of the Company and its subsidiaries, in the
course of which it identifies and evaluates, as appropriate, associated
costs and liabilities. On the basis of such procedures, except for costs
and liabilities heretofore incurred and reflected in the Company's
financial statements as set forth or incorporated by reference in the
Registration Statement, the Company has reasonably concluded that such
associated costs and liabilities would not, singly or in the aggregate,
have a Material Adverse Effect.
(r) Except as otherwise set forth or incorporated by reference in the
Prospectus or such as would not, singly or in the aggregate, have a
Material Adverse Effect, the Company and each of its subsidiaries has good
and marketable title, free and clear of all liens, claims, encumbrances and
restrictions, except liens for taxes not yet due and payable and
restrictions on the Company's ability to encumber its assets contained in
its [CREDIT FACILITIES] with the Banks, to all property and assets
described in the Registration Statement as being owned by it. All leases
to which the Company or any of its subsidiaries is a party are valid and
binding and, except as would not have a Material Adverse Effect, no default
has occurred or is continuing thereunder; and the Company and its
subsidiaries enjoy peaceful
16
<PAGE>
and undisturbed possession under all such leases to which any of them is a
party as lessee.
(s) The Company and each of its subsidiaries maintains insurance in
amounts and with limits and coverage which the Company in good faith deems
appropriate.
(t) Each of the accountants who certified the financial statements and
supporting schedules included in the Registration Statement is an
independent public accountant as required by the Act.
(u) The financial statements, together with related schedules and
notes, as set forth or incorporated by reference in the Registration
Statement and the Prospectus (and any amendment or supplement thereto),
present fairly the consolidated financial position, results of operations
and changes in financial position of the Company and its subsidiaries at
the respective dates or for the respective periods to which they apply;
such statements and related schedules and notes have been prepared in
accordance with generally accepted accounting principles consistently
applied throughout the periods involved, except as disclosed therein; and
the other financial and statistical information and data set forth in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto) is, in all material respects, fairly presented and prepared on a
basis consistent with such financial statements and the books and records
of the Company. The pro forma financial information included in the
--- -----
Prospectus presents fairly the information shown therein and has been
prepared in accordance with the relevant accounting requirements of
Regulation S-X. In the opinion of the Company, the assumptions used in the
preparation of the pro forma financial information are reasonable and the
adjustments used therein are appropriate to give effect to the transactions
or circumstances referred to therein.
(v) Except as would not result in a Material Adverse Effect, (i) the
Company and each of its subsidiaries has such permits, licenses, franchises
and authorizations of governmental or regulatory authorities ("permits") as
are necessary to own, lease and operate its respective properties and to
conduct its business in the manner described or incorporated by reference
in the Prospectus, subject to such qualifications as may be set forth or
incorporated by reference in the Prospectus; (ii) the Company and
17
<PAGE>
each of its subsidiaries has fulfilled and performed all of its obligations
with respect to such permits and no event has occurred which allows, or
after notice or lapse of time or both would allow, revocation or
termination thereof or results in any other impairment of the rights of the
holder of any such permit, subject in each case to such qualification as
may be set forth or incorporated by reference in the Prospectus; and (iii)
except as described or incorporated by reference in the Prospectus, such
permits contain no restrictions that are burdensome to the Company or any
of its subsidiaries.
(w) The Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(x) Except rights as to which waivers have been obtained in writing
with respect to inclusion in this offering, no holder of any security of
the Company other than the Selling Stockholders (as that term is defined in
the prospectus relating to the Common Stock Offering), [AND _____] has any
right to require registration of shares of Common Stock or any other
security of the Company.
(y) The Company has complied with all provisions of Section 517.075,
Florida Statutes (Chapter 92-198, Laws of Florida).
(z) There are no outstanding subscriptions, rights, warrants, options,
calls, convertible securities, commitments of sale or liens related to or
entitling any person to purchase or otherwise to acquire any shares of the
capital stock of, or other ownership interest in, the Company or any
subsidiary thereof except as otherwise disclosed or incorporated by
reference in the Registration Statement or which have been granted pursuant
to the Company's stock option plans in amounts which are immaterial or are
required by law.
(aa) Except as would not, singly or in the aggregate, have a Material
Adverse Effect, neither the Company nor any of its subsidiaries has (A)
violated any applicable federal, state, provincial or foreign law relating
to employment or employment practices or the terms and conditions of
employment, including, without limitation, discrimination in the hiring,
promotion or pay of employees, wages, hours of work, plant closings and
layoffs, collective bargaining, and occupational safety and
18
<PAGE>
health, or any provisions of the Employee Retirement Income Security Act of
1974 ("ERISA") or the rules and regulations promulgated thereunder or any
other applicable law (whether foreign or domestic) relating to or governing
the operation or maintenance of any plan or arrangement falling within the
definition of an "employee benefit plan" (as such term is defined in
Section 3(3) of ERISA) or any other employee benefit plan or arrangement,
or (B) engaged in any unfair labor practice. Except as would not, singly or
in the aggregate, result in any Material Adverse Effect, there is (i) no
unfair labor practice charge or complaint pending or threatened against the
Company or any of its subsidiaries before the National Labor Relations
Board or any corresponding state, local, provincial or foreign agency, and
no grievance or arbitration proceeding arising out of or under any
collective bargaining agreement is so pending or threatened against the
Company or any of its subsidiaries; and (ii) no union representation claim
or question existing with respect to the employees of the Company or any of
its subsidiaries and no union organizing activities taking place. Except as
would not, singly or in the aggregate, result in any Material Adverse
Effect, (i) no labor dispute involving the employees of the Company or any
of its subsidiaries exists or, to the knowledge of the Company, is
threatened or imminent; and (ii) the Company is not aware of any existing,
threatened or imminent labor disturbance by the employees of any principal
suppliers, manufacturers or contractors of the Company or any of its
subsidiaries.
(bb) The books, records and accounts of the Company and its
subsidiaries accurately and fairly reflect, in reasonable detail, the
transactions in and dispositions of the assets of the Company and its
subsidiaries. The Company and each of its subsidiaries maintains a system
of internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's general
or specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (iii)
access to assets is permitted only in accordance with management's general
or specific authorization; and (iv) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(cc) All material tax returns required to be filed by the Company and
each of its subsidiaries in any jurisdiction have been filed, other than
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those filings being contested in good faith, and all material taxes,
including withholding taxes, penalties and interest, assessments, fees and
other charges due pursuant to such returns or pursuant to any assessment
received by the Company or any of its subsidiaries have been paid, other
than those being contested in good faith and for which adequate reserves
have been provided. No deficiency or adjustment for any material taxes
has been proposed or assessed against the Company or any of its
subsidiaries.
(dd) The Company and its subsidiaries own, license or possess the
patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures),
trademarks, service marks and trade names presently employed by them in
connection with the businesses now operated by them, except such as to
which the failure so to own, license or possess would not, singly or in the
aggregate, have a Material Adverse Effect, and neither the Company nor any
of its subsidiaries has received any notice of infringement of or conflict
with asserted rights of others with respect to any of the foregoing, which,
singly or in the aggregate, if the subject of any unfavorable decision,
ruling or finding, would result in a Material Adverse Effect.
(ee) Each of the Company and its subsidiaries is in compliance with
all laws, ordinances and regulations (domestic and foreign) applicable to
its properties (whether owned or leased) and its business, as described in
the Prospectus, except where noncompliance with such laws, ordinances and
regulations would not, singly or in the aggregate, have a Material Adverse
Effect.
7. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless (i) each of the
Underwriters and (ii) each person, if any, who controls (within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act) any of the
Underwriters (any of the persons referred to in this clause (ii) being
hereinafter referred to as a "controlling person"), and (iii) the
respective officers, directors, partners, employees, representatives and
agents of any of the Underwriters or any controlling person (any person
referred to in clause (i), (ii) or (iii) may hereinafter be referred to as
an "Indemnified Person") to the fullest extent lawful, from and against any
and all losses,
20
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claims, damages, liabilities, judgments, actions and expenses (including
without limitation and as incurred, reimbursement of all reasonable costs
of investigating, preparing, pursuing or defending any claim or action, or
any investigation or proceeding by any governmental agency or body,
commenced or threatened, including the reasonable fees and expenses of
counsel to any Indemnified Person) directly or indirectly caused by,
related to, based upon, arising out of or in connection with any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), including the
information deemed to be a part of the Registration Statement pursuant to
Rule 430A promulgated under the Act, if applicable, or the Prospectus
(including any amendment or supplement thereto) or any preliminary
prospectus, or any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein (in the case of the Prospectus, in light of the circumstances under
which they were made) not misleading, except insofar as such losses,
claims, damages, liabilities or expenses are caused by an untrue statement
or omission or alleged untrue statement or omission that is (i) made in
reliance upon and in conformity with information relating to any
Underwriter Information or (ii) with respect to the Underwriter from whom
the person asserting the loss, claim, damage or liability purchased
Securities, made in any preliminary prospectus if a copy of the Prospectus
(as amended or supplemented) shall have been furnished to the Underwriters
by the Company with such amendments or supplements thereto on a timely
basis and such Prospectus was not delivered by or on behalf of any of the
Underwriters to the person asserting the claim or action, if required by
law to have been so delivered by the Underwriter seeking indemnification,
at or prior to the written confirmation of the sale of the Securities, and
it shall be finally determined by a court of competent jurisdiction, by a
judgment not subject to appeal or review, that the Prospectus (as so
amended or supplemented) would have corrected such untrue statement or
omission. The Company shall notify you promptly of the institution, threat
or assertion of any claim, proceeding (including any governmental
investigation) or litigation in connection with the matters addressed by
this Agreement which involves the Company or an Indemnified Person.
(b) In case any action or proceeding (including any governmental
investigation) shall be brought or asserted against any Indemnified Person
with respect to which indemnity may be sought against an indem-
21
<PAGE>
nifying party (or indemnifying parties), such Indemnified Person shall
promptly notify the indemnifying party (or indemnifying parties) in writing
(provided that the failure to give such notice shall not relieve the
--------
indemnifying party (or indemnifying parties) of its obligations pursuant to
this Agreement unless and only to the extent such failure to give notice
results in the loss or compromise of any material rights or defenses of the
indemnifying party (or indemnifying parties) as determined by a court of
competent jurisdiction by a final judgment no longer subject to appeal or
review). Upon receiving such notice, the indemnifying party (or
indemnifying parties) shall be entitled to participate in any such action
or proceeding and to assume, at their sole expense, the defense thereof,
with counsel satisfactory to such Indemnified Person (who shall not, except
with the consent of the Indemnified Person, be counsel to the indemnifying
party (or indemnifying parties) or an affiliate thereof) and, after written
notice from the indemnifying party (or indemnifying parties) to such
Indemnified Person of their election so to assume the defense thereof
within 5 business days after receipt of the notice from the Indemnified
Person of such action or proceeding, the indemnifying party (or
indemnifying parties) shall not be liable to such Indemnified Person
hereunder for legal expenses of other counsel subsequently incurred by such
Indemnified Person in connection with the defense thereof, other than
reasonable costs of investigation, unless (i) the indemnifying party (or
indemnifying parties) agrees in writing to pay such fees and expenses, or
(ii) the indemnifying party (or indemnifying parties) fails to assume such
defense within the 5 business days specified above or fails to employ
counsel satisfactory to such Indemnified Person, or (iii) the named parties
to any such action or proceeding (including any impleaded parties) include
both such Indemnified Person and the indemnifying party (or indemnifying
parties) or its affiliates, and such Indemnified Person shall have been
advised by counsel either (x) that there may be one or more legal defenses
available to such Indemnified Person that are different from or additional
to those available to the indemnifying party (or indemnifying parties), or
(y) a conflict of interest exists between such Indemnified Person and the
indemnifying party (or indemnifying parties) or its affiliates (in which
case, if such Indemnified Person notifies the indemnifying party (or
indemnifying parties) in writing, neither the indemnifying party (or
indemnifying parties) shall have the right to assume the defense thereof),
it being understood, however, that the indemnifying party (or indemnifying
parties) shall not, in connection with any one such action or proceeding or
separate but substantially similar or related actions
22
<PAGE>
or proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys (in addition to any
local counsel) at any time for such Indemnified Persons, which firm shall
be designated in writing by DLJ. No indemnifying party shall be liable for
any settlement of any such action or proceeding effected without its prior
written consent. Notwithstanding the foregoing sentence, if at any time an
Indemnified Person shall have requested the indemnifying party (or
indemnifying parties) to reimburse the Indemnified Person for fees and
expenses of counsel as contemplated by the second sentence of this
paragraph, the indemnifying party (or indemnifying parties) agree that they
shall be liable for any settlement of any proceeding effected without its
written consent if (i) such settlement is entered into more than 45
business days after receipt by the indemnifying party (or indemnifying
parties) of the aforesaid request and (ii) the indemnifying party (or
indemnifying parties) shall not have reimbursed the Indemnified Person in
accordance with such request prior to the date of such settlement. Neither
the indemnifying party (or indemnifying parties) shall, without the prior
written consent of each Indemnified Person, settle or compromise or consent
to the entry of judgment in or otherwise seek to terminate any pending or
threatened action, claim, litigation or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not any
Indemnified Person is a party thereto), unless such settlement, compromise,
consent or termination includes an unconditional release of each
Indemnified Person from all liability arising out of such action, claim,
litigation or proceeding.
(c) Each of the Underwriters agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who
sign the Registration Statement, and any person controlling (within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act) any of
the Company, to the same extent as the foregoing indemnity from the Company
to each of the Indemnified Persons, but only with respect to claims and
actions based on any Underwriter Information.
(d) If the indemnification provided for in this Section 7 is
unavailable to an indemnified party in respect of any losses, claims,
damages, liabilities or expenses referred to herein, then each of the
Company and the Underwriters, as applicable, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indem-
23
<PAGE>
nified party as a result of such losses, claims, damages, liabilities and
expenses (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and the Indemnified
Persons on the other hand from the offering of the Securities or (ii) if
the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
indemnifying parties and the indemnified party, as well as any other
relevant equitable considerations. The relative benefits received by the
Company, on the one hand, and any of the Underwriters, on the other hand,
shall be deemed to be in the same proportion as the total proceeds from the
offering (net of underwriting discounts and commissions but before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by such Underwriter, in each case as set
forth in the table on the cover page of the Prospectus. The relative fault
of the Company and, on the one hand, and the Underwriters, on the other
hand, shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact related to information supplied
by the Company, on the one hand, or the Underwriters, on the other hand,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The indemnity
and contribution obligations of the Company set forth herein shall be in
addition to any liability or obligation that the Company may otherwise have
(other than with respect to the matters covered by this Section 7) to any
Indemnified Person.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7(d) were determined by
pro rata allocation (even if the Underwriters were treated as one entity
--- ----
for such purpose) or by any other method of allocation that does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as
a result of the losses, claims, damages, liabilities or expenses referred
to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 7, none of the Underwriters (and its related
Indemnified Persons)
24
<PAGE>
shall be required to contribute, in the aggregate, any amount in excess of
the amount by which the total underwriting discount applicable to the
Securities purchased by such Underwriter exceeds the amount of any damages
which such Underwriter has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations to contribute pursuant to this Section 8(d) are several in
proportion to the respective number of Securities purchased by each of the
Underwriters hereunder and not joint.
(e) The rights and obligations provided in this Section 7 shall
terminate seven years from the date hereof.
8. Conditions of Underwriters' Obligations. The several obligations
---------------------------------------
of the Underwriters to purchase the Firm Securities under this Agreement are
subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company contained
in this Agreement shall be true and correct on the Closing Date with the
same force and effect as if made on and as of the Closing Date.
(b) The Registration Statement shall have become effective not later
than 10:00 A.M., New York City time, on the date of this Agreement or at
such later date and time as you may approve in writing, and at the Closing
Date no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall
have been commenced or shall be pending before or contemplated by the
Commission.
(c) No action shall have been taken and no statute, rule or regulation
or order shall have been enacted, adopted or issued by any governmental
agency which would, as of the Closing Date, prevent the issuance of the
Securities; no injunction, restraining order or order of any nature by a
U.S. federal or state court of competent jurisdiction shall have been
issued as of the Closing Date which would prevent the issuance of the
Securities; except as disclosed in the Prospectus, on the Closing Date, no
action, suit or proceeding shall be pending against, or, to the knowledge
of
25
<PAGE>
the Company, threatened against, the Company or any of its subsidiaries,
respectively, before any court or arbitrator or any governmental body,
agency or official which, if adversely determined, would interfere with or
adversely affect the issuance of the Securities or could reasonably be
expected to have a Material Adverse Effect, or in any manner invalidate
this Agreement or the sale of the Securities. Subsequent to the execution
and delivery of this Agreement and prior to the Closing Date, and each
Option Closing Date, if applicable, there shall not have been any
downgrading, nor shall any notice have been given of any intended or
potential downgrading or of any review for a possible change that does not
indicate the direction of the possible change, in the rating accorded any
of the Company's securities by any "nationally recognized statistical
rating organization," as such term is defined for purposes of Rule
436(g)(2) of the Act.
(d) (i) Since the date of the latest balance sheet included in or
incorporated by reference into the Registration Statement and the
Prospectus, there shall not have been any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, cash flows, business
affairs or business prospects, whether or not arising in the ordinary
course of business, of the Company and its subsidiaries, taken as a whole,
(ii) except as set forth in the Registration Statement, since the date of
the latest balance sheet included in or incorporated by reference into the
Registration Statement and the Prospectus, there shall not have been any
material adverse change, or any development involving a prospective
material adverse change, in the capital stock or in the long-term debt, or
material increase in short-term debt, of the Company and its subsidiaries,
taken as a whole, (iii) the Company and its subsidiaries shall have no
liability or obligation, direct or contingent, which is material to the
Company and its subsidiaries, taken as a whole, other than those reflected
or incorporated by reference in the Registration Statement and the
Prospectus and (iv) on the Closing Date you shall have received a
certificate dated the Closing Date, signed by Richard J. Heckmann and Kevin
L. Spence, in their capacities as the Chief Executive Officer and the Chief
Financial Officer of the Company, respectively, confirming the matters
expressly relating to the Company set forth in paragraphs (a), (b), (c)
(with respect to the first two clauses of such paragraph (c), to the
Company's best knowledge) and (d) of this Section 8.
26
<PAGE>
(e) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the Closing
Date, of Kirkpatrick & Lockhart LLP, counsel for the Company, to the effect
that:
(i) the Company and each of its United States subsidiaries listed
on Schedule III hereto (the "Subsidiaries") has been duly
incorporated, is existing as a corporation in good standing under the
laws of its jurisdiction of incorporation and has the corporate power
and corporate authority required to carry on its business as described
in the Prospectus and to own, lease and operate its properties;
(ii) all of the issued and outstanding shares of capital stock
of each of the Subsidiaries have been duly and validly authorized and
issued and are fully paid and nonassessable;
(iii) the Indenture has been duly authorized, executed and
delivered by the Company;
(iv) the shares of Common Stock, par value $.01 per share,
initially issuable upon conversion of the Securities have been duly
authorized and reserved for issuance upon conversion of the
Securities, are free of preemptive rights and, when issued upon
conversion of the Securities in accordance with the terms of the
Indenture, will be validly issued, fully paid and non-assessable;
(v) the Securities, when executed and authenticated in accordance
with the terms of the Indenture and delivered to and paid for by you
and the other Underwriters in accordance with the terms of this
Agreement, will be legally valid and binding obligations of the
Company, enforceable against the Company in accordance with their
terms and entitled to the benefits of the Indenture;
(vi) the authorized capital stock of the Company, including the
Common Stock, conforms as to legal matters to the description thereof
contained or incorporated by reference in the Prospectus, and, except
for the pledge to the Banks of capital stock of those certain
Subsidiaries pursuant to, and as set forth in, the Credit
27
<PAGE>
Facilities, are, to our knowledge, owned by the Company free and clear
of any security interest, claim, lien, encumbrance or adverse interest
of any nature;
(vii) the Registration Statement and the Prospectus comply as to
form in all material respects with the requirements for registration
statements on Form S-3 under the Act, the TIA and the rules and
regulations of the Commission thereunder; it being understood,
however, that no opinion need be expressed with respect to the
financial statements, schedules and other financial and statistical
data included in the Registration Statement or the Prospectus or with
respect to the Form T-1;
(viii) the Indenture, assuming due authorization, execution and
delivery thereof by the Trustee, constitutes a valid and legally
binding agreement of the Company, enforceable against the Company in
accordance with its terms, subject to the following exceptions,
limitations and qualifications: the effect of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws
then or thereafter in effect relating to or affecting the rights and
remedies of creditors; general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or law),
and the discretion of the court before which any proceeding therefor
may be brought; the unenforceability under certain circumstances under
law or court decisions of provisions providing for the indemnification
of or contribution to a party with respect to a liability where such
indemnification or contribution is contrary to public policy; the
enforceability of the waiver of rights or defenses contained in
Section [ ] of the Indenture;
(ix) the Securities, including the Common Stock into which the
Securities are convertible, and the Indenture conform in all material
respects to the descriptions thereof contained in the Registration
Statement and Prospectus under the headings "Description of the Notes"
and "Description of Capital Stock";
(x) the Indenture has been duly qualified under the TIA;
28
<PAGE>
(xi) the Registration Statement has become effective under the
Act, and, to such counsel's knowledge, no stop order suspending its
effectiveness has been issued and no proceedings for that purpose are
pending before or threatened by the Commission;
(xii) the statements under the captions "Shares Eligible for
Future Sale," "Recent and Pending Acquisitions," "Dividend Policy" and
"Description of Capital Stock" in the Prospectus and Item 15 of Part
II of the Registration Statement, insofar as such statements
constitute a summary of legal matters or certain contents of documents
referred to therein, are fair summaries of such legal matters or
contents of documents;
(xiii) the execution, delivery and performance of this Agreement
by the Company, compliance by the Company with all the provisions
hereof and the consummation of the transactions contemplated hereby
will not require any consent, approval, authorization or other order
of any court, regulatory body, administrative agency or other
governmental body (except as such may be required under the Act or
other securities or Blue Sky laws) and, except as would not have a
Material Adverse Effect, will not violate or constitute a breach of
any of the terms or provisions of, or a default (with the passage of
time, the giving of notice or otherwise) under, the charter or by-laws
or other equivalent instruments, as the case may be, of the Company or
any of the Subsidiaries or any agreement, lease, contract, indenture
or other instrument that is an exhibit to the Registration Statement
or any document incorporated by reference therein, or (assuming
compliance with all applicable state securities or Blue Sky laws)
violate any laws or administrative regulations applicable to the
Company or any of its Subsidiaries or their respective properties
which, in such counsel's opinion, are normally applicable to the
transactions of the type contemplated by this Agreement or violate any
judgment, injunction, order or decree known to such counsel that names
the Company or any of the Subsidiaries and is specifically directed to
any of them or any of their respective properties;
(xiv) such counsel does not know of any contract or other
document to which the Company or any Subsidiary is a party which
29
<PAGE>
is required to be described in the Registration Statement or the
Prospectus or is required to be filed as an exhibit to the
Registration Statement which is not described or filed as required;
(xv) the Company has the corporate power and authority to
enter into and perform this Agreement; and this Agreement has been
duly authorized, executed and delivered by the Company and is a valid
and binding agreement of the Company enforceable in accordance with
its terms (except as rights to indemnity and contribution hereunder
may be limited by applicable law);
(xvi) to the best of such counsel's knowledge, except for
rights as to which waivers have been obtained in writing with respect
to inclusion in this Offering, no holder of any security of the
Company has any right to require registration of any security of the
Company other than [ ];
(xvii) the Registration Statement and the Prospectus and any
supplement or amendment thereto (except for financial statements and
financial schedules and other statistical data included or
incorporated therein as to which no opinion need be expressed) comply
as to form in all material respects with the Act; and
(xviii) the Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
In addition, such counsel shall state that such counsel has
participated in conferences with officers and other representatives of the
Company, representatives of the independent public accountants of each of the
Company[, WATERPRO SUPPLIES CORPORATION, WHEELABRATOR TECHNOLOGIES INC.--SYSTEMS
AND MANUFACTURING GROUP, UNITED UTILITIES PLC--PROCESS DIVISION AND THE UTILITY
SUPPLY GROUP, INC.,] and representatives of the Underwriters and their counsel
at which the contents of the Registration Statement and the Prospectus were
discussed and, although such counsel has not independently verified and is not
passing upon and does not assume responsibility for the accuracy, completeness
or fairness of the statements contained in the Registration Statement or the
Prospectus (except as specified elsewhere in such counsel's opinion), on the
basis of the foregoing,
30
<PAGE>
nothing has come to the attention of such counsel that causes such counsel to
believe that the Registration Statement, at the time such Registration Statement
or any post-effective amendment became effective, contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, or that the
Prospectus, as amended or supplemented, as of its date and the Closing Date,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading (it
being understood that such counsel need express no opinion with respect to the
financial statements, schedules, statistical data, and pro forma and other
financial data included in the Registration Statement or the Prospectus).
The opinion of Kirkpatrick & Lockhart LLP described in paragraph (e)
above shall be rendered to you at the request of the Company and shall so state
therein. In rendering such opinions, such counsel may rely upon certificates of
any officer of the Company or of government officials as to matters of fact of
which the maker of such certificate has knowledge provided that counsel
rendering such opinion shall furnish the Underwriters with copies of any such
statements or certificates. In addition, in rendering their opinion, such
counsel may state that their opinion is limited to matters of the laws of the
Commonwealth of Pennsylvania, the General Corporation Law of the State of
Delaware and U.S. Federal law.
(f) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the Closing
Date, of Damian C. Georgino, General Counsel for the Company, to the effect
that:
(i) to the knowledge of such counsel, each contract or document
described in or whose description is incorporated into the Prospectus
is, unless otherwise disclosed therein, in full force and effect in
accordance with its terms, except as would not cause a Material
Adverse Effect;
(ii) neither the Company nor any of its subsidiaries is in
violation of its respective charter or by-laws or other equivalent
instruments, as the case may be, except as would not singly or in the
aggregate have a Material Adverse Effect, and, to such counsel's
31
<PAGE>
knowledge, except as would not have a Material Adverse Effect, neither
the Company nor any of its subsidiaries is in default in the
performance of any obligation, agreement or condition contained in any
bond, debenture, note or any other evidence of indebtedness or in any
other agreement, lease, contract, indenture or instrument to which the
Company or any of its subsidiaries is a party or by which it or any of
its subsidiaries or their respective property is bound, and there
exists no condition which, with the passage of time or otherwise,
would constitute such a default under any such document or instrument;
(iii) the execution, delivery and performance of this Agreement,
the Indenture and the Securities by the Company, compliance by the
Company with all the provisions hereof and thereof and the
consummation of the transactions contemplated hereby and thereby will
not require any consent, approval, authorization or other order of any
court, regulatory body, administrative agency or other governmental
body (except as such may be required under the Act or other securities
or Blue Sky laws) and will not conflict with or constitute a breach of
any of the terms or provisions of, or a default (with the passage of
time or otherwise) under, the charter or by-laws or other equivalent
instruments, as the case may be, of the Company or any of its
subsidiaries or, except as such would not have a Material Adverse
Effect, any agreement, lease, contract, indenture or other instrument
to which the Company or any of its subsidiaries is a party or by which
the Company or any of its subsidiaries or their respective properties
are bound, or, except such as would not have a Material Adverse
Effect, violate or conflict with any valid statutes or valid and
published administrative regulations applicable to the Company or any
of its subsidiaries or their respective properties which, in such
counsel's opinion, are normally applicable to the transactions of the
type contemplated by this Agreement or violate any judgment,
injunction, order or decree known to such counsel that names the
Company or any of the Subsidiaries and is specifically directed to any
of them or any of their respective properties;
(iv) such counsel does not know of any legal or governmental
proceeding pending or threatened to which the Company or
32
<PAGE>
any of its subsidiaries is a party or to which any of their respective
property is subject which is required to be described in the
Registration Statement or the Prospectus and is not so described or
incorporated by reference;
(v) the Company has the corporate power and authority to enter
into and perform this Agreement, the Indenture and the Securities;
this Agreement, the Indenture and the Securities has been duly
authorized, executed and delivered by the Company and is a valid and
binding agreement of the Company enforceable in accordance with its
terms (except as rights to indemnity and contribution hereunder may be
limited by applicable law).
In addition, such counsel shall state that such counsel has
participated in conferences with officers and other representatives of the
Company and the Selling Stockholder, representatives of the independent public
accountants of each of the Company[, WATERPRO SUPPLIES CORPORATION, WHEELABRATOR
TECHNOLOGIES INC.--SYSTEMS AND MANUFACTURING GROUP, UNITED UTILITIES PLC--
PROCESS DIVISION AND THE UTILITY SUPPLY GROUP, INC.,] and representatives of the
Underwriters and their counsel at which the contents of the Registration
Statement and the Prospectus were discussed and, although such counsel has not
independently verified and is not passing upon and does not assume
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus (except as specified
elsewhere in such counsel's opinion), on the basis of the foregoing, nothing has
come to the attention of such counsel that causes such counsel to believe that
the Registration Statement, at the time such Registration Statement or any post-
effective amendment became effective, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or that the
Prospectus, as amended or supplemented, as of its date and the Closing Date,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading (it
being understood that such counsel need express no opinion with respect to the
financial statements, schedules, statistical data, and pro forma and other
financial data included in the Registration Statement or the Prospectus).
33
<PAGE>
The opinion of Damian C. Georgino described in paragraph (f) above
shall be rendered to you at the request of the Company and shall so state
therein.
(g) You shall have received on the Closing Date an opinion, dated the
Closing Date, of Skadden, Arps, Slate, Meagher & Flom LLP ("Skadden Arps"),
counsel for the Underwriters, in form and substance reasonably satisfactory
to you.
(h) You shall have received letters on and as of the date hereof as
well as on and as of the Closing Date (in the latter case constituting an
affirmation of the statements set forth in the former, based on limited
procedures), in form and substance satisfactory to you, from KPMG Peat
Marwick LLP, Price Waterhouse LLP, Ernst & Young LLP, Arthur Anderson LLP
(the "Accountants"), each independent public accountants, with respect to
the financial statements and certain financial information contained in the
Registration Statement and the Prospectus.
(i) Skadden Arps shall have been furnished with such documents and
opinions as they may reasonably require for the purpose of enabling them to
review or pass upon the matters referred to in this Section 8 and in order
to evidence the accuracy, completeness or satisfaction in all material
respects of any of the representations, warranties or conditions herein
contained.
(j) Prior to the Closing Date, the Company shall have furnished to you
or caused to be furnished to you such further information, certificates,
opinions and documents as you may reasonably request.
(k) The Company shall not have failed at or prior to the Closing Date
to perform or comply with any of the agreements herein contained and
required to be performed or complied with by the Company as applicable, at
or prior to the Closing Date.
The several obligations of the Underwriters to purchase any Additional
Shares hereunder are subject to satisfaction on and as of each Option Closing
Date of the conditions set forth in paragraphs (a) through (k), except that the
opinions called for in paragraphs (e), (f) and (g) and the letters referred to
in paragraph (h) shall be revised to reflect the sale of the Additional
Securities
34
<PAGE>
9. Effective Date of Agreement and Termination. This Agreement
-------------------------------------------
shall become effective upon the execution of this Agreement.
This Agreement may be terminated at any time prior to the Closing Date
by you by written notice to the Company if any of the following has occurred:
(i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any adverse change or development
involving a prospective adverse change in the condition, financial or otherwise,
of the Company or any of its subsidiaries or the earnings, cash flows, business
affairs, or business prospects of the Company or any of its subsidiaries,
whether or not arising in the ordinary course of business, which would, in your
judgment, make it impracticable or inadvisable to market the Securities or to
enforce contracts for the sale of the Securities, (ii) any outbreak or
escalation of hostilities or other national or international calamity or crisis
or change in economic conditions or in the financial markets of the United
States or elsewhere that, in your judgment, is material and adverse and would,
in your judgment, make it impracticable or inadvisable to market the Securities
or to enforce contracts for the sale of the Securities (iii) the suspension or
material limitation of trading in securities on the New York Stock Exchange, the
American Stock Exchange or the NASDAQ National Market System or limitation on
prices for securities on any such exchange or National Market System, (iv) the
enactment, publication, decree or other promulgation of any federal or state
statute, regulation, rule or order of any court or other governmental authority
which in your judgment materially and adversely affects, or will materially and
adversely affect, the business or operations of the Company and its
subsidiaries, taken as a whole, (v) the declaration of a banking moratorium by
either federal or New York State authorities or (vi) the taking of any action by
any federal, state or local government or agency in respect of its monetary or
fiscal affairs which in your judgment has a material adverse effect on the
financial markets in the United States and would, in your judgment, make it
impracticable or inadvisable to market the Securities or to enforce contracts
for the sale of the Securities
If on the Closing Date any one or more of the Underwriters shall fail
or refuse to purchase the Firm Securities which it or they have agreed to
purchase hereunder on such date and the aggregate number of Firm Securities
which such defaulting Underwriter or Underwriters, as the case may be, agreed
but failed or refused to purchase is not more than one-tenth of the total number
of Securities to be purchased on such date by all Underwriters, each non-
defaulting Underwriter shall be obligated severally, in the proportion which the
number of Firm Securities
35
<PAGE>
set forth opposite its name in Schedule I bears to the total number of Firm
Securities which all the non-defaulting Underwriters, as the case may be, have
agreed to purchase, or in such other proportion as you may specify, to purchase
the Firm Securities which such defaulting Underwriter or Underwriters, as the
case may be, agreed but failed or refused to purchase on such date; provided
that in no event shall the number of Firm Securities which any Underwriter has
agreed to purchase pursuant to Section 3 hereof be increased pursuant to this
Section 9 by an amount in excess of one-ninth of such number of Firm Securities
without the written consent of such Underwriter. If on the Closing Date any
Underwriter or Underwriters shall fail or refuse to purchase Firm Securities and
the aggregate number of Firm Securities with respect to which such default
occurs is more than one-tenth of the aggregate number of Shares to be purchased
on such date by all Underwriters, and arrangements satisfactory to you and the
Company for purchase of such Securities are not made within 48 hours after such
default, this Agreement will terminate without liability on the part of any non-
defaulting Underwriter and the Company. In any such case which does not result
in termination of this Agreement, either you or the Company shall have the right
to postpone the Closing Date, but in no event for longer than seven days, in
order that the required changes, if any, in the Registration Statement and the
Prospectus or any other documents or arrangements may be effected. Any action
taken under this paragraph shall not relieve any defaulting Underwriter from
liability in respect of any default of any such Underwriter under this
Agreement.
12. Miscellaneous. Notices given pursuant to any provision of his
-------------
Agreement shall be addressed as follows: (a) if to the Company, to United States
Filter Corporation, 40-004 Cook Street, Palm Desert, California 92211,
Attention: Kevin L. Spence, [_____________] and (b) if to any Underwriter or to
you, to you c/o Donaldson, Lufkin & Jenrette Securities Corporation, 277 Park
Avenue, New York, New York 10172, Attention: Syndicate Department, or in any
case to such other address as the person to be notified may have requested in
writing.
The respective indemnities, representations, warranties and other
statements of the Company, its officers and directors, and of the several
Underwriters set forth in or made pursuant to this Agreement and the respective
contribution agreements of the Company and its officers and directors and of the
several Underwriters set forth in this Agreement shall remain operative and in
full force and effect, and will survive delivery of and payment for the
Securities for a period of seven years, regardless of (i) any investigation, or
statement as to the
36
<PAGE>
results thereof, made by or on behalf of any Underwriter or by or on behalf of
the Company, its officers or directors, or any controlling person of the Company
(ii) acceptance of the Securities and payment for them hereunder and (iii)
termination of this Agreement.
If this Agreement shall be terminated by the Underwriters because of
any failure or refusal on the part of the Company to comply with the terms or to
fulfill any of the conditions of this Agreement, the party whose failure or
refusal to comply with such terms or fulfill such conditions shall reimburse the
several Underwriters for all out-of-pocket expenses (including the fees and
disbursements of counsel) reasonably incurred by them.
Except as otherwise provided, this Agreement has been and is made
solely for the benefit of and shall be binding upon the Company, the
Underwriters, any controlling persons referred to herein and their respective
successors and assigns, all as and to the extent provided in this Agreement, and
no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include a purchaser of
any of the Securities from any of the several Underwriters merely because of
such purchase.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND
PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK, EXCLUDING (TO THE GREATEST
EXTENT PERMISSIBLE BY LAW) ANY RULE OF LAW THAT WOULD CAUSE THE APPLICATION OF
THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK. THE COMPANY, ON
BEHALF OF ITSELF AND ITS SUBSIDIARIES, HEREBY IRREVOCABLY SUBMITS TO THE
EXCLUSIVE JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF
MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH OF
MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING
RELATED TO THIS AGREEMENT OR ANY OF THE MATTERS CONTEMPLATED HEREBY IRREVOCABLY
WAIVES ANY DEFENSE OF LACK OF PERSONAL JURISDICTION AND IRREVOCABLY AGREES THAT
ALL CLAIMS IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING MAY BE HEARD AND
DETERMINED IN ANY SUCH COURT. THE COMPANY IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT IT
37
<PAGE>
MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument.
38
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
between the Company and the several Underwriters.
Very truly yours,
UNITED STATES FILTER CORPORATION
By:______________________________________________________________
Name:
Title:
<PAGE>
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
DEUTSCHE MORGAN GRENFELL INC.
NATWEST SECURITIES LIMITED
SALOMON BROTHERS INC
SMITH BARNEY INC.
Acting severally on behalf of
itself and the several
Underwriters named in
Schedule I hereto:
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:__________________________________
Name:
Title:
<PAGE>
SCHEDULE I
----------
<TABLE>
<CAPTION>
Number of Firm Securities
U.S. Underwriters to be Purchased
- ----------------- -------------------------
<S> <C>
Donaldson, Lufkin & Jenrette Securities corporation [ ]
Deutsche Morgan Grenfell Inc. [ ]
NatWest Securities Limited [ ]
Salomon Brothers Inc [ ]
Smith Barney Inc. [_____________]
Total 200,000,000
===========
</TABLE>
<PAGE>
SCHEDULE II
-----------
REQUIRED STOCKHOLDER LOCK-UPS
-----------------------------
Name
- ----
[TO BE UPDATED]
Richard J. Heckmann
Michael J. Reardon
Nicholas C. Memmo
Thierry Reyners
Andrew D. Seidel
Kevin L. Spence
Tim L. Traff
John S. Swartley
Gerald E. Rogers
Damian C. Georgino
G.G. Pique
James R. Bullock
James E. Clark
John L. Diederich
J. Atwood Ives
Arthur B. Laffer
Alfred E. Osborne, Jr.
C. Howard Wilkins, Jr.
Interlake Stockholders /(1)/
[ZIMPRO]
[KBS]
[JET-TECH]
[BEKOX]
[NORRIS]
[WATER PRO]
[USG]
[UNITED UTILITIES]
_________________
/(1)/ The Interlake Stockholders are Florence E. Stockdale and James Timothy
Stockdale.
<PAGE>
SCHEDULE III
------------
LIST OF CERTAIN SUBSIDIARIES
----------------------------
<TABLE>
<CAPTION>
Name Place of Incorporation
- ---- ----------------------
<S> <C>
[TO BE UPDATED]
U.S. Subsidiaries
- -----------------
Continental Water Conditioning California
Company of the Bay Area
Illinois Water Treatment, Inc. Delaware
IP Holding Company Delaware
U.S. Filter/Arrowhead, Inc. Delaware
U.S. Filter/Ionpure, Inc. Massachusetts
U.S. Filter/Permutit, Inc. Delaware
USF Two, Inc. Delaware
U.S. Filter, Inc. Warrendale, PA Delaware
U.S. Filter/Whittier, Inc. Delaware
Continental Penfield Corporation Delaware
U.S. Filter Recovery Services, Inc. Delaware
Polymetrics, Inc. California
Foreign Subsidiaries
- --------------------
USF Smogless S.p.A. Italy
USF Limited U.K.
Societe des Ceramiques Techniques France
Seral Erich Alhauser GmbH Germany
Establishments Crouzat S.A. France
Ionpure Technologies SARL France
Ionpure Technologies Ltd. (UK) U.K.
</TABLE>
<PAGE>
EXHIBIT 4.1
================================================================================
UNITED STATES FILTER CORPORATION,
ISSUER,
AND
STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A.,
TRUSTEE
-----------------
INDENTURE
Dated as of December ___, 1996
-----------------
$200,000,000
[ ]% Convertible Subordinated Notes due 2001
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE.............. 1
SECTION 1.1. Definitions................................................. 1
SECTION 1.2. Incorporation by Reference of TIA........................... 11
SECTION 1.3. Rules of Construction....................................... 12
ARTICLE II
THE SECURITIES............................ 12
SECTION 2.1. Form and Dating............................................. 12
SECTION 2.2. Execution and Authentication................................ 13
SECTION 2.3. Registrar and Paying Agent.................................. 14
SECTION 2.4. Paying Agent to Hold Assets in Trust........................ 15
SECTION 2.5. Securityholder Lists........................................ 15
SECTION 2.6. Transfer and Exchange....................................... 16
SECTION 2.7. Replacement Securities...................................... 19
SECTION 2.8. Outstanding Securities...................................... 20
SECTION 2.9. Treasury Securities......................................... 20
SECTION 2.10. Temporary Securities........................................ 20
SECTION 2.11. Cancellation................................................ 21
SECTION 2.12. Defaulted Interest.......................................... 21
ARTICLE III
REDEMPTION.............................. 23
SECTION 3.1. Right of Redemption......................................... 23
SECTION 3.2. Notices to Trustee.......................................... 23
SECTION 3.3. Selection of Securities to Be Redeemed...................... 24
SECTION 3.4. Notice of Redemption........................................ 24
SECTION 3.5. Effect of Notice of Redemption.............................. 26
SECTION 3.6. Deposit of Redemption Price................................. 26
SECTION 3.7. Securities Redeemed in Part................................. 27
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ARTICLE IV
COVENANTS............................. 27
SECTION 4.1. Payment of Principal and Interest on Securities............ 27
SECTION 4.2. Maintenance of Office or Agency............................ 27
SECTION 4.3. Corporate Existence........................................ 28
SECTION 4.4. Payment of Taxes and Other Claims.......................... 28
SECTION 4.5. Maintenance of Properties and Insurance.................... 29
SECTION 4.6. Compliance Certificate; Notice of Default.................. 30
SECTION 4.7. Reports.................................................... 30
SECTION 4.8. Limitation on Status as Investment Company................. 31
SECTION 4.9. Waiver of Stay, Extension or Usury Laws.................... 31
ARTICLE V
SUCCESSOR CORPORATION....................... 32
SECTION 5.1. Limitation on Merger, Sale or Consolidation................ 32
SECTION 5.2. Successor Corporation Substituted.......................... 32
ARTICLE VI
EVENTS OF DEFAULT AND REMEDIES................... 33
SECTION 6.1. Events of Default.......................................... 33
SECTION 6.2. Acceleration of Maturity Date; Rescission and Annulment.... 36
SECTION 6.3. Collection of Indebtedness and Suits for Enforcement
by Trustee.............................................. 37
SECTION 6.4. Trustee May File Proofs of Claim........................... 38
SECTION 6.5. Trustee May Enforce Claims Without Possession
of Securities........................................... 39
SECTION 6.6. Priorities................................................. 39
SECTION 6.7. Limitation on Suits........................................ 40
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
SECTION 6.8. Unconditional Right of Holders to Receive Principal,
Premium and Interest..................................... 41
SECTION 6.9. Rights and Remedies Cumulative............................. 41
SECTION 6.10. Delay or Omission Not Waiver............................... 41
SECTION 6.11. Control by Holders......................................... 42
SECTION 6.12. Waiver of Past Default..................................... 42
SECTION 6.13. Undertaking for Costs...................................... 43
SECTION 6.14. Restoration of Rights and Remedies......................... 43
ARTICLE VII
TRUSTEE.............................. 44
SECTION 7.1. Duties of Trustee.......................................... 44
SECTION 7.2. Rights of Trustee.......................................... 45
SECTION 7.3. Individual Rights of Trustee............................... 46
SECTION 7.4. Trustee's Disclaimer....................................... 47
SECTION 7.5. Notice of Default.......................................... 47
SECTION 7.6. Reports by Trustee to Holders.............................. 47
SECTION 7.7. Compensation and Indemnity................................. 49
SECTION 7.8. Replacement of Trustee..................................... 50
SECTION 7.9. Successor Trustee by Merger, Etc. ......................... 51
SECTION 7.10. Eligibility; Disqualification.............................. 52
SECTION 7.11. Preferential Collection of Claims Against Company.......... 52
ARTICLE VIII
SATISFACTION AND DISCHARGE..................... 52
SECTION 8.1. Satisfaction and Discharge of Indenture.................... 52
SECTION 8.2. Repayment to the Company................................... 53
ARTICLE IX
AMENDMENTS, SUPPLEMENTS AND WAIVERS................ 53
SECTION 9.1. Supplemental Indentures Without Consent of Holders......... 53
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
SECTION 9.2. Amendments, Supplemental Indentures and Waivers with
Consent of Holders........................................ 54
SECTION 9.3. Compliance with TIA......................................... 56
SECTION 9.4. Revocation and Effect of Consents........................... 56
SECTION 9.5. Notation on or Exchange of Securities....................... 57
SECTION 9.6. Trustee to Sign Amendments, Etc............................. 57
ARTICLE X
RIGHT TO REQUIRE REPURCHASE UPON A CHANGE OF CONTROL......... 57
SECTION 10.1. Repurchase of Securities at Option of the Holder Upon
a Change of Control...................................... 57
ARTICLE XI
SUBORDINATION............................ 60
SECTION 11.1. Securities Subordinated to Senior Indebtedness............. 60
SECTION 11.2. No Payment on Securities in Certain Circumstances.......... 61
SECTION 11.3. Securities Subordinated to Prior Payment of All Senior
Indebtedness on Dissolution, Liquidation or
Reorganization.......................................... 63
SECTION 11.4. Securityholders to Be Subrogated to Rights of Holders
of Senior Indebtedness.................................. 64
SECTION 11.5. Obligations of the Company Unconditional................... 65
SECTION 11.6. Trustee Entitled to Assume Payments Not Prohibited
in Absence of Notice.................................... 66
SECTION 11.7. Application by Trustee of Assets Deposited with It......... 66
SECTION 11.8. Subordination Rights Not Impaired by Acts or Omissions
of the Company or Holders of Senior Indebtedness........ 67
SECTION 11.9. Securityholders Authorize Trustee to Effectuate
Subordination of Securities............................. 67
SECTION 11.10. Right of Trustee to Hold Senior Indebtedness............... 68
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C>
SECTION 11.11. Article XI Not to Prevent Events of Default............... 68
SECTION 11.12. No Fiduciary Duty of Trustee to Holders of Senior
Indebtedness............................................ 68
ARTICLE XII
CONVERSION OF SECURITIES...................... 69
SECTION 12.1. Conversion Privilege...................................... 69
SECTION 12.2. Exercise of Conversion Privilege.......................... 69
SECTION 12.3. Fractional Interests...................................... 71
SECTION 12.4. Conversion Price.......................................... 72
SECTION 12.5. Adjustment of Conversion Price............................ 72
SECTION 12.6. Continuation of Conversion Privilege in Case of
Reclassification, Change, Merger, Consolidation or
Sale of Assets.......................................... 78
SECTION 12.7. Notice of Certain Events.................................. 80
SECTION 12.8. Taxes on Conversion....................................... 81
SECTION 12.9. Company to Provide Stock.................................. 82
SECTION 12.10. Disclaimer of Responsibility for Certain Matters.......... 82
SECTION 12.11. Return of Funds Deposited for Redemption of
Converted Securities.................................... 83
ARTICLE XIII
MISCELLANEOUS........................... 83
SECTION 13.1. TIA Controls.............................................. 83
SECTION 13.2. Notices................................................... 83
SECTION 13.3. Communications by Holders with Other Holders.............. 85
SECTION 13.4. Certificate and Opinion as to Conditions Precedent........ 85
SECTION 13.5. Statements Required in Certificate or Opinion............. 85
SECTION 13.6. Rules by Trustee, Paying Agent, Registrar................. 86
SECTION 13.7. Legal Holidays............................................ 86
SECTION 13.8. Governing Law............................................. 86
</TABLE>
v
<PAGE>
<TABLE>
<S> <C>
SECTION 13.9. No Adverse Interpretation of Other Agreements............... 87
SECTION 13.10. No Recourse Against Others.................................. 87
SECTION 13.11. Successors.................................................. 87
SECTION 13.12. Duplicate Originals......................................... 87
SECTION 13.13. Severability................................................ 88
SECTION 13.14. Table of Contents, Headings, Etc............................ 88
SECTION 13.15. Qualification of Indenture.................................. 88
SIGNATURES................................................................. 89
Exhibit A - FORM OF SECURITY............................................... A-1
EXHIBIT B - FORM OF CONVERSION NOTICE...................................... B-1
</TABLE>
vi
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA INDENTURE
SECTION SECTION
- ------- ---------
<S> <C>
310(a)(1)............................................................... 7.10
(a)(2)............................................................... 7.10
(a)(3)............................................................... N.A.
(a)(4)............................................................... N.A.
(a)(5)............................................................... 7.10
(b) ................................................................ 7.8;
7.10;
14.2
(c) ................................................................ N.A.
311(a) ................................................................ 7.11
(b) ................................................................ 7.11
(c) ................................................................ N.A.
312(a) ................................................................ 2.5
(b) ................................................................ 14.3
(c) ................................................................ 14.3
313(a) ................................................................ 7.6
(b)(1)............................................................... N.A.
(b)(2)............................................................... 7.6
(c) ................................................................ 7.6;
14.2
(d) ................................................................ 7.6
314(a).................................................................. 4.6;
13.2
(b) ................................................................ N.A.
(c)(1)............................................................... 2.2;
7.2;
14.4
(c)(2)............................................................... 7.2;
14.4
(c)(3)............................................................... N.A.
(d).................................................................. N.A.
(e).................................................................. 14.5
(f).................................................................. N.A.
315(a).................................................................. 7.1(b)
(b).................................................................. 7.5;
7.6;
14.2
(c).................................................................. 7.1(a)
</TABLE>
vii
<PAGE>
<TABLE>
<CAPTION>
TIA INDENTURE
SECTION SECTION
- ------- ---------
<S> <C>
(d)........................................................... 2.8;
6.11;
7.1(b)(c)
(e)........................................................... 6.14
316(a)(last sentence)............................................ 2.9
(a)(1)(A)..................................................... 6.11
(a)(1)(B)..................................................... 6.12
(a)(2)........................................................ N.A.
(b)........................................................... 6.12;
6.7
317(a)(1)........................................................ 6.3
(a)(2)........................................................ 6.4
(b)........................................................... 2.4
318(a)........................................................... 14.1
</TABLE>
__________
N.A. means Not Applicable.
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of the Indenture.
viii
<PAGE>
INDENTURE, dated as of December __, 1996, between UNITED STATES FILTER
CORPORATION, a Delaware corporation (the "Company"), and State Street Bank and
Trust Company of California, N.A., a national banking association, as Trustee.
Each party hereto agrees as follows for the benefit of each other
party and for the equal and ratable benefit of the Holders of the Company's
[ ]% Convertible Subordinated Notes due 2001:
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1. Definitions.
-----------
"Acceleration Notice" shall have the meaning specified in Section 6.2.
-------------------
"Affiliate" means (i) any person directly or indirectly controlling or
---------
controlled by or under direct or indirect common control with the Company, (ii)
any spouse, immediate family member, or other relative who has the same
principal residence of any person described in clause (i) above, and (iii) any
trust in which any person described in clause (i) or (ii) above has a beneficial
interest. For purposes of this definition, the term "control" means the power
to direct the management and policies of a person, directly or through one or
more intermediaries, whether through the ownership of voting securities, by
contract, or otherwise.
"Agent" means any Registrar, Paying Agent or co-Registrar.
-----
"Bankruptcy Law" means Title 11, U.S. Code, or any similar Federal,
--------------
state or foreign law for the relief of debtors.
"beneficial owner" for purposes of the definition of Change of Control
----------------
has the meaning attributed to it 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,
<PAGE>
whether such right is exercisable immediately or only after the passage of time
or upon the occurrence of certain events.
"Board of Directors" means, with respect to any person, the Board of
------------------
Directors of such person or any committee of the Board of Directors of such
person authorized, with respect to any particular matter, to exercise the power
of the Board of Directors of such person.
"Board Resolution" means, with respect to any person, a duly adopted
----------------
resolution of the Board of Directors of such person.
"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.
"Capitalized Lease Obligation" means rental obligations under a lease
----------------------------
that are required to be capitalized for financial reporting purposes in
accordance with GAAP, and the amount of Indebtedness represented by such
obligations shall be the capitalized amount of such obligations, as determined
in accordance with GAAP.
"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.
"Cash" means such coin or currency of the United States of America as
----
at the time of payment shall be legal tender for the payment of public and
private debts.
"Change of Control" occurs upon the occurrence of 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" (as such terms are
used for purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or
not applicable) is or becomes the "benefi-
2
<PAGE>
cial 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" (as such terms are used for purposes of
Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable) 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
shareholders 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 specified in Section 12.5.
For purposes of this definition, the terms "person" and "group" shall
have the meanings 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.
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Common Stock" means the Company's common stock, par value $.01 per
------------
share, or as such stock may be reconstituted from time to time.
"Company" means the party named as such in this Indenture until a
-------
successor replaces it pursuant to the Indenture, and thereafter means such
successor.
"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
3
<PAGE>
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.
"Conversion Price" shall have the meaning specified in Section 12.5.
----------------
"Conversion Shares" shall have the meaning specified in Section 12.5.
-----------------
"Custodian" means any receiver, trustee, assignee, liquidator,
---------
sequestrator or similar official under any Bankruptcy Law.
"Date of Conversion" shall have the meaning specified in Section 12.2.
------------------
"Default" means any event or condition that is, or after notice or
-------
passage of time or both would be, an Event of Default.
"Defaulted Interest" shall have the meaning specified in Section 2.12.
------------------
"Definitive Securities" means Securities that are in the form of
---------------------
Security attached hereto as Exhibit A that do not include the information called
for by footnotes 1 and 2 thereof.
"Depositary" means, with respect to the Securities issuable or issued
----------
in whole or in part in global form, the person specified in Section 2.3 as the
Depositary with respect to the Securities, until a successor shall have been
appointed and become such pursuant to the applicable provision of this
Indenture, and, thereafter, "Depositary" shall mean or include such successor.
"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 ex-
4
<PAGE>
changeable, 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.
"Distribution Date" shall have the meaning specified in Section 12.5.
-----------------
"DTC" shall have the meaning specified in Section 2.3.
---
"Event of Default" shall have the meaning specified in Section 6.1.
----------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
and the rules and regulations promulgated by the SEC thereunder.
"Expiration Time" shall have the meaning specified in Section 12.5.
---------------
"GAAP" means United States generally accepted accounting principles
----
set forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board ("FASB") or in such
other statements by such other entity as approved by a significant segment of
the accounting profession which are in effect in the United States; provided,
--------
however, that for purposes of determining compliance with covenants in the
- -------
Indenture, "GAAP" means such generally accepted accounting principles which are
in effect as of the date of determination.
"Global Security" means a Security that contains the paragraph
---------------
referred to in footnote 1 and the additional schedule referred to in footnote 2
of the form of Security attached hereto as Exhibit A.
"Holder" or "Securityholder" means the person in whose name a Security
------ --------------
is registered on the Registrar's books.
5
<PAGE>
"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 that are not more than ninety (90) days past their
original due date, (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 clause (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, 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.
"Indenture" means this Indenture, as amended or supplemented from time
---------
to time in accordance with the terms hereof.
"Interest Payment Date" means the stated due date of an installment of
---------------------
interest on the Securities.
"Interest Swap and Hedging Obligation" means any obligation of any
------------------------------------
person pursuant to any interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate exchange agreement,
currency exchange agreement or any other agreement or arrangement designed to
protect against fluctuations in interest rates or currency values, including,
without limitation, any arrangement whereby, directly or indirectly, such person
is entitled to receive from time to time periodic payments calculated by
applying either a fixed or floating rate of interest on a stated notional amount
in exchange for periodic payments made by such person calculated by applying a
6
<PAGE>
fixed or floating rate of interest on the same notional amount.
"Issue Date" means the date of first issuance of the Securities under
----------
this Indenture.
"Junior Security" of any person means any Qualified Capital Stock and
---------------
any Indebtedness of such person that is subordinated in right of payment to the
Securities and has no scheduled installment of principal due, by redemption,
sinking fund payment or otherwise, on or prior to the Stated Maturity of the
Securities.
"Last Sale Price" shall have the meaning specified in Section 12.3.
---------------
"Legal Holiday" shall have the meaning specified in Section 13.7.
-------------
"Lien" means any mortgage, lien, pledge, charge, security interest or
----
other encumbrance of any kind, whether or not filed, recorded or otherwise
perfected under applicable law (including any conditional sale or other title
retention agreement and any lease deemed to constitute a security interest and
any option or other agreement to give any security interest).
"non-electing share" shall have the meaning specified in Section 12.6.
------------------
"Notice of Default" shall have the meaning specified in Section
-----------------
6.1(3).
"Offer" shall have the meaning specified in Section 12.5.
-----
"Officer" means, with respect to the Company, the Chief Executive
-------
Officer, the President, any Vice President, the Chief Financial Officer, the
Treasurer, the Controller, or the Secretary of the Company.
"Officers' Certificate" means, with respect to the Company, a
---------------------
certificate signed by two Officers or by an Officer and an Assistant Secretary
of the Company and otherwise complying with the requirements of Sections 13.4
and 13.5.
7
<PAGE>
"Opinion of Counsel" means a written opinion from legal counsel who is
------------------
reasonably acceptable to the Trustee and which complies with the requirements of
Sections 13.4 and 13.5.
"Paying Agent" shall have the meaning specified in Section 2.3.
------------
"Payment Blockage Period" shall have the meaning specified in Section
-----------------------
11.2.
"Payment Default" shall have the meaning specified in Section 11.2.
---------------
"Payment Notice" shall have the meaning specified in Section 11.2.
--------------
"Person" or "person" means any corporation, individual, limited
------ ------
liability company, joint stock company, joint venture, partnership,
unincorporated association, governmental regulatory entity, country, state or
political subdivision thereof, trust, municipality or other entity.
"principal" of any Indebtedness means the principal of such
---------
Indebtedness plus, without duplication, any applicable premium, if any, on such
Indebtedness.
"property" means any right or interest in or to property or assets of
--------
any kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.
"Purchased Shares" shall have the meaning specified in Section 12.5.
----------------
"Qualified Capital Stock" means any Capital Stock of the Company that
-----------------------
is not Disqualified Capital Stock.
"Record Date" means a Record Date specified in the Securities whether
-----------
or not such Record Date is a Business Day.
"Redemption Date," when used with respect to any Security to be
---------------
redeemed, means the date fixed for such redemption pursuant to Article III of
this Indenture and Paragraph 5 in the form of Security.
8
<PAGE>
"Redemption Price," when used with respect to any Security to be
----------------
redeemed, means the redemption price for such redemption pursuant to Paragraph 5
in the form of Security, which shall include, without duplication, in each case,
accrued and unpaid interest, if any, to and including the Redemption Date.
"Registrar" shall have the meaning specified in Section 2.3.
---------
"Repurchase Date" shall have the meaning specified in Section 10.1.
---------------
"Repurchase Offer" shall have the meaning specified in Section 10.1.
----------------
"Repurchase Price" shall have the meaning specified in Section 10.1.
----------------
"Repurchase Put Date" shall have the meaning specified in Section
-------------------
10.1.
"SEC" means the Securities and Exchange Commission.
---
"Securities" means, collectively, the % Convertible Subordinated
----------
Notes due 2001, as supplemented from time to time in accordance with the terms
hereof, issued under this Indenture.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations of the SEC promulgated thereunder.
"Securities Custodian" means the Trustee, as custodian with respect to
--------------------
the Securities in global form, or any successor entity thereto.
"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 Securities
or to other Indebtedness which is pari passu with, or subordinated to, the
Securities; provided, that in no event shall Senior Indebtedness include (a) In-
--------
9
<PAGE>
debtedness 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 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 SEC as in effect on the date of this Indenture.
"Special Record Date" for payment of any Defaulted Interest means a
-------------------
date fixed by the Trustee pursuant to Section 2.12.
"Stated Maturity," when used with respect to any Security, means
---------------
December __, 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 majority ownership interest.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code (S)(S)
---
77aaa-77bbbb) as in effect on the date of the execution of this Indenture.
"Trading Day" means each Monday, Tuesday, Wednesday, Thursday and
-----------
Friday, other than any day on which securities are not traded on the New York
Stock Exchange.
"Trustee" means the party named as such in this Indenture until a
-------
successor replaces it in accordance with the provisions of this Indenture and
thereafter means such successor.
10
<PAGE>
"Trust Officer" means any officer within the corporate trust division
-------------
(or any successor group) of the Trustee or any other officer of the Trustee
customarily performing functions similar to those performed by the Persons who
at that time shall be such officers, and also means, with respect to a
particular corporate trust matter, any other officer of the Trustee to whom such
trust matter is referred because of his knowledge of and familiarity with the
particular subject.
"Underwriters" means Donaldson, Lufkin & Jenrette Securities
------------
Corporation, Salomon Brothers Inc, Deutsche Morgan Grenfell Inc., NatWest
Securities Limited and Smith Barney Inc.
"Underwriting Agreement" means that certain Underwriting Agreement,
----------------------
dated December __, 1996, by and between the Company and the Underwriters, as
such agreement may be amended, modified or supplemented from time to time in
accordance with the terms thereof.
"U.S. Government Obligations" means direct non-callable obligations
---------------------------
of, or noncallable obligations guaranteed by, the United States of America for
the payment of which obligation or guarantee the full faith and credit of the
United States of America is pledged.
SECTION 1.2. Incorporation by Reference of TIA.
---------------------------------
Whenever this Indenture refers to a provision of the TIA, such
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
----------
"indenture securities" means the Securities.
--------------------
"indenture securityholder" means a Holder or a Securityholder.
------------------------
"indenture to be qualified" means this Indenture.
-------------------------
"indenture trustee" or "institutional trustee" means the Trustee.
----------------- ---------------------
11
<PAGE>
"obligor" on the indenture securities means the Company and any other
-------
obligor on the Securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule and not
otherwise defined herein have the meanings assigned to them thereby.
SECTION 1.3. Rules of Construction.
---------------------
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the
plural include the singular;
(5) provisions apply to successive events and transactions;
(6) "herein," "hereof" and other words of similar import refer to
this Indenture as a whole and not to any particular Article, Section or other
subdivision; and
(7) references to Sections or Articles means reference to such
Section or Article in this Indenture, unless stated otherwise.
ARTICLE II
THE SECURITIES
SECTION 2.1. Form and Dating.
---------------
The Securities and the Trustee's certificate of authentication, in
respect thereof, shall be substantially in the form of Exhibit A hereto, which
Exhibit is part of this Indenture. The Securities may have notations, legends
or endorsements required by law, stock exchange rule or usage. The Company
shall approve the form of the Securities and any notation, legend or endorsement
on them. Any such notations, legends or endorsements not contained in the form
12
<PAGE>
of Security attached as Exhibit A hereto shall be delivered in writing to the
Trustee. Each Security shall be dated the date of its authentication.
The terms and provisions contained in the forms of Securities shall
constitute, and are hereby expressly made, a part of this Indenture and, to the
extent applicable, the Company and the Trustee, by their execution and delivery
of this Indenture, expressly agree to such terms and provisions and to be bound
thereby.
SECTION 2. Execution and Authentication.
----------------------------
Two Officers shall sign, or one Officer shall sign and one Officer
shall attest to, the Security for the Company by manual or facsimile signature.
The Company's seal shall be impressed, affixed, imprinted or reproduced on the
Securities and may be in facsimile form.
If an Officer whose signature is on a Security was an Officer at the
time of such execution but no longer holds that office at the time the Trustee
authenticates the Security, the Security shall be valid nevertheless and the
Company shall nevertheless be bound by the terms of the Securities and this
Indenture.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security but
such signature shall be conclusive evidence that the Security has been
authenticated pursuant to the terms of this Indenture.
The Trustee shall authenticate the Securities for original issue in
the aggregate principal amount of up to $200,000,000 upon a written order of the
Company in the form of an Officers' Certificate. The Officers' Certificate
shall specify the amount of Securities to be authenticated and the date on which
the Securities are to be authenticated. The aggregate principal amount of
Securities outstanding at any time may not exceed $230,000,000, except as
provided in Section 2.7; provided, that Securities in excess of $200,000,000
--------
shall not be issued other than pursuant to the over-allotment option granted by
the Company to the Underwriters as provided in the Underwriting Agreement. Upon
the written order of the Company in the form of an Officers' Certificate, the
Trustee shall authenticate Securities in
13
<PAGE>
substitution of Securities originally issued to reflect any name change of the
Company.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Securities. Unless otherwise provided in the
appointment, an authenticating agent may authenticate Securities whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with the Company, any Affiliate of the Company,
or any of their respective Subsidiaries.
Securities shall be issuable only in registered form without coupons
in denominations of $1,000 and any integral multiple thereof.
SECTION 3. Registrar and Paying Agent.
--------------------------
The Company shall maintain an office or agency in the Borough of
Manhattan, The City of New York, where Securities may be presented for
registration of transfer or for exchange ("Registrar") and an office or agency
where Securities may be presented for payment ("Paying Agent") and where notices
and demands to or upon the Company in respect of the Securities may be served.
The Company may act as Registrar or Paying Agent, except that, for the purposes
of Articles III, VIII and X and as otherwise specified in the Indenture, neither
the Company nor any Affiliate of the Company shall act as Paying Agent. The
Registrar shall keep a register of the Securities and of their transfer and
exchange. The Company may have one or more co-Registrars and one or more
additional Paying Agents. The term "Paying Agent" includes any additional
Paying Agent. The Company hereby initially appoints the Trustee as Registrar
and Paying Agent, and the Trustee hereby initially agrees so to act.
The Company shall enter into an appropriate written agency agreement
with any Agent not a party to this Indenture, which agreement shall implement
the provisions of this Indenture that relate to such Agent. The Company shall
promptly notify the Trustee in writing of the name and address of any such
Agent. If the Company fails to maintain a Registrar or Paying Agent, the
Trustee shall act as such.
14
<PAGE>
The Company initially appoints The Depository Trust Company ("DTC") to
act as Depositary with respect to the Global Securities.
The Company initially appoints the Trustee to act as Securities
Custodian with respect to the Global Securities.
SECTION 4. Paying Agent to Hold Assets in Trust.
------------------------------------
The Company shall require each Paying Agent other than the Trustee to
agree in writing that each Paying Agent shall hold in trust for the benefit of
Holders or the Trustee all assets held by the Paying Agent for the payment of
principal of, premium, if any, or interest on, the Securities (whether such
assets have been distributed to it by the Company or any other obligor on the
Securities), and shall notify the Trustee in writing of any Default in making
any such payment. If either of the Company or a Subsidiary of the Company acts
as Paying Agent, it shall segregate such assets and hold them as a separate
trust fund for the benefit of the Holders or the Trustee. The Company at any
time may require a Paying Agent to distribute all assets held by it to the
Trustee and account for any assets disbursed and the Trustee may at any time
during the continuance of any payment Default, upon written request to a Paying
Agent, require such Paying Agent to distribute all assets held by it to the
Trustee and to account for any assets distributed. Upon distribution to the
Trustee of all assets that shall have been delivered by the Company to the
Paying Agent, the Paying Agent (if other than the Company or an Affiliate of the
Company) shall have no further liability for such assets.
SECTION 5. Securityholder Lists.
--------------------
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders. If the Trustee is not the Registrar, the Company shall furnish to the
Trustee on or before the third Business Day preceding each Interest Payment Date
and at such other times as the Trustee may request in writing a list in such
form and as of such date as the Trustee reasonably may require of the names and
addresses of Holders.
15
<PAGE>
SECTION 6. Transfer and Exchange.
---------------------
(a) Transfer and Exchange of Definitive Securities. When Definitive Securities
are presented to the Registrar or a co-Registrar with a request:
(x) to register the transfer of such Definitive
Securities; or
(y) to exchange such Definitive Securities for an
equal principal amount of Definitive Securities of other authorized
denominations;
the Registrar or co-Registrar shall register the transfer or make the exchange
as requested if its reasonable requirements for such transaction are met;
provided, however, that the Definitive Securities surrendered for transfer or
- -------- -------
exchange shall be duly endorsed or accompanied by a written instrument of
transfer in form reasonably satisfactory to the Company and the Registrar or co-
Registrar, duly executed by the Holder thereof or his attorney duly authorized
in writing.
(b) Restrictions on Transfer of a Definitive Security for a
-------------------------------------------------------
Beneficial Interest in a Global Security. A Definitive Security may not be
- ----------------------------------------
exchanged for a beneficial interest in a Global Security except upon
satisfaction of the requirements set forth below. Upon receipt by the Trustee
of a Definitive Security, duly endorsed or accompanied by appropriate
instruments of transfer, in form satisfactory to the Trustee, together with
written instructions directing the Trustee to make, or to direct the Securities
Custodian to make, an endorsement on the Global Security to reflect an increase
in the aggregate principal amount of the Securities represented by the Global
Security, then the Trustee shall cancel such Definitive Security and cause, or
direct the Securities Custodian to cause, in accordance with the standing
instructions and procedures existing between the Depositary and the Securities
Custodian, the aggregate principal amount of Securities represented by the
Global Security to be increased accordingly. If no Global Securities are then
outstanding, the Company shall issue and the Trustee shall authenticate a new
Global Security in the appropriate principal amount.
(c) Transfer and Exchange of Global Securities. The transfer and
------------------------------------------
exchange of Global Securities or
16
<PAGE>
beneficial interests therein shall be effected through the Depositary, in
accordance with this Indenture (including the restrictions on transfer set forth
herein) and the procedures of the Depositary therefor.
(d) Transfer of a Beneficial Interest in a Global Security for a
------------------------------------------------------------
Definitive Security.
- -------------------
(i) Upon receipt by the Trustee of written instructions or such
other form of instructions as is customary for the Depositary from the
Depositary or its nominee on behalf of any Person having a beneficial
interest in a Global Security and upon receipt by the Trustee of a written
order or such other form of instructions as is customary for the Depositary
or the Person designated by the Depositary as having such a beneficial
interest in a Global Security only, and if such beneficial interest is
being transferred to the Person designated by the Depositary as being the
beneficial owner, a certification (which may be submitted by facsimile)
from such person to that effect (in substantially the form set forth on the
reverse of the Security), then the Trustee or the Securities Custodian, at
the direction of the Trustee, will cause, in accordance with the standing
instructions and procedures existing between the Depositary and the
Securities Custodian, the aggregate principal amount of the Global Security
to be reduced and, following such reduction, the Company will execute and,
upon receipt of an authentication order in the form of an Officers'
Certificate, the Trustee will authenticate and deliver to the transferee a
Definitive Security.
(ii) Definitive Securities issued in exchange for a beneficial
interest in a Global Security pursuant to this Section 2.6(d) shall be
registered in such names and in such authorized denominations as the
Depositary, pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Trustee. The Trustee shall
deliver such Definitive Securities to the persons in whose names such
Securities are so registered.
(e) Restrictions on Transfer and Exchange of Global Securities.
----------------------------------------------------------
Notwithstanding any other provisions of this Indenture (other than the
provisions set forth in subsection (f) of this Section 2.6), a Global Security
may
17
<PAGE>
not be transferred as a whole except by the Depositary to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.
(f) Authentication of Definitive Securities in Absence of Depositary.
----------------------------------------------------------------
If at any time:
(i) the Depositary for the Securities notifies the Company and
the Company notifies the Trustee in writing that the Depositary is no
longer willing or able to continue as Depositary for the Global Securities
and a successor Depositary for the Global Securities is not appointed by
the Company within 90 days after delivery of such notice; or
(ii) the Company, in its sole discretion, notifies the Trustee
in writing that it elects to cause the issuance of Definitive Securities
under this Indenture;
then the Company will execute, and the Trustee, upon receipt of an Officers'
Certificate requesting the authentication and delivery of Definitive Securities,
will authenticate and deliver Definitive Securities, in an aggregate principal
amount equal to the principal amount of the Global Securities, in exchange for
such Global Securities.
(g) Cancellation and/or Adjustment of Global Security. At such time
-------------------------------------------------
as all beneficial interests in a Global Security have either been exchanged for
Definitive Securities, redeemed, repurchased or cancelled, such Global Security
shall be returned to or retained and cancelled by the Trustee. At any time
prior to such cancellation, if any beneficial interest in a Global Security is
exchanged for Definitive Securities, redeemed, repurchased or cancelled, the
principal amount of Securities represented by such Global Security shall be
reduced and an endorsement shall be made on such Global Security, by the Trustee
or the Securities Custodian, at the direction of the Trustee, to reflect such
reduction.
(h) Obligations with respect to Transfers and Exchanges of Definitive
-----------------------------------------------------------------
Securities.
- ----------
18
<PAGE>
(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate Definitive
Securities and Global Securities at the Registrar's or co-Registrar's
request.
(ii) No service charge shall be made for any registration of
transfer or exchange, but the Company may require payment of a sum
sufficient to cover any transfer tax, assessments, or similar governmental
charge payable in connection therewith (other than any such transfer taxes,
assessments, or similar governmental charge payable upon exchanges or
transfers pursuant to Section 2.2 (fourth paragraph), 2.10, 3.7, 9.5, or
10.1 (final paragraph)).
(iii) The Registrar or co-Registrar shall not be required to
register the transfer of or exchange of (a) any Definitive Security
selected for redemption in whole or in part pursuant to Article III, except
the unredeemed portion of any Definitive Security being redeemed in part,
or (b) any Security for a period beginning 15 days before the mailing of a
notice of an offer to repurchase pursuant to Article XI hereof or the
mailing of a notice of redemption of Securities pursuant to Article III
hereof and ending at the close of business on the day of such mailing.
SECTION 7. Replacement Securities.
----------------------
If a mutilated Security is surrendered to the Trustee or if the Holder
of a Security claims and submits an affidavit or other evidence, satisfactory to
the Trustee, to the Trustee to the effect that the Security has been lost,
destroyed or wrongfully taken, the Company shall issue and the Trustee shall
authenticate a replacement Security if the Trustee's requirements are met. If
required by the Trustee or the Company, such Holder must provide an indemnity
bond or other indemnity, sufficient in the judgment of both the Company and the
Trustee, to protect the Company, the Trustee or any Agent from any loss which
any of them may suffer if a Security is replaced. The Company may charge such
Holder for its reasonable, out-of-pocket expenses in replacing a Security.
Every replacement Security is an additional obligation of the Company.
19
<PAGE>
SECTION 8. Outstanding Securities.
----------------------
Securities outstanding at any time are all the Securities that have
been authenticated by the Trustee (including any Security represented by a
Global Security) except those cancelled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Security effected by
the Trustee hereunder and those described in this Section 2.8 as not
outstanding. A Security does not cease to be outstanding because the Company or
an Affiliate of the Company holds the Security, except as provided in Section
2.9.
If a Security is replaced pursuant to Section 2.7 (other than a
mutilated Security surrendered for replacement), it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Security
is held by a bona fide purchaser. A mutilated Security ceases to be outstanding
---- ----
upon surrender of such Security and replacement thereof pursuant to Section 2.7.
If on a Redemption Date the Paying Agent (other than the Company or an
Affiliate of the Company) holds Cash or U.S. Government Obligations sufficient
to pay all of the principal and interest due on the Securities payable on that
date in accordance with Section 3.6 hereof and payment of the Securities called
for redemption is not otherwise prohibited pursuant to Article XI hereof or
otherwise, then on and after that date such Securities cease to be outstanding
and interest on them ceases to accrue.
SECTION 9. Treasury Securities.
-------------------
In determining whether the Holders of the required principal amount of
Securities have concurred in any direction, amendment, supplement, waiver or
consent, Securities owned by the Company or an Affiliate of the Company shall be
disregarded, except that, for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, amendment, supplement,
waiver or consent, only Securities that the Trustee knows are so owned shall be
disregarded.
SECTION 10. Temporary Securities.
--------------------
Until Definitive Securities are ready for delivery, the Company may
prepare and the Trustee shall authen-
20
<PAGE>
ticate temporary Securities. Temporary Securities shall be substantially in the
form of Definitive Securities but may have variations that the Company
reasonably and in good faith considers appropriate for temporary Securities.
Without unreasonable delay, the Company shall prepare and the Trustee shall
authenticate Definitive Securities in exchange for temporary Securities. Until
so exchanged, the temporary Securities shall in all respects be entitled to the
same benefits under this Indenture as permanent Securities authenticated and
delivered hereunder.
SECTION 11. Cancellation.
------------
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Securities surrendered to them for transfer, exchange or payment. The
Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent
(other than the Company or an Affiliate of the Company), and no one else, shall
cancel and, at the written direction of the Company, shall dispose of all
Securities surrendered for transfer, exchange, payment or cancellation. Subject
to Section 2.7, the Company may not issue new Securities to replace Securities
that have been paid or delivered to the Trustee for cancellation. No Securities
shall be authenticated in lieu of or in exchange for any Securities cancelled as
provided in this Section 2.11, except as expressly permitted in the form of
Securities and as permitted by this Indenture.
SECTION 12. Defaulted Interest.
------------------
Interest on any Security which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the person in
whose name that Security (or one or more predecessor Securities) is registered
at the close of business on the Record Date for such interest.
Any interest on any Security which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date plus, to the extent
lawful, any interest payable on the defaulted interest (herein called "Defaulted
Interest") shall forthwith cease to be payable to the registered holder on the
relevant Record Date, and such Defaulted Interest may be paid by the Company, at
its election in each case, as provided in clause (1) or (2) below:
21
<PAGE>
(1) The Company may elect to make payment of any Defaulted
Interest to the persons in whose names the Securities (or their respective
predecessor Securities) are registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest, which shall
be fixed in the following manner. The Company shall notify the Trustee in
writing of the amount of Defaulted Interest proposed to be paid on each
Security and the date of the proposed payment, and at the same time the
Company shall deposit with the Trustee an amount of Cash equal to the
aggregate amount proposed to be paid in respect of such Defaulted Interest
or shall make arrangements satisfactory to the Trustee for such deposit
prior to the date of the proposed payment, such Cash when deposited to be
held in trust for the benefit of the persons entitled to such Defaulted
Interest as provided in this clause (1). Thereupon the Trustee shall fix a
Special Record Date for the payment of such Defaulted Interest which shall
be not more than 15 days and not less than 10 days prior to the date of the
proposed payment and not less than 10 days after the receipt by the Trustee
of the notice of the proposed payment. The Trustee shall promptly notify
the Company of such Special Record Date and, in the name and at the expense
of the Company, shall cause notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor to be mailed,
first-class postage prepaid, to each Holder at his address as it appears in
the Security register not less than 10 days prior to such Special Record
Date. Notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor having been mailed as aforesaid, such
Defaulted Interest shall be paid to the persons in whose names the
Securities (or their respective predecessor Securities) are registered on
such Special Record Date and shall no longer be payable pursuant to the
following clause (2).
(2) The Company may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon such
notice as may be required by such exchange, if, after notice given by the
Company to the Trustee of the proposed payment pursuant to this clause,
such manner shall be deemed practicable by the Trustee.
22
<PAGE>
Subject to the foregoing provisions of this Section 2.12, each
Security delivered under this Indenture upon transfer of or in exchange for or
in lieu of any other Security shall carry the rights to interest accrued and
unpaid, and to accrue, which were carried by such other Security.
ARTICLE III
REDEMPTION
SECTION 1. Right of Redemption.
-------------------
Redemption of Securities, as permitted by any provision of this
Indenture, shall be made in accordance with Paragraph 5 of the Securities and
this Article III. The Company will not have the right to redeem any Securities
prior to December __, 1999. At any time on or after December __, 1999, upon no
less than 30 nor more than 60 days notice to each Holder of Notes, the Company
will have the right to redeem all or any part of the Securities at the
Redemption Prices specified in Paragraph 5 therein under the caption
"Redemption," in each case including accrued and unpaid interest, if any, to the
Redemption Date.
SECTION 2. Notices to Trustee.
------------------
If the Company elects to redeem Securities pursuant to Paragraph 5 of
the Securities, it shall notify the Trustee in writing of the Redemption Date
and the principal amount of Securities to be redeemed and whether it wants the
Trustee to give notice of redemption to the Holders.
If the Company elects to reduce the principal amount of Securities to
be redeemed pursuant to Paragraph 5 of the Securities by crediting against any
such redemption Securities it has not previously delivered to the Trustee for
cancellation, it shall so notify the Trustee of the amount of the reduction and
deliver such Securities with such notice.
The Company shall give each notice to the Trustee provided for in this
Section 3.2 at least 45 days before the Redemption Date (unless a shorter notice
shall be satisfactory to the Trustee). Any such notice may be cancelled at any
time prior to notice of such redemption being mailed to any Holder and shall
thereby be void and of no effect.
23
<PAGE>
SECTION 3. Selection of Securities to Be Redeemed.
--------------------------------------
If less than all of the Securities are to be redeemed pursuant to
Paragraph 5 thereof, the Trustee shall select the Securities to be redeemed on a
pro rata basis, by lot or by such other method as the Trustee shall determine to
be fair and appropriate and in such manner as complies with any applicable
depositary, legal and stock exchange requirements.
The Trustee shall make the selection from the Securities outstanding
and not previously called for redemption and shall promptly notify the Company
in writing of the Securities selected for redemption and, in the case of any
Security selected for partial redemption, the principal amount thereof to be
redeemed. Securities in denominations of $1,000 may be redeemed only in whole.
The Trustee may select for redemption portions (equal to $1,000 or any integral
multiple thereof) of the principal of Securities that have denominations larger
than $1,000. Provisions of this Indenture that apply to Securities called for
redemption also apply to portions of Securities called for redemption.
SECTION 4. Notice of Redemption.
--------------------
At least 30 days but not more than 60 days before a Redemption Date,
the Company shall mail a notice of redemption by first-class mail, postage
prepaid, to the Trustee and each Holder whose Securities are to be redeemed. At
the Company's written request to the Trustee not less than 75 days prior to the
Redemption Date, in the case of a partial redemption, and not less than 45 days
prior to the Redemption Date in the case of a total redemption (unless a shorter
notice shall be satisfactory to the Trustee), the Trustee shall give the notice
of redemption in the Company's name and at the Company's expense. Each notice
for redemption shall identify the Securities to be redeemed and shall state:
(1) the Redemption Date, and that the Securities called for
redemption may not be converted after the Business Day prior to the
Redemption Date;
24
<PAGE>
(2) the Redemption Price, including the amount of accrued and
unpaid interest, if any, to be paid upon such redemption;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered to
the Paying Agent at the address specified in such notice to collect the
Redemption Price;
(5) that, unless (a) the Company defaults in its obligation to
deposit Cash with the Paying Agent in accordance with Section 3.6 hereof or
(b) such redemption payment is prohibited pursuant to Article XII hereof or
otherwise, interest on Securities called for redemption ceases to accrue on
and after the Redemption Date and the only remaining right of the Holders
of such Securities is to receive payment of the Redemption Price, including
accrued and unpaid interest, if any, to the Redemption Date, upon surrender
to the Paying Agent of the Securities called for redemption and to be
redeemed;
(6) if any Security is being redeemed in part, the portion of
the principal amount, equal to $1,000 or any integral multiple thereof, of
such Security to be redeemed and that, after the Redemption Date, and upon
surrender of such Security, a new Security or Securities in aggregate
principal amount equal to the unredeemed portion thereof will be issued;
(7) if less than all the Securities are to be redeemed, the
identification of the particular Securities (or portion thereof) to be
redeemed, as well as the aggregate principal amount of such Securities to
be redeemed and the aggregate principal amount of Securities to be
outstanding after such partial redemption;
(8) the CUSIP number of the Securities to be redeemed; and
(9) that the notice is being sent pursuant to this Section 3.4
and pursuant to the redemption provisions of Paragraph 5 of the Securities.
25
<PAGE>
SECTION 5. Effect of Notice of Redemption.
------------------------------
Once notice of redemption is mailed in accordance with Section 3.4,
Securities called for redemption become due and payable on the Redemption Date
and at the Redemption Price, including accrued and unpaid interest, if any, to
the Redemption Date. Upon surrender to the Trustee or Paying Agent, such
Securities called for redemption shall be paid at the Redemption Price,
including accrued and unpaid interest, if any, to the Redemption Date; provided
--------
that if the Redemption Date is after a regular Record Date and on or prior to
the corresponding Interest Payment Date, the accrued interest to the Redemption
Date, if any, shall be payable to the Holder of the redeemed Securities
registered on the relevant Record Date; and provided, further, that if a
-------- -------
Redemption Date is a Legal Holiday, payment shall be made on the next succeeding
Business Day and no interest shall accrue for the period from such Redemption
Date to such succeeding Business Day.
SECTION 6. Deposit of Redemption Price.
---------------------------
On or prior to the Redemption Date, the Company shall deposit with the
Paying Agent (other than the Company or an Affiliate of the Company) Cash
sufficient to pay the Redemption Price of, including accrued and unpaid interest
on, all Securities to be redeemed on such Redemption Date (other than Securities
or portions thereof called for redemption on that date that have been delivered
by the Company to the Trustee for cancellation). The Paying Agent shall
promptly return to the Company any Cash so deposited which is not required for
that purpose upon the written request of the Company.
If the Company complies with the preceding paragraph and the other
provisions of this Article III and payment of the Securities called for
redemption is not prohibited under Article XII or otherwise, interest on the
Securities to be redeemed will cease to accrue on the applicable Redemption
Date, whether or not such Securities are presented for payment. Notwithstanding
anything herein to the contrary, if any Security surrendered for redemption in
the manner provided in the Securities shall not be so paid upon surrender for
redemption because of the failure of the Company to comply with the preceding
paragraph, interest shall continue to accrue and be paid from the Redemption
Date until such payment is made on the unpaid principal,
26
<PAGE>
and, to the extent lawful, on any interest not paid on such unpaid principal, in
each case at the rate and in the manner provided in Section 4.1 hereof and in
the Security.
SECTION 7. Securities Redeemed in Part.
---------------------------
Upon surrender of a Security that is to be redeemed in part, the
Company shall execute and the Trustee shall authenticate and deliver to the
Holder, without service charge to the Holder, a new Security or Securities equal
in principal amount to the unredeemed portion of the Security surrendered.
ARTICLE IV
COVENANTS
SECTION 1. Payment of Principal and Interest on Securities.
-----------------------------------------------
The Company shall pay the principal of and interest on the Securities
on the dates and in the manner provided in the Securities. An installment of
principal of or interest on the Securities shall be considered paid on the date
it is due if the Trustee or Paying Agent (other than the Company or an Affiliate
of the Company) holds for the benefit of the Holders, on or before 10:00 a.m.
New York City time on that date, Cash deposited and designated for and
sufficient to pay the installment.
The Company shall pay interest on overdue principal and on overdue
installments of interest at the rate specified in the Securities compounded
semi-annually, to the extent lawful.
SECTION 2. Maintenance of Office or Agency.
-------------------------------
The Company shall maintain in the Borough of Manhattan, The City of
New York, an office or agency where Securities may be presented or surrendered
for payment, where Securities may be surrendered for registration of transfer or
exchange and for conversion and where notices and demands to or upon the Company
in respect of the Securities and this Indenture may be served. The Company
shall give prompt written notice to the Trustee of the location, and any change
in the location, of such office or agency. If at any time the Company shall
fail to maintain any such
27
<PAGE>
required office or agency or shall fail to furnish the Trustee with the address
thereof, such presentations, surrenders, notices and demands may be made or
served at the address of the Trustee set forth in Section 13.2.
The Company may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for any
or all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
- -------- -------
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, The City of New York, for such purposes. The Company
shall give prompt written notice to the Trustee of any such designation or
rescission and of any change in the location of any such other office or agency.
The Company hereby initially designates the corporate trust office of the
Trustee as such office.
SECTION 3. Corporate Existence.
-------------------
Subject to Article V, the Company shall do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence and the corporate or other existence of each of its Significant
Subsidiaries in accordance with the respective organizational documents of each
of them and the rights (charter and statutory) and corporate franchises of the
Company and each of its Significant Subsidiaries; provided, however, that the
-------- -------
Company shall not be required to preserve, with respect to itself, any right or
franchise, and with respect to any of its Significant Subsidiaries, any such
existence, right or franchise, if (a) the Company shall determine that the
preservation thereof is no longer desirable in the conduct of the business of
such entity and (b) the loss thereof is not disadvantageous in any material
respect to the Holders.
SECTION 4. Payment of Taxes and Other Claims.
---------------------------------
Except with respect to immaterial items, the Company shall, and shall
cause each of its Significant Subsidiaries to, pay or discharge or cause to be
paid or discharged, before the same shall become delinquent, (i) all taxes,
assessments and governmental charges (including withholding taxes and any
penalties, interest and additions to taxes) levied or imposed upon the Company
or any of its Significant Subsidiaries or any of their respective prop-
28
<PAGE>
erties and assets and (ii) all lawful claims, whether for labor, materials,
supplies, services or anything else, which have become due and payable and which
by law have or may become a Lien upon the property and assets of the Company or
any of its Significant Subsidiaries; provided, however, that neither the Company
-------- -------
nor any Significant Subsidiary shall be required to pay or discharge or cause to
be paid or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings and for which such disputed amounts the need for adequate reserves
has been reviewed in accordance with GAAP.
SECTION 5. Maintenance of Properties and Insurance.
---------------------------------------
The Company shall cause all material properties used or useful to the
conduct of its business and the business of each of its Significant Subsidiaries
to be maintained and kept in good condition, repair and working order
(reasonable wear and tear excepted) and supplied with all necessary equipment
and shall cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in their reasonable judgment may be
necessary, so that the business carried on in connection therewith may be
properly conducted at all times; provided, however, that nothing in this Section
-------- -------
4.5 shall prevent the Company or any Significant Subsidiary from discontinuing
any operation or maintenance of any of such properties, or disposing of any of
them, if such discontinuance or disposal is (a), in the judgment of the Company,
desirable in the conduct of the business of such entity and (b) not
disadvantageous in any material respect to the Holders.
The Company shall provide, or cause to be provided, for itself and
each of its Significant Subsidiaries, insurance (including appropriate self-
insurance) against loss or damage of the kinds that, in the reasonable, good
faith opinion of the Company is adequate and appropriate for the conduct of the
business of the Company and such Significant Subsidiaries in a prudent manner,
with (except for self-insurance) reputable insurers or with the government of
the United States of America or an agency or instrumentality thereof, in such
amounts, with such deductibles, and by such methods as shall be customary, in
the reasonable, good faith opinion of the Company and adequate and appropriate
for the conduct of the business of the Company and such Significant
29
<PAGE>
Subsidiaries in a prudent manner for entities similarly situated in the
industry, unless failure to provide such insurance (together with all other such
failures) would not have a material adverse effect on the financial condition or
results of operations of the Company or such Significant Subsidiary.
SECTION 6. Compliance Certificate; Notice of Default.
-----------------------------------------
(a) The Company shall deliver to the Trustee within 120 days
after the end of its fiscal year an Officers' Certificate complying with Section
314(a)(4) of the TIA and stating that a review of its activities and the
activities of its Significant Subsidiaries during the preceding fiscal year has
been made under the supervision of the signing Officers with a view to
determining whether the Company has kept, observed, performed and fulfilled its
obligations under this Indenture and further stating, as to each such Officer
signing such certificate, whether or not the signer knows of any failure by the
Company or any Subsidiary of the Company to comply with any conditions or
covenants in this Indenture and, if such signer does know of such a failure to
comply, the certificate shall describe such failure with particularity. The
Officers' Certificate shall also notify the Trustee should the relevant fiscal
year end on any date other than the current fiscal year end date.
(b) The Company shall, so long as any of the Securities are
outstanding, deliver to the Trustee, promptly upon becoming aware of any
Default, Event of Default or fact which would prohibit the making of any payment
to or by the Trustee in respect of the Securities, an Officers' Certificate
specifying such Default, Event of Default or fact and what action the Company is
taking or proposes to take with respect thereto. The Trustee shall not be deemed
to have knowledge of any Default, any Event of Default or any such fact unless
one of its Trust Officers receives notice thereof from the Company or any of the
Holders.
SECTION 7. 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
30
<PAGE>
required to file such with the SEC, annual and quarterly consolidated financial
statements substantially equivalent to financial statements that would have been
included in reports filed with the SEC 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
SEC and, in each case, together with a management's discussion and analysis of
financial condition and results of operations which would be so required.
SECTION 8. Limitation on Status as Investment Company.
------------------------------------------
Neither the Company nor any of its Subsidiaries shall become an
"investment company" (as that term is defined in the Investment Company Act of
1940, as amended), or otherwise become subject to regulation under the
Investment Company Act.
SECTION 9. Waiver of Stay, Extension or Usury Laws.
---------------------------------------
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay or extension law or any usury law or
other law which would prohibit or forgive the Company from paying all or any
portion of the principal of, premium of, interest on, the Securities as
contemplated herein, wherever enacted, now or at any time hereafter in force, or
which may affect the covenants or the performance of this Indenture; and (to the
extent that it may lawfully do so) the Company hereby expressly waives all
benefit or advantage of any such law, and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the Trustee, but
will suffer and permit the execution of every such power as though no such law
had been enacted.
31
<PAGE>
ARTICLE V
SUCCESSOR CORPORATION
SECTION 5.1. Limitation on Merger, Sale or Consolidation.
-------------------------------------------
(a) The Company shall 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 Securities and the Indenture; (ii) no Default or Event of
Default shall exist or shall occur immediately before or after giving effect on
a pro forma basis to such transaction; and (iii) the Company has delivered to
--- -----
the Trustee an Officers' Certificate and an Opinion of Counsel, each stating
that such consolidation, merger or transfer and, if a supplemental indenture is
required, such supplemental indenture comply with the Indenture and that all
conditions precedent relating to such transactions have been satisfied.
(b) For purposes of clause (a) of this Section 5.1, the sale,
lease, conveyance, assignment, transfer, or other disposition of all or
substantially all of the properties and assets of one or more Subsidiaries of
the Company, which properties and assets, if held by the Company instead of such
Subsidiaries, would constitute all or substantially all of the properties and
assets of the Company on a consolidated basis, shall be deemed to be the
transfer of all or substantially all of the properties and assets of the
Company.
SECTION 2. Successor Corporation Substituted.
---------------------------------
Upon any consolidation or merger or any sale, lease, conveyance or
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
32
<PAGE>
into which the Company is merged or to which such sale, lease, conveyance or
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 when
a successor corporation duly assumes all of the obligations of the Company
pursuant hereto and pursuant to the Securities, the predecessor shall be
released from such obligations (except with respect to any obligations that
arise from or as a result of such transaction).
ARTICLE VI
EVENTS OF DEFAULT AND REMEDIES
SECTION 6.1. Events of Default.
-----------------
"Event of Default," wherever used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
caused voluntarily or involuntarily or effected, without limitation, by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(1) failure by the Company to pay any installment of interest on
the Securities as and when due and payable, or failure by the Company to
perform any conversion of the Securities required under this Indenture, and
the continuance of such failure for a period of 30 days, whether or not
such payment is prohibited by Article XI;
(2) failure by the Company to pay all or any part of the
principal of, or premium, if any, on the Securities when and as the same
become due and payable at maturity, redemption, by acceleration or
otherwise, including, without limitation, default in the payment of the
Repurchase Price on the Repurchase Date in accordance with Article X,
whether or not such payment is prohibited by Article XI;
(3) failure by the Company to observe or perform any covenant or
agreement contained in the Securities or this Indenture (other than a
default in the performance of any covenant or agreement which is
33
<PAGE>
specifically dealt with elsewhere in this Section 6.1), and continuance of
such failure for a period of 60 days after there has been given, by
registered or certified mail, to the Company by the Trustee, or to the
Company and the Trustee by Holders of at least 25% in aggregate principal
amount of the then outstanding Securities, a written notice specifying such
default or breach, requesting it to be remedied and stating that such
notice is a "Notice of Default" hereunder;
(4) a default under Indebtedness of the Company or any of its
Subsidiaries with an aggregate principal amount in excess of $25,000,000
(a) resulting from the failure to pay principal, premium or interest when
due that extends beyond any stated period of grace applicable thereto or
(b) as a result of which the maturity of such Indebtedness has been
accelerated prior to its stated maturity;
(5) a decree, judgment, or order by a court of competent
jurisdiction shall have been entered adjudging the Company or any of its
Significant Subsidiaries as bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization of the Company or any of its
Significant Subsidiaries under any bankruptcy or similar law, and such
decree or order shall have continued undischarged and unstayed for a period
of 75 days; or a decree or order of a court of competent jurisdiction over
the appointment of a receiver, liquidator, trustee, or assignee in
bankruptcy or insolvency of the Company, any of its Significant
Subsidiaries, or of the property of any such Person, or for the winding up
or liquidation of the affairs of any such Person, shall have been entered,
and such decree, judgment, or order shall have remained in force
undischarged and unstayed for a period of 60 days;
(6) the Company or any of its Significant Subsidiaries shall
institute proceedings to be adjudicated a voluntary bankrupt, or shall
consent to the filing of a bankruptcy proceeding against it, or shall file
a petition or answer or consent seeking reorganization under any bankruptcy
or similar law or similar statute, or shall consent to the filing of any
such petition, or shall consent to the appointment of a Custodian,
receiver, liquidator, trustee, or assignee in bankruptcy or insolvency of
it or any of its assets
34
<PAGE>
or property, or shall make a general assignment for the benefit of
creditors, or shall admit in writing its inability to pay its debts
generally as they become due, or shall, within the meaning of any
Bankruptcy Law, become insolvent, fail generally to pay its debts as they
become due, or take any corporate action in furtherance of or to
facilitate, conditionally or otherwise, any of the foregoing; or
(7) final unsatisfied judgments not covered by insurance
(including self-insurance), or the issuance of any warrant of attachment
against any portion of the property or assets of the Company or any of its
Subsidiaries, aggregating in excess of $25,000,000 at any one time shall
have been rendered against the Company or any of its Subsidiaries and not
have been stayed, bonded or discharged for a period (during which execution
shall not be effectively stayed) of 75 days (or, in the case of any such
final judgment which provides for payment over time, which shall so remain
unstayed, unbonded or undischarged beyond any applicable payment date
provided therein).
Notwithstanding the 60-day period and notice requirement contained in
Section 6.1(3) above, with respect to a default under Article X the 60-day
period referred to in Section 6.1(3) shall be deemed to have begun as of the
date the Change of Control notice is required to be sent in the event that the
Company has not complied with the provisions of Section 11.1 and the Trustee or
Holders of at least 25% in principal amount of the outstanding Securities
thereafter give the Notice of Default referred to in Section 6.1(3) to the
Company and, if applicable, the Trustee; provided, however, that if the breach
-------- -------
or default is a result of a default in the payment when due of the Repurchase
Price on the Repurchase Date, such Event of Default shall be deemed, for
purposes of this Section 6.1, to arise no later than on the Final Repurchase
Payment Date.
If a Default occurs and is continuing, the Trustee shall, within 90
days after the occurrence of such default, give to the Holders notice of such
default.
35
<PAGE>
SECTION 6.2. Acceleration of Maturity Date; Rescission and Annulment.
-------------------------------------------------------
If an Event of Default (other than an Event of Default specified in
Section 6.1(5) or (6) relating to the Company or any of its Subsidiaries) occurs
and is continuing, then, and in every such case, unless the principal of all of
the Securities shall have already become due and payable, either the Trustee or
the Holders of not less than 25% in aggregate principal amount of then
outstanding Securities, by a notice in writing to the Company (and to the
Trustee if given by Holders) (an "Acceleration Notice"), may declare all of the
principal of the Securities (or the Repurchase Price if the Event of Default
includes failure to pay the Repurchase Price, determined as set forth below),
including in each case accrued interest thereon, to be due and payable
immediately. If an Event of Default specified in Section 6.1(5) or (6) relating
to the Company or any Significant Subsidiary occurs, all principal, accrued
interest thereon will be immediately due and payable on all outstanding
Securities without any declaration or other act on the part of Trustee or the
Holders.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter provided in this Article VI, the Holders of no less
than a majority in aggregate principal amount of then outstanding Securities, by
written notice to the Company and the Trustee, may rescind, on behalf of all
Holders, any such declaration of acceleration if:
(1) the Company has paid or deposited with the Trustee Cash
sufficient to pay
(A)
all overdue interest on all Securities,
(B)
the principal of (and premium, if any,
applicable to) any Securities which
would then be due otherwise than by such
declaration of acceleration, and
interest thereon at the rate borne by
the Securities,
(C)
to the extent that payment of such
interest is lawful,
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<PAGE>
interest upon overdue interest at the
rate borne by the Securities,
(D)
all sums paid or advanced by the Trustee
hereunder and the compensation,
expenses, disbursements and advances of
the Trustee, its agents and counsel; and
(2) all Events of Default, other than the non-payment of the
principal of, premium, if any, and interest on Securities that have become due
solely by such declaration of acceleration, have been cured or waived as
provided in Section 6.12, including, if applicable, any Event of Default
relating to the covenants contained in Section 10.1.
Notwithstanding the previous sentence of this Section 6.2, no waiver shall be
effective against any Holder for any Event of Default or event which with notice
or lapse of time or both would be an Event of Default with respect to any
covenant or provision which cannot be modified or amended without the consent of
the Holder of each outstanding Security affected thereby, unless all such
affected Holders agree, in writing, to waive such Event of Default or other
event. No such waiver shall cure or waive any subsequent Default or Event of
Default or impair any right consequent thereon.
SECTION 3. Collection of Indebtedness and Suits for Enforcement by
-------------------------------------------------------
Trustee.
- -------
The Company covenants that if an Event of Default in payment of
principal, premium or interest specified in clause (1) or (2) of Section 6.1
occurs and is continuing, the Company shall, upon demand of the Trustee, pay to
it, for the benefit of the Holders of such Securities, the whole amount then due
and payable on such Securities for principal, premium (if any), interest and, to
the extent that payment of such interest shall be legally enforceable, interest
on any overdue principal (and premium, if any) and on any overdue interest, at
the rate borne by the Securities, and, in addition thereto, such further amount
as shall be sufficient to cover the reasonable costs and expenses of collection,
including reasonable compensation to, and expenses, disbursements and advances
of the Trustee, its agents and counsel.
37
<PAGE>
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name and as trustee of an express trust in favor of the
Holders, may institute a judicial proceeding for the collection of the sums so
due and unpaid, may prosecute such proceeding to judgment or final decree and
may enforce the same against the Company or any other obligor upon the
Securities and collect the moneys adjudged or decreed to be payable in the
manner provided by law out of the property of the Company or any other obligor
upon the Securities, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effective to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 4. Trustee May File Proofs of Claim.
--------------------------------
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal or interest) shall be entitled
and empowered, by intervention in such proceeding or otherwise to take any and
all actions under the TIA, including
(1) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest owing and unpaid in respect of the Securities and
to file such other papers or documents as may be necessary or advisable in order
to have the claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agent and
counsel) and of the Holders allowed in such judicial proceeding; and
38
<PAGE>
(2) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 7.7.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment, or composition affecting the Securities
or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
SECTION 5. Trustee May Enforce Claims Without Possession of
------------------------------------------------
Securities.
- ----------
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
as trustee of an express trust in favor of the Holders, and any recovery of
judgment shall, after provision for the payment of compensation to, and
expenses, disbursements and advances of the Trustee, its agents and counsel, be
for the ratable benefit of the Holders of the Securities in respect of which
such judgment has been recovered.
SECTION 6. Priorities.
----------
Any money collected by the Trustee pursuant to this Article VI shall
be applied in the following order, at the date or dates fixed by the Trustee
and, in case of the distribution of such money on account of principal, premium
(if any) or interest, upon presentation of the Securities and the notation
thereon of the payment if only partially paid and upon surrender thereof if
fully paid:
39
<PAGE>
FIRST: To the Trustee in payment of all amounts due pursuant to
Section 7.7;
SECOND: To the holders of Senior Indebtedness to the extent provided
in Article XI;
THIRD: To the Holders in payment of the amounts then due and unpaid
for principal of, premium (if any) and interest, the Securities in respect or
for the benefit of which such money has been collected, ratably, without
preference or priority of any kind, according to the amounts due and payable on
such Securities for principal, premium (if any) and interest, respectively; and
FOURTH: To whomsoever may be lawfully entitled thereto, the
remainder, if any.
SECTION 7. Limitation on Suits.
-------------------
No Holder of any Security shall have any right to order or direct the
Trustee to institute any proceeding, judicial or otherwise, with respect to this
Indenture, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless:
(A) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(B) the Holders of not less than 25% in principal amount of then
outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name
as Trustee hereunder;
(C) such Holder or Holders have offered to the Trustee
reasonable security or indemnity against the costs, expenses and
liabilities to be incurred or reasonably probable to be incurred in
compliance with such request;
(D) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such proceeding;
and
40
<PAGE>
(E) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a majority
in principal amount of then outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 8. Unconditional Right of Holders to Receive Principal,
----------------------------------------------------
Premium and Interest.
- --------------------
Notwithstanding any other provision of this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment of the principal of, premium (if any) and interest on such
Security when due (including, in the case of redemption, the Redemption Price on
the applicable Redemption Date, and in the case of the Repurchase Price, on the
applicable Repurchase Date) and to institute suit for the enforcement of any
such payment after such respective dates, and such rights shall not be impaired
without the consent of such Holder.
SECTION 9. Rights and Remedies Cumulative.
------------------------------
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities in Section 2.7, no
right or remedy herein conferred upon or reserved to the Trustee or to the
Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 10. Delay or Omission Not Waiver.
----------------------------
No delay or omission by the Trustee or by any Holder of any Security
to exercise any right or remedy
41
<PAGE>
arising upon any Event of Default shall impair the exercise of any such right or
remedy or constitute a waiver of any such Event of Default. Every right and
remedy given by this Article VI or by law to the Trustee or to the Holders may
be exercised from time to time, and as often as may be deemed expedient, by the
Trustee or by the Holders, as the case may be.
SECTION 11. Control by Holders.
------------------
The Holder or Holders of no less than a majority in aggregate
principal amount of then outstanding Securities shall 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 upon the Trustee,
provided, that
- --------
(1) such direction shall not be in conflict with any rule of law
or with this Indenture,
(2) the Trustee shall not determine that the action so directed
would be unjustly prejudicial to the Holders not taking part in such
direction, and
(3) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
SECTION 12. Waiver of Past Default.
----------------------
Subject to Section 6.8, the Holder or Holders of not less than a
majority in aggregate principal amount of then outstanding Securities may,
on behalf of all Holders, prior to the declaration of acceleration of the
maturity of the Securities, waive any past default hereunder and its
consequences, except a default
(A) in the payment of the principal of, premium (if any) or
interest on, any Security not yet cured as specified in clauses (1) and (2)
of Section 6.1, or
(B) in respect of a covenant or provision hereof which, under
Article IX, cannot be modified or amended without the consent of the Holder
of each outstanding Security affected.
42
<PAGE>
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair the exercise of any right arising therefrom.
SECTION 13. Undertaking for Costs.
---------------------
All parties to this Indenture agree, and each Holder of any Security
by his acceptance thereof shall be deemed to have agreed, that any court may in
its discretion require, in any suit for the enforcement of any right or remedy
under this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted to be taken by it as Trustee, the filing by any party
litigant in such suit of an undertaking to pay the costs of such suit, and that
such court may in its discretion assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in such suit, having due regard to
the merits and good faith of the claims or defenses made by such party litigant;
but the provisions of this Section 6.13 shall not apply to any suit instituted
by the Company, to any suit instituted by the Trustee, to any suit instituted by
any Holder, or group of Holders, holding in the aggregate more than 10% in
aggregate principal amount of then outstanding Securities, or to any suit
instituted by any Holder for enforcement of the payment of principal of, premium
(if any) or interest on, any Security on or after the respective Stated Maturity
of such Security (including, in the case of redemption, on or after the
Redemption Date).
SECTION 14. Restoration of Rights and Remedies.
----------------------------------
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
43
<PAGE>
ARTICLE VII
TRUSTEE
The Trustee hereby accepts the trust imposed upon it by this Indenture
and covenants and agrees to perform the same, as herein expressed.
SECTION 1. Duties of Trustee.
-----------------
(a) If a Default or an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers vested in
it by this Indenture and use the same degree of care and skill in their exercise
as a prudent Person would exercise or use under the circumstances in the conduct
of his own affairs.
(b) Except during the continuance of a Default or an Event of
Default:
(1) The Trustee need perform only those duties as are
specifically set forth in this Indenture and no others, and no covenants or
obligations shall be implied in or read into this Indenture which are
adverse to the Trustee.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture. However,
the Trustee shall examine the certificates and opinions to determine
whether or not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of
this Section 7.1.
(2) The Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer, unless it is proved that the Trustee
was negligent in ascertaining the pertinent facts.
44
<PAGE>
(3) The Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction received by
it pursuant to Section 6.11.
(d) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or to take or omit to take any action
under this Indenture or at the request, order or direction of the Holders or in
the exercise of any of its rights or powers if it shall have reasonable grounds
for believing that repayment of such funds or adequate indemnity against such
risk or liability is not reasonably assured to it.
(e) Every provision of this Indenture that in any way relates to
the Trustee is subject to paragraphs (a), (b), (c), (d) and (f) of this Section
7.1.
(f) The Trustee shall not be liable for interest on any assets
received by it except as the Trustee may agree in writing with the Company.
Assets held in trust by the Trustee need not be segregated from other assets
except to the extent required by law.
SECTION 2. Rights of Trustee.
-----------------
Subject to Section 7.1:
(a) The Trustee may rely on any document believed by it to be
genuine and to have been signed or presented by the proper Person. The Trustee
need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
consult with counsel and may require an Officers' Certificate or an Opinion of
Counsel, which shall conform to Sections 13.4 and 13.5. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on
such certificate or advice of counsel.
(c) The Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any agent appointed
with due care.
45
<PAGE>
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers conferred upon it by this Indenture.
(e) The Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, notice, request, direction, consent, order, bond,
debenture, or other paper or document, but the Trustee, in its discretion, may
make such further inquiry or investigation into such facts or matters as it may
see fit.
(f) The Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request, order or
direction of any of the Holders, pursuant to the provisions of this Indenture,
unless such Holders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which may be incurred
therein or thereby.
(g) Unless otherwise specifically provided for in this Indenture,
any demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.
(h) The Trustee shall have no duty to inquire as to the
performance of the Company's covenants in Article IV hereof. In addition, the
Trustee shall not be deemed to have knowledge of any Default or Event of Default
except (i) any Event of Default occurring pursuant to Sections 6.1(1) or 6.1(2)
or 5.1, or (ii) any Default or Event of Default of which the Trustee shall have
received written notification or obtained actual knowledge.
SECTION 3. Individual Rights of Trustee.
----------------------------
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company, any of
its Subsidiaries, or their respective Affiliates with the same rights it would
have if it were not Trustee. Any Agent may do the same with like rights.
However, the Trustee must comply with Sections 7.10 and 7.11.
46
<PAGE>
SECTION 4. Trustee's Disclaimer.
--------------------
The Trustee makes no representation as to the validity or adequacy of
this Indenture or the Securities and it shall not be accountable for the
Company's use of the proceeds from the Securities, and it shall not be
responsible for any statement in the Securities, other than the Trustee's
certificate of authentication, or the use or application of any funds received
by a Paying Agent other than the Trustee.
SECTION 5. Notice of Default.
-----------------
If a Default or an Event of Default occurs and is continuing and if it
is known to the Trustee, the Trustee shall mail to each Securityholder notice of
the uncured Default or Event of Default within 90 days after such Default or
Event of Default occurs. Except in the case of a Default or an Event of Default
in payment of principal of, premium (if any) or interest on, any Security
(including the payment of the Repurchase Price on the Repurchase Date and the
payment of the Redemption Price on the Redemption Date), the Trustee may
withhold the notice if and so long as a Trust Officer in good faith determines
that withholding the notice is in the interest of the Securityholders.
SECTION 6. Reports by Trustee to Holders.
-----------------------------
Within 60 days after each December __ beginning with December __,
1997, the Trustee shall, if required by law, mail to each Securityholder as
their names and addresses appear on the Company's register of Securities, a
brief report dated as of such December __ that complies with TIA (S) 313(a) with
respect to any of the following events which may have occurred within the
previous twelve months (but if no such event has occurred within such period no
report need be transmitted):
(1) any change to its eligibility and its qualifications under
TIA (S) 310;
(2) the creation of or any material change to a relationship
specified in paragraphs (1) through (10) of TIA (S) 310(b);
(3) the character and amount of any advances (and if the Trustee
elects so to state, the circumstances
47
<PAGE>
surrounding the making thereof) made by the Trustee (as such) which remain
unpaid on the date of such report, and for the reimbursement of which it claims
or may claim a lien or charge, prior to that of the Securities, on any property
or funds held or collected by it as Trustee, except that the Trustee shall not
be required (but may elect) to report such advances if such advances so
remaining unpaid aggregate not more than 1/2 of 1% of the principal amount of
the security outstanding on the date of such report;
(4) the amount, interest rate and maturity date of all other
indebtedness owing by the Company (or by any other obligor on the Securities) to
the Trustee in its individual capacity, on the date of such report, with a brief
description of any property held as collateral security therefor, except an
indebtedness based upon a creditor relationship arising in any manner described
in paragraphs (2), (3), (4) or (6) of TIA (S) 311(b);
(5) any change to the property and funds, if any, physically in
the possession of the Trustee (as such) on the date of such report;
(6) any change to any release, or release and substitution, of
property subject to the lien of the Indenture (and the consideration therefor,
if any) which has not been previously reported;
(7) any additional issue of Securities which the Trustee has not
previously reported; and
(8) any action taken by the Trustee in the performance of its
duties hereunder which it has not previously reported and which in its opinion
materially affects the Securities, except action in respect of a default, notice
of which has been or is to be withheld by the Trustee in accordance with an
Indenture provision authorized by TIA (S) 315(b).
(b) The Trustee shall transmit by mail to all Securityholders, as their
names and addresses appear on the Company's register of Securities, a brief
report with respect to the character and amount of any advances (and if the
Trustee elects so to state, the circumstances surrounding the making thereof)
made by the Trustee (as such) since the date of the last report transmitted
pursuant to Subsection 7.6(a) hereof (or if no such report has yet been so
48
<PAGE>
transmitted, since the date of execution of this instrument) for the
reimbursement of which it claims or may claim a lien or charge, prior to that of
the Securities, on property or funds held or collected by it as Trustee and
which it has not previously reported pursuant to this Subsection, except that
the Trustee shall not be required (but may elect) to report such advances if
such advances remaining unpaid at any time aggregate 10% or less of the
principal amount of the Securities outstanding at such time, such report to be
transmitted within 90 days of such time.
(c) A copy of each such report shall, at the time of such transmission to
Securityholders, be filed by the Trustee with each stock exchange upon which the
Securities are listed, with the SEC and with the Company. The Company will
promptly notify the Trustee when the Securities are listed on any stock
exchange. The Trustee also shall comply with TIA (S)(S) 313(b) and 313(c).
SECTION 7. Compensation and Indemnity.
--------------------------
The Company agrees to pay to the Trustee from time to time reasonable
compensation for its services. The Trustee's compensation shall not be limited
by any law on compensation of a trustee of an express trust. The Company shall
reimburse the Trustee upon request for all reasonable disbursements, expenses
and advances incurred or made by it. Such expenses shall include the reasonable
compensation, disbursements and expenses of the Trustee's agents, accountants,
experts and counsel.
The Company agrees to indemnify the Trustee (in its capacity as
Trustee) and each of its officers, directors, attorneys-in-fact and agents for,
and hold it harmless against, any claim, demand, expense (including but not
limited to reasonable compensation, disbursements and expenses of the Trustee's
agents and counsel), loss or liability incurred by it without negligence or bad
faith on its part, arising out of or in connection with the administration of
this trust and its rights or duties hereunder including the reasonable costs and
expenses of defending itself against any claim or liability in connection with
the exercise or performance of any of its powers or duties hereunder. The
Trustee shall notify the Company promptly of any claim asserted against the
Trustee for which it may seek indemnity. The Company shall defend the claim and
the Trustee shall provide reasonable cooperation at the
49
<PAGE>
Company's expense in the defense. The Trustee may have separate counsel and the
Company shall pay the reasonable fees and expenses of such counsel; provided,
--------
that the Company will not be required to pay such fees and expenses if it
assumes the Trustee's defense and there is no conflict of interest between the
Company and the Trustee in connection with such defense. The Company need not
pay for any settlement made without its written consent. The Company need not
reimburse any expense or indemnify against any loss or liability to the extent
incurred by the Trustee through its negligence, bad faith or willful misconduct.
To secure the Company's payment obligations in this Section 7.7, the
Trustee shall have a lien prior to the Securities on all assets held or
collected by the Trustee, in its capacity as Trustee, except assets held in
trust to pay principal and premium, if any, of or interest on particular
Securities.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.1(5) or (6) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
The Company's obligations under this Section 7.7 and any lien arising
hereunder shall survive the resignation or removal of the Trustee, the discharge
of the Company's obligations pursuant to Article VIII of this Indenture and any
rejection or termination of this Indenture under any Bankruptcy Law.
SECTION 8. Replacement of Trustee.
----------------------
The Trustee may resign by so notifying the Company in writing. The
Holder or Holders of a majority in principal amount of then outstanding
Securities may remove the Trustee by so notifying the Company and the Trustee in
writing and may appoint a successor trustee with the Company's consent. The
Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10;
(b) the Trustee is adjudged bankrupt or insolvent;
50
<PAGE>
(c) a receiver, Custodian, or other public officer takes charge
of the Trustee or its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holder
or Holders of a majority in principal amount of then outstanding Securities may
appoint a successor Trustee to replace the successor Trustee appointed by the
Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after that
and provided that all sums owing to the retiring Trustee provided for in Section
7.7 have been paid, the retiring Trustee shall transfer all property held by it
as trustee to the successor Trustee, subject to the lien provided in Section
7.7, the resignation or removal of the retiring Trustee shall become effective,
and the successor Trustee shall have all the rights, powers and duties of the
Trustee under this Indenture. A successor Trustee shall mail notice of its
succession to each Holder.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holder or Holders of at least 10% in principal amount of then outstanding
Securities may petition any court of competent jurisdiction for the appointment
of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this Section
7.8, the Company's obligations under Section 7.7 shall continue for the benefit
of the retiring Trustee.
SECTION 9. Successor Trustee by Merger, Etc.
---------------------------------
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the re-
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<PAGE>
sulting, surviving or transferee corporation without any further act shall, if
such resulting, surviving or transferee corporation is otherwise eligible
hereunder, be the successor Trustee.
SECTION 10. Eligibility; Disqualification.
-----------------------------
The Trustee shall at all times satisfy the requirements of TIA (S)
310(a)(1), (2) and (5). The Trustee shall have a combined capital and surplus
of at least (i) $100,000,000 or (ii) at least $2,500,000 and shall be a
subsidiary of a bank holding company that shall have a combined capital and
surplus of at least $100,000,000, in each case as set forth in its most recent
published annual report of condition. The Trustee shall comply with TIA (S)
310(b).
SECTION 11. Preferential Collection of Claims Against Company.
-------------------------------------------------
The Trustee shall comply with TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated.
ARTICLE VIII
SATISFACTION AND DISCHARGE
SECTION 1. Satisfaction and Discharge of Indenture.
---------------------------------------
The Company may terminate its obligations under this Indenture
(subject to the provisions of this Article VIII) when it shall have delivered to
the Trustee for cancellation all Securities theretofore authenticated (other
than any Securities which shall have been destroyed, lost or stolen and which
shall have been replaced or paid as provided in Article II hereof) and the
following conditions shall be satisfied:
(1) The Company has paid all sums payable under the Indenture;
and
(2) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel
52
<PAGE>
in the United States, each stating that all conditions precedent have been
complied with as contemplated by this Section 8.1.
SECTION 2. Repayment to the Company.
------------------------
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, for the payment of the principal of, premium, if any, or
interest on any Security and remaining unclaimed for two years after such
principal, premium, if any, or interest has become due and payable shall be paid
to the Company on its request; and the Holder of such Security shall thereafter
look only to the Company for payment thereof, and all liability of the Trustee
or such Paying Agent with respect to such trust money shall thereupon cease.
ARTICLE IX
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 1. Supplemental Indentures Without Consent of Holders.
--------------------------------------------------
Without the consent of any Holder, the Company, when authorized by
Board Resolutions, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
(1) to cure any ambiguity, defect, or inconsistency, or to make
any other provisions with respect to matters or questions arising under this
Indenture which shall not be inconsistent with the provisions of this Indenture,
provided, the Company has delivered to the Trustee an Opinion of Counsel
- --------
stating that such change does not adversely affect the rights of any Holder that
such action pursuant to this clause (1) does not adversely affect the interests
of any Holder in any respect;
(2) to create additional covenants of the Company for the benefit
of the Holders, or to surrender any right or power herein conferred upon the
Company or to make any other change that does not adversely affect the rights of
any Holder, provided, that the Company has delivered to the Trustee an Opinion
--------
of Counsel stating that such change
53
<PAGE>
pursuant to this clause (2) does not adversely affect the rights of any Holder;
(3) to provide for collateral for or guarantors of the
Securities;
(4) to evidence the succession of another Person to the Company
and the assumption by any such successor of the obligations of the Company
herein and in the Securities in accordance with Article V; or
(5) to comply with the TIA.
SECTION 2. Amendments, Supplemental Indentures and Waivers with
----------------------------------------------------
Consent of Holders.
- ------------------
Subject to Section 6.8 and the last sentence of this paragraph, with
the consent of the Holders of not less than a majority in aggregate principal
amount of then outstanding Securities, by written act of said Holders delivered
to the Company and the Trustee, the Company, when authorized by Board
Resolutions, and the Trustee may amend or supplement this Indenture or the
Securities or enter into an indenture or indentures supplemental hereto for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Indenture or the Securities or of modifying in any
manner the rights of the Holders under this Indenture or the Securities. Subject
to Section 6.8 and the last sentence of this paragraph, the Holder or Holders of
not less than a majority in aggregate principal amount of then outstanding
Securities may, in writing, waive compliance by the Company with any provision
of this Indenture or the Securities. Notwithstanding any of the above, however,
no such amendment, supplemental indenture or waiver shall, without the consent
of the Holder of each outstanding Security affected thereby:
(1) change the Stated Maturity of any Security 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 Security 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 Security
on or after the due date thereof (including, in the case of redemption, on or
after the Redemption Date), or reduce the
54
<PAGE>
Repurchase Price, or alter the Repurchase Offer or redemption provisions in a
manner adverse to the Holders;
(2) reduce the percentage in principal amount of the outstanding
Securities, the consent of whose Holders is required for any such amendment,
supplemental indenture or waiver provided for in the Indenture;
(3) modify any of the provisions of Article XII hereof in a
manner adverse to such Holder or otherwise adversely affect the right of such
Holder to convert Securities; or
(4) 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 Security affected thereby.
It shall not be necessary for the consent of the Holders under this
Section 9.2 to approve the particular form of any proposed amendment, supplement
or waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section 9.2
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such supplemental indenture or
waiver.
After an amendment, supplement or waiver under this Section 9.2 or
Section 9.4 becomes effective, it shall bind each Holder.
In connection with any amendment, supplement or waiver under this
Article IX, the Company may, but shall not be obligated to, offer to any Holder
who consents to such amendment, supplement or waiver, or (at the option of the
Company) to all Holders, consideration for consent to such amendment, supplement
or waiver.
55
<PAGE>
SECTION 3. Compliance with TIA.
-------------------
Every amendment, waiver or supplement of this Indenture or the
Securities shall comply with the TIA as then in effect.
SECTION 4. Revocation and Effect of Consents.
---------------------------------
Until an amendment, waiver or supplement becomes effective, a consent
to it by a Holder is a continuing consent by the Holder and every subsequent
Holder of a Security or portion of a Security that evidences the same debt as
the consenting Holder's Security, even if notation of the consent is not made on
any Security. However, any such Holder or subsequent Holder may revoke the
consent as to his Security or portion of his Security by written notice to the
Company or the Person designated by the Company as the Person to whom consents
should be sent if such revocation is received by the Company or such Person
before the date on which the Trustee receives an Officers' Certificate
certifying that the Holders of the requisite principal amount of Securities have
consented (and not theretofore revoked such consent) to the amendment,
supplement or waiver.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver, which record date shall be the date so fixed by the
Company notwithstanding the provisions of the TIA. If a record date is fixed,
then notwithstanding the last sentence of the immediately preceding paragraph,
those Persons who were Holders at such record date, and only those Persons (or
their duly designated proxies), shall be entitled to revoke any consent
previously given, whether or not such Persons continue to be Holders after such
record date. No such consent shall be valid or effective for more than 90 days
after such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Securityholder, unless it makes a change described in any of clauses
(1) through (4) of Section 9.2, in which case, the amendment, supplement or
waiver shall bind only each Holder of a Security who has consented to it and
every subsequent Holder of a Security or portion of a Security that evidences
the same debt as the consenting Holder's Security; provided, that any such
--------
waiver
56
<PAGE>
shall not impair or affect the right of any Holder to receive payment of
principal and premium of and interest on a Security, on or after the respective
dates set for such amounts to become due and payable expressed in such Security,
or to bring suit for the enforcement of any such payment on or after such
respective dates.
SECTION 5. Notation on or Exchange of Securities.
-------------------------------------
If an amendment, supplement or waiver changes the terms of a Security,
the Trustee may require the Holder of the Security to deliver it to the Trustee
or require the Holder to put an appropriate notation on the Security. The
Trustee may place an appropriate notation on the Security about the changed
terms and return it to the Holder. Alternatively, if the Company or the Trustee
so determines, the Company in exchange for the Security shall issue and the
Trustee shall authenticate a new Security that reflects the changed terms. Any
failure to make the appropriate notation or to issue a new Security shall not
affect the validity of such amendment, supplement or waiver.
SECTION 6. Trustee to Sign Amendments, Etc.
--------------------------------
The Trustee shall execute any amendment, supplement or waiver
authorized pursuant to this Article IX; provided, that the Trustee may, but
--------
shall not be obligated to, execute any such amendment, supplement or
waiver which affects the Trustee's own rights, duties or immunities under this
Indenture. The Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Opinion of Counsel stating that the execution of
any amendment, supplement or waiver authorized pursuant to this Article IX is
authorized or permitted by this Indenture.
ARTICLE X
RIGHT TO REQUIRE REPURCHASE UPON A CHANGE OF CONTROL
SECTION 10.1. Repurchase of Securities at Option of the Holder Upon a
-------------------------------------------------------
Change of Control.
- -----------------
(a) In the event that a Change of Control occurs, each Holder
shall have the right, at such Holder's option, subject to the terms and
conditions of this Inden-
57
<PAGE>
ture, to require the Company to repurchase all or any part of such Holder's
Securities (provided, that the principal amount of such Securities 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.
(b) In the event that, pursuant to this Section 10.1, the Company
shall be required to commence an irrevocable and unconditional offer to purchase
Securities (a "Repurchase Offer"), the Company shall follow the procedures set
forth in this Section 10.1 as follows:
(1) the Repurchase Offer shall commence within 15 Business Days
following a Change of Control;
(2) the Repurchase Offer shall remain open for 20 Business Days
following its commencement, except to the extent that a longer period is
required by applicable law, but in any case not more than 60 Business Days
following the Change of Control (the "Repurchase Offer Period");
(3) upon the expiration of a Repurchase Offer, the Company shall
purchase all Securities tendered in response to the Repurchase Offer;
(4) if the Repurchase Date is on or after an interest payment
record date and on or before the related Interest Payment Date, any accrued
interest will be paid to the Person in whose name a Security is registered
at the close of business on such record date, and no additional interest
will be payable to Securityholders who tender Securities pursuant to the
Repurchase Offer;
(5) the Company shall provide the Trustee with notice of the
Repurchase Offer at least 5 Business Days before the commencement of any
Repurchase Offer; and
(6) on or before the commencement of any Repurchase Offer, the
Company or the Trustee (upon the request and at the expense of the Company)
shall send,
58
<PAGE>
by first-class mail, a notice to each of the Securityholders, which (to the
extent consistent with this Indenture) shall govern the terms of the
Repurchase Offer and shall state:
(i) that the Repurchase Offer is being made pursuant to such
notice and this Section 10.1 and that all Securities, or portions thereof,
tendered will be accepted for payment;
(ii) the Repurchase Price (including the amount of accrued
and unpaid interest, if any), the Repurchase Date and the Repurchase Put
Date;
(iii) that any Security, or portion thereof, not tendered or
accepted for payment will continue to accrue interest, if any;
(iv) that, unless the Company defaults in depositing Cash
with the Paying Agent in accordance with the last paragraph of this clause
(b) or such payment is prevented pursuant to Article XI, any Security, or
portion thereof, accepted for payment pursuant to the Repurchase Offer
shall cease to accrue interest after the Repurchase Date;
(v) that Holders electing to have a Security, or portion
thereof, purchased pursuant to a Repurchase Offer will be required to
surrender the Security, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Security completed, to the Paying Agent
(which may not for purposes of this Section 10.1, notwithstanding anything
in this Indenture to the contrary, be the Company or any Affiliate of the
Company) at the address specified in the notice prior to the close of
business on the earlier of (a) the third Business Day prior to the
Repurchase Date and (b) the third Business Day following the expiration of
the Repurchase Offer (such earlier date being the "Repurchase Put Date");
(vi) that Holders will be entitled to withdraw their
election, in whole or in part, if the Paying Agent (which may not for
purposes of this Section 11.1, notwithstanding anything in this Indenture
to the contrary, be the Company or any Affiliate of the Company) receives,
up to the close of business on the
59
<PAGE>
Repurchase Put Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the principal amount of the
Securities the Holder is withdrawing and a statement that such Holder is
withdrawing his election to have such principal amount of Securities
purchased; and
(vii) a brief description of the events resulting in such
Change of Control.
Any such Repurchase Offer shall comply with all applicable provisions
of Federal and state laws, including those regulating tender offers, if
applicable, and any provisions of this Indenture which conflict with such laws
shall be deemed to be superseded by the provisions of such laws.
On or before the Repurchase Date, the Company shall (i) accept for
payment Securities or portions thereof properly tendered pursuant to the
Repurchase Offer on or before the Repurchase Put Date, (ii) deposit with the
Paying Agent Cash sufficient to pay the Repurchase Price (together with accrued
and unpaid interest, if any) of all Securities or portions thereof so tendered
and (iii) deliver to the Trustee Securities so accepted together with an
Officers' Certificate listing the Securities or portions thereof being purchased
by the Company. The Paying Agent shall promptly mail to Holders of Securities
so accepted payment in an amount equal to the Repurchase Price (together with
accrued and unpaid interest, if any), and the Trustee shall promptly
authenticate and mail or deliver to such Holders a new Security or Securities
equal in principal amount to any unpurchased portion of the Securities
surrendered. Any Securities not so accepted shall 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.
ARTICLE XI
SUBORDINATION
SECTION 1. Securities Subordinated to Senior Indebtedness.
----------------------------------------------
The Company and each Holder, by its acceptance of Securities, agree
that (a) the payment of the principal of
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<PAGE>
and interest on the Securities and (b) any other payment in respect of the
Securities, including on account of the acquisition or redemption of the
Securities by the Company (including, without limitation, pursuant to Article
X) is subordinated, to the extent and in the manner provided in this Article XI,
to the prior payment in full of all Senior Indebtedness, whether outstanding at
the date of this Indenture or thereafter created, incurred, assumed or
guaranteed, and that these subordination provisions are for the benefit of the
holders of Senior Indebtedness.
This Article XI shall constitute a continuing offer to all Persons
who, in reliance upon such provisions, become holders of, or continue to hold,
Senior Indebtedness, and such provisions are made for the benefit of the holders
of Senior Indebtedness, and such holders are made obligees hereunder and any one
or more of them may enforce such provisions.
SECTION 2. No Payment on Securities in Certain Circumstances.
-------------------------------------------------
(a) No payment may be made by the Company on account of the
principal of, premium, if any, or interest on, the Securities, or to acquire any
of the Securities (including repurchases of Securities at the option of the
Holder) for cash or property (other than Junior Securities), or on account of
the redemption provisions of the Securities, (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 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.
(b) 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 aggregate principal amount outstanding of such Senior Indebtedness
or
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<PAGE>
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 set-off or otherwise) may be made by or on behalf of the Company on account
of the principal of, premium, if any, or interest on, the Securities, or to
acquire or repurchase any of the Securities for cash or property, or on account
of the redemption provisions of the Securities, 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 of the Securities during the Payment Blockage Period due
to the foregoing prohibitions and to resume all other payments as and when due
on the Securities. 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 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.
(c) In the event that, notwithstanding the foregoing provisions
of this Section 11.2, 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 provisions of
this Section 11.2, then such payment or distribution (subject to the provisions
of Section 11.7) shall be received and held in trust by the Trustee or such
Holder or Paying Agent for the benefit of the holders of Senior Indebtedness,
and shall be paid or delivered by the Trustee or such Holders or such Paying
Agent, as the case may be, to the holders of Senior Indebtedness 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 may have been issued, ratably
according to the aggregate amounts remaining unpaid on account of the Senior
Indebtedness held or represented by
62
<PAGE>
each, for application to the payment of all Senior Indebtedness 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 and
distribution to the holders of such Senior Indebtedness.
SECTION 3. Securities Subordinated to Prior Payment of All Senior
------------------------------------------------------
Indebtedness on Dissolution, Liquidation or Reorganization.
- ----------------------------------------------------------
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:
(a) the holders of all Senior Indebtedness shall first be
entitled to receive payments 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, and interest on, with respect to the Securities
(other than Junior Securities);
(b) 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 provisions of this Article
XI, shall be paid by the liquidating trustee or agent or other Person making
such a payment or distribution directly to the holders of Senior Indebtedness 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; and
(c) in the event that, notwithstanding the foregoing, any payment
or distribution of assets of the Company of any kind or character, whether in
cash, property or securities (other than Junior Securities), shall be received
by the Trustee or the Holders or any Paying Agent (or, if the Company or any
Affiliate of the Company is acting as its own Paying Agent, money for any such
payment or distribution shall be segregated or held in trust) on account of the
principal of or interest on the Securities
63
<PAGE>
before all Senior Indebtedness is paid in full, such payment or distribution
(subject to the provisions of Section 11.7) shall be received and held in trust
by the Trustee or such Holder or Paying Agent for the benefit of the holders of
such Senior Indebtedness, or their respective representative, ratably according
to the respective amounts of such Senior Indebtedness held or represented by
each, to the extent necessary to make payment as provided herein of all such
Senior Indebtedness remaining unpaid after giving effect to all concurrent
payments and distributions and all provisions therefor to or for the holders of
such Senior Indebtedness, but only to the extent that as to any holder of such
Senior Indebtedness, as promptly as practical following notice from the Trustee
to the holders of such Senior Indebtedness that such prohibited payment has been
received by the Trustee, Holder(s) or Paying Agent (or has been segregated as
provided above), such holder (or a representative therefor) notifies the Trustee
of the amounts then due and owing on such Senior Indebtedness, if any, held by
such holder and only the amounts specified in such notices to the Trustee shall
be paid to the holders of such Senior Indebtedness.
SECTION 4. Securityholders to Be Subrogated to Rights of Holders
-----------------------------------------------------
of Senior Indebtedness.
- ----------------------
Subject to the payment in full of all Senior Indebtedness as provided
herein, the Holders of Securities shall be subrogated to the rights of the
holders of such Senior Indebtedness to receive payments or distributions of
assets of the Company applicable to the Senior Indebtedness until all amounts
owing on the Securities shall be paid in full, and for the purpose of such
subrogation no such payments or distributions to the holders of such Senior
Indebtedness by the Company, or by or on behalf of the Holders by virtue of this
Article XI, which otherwise would have been made to the Holders shall, as
between the Company and the Holders, be deemed to be payment by the Company or
on account of such Senior Indebtedness, it being understood that the provisions
of this Article XI are and are intended solely for the purpose of defining the
relative rights of the Holders, on the one hand, and the holders of such Senior
Indebtedness, on the other hand.
If any payment or distribution to which the Holders would otherwise
have been entitled but for the provisions of this Article XI shall have been
applied, pursuant
64
<PAGE>
to the provisions of this Article XI, to the payment of amounts payable under
Senior Indebtedness, then the Holders shall be entitled to receive from the
holders of such Senior Indebtedness any payments or distributions received by
such holders of Senior Indebtedness in excess of the amount sufficient to pay
all amounts payable under or in respect of such Senior Indebtedness in full.
SECTION 5. Obligations of the Company Unconditional.
----------------------------------------
Nothing contained in this Article XI or elsewhere in this Indenture or
in the Securities is intended to or shall impair as between the Company and the
Holders, the obligation of each such Person, which is absolute and
unconditional, to pay to the Holders the principal of, premium, if any, and
interest on, the Securities as and when the same shall become due and payable in
accordance with their terms, or is intended to or shall affect the relative
rights of the Holders and creditors of the Company other than the holders of the
Senior Indebtedness, nor shall anything herein or therein prevent the Trustee or
any Holder from exercising all remedies otherwise permitted by applicable law
upon default under this Indenture, subject to the rights, if any, under this
Article XI, of the holders of Senior Indebtedness in respect of cash, property
or securities of the Company received upon the exercise of any such remedy.
Notwithstanding anything to the contrary in this Article XI or elsewhere in this
Indenture or in the Securities, upon any distribution of assets of the Company
referred to in this Article XI, the Trustee, subject to the provisions of
Sections 7.1 and 7.2, and the Holders shall be entitled to rely upon any order
or decree made by any court of competent jurisdiction in which such dissolution,
winding up, liquidation or reorganization proceedings are pending, or a
certificate of the liquidating trustee or agent or other Person making any
distribution to the Trustee or to the Holders for the purpose of ascertaining
the Persons entitled to participate in such distribution, the holders of the
Senior Indebtedness and other Indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article XI so long as such court has been
apprised of the provisions of, or the order, decree or certificate makes
reference to, the provisions of this Article XI. Nothing in this Section 11.5
shall apply to the claims of,
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<PAGE>
or payments to, the Trustee under or pursuant to Section 7.7.
SECTION 6. Trustee Entitled to Assume Payments Not Prohibited in
-----------------------------------------------------
Absence of Notice.
- -----------------
The Trustee shall not at any time be charged with knowledge of the
existence of any facts which would prohibit the making of any payment to or by
the Trustee unless and until a Trust Officer of the Trustee or any Paying Agent
shall have received, no later than one Business Day prior to such payment,
written notice thereof from the Company or from one or more holders of Senior
Indebtedness or from any representative therefor and, prior to the receipt of
any such written notice, the Trustee, subject to the provisions of Sections 7.1
and 7.2, shall be entitled in all respects conclusively to assume that no such
fact exists.
SECTION 7. Application by Trustee of Assets Deposited with It.
--------------------------------------------------
Amounts deposited in trust with the Trustee pursuant to and in
accordance with Article VIII shall be for the sole benefit of Securityholders
and, to the extent allocated for the payment of Securities, shall not be subject
to the subordination provisions of this Article XI. Otherwise, any deposit of
assets with the Trustee or the Agent (whether or not in trust) for the payment
of principal of or interest on any Securities shall be subject to the provisions
of Sections 11.1, 11.2, 11.3 and 11.4; provided that, if prior to one Business
-------- ----
Day preceding the date on which by the terms of this Indenture any such assets
may become distributable for any purpose (including, without limitation, the
payment of either principal of or interest on any Security) the Trustee or such
Paying Agent shall not have received with respect to such assets the written
notice provided for in Section 11.6, then the Trustee or such Paying Agent shall
have full power and authority to receive such assets and to apply the same to
the purpose for which they were received, and shall not be affected by any
notice to the contrary which may be received by it on or after such date.
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SECTION 8. Subordination Rights Not Impaired by Acts or Omissions
------------------------------------------------------
of the Company or Holders of Senior Indebtedness.
- ------------------------------------------------
No right of any present or future holders of any Senior Indebtedness
to enforce subordination provisions contained in this Article XI shall at any
time in any way be prejudiced or impaired by any act or failure to act on the
part of the Company or by any act or failure to act, in good faith, by any such
holder, or by any noncompliance by the Company with the terms of this Indenture,
regardless of any knowledge thereof which any such holder may have or be
otherwise charged with. The holders of Senior Indebtedness may extend, renew,
modify or amend the terms of the Senior Indebtedness or any security therefor
and release, sell or exchange such security and otherwise deal freely with the
Company, all without affecting the liabilities and obligations of the parties to
this Indenture or the Holders.
SECTION 9. Securityholders Authorize Trustee to Effectuate
-----------------------------------------------
Subordination of Securities.
- ---------------------------
Each Holder of the Securities by his acceptance thereof authorizes and
expressly directs the Trustee on his behalf to take such action as may be
necessary or appropriate to effectuate the subordination provisions contained in
this Article XI and to protect the rights of the Holders pursuant to this
Indenture, and appoints the Trustee his attorney-in-fact for such purpose,
including, in the event of any dissolution, winding up, liquidation or
reorganization of the Company (whether in bankruptcy, insolvency or receivership
proceedings or upon an assignment for the benefit of creditors of the Company),
the immediate filing of a claim for the unpaid balance of his Securities in the
form required in said proceedings and cause said claim to be approved. If the
Trustee does not file a proper claim or proof of debt in the form required in
such proceeding prior to 30 days before the expiration of the time to file such
claim or claims, then the holders of the Senior Indebtedness or their
representative are or is hereby authorized to have the right to file and are or
is hereby authorized to file an appropriate claim for and on behalf of the
Holders of said Securities. Nothing herein contained shall be deemed to
authorize the Trustee or the holders of Senior Indebtedness or their
representative to authorize or consent to or accept or adopt on behalf of any
Securityholder any plan of reorganization, arrangement, adjustment or
composition affecting
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the Securities or the rights of any Holder thereof, or to authorize the Trustee
or the holders of Senior Indebtedness or their representative to vote in respect
of the claim of any Securityholder in any such proceeding.
SECTION 10. Right of Trustee to Hold Senior Indebtedness.
--------------------------------------------
The Trustee shall be entitled to all of the rights set forth in this
Article XI in respect of any Senior Indebtedness at any time held by it to the
same extent as any other holder of Senior Indebtedness, and nothing in this
Indenture shall be construed to deprive the Trustee of any of its rights as such
holder.
SECTION 11. Article XI Not to Prevent Events of Default.
-------------------------------------------
The failure to make a payment on account of principal of, premium, if
any, interest on, the Securities by reason of any provision of this Article XI
shall not be construed as preventing the occurrence of a Default or an Event of
Default under Section 6.1 or in any way prevent the Holders from exercising any
right hereunder other than the right to receive payment on the Securities.
SECTION 12. No Fiduciary Duty of Trustee to Holders of Senior
-------------------------------------------------
Indebtedness.
- ------------
The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Indebtedness, and shall not be liable to any such holders
(other than for its willful misconduct or negligence) if it shall in good faith
mistakenly pay over or distribute to the Holders of Securities or the Company or
any other Person, cash, property or securities to which any holders of Senior
Indebtedness shall be entitled by virtue of this Article XI or otherwise.
Nothing in this Section 11.12 shall affect the obligation of any other such
Person to hold such payment for the benefit of, and to pay such payment over to,
the holders of Senior Indebtedness or their representative.
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ARTICLE XII
CONVERSION OF SECURITIES
SECTION 1. Conversion Privilege.
--------------------
Subject to and upon compliance with the provisions of this Article
XII, at the option of the Holder thereof, any Security may at any time be
converted, in whole, or in part in multiples of $1,000 principal amount, into
fully paid and non-assessable shares of Common Stock issuable upon conversion of
the Securities, at the conversion price in effect at the Date of Conversion,
until and including, but not after the close of business on the second Business
Day prior to Stated Maturity, or unless such Security or some portion thereof
shall have been called for redemption or delivered for repurchase prior to such
date and no default is made in making due provision for the payment of the
redemption price in accordance with the terms of this Indenture, in which case,
with respect to such Security or portion thereof as has been so called for
redemption or delivered for repurchase, such Security or portion thereof may be
so converted until and including, but not after, the close of business on the
Business Day prior to the Redemption Date or Repurchase Date, as applicable, for
such Security, unless the Company subsequently fails to pay the applicable
Redemption Price or Repurchase Price, as the case may be.
SECTION 2. Exercise of Conversion Privilege.
--------------------------------
In order to exercise the conversion privilege, the Holder of any
Security to be converted shall surrender such Security to the Company at any
time during usual business hours at its office or agency maintained for the
purpose as provided in this Indenture, accompanied by a fully executed written
notice, in substantially the form set forth on the reverse of the Security, that
the Holder elects to convert such Security or a stated portion thereof
constituting a multiple of $1,000 principal amount, and, if such Security is
surrendered for conversion during the period between the close of business on
any Record Date and the opening of business on the next following Interest
Payment Date and has not been called for redemption on a Redemption Date which
occurs within such period, accompanied also by payment to the Company of an
amount equal to the interest payable on such Interest Payment Date on the
principal amount of the Security being surrendered for conversion,
notwithstanding
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such conversion. The Holder of any Security at the close of business on a
Record Date will be entitled to receive the interest payable on such Security on
the corresponding Interest Payment Date notwithstanding the conversion thereof
after such Record Date. The interest payment with respect to a Note called for
redemption on a date during the period from the close of business on or after
any Record Date to the close of business on the Business Day following the
corresponding Interest Payment Date will be payable on the corresponding
Interest Payment Date to the registered Holder at the close of business on that
Record Date (not withstanding the conversion of such Note before the
corresponding Interest Payment Date) and a Holder who elects to convert need not
include funds equal to the interest paid. Such notice of conversion shall also
state the name or names (with address) in which the certificate or certificates
for shares of Common Stock shall be issued. Securities surrendered for
conversion shall (if reasonably required by the Company or the Trustee) be duly
endorsed by, or be accompanied by a written instrument or instruments of
transfer in form satisfactory to the Company duly executed by, the Holder or his
attorney duly authorized in writing. As promptly as practicable after the
receipt of such notice and the surrender of such Security as aforesaid, the
Company shall, subject to the provisions of Section 12.8 hereof, issue and
deliver at such office or agency to such Holder, or on his written order, a
certificate or certificates for the number of full shares of Common Stock
issuable on such conversion of Securities in accordance with the provisions of
this Article XII and Cash, as provided in Section 12.3 hereof, in respect of any
fraction of a share of Common Stock otherwise issuable upon such conversion.
Such conversion shall be deemed to have been effected immediately prior to the
close of business on the date (herein called the "Date of Conversion") on which
such Security shall have been surrendered as aforesaid, and the person or
persons in whose name or names any certificate or certificates for shares of
Common Stock shall be issuable upon such conversion shall be deemed to have
become on the Date of Conversion the holder or holders of record of the shares
represented thereby; provided, however, that any such surrender on any date when
-------- -------
the stock transfer books of the Company shall be closed shall cause the person
or persons in whose name or names the certificate or certificates for such
shares are to be issued to be deemed to have become the recordholder or holders
thereof for all purposes at the opening of business on the next succeeding day
on which such stock transfer books are
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open but such conversion shall nevertheless be at the conversion price in effect
at the close of business on the date when such Security shall have been so
surrendered with the conversion notice. In the case of conversion of a portion,
but less than all, of a Security, the Company shall as promptly as practicable
execute, and the Trustee shall authenticate and deliver to the Holder thereof,
at the expense of the Company, a Security or Securities in the aggregate
principal amount of the unconverted portion of the Security surrendered. Except
as otherwise expressly provided in this Indenture, no payment or adjustment
shall be made for interest accrued on any Security (or portion thereof)
converted or for dividends or distributions on any Common Stock issued upon
conversion of any Security.
SECTION 3. Fractional Interests.
--------------------
No fractions of shares or scrip representing fractions of shares shall
be issued upon conversion of Securities. If more than one Security shall be
surrendered for conversion at one time by the same holder, the number of full
shares which shall be issuable upon conversion thereof shall be computed on the
basis of the aggregate principal amount of the Securities so surrendered. If
any fraction of a share of Common Stock would, except for the foregoing
provisions of this Section 12.3, be issuable on the conversion of any Security
or Securities, the Company shall make payment in lieu thereof in an amount of
Cash equal to the value of such fraction computed on the basis of the last sale
price of the Common Stock as reported on the New York Stock Exchange (or if not
listed for trading thereon, then on the principal national securities exchange
on which the Common Stock is listed or admitted to trading) at the close of
business on the Date of Conversion or if no such sale takes place on such day,
the last sale price for such day shall be the average of the closing bid and
asked prices regular way on the New York Stock Exchange (or if not listed for
trading thereon, on the principal national securities exchange on which the
Common Stock is listed or admitted to trading) for such day (any such last sale
price being hereinafter referred to as the "Last Sale Price"). If on such
Trading Day the Common Stock is not quoted by any such organization, the fair
value of such Common Stock on such day, as reasonably determined in good faith
by the Board of Directors of the Company, shall be used.
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SECTION 4. Conversion Price.
----------------
The conversion price per share of Common Stock issuable upon
conversion of the Securities shall initially be $[ ] (or $[ ] in principal
amount of Securities for each such share of Common Stock).
SECTION 5. Adjustment of Conversion Price.
------------------------------
The conversion price (herein called the "Conversion Price") shall be
subject to adjustment from time to time as follows:
(a) In case the Company shall (1) make or pay a dividend (or
other distribution) in shares of Common Stock on any class of Capital Stock of
the Company, (2) subdivide its outstanding shares of Common Stock into a greater
number of shares or (3) combine or reclassify its outstanding shares of Common
Stock into a smaller number of shares, the Conversion Price in effect
immediately prior to such action shall be adjusted so that the Holder of any
Security thereafter surrendered for conversion shall be entitled to receive the
number of shares of Common Stock that he would have owned immediately following
such action had such Security been converted immediately prior thereto. An
adjustment made pursuant to this subsection (a) shall become effective
immediately, except as provided in subsection (h) below, after the record date
in the case of a dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision or combination.
(b) In case the Company shall issue rights, options or warrants
to all holders of Common Stock entitling them to subscribe for or purchase
shares of Common Stock at a price per share less than the then current market
price per share of the Common Stock (as determined pursuant to subsection (f)
below) on the record date mentioned below, the Conversion Price shall be
adjusted to a price, computed to the nearest cent, so that the same shall equal
the price determined by multiplying:
(i) the Conversion Price in effect immediately prior to the
date of issuance of such rights or warrants by a fraction, of which
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(ii) the numerator shall be (A) the number of shares of
Common Stock outstanding on the date of issuance of such rights, options or
warrants, immediately prior to such issuance, plus (B) the number of shares
which the aggregate offering price of the total number of shares so offered
for subscription or purchase would purchase at such current market price
(determined by multiplying such total number of shares by the exercise
price of such rights, options or warrants and dividing the product so
obtained by such current market price), and of which
(iii) the denominator shall be (A) the number of shares of
Common Stock outstanding on the date of issuance of such rights, options or
warrants, immediately prior to such issuance, plus (B) the number of
additional shares of Common Stock which are so offered for subscription or
purchase.
Such adjustment shall become effective immediately, except as provided
in subsection (h) below, after the record date for the determination of holders
entitled to receive such rights, options or warrants; provided, however, that if
-------- -------
any such rights, options or warrants issued by the Company as described in this
subsection (b) are only exercisable upon the occurrence of certain triggering
events relating to control and provided for in shareholder rights plans, then
the Conversion Price will not be adjusted as provided in this subsection (b)
until such triggering events occur.
(c) In case the Company or any Subsidiary of the Company shall
distribute to all holders of Common Stock, any of its assets, evidences of
indebtedness, cash or other assets or shares of Capital Stock other than Common
Stock (including securities, but other than (x) dividends or distributions
exclusively in cash or (y) any dividend or distribution for which an adjustment
is required to be made in accordance with subsection (a) or (b) above), then in
each such case the Conversion Price shall be adjusted so that the same shall
equal the price determined by multiplying the Conversion Price in effect
immediately prior to the date of such distribution by a fraction of which the
numerator shall be the then current market price per share of the Common Stock
(determined as provided in subsection (f) below) on the record date mentioned
below less the then fair market value (as reasonably determined in good faith by
the Board
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<PAGE>
of Directors of the Company) of the portion of the assets so distributed
applicable to one share of Common Stock, and of which the denominator shall be
such current market price per share of the Common Stock. Such adjustment shall
become effective immediately, except as provided in subsection (h) below, after
the record date for the determination of stockholders entitled to receive such
distribution. Notwithstanding the foregoing, in the event that the fair market
value of the assets, evidences of indebtedness or other securities so
distributed applicable to one share of Common Stock equals or exceeds such
current market price per share of Common Stock, or such current market price
exceeds such fair market value by less than $0.10 per share, the Conversion
Price shall not be adjusted pursuant to this subsection (c) and, to the extent
applicable, the provisions of subsection (k) shall apply to such distribution.
(d) In case the Company or any Subsidiary of the Company shall
make any distribution consisting exclusively of cash (excluding any cash portion
of distributions for which an adjustment is required to be made in accordance
with (c) above, or cash distributed upon a merger or consolidation to which
Section 13.6 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 (determined as provided in subsection (f) below) times the number of
shares of Common Stock then outstanding) on the record date of such
distribution, then in each such case the Conversion Price shall be adjusted so
that the same shall equal the price determined by multiplying the Conversion
Price in effect immediately prior to the date of such distribution by a fraction
of which the numerator shall be the then current market price per share of the
Common Stock on such record date less the amount of the cash so distributed
applicable to one share of Common Stock, and of which the denominator shall be
such current market price per share of the Common Stock. Such adjustment shall
become effective immediately, except as provided in subsection (h) below, after
the record date for the determination of stockholders
74
<PAGE>
entitled to receive such distribution. Notwithstanding the foregoing, in the
event that the cash so distributed applicable to one share of Common Stock
equals or exceeds such current market price per share of Common Stock, or such
current market price exceeds such amount of cash by less than $0.10 per share,
the Conversion Price shall not be adjusted pursuant to this subsection (d).
(e) In case there shall be completed a tender or exchange offer
made by the Company or any Subsidiary of the Company for all or any portion of
the Common Stock (any such tender or exchange offer being referred to as an
"Offer") that involves an aggregate consideration having a fair market value as
of the expiration of such Offer (the "Expiration Time") that, together with (i)
any cash and the fair market value of any other consideration payable in respect
of any other Offer, as of the expiration of such other Offer, expiring within
the 12 months preceding the expiration of such Offer and in respect for which no
Conversion Price adjustment pursuant to this subsection (e) has been made and
(ii) the aggregate amount of any all-cash distributions referred to in
subsection (d) of this Section 12.5 to all holders of Common Stock within the 12
months preceding the expiration of such Offer for which no conversion price
adjustment pursuant to such subsection (d) has been made, exceeds 15% of the
product of the then current market price per share (determined as provided in
subsection (f) below) of the Common Stock on the Expiration Time times the
number of shares of Common Stock outstanding (including any tendered shares) on
the Expiration Time, the Conversion Price shall be reduced by multiplying such
Conversion Price in effect immediately prior to the Expiration Time by a
fraction of which the numerator shall be (i) the product of the then current
market price per share (determined as provided in subsection (f) below) of the
Common Stock on the Expiration Time times the number of shares of Common Stock
outstanding (including any tendered shares) on the Expiration Time minus (ii)
the fair market value of the aggregate consideration payable to stockholders
based on the acceptance (up to any maximum specified in the terms of the Offer)
of all shares validly tendered and not withdrawn as of the Expiration Time (the
shares deemed so accepted being referred to as the "Purchased Shares") and the
denominator shall be the product of (i) such current market price per share on
the Expiration Time times (ii) such number of outstanding shares on the
Expiration Time less the number of Purchased Shares, such reduction to become
effective immedi-
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<PAGE>
ately prior to the opening of business on the day following the Expiration Time.
For purposes of this subsection (e), the fair market value of any
consideration with respect to an Offer shall be reasonably determined in good
faith by the Board of Directors of the Company and described in a Board
Resolution.
(f) For the purpose of any computation under subsections (b),
(c), (d) and (e) above, the current market price per share of Common Stock on
any date shall be deemed to be the average of the Last Sale Prices of a share of
Common Stock for the five consecutive Trading Days selected by the Company
commencing not more than 20 Trading Days before, and ending not later than, the
earlier of the date in question and the date before the "`ex' date," with
respect to the issuance, distribution or Offer requiring such computation. If on
any such Trading Day the Common Stock is not quoted by any organization referred
to in the definition of Last Sale Price in Section 12.3 hereof, the fair value
of the Common Stock on such day, as reasonably determined in good faith by the
Board of Directors of the Company, shall be used. For purposes of this
paragraph, the term "`ex' date," when used with respect to any issuance,
distribution or payments with respect to an Offer, means the first date on which
the Common Stock trades regular way on the New York Stock Exchange (or if not
listed or admitted to trading thereon, then on the principal national securities
exchange on which the Common Stock is listed or admitted to trading) without the
right to receive such issuance, distribution or Offer.
(g) In addition the foregoing adjustments in subsections (a),
(b), (c), (d) and (e) above, the Company will be permitted to make such
reductions in the Conversion Price 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 holders of the shares of Common Stock.
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 of
the Exchange Act and any other Federal and state laws and regulations thereunder
if and to the extent that such laws and regulations are applicable in connection
with the reduction of the Conver-
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<PAGE>
sion Price of the Notes; provided that any provisions of this Indenture which
conflict with such laws shall be deemed to be superseded by the provisions of
such laws.
(h) In any case in which this Section 12.5 shall require that an
adjustment (including by reason of the last sentence of subsection (a) or (c)
above) be made immediately following a record date, the Company may elect to
defer the effectiveness of such adjustment (but in no event until a date later
than the effective time of the event giving rise to such adjustment), in which
case the Company shall, with respect to any Security converted after such record
date and on and before such adjustment shall have become effective (i) defer
paying any Cash payment pursuant to Section 12.3 hereof or issuing to the Holder
of such Security the number of shares of Common Stock and other Capital Stock of
the Company (or other assets or securities) issuable upon such conversion in
excess of the number of shares of Common Stock and other Capital Stock of the
Company issuable thereupon only on the basis of the Conversion Price prior to
adjustment, and (ii) not later than five Business Days after such adjustment
shall have become effective, pay to such Holder the appropriate Cash payment
pursuant to Section 12.3 hereof and issue to such Holder the additional shares
of Common Stock and other Capital Stock of the Company issuable on such
conversion.
(i) No adjustment in the Conversion Price shall be required
unless such adjustment would require an increase or decrease of at least 1.0% of
the Conversion Price; provided, that any adjustments which by reason of this
--------
subsection (i) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this Article
XII shall be made to the nearest cent or to the nearest one-hundredth of a
share, as the case may be.
(j) Whenever the Conversion Price is adjusted as herein provided,
the Company shall promptly (i) file with the Trustee and each conversion agent
an Officers' Certificate setting forth the Conversion Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment, which certificate shall be conclusive evidence of the correctness of
such adjustment, and (ii) mail or cause to be mailed a notice of such adjustment
to each holder of Securities at his address as the same appears on the registry
books of the Company.
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(k) In the event that the Company distributes rights or warrants
(other than those referred to in subsection (b) above) 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 Company shall make proper provision so that 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 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 the principal amount of such Note so converted 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.
SECTION 6. Continuation of Conversion Privilege in Case of
-----------------------------------------------
Reclassification, Change, Merger, Consolidation or Sale of Assets.
- -----------------------------------------------------------------
If any of the following shall occur, namely: (a) any reclassification
or change of outstanding shares of Common Stock issuable upon conversion of the
Securities (other than a change in par value, or from par value to no par value,
or from no par value, to par value, or as a result of a subdivision or
combination), (b) any consolidation or merger of the Company with or into any
other Person, or the merger of any other Person with or into the Company (other
than a merger which does not result in any reclassification, change, conversion,
exchange or cancellation of outstanding shares of Common Stock) or (c) any sale,
transfer or conveyance of all or substantially all of the assets of the Company
(computed on a consolidated basis), then the Company, or such successor or
purchasing entity, as the case may be, shall, as a condition precedent to such
reclassification, change, consolidation, merger, sale or conveyance, execute and
deliver to the Trustee a supplemental indenture
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providing that the Holder of each Security then outstanding shall have the right
to convert such Security only into the kind and amount of shares of stock and
other securities and property (including cash) receivable upon such
reclassification, change, consolidation, merger, sale, transfer or conveyance by
a holder of the number of shares of Common Stock issuable upon conversion of
such Security immediately prior to such reclassification, change, consolidation,
merger, sale, transfer or conveyance assuming such holder of Common Stock of the
Company failed to exercise his rights of an election, if any, as to the kind or
amount of securities, cash and other property receivable upon such
reclassification, change, consolidation, merger, sale, transfer or conveyance
(provided that if the kind or amount of securities, cash, and other property
--------
receivable upon such reclassification, change, consolidation, merger, sale,
transfer or conveyance is not the same for each share of Common Stock of the
Company held immediately prior to such reclassification, change, consolidation,
merger, sale, transfer or conveyance in respect of which such rights of election
shall not have been exercised ("non-electing share"), then for the purpose of
this Section 12.6 the kind and amount of securities, cash and other property
receivable upon such reclassification, change, consolidation, merger, sale,
transfer or conveyance by each non-electing share shall be deemed to be the kind
and amount so receivable per share by a plurality of the non-electing shares).
Such supplemental indenture shall provide for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
Article XII. If, in the case of any such consolidation, merger, sale or
conveyance, the stock or other securities and property (including cash)
receivable thereupon by a holder of shares of Common Stock includes shares of
stock or other securities and property (including cash) of a corporation other
than the successor or purchasing corporation, as the case may be, in such
consolidation, merger, sale or conveyance, then such supplemental indenture
shall also be executed by such other corporation and shall contain such
additional provisions to protect the interests of the Holders of the Securities
as the Board of Directors of the Company shall reasonably consider necessary by
reason of the foregoing. The provisions of this Section 12.6 shall similarly
apply to successive consolidations, mergers, sales or conveyances.
Notice of the execution of each such supplemental indenture shall be
mailed to each Holder of Securities at
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his address as the same appears on the registry books of the Company.
Neither the Trustee nor any conversion agent shall be under any
responsibility to determine the correctness of any provisions contained in any
such supplemental indenture relating either to the kind or amount of shares of
stock or securities or property (including cash) receivable by Holders of
Securities upon the conversion of their Securities after any such
reclassification, change, consolidation, merger, sale or conveyance or to any
adjustment to be made with respect thereto, but, subject to the provisions of
Article VIII hereof, may accept as conclusive evidence of the correctness of any
such provisions, and shall be protected in relying upon, the Officers'
Certificate (which the Company shall be obligated to file with the Trustee prior
to the execution of any such supplemental indenture) with respect thereto.
SECTION 7. Notice of Certain Events.
------------------------
In case:
(a) the Company shall declare a dividend (or any other
distribution) payable to the holders of Common Stock (other than cash
dividends);
(b) the Company shall authorize the granting to the holders of
Common Stock of rights, warrants or options to subscribe for or purchase any
shares of stock of any class or of any other rights;
(c) the Company shall authorize any reclassification or change of
the Common Stock (including a subdivision or combination of its outstanding
shares of Common Stock), or any consolidation or merger to which the Company is
a party and for which approval of any stockholders of the Company is required,
or the sale or conveyance of all or substantially all the property or business
of the Company;
(d) there shall be proposed any voluntary or involuntary
dissolution, liquidation or winding-up of the Company; or
(e) the Company or any of its Subsidiaries shall complete an
Offer;
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then, the Company shall cause to be filed at the office or agency maintained for
the purpose of conversion of the Securities as provided in Section 3.2 hereof,
and shall cause to be mailed to each Holder of Securities, at his address as it
shall appear on the registry books of the Company, at least 20 days before the
date hereinafter specified (or the earlier of the dates hereinafter specified,
in the event that more than one date is specified), a notice stating the date on
which (1) a record is expected to be taken for the purpose of such dividend,
distribution, rights, warrants or options or Offer, or if a record is not to be
taken, the date as of which the holders of Common Stock of record to be entitled
to such dividend, distribution, rights, warrants or options or to participate in
such Offer are to be determined, or (2) such reclassification, change,
consolidation, merger, sale, conveyance, dissolution, liquidation or winding-up
is expected to become effective and the date, if any is to be fixed, as of which
it is expected that holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities or other property
deliverable upon such reclassification, change, consolidation, merger, sale,
conveyance, dissolution, liquidation or winding-up.
SECTION 8. Taxes on Conversion.
-------------------
The Company will pay any and all documentary, stamp or similar taxes
payable to the United States of America or any political subdivision or taxing
authority thereof or therein in respect of the issue or delivery of shares of
Common Stock on conversion of Securities pursuant thereto; provided, however,
-------- -------
that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issue or delivery of shares of Common
Stock in a name other than that of the Holder of the Securities to be converted
and no such issue or delivery shall be made unless and until the person
requesting such issue or delivery has paid to the Company the amount of any such
tax or has established, to the satisfaction of the Company, that such tax has
been paid. The Company extends no protection with respect to any other taxes
imposed in connection with conversion of Securities.
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SECTION 9. Company to Provide Stock.
------------------------
The Company shall reserve, free from preemptive rights, out of its
authorized but unissued shares, sufficient shares to provide for the conversion
of the Securities from time to time as such Securities are presented for
conversion, provided, that nothing contained herein shall be construed to
--------
preclude the Company from satisfying its obligations in respect of the
conversion of Securities by delivery of repurchased shares of Common Stock which
are held in the treasury of the Company.
If any shares of Common Stock to be reserved for the purpose of
conversion of Securities hereunder require registration with or approval of any
governmental authority under any Federal or state law before such shares may be
validly issued or delivered upon conversion, then the Company covenants that it
will in good faith and as expeditiously as possible use its best efforts to
secure such registration or approval, as the case may be, provided, however,
-------- -------
that nothing in this Section 12.9 shall be deemed to limit in any way the
obligations of the Company provided in this Article XII.
Before taking any action which would cause an adjustment reducing the
Conversion Price below the then par value, if any, of the Common Stock, the
Company will take all corporate action which may, in the Opinion of Counsel, be
necessary in order that the Company may validly and legally issue fully paid and
non-assessable shares of Common Stock at such adjusted Conversion Price.
The Company covenants that all shares of Common Stock which may be
issued upon conversion of Securities will upon issue be fully paid and non-
assessable by the Company and free of preemptive rights.
SECTION 10. Disclaimer of Responsibility for Certain Matters.
------------------------------------------------
Neither the Trustee nor any agent of the Trustee shall at any time be
under any duty or responsibility to any Holder of Securities to determine
whether any facts exist which may require any adjustment of the Conversion
Price, or with respect to the Officers' Certificate referred to in Section 12.5
hereof, or with respect to the nature or extent of any such adjustment when
made, or with respect to the method employed, or herein or in any supplemental
indenture
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provided to be employed, in making the same. Neither the Trustee nor any agent
of the Trustee shall be accountable with respect to the validity or value (or
the kind or amount) of any shares of Common Stock, or of any securities or
property (including cash), which may at any time be issued or delivered upon the
conversion of any Security; and neither the Trustee nor any conversion agent
makes any representation with respect thereto. Neither the Trustee nor any
agent of the Trustee shall be responsible for any failure of the Company to
issue, register the transfer of or deliver any shares of Common Stock or stock
certificates or other securities or property (including cash) upon the surrender
of any Security for the purpose of conversion or, subject to Article VIII
hereof, to comply with any of the covenants of the Company contained in this
Article XII.
SECTION 11. Return of Funds Deposited for Redemption of Converted
-----------------------------------------------------
Securities.
- ----------
Any funds which at any time shall have been deposited by the Company
or on its behalf with the Trustee or any other Paying Agent for the purpose of
paying the principal of and interest on any of the Securities and which shall
not be required for such purposes because of the conversion of such Securities,
as provided in this Article XII, shall after such conversion be repaid to the
Company by the Trustee or such other Paying Agent.
ARTICLE XIII
MISCELLANEOUS
SECTION 1. TIA Controls.
------------
If any provision of this Indenture limits, qualifies, or conflicts
with the duties imposed by operation of the TIA, the imposed duties, upon
qualification of this Indenture under the TIA, shall control.
SECTION 2. Notices.
-------
Any notices or other communications to the Company or the Trustee
required or permitted hereunder shall be in writing, and shall be sufficiently
given if made by hand delivery, by telex, by telecopier or registered or
certified mail, postage prepaid, return receipt requested, addressed as follows:
83
<PAGE>
if to the Company:
United States Filter Corporation
40-004 Cook Street
Palm Desert, California 92211
Attention: Chief Financial Officer
Telecopy: (619) 340-0098
if to the Trustee:
State Street Bank and Trust Company of California, N.A.
150 Royall Street
Canton, Massachusetts 02021
Attention: [ ]
(Telecopy: )
Any party by notice to each other party may designate additional or
different addresses as shall be furnished in writing by such party. Any notice
or communication to any party shall be deemed to have been given or made as of
the date so delivered, if personally delivered; when answered back, if telexed;
when receipt is acknowledged, if telecopied; and five Business Days after
mailing if sent by registered or certified mail, postage prepaid (except that a
notice of change of address shall not be deemed to have been given until
actually received by the addressee).
Any notice or communication mailed to a Securityholder shall be mailed
to him by first-class mail or other equivalent means at his address as it
appears on the registration books of the Registrar and shall be sufficiently
given to him if so mailed within the time prescribed.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
84
<PAGE>
SECTION 3. Communications by Holders with Other Holders.
--------------------------------------------
Securityholders may communicate pursuant to TIA (S) 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and any other Person shall
have the protection of TIA (S) 312(c).
SECTION 4. Certificate and Opinion as to Conditions Precedent.
--------------------------------------------------
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:
(1) an Officers' Certificate (in form and substance reasonably
satisfactory to the Trustee) stating that, in the opinion of the signers, all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with; and
(2) an Opinion of Counsel (in form and substance reasonably
satisfactory to the Trustee) stating that, in the opinion of such counsel, all
such conditions precedent have been complied with.
SECTION 5. Statements Required in Certificate or Opinion.
---------------------------------------------
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that the Person making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he has made
such examination or investigation as is necessary to enable him to express an
informed
85
<PAGE>
opinion as to whether or not such covenant or condition has been complied with;
and
(4) a statement as to whether or not, in the opinion of each such
Person, such condition or covenant has been complied with; provided, however,
-------- -------
that with respect to matters of fact an Opinion of Counsel may rely on an
Officers' Certificate or certificates of public officials.
SECTION 6. Rules by Trustee, Paying Agent, Registrar.
-----------------------------------------
The Trustee may make reasonable rules for action by or at a meeting of
Securityholders. The Paying Agent or Registrar may make reasonable rules for
its functions.
SECTION 7. Legal Holidays.
--------------
A "Legal Holiday" is a Saturday, a Sunday or a day on which banking
institutions in New York, New York are authorized or obligated by law or
executive order to close. If a payment date is a Legal Holiday at such place,
payment may be made at such place on the next succeeding day that is not a Legal
Holiday, and no interest shall accrue for the intervening period.
SECTION 8. Governing Law.
-------------
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS
MADE AND PERFORMED WITHIN THE STATE OF NEW YORK. THE COMPANY HEREBY IRREVOCABLY
SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH
OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH
OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE AND THE SECURITIES, AND
IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. THE COMPANY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY
SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT
86
<PAGE>
ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT
IN AN INCONVENIENT FORUM. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE TRUSTEE
OR ANY SECURITYHOLDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR
TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY IN ANY
OTHER JURISDICTION.
SECTION 9. No Adverse Interpretation of Other Agreements.
---------------------------------------------
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or any of its Subsidiaries. Any such indenture,
loan or debt agreement may not be used to interpret this Indenture.
SECTION 10. No Recourse Against Others.
--------------------------
No direct or indirect partner, employee, stockholder, director or
officer, as such, past, present or future of the Company or any successor
corporation or any Subsidiary or any of the Company's Affiliates, shall have any
personal liability in respect of the obligations of the Company under the
Securities or this Indenture by reason of his, her or its status as such
partner, stockholder, employee, director or officer. Each Securityholder by
accepting a Security waives and releases all such liability. Such waiver and
release are part of the consideration for the issuance of the Securities.
SECTION 11. Successors.
----------
All agreements of the Company in this Indenture and the Securities
shall bind its successor. All agreements of the Trustee in this Indenture shall
bind its successor.
SECTION 12. Duplicate Originals.
-------------------
All parties may sign any number of copies or counterparts of this
Indenture. Each signed copy or counterpart shall be an original, but all of
them together shall represent the same agreement.
87
<PAGE>
SECTION 13. Severability.
------------
In case any one or more of the provisions in this Indenture or in the
Securities shall be held invalid, illegal or unenforceable, in any respect for
any reason, the validity, legality and enforceability of any such provision in
every other respect and of the remaining provisions shall not in any way be
affected or impaired thereby, it being intended that all of the provisions
hereof shall be enforceable to the full extent permitted by law.
SECTION 14. Table of Contents, Headings, Etc.
---------------------------------
The Table of Contents, Cross-Reference Table and headings of the
Articles and the Sections of this Indenture have been inserted for convenience
of reference only, are not to be considered a part hereof and shall in no way
modify or restrict any of the terms or provisions hereof.
SECTION 15. Qualification of Indenture.
--------------------------
The Company shall qualify this Indenture under the TIA and shall pay
all reasonable costs and expenses (including reasonable attorneys' fees for the
Company and the Trustee) incurred in connection therewith, including, but not
limited to, reasonable costs and expenses of qualification of the Indenture and
the Securities and printing this Indenture and the Securities. The Trustee
shall be entitled to receive from the Company any such Officers' Certificates,
Opinions of Counsel or other documentation as it may reasonably request in
connection with any such qualification of this Indenture under the TIA.
88
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the date first written above.
UNITED STATES FILTER
CORPORATION,
a Delaware corporation
[Seal]
By: ________________________________
Name: _________________________
Title: ________________________
Attest: _____________
Secretary
STATE STREET BANK AND TRUST COMPANY
OF CALIFORNIA, N.A.,
a national banking association,
as Trustee
By: _______________________________
Name: ________________________
Title: _______________________
<PAGE>
EXHIBIT A
---------
[FORM OF SECURITY]
UNITED STATES FILTER CORPORATION
[ ]% CONVERTIBLE SUBORDINATED NOTE
DUE 2001
No. CUSIP No. ____________
$ _______
United States Filter Corporation, a Delaware corporation (hereinafter
called the "Company," which term includes any successors under the Indenture
hereinafter referred to), for value received, hereby promises to pay to _____,
or registered assigns, the principal sum of _____ Dollars, on December __, 2001.
Interest Payment Dates: December __ and June __; commencing June __,
1997.
Record Dates: April 1 and October 1.
Reference is made to the further provisions of this Security set forth
below, which will, for all purposes, have the same effect as if set forth at
this place.
IN WITNESS WHEREOF, the Company has caused this Instrument to be duly
executed under its corporate seal.
Dated:
UNITED STATES FILTER
CORPORATION,
a Delaware corporation
[Seal]
By:______________________________
Name:
Title:
Attest: _____________
Secretary
A-1
<PAGE>
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the Securities described in the within-mentioned
Indenture.
STATE STREET BANK AND TRUST COMPANY
OF CALIFORNIA, N.A.,
as Trustee
By: _________________________________
Authorized Signatory
Dated:
A-2
<PAGE>
UNITED STATES FILTER CORPORATION
[ ]% CONVERTIBLE SUBORDINATED NOTE
DUE 2001
Unless and until it is exchanged in whole or in part for Securities in
definitive form, this Security may not be transferred except as a whole by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or by the Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary. Unless this certificate is presented by an authorized
representative of The Depository Trust Company, a New York corporation ("DTC"),
to the Company or its agent for registration of transfer, exchange or payment,
and any certificate issued is registered in the name of Cede & Co. or in such
other name as is requested by an authorized representative of DTC (and any
payment is made to Cede & Co. or to such other entity as is requested by an
authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered
owner hereof, Cede & Co., has an interest herein./1/
1. Interest.
--------
United States Filter Corporation, a Delaware corporation (hereinafter
called the "Company," which term includes any successors under the Indenture
hereinafter referred to), promises to pay interest on the principal amount of
this Security at the rate of [ ]% per annum. To the extent it is lawful, the
Company promises to pay interest on any interest payment due but unpaid on such
principal amount at a rate of [ ]% per annum compounded semi-annually.
The Company will pay interest semi-annually on December ___ and June
___ of each year (each, an "Interest Payment Date"), commencing June ___, 1997.
Interest on the Securities will accrue from the most recent date to which
interest has been paid or, if no interest has been paid on the Securities, from
December ___, 1996. Interest will be
- --------------------
/1/ This paragraph should only be added if the Security is issued in global
form.
A-3
<PAGE>
computed on the basis of a 360-day year consisting of twelve 30-day months.
2. Method of Payment.
-----------------
The Company shall pay interest on the Securities (except Defaulted
Interest) to the persons who are the registered Holders at the close of business
on the Record Date immediately preceding the Interest Payment Date. Holders
must surrender Securities to a Paying Agent to collect principal payments. Any
such interest not so punctually paid, and Defaulted Interest relating thereto,
may be paid to the persons who are registered Holders at the close of business
on a Special Record Date for the payment of such Defaulted Interest, as more
fully provided in the Indenture referred to below. Except as provided below,
the Company shall pay principal and interest in such coin or currency of the
United States of America as at the time of payment shall be legal tender for
payment of public and private debts ("U.S. Legal Tender"). The Securities will
be payable as to principal, premium and interest at the office or agency of the
Company maintained for such purpose within or without the City and State of New
York, or at the option of the Company, payment of principal, premium and
interest may be made by check mailed to the Holders at their addresses set forth
in the registry of Holders, and provided that payment by wire transfer of
immediately available funds will be required with respect to principal of,
premium, if any, and interest on Global Securities and all other Securities the
Holders of which shall have provided wire transfer instructions to the Company
or the Paying Agent.
3. Paying Agent and Registrar.
--------------------------
Initially, State Street Bank and Trust Company of California, N.A.
(the "Trustee") will act as Paying Agent and Registrar. The Company may change
any Paying Agent, Registrar or co-Registrar without notice to the Holders. The
Company or any of its Subsidiaries may, subject to certain exceptions, act as
Paying Agent, Registrar or co-Registrar.
4. Indenture.
---------
The Company issued the Securities under an Indenture, dated as of
December __, 1996(the "Indenture"), between the Company and the Trustee.
Capitalized terms herein
A-4
<PAGE>
are used as defined in the Indenture unless otherwise defined herein. The terms
of the Securities include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act, as in effect on the date
of the Indenture. The Securities are subject to all such terms, and Holders of
Securities are referred to the Indenture and said Act for a statement of them.
The Securities are general unsecured obligations of the Company limited in
aggregate principal amount to $200,000,000 ($230,000,000 if the Underwriters'
over-allotment option is exercised in full).
5. Redemption.
----------
The Securities will not be subject to redemption prior to December
___, 1999. On or after December ___, 1999, upon not less than 30 nor more than
60 days notice to each Holder of Notes, the Securities will be redeemable for
cash at the option of the Company, in whole or in part, at the Redemption Price
(expressed as a percentage of principal amount) set forth below with respect to
the indicated Redemption Date, in each case, plus any accrued but unpaid
interest to the Redemption Date.
<TABLE>
<CAPTION>
If redeemed during
the 12-month period
beginning December Redemption Price
-------------------- ----------------
<S> <C>
1999................ [ ]%
2000 and thereafter. [ ]%
</TABLE>
Any such redemption will comply with Article III of the Indenture.
6. Notice of Redemption.
--------------------
Notice of redemption will be sent by first class mail, at least 30
days and not more than 60 days prior to the Redemption Date to the Holder of
each Security to be redeemed at such Holder's last address as then shown upon
the registry books of the Registrar. Securities may be redeemed in part in
multiples of $1,000 only.
Except as set forth in the Indenture, from and after any Redemption
Date, if monies for the redemption of the Securities called for redemption shall
have been depos-
A-5
<PAGE>
ited with the Paying Agent on such Redemption Date and payment of the Securities
called for redemption is not prohibited under Article XI of the Indenture, the
Securities called for redemption will cease to bear interest and the only right
of the Holders of such Securities will be to receive payment of the Redemption
Price, plus any accrued and unpaid interest to the Redemption Date.
7. Denominations; Transfer; Exchange.
---------------------------------
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder may register
the transfer of, or exchange Securities in accordance with, the Indenture. The
Registrar 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 Registrar need not register the transfer
of or exchange any Securities selected for redemption.
8. Persons Deemed Owners.
---------------------
The registered Holder of a Security may be treated as the owner of it
for all purposes.
9. Unclaimed Money.
---------------
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee and the Paying Agent(s) will pay the money back to
the Company at its written request. After that, all liability of the Trustee
and such Paying Agent(s) with respect to such money shall cease and the Holder
of such Security shall thereafter look only to the Company for payment of such
money.
10. Amendment; Supplement; Waiver.
-----------------------------
Subject to certain exceptions, the Indenture or the Securities may be
amended or supplemented, and any existing Default or Event of Default or
compliance with any provision may be waived, with the written consent of the
Holders of a majority in aggregate principal amount of the Securities then
outstanding. Without notice to or consent of any Holder, the parties thereto
may amend or supplement the Indenture or the Securities to, among other things,
cure any ambiguity, defect or inconsistency, or make any other
A-6
<PAGE>
change that does not adversely affect the rights of any Holder of a Security.
11. Conversion Rights.
-----------------
Subject to the provisions of the Indenture, the Holders have the right
to convert the principal amount of the Securities into fully paid and
nonassessable shares of Common Stock of the Company at the initial conversion
price per share of Common Stock of $[ ] (or $[ ] in principal amount of
Securities for each such share of Common Stock), or at the adjusted conversion
price then in effect, if adjustment has been made as provided in the Indenture,
upon surrender of the Security to the Company, together with a fully executed
notice in substantially the form attached hereto and, if required by the
Indenture, an amount equal to accrued interest payable on such Security.
12. Subordination.
-------------
Payment of principal, premium, if any, and interest on the Securities
is subordinated, in the manner and to the extent set forth in the Indenture, to
the prior payment in full of all Senior Indebtedness.
13. Repurchase at Option of Holder Upon a Change of Control.
-------------------------------------------------------
If there is a Change of Control, the Company shall be required to
offer to purchase on the Repurchase Date all outstanding Securities at a
purchase price equal to 100% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the Repurchase Date. Holders of Securities will
receive a Repurchase Offer from the Company prior to any related Repurchase Date
and may elect to have such Securities purchased by completing the form entitled
"Option of Holder to Elect Purchase" appearing below.
14. Successors.
----------
When a successor assumes all the obligations of its predecessor under
the Securities and the Indenture, the predecessor will be released from those
obligations (except with respect to any obligations that arise from or as a
result of such transaction).
A-7
<PAGE>
15. Defaults and Remedies.
---------------------
If an Event of Default occurs and is continuing (other than an Event
of Default relating to certain events of bankruptcy, insolvency or
reorganization), then in every such case, unless the principal of all of the
securities shall have already become due and payable, either the Trustee or the
Holders of 25% in aggregate principal amount of Securities then outstanding may
declare all the Securities to be due and payable immediately in the manner and
with the effect provided in the Indenture. Holders of Securities may not
enforce the Indenture or the Securities except as provided in the Indenture.
The Trustee may require indemnity satisfactory to it before it enforces the
Indenture or the Securities. Subject to certain limitations, Holders of a
majority in aggregate principal amount of the Securities then outstanding may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of Securities notice of any continuing Default or Event of
Default (except a Default in payment of principal or, interest), if it
determines that withholding notice is in their interest.
16. Trustee Dealings with Company.
-----------------------------
The Trustee under the Indenture, in its individual or any other
capacity, may make loans to, accept deposits from, and perform services for the
Company or its Affiliates or any subsidiary of the Company's Affiliates, and may
otherwise deal with the Company or its Affiliates as if it were not the Trustee.
17. No Recourse Against Others.
--------------------------
No director or indirect partner, employee, stockholder or officer, as
such, past, present or future, of the Company or any successor corporation or
any Subsidiary or any of the Company's Affiliates shall have any personal
liability in respect of the obligations of the Company under the Securities or
the Indenture by reason of his, her or its status as such partner, stockholder,
director, officer or employee. Each Holder of a Security by accepting a
Security waives and releases all such liability. The waiver and release are
part of the consideration for the issuance of the Securities.
A-8
<PAGE>
18. Authentication.
--------------
This Security shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on the other side of this
Security.
19. Abbreviations and Defined Terms.
-------------------------------
Customary abbreviations may be used in the name of a Holder of a
Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
20. CUSIP Numbers.
-------------
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company will cause CUSIP numbers to be
printed on the Securities as a convenience to the Holders of the Securities. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identification numbers
printed hereon.
A-9
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Article X of the Indenture, check the box: /__/
If you want to elect to have only part of this Security purchased by
the Company pursuant to Article X of the Indenture, state the amount you want to
be purchased: $________
Date: ________________ Signature: ________________________
(Sign exactly as your name appears on the
other side of this Security)
A-10
<PAGE>
SCHEDULE OF EXCHANGES OF DEFINITIVE SECURITIES/2/
The following exchanges of a part of this Global Security for
Definitive Securities have been made:
<TABLE>
<CAPTION>
Signature of
Amount of Amount of Principal Amount authorized
decrease in increase in of this Global officer
Principal Amount Principal Amount Security following of Trustee or
Date of of this Global of this Global such decrease (or Securities
Exchange Security Security increase) Custodian
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
- --------------------
/2/ This schedule should only be added if the Security is issued in global
form.
A-11
<PAGE>
[FORM OF] ASSIGNMENT
I or we assign this Security to
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type name, address and zip code of assignee)
Please insert Social Security or other identifying number of assignee
____________________________________
and irrevocably appoint _________ agent to transfer this Security on the books
of the Company. The agent may substitute another to act for him.
Date: _______________ Signed: _______________________________________________
________________________________________________________________________________
(Sign exactly as name appears on
the other side of this Security)
Signature Guarantee.*
_____________________________
*Participant in a recognized Signature Guarantee Medallion Program (or other
signature acceptable to the Trustee).
A-12
<PAGE>
EXHIBIT B
---------
FORM OF CONVERSION NOTICE
-------------------------
To: United States Filter Corporation
$200,000,000
[ ]% Convertible Subordinated Notes due 2001
The undersigned owner of this Security hereby: (i) irrevocably
exercises the option to convert this Security, or the portion hereof below
designated, for shares of Common Stock of United States Filter Corporation in
accordance with the terms of this Indenture referred to in this Security and
(ii) directs that such shares of Common Stock deliverable upon the conversion,
together with any check in payment for fractional shares and any Security(ies)
representing any unconverted principal amount hereof, be issued and delivered to
the registered holder hereof unless a different name has been indicated below.
If shares are to be delivered registered in the name of a person other than the
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto. Any amount required to be paid by the undersigned on account of
interest accompanies this Security.
Dated ___________________
__________________________________________________
Signature
Fill in for registration of shares if to be delivered, and of
Securities if to be issued, otherwise than to and in the name of the registered
holder.
__________________________________________________
Social Security or other
Taxpayer Identifying Number
______________________________
(Name)
______________________________
(Street Address)
______________________________
(City, State and Zip Code)
(Please print name and address)
Principal amount to be
converted: (if less than all)
$ ________________________________________________
Signature Guarantee.*
_____________________________
*Participant in a recognized Signature Guarantee Medallion Program (or other
signature acceptable to the Trustee).
B-1
<PAGE>
Exhibit 5.1
November 20, 1996
United States Filter Corporation
40-004 Cook Street
Palm Desert, California 92211
Ladies and Gentlemen:
I am Vice President, General Counsel and Secretary of United States Filter
Corporation, a Delaware corporation (the "Company"), and have acted as counsel
to the Company in connection with the Registration Statement on Form S-3 (No.
333-14281), filed by the Company on October 17, 1996, as amended (the
"Registration Statement") with the United States Securities and Exchange
Commission pursuant to the United States Securities Act of 1933, as amended (the
"Act"), with respect to an aggregate of up to $230,000,000 in Convertible
Subordinated Notes due 2001 (the "Notes"), convertible into shares of common
stock of the Company, par value $.01 per share (the "Common Stock").
I am familiar with the Registration Statement and have reviewed the
Company's Certificate of Incorporation and By-laws, each as amended and
restated. I have also examined such other public and corporate documents,
certificates, instruments and corporate records, and such other questions of
law, as I have deemed necessary for purposes of expressing an opinion on the
matters hereinafter set forth. In all examinations of documents, instruments and
other papers, I have assumed the genuineness of all signatures on original and
certified documents and the conformity to original and certified documents of
all copies submitted to me as conformed, photostatic or other copies.
On the basis of the foregoing, I am of the opinion that the issuance of the
Notes and the shares of Common Stock into which the Notes are convertible has
been duly authorized by the Company, and if and when sold by the Company as
contemplated by the Prospectus contained in the Registration Statement and, in
the case of the shares of Common Stock, upon conversion in accordance with the
terms of the Notes, each will be validly issued, fully paid and non-assessable.
I hereby consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement. I also consent to the reference under the
caption "Legal Matters" in the Registration Statement. In giving this consent, I
do not thereby admit that I am included in the category of persons whose consent
is required under Section 7 of the Act or the rules and regulations of the
Commission.
Yours truly,
/s/ Damian C. Georgino
<PAGE>
EXHIBIT 12.1
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months
Ended
Fiscal Year Ended March 31, September 30,
---------------------------------------------------- -----------------
1992 1993 1994 1995 1996 1995 1996
------- ------- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Income before interest and income taxes $(3,831) 3,661 (5,055) 23,123 40,647 20,638 26,600
Portion of rental expense deemed to
represent interest 1,699 1,914 2,174 2,678 2,997 1,294 1,251
------- ------ ------ ------ ------ ------ ------
Earnings (loss) before fixed charges $(2,132) 5,575 (2,881) 25,801 43,644 21,932 27,851
======= ====== ====== ====== ====== ====== ======
Interest expense $ 3,862 3,582 4,044 7,514 14,419 6,548 7,972
Portion of rental expense deemed to
represent interest 1,699 1,914 2,174 2,678 2,997 1,294 1,251
------- ------ ------ ------ ------ ------ ------
Fixed charges $ 5,561 5,496 6,218 10,192 17,416 7,842 9,223
======= ====== ====== ====== ====== ====== ======
Ratio of earnings to fixed charges n/a 1.0 n/a 2.5x 2.5x 2.8x 3.0x
======= ====== ====== ====== ====== ====== ======
Deficiency of earnings to fixed charges $(7,693) n/a (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.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Orange County, California
November 21, 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.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Chicago, Illinois
November 21, 1996
CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS
To the Board of Directors and Shareholders
United Utilities PLC
We consent to the use of our report dated 16 October 1996 relating to the
aggregated financial statements of the United Utilities PLC Process Division
as of 31 March 1996 and 1995 and for each of the years in the two year period
ended 31 March 1996 and the reference to our firm under the heading
"Independent Certified Public Accountants" in the prospectus to be dated
21 November 1996.
/s/ KPMG Audit Plc
KPMG Audit Plc
Chartered Accountants Manchester
Registered Auditors 21 November 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.
/s/Price Waterhouse LLP
Price Waterhouse LLP
Atlanta, Georgia
November 21, 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
11,500,000 shares of its common stock 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.
/s/ Ernst & Young LLP
Ernst & Young LLP
Minneapolis, Minnesota
November 20, 1996
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated February 8, 1996
included in United States Filter Corporation's Report on Form 8-K dated
November 6, 1996 and to all references to our Firm included in this
registration statement.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Minneapolis, Minnesota
November 20, 1996
<PAGE>
EXHIBIT 25.1
FORM T-1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(B)(2) [X]
STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA,
NATIONAL ASSOCIATION
- -------------------------------------------------------------------------------
(Exact name of trustee as specified in its charter)
UNITED STATES 06-1143380
- -------------------------------------------------------------------------------
(Jurisdiction of Incorporation) (IRS Employer Identification No.)
725 SOUTH FIGUEROA STREET, SUITE 3100, LOS ANGELES, CALIFORNIA 90017
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A.
725 SOUTH FIGUEROA STREET, SUITE 3100, LOS ANGELES, CALIFORNIA, 90017
213-362-7369
- -------------------------------------------------------------------------------
(Name, address and telephone number of agent for service)
UNITED STATES FILTER CORPORATION
- -------------------------------------------------------------------------------
(Exact Name of Obligor as specified in its charter)
DELAWARE 33-0266015
- -------------------------------------------------------------------------------
(Jurisdiction of Incorporation) (IRS Employer Identification No.)
40-004 COOK STREET, PALM DESERT, CALIFORNIA 92211
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
$150,000,000 CONVERTIBLE SUBORDINATED NOTES DUE 2001
- -------------------------------------------------------------------------------
(Title of the indenture securities)
<PAGE>
Item 1. General Information.
(a) The trustee is subject to the supervision of the Comptroller of the
Currency, Western District Office, 50 Fremont Street, Suite 3900, San
Francisco, CA 94105-2292.
(b) The trustee is authorized to exercise corporate trust powers.
Item 2. Affiliations with the obligor.
The trustee is not affiliated with the obligor.
No responses are included for Items 3-15 of this form T-1 because the obligor is
not in default on securities issued under indentures under which State Street
Bank and Trust Company of California, N.A. is trustee.
Item 16. List of Exhibits
1. Articles of Association of State Street Bank and Trust Company of
California, National Association.*
2. Certificate of Corporate Existence (with fiduciary powers) from the
Comptroller of the Currency, Administrator of National Banks.*
3. Authorization of the Trustee to exercise fiduciary powers (included in
Exhibits 1 and 2; no separate instrument).
4. By-laws of State Street Bank and Trust Company of California, National
Association.*
5. Consent of State Street Bank and Trust Company of California, National
Association required by Section 321(b) of the Act.*
6. Consolidated Report of Income for the period January 1, 1996 - September
30, 1996, Federal Financial Institutions Examination Council, Consolidated
Reports of Condition and Income for A Bank With Domestic Offices Only and
Total Assets of Less Than $100 Million - FFIEC 034.*
* The indicated documents have been filed as exhibits with corresponding
exhibit numbers to the Form T-1 of Oasis Residential, Inc., filed pursuant
to Section 305(b)(2) of the Act, filed with the Securities and Exchange
Commission on November 18, 1996 (Registration No. 033-90488), and are
incorporated herein by reference.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
trustee, State Street Bank and Trust Company of California, National Association
organized and existing under the laws of the United States of America, has duly
caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Los Angeles, and
State of California, on the 18th day of November, 1996.
STATE STREET BANK AND TRUST COMPANY OF
CALIFORNIA, NATIONAL ASSOCIATION
By: /s/ Scott C. Emmons
--------------------
Scott C. Emmons
Trust Officer
