<PAGE>
[DAVIS WATER & WASTE INDUSTRIES, INC. LETTERHEAD]
July 22, 1996
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Davis Water & Waste Industries, Inc. to be held on August 23, 1996, at Davis'
headquarters at 1820 Metcalf Avenue, Thomasville, Georgia, commencing at 9:00
a.m., local time.
At the Special Meeting, you will be asked to approve and adopt an Agreement
and Plan of Merger and the transactions contemplated thereby providing for the
acquisition of Davis Water & Waste Industries, Inc. by United States Filter
Corporation. As a result of the merger, each outstanding share of Davis Common
Stock will be converted into the right to receive 1.3995 shares of U.S. Filter
Common Stock, subject to adjustment in the event the average price of U.S.
Filter shares prior to closing exceeds $22.67 per share or falls below $18.67
per share (with cash paid in lieu of fractional shares). The Agreement and
Plan of Merger may be terminated by U.S. Filter if the average price of U.S.
Filter shares prior to closing is more than $24.83 or by Davis if the average
price of U.S. Filter shares prior to closing is less than $16.83. U.S.
Filter's Common Stock is listed on the New York Stock Exchange and traded
under the symbol "USF."
The Board of Directors has unanimously determined that the transaction is in
the best interests of Davis and its shareholders and recommends that you vote
FOR the proposal to approve and adopt the Agreement and Plan of Merger and the
transactions contemplated thereby. Dillon, Read & Co. Inc., Davis' financial
advisor, has delivered its opinion, dated July 22, 1996, to the Board of
Directors to the effect that, based upon and subject to various considerations
set forth in such opinion, as of the date of such opinion, the consideration
to be received by the holders of Davis Common Stock in the merger is fair to
such holders from a financial point of view.
If the Davis shareholders approve the Agreement and Plan of Merger, your
investment in Davis will become an investment in U.S. Filter. U.S. Filter is a
leading global provider of industrial, commercial and municipal water and
wastewater treatment systems and services. With 21 manufacturing plants and
over 125 sales and service facilities, U.S. Filter has an installed base of
more than 100,000 water treatment systems worldwide. Its strategic goal is to
become the leading global single-source provider of water treatment systems
and services. We anticipate that the acquisition of Davis will further this
strategy by expanding U.S. Filter's distribution network through the addition
of Davis' 32 distribution and sales facilities, by incorporating Davis'
products in U.S. Filter's water and wastewater treatment systems, and by
enhancing U.S. Filter's capabilities and competitive position in the municipal
wastewater treatment market. The Board of Directors of Davis believes that the
proposed transaction is an opportunity for Davis' shareholders to participate
in a combined company that has greater business and financial resources and
long-term growth potential than Davis has absent the transaction.
The accompanying Proxy Statement/Prospectus describes the proposed
transaction more fully, and you are urged to give it your careful attention.
It is very important that your shares be represented at the Special Meeting
whether or not you are personally able to attend. In order to insure that you
will be represented, we ask you to complete and return the enclosed proxy card
promptly. A postage-paid return envelope is enclosed for your convenience.
Sincerely,
/s/ R. Doyle White
R. Doyle White
Chairman of the Board, President and
Chief Executive Officer
<PAGE>
[LOGO OF DAVIS WATER & WASTE INDUSTRIES, INC.]
DAVIS WATER & WASTE INDUSTRIES, INC.
P.O. BOX 1419
1820 METCALF AVENUE
THOMASVILLE, GEORGIA 31799-1419
----------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 23, 1996
----------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Davis Water
& Waste Industries, Inc., a Georgia corporation ("Davis"), will be held on
Friday, August 23, 1996, at Davis' headquarters at 1820 Metcalf Avenue,
Thomasville, Georgia, commencing at 9:00 a.m., local time, to consider and
vote upon the following matter described in the accompanying Proxy
Statement/Prospectus:
Approval and adoption of the Agreement and Plan of Merger, dated as of
June 10, 1996, as amended as of July 10, 1996 (the "Merger Agreement"),
among United States Filter Corporation, a Delaware corporation ("U.S.
Filter"), USF/DWW Acquisition Corporation, a newly formed Delaware
corporation and a wholly owned subsidiary of U.S. Filter ("Sub"), and
Davis, and the transactions contemplated thereby, including the merger
of Sub with and into Davis, pursuant to which, among other things,
Davis will become a wholly owned subsidiary of U.S. Filter, and each
outstanding share of Common Stock of Davis will be converted into the
right to receive 1.3995 shares of U.S. Filter Common Stock, subject to
adjustment as provided in the Merger Agreement. A copy of the Merger
Agreement is attached as Annex A to the accompanying Proxy
Statement/Prospectus.
Only holders of record of Davis Common Stock at the close of business on
July 22, 1996 will be entitled to notice of, and to vote at, the Special
Meeting and any adjournment or postponement thereof.
Whether or not you plan to attend the Special Meeting, please complete,
date, sign and return the enclosed proxy card promptly. A return envelope is
enclosed for your convenience and requires no postage for mailing in the
United States.
By Order of the Board of Directors,
/s/ Stan White
Thomasville, Georgia Stan White
July 22, 1996 Secretary-Treasurer
YOUR VOTE IS IMPORTANT
TO VOTE YOUR SHARES PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD
AND MAIL IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE.
<PAGE>
PROXY STATEMENT
OF
DAVIS WATER & WASTE INDUSTRIES, INC.
----------------
PROSPECTUS
OF
UNITED STATES FILTER CORPORATION
This Proxy Statement/Prospectus relates to the proposed merger (the
"Merger") of USF/DWW Acquisition Corporation, a Delaware corporation ("Sub")
and a wholly owned subsidiary of United States Filter Corporation, a Delaware
corporation ("U.S. Filter"), with and into Davis Water & Waste Industries,
Inc., a Georgia corporation ("Davis"), pursuant to which Davis will become a
wholly owned subsidiary of U.S. Filter, and the issuance of up to 4,817,349
shares of common stock of U.S. Filter, par value $.01 per share (the "U.S.
Filter Common Stock") in connection therewith (assuming the Exchange Ratio as
hereinafter defined is not adjusted). As a result of the Merger, each issued
and outstanding share of common stock of Davis, par value $.01 per share (the
"Davis Common Stock") (other than any such shares issued and held in the
treasury of Davis), will be converted into the right to receive 1.3995 shares
of U.S. Filter Common Stock (the "Exchange Ratio"), subject to adjustment in
the event the average closing price of the U.S. Filter Common Stock during the
20 consecutive trading day period beginning on the 25th trading day prior to
the Special Meeting of Davis shareholders to which this Proxy
Statement/Prospectus relates (the "Average Market Price") is less than $18.67
per share or more than $22.67 per share, in which event the adjusted Exchange
Ratio shall be equal to $26.12 (calculated by multiplying the Exchange Ratio
by $18.67) divided by the Average Market Price or $31.72 (calculated by
multiplying the Exchange Ratio by $22.67) divided by the Average Market Price,
as the case may be (the "Adjusted Exchange Ratios"), and Davis will become a
wholly owned subsidiary of U.S. Filter.
U.S. Filter Common Stock is listed on the New York Stock Exchange and traded
under the symbol "USF," and Davis Common Stock is listed on the New York Stock
Exchange and traded under the symbol "DWW." The last reported sale prices of
the U.S. Filter Common Stock and Davis Common Stock on July 22, 1996 were
$21.00 per share and $27.875 per share, respectively. There can be no
assurance as to the market prices of U.S. Filter Common Stock or Davis Common
Stock. Davis shareholders are urged to obtain current market prices.
This document constitutes both a prospectus of U.S. Filter and a proxy
statement of Davis relating to the solicitation of proxies for use at a
Special Meeting of Shareholders of Davis (the "Davis Special Meeting")
scheduled to be held at 9:00 a.m. on Friday, August 23, 1996.
REFERENCE IS MADE TO "RISK FACTORS" BEGINNING ON PAGE 15, WHICH CONTAINS
MATERIAL INFORMATION THAT DAVIS SHAREHOLDERS SHOULD CONSIDER IN CONNECTION
WITH THE PROPOSED TRANSACTIONS DISCUSSED HEREIN AND THE SECURITIES BEING
OFFERED HEREBY.
THIS PROXY STATEMENT/PROSPECTUS CONTAINS CERTAIN FORWARD LOOKING STATEMENTS
WITH RESPECT TO, AMONG OTHER THINGS, THE FINANCIAL CONDITION, RESULTS OF
OPERATIONS, BUSINESS AND PROSPECTS OF U.S. FILTER FOLLOWING CONSUMMATION OF
THE MERGER, INCLUDING STATEMENTS RELATING TO ANTICIPATED BENEFITS OF THE
MERGER. THESE FORWARD LOOKING STATEMENTS INVOLVE CERTAIN RISKS AND
UNCERTAINTIES. FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE CONTEMPLATED BY SUCH FORWARD LOOKING STATEMENTS INCLUDE, AMONG OTHERS,
THOSE DESCRIBED IN "RISK FACTORS."
----------------
THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROXY STATEMENT/PROSPECTUS HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
This Proxy Statement/Prospectus and the accompanying proxy cards are first
being mailed to shareholders of Davis on or about July 25, 1996.
The date of this Proxy Statement/Prospectus is July 22, 1996.
<PAGE>
Except as otherwise specified, all information in this Proxy
Statement/Prospectus has been adjusted to reflect 3-for-2 splits of the U.S.
Filter Common Stock effected on each of December 5, 1994 and July 15, 1996.
All references to Davis Common Stock in this Proxy Statement/Prospectus
include the associated Davis Rights (as defined herein) to purchase shares of
Davis Common Stock pursuant to the Davis Rights Agreement (as defined herein).
All information contained in this Proxy Statement/Prospectus relating to
U.S. Filter has been supplied by U.S. Filter, and all information contained in
this Proxy Statement/Prospectus relating to Davis has been supplied by Davis.
----------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS
IN CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF SECURITIES
MADE HEREBY AND, IF GIVEN OR MADE, ANY SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY U.S. FILTER, DAVIS OR ANY
OTHER PERSON. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES, OR THE
SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM IT
IS NOT LAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION
OF SECURITIES HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF U.S. FILTER OR DAVIS SINCE THE
DATE HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
----------------
AVAILABLE INFORMATION
U.S. Filter and Davis are each subject to the informational requirements of
the United States Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith each files reports, proxy statements and
other information with the United States Securities and Exchange Commission
(the "Commission"). The reports, proxy statements and other information filed
by U.S. Filter and by Davis with the Commission 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 at 7 World Trade Center, Suite 1300, New York, New York
10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material also can 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, such as U.S. Filter and Davis, that file
electronically with the Commission. Such reports, proxy and information
statements and other information may be found on the Commission's site
address, http://www.sec.gov. The periodic reports, proxy statements and other
information filed by U.S. Filter and Davis with the Commission may also be
inspected at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.
This Proxy Statement/Prospectus is part of a Registration Statement on Form
S-4 (together with all amendments and exhibits thereto, the "Registration
Statement") that has been filed by U.S. Filter under the United States
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
securities to be issued pursuant to the Merger. As permitted by the rules and
regulations of the Commission, this Proxy Statement/Prospectus does not
contain all of the information set forth in the Registration Statement. Such
additional information may be obtained from the Commission's principal office
in Washington, D.C. Statements contained in this Proxy Statement/Prospectus or
in any document incorporated by reference in this Proxy Statement/Prospectus
as to the contents of any contract or other document referred to herein or
therein are not necessarily complete. In each instance, reference is hereby
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement or such other document, and each such statement is
qualified in all respects by such reference.
2
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by U.S. Filter (File No.
1-10728) and by Davis (File No. 1-9467) pursuant to the Exchange Act are
incorporated by reference in this Proxy Statement/Prospectus: Annual Report on
Form 10-K of U.S. Filter for the fiscal year ended March 31, 1996; Current
Reports onForm 8-K of U.S. Filter dated May 31, 1996 as amended on Form 8-K/A
dated June 28, 1996, June 10, 1996, June 27, 1996 and July 15, 1996 (two such
Current Reports); description of U.S. Filter Common Stock contained in
Registration Statement on Form 8-A of U.S. Filter, as the same may be amended;
Annual Report on Form 10-K of Davis for the year ended April 30, 1996; and
Current Report on Form 8-K of Davis dated June 10, 1996.
All documents and reports subsequently filed by U.S. Filter or Davis
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the
date of this Proxy Statement/Prospectus and prior to the date of the Davis
Special Meeting shall be deemed to be incorporated by reference in this Proxy
Statement/Prospectus and to be part hereof from the dates of filing of such
documents and reports. 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 Proxy Statement/Prospectus
to the extent that a statement contained herein or in any subsequently filed
document which is or is 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 so modified or superseded, to constitute a part
of this Proxy Statement/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE FILED
WITH THE COMMISSION THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH
DOCUMENTS (OTHER THAN EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED BY REFERENCE) ARE AVAILABLE TO ANY PERSON, INCLUDING
ANY BENEFICIAL OWNER, TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED,
UPON WRITTEN OR ORAL REQUEST, WITHOUT CHARGE, IN THE CASE OF DOCUMENTS
RELATING TO U.S. FILTER, DIRECTED TO VICE PRESIDENT, GENERAL COUNSEL AND
SECRETARY, UNITED STATES FILTER CORPORATION, 40-004 COOK STREET, PALM DESERT,
CALIFORNIA 92211 (TELEPHONE (619) 340-0098), OR, IN THE CASE OF DOCUMENTS
RELATING TO DAVIS, DIRECTED TO SECRETARY-TREASURER, DAVIS WATER & WASTE
INDUSTRIES, INC., P.O. BOX 1419, 1820 METCALF AVENUE, THOMASVILLE, GEORGIA
31799-1419 (TELEPHONE (912) 226-5733). IN ORDER TO ENSURE TIMELY DELIVERY OF
ANY DOCUMENTS, ANY REQUEST SHOULD BE MADE BY AUGUST 16, 1996.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 2
Incorporation of Certain Documents by Reference........................... 3
Summary................................................................... 5
Risk Factors.............................................................. 15
Comparative Per Share Data................................................ 18
Market Price and Dividend Data............................................ 19
The Davis Special Meeting................................................. 20
General................................................................. 20
Voting at the Meeting; Record Date...................................... 20
Proxies................................................................. 21
The Merger................................................................ 22
Background of the Merger................................................ 22
U.S. Filter Reasons for the Merger...................................... 24
Davis Reasons for the Merger; Recommendation of the Davis Board of
Directors.............................................................. 24
Opinion of Davis Financial Advisor...................................... 25
Interests of Certain Persons in the Merger.............................. 29
Accounting Treatment.................................................... 32
Certain Federal Income Tax Consequences................................. 33
Failure to Exercise Termination Right................................... 34
Regulatory Approvals.................................................... 34
Resale Restrictions..................................................... 34
No Appraisal Rights..................................................... 35
Davis Rights Agreement.................................................. 35
The Merger Agreement...................................................... 36
The Merger.............................................................. 36
Conversion of Davis Common Stock........................................ 36
Stock Options and Other Stock Plans..................................... 37
Representations and Warranties.......................................... 37
Certain Covenants....................................................... 38
No Solicitation......................................................... 38
Indemnification and Insurance........................................... 39
Conditions.............................................................. 39
Termination; Termination Fees and Expenses.............................. 40
Amendment and Waiver.................................................... 41
The Shareholder Agreements................................................ 41
Davis Selected Consolidated Financial Data................................ 43
Davis Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 44
Unaudited Pro Forma Combined Consolidated Financial Information........... 50
Comparison of Shareholder Rights.......................................... 57
Legal Matters............................................................. 65
Independent Certified Public Accountants.................................. 65
Stockholder Proposals..................................................... 65
Index to Davis Consolidated Financial Statements.......................... F-1
Annex A Agreement and Plan of Merger.................................... A-1
Annex B Opinion of Dillon, Read & Co. Inc. ............................. B-1
Annex C Form of Shareholder Agreement................................... C-1
</TABLE>
4
<PAGE>
SUMMARY
Following is a summary of certain information contained elsewhere in this
Proxy Statement/Prospectus. Reference is made to, and this summary is qualified
in its entirety by, the more detailed information contained or incorporated by
reference in this Proxy Statement/Prospectus and the Annexes hereto.
Shareholders are urged to read this Proxy Statement/Prospectus and the Annexes
hereto in their entirety. Except as otherwise specified, all information in
this Proxy Statement/Prospectus has been adjusted to reflect the 3-for-2 splits
of the U.S. Filter Common Stock effected on each of December 5, 1994 and July
15, 1996.
THE COMPANIES
U.S. Filter................... U.S. Filter is a leading global provider of
industrial and commercial water treatment
systems and services, with an installed base
of more than 100,000 systems worldwide. U.S.
Filter offers a single-source solution to its
industrial, commercial and municipal customers
through what it believes to be the industry's
broadest range of cost-effective water
treatment systems, services and proven
technologies. U.S. Filter capitalizes on its
substantial installed base to sell additional
systems and utilizes its global network of
more than 125 sales and service facilities,
including 21 manufacturing plants, to provide
customers with ongoing service and
maintenance. In addition, U.S. Filter is a
leading international provider of service
deionization and outsourced water services,
including operation of water purification and
wastewater treatment systems at customer
sites. U.S. Filter'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 U.S. Filter refer to United States
Filter Corporation and its subsidiaries,
unless the context requires otherwise.
Davis......................... Davis manufactures and markets products
relating to the distribution of water and the
treatment of water and wastewater. It markets
a broad line of water distribution equipment
and supplies, including underground pipe, pipe
fittings, valves, fire hydrants, water meters
and related equipment. Davis believes that it
is one of the largest distributors of water
distribution equipment and supplies in the
southeastern United States based on annual
revenues from sales of such products. Davis
also designs, engineers, manufactures, sells
and installs water and wastewater treatment
and pumping equipment, and distributes certain
process materials used to treat water and
wastewater to comply with applicable health
and water quality standards. Davis' products
are sold from 32 distribution and sales
facilities to more than 25,000 independent
contractors, developers, industrial customers,
municipalities and other government agencies,
and private utilities located principally in
the southeastern, southwestern, and western
areas of the United States. The principal
executive offices of Davis are located at 1820
Metcalf Avenue, Thomasville, Georgia 31799-
1419, and
5
<PAGE>
its telephone number is (912) 226-5733.
References herein to Davis refer to Davis
Water & Waste Industries, Inc. and its
subsidiaries, unless the context requires
otherwise.
THE DAVIS SPECIAL MEETING
Time, Date and Place.......... The Davis Special Meeting is scheduled to be
held on August 23, 1996, at Davis'
headquarters at 1820 Metcalf Avenue,
Thomasville, Georgia, commencing at 9:00 a.m.,
local time.
Record Date; Shares Entitled
to Vote....................... Only holders of record of shares of Davis
Common Stock at the close of business on July
22, 1996 are entitled to notice of and to vote
at the Davis Special Meeting. As of July 22,
1996, there were 3,248,533 shares of Davis
Common Stock outstanding, held by
approximately 750 holders of record. Each
holder of record of shares of Davis Common
Stock on the record date is entitled to cast
one vote per share on each matter to be acted
upon or which may properly come before the
Davis Special Meeting.
Purpose of the Meeting........ The purpose of the Davis Special Meeting is to
consider and vote upon a proposal to approve
and adopt the Agreement and Plan of Merger
dated as of June 10, 1996, as amended as of
July 10, 1996 (the "Merger Agreement"), among
U.S. Filter, Sub and Davis, and the
transactions contemplated thereby (including
the Merger).
Vote Required................. The approval and adoption of the Merger
Agreement and the transactions contemplated
thereby (including the Merger) by Davis
shareholders will require the affirmative vote
of a majority of all the votes entitled to be
cast by all shares of Davis Common Stock
entitled to vote thereon. In connection with
the Merger Agreement, each of Jasper C. Davis
III, R. R. Davis, and H. Forbes Davis, all of
whom are directors of Davis, their respective
spouses, and R. Doyle White, Chairman of the
Board, President and Chief Executive Officer
of Davis, entered into an agreement (together,
the "Shareholder Agreements") with U.S. Filter
pursuant to which each such Davis shareholder
agreed, among other things, to vote, and at
U.S. Filter's request to grant U.S. Filter his
or her irrevocable proxy to vote, all shares
of Davis Common Stock owned by him or her (or
as to which he or she has the exclusive right
to vote) in favor of approval and adoption of
the Merger Agreement and the transactions
contemplated thereby. As of July 22, 1996,
such shareholders owned or had the sole power
to vote an aggregate of 744,410 shares, or
approximately 22.9%, of the outstanding Davis
Common Stock. See "The Shareholder
Agreements." Each other director and executive
officer of Davis who owns Davis Common Stock
has indicated his intention to vote or direct
the vote of all shares of Davis Common Stock
over which he has voting control in favor of
approval and adoption of the Merger Agreement
and the
6
<PAGE>
transactions contemplated thereby. As of July
22, 1996, the directors and executive officers
of Davis, including the Messrs. Davis and R.
Doyle White, were the beneficial owners of
approximately 24.3% of the outstanding shares
of Davis Common Stock (excluding options or
other rights to acquire shares of Davis Common
Stock).
THE MERGER
Effects of the Merger......... In accordance with the terms and conditions
set forth in the Merger Agreement, Sub will
merge into Davis and Davis will become a
wholly owned subsidiary of U.S. Filter (the
time at which the Merger shall occur in
accordance with such terms is hereinafter
referred to as the "Effective Time"). As a
result of the Merger, each issued and
outstanding share of Davis Common Stock (other
than shares issued and held in the treasury of
Davis) will be converted on the basis of the
Exchange Ratio into the right to receive
1.3995 shares of U.S. Filter Common Stock,
subject to adjustment in the event the Average
Market Price is less than $18.67 per share or
more than $22.67 per share, in which event the
Adjusted Exchange Ratios will be equal to
$26.12 (calculated by multiplying the Exchange
Ratio by $18.67) divided by the Average Market
Price or $31.72 (calculated by multiplying the
Exchange Ratio by $22.67) divided by the
Average Market Price, as the case may be. The
Merger Agreement may be terminated by U.S.
Filter if the Average Market Price is more
than $24.83 and by Davis if the Average Market
Price is less than $16.83, among other
termination rights of the parties. Fractional
shares of U.S. Filter Common Stock will not be
issuable in connection with the Merger. Davis
shareholders otherwise entitled to a
fractional share will be paid the value of
such fraction in cash. See "The Merger
Agreement--Conversion of Davis Common Stock"
and "--Termination; Termination Fees and
Expenses."
At the Effective Time each outstanding and
unexercised employee or director stock option
to purchase a share of Davis Common Stock will
be converted into 1.3995 shares of U.S. Filter
Common Stock, subject to adjustment on the
basis of the Adjusted Exchange Ratios.
On May 14, 1996, the last full trading day
prior to the date on which preliminary
agreement with regard to the Merger was
publicly announced, the closing sales prices
per share of U.S. Filter Common Stock and
Davis Common Stock as reported by the New York
Stock Exchange were $21.17 and $25.00,
respectively. On July 22, 1996, the most
recent practicable date prior to the printing
of this Proxy Statement/Prospectus, the
closing sales prices per share of U.S. Filter
Common Stock and Davis Common Stock as
reported by the New York Stock Exchange were
$21.00 and $27.875, respectively. See "Market
Price and Dividend Data."
7
<PAGE>
Reasons for the Merger........ U.S. Filter. U.S. Filter believes that the
acquisition of Davis will provide U.S. Filter
with the ability to distribute its entire line
of products and services through Davis' broad
distribution network; to benefit from certain
economies associated with use in U.S. Filter's
water treatment systems of products
distributed by Davis; and to add capabilities
which complement U.S. Filter's wastewater
treatment business and which are expected to
increase U.S. Filter's competitiveness in the
municipal wastewater treatment market.
Davis. Davis believes that the Merger with
U.S. Filter will allow the combined company to
provide integrated services in the water and
wastewater distribution and treatment markets.
In addition, Davis expects the combined
operations of Davis and U.S. Filter to have a
broader product offering in the distribution
business and to have a broader customer base
in the water and wastewater treatment market.
Davis believes that the combined company will
have greater business and financial resources
and long-term growth potential than Davis
would have absent the Merger.
Recommendation of the Davis
Board of Directors........... The Board of Directors of Davis has
unanimously approved the Merger Agreement and
recommends a vote FOR approval and adoption of
the Merger Agreement and the transactions
contemplated thereby by the shareholders of
Davis.
For a discussion of the factors considered by
the Davis Board of Directors in reaching its
decision, see "The Merger--Background of the
Merger" and "--Davis Reasons for the Merger;
Recommendation of the Davis Board of
Directors."
Opinion of Davis Financial
Advisor....................... Dillon, Read & Co. Inc. ("Dillon Read") has
delivered its written opinion, dated July 22
1996, to the Board of Directors of Davis to
the effect that, based upon and subject to
various considerations set forth in such
opinion, as of the date of such opinion, the
consideration to be received by the holders of
Davis Common Stock in the Merger is fair to
the holders of Davis Common Stock from a
financial point of view. See "The Merger--
Opinion of Davis Financial Advisor."
A copy of the opinion of Dillon Read which
sets forth the assumptions made, general
procedures followed, matters considered and
limits of review undertaken is attached to
this Proxy Statement/Prospectus as Annex B.
Interests of Certain Persons
in the Merger................ In considering the recommendation of Davis'
Board of Directors, Davis shareholders should
be aware that certain members of Davis'
management and of the Davis Board of Directors
have certain interests in the Merger that are
in addition to the interests they may have as
shareholders of Davis generally.
8
<PAGE>
U.S. Filter has agreed to cause R. Doyle
White, Chairman of the Board, Chief Executive
Officer and President of Davis, to be
appointed to the U.S. Filter Board of
Directors and to be elected as an Executive
Vice President of U.S. Filter and Chief
Executive Officer of Davis, as the surviving
company in the Merger, as of the Effective
Time. Also in connection with the Merger, new
employment agreements providing for two-year
terms will be entered into with certain
executive officers and key employees of Davis,
including Messrs. R. Doyle White, Larry May,
Executive Vice President and Chief Operating
Officer, Stan White, Secretary-Treasurer,
Robert H. Pless, Jr., Vice President and
General Manager of the Davco division and
Robert D. Tatum, Vice President and General
Manager of the Davis Process division
(collectively, the "Named Officers"). R. Doyle
White's Employment Agreement will also provide
for a retention bonus and for an additional
payment to reimburse him for the amount of any
excise tax imposed by Section 4999 of the
United States Internal Revenue Code of 1986,
as amended (the "Code"), by reason of the
Merger. The Employment Agreements of the other
Named Officers provide for incentive bonuses
and for the grant of options to purchase
shares of U.S. Filter Common Stock at market
prices. U.S. Filter will also enter into
Executive Retention Agreements with each of
the Named Officers providing for severance
benefits in the event of a change in control
of U.S. Filter. Pursuant to the Merger
Agreement, each share of Davis Common Stock
subject to an employee or director stock
option currently outstanding, whether or not
then exercisable in accordance with its terms,
will be converted into 1.3995 shares of U.S.
Filter Common Stock. Each of the Named
Officers, as well as four of the non-employee
directors of Davis, holds options to purchase
Davis Common Stock.
U.S. Filter has agreed that it will, following
the Effective Time, cause Davis to indemnify,
defend and hold harmless the present and
former directors, officers, employees and
agents of Davis and its subsidiaries against
all liabilities arising out of actions or
omissions occurring at or prior to the
Effective Time to the full extent then
permitted under Georgia law and by Davis'
Articles of Incorporation and Bylaws as
currently in effect, including provisions
relating to advances of expenses. U.S. Filter
has also agreed to use its reasonable efforts
to maintain in effect for two years after the
Effective Time Davis' existing directors' and
officers' liability insurance policy, subject
to certain limitations, including the right to
replace policies and to limit the premium
costs of such coverage.
See "The Merger--Interests of Certain Persons
in the Merger" and "The Merger Agreement--
Certain Covenants," "--Stock Options and Other
Stock Plans" and "--Indemnification and
Insurance."
9
<PAGE>
Conditions to the Merger;
Termination of the Merger
Agreement.................... The obligations of U.S. Filter and Davis to
consummate the Merger are subject to the
satisfaction of certain conditions, including
obtaining requisite approval of the Davis
shareholders; expiration or termination of all
waiting periods applicable to the Merger under
the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"); the
absence of any temporary restraining order,
injunction or other order or legal or
regulatory restraint or prohibition
preventing, or the enactment of any law making
illegal, the consummation of the Merger, or
limiting or restricting U.S. Filter's conduct
or operation of Davis' business after the
Merger; receipt of any material third party
consents; the receipt of certain legal
opinions; the receipt of accountants' letters
with respect to qualification of the Merger as
a pooling of interests for accounting
purposes; and the execution of employment
agreements, and termination of existing change
in control employment agreements, with certain
officers and employees of Davis. See "The
Merger--Accounting Treatment,"""--Certain
Federal Income Tax Consequences" and""--
Regulatory Approvals" and "The Merger
Agreement--Conditions."
U.S. Filter and Davis filed notification and
report forms under the HSR Act with the
Federal Trade Commission ("FTC") and the
Antitrust Division of the Department of
Justice ("Antitrust Division") on July 1,
1996. The required waiting period under the
HSR Act expires on July 31, 1996 unless a
request for additional information is received
prior to that date.
The Merger Agreement is subject to termination
(i) at the option of either U.S. Filter or
Davis if the Merger is not consummated before
December 31, 1996, provided no party may
terminate the Merger Agreement on such basis
whose failure to fulfill any material
obligation has been a cause of the failure of
the Merger to occur, (ii) by U.S. Filter if
the Average Market Price of the U.S. Filter
Common Stock is more than $24.83, (iii) by
Davis if the Average Market Price of the U.S.
Filter Common Stock is less than $16.83, or
(iv) otherwise upon the occurrence of certain
specified events. See "The Merger Agreement--
Termination; Termination Fees and Expenses."
Under certain circumstances, Davis may be
required to reimburse U.S. Filter for its
expenses and to pay U.S. Filter a termination
fee of $3,000,000 or $1,500,000, depending on
the basis for the termination, if the Merger
Agreement is terminated. See "The Merger
Agreement--Termination; Termination Fees and
Expenses."
Exchange of Stock
Certificates.................. Upon consummation of the Merger, each holder
of a certificate or certificates representing
shares of Davis Common Stock
10
<PAGE>
outstanding immediately prior to the Effective
Time will, upon the surrender thereof (duly
endorsed, if required) to American Stock
Transfer and Trust Company (the "Exchange
Agent"), be entitled to receive a certificate
or certificates representing the number of
shares of U.S. Filter Common Stock into which
such shares of Davis Common Stock will have
been automatically converted as a result of
the Merger, together with cash in lieu of
fractional shares. The Exchange Agent will
mail a letter of transmittal with instructions
to all holders of record of Davis Common Stock
as of the Effective Time for use in
surrendering their stock certificates in
exchange for certificates representing shares
of U.S. Filter Common Stock. CERTIFICATES
SHOULD NOT BE SURRENDERED UNTIL THE LETTER OF
TRANSMITTAL AND INSTRUCTIONS ARE RECEIVED. See
"The Merger Agreement--Conversion of Davis
Common Stock."
No Appraisal Rights........... Holders of Davis Common Stock will not be
entitled to dissenters' appraisal rights under
applicable Georgia corporate law in connection
with the Merger. See "The Merger--No Appraisal
Rights."
Certain Federal Income Tax
Consequences................. It is intended that the Merger will constitute
a reorganization within the meaning of Section
368(a) of the Code and that no gain or loss
will be recognized by U.S. Filter or Davis and
no gain or loss would be recognized by Davis
shareholders on the exchange of shares of
Davis Common Stock for U.S. Filter Common
Stock pursuant to the Merger except with
respect to fractional shares. Consummation of
the Merger is conditioned upon the receipt of
an opinion of counsel to U.S. Filter to such
effect. For a further discussion of certain
federal income tax consequences of the Merger,
see "The Merger--Certain Federal Income Tax
Consequences" and "The Merger Agreement--
Conditions."
Accounting Treatment.......... The Merger is intended to qualify as a pooling
of interests for accounting and financial
reporting purposes. Consummation of the Merger
is conditioned upon the receipt of letters
from Price Waterhouse LLP, Davis' independent
accountants, and KPMG Peat Marwick LLP, U.S.
Filter's independent accountants, with respect
to the qualification of the Merger as a
pooling of interests for accounting purposes.
See "The Merger--Accounting Treatment" and
"The Merger Agreement--Conditions."
Comparison of Shareholder
Rights...................... Upon consummation of the Merger, the
shareholders of Davis, a Georgia corporation,
will become stockholders of U.S. Filter, a
Delaware corporation. For a discussion of
certain differences between the corporate laws
of Delaware and Georgia, as well as between
the articles or certificate of incorporation
and bylaws of U.S. Filter and Davis, see
"Comparison of Shareholder Rights."
11
<PAGE>
SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL INFORMATION
U.S. FILTER SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data of U.S. Filter for each of the five
full fiscal years set forth below are derived from audited consolidated
financial statements of U.S. Filter. Each fiscal year of U.S. Filter is ended
March 31. This summary should be read in conjunction with the financial
statements and other financial information included in documents incorporated
herein by reference.
<TABLE>
<CAPTION>
FISCAL YEAR(1)
----------------------------------------------
1992(2) 1993(3) 1994(4) 1995(5) 1996(6)
------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues....................... $62,840 $128,376 $180,421 $272,032 $472,537
Operating income (loss)........ (6,290) 648 (4,874) 14,585 34,955
Income (loss) before
extraordinary items(7)........ (6,587) (338) (2,541) 8,331 20,290
Net income (loss).............. (6,587) 67 (2,541) 8,331 20,290
PER COMMON SHARE DATA(8)(9):
Income (loss) before
extraordinary items(7)......... (0.59) (0.11) (0.17) 0.34 0.54
Net income (loss).............. (0.59) (0.08) (0.17) 0.34 0.54
CONSOLIDATED BALANCE SHEET DATA
(AT PERIOD END):
Working capital................ 11,445 23,471 66,018 82,208 103,257
Total assets................... 89,501 121,178 253,185 378,728 789,011
Long-term debt, including
current portion............... 10,002 5,012 4,913 10,825 9,680
Convertible subordinated debt.. -- -- 60,000 105,000 200,000
Shareholders' equity........... 41,219 79,631 125,610 137,144 341,335
</TABLE>
- --------
(1) The historical consolidated financial data for all periods presented prior
to fiscal 1995 have been restated to include the accounts and operations of
Liquipure Technologies, Inc. ("Liquipure"), which was merged with U.S.
Filter in July 1994 and accounted for as a pooling of interests.
(2) The fiscal year ended March 31, 1992 includes eight months of results of
Lancy Waste Management Systems (now U.S. Filter, Inc., Warrendale, PA),
acquired on July 31, 1991, and three months of results of Alcoa Separations
Technology, Inc. ("ASTI"), acquired from a subsidiary of Aluminum Company
of America ("Alcoa") on January 6, 1992. Each of the acquisitions was
accounted for as a purchase. Losses from ASTI (which had operated at a loss
in each of the prior three years) since its acquisition and the effect of
the acquisition on U.S. Filter's existing operations contributed
significantly to U.S. Filter's loss for the fiscal year ended March 31,
1992. As a result of such losses incurred by ASTI and certain purchase
accounting adjustments, and pursuant to the terms of the ASTI acquisition
agreement, an acquisition note payable to Alcoa was reduced by $5,000,000.
Such reduction in the note was treated as a purchase price adjustment and
as such did not affect U.S. Filter's results of operations.
(3) The fiscal year ended March 31, 1993 includes 12 months of results of
Societe des Ceramiques Techniques S.A. ("SCT"), acquired on April 1, 1992,
and three months of results of The Permutit Company, Inc., a United States
company acquired on January 5, 1993. Both acquisitions were accounted for
as purchases.
(4) The fiscal year ended March 31, 1994 includes four months of results of
Ionpure Technologies Corporation and IP Holding Company ("Ionpure"),
acquired on December 1, 1993 and accounted for as a purchase. Selling,
general and administrative expenses for the fiscal year ended March 31,
1994 reflect four months of integration of Ionpure and certain charges
totalling $2,359,000 related to the rationalization of certain wastewater
operations.
(5) The fiscal year ended March 31, 1995 includes the results 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.
(6) The financial data for the fiscal year ended March 31, 1996 includes the
results of operations of Polymetrics, Inc., Interlake Water Systems,
Arrowhead Industrial Water, Inc. and the Permutit Group, comprising The
Permutit Company Limited and The Permutit Company Pty Ltd., from the dates
of their respective acquisitions, accounted for as purchases.
(7) Includes an extraordinary gain of $405,000 for the fiscal year ended March
31, 1993 resulting from the forgiveness of debt in connection with the
buyout of a capital lease obligation.
12
<PAGE>
(8) Amounts are after (i) dividends on the Series A Preferred Stock of U.S.
Filter ("Series A Preferred Stock") of $165,000 for the fiscal year ended
March 31, 1992, $660,000 for the fiscal year ended March 31, 1993,
$701,000 for the fiscal year ended March 31, 1994, $715,000 for the fiscal
year ended March 31, 1995 and $536,000 for the fiscal year ended March 31,
1996, and (ii) accretion on the Series A Preferred Stock, a noncash
accounting adjustment required by Commission Staff Accounting Bulletin No.
68 ("SAB 68"), in the amounts of $154,000 for the fiscal year ended March
31, 1992 and $617,000 for the fiscal year ended March 31, 1993. As of
April 1, 1993, U.S. Filter and the holder of the Series A Preferred Stock
agreed to a fixed dividend of $715,000 per year on the Series A Preferred
Stock, thus eliminating the increasing rate and, therefore, the accretion
of dividends pursuant to SAB 68. On March 4, 1996, the holder of the
Series A Preferred Stock converted its shares into U.S. Filter Common
Stock.
(9) Reflects 3-for-2 splits of the U.S. Filter Common Stock effected on each
of December 5, 1994 and July 15, 1996.
DAVIS SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data of Davis for each of the five full
fiscal years set forth below are derived from audited consolidated financial
statements of Davis. Each fiscal year of Davis is ended April 30. This summary
should be read in conjunction with the financial statements and other financial
information included or incorporated herein by reference.
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net sales.................... $186,719 $190,990 $202,621 $215,649 $226,489
Income (loss) before income
taxes and the cumulative
effect of accounting change. (1,250) 390 (8,395) 5,807 10,076
Net income (loss)............ (844) 653 (5,340) 3,448 5,749
PER COMMON SHARE DATA:
Net income (loss)--primary... (0.26) 0.20(1) (1.64) 1.06 1.78
Net income (loss)--fully
diluted..................... (0.26) 0.20(1) (1.64) 1.05 1.72
Cash dividends declared...... 0.10 -- -- 0.08 0.39
CONSOLIDATED BALANCE SHEET
DATA (AT PERIOD END):
Working capital.............. 41,891 33,782 31,731 30,593 25,805
Total assets................. 82,402 79,341 82,085 81,536 74,632
Long-term debt, less current
portion..................... 30,051 20,719 19,425 14,787 6,845
Stockholders' equity......... 27,089 27,635 22,309 25,332 29,656
</TABLE>
- --------
(1) Includes the cumulative effect of accounting change. Primary and fully
diluted income before cumulative effect of accounting change was $0.06 per
share in each case.
13
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED SUMMARY FINANCIAL INFORMATION
The unaudited pro forma condensed combined summary financial information set
forth below gives effect to the Merger and the May 31, 1996 acquisition by U.S.
Filter of Zimpro Environmental, Inc. ("Zimpro") (together, the "Acquisitions")
under the pooling of interests accounting method. Pro forma combined balance
sheet information as of March 31, 1996 combines the balance sheet information
of U.S. Filter, Davis and Zimpro as of such date and gives effect to the Merger
as if it had occurred on such date. Also set forth below is pro forma combined
statement of operations information for each of the three years ended March 31,
1996 after giving effect to the Acquisitions as if they had been consummated as
of the beginning of the respective periods presented. U.S. Filter's fiscal year
ends on March 31, Davis' fiscal year ends on April 30, and Zimpro's fiscal year
ends on December 31.
The pro forma condensed combined balance sheet as of March 31, 1996 gives
effect to certain historical charges recorded by U.S. Filter, Davis and Zimpro
and assumes that each outstanding share of, and each outstanding option to
purchase, Davis Common Stock is converted into 1.3995 shares of U.S. Filter
Common Stock. The pro forma financial information does not give effect to
anticipated expenses related to the Acquisitions and does not reflect 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, U.S. Filter believes the Acquisitions will
enable it to continue to achieve economies of scale, such as enhanced
purchasing power and increased asset utilization. No assurances can be made as
to the amount of cost savings, if any, that actually will be realized.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the combined operating results or financial
position that would have occurred if the Acquisitions had been consummated
during the periods or as of the dates indicated, nor is it necessarily
indicative of future operating results or financial position. See "Unaudited
Pro Forma Combined Consolidated Financial Information."
<TABLE>
<CAPTION>
FISCAL YEARS
ENDED MARCH 31,
---------------------------
1994 1995 1996
-------- -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................... $412,512 $519,359 $727,903
Operating income (loss)............................ (5,055) 23,123 40,647
Net income (loss).................................. (8,799) 12,834 20,548
Per common share................................... (0.39) 0.43 0.47
<CAPTION>
AT MARCH 31, 1996
-----------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................................... $127,017
Total assets....................................... 876,211
Long-term debt, excluding current portion ......... 15,131
Convertible subordinated debt...................... 200,000
Shareholders' equity............................... 371,761
</TABLE>
14
<PAGE>
RISK FACTORS
The following factors should be taken into account by holders of Davis
Common Stock in evaluating whether to approve and adopt the Merger Agreement
and the transactions contemplated thereby, which approval and adoption will,
if the other conditions to the Merger are satisfied or waived, result in their
becoming holders of U.S. Filter Common Stock. These considerations should be
taken into account in conjunction with the other information included or
incorporated by reference in this Proxy Statement/Prospectus.
ACQUISITION STRATEGY
In pursuit of its strategic objective of becoming the leading global single-
source provider of water treatment systems and services U.S. Filter has, since
1991, acquired and successfully integrated more than 40 United States based
and international businesses with strong market positions and substantial
water treatment expertise. U.S. Filter'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
U.S. Filter generally has been successful in pursuing these acquisitions,
there can be no assurance that acquisition opportunities will continue to be
available, that U.S. Filter will have access to the capital required to
finance potential acquisitions, that U.S. Filter will continue to acquire
businesses or that any business acquired, including Davis, will be integrated
successfully or prove profitable.
NO CASH DIVIDENDS
Unlike Davis, U.S. Filter historically has not paid cash dividends on its
Common Stock and does not anticipate paying cash dividends in the foreseeable
future. U.S. Filter currently intends to retain earnings to provide funds for
the operation and expansion of its business. See "Market Price and Dividend
Data."
FACTORS AFFECTING DAVIS' BUSINESS
Sales of Davis' water distribution equipment and supplies are significantly
affected by the level of housing starts, which in turn is impacted by interest
rate levels and the overall health of the United States economy. Sales of
Davis' composting systems, specialty metal products and on-site erection
services, like sales of its water and wastewater treatment and pumping
products, are dependent to a large extent on the amount of capital spending by
industry and governmental bodies. Sales of process materials, products and
services are dependent on operating expenditures of municipal and industrial
water and wastewater treatment customers. Additionally, as is the case with
U.S. Filter, sales of all of Davis' products are materially influenced by the
enactment and enforcement of laws and regulations relating to water and
wastewater quality standards. Of particular importance to Davis is the level
of enforcement of laws and regulations related to municipal wastewater. Any
significant reduction in housing starts, increase in interest rates, slowdown
in the United States economy, reduction in spending by industrial or
governmental customers, or reduction in governmental enforcement of laws and
regulations related to industrial wastewater could have a material adverse
effect on Davis' business.
INTERNATIONAL TRANSACTIONS
U.S. Filter has made and expects it will continue to make acquisitions and
to obtain contracts in Europe, Asia, Latin America and other areas outside the
United States. While these activities may provide important opportunities for
U.S. Filter 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 and
possible social, political and economic instability.
RELIANCE ON KEY PERSONNEL
U.S. Filter's operations are dependent on the continued efforts of senior
management, in particular Richard J. Heckmann, its Chairman, Chief Executive
Officer and President. Should any of the senior managers be unable to continue
in their present roles, U.S. Filter's prospects could be adversely affected.
15
<PAGE>
PROFITABILITY OF FIXED PRICE CONTRACTS
A significant portion of U.S. Filter's revenues are 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. U.S. Filter 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 OF CAPITAL EQUIPMENT SALES
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. U.S. Filter's revenues from
capital equipment sales were approximately 60% of total revenues for the
fiscal year ended March 31, 1995 and 49% for the fiscal year ended March 31,
1996. While U.S. Filter 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
U.S. Filter's revenues and profitability.
POTENTIAL ENVIRONMENTAL RISKS
U.S. Filter'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. While U.S. Filter endeavors at each of
its facilities to assure compliance with environmental laws and regulations,
there can be no assurance that U.S. Filter's operations or activities, or
historical operations by others at U.S. Filter's locations, will not result in
civil or criminal enforcement actions or private actions that could have a
materially adverse effect on U.S. Filter. In that regard, allegations have
been made by federal and state environmental regulatory authorities of
multiple violations by a wholly owned subsidiary of U.S. Filter with respect
to applicable wastewater pretreatment standards at a Connecticut ion exchange
regeneration facility acquired by U.S. Filter 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
allegations. U.S. Filter has rights of indemnification from Anjou which may be
available with respect to these matters. U.S. Filter's activities as owner and
operator of a hazardous waste treatment and recovery facility are subject to
stringent laws and regulations and compliance reviews. Failure of this
facility to comply with those regulations could result in substantial fines
and the suspension or revocation of the facility's hazardous waste permit. In
addition, to some extent, the liabilities and risks imposed by environmental
laws on U.S. Filter's customers may adversely impact demand for certain of
U.S. Filter's products or services or impose greater liabilities and risks on
U.S. Filter, which could also have an adverse effect on U.S. Filter's
competitive or financial position.
COMPETITION
The water purification and wastewater treatment industry is fragmented and
highly competitive. U.S. Filter competes with many United States based and
international companies in its global markets. The principal methods of
competition in the markets in which U.S. Filter competes are technology,
service, 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 that are divisions or subsidiaries of larger companies which have
significantly greater resources than U.S. Filter, which, among other things,
could be a competitive disadvantage to U.S. Filter in securing certain
projects.
TECHNOLOGICAL AND REGULATORY CHANGE
The water purification and wastewater treatment business is characterized by
changing technology, competitively imposed process standards and regulatory
requirements, each of which influences the demand for
16
<PAGE>
U.S. Filter's products and services. Changes in regulatory or industrial
requirements may render certain of U.S. Filter's purification and treatment
products and processes obsolete. Acceptance of new products may also be
affected by the adoption of new government regulations requiring stricter
standards. U.S. Filter's ability to anticipate changes in technology and
regulatory standards and to introduce and successfully develop enhanced
products on a timely basis will be a significant factor in U.S. Filter's
ability to grow and to remain competitive. There can be no assurance that U.S.
Filter 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, U.S. Filter 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.
SHARES ELIGIBLE FOR FUTURE SALE
The market price of U.S. Filter Common Stock could be adversely affected by
the availability for sale of shares held on July 18, 1996 by security holders
of U.S. Filter, including (i) up to 4,054,093 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 One, Inc., a wholly owned subsidiary of Laidlaw (the amount of
shares or cash delivered or paid to be dependent within certain limits upon
the value of U.S. Filter Common Stock at maturity), (ii) 4,388,417 shares
issuable upon conversion of convertible debentures of U.S. Filter at a
conversion price of $13.67 per share of U.S. Filter Common Stock and 7,636,364
shares issuable upon conversion of convertible notes of U.S. Filter at a
conversion price of $18.33 per share of U.S. Filter Common Stock that are
currently registered for sale under the Securities Act pursuant to two shelf
registration statements, (iii) 3,390,164 outstanding shares that are currently
registered for sale under the Securities Act pursuant to shelf registration
statements, and (iv) 2,857,611 outstanding shares which are subject to
agreements pursuant to which the holders have certain rights to request U.S.
Filter to register the sale of such holders' U.S. Filter Common Stock under
the Securities Act and, subject to certain conditions, to include certain
percentages of such shares in other registration statements filed by U.S.
Filter (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). In addition,
U.S. Filter has registered for sale or filed registration statements under the
Securities Act covering 4,821,219 shares which may be issuable by U.S. Filter
from time to time in connection with acquisitions of businesses or assets from
third parties.
17
<PAGE>
COMPARATIVE PER SHARE DATA
Set forth below are net income (loss), cash dividends declared and book
value per common share data of U.S. Filter and Davis on both historical and
unaudited pro forma combined bases and on a per share equivalent unaudited pro
forma basis. Unaudited pro forma combined per share information is derived
from the unaudited pro forma combined information presented elsewhere herein
and gives effect to the acquisition of Zimpro and the Merger. The information
set forth below should be read in conjunction with the respective financial
statements of U.S. Filter and Davis that are incorporated by reference or
included in this Proxy Statement/Prospectus and with the unaudited pro forma
combined data included under "Unaudited Pro Forma Combined Consolidated
Financial Information."
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------
1994 1995 1996
------ ----- ------
<S> <C> <C> <C>
U.S. FILTER--HISTORICAL
Net income (loss)(1)...................................... $(0.17) $0.34 $ 0.54
Cash dividends declared................................... - 0 - - 0 - - 0 -
Book value (end of period)................................ -- -- 8.09
DAVIS--HISTORICAL
Net income (loss)--primary................................ (1.64) 1.06 1.78
Net income (loss)--fully diluted.......................... (1.64) 1.05 1.72
Cash dividends declared................................... - 0 - .08 .39
Book value (end of period)................................ -- -- 9.16
PRO FORMA COMBINED
Net income (loss)(2)(3)................................... (0.38) 0.42 0.47
Cash dividends declared(4)................................ -- -- --
Book value(3) (end of period)............................. -- -- 7.68
EQUIVALENT PRO FORMA COMBINED PER DAVIS COMMON SHARE(5)
Net income (loss)(2)(3)................................... (0.53) 0.59 0.66
Cash dividends declared(4)................................ -- -- --
Book value(3) (end of period)............................. -- -- 10.75
</TABLE>
- --------
(1) Net income (loss) per common share before extraordinary item.
(2) Reflects the combination of U.S. Filter net income (loss) per common share
with Davis net income (loss) per common share before extraordinary item
and cumulative effect of accounting change and Zimpro net income (loss)
per common share before extraordinary item.
(3) Does not give effect to anticipated expenses related to the Acquisitions
and does not reflect cost savings that U.S. Filter management believes may
be realized following the Acquisitions. See "The Merger--U.S. Filter
Reasons for the Merger."
(4) U.S. Filter does not anticipate paying cash dividends on the U.S. Filter
Common Stock in the foreseeable future. As a result of the foregoing and
the fact that U.S. Filter has not historically paid a dividend on the U.S.
Filter Common Stock, pro forma cash dividends is not meaningful. See
"Market Price and Dividend Data."
(5) The equivalent pro forma combined data for Davis represent the pro forma
combined data multiplied by the Exchange Ratio of 1.3995.
18
<PAGE>
MARKET PRICE AND DIVIDEND DATA
U.S. Filter Common Stock is listed on the New York Stock Exchange and traded
under the symbol "USF." Davis Common Stock is listed on the New York Stock
Exchange and traded under the symbol "DWW." The table below sets forth, for
the fiscal quarters indicated, the high and low composite sales prices of U.S.
Filter Common Stock and Davis Common Stock as reported by the New York Stock
Exchange and the cash dividends declared on Davis Common Stock. No cash
dividends were declared on U.S. Filter Common Stock during the periods
indicated. Each fiscal year of U.S. Filter is ended March 31, and each fiscal
year of Davis is ended April 30.
<TABLE>
<CAPTION>
U.S. FILTER
COMMON STOCK DAVIS COMMON STOCK
------------- ----------------------
HIGH LOW HIGH LOW DIVIDENDS
------ ------ ----- ------ ---------
<S> <C> <C> <C> <C> <C>
FISCAL 1995
First Quarter.............................. $ 9.67 $ 8.11 $9.13 $ 7.50 $ --
Second Quarter............................. 9.78 8.17 9.25 7.88 --
Third Quarter.............................. 10.75 8.78 10.00 7.50 0.08
Fourth Quarter............................. 11.25 10.00 10.38 8.25 --
FISCAL 1996
First Quarter.............................. 13.09 9.92 14.13 9.38 0.14
Second Quarter............................. 16.09 12.50 17.25 12.50 --
Third Quarter.............................. 18.00 13.42 17.50 13.38 0.15
Fourth Quarter............................. 19.33 16.42 18.13 13.75 0.10
FISCAL 1997
First Quarter (through July 22, 1996)...... 23.75 18.42 30.25 18.38 0.11
</TABLE>
On May 14, 1996, the last full trading day prior to the date on which the
preliminary agreement with regard to the Merger was publicly announced, the
last reported sales prices on the New York Stock Exchange were $21.17 per
share of U.S. Filter Common Stock and $25.00 per share of Davis Common Stock
($29.63 per share on an equivalent per share basis).
On July 22, 1996, the most recent practicable date prior to the printing of
this Proxy Statement/Prospectus, the last reported sales prices on the New
York Stock Exchange were $21.00 per share of U.S. Filter Common Stock and
$27.875 per share of Davis Common Stock.
As of July 22, 1996, there were approximately 4,100 record holders of the
U.S. Filter Common Stock and approximately 750 record holders of the Davis
Common Stock.
U.S. Filter 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 U.S. Filter Common Stock in the foreseeable
future. Any payment of cash dividends on the U.S. Filter Common Stock in the
future will depend upon U.S. Filter's financial condition, earnings, capital
requirements and such other factors as the Board of Directors deems relevant.
Under U.S. Filter's credit agreement with The First National Bank of Boston
and First Interstate Bank of California, no dividends may be paid on the U.S.
Filter Common Stock without the consent of those banks. The payment of cash
dividends by Davis also requires the prior approval of Davis' bank lender,
SunTrust Bank Central Florida, National Association, unless certain financial
requirements are met.
DAVIS SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR U.S.
FILTER COMMON STOCK AND DAVIS COMMON STOCK PRIOR TO THE DAVIS SPECIAL MEETING.
19
<PAGE>
THE DAVIS SPECIAL MEETING
GENERAL
This Proxy Statement/Prospectus is being furnished to holders of Davis
Common Stock in connection with the solicitation of proxies by the Board of
Directors of Davis for use at the Davis Special Meeting to be held on Friday,
August 23, 1996 at Davis' headquarters at 1820 Metcalf Avenue, Thomasville,
Georgia, commencing at 9:00 a.m., local time, and at any adjournment or
postponement thereof. At the Davis Special Meeting, Davis' shareholders will
consider and vote upon a proposal to approve and adopt the Merger Agreement
and the transactions contemplated thereby (including the Merger).
The Board of Directors of Davis has unanimously approved the Merger
Agreement and recommends a vote FOR approval and adoption of the Merger
Agreement and the transactions contemplated thereby by the shareholders of
Davis. See "The Merger--Davis Reasons for the Merger; Recommendation of the
Davis Board of Directors."
VOTING AT THE MEETING; RECORD DATE
The Board of Directors of Davis has fixed July 22, 1996 as the record date
for the determination of Davis shareholders entitled to notice of and to vote
at the Davis Special Meeting. Accordingly, only holders of record of Davis
Common Stock on that record date will be entitled to notice of and to vote at
the Davis Special Meeting. As of July 22, 1996, there were 3,248,533 shares of
Davis Common Stock outstanding, held by approximately 750 holders of record.
Each holder of record of shares of Davis Common Stock on the record date is
entitled to cast one vote per share on the proposal to approve and adopt the
Merger Agreement and the transactions contemplated thereby, exercisable in
person or by properly executed proxy, at the Davis Special Meeting. The
presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of Davis Common Stock entitled to vote at
the Davis Special Meeting is necessary to constitute a quorum at the Davis
Special Meeting.
Shares represented by duly completed proxies submitted by nominee holders on
behalf of beneficial owners will be counted as present for purposes of
determining the existence of a quorum (except to the extent such proxies
reflect "broker non-votes"). Under the rules of the New York Stock Exchange
that govern most domestic stock brokerage firms, member firms that hold shares
in street name for beneficial owners that have received no instructions from
their clients as to "non-discretionary" proposals do not have discretion to
vote on those proposals. The New York Stock Exchange has advised Davis that
the proposal to approve and adopt the Merger Agreement and the transactions
contemplated thereby is "non-discretionary." Accordingly, if a broker
indicates that it does not have authority to vote certain shares with respect
to the proposal ("broker non-votes"), those shares will not be counted for
purposes of determining the existence of a quorum. Abstentions will be counted
as present for purposes of determining the existence of a quorum.
The affirmative vote of a majority of all the votes entitled to be cast by
all shares of Davis Common Stock entitled to vote on the proposal is required
to approve and adopt the Merger Agreement and the transactions contemplated
thereby. Because abstentions and "broker non-votes" will not be recorded as
votes in favor of the proposal, both abstentions and "broker non-votes" will
have the effect of votes against the proposal.
U.S. Filter has entered into a Shareholder Agreement with each of Jasper C.
Davis III, R.R. Davis, and H. Forbes Davis, all of whom are directors of
Davis, their respective spouses, and R. Doyle White, Chairman of the Board,
President and Chief Executive Officer of Davis, pursuant to which each such
Davis shareholder has agreed, among other things, to vote, and at U.S.
Filter's request to grant U.S. Filter his or her irrevocable proxy to vote,
all shares of Davis Common Stock owned by him or her in favor of approval and
adoption of the Merger Agreement and the transactions contemplated thereby.
Each such Davis shareholder has also agreed not to sell, transfer or encumber
any of the shares of Davis Common Stock now owned or acquired during the term
of the Shareholder Agreement by such shareholders. As of July 22, 1996, such
shareholders owned or had the sole power to vote an aggregate of 744,410
shares, or approximately 22.9%, of the outstanding Davis Common Stock.
20
<PAGE>
See "The Shareholder Agreements." Each other director and executive officer of
Davis who owns or has the power to direct the voting of shares of Davis Common
Stock has advised Davis that he intends to vote or direct the vote of all
shares of Davis Common Stock over which he has voting control "FOR" approval
of the Merger Agreement and the transactions contemplated thereby. As of July
22, 1996, the directors and executive officers of Davis, including the Messrs.
Davis and R. Doyle White, were the beneficial owners of approximately 24.3% of
the outstanding shares of Davis Common Stock (excluding shares subject to
options or other acquisition rights).
PROXIES
All properly executed proxy cards delivered by shareholders to Davis in time
to be voted at the Davis Special Meeting and not revoked will be voted at the
Davis Special Meeting in accordance with the directions noted thereon. In the
absence of such instructions, the shares represented by a properly executed
and dated proxy card will be voted "FOR" the proposal to approve and adopt the
Merger Agreement and the transactions contemplated thereby.
Any shareholder delivering a proxy has the power to revoke it at any time
before it is voted by giving written notice to Stan White, the Secretary-
Treasurer of Davis, at 1820 Metcalf Avenue, Thomasville, Georgia 31799-1419;
by executing and delivering to Mr. White a proxy card bearing a later date; or
by voting in person at the Davis Special Meeting; provided, however, that
under the rules of the New York Stock Exchange, any beneficial owner of Davis
Common Stock whose shares are held in street name by a member brokerage firm
may revoke his proxy and vote his shares in person at the Davis Special
Meeting only in accordance with applicable rules and procedures of the New
York Stock Exchange.
Except as described under "The Merger Agreement--Termination; Termination
Fees and Expenses," all expenses of this solicitation, excluding the cost of
printing and mailing this Proxy Statement/Prospectus and the filing fee paid
to the Commission in connection with filing the Registration Statement (which
will be shared equally by Davis and U.S. Filter), will be paid by the party
incurring the expense. In addition to solicitation by use of the mails,
proxies may be solicited by directors, officers and employees of Davis in
person or by telephone, facsimile or other means of communication. Such
directors, officers and employees will not be additionally compensated, but
may be reimbursed for reasonable out-of-pocket expenses in connection with
such solicitation. Davis has retained Wachovia National Bank of North
Carolina, N.A. at a cost of approximately $1,000, plus reimbursement of
expenses, to assist in the solicitation of proxies from brokers, nominees and
institutions on behalf of Davis. Arrangements will also be made with
custodians, nominees and fiduciaries for forwarding of proxy solicitation
materials to beneficial owners of shares held of record by such custodians,
nominees and fiduciaries, and Davis will reimburse such custodians, nominees
and fiduciaries for reasonable expenses incurred in connection therewith.
DAVIS SHAREHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY
CARDS.
21
<PAGE>
THE MERGER
BACKGROUND OF THE MERGER
During the past several years the water and wastewater distribution and
treatment markets have been characterized by increasing consolidation, with
competitors seeking the capability of providing a full range of products and
services to industrial, commercial and municipal customers. Increasing
governmental regulation has magnified the complexity of water distribution
systems and water and wastewater treatment facilities. In addition,
technological changes in the industry have caused an increase in the capital
required by companies to compete in the industry, while enhancing the outlook
for larger competitors which provide greater economies of scale.
During this period, management of both U.S. Filter and Davis have carefully
reviewed their individual strategic alternatives and taken various steps to
maintain their competitiveness. For example, among other measures, in March
1993 the Board of Directors of Davis engaged Stephens Inc., a financial
consulting firm, to advise the Board regarding various strategic alternatives
available to Davis. In addition, Davis has focused on improving its
profitability by (i) streamlining its operations, including closing
unprofitable or less profitable distribution centers; (ii) installing new
information systems, which have reduced working capital requirements and
enhanced responsiveness to customers; and (iii) broadening its capabilities in
the water and wastewater treatment industry through new products and marketing
initiatives.
Since 1991, U.S. Filter has implemented a growth strategy which has focused
on an ability to offer the broadest range of proven, state-of-the-art water
treatment technologies. This has enabled U.S. Filter to provide a single
source of water treatment solutions to its industrial, commercial and
municipal customers. U.S. Filter has also pursued acquisitions that it
believes will provide a strategic fit with its operations, contribute to its
growth through an expanded customer base or provide opportunities for cost
savings, synergies or economies of scale in its operations. Since 1991, U.S.
Filter has acquired and successfully integrated more than 40 United States
based and international businesses.
In the context of U.S. Filter's acquisition strategy, Richard J. Heckmann,
U.S. Filter's Chairman and Chief Executive Officer, telephoned R. Doyle White,
Chairman and Chief Executive Officer of Davis, in early 1993 to inquire about
a possible business combination between U.S. Filter and Davis. As a result of
this conversation, Mr. Heckmann met with R. Doyle White to further discuss the
interest of U.S. Filter in acquiring Davis. Following the meeting, management
of Davis concluded that a business combination with U.S. Filter was not in the
best interests of Davis' shareholders at that time.
During the period from March 1993 to December 1995, the Davis Board of
Directors continually reviewed Davis' strategic alternatives. On December 13,
1995, R. Doyle White met with representatives of Dillon Read to discuss Davis'
strategic opportunities and to ascertain Dillon Read's interest in working
with the Davis Board of Directors to formulate and implement a strategic plan
which would maximize the value of the Davis Common Stock. On January 19, 1996,
representatives of Dillon Read met with R. Doyle White and certain members of
the Davis Board of Directors to review their initial analysis of Davis and how
to maximize its value. Dillon Read presented five strategic alternatives for
the Board of Directors of Davis to consider: (i) the sale of the shares of
Davis Common Stock owned by the Davis family; (ii) a leveraged buyout, whereby
the insiders of Davis would have an opportunity to obtain further control over
Davis; (iii) an exclusive sale, or other business combination, to one entity;
(iv) a private auction, whereby Dillon Read would approach a select group of
likely investors or buyers and ascertain their interest in Davis; and (v) a
public auction, for which a public announcement would be made of Davis' desire
to enter into a possible business combination with another entity and
entertain offers and opportunities as appropriate.
From January 1996 to March 1996, representatives of Dillon Read conducted
due diligence with respect to Davis, which included meetings with management
and a review of information on the industry and competitors. In March 1996,
Davis formally retained Dillon Read to act as a financial advisor to Davis to
assist in its efforts
22
<PAGE>
to develop and implement a strategic business plan. On March 15, 1996,
representatives of Dillon Read met with the Davis Board of Directors and
certain members of management to review its assessment of Davis' value and to
recommend a strategy to maximize shareholder value. After a discussion of the
five alternatives presented at the January 1996 meeting, the Davis Board of
Directors determined that the private auction and resulting sale or
combination with an appropriate financial buyer or other company would be in
the best interest of the shareholders of Davis. The Davis Board of Directors
concluded that a public auction would be disruptive to the ongoing business of
Davis and that a leveraged buyout, exclusive sale and/or minority sale of the
Davis family shares would not yield the same value as a strategic buyer would
be willing to provide. The Davis Board of Directors approved a plan whereby
Dillon Read would contact a select group of companies to determine their
interest in a business combination with Davis.
During March and April 1996, the management of Davis and Dillon Read
prepared a package of certain materials for distribution to potentially
interested parties. In April 1996, representatives of Dillon Read initiated
contact with several companies, including U.S. Filter, about their interest in
Davis, which was described in general terms but not mentioned by name. Mr.
Heckmann of U.S. Filter inquired if the company involved was Davis, and when
told that it was, he indicated a desire to pursue negotiations with Davis on
an exclusive basis. R. Doyle White of Davis agreed to a meeting with U.S.
Filter, and on May 1, 1996, Mr. Heckmann and other representatives of U.S.
Filter met in Thomasville, Georgia with R. Doyle White, other representatives
of Davis and a representative of Dillon Read. The management group from Davis
made a presentation to the representatives from U.S. Filter on the
distribution facilities and general business of Davis and answered questions
from those present.
On May 7, 1996 Mr. Heckmann expressed an interest, on behalf of U.S. Filter,
in acquiring Davis. After extensive discussions on May 7, 1996, the Davis
Board of Directors authorized R. Doyle White and Dillon Read to proceed with
negotiation of a transaction in which each share of Davis Common Stock would
be exchanged for 1.3995 shares of U.S. Filter Common Stock. During the period
from May 11 through May 15, 1996, representatives of U.S. Filter and Davis
conducted negotiations concerning the terms of the proposed merger. On May 15,
1996 U.S. Filter and Davis issued a press release announcing the parties'
preliminary agreement regarding the principal terms of a proposed merger.
On May 22 and May 23, 1996 Davis' legal counsel met with the Davis Board of
Directors to review and discuss a written description of the terms of a
proposed merger agreement, to review the status of negotiations and to discuss
various other matters related to the proposed transaction. On May 23, 1996,
representatives of Dillon Read met with the Davis Board of Directors regarding
the status of the negotiations and to provide an analysis of the valuation of
the proposed offer. Dillon Read prepared an overview of U.S. Filter for the
Davis Board of Directors and presented such review to the Board. The overview
included a summary of U.S. Filter's historical financial results, a review of
the historical share price performance of U.S. Filter Common Stock, a summary
of recent analyst reports on U.S. Filter and a comparison of U.S. Filter's
financial ratios and trading multiples with those of comparable public
companies. Dillon Read also expressed its oral opinion that the consideration
to be received by the holders of Davis Common Stock in the Merger is fair to
the holders of Davis Common Stock from a financial point of view.
At meetings of the Davis Board of Directors on June 6 and 7, 1996, Davis'
legal counsel reviewed and discussed with the Davis Board of Directors a
written description of proposed changes to the terms of the merger agreement
based on negotiations since May 23, 1996, and at the June 7 meeting,
representatives of Dillon Read confirmed their earlier oral opinion that the
consideration to be received by the holders of Davis Common Stock in the
Merger is fair to the holders of Davis Common Stock from a financial point of
view. After discussion, the Davis Board of Directors then unanimously approved
the Merger on the terms and conditions as set forth in the Merger Agreement.
On June 9, 1996 U.S. Filter's Board of Directors unanimously approved the
Merger Agreement and the transactions contemplated thereby. U.S. Filter and
Davis executed the Merger Agreement on June 10, 1996.
23
<PAGE>
U.S. FILTER REASONS FOR THE MERGER
U.S. Filter believes that the acquisition of Davis will enhance U.S.
Filter's businesses in a number of respects. It will provide U.S. Filter with
the ability to distribute its entire line of products and services through
Davis' broad distribution network. This benefit will be most pronounced in the
southeastern, southwestern and western United States where Davis has a
substantial presence and which are areas of rapid development for U.S. Filter.
In addition, in U.S. Filter's view, opportunities should exist for additional
sales of U.S. Filter water and wastewater treatment systems through Davis'
network which otherwise distributes water distribution equipment and supplies.
U.S. Filter also expects to benefit from certain economies associated with the
use of products distributed by Davis in U.S. Filter water and wastewater
treatment systems. Davis is also a participant in the wastewater treatment
business. U.S. Filter believes that Davis' established relationships in
certain municipal markets and its off-the-shelf product technology for
municipal wastewater treatment systems complement U.S. Filter's existing
wastewater treatment business and will increase U.S. Filter's competitiveness
in the municipal market.
DAVIS REASONS FOR THE MERGER; RECOMMENDATION OF THE DAVIS BOARD OF DIRECTORS
The terms of the Merger, including the Exchange Ratio, were determined
through negotiations between Davis and U.S. Filter following extensive
discussions, financial analysis and preliminary due diligence. The Board of
Directors of Davis believes that the terms of the Merger Agreement and the
transactions contemplated thereby are fair to and in the best interests of
Davis and its shareholders and has unanimously approved the Merger Agreement
and recommends the approval and adoption of the Merger Agreement and the
transactions contemplated thereby by the shareholders of Davis.
In reaching its decision to approve the Merger Agreement and the
transactions contemplated thereby, Davis' Board of Directors considered a
number of factors, including:
(i) Information concerning the financial performance and condition,
business operations and prospects of each of Davis and U.S. Filter and
Davis' projected future value and prospects as a separate entity and on a
combined basis with U.S. Filter;
(ii) Current industry, economic and market conditions which have
encouraged consolidation and business combinations to enable companies to
provide integrated services in the water distribution and water and
wastewater treatment markets;
(iii) The enhancement of the strategic and market position of the
combined companies beyond that achievable by Davis alone, and U.S. Filter's
interest in both the distribution and water treatment operations of Davis;
(iv) The structure of the transaction and terms of the Merger Agreement,
including the Exchange Ratio, which were the result of arms-length
negotiations between Davis and U.S. Filter;
(v) The financial analysis and the opinion of Dillon Read as described
below;
(vi) The fact that the Merger would provide the shareholders of Davis
with the opportunity to receive a significant premium over the recent
market price for the Davis Common Stock, and to exchange their shares of
Davis Common Stock for the more actively traded U.S. Filter Common Stock;
(vii) The terms of the Merger Agreement that permit Davis' Board of
Directors, in the exercise of its fiduciary duties and subject to certain
conditions, to respond to unsolicited inquires regarding potential business
combination transactions. Davis' Board of Directors noted that, in
specified events, U.S. Filter would have certain rights of termination as a
result of which Davis would be obligated to pay U.S. Filter a fee of either
$1,500,000 or $3,000,000, depending on the circumstances of the
termination, which, in the view of the Davis Board, would not unreasonably
impede any interested third party from proposing a superior transaction;
24
<PAGE>
(viii) The expectation that the Merger will afford Davis' shareholders
the opportunity to receive U.S. Filter Common Stock in a transaction that
is non-taxable for United States federal income tax purposes; and
(ix) The likelihood that the Merger would be consummated.
The Davis Board of Directors determined that a merger with U.S. Filter was
the best alternative for achieving the strategic objectives of Davis because,
among other things, the combined entity would become a more fully integrated
supplier of products and services to the water distribution and water and
wastewater treatment markets and better enable Davis to compete in the
industry. Following the Merger, and as a result of the combination of Davis'
water distribution equipment and supplies with U.S. Filter's service
deionization products, the combined operations of Davis and U.S. Filter are
expected to have a broader product offering in the distribution business. In
addition, the surviving corporation is expected to have a broader customer
base in the water and wastewater treatment market due to Davis' focus on
municipal customers and U.S. Filter's emphasis on an industrial client base.
The Board of Directors believes that the proposed Merger is an opportunity for
Davis' shareholders to participate in a combined enterprise which has greater
business and financial resources and long-term growth potential than Davis
would have absent the Merger.
The foregoing discussion of the information and factors considered and given
weight by the Davis Board of Directors is not intended to be exhaustive, but
includes the material factors considered by the Davis Board. In addition, in
reaching the determination that the Merger is fair to and in the best interest
of Davis' shareholders, in view of the wide variety of factors considered in
connection with its evaluation of the proposed Merger, Davis' Board considered
the factors above as a whole and did not find it practical to quantify, or
otherwise attempt to assign specific or relative weights to, such factors, and
the individual directors may have given differing weights to different
factors.
THE BOARD OF DIRECTORS OF DAVIS UNANIMOUSLY RECOMMENDS THAT DAVIS
SHAREHOLDERS VOTE TO APPROVE AND ADOPT THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY.
OPINION OF DAVIS FINANCIAL ADVISOR
Davis retained Dillon Read to render a fairness opinion in connection with
the Merger. Dillon Read rendered oral opinions to Davis' Board on May 23 and
June 7, 1996 and a written opinion on July 22, 1996, in each case that the
consideration to be received by the holders of Davis Common Stock in the
Merger is fair to such holders from a financial point of view.
The full text of Dillon Read's fairness opinion, dated July 22, 1996, which
sets forth the assumptions made, general procedures followed, matters
considered and limits on the review undertaken, is attached as Annex B to this
Proxy Statement/Prospectus. The oral opinions rendered May 23 and June 7, 1996
were substantially the same as the opinion attached hereto. Dillon Read's
opinion is directed only to the fairness, from a financial point of view, to
the holders of Davis Common Stock of the consideration to be received by such
holders in the Merger and does not constitute a recommendation to any holder
of Davis Common Stock as to how such shareholder should vote on the Merger
Agreement. The summary of Dillon Read's opinion set forth below is qualified
in its entirety by reference to the full text of such opinion attached as
Annex B. SHAREHOLDERS ARE URGED TO READ THE OPINION IN ITS ENTIRETY.
In arriving at its opinion, Dillon Read reviewed, analyzed and considered
such financial and other factors as it deemed appropriate under the
circumstances, including among others, the following: (i) certain publicly
available business and historical financial information relating to Davis and
U.S. Filter; (ii) certain other internal information, primarily financial in
nature, concerning the business and operations of Davis and U.S. Filter
furnished to Dillon Read by Davis and U.S. Filter, respectively, for purposes
of its analysis; (iii) the business prospects of Davis and U.S. Filter; (iv)
the historical and current trading market for Davis Common Stock, for U.S.
Filter Common Stock and for equity securities of certain other companies that
Dillon Read believed to be generally comparable to Davis or U.S. Filter; (v)
certain publicly available information concerning the estimates
25
<PAGE>
of the future operating and financial performance of Davis and U.S. Filter
prepared by industry experts unaffiliated with either Davis or U.S. Filter
("Analysts' Estimates"); (vi) certain publicly available information with
respect to certain other companies that Dillon Read believed to be generally
comparable to Davis or U.S. Filter; (vii) certain publicly available
information concerning the nature and terms of certain other acquisition
transactions that Dillon Read believed to be relevant on a comparative basis;
(viii) the Merger Agreement; and (ix) preliminary forms of this Proxy
Statement/Prospectus, including the financial statements and pro forma
financial information included therein relating to Davis and U.S. Filter.
Dillon Read also met with certain officers and employees of Davis and U.S.
Filter to discuss the foregoing, as well as other matters Dillon Read believed
relevant to its inquiry. Dillon Read's opinion necessarily was based upon
economic, monetary and market conditions as they existed and could be
evaluated on the dates of its opinions.
In its review and analysis and in arriving at its opinion, Dillon Read
assumed and relied upon the accuracy and completeness of all of the financial
and other information provided to it or publicly available, including without
limitation the information concerning any contingent liabilities of Davis or
U.S. Filter, and did not attempt independently to verify any of such
information. Dillon Read did not conduct a physical inspection of the
properties or facilities of Davis or U.S. Filter, nor did Dillon Read make or
obtain any independent evaluations or appraisals of any of such properties or
facilities. Although Dillon Read discussed the prospects of Davis and U.S.
Filter with U.S. Filter's management, Dillon Read was provided with only
limited financial projections prepared by U.S. Filter's management with
respect to U.S. Filter's future performance. In rendering its opinion Dillon
Read relied on the Analysts' Estimates in lieu of such financial projections
or other similar analyses with respect to U.S. Filter. With respect to Davis'
projections, management estimates and analyses ("Management Estimates") were
provided to Dillon Read by Davis' management, and Dillon Read assumed, at
Davis's direction, that such information was reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
management of Davis as to future financial performance.
In connection with its presentation to Davis' Board on May 23, 1996, Dillon
Read advised Davis' Board that, in evaluating the consideration to be received
in the Merger by the holders of Davis Common Stock, Dillon Read had performed
a variety of financial analyses with respect to Davis and U.S. Filter. Certain
of these financial analyses are summarized below.
Exchange Ratio Profile. Dillon Read performed an analysis of the historical
ratio of the market price of Davis Common Stock to the market price of U.S.
Filter Common Stock during the period from May 8, 1995 through May 8, 1996.
Dillon Read calculated the ratio of the Davis Common Stock closing price for
the last trading day of each week during that period to the U.S. Filter Common
Stock closing price for such day. This analysis implied an exchange ratio
ranging from a high of 1.151 shares of U.S. Filter Common Stock to each share
of Davis Common Stock to a low of 0.747 of a share of U.S. Filter Common Stock
to each share of Davis Common Stock, with an average during the period of
0.927 of a share of U.S. Filter Common Stock to each share of Davis Common
Stock. Dillon Read also calculated the ratio of the Davis Common Stock price
on May 8, 1996 ($18.50 per share) to the U.S. Filter Common Stock price on
such day ($19.83) per share. This implied an exchange ratio of .933 of a share
of U.S. Filter Common Stock to each share of Davis Common Stock. Dillon Read
also calculated the ratio of the Davis Common Stock closing price, plus a 51%
premium, for the last trading day of each week during that period to the U.S.
Filter Common Stock closing price for such day. This analysis implied an
exchange ratio ranging from a high of 1.74 shares of U.S. Filter Common Stock
to each share of Davis Common Stock to a low of 1.125 shares of U.S. Filter
Common Stock to each share of Davis Common Stock, with an average during the
period of 1.395 shares of U.S. Filter Common Stock to each share of Davis
Common Stock.
Premium Analysis. Dillon Read calculated the premium to holders of Davis
Common Stock of the implied consideration of $28.00 per share (represented by
multiplying the Exchange Ratio of 1.3995 by a reference price for U.S. Filter
of $20.00 per share) (the "Implied Consideration") to the closing price of
Davis Common Stock on May 8, 1996 of $18.50, and to the 52 week high and 52
week low closing prices for Davis Common Stock during the latest 12 months
("LTM"). Based upon the reference price for U.S. Filter Common Stock of
$20.00,
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Dillon Read calculated premiums to holders of Davis Common Stock equal to 51%
of the closing stock price for Davis Common Stock of $18.50 on May 8, 1996;
199% of the 52 week low closing stock price of $9.375 for Davis Common Stock;
and 46% of the 52 week high closing price of $19.125 for Davis Common Stock.
Dillon Read also calculated multiples of the Implied Consideration to Davis'
LTM earnings per share and to its projected earnings per share for calendar
years 1996 and 1997 (based on Management Estimates), and multiples of Davis'
"Implied Firm Value" (defined as the aggregate offer price for the Davis
Common Stock--calculated using the Implied Consideration--plus book values of
total debt, less cash and cash equivalents) to its LTM sales, its LTM earnings
before interest and taxes ("EBIT"), its LTM earnings before depreciation,
interest, amortization and taxes ("EBITDA") and its latest fiscal quarter
tangible book value. The results of the calculations were as follows: Implied
Consideration to LTM earnings per share of 16.8x, to projected 1996 earnings
per share of 14.2x, to projected 1997 earnings per share of 11.9x and to
latest fiscal quarter tangible book value of 3.3x, and Implied Firm Value to
LTM sales of 0.45x, to LTM EBIT of 10.4x, and to LTM EBITDA of 9.0x.
Financial Performance Analysis. Dillon Read analyzed the relative
contributions of Davis and U.S. Filter to, among other financial measures, the
combined revenues, EBITDA, EBIT, net income, total assets and stockholders'
equity of the two companies, assuming completion of the Merger, based on LTM
results (without giving effect to any transaction adjustments). Dillon Read
calculated contributions by Davis of approximately 36% of combined revenues;
18% of combined EBITDA; 25% of combined EBIT; 24% of combined net income; 7%
of combined net assets; and 8% of combined book value. Dillon Read also
calculated approximately 10.5% (using the Exchange Ratio of 1.3995) as the
percentage of the combined companies' equity that would be held by former
Davis shareholders assuming completion of the Merger, and compared such
percentage with the foregoing contribution percentages.
Analysis of Selected Publicly Traded Comparable Companies. Dillon Read
reviewed certain publicly available financial, operating and stock market
information as of May 21, 1996 for Davis and U.S. Filter and, for each, for
certain selected publicly traded companies (in the case of Davis, in each of
two industry sectors-industrial products distribution companies and water and
wastewater treatment equipment manufacturing companies; and in the case of
U.S. Filter, in one industry sector-water treatment equipment and services
companies). Comparable companies for Davis included Hughes Supply, Inc.,
Lawson Products, Inc., Rexel, Inc., AMTROL Inc., Badger Meter, Inc., Goulds
Pumps, Inc., Ionics, Inc., Met-Pro Corporation, Osmonics, Inc., U.S. Filter
and Watts Industries, Inc. Comparable companies for U.S. Filter included
Calgon Carbon Corporation, Culligan Water Technologies, Ionics, Inc., Memtec
Limited, Osmonics, Inc., and Wheelabrator Technologies Inc.
For each of Davis and U.S. Filter and each company in the specified industry
sectors, Dillon Read calculated, among other things, multiples of market price
to LTM earnings per share, estimated earnings per share for calendar years
1996 and 1997 (derived from the Analysts' Estimates and, in the case of Davis,
Management Estimates), and latest fiscal quarter tangible book value per
share, and multiples of "Firm Value" (Implied Firm Value in the case of Davis)
to LTM sales, EBIT and EBITDA. "Firm Value" is defined as current market value
of the equity of a company plus book values of total debt, less cash and cash
equivalents. An analysis of the multiples of market price to LTM earnings per
share yielded 16.8x for Davis at the Implied Consideration and 46.2x for U.S.
Filter, with medians of from 16.6x to 17.6x for the companies in industry
sectors comparable to Davis and 24.4x for the companies in the industry sector
comparable to U.S. Filter. An analysis of the multiples of market price to
estimated earnings per share for calendar year 1996 yielded 14.2x for Davis at
the Implied Consideration and 34.7x for U.S. Filter, with medians ranging from
14.6x to 15.1x for the companies in industry sectors comparable to Davis and a
median of 24.2x for the companies in the industry sector comparable to U.S.
Filter. An analysis of the multiples of market price to estimated earnings per
share for calendar year 1997 yielded 11.9x for Davis at the Implied
Consideration and 27.9x for U.S. Filter, with medians ranging from 12.5x to
15.8x for the companies in industry sectors comparable to Davis and a median
of 20.0x for the companies in the industry sector comparable to U.S. Filter.
An analysis of the multiples of market price to latest fiscal quarter tangible
book value per share yielded 3.3x for Davis at the Implied Consideration and
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2.8x for U.S. Filter, with medians ranging from 2.1x to 2.5x for the companies
in industry sectors comparable to Davis and a median of 2.6x for the companies
in the industry sector comparable to U.S. Filter. An analysis of the multiples
of Firm Value to LTM sales yielded 0.45x for Davis at the Implied
Consideration and 2.68x for U.S. Filter, with medians ranging from 0.36x to
1.26x for the companies in industry sectors comparable to Davis and a median
of 2.44x for the companies in the industry sector comparable to U.S. Filter.
An analysis of the multiples of Firm Value to LTM EBIT yielded 10.4x for Davis
at the Implied Consideration and 37.1x for U.S. Filter, with medians ranging
from 8.6x to 11.3x for the companies in industry sectors comparable to Davis
and a median of 22.4x for the companies in the industry sector comparable to
U.S. Filter. An analysis of the multiples of Firm Value to LTM EBITDA yielded
9.0x for Davis at the Implied Consideration and 20.6x for U.S. Filter, with
medians ranging from 7.2x to 8.3x for the companies in industry sectors
comparable to Davis and a median of 15.2x for the companies in the industry
sector comparable to U.S. Filter.
Analysis of Selected Comparable Acquisition Transactions. Dillon Read also
reviewed 12 transactions involving the acquisition or proposed acquisition of
all or part of certain water distribution related companies. Dillon Read
calculated the multiples of Firm Value to LTM EBITDA, EBIT and revenues, as
well as the multiple of the offer price in each such transaction to the
respective book values and net incomes of such companies.
The merger and acquisition transactions which were analyzed included
transactions completed or pending in the water distribution equipment
industry. The acquisitions reviewed by Dillon Read, in reverse chronological
order of announcement date, included: (i) the then pending acquisition by U.S.
Filter of Zimpro, (ii) the pending acquisition by Hughes Supply, Inc. of
Southwest Stainless, Inc., (iii) the pending acquisition by Pacific Scientific
Company of Met One, Inc., (iv) the acquisition by Measurex Corporation of Data
Measurement Corporation, (v) the acquisition by U.S. Filter of Polymetrics,
Inc., (vi) the acquisition by U.S. Filter of Arrowhead Industrial Water, Inc.,
(vii) the acquisition by Edmundson International, Inc. of WaterPro Supplies
Corporation, (viii) the acquisition by U.S. Filter of Liquipure, (ix) the
acquisition by IDEX Corporation of Halo Products, Inc., (x) the acquisition by
Crane Co. of Mark Controls Corporation, (xi) the acquisition by Crane Co. of
Burks Pumps, Inc., and (xii) the acquisition by WICOR, Inc. of Carr-Griff,
Inc.
These calculations yielded a range of Firm Value to LTM EBITDA of 4.0x to
13.5x with a median of 9.2x, a range of Firm Value to LTM EBIT of 4.0x to
43.8x with a median of 14.3x, a range of Firm Value to LTM revenues of 0.26x
to 1.82x with a median of 1.19x, a range of price to book value of 1.1x to
14.5x with a median of 4.1x and a range of price to net income of 6.2x to
34.6x with a median of 14.8x. Dillon Read then compared the results of these
calculations to multiples calculated using the Implied Firm Value and the
Implied Consideration: 9.0x Implied Firm Value to Davis' LTM EBITDA; 0.45x
Implied Firm Value to Davis' LTM revenues; 10.4x Implied Firm Value to Davis'
LTM EBIT; 3.3x Implied Consideration to book value of Davis; and 16.8x Implied
Consideration to net income of Davis.
Discounted Cash Flow Analyses. Dillon Read calculated projected future cash
flows for U.S. Filter using Analysts' Estimates and for Davis using Management
Estimates. Dillon Read then performed discounted cash flow analyses based on
free cash flow to the combined company and an estimated terminal value derived
as a multiple of EBITDA ("Firm Value Approach").
The Firm Value Approach applied terminal value multiples ranging from 6.0x
to 7.0x EBITDA for Davis and 10.0x to 19.0x EBITDA for U.S. Filter. The sums
of future cash flows to the firm and the range of such related terminal values
were then discounted to present value by applying discount rates ranging from
10.0% to 14.0% for Davis, and ranging from 10.0% to 20.0% for U.S. Filter.
Based on these calculations, Dillon Read then derived present values per share
ranging from $23.83 to $32.80 for Davis Common Stock, and ranging from $12.31
to $35.35 for U.S. Filter Common Stock.
Dillon Read has advised Davis' Board of Directors that, in connection with
rendering its opinion dated July 22, 1996, Dillon Read considered updated
financial information and market data in performing updates to the financial
analyses described above. Dillon Read stated that the updated financial
analyses confirmed its opinion as described above.
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The foregoing summary does not purport to be a complete description of the
analyses performed by Dillon Read or of its presentations to Davis' Board. The
preparation of financial analyses and fairness opinions is a complex process
and is not necessarily susceptible to summary description. Dillon Read
believes that its analyses (and the summary set forth above) must be
considered as a whole, and that selecting portions of such analyses and of the
factors considered by Dillon Read, without considering all of such analyses
and factors, could create an incomplete view of the processes underlying the
analyses conducted by Dillon Read and its opinion. Dillon Read made no attempt
to assign specific weights to particular analyses. Any estimates contained in
Dillon Read's analyses are not necessarily indicative of actual values, which
may be significantly more or less favorable than as set forth therein.
Estimates of values of companies do not purport to be appraisals or
necessarily to reflect the prices at which companies may actually be sold.
Because such estimates are inherently subject to uncertainty, Dillon Read does
not assume responsibility for their accuracy.
The Davis Board of Directors retained Dillon Read based on its experience
and expertise. Dillon Read is an internationally recognized investment banking
firm with substantial experience in transactions similar to the Merger. As
part of its investment banking business, Dillon Read is continually engaged in
the valuation of businesses and their securities in connection with mergers
and acquisitions. Except as described herein, however, Dillon Read has not
previously provided services to Davis.
Pursuant to the engagement letter with Dillon Read, Davis has agreed to pay
Dillon Read a fee of 1.25% of the aggregate amount of consideration paid to
the Company and/or its shareholders up to $20 per share and 2% for any
consideration paid above $20 per share. Davis has also agreed to reimburse
Dillon Read for certain expenses incurred in connection with its engagement
and to indemnify Dillon Read and certain related persons against certain
liabilities and expenses relating to or arising out of its engagement,
including certain liabilities under the United States federal securities laws.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
General
In considering the recommendation of Davis' Board of Directors, Davis
shareholders should be aware that certain members of Davis' management and of
the Davis Board of Directors have certain interests in the Merger that are in
addition to any interests they may have as shareholders of Davis generally.
These interests include, among others, the appointment of R. Doyle White to
the U.S. Filter Board of Directors, employment and executive retention
agreements providing for certain severance and other employee benefits, the
continuation of certain supplemental retirement benefits, the conversion of
employee and director stock options into 1.3995 shares of U.S. Filter Common
Stock, indemnification of Davis directors and officers, and directors' and
officers' liability insurance, as described below.
U.S. Filter Management Post-Merger
U.S. Filter has agreed to cause R. Doyle White to be appointed to the U.S.
Filter Board of Directors following consummation of the Merger. In addition,
in order to assure continuity following consummation of the Merger, U.S.
Filter has offered employment opportunities with Davis to the Named Officers,
including the appointment of R. Doyle White as an Executive Vice President of
U.S. Filter and Chief Executive Officer of Davis as the surviving company in
the Merger. The terms of the employment agreements to be entered into as of
the Effective Time with the Named Officers are summarized below. Employment
agreements with an additional 45 key employees of Davis will be entered into
as of the Effective Time providing for a one-year employment term and, in the
case of eight senior managers, a retention bonus of 25% of base salary.
Davis Employment Agreements
R. Doyle White. The Employment Agreement with R. Doyle White will provide
for a two-year employment term following the Merger at an annual compensation
of not less than $485,000 and a retention bonus of $242,000, payable on
January 1, 1997. During the employment period, Mr. White will be entitled to
participate in all incentive, savings, retirement and welfare plans,
practices, policies and programs applicable
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generally to other similarly situated officers of U.S. Filter and its
affiliated companies. The Employment Agreement provides for damages in the
event Mr. White's employment is terminated during the two-year employment
period. If his employment is terminated by Davis other than for cause, death
or disability, or by Mr. White for "good reason" (as defined in the
agreement), he will receive any accrued but unpaid salary and benefits through
the date of termination, plus a lump sum equal to his annual compensation for
the remainder of the two-year employment period and the unpaid portion, if
any, of the retention bonus; provided, however, that such lump-sum payments of
post-termination compensation and accelerated retention bonus must be repaid
to Davis if Mr. White competes with Davis within a prescribed territory during
the remainder of the two-year employment period. If Mr. White's employment is
terminated by reason of death or disability, he will receive any accrued but
unpaid salary and benefits through the date of termination, plus any otherwise
applicable death or disability benefits. If his employment is terminated by
Davis for cause, or by Mr. White without good reason, he will receive any
accrued but unpaid salary and benefits through the date of termination.
In the event it is determined that any payment or distribution by Davis to
or for the benefit of Mr. White (whether pursuant to the terms of his
Employment Agreement or otherwise) would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties are incurred by him
with respect to such excise tax, then Mr. White will be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such that after payment
by him of all taxes, he retains an amount of the Gross-Up Payment equal to the
excise tax so imposed.
Four Other Named Officers. The Employment Agreements between Davis and each
of Messrs. May, Pless, Tatum and Stan White will provide for a two-year
employment term following the Merger at an annual salary at a rate of not less
than such executive's highest bi-weekly base salary with Davis during the
three-month period immediately prior to the Merger. In addition, the executive
will have the opportunity to earn an incentive bonus of up to 25% of his base
salary each year, based on performance criteria comparable to those in effect
for his incentive compensation prior to the Merger. During the employment
period, the executive will be entitled to participate in all savings,
retirement and welfare plans, practices, policies and programs applicable
generally to other similarly situated officers of U.S. Filter and its
affiliated companies; provided, however, that Davis will maintain the
executive's supplemental retirement plan (the "SERP") with Davis as in effect
immediately prior to the Merger and will not terminate or amend the SERP
during the employment period. On the day after consummation of the Merger, the
executive will be granted options to purchase 10,000 shares of U.S. Filter
Common Stock under U.S. Filter's 1991 Employee Stock Option Plan at the fair
market value of U.S. Filter Common Stock on that date, which options will vest
in accordance with the normal vesting schedule for options granted under such
plan. On the first anniversary of such date, the executive will be granted an
additional 10,000 options at the fair market value of U.S. Filter Common Stock
on such date, which options will vest in accordance with the normal vesting
schedule for options granted under the U.S. Filter plan.
The Employment Agreements with Messrs May, Pless, Tatum and Stan White
provide for damages in the event the executive's employment is terminated
during the two-year employment period. If his employment is terminated by
Davis other than for cause, death or disability, or by the executive for "good
reason" (as defined in the agreement), he will receive any accrued but unpaid
salary and benefits and a pro-rated portion of any target bonus through the
date of termination, plus a lump sum equal to his annual salary for the
remainder of the two-year employment period; provided, however, that such
lump-sum payments of post-termination salary must be repaid to Davis if the
executive competes with Davis within a prescribed territory during the
remainder of the two-year employment period. If the executive's employment is
terminated by reason of death or disability, he will receive any accrued but
unpaid salary and benefits and a pro-rated portion of any target bonus through
the date of termination, plus any otherwise applicable death or disability
benefits. If his employment is terminated by Davis for cause, or by the
executive without good reason, he will receive any accrued but unpaid salary
and benefits through the date of termination.
In the event that it is determined that any payment or distribution by Davis
to or for the benefit of any of Messrs. May, Pless, Tatum and Stan White
(whether pursuant to the Employment Agreements or otherwise)
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would be subject to the excise tax imposed by Section 4999 of the Code, then,
if such action would benefit the executive on an after tax basis, the payment
or distribution will be limited to the extent necessary to avoid the excise
tax.
U.S. Filter Executive Retention Agreements
U.S. Filter entered into Executive Retention Agreements with each of the
Named Officers, which will provide protections to the officer in the event of
a termination of employment within one year after a change in control of U.S.
Filter. The Executive Retention Agreement with R. Doyle White calls for a
severance benefit of two times his annual compensation, including bonus, and a
continuation of welfare and retirement benefits for two years after
termination, or the economic equivalent thereof. The Executive Retention
Agreements with the other Named Officers call for a severance benefit of one
times the executive's annual compensation, including bonus, and a continuation
of welfare and retirement benefits for one year after termination, or the
economic equivalent thereof. In each case, the benefits payable under the
Executive Retention Agreement will be reduced for benefits received as a
result of termination of employment under such officer's Employment Agreement,
as described above.
If any portion of a payment under an Executive Retention Agreement would
constitute an "excess parachute payment" within the meaning of Section 280G of
the Code, then the payments made to the Named Officer under the Executive
Retention Agreement will be reduced so that the value of the aggregate
payments to the Named Officer under the Executive Retention Agreement and
under any other plan or program of U.S. Filter will be less than the maximum
amount which the Named Officer can receive without becoming subject to the
excise tax imposed by Section 4999 of the Code.
Davis Change in Control Employment Agreements
Davis is currently a party to change in control employment agreements (the
"Change in Control Employment Agreements") with each of the Named Officers and
45 other officers and employees of Davis, which would provide certain benefits
to the employee in the event of a change in control of Davis. The Merger would
constitute a "change in control" for purposes of the Change in Control
Employment Agreements. However, the Merger Agreement provides that it is a
condition to consummation of the Merger that, at the Effective Time, each of
the Named Officers and such other 45 employees shall have voluntarily
terminated his Change in Control Employment Agreement with Davis and entered
into a new Employment Agreement with Davis, as described above in the case of
the Named Officers. Each of the Named Officers and such 45 other employees has
signed a contract to do so. If, in spite of such contractual agreement, any
such employee refused to terminate his Change in Control Employment Agreement
and if U.S. Filter waived such refusal as a condition to the consummation of
the Merger, the employee would be entitled to the benefits described in his
Change in Control Employment Agreement. If not terminated as anticipated, (i)
the Change in Control Employment Agreements with each of the Named Officers
would provide a change-in-control bonus of two times the officer's current
salary, a severance benefit in certain events of two times his annual
compensation, including bonus, and a continuation of welfare benefits for two
years after the change in control; (ii) the Change in Control Employment
Agreements with eight additional officers would provide a change-in-control
bonus of 25% of the officer's current salary and a guaranteed continuation of
salary for one year following the change in control; and (iii) the Change in
Control Employment Agreements with the 37 additional employees would provide a
guaranteed continuation of salary for one year following the change in
control.
Supplemental Retirement Benefits
The Named Officers each participate in certain SERPs. The Merger Agreement
provides that Davis will pay at the Effective Time the lump sum value of R.
Doyle White's SERP, estimated in the Merger Agreement to have a present value
of $1,126,266, in accordance with the terms thereof. U.S. Filter also has
agreed to cause Davis to maintain the SERPs of Messrs. May, Pless, Tatum and
Stan White as in effect immediately prior to the Effective Time and not to
terminate or amend the same during the two-year employment period covered by
such
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executive's Employment Agreement, as described above. Assuming voluntary
retirement by each of such persons on August 22, 1998 (the end of the two-year
employment period) and based on certain other assumptions, Messrs. May, Pless,
Tatum and Stan White would receive, beginning at age 62, a monthly annuity for
life in the amount of $3,740, $2,542, $604 and $2,394, respectively, pursuant
to their SERPs.
Employee and Director Stock Options
Davis has granted stock options to the Named Officers and certain directors
of Davis under the Davis 1994 Employees Stock Option Plan and the Davis 1994
Directors Stock Option Plan (together, the "Davis Option Plans"). Options
granted include incentive stock options and non-qualified stock options which
vest not more than five years from the date of grant unless accelerated in
accordance with the applicable Davis Option Plan or individual option
agreement. Pursuant to the Davis Option Plans and as of the date of this Proxy
Statement/Prospectus, options to purchase 193,660 shares of Davis Common Stock
are outstanding under the Davis Option Plans. Pursuant to the Merger
Agreement, and subject to adjustment as set forth therein, at the Effective
Time, each employee or director stock option outstanding under the Davis
Option Plans, whether or not then exercisable in accordance with its terms,
will be converted into 1.3995 shares of U.S. Filter Common Stock.
The basis on which the employee and director stock options will be converted
was based on fair value analyses performed by financial advisors to Davis and
U.S. Filter utilizing recognized valuation models.
The following table sets forth, with respect to each of the Named Officers,
all executive officers of Davis as a group (consisting of the Named Officers
and collectively referred to as the "Executive Officer Group") and the non-
employee directors of Davis as a group, the number of shares of Davis Common
Stock covered by outstanding options held by such person or group:
<TABLE>
<CAPTION>
NAME OF PERSON OR GROUP OPTIONS HELD
----------------------- ------------
<S> <C>
R. Doyle White.................................................. 54,194
Larry May....................................................... 34,871
Stan White...................................................... 26,839
Robert D. Tatum................................................. 19,202
Robert H. Pless................................................. 26,554
Executive Officer Group......................................... 161,660
Non-Employee Director Group (7 persons)......................... 32,000
</TABLE>
Indemnification; Directors' and Officers' Liability Insurance
U.S. Filter has agreed that it will, following the Effective Time, cause
Davis to indemnify, defend and hold harmless the present and former directors,
officers, employees and agents of Davis and its subsidiaries against all
liabilities arising out of actions or omissions occurring at or prior to the
Effective Time to the full extent then permitted under Georgia law and by
Davis' Articles of Incorporation and Bylaws as currently in effect, including
provisions relating to advances of expenses. U.S. Filter has also agreed to
use its reasonable efforts to maintain in effect for two years after the
Effective Time Davis' existing directors' and officers' liability insurance
policy, subject to certain limitations, including the right to replace
policies and to limit the premium costs of such coverage.
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for accounting
and financial reporting purposes. Under this method of accounting, the assets
and liabilities of U.S. Filter and Davis will be carried forward to the
combined company at their recorded amounts, income of the combined company
will include income of U.S. Filter and Davis for the entire fiscal period in
which the Merger occurs and the reported income of the separate companies for
prior periods will be combined and restated as income of the combined company.
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Pursuant to the Merger Agreement, each of U.S. Filter and Davis is required
to exercise its best efforts to cause the Merger to be accounted for as a
pooling of interests, and Davis has agreed to deliver or cause to be delivered
to U.S. Filter from each of its affiliates an executed agreement as of the
Effective Time to the effect that such person has not transferred shares of
Davis Common Stock or U.S. Filter Common Stock within the preceding 30 days
and will not transfer any shares of U.S. Filter Common Stock prior to the date
that U.S. Filter publishes results covering at least 30 days of post-Merger
operations.
Consummation of the Merger is conditioned upon the receipt of letters from
Price Waterhouse LLP, Davis' independent accountants, and KPMG Peat Marwick
LLP, U.S. Filter's independent accountants, with respect to the qualification
of the Merger as a pooling of interests for accounting purposes. See "The
Merger Agreement--Conditions" and "Unaudited Pro Forma Combined Consolidated
Financial Information."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Following is a summary of material federal income tax consequences of the
Merger based on current United States law. Neither U.S. Filter nor Davis has
requested or will request any ruling from the United States Internal Revenue
Service as to the United States federal income tax consequences of the Merger.
Future legislative, judicial or administrative changes or interpretations,
which may be retroactive, could alter or modify the statements set forth
herein. This summary may not apply to certain classes of taxpayers, including,
without limitation, insurance companies, tax-exempt organizations, financial
institutions, dealers in securities, non-resident aliens, foreign
corporations, persons who acquired shares of Davis Common Stock pursuant to
the exercise of employee stock options or rights or otherwise as compensation
and persons who hold shares of Davis Common Stock in a hedging transaction or
as part of a straddle or conversion transaction. Also, the summary does not
address state, local or non-United States tax consequences of the Merger.
Consequently, each holder of Davis Common Stock (a "Holder") should consult
such Holder's own tax advisor as to the specific tax consequences of the
Merger to such Holder.
The Merger will be treated as a reorganization within the meaning of Section
368(a) of the Code. Accordingly, for federal income tax purposes, no gain or
loss will be recognized by either U.S. Filter or Davis as a result of the
Merger, and Holders who exchange shares of Davis Common Stock for shares of
U.S. Filter Common Stock pursuant to the Merger will be treated as follows:
(i) no gain or loss will be recognized by a Holder with respect to the
receipt of U.S. Filter Common Stock;
(ii) the aggregate adjusted tax basis of shares of U.S. Filter Common
Stock (including a fractional share interest in U.S. Filter Common Stock
deemed received and redeemed as described below) received by a Holder will
be the same as the aggregate adjusted tax basis of the shares of Davis
Common Stock exchanged therefor;
(iii) the holding period of shares of U.S. Filter Common Stock (including
the holding period of a fractional share interest in U.S. Filter Common
Stock) received by a Holder will include the holding period of the Davis
Common Stock exchanged therefor, provided that such shares of Davis Common
Stock are held as capital assets at the Effective Time; and
(iv) a Holder of Davis Common Stock who receives cash in lieu of a
fractional share interest in U.S. Filter Common Stock will be treated as
having received such fractional share interest and then as having received
the cash in redemption of such fractional share interest. Under Section 302
of the Code, if such deemed distribution is "substantially
disproportionate" with respect to the Holder or is "not essentially
equivalent to a dividend" after giving effect to the constructive ownership
rules of the Code, the Holder will generally recognize capital gain or loss
equal to the difference between the amount of cash received and the
Holder's adjusted tax basis in the fractional share interest. Under these
rules, a minority shareholder of Davis should recognize capital gain or
loss on the receipt of cash in lieu of a fractional share interest in U.S.
Filter Common Stock. The capital gain or loss will be long-term capital
gain or loss if the Holder's holding period in the fractional share
interest is more than one year.
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The obligation of U.S. Filter and Davis to consummate the Merger is
conditioned on the receipt of an opinion of U.S. Filter's counsel, Kirkpatrick
& Lockhart LLP, dated as of the Effective Time, substantially to the effect
that the Merger will be treated for United States federal income tax purposes
as a reorganization within the meaning of Section 368(a) of the Code. The
opinion of Kirkpatrick & Lockhart LLP referred to in this paragraph will be
based upon certain facts, assumptions and representations and/or covenants,
including those contained in certificates of officers of U.S. Filter, Davis
and, possibly, others. Subject to the receipt of such representations and/or
covenants, Kirkpatrick & Lockhart LLP anticipates that it will render such
opinion. If such opinion is not received, the Merger will not be consummated
unless the conditions requiring its receipt are waived and the approval of the
Davis shareholders is resolicited by means of an updated Proxy Statement/
Prospectus. U.S. Filter and Davis currently anticipate that such opinion will
be delivered and that neither U.S. Filter nor Davis will waive the conditions
requiring receipt of such opinions.
FAILURE TO EXERCISE TERMINATION RIGHT
Among other termination rights of the parties, the Merger Agreement may be
terminated by Davis in its sole discretion if the Average Market Price is less
than $16.83. In determining whether to elect to terminate the Merger Agreement
in these circumstances, the Davis Board of Directors will take into account,
consistent with its fiduciary duties, all relevant facts and circumstances
existing at the time, including, without limitation, the market for water
distribution and water and wastewater treatment industry stocks in general,
the relative value of the U.S. Filter Common Stock in the market, and the
advice of its financial advisors and legal counsel. By approving the Merger
Agreement, the Davis shareholders would be permitting the Davis Board of
Directors to determine, in the exercise of its fiduciary duties, to proceed
with the Merger even if the market price of the U.S. Filter Common Stock
declines substantially from its price on the date the Merger Agreement was
executed and delivered.
REGULATORY APPROVALS
Under the HSR Act and the rules promulgated thereunder, the Merger cannot be
consummated until notifications have been given and certain information has
been furnished to the FTC and the Antitrust Division and specified waiting
period requirements have been satisfied. U.S. Filter and Davis filed
notification and report forms under the HSR Act with the FTC and the Antitrust
Division on July 1, 1996. The required waiting period under the HSR Act
expires on July 31, 1996, unless a request for additional information is
received prior to that date. At any time before or after consummation of the
Merger, the Antitrust Division or the FTC could take such action under
applicable antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the consummation of the Merger or
seeking divestiture of substantial assets of Davis or U.S. Filter. At any time
before or after the Effective Time, and notwithstanding that the HSR Act
waiting period has expired, any state could take such action under applicable
antitrust laws as it deems necessary or desirable. Such action could include
seeking to enjoin consummation of the Merger or seeking divestiture of
businesses of Davis or U.S. Filter by U.S. Filter. Private parties may also
seek to take legal action under applicable antitrust laws under certain
circumstances.
Based on information available to them, Davis and U.S. Filter believe that
the Merger will be effected in compliance with United States federal and state
antitrust laws. However, there can be no assurance that a challenge to the
consummation of the Merger on antitrust grounds will not be made or that, if
such a challenge were made, Davis and U.S. Filter would prevail.
RESALE RESTRICTIONS
All shares of U.S. Filter Common Stock received by Davis shareholders in the
Merger will be freely transferable, except that shares of U.S. Filter Common
Stock received by persons who are deemed to be "affiliates" (as such term is
defined under the Securities Act) of Davis prior to the Merger may be resold
by them only in transactions permitted by the resale provisions of Rule 145
promulgated under the Securities Act (or Rule 144 in the case of such persons
who become affiliates of U.S. Filter) or as otherwise permitted under the
Securities Act. The Merger Agreement requires Davis to deliver or cause to be
delivered to U.S. Filter from
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each of its affiliates an executed agreement to the effect that such person
will not offer, sell, transfer or otherwise dispose of any of the shares of
U.S. Filter Common Stock issued to such person in or pursuant to the Merger
unless (a) such sale, transfer or other disposition has been registered under
the Securities Act, (b) such sale, transfer or other disposition is made in
conformity with Rule 145 under the Securities Act or (c) in the opinion of
counsel, such sale, transfer or other disposition is exempt from registration
under the Securities Act.
This Proxy Statement/Prospectus does not cover any resales of U.S. Filter
Common Stock received by affiliates of Davis upon consummation of the Merger,
and no person is authorized to make use of this Proxy Statement/Prospectus in
connection with any such resale.
NO APPRAISAL RIGHTS
Under applicable Georgia corporate law, holders of Davis Common Stock are
not entitled to dissenters' appraisal rights in connection with the Merger.
DAVIS RIGHTS AGREEMENT
On December 15, 1989, the Board of Directors of Davis adopted a share rights
plan (the "Davis Rights Agreement") and, in connection therewith, declared a
dividend distribution of one right (each a "Davis Right") for each outstanding
share of Davis Common Stock to shareholders of record at the close of business
on January 8, 1990. The Davis Rights Agreement generally provides that 20 days
following a public announcement that a person or a group of affiliated or
associated persons have become owners of 10% or more of the Davis Common Stock
(and have thus become an "Acquiring Person"), each Davis Right will entitle
the registered holder to purchase Davis Common Stock at a purchase price per
share equal to 20% of current market value. Any Davis Rights beneficially
owned by an Acquiring Person or any of the Acquiring Person's affiliates or
associates are not exercisable. The number of shares that each holder of a
Davis Right will be entitled to receive upon exercise is equal to one share of
Davis Common Stock multiplied by a fraction, the numerator of which is the
number of shares of Davis Common Stock outstanding on the date of the first
public announcement that a person has become an Acquiring Person (the "Stock
Acquisition Date") and the denominator of which is the number of Davis Rights
outstanding on the Stock Acquisition Date that are not beneficially owned by
the Acquiring Person or its affiliates or associates. Until such time as the
Davis Rights become exercisable, (a) the Davis Rights will be evidenced by the
Davis Common Stock certificates and will be transferred with and only with
such Common Stock certificates, (b) Davis Common Stock certificates issued
after January 8, 1990 will contain a notation incorporating the Davis Rights
Agreement by reference and (c) the surrender for transfer of any certificates
for Davis Common Stock will also constitute the transfer of the Davis Rights
associated with the Davis Common Stock represented by such certificate. In
connection with the Merger Agreement, the Davis Rights Agreement was amended
by the Davis Board so that neither the execution and delivery of nor the
consummation of the transactions contemplated by the Merger Agreement or the
Shareholder Agreements will result in the occurrence of a Stock Acquisition
Date. Pursuant to such amendment, the Davis Rights will be redeemed
immediately prior to the Effective Time. See "The Merger Agreement--
Conditions."
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THE MERGER AGREEMENT
Following is a brief summary of certain provisions of the Merger Agreement,
a copy of which is attached as Annex A to this Proxy Statement/Prospectus and
is incorporated herein by reference. Such summary is qualified in its entirety
by reference to the Merger Agreement. Shareholders of Davis are urged to read
the Merger Agreement in its entirety for a more complete description of the
Merger.
THE MERGER
The Merger Agreement provides that, following the approval and adoption of
the Merger Agreement and the transactions contemplated thereby by the
shareholders of Davis and the satisfaction or waiver of the other conditions
to the Merger, Sub will be merged with and into Davis, whereupon Davis will
become a wholly owned subsidiary of U.S. Filter.
If all such conditions to the Merger are satisfied or waived, the Merger
will become effective upon the filing of duly executed certificates of merger
with the Secretaries of State of the States of Georgia and Delaware, or at
such time thereafter as is provided in the certificates of merger.
At the Effective Time the Articles of Incorporation of Davis, the continuing
corporation, as in effect immediately prior to the Effective Time will be
amended and restated in their entirety to read as set forth in an exhibit to
the Merger Agreement. The Bylaws of Davis as in effect immediately prior to
the Effective Time will be the Bylaws of the continuing corporation. The
directors and officers of Sub immediately prior to the Effective Time will,
from and after the Effective Time, be the directors and officers,
respectively, of the continuing corporation until their successors are duly
elected or appointed or until their earlier death, resignation or removal.
CONVERSION OF DAVIS COMMON STOCK
Upon consummation of the Merger, pursuant to the Merger Agreement, Sub will
be merged with and into Davis and each issued and outstanding share of Davis
Common Stock (other than shares held in Davis' treasury immediately prior to
the Effective Time, all of which will be canceled) will be converted on the
basis of the Exchange Ratio into the right to receive 1.3995 shares of U.S.
Filter Common Stock, subject to adjustment. If the Average Market Price of the
U.S. Filter Common Stock is less than $18.67 per share, then the Adjusted
Exchange Ratio will be equal to $26.12 (calculated by multiplying the Exchange
Ratio by $18.67) divided by the Average Market Price. If the Average Market
Price of the U.S. Filter Common Stock is more than $22.67 per share, then the
Adjusted Exchange Ratio will be equal to $31.72 (calculated by multiplying the
Exchange Ratio by $22.67) divided by the Average Market Price.
Neither certificates nor scrip for fractional shares of U.S. Filter Common
Stock will be issued in the Merger, but in lieu thereof each holder of Davis
Common Stock otherwise entitled to a fraction of a share of U.S. Filter Common
Stock will be entitled to receive a cash payment. The amount of such cash
payment will be equal, in the case of each fractional share, to an amount,
without interest, calculated as the product of (i) such fraction, multiplied
by (ii) the closing per share sale price of U.S. Filter Common Stock on the
New York Stock Exchange for the day of the Effective Time as quoted in The
Wall Street Journal. No U.S. Filter stock split or dividend will relate to any
fractional share interest, and no such fractional share interest will entitle
the owner thereof to vote or to any rights of a stockholder of U.S. Filter.
The Merger Agreement provides that, in the event of a U.S. Filter stock
split, stock dividend or similar recapitalization with respect to the U.S.
Filter Common Stock for which the record date (in the case of a stock
dividend) or the effective date (in the case of a stock split or other
recapitalization for which a record date is not established) is prior to the
Effective Time, the Exchange Ratio, as adjusted, and the Average Market Prices
related to the termination provisions of Sections 7.01(b) and (c) of the
Merger Agreement, shall be proportionately adjusted to reflect such stock
split, dividend or recapitalization. A 3-for-2 stock split of U.S. Filter
Common Stock was effective July 15, 1996. Accordingly, the Exchange Ratio and
related amounts have been proportionately adjusted to reflect such stock
split.
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Promptly after the Effective Time, the Exchange Agent will mail transmittal
forms and exchange instructions to each holder of record of Davis to be used
to surrender and exchange certificates evidencing shares of Davis Common Stock
for certificates evidencing the shares of U.S. Filter Common Stock to which
such holder has become entitled. After receipt of such transmittal forms, each
holder of certificates formerly representing Davis Common Stock will be able
to surrender such certificates to the Exchange Agent, and each such holder
will receive in exchange therefor certificates evidencing the number of shares
of U.S. Filter Common Stock to which such holder is entitled and cash in lieu
of fractional shares as indicated above. Such transmittal forms will be
accompanied by instructions specifying other details of the exchange. DAVIS
SHAREHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE A
TRANSMITTAL FORM.
After the Effective Time, each certificate evidencing Davis Common Stock,
until so surrendered and exchanged, will be deemed, for all purposes, to
evidence only the right to receive the number of shares of U.S. Filter Common
Stock (and cash in lieu of fractional shares) which the holder of such
certificate is entitled to receive, without interest. The holder of such
unexchanged certificate will not be entitled to receive any dividends or other
distributions payable by U.S. Filter until the certificate has been exchanged.
Following such exchange, such dividends or other distributions will be paid to
the holder entitled thereto, without interest.
STOCK OPTIONS AND OTHER STOCK PLANS
At the Effective Time, each employee or director stock option to purchase
shares of Davis Common Stock, issued by Davis and outstanding and unexercised
as of June 10, 1996 and as of 11:59 p.m. on the date preceding the Effective
Time, whether or not then exercisable in accordance with its terms, will be
converted into 1.3995 shares of U.S. Filter Common Stock, subject to
adjustment on the basis of the Adjusted Exchange Ratios.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains representations and warranties of Davis, on
the one hand, and U.S. Filter and Sub, on the other, which are customary in
transactions of this type, relating to, among other things, (a) the corporate
organization, qualification and capitalization of Davis and each of its
subsidiaries and of U.S. Filter and Sub and certain similar corporate matters;
(b) the authorization, execution, delivery and enforceability of the Merger
Agreement and the consummation of the transactions contemplated thereby and
related matters; (c) required governmental filings and absence of violations
under charters, bylaws, and certain instruments and laws; (d) documents and
financial statements filed by each of Davis and U.S. Filter with the
Commission and the accuracy of information contained therein; (e) the absence
of undisclosed liabilities; (f) the absence of certain material adverse
changes or events; (g) litigation; (h) taxes; (i) employee benefits; (j)
environmental matters; (k) compliance with laws; and (l) the accuracy of
information supplied by each of Davis and U.S. Filter in connection with the
Registration Statement and this Proxy Statement/Prospectus.
Davis has also represented to U.S. Filter and Sub that certain "fair price"
provisions of the Georgia corporate law and provisions of Georgia corporate
law applicable to an "interested shareholder" engaging in a "business
combination" will not apply to the Merger Agreement, the Shareholder
Agreements or the consummation of the Merger or other transactions
contemplated by the Merger Agreement or the Shareholder Agreements. Davis has
made representations and warranties with respect to, among other things, its
indebtedness; certain "related party" transactions; required authorizations;
agreements, contracts and commitments; real property; intellectual property;
insurance; employment and change of control agreements; labor relations;
certain accounting matters; brokers and finders; and the absence of existing
discussions with other parties. In addition, U.S. Filter and Sub have made
certain representations and warranties with respect to the interim operation
of Sub.
Each of the representations and warranties of Davis, U.S. Filter and Sub in
the Merger Agreement will terminate upon consummation of the Merger.
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CERTAIN COVENANTS
Pursuant to the Merger Agreement, Davis has agreed that, during the period
from the date of the Merger Agreement until the earlier of the termination of
the Merger Agreement in accordance with its terms or the Effective Time,
except as consented to in writing by U.S. Filter, it and each of its
subsidiaries will, with certain exceptions: (a) carry on its business in the
ordinary course in substantially the same manner as previously conducted; (b)
pay its debts and taxes when due subject to good faith disputes over such
debts or taxes, and pay or perform its other obligations when due; (c) use
reasonable efforts consistent with past practices to preserve intact its
present business organization; (d) except in the ordinary course of business,
not acquire any stock or other interest in or purchase any assets of any
business organization or entity; (e) not sell, lease, assign, transfer or
otherwise dispose of any of its assets, nor create any mortgage, security
interest or other lien thereon, except in the ordinary course of business and
except for any assets which are obsolete; (f) not incur any indebtedness for
borrowed money or any obligation under any guarantee except for certain
indebtedness which may be incurred under Davis' existing bank loan agreement
only for working capital purposes; (g) not (i) alter, amend or repeal any
provision of its articles or certificate of incorporation or bylaws; (ii)
change the number or identity of its directors (other than as a result of the
death, retirement or resignation of a director); (iii) form or acquire any
subsidiaries; (iv) except in the ordinary course of business, enter into,
modify or terminate any material contract or agreement to which it is a party
or agree to do so; (v) modify any employment agreements; or (vi) incur any
obligation for the payment of any bonus, additional salary or compensation or
retirement, termination, welfare or severance benefits payable or to become
payable to any of its employees or other persons, except in any such case for
obligations incurred pursuant to the terms of any existing employment
agreement or benefit plan; (h) pay and discharge all taxes imposed upon it
prior to the date on which penalties attach thereto; (i) except in accordance
with Davis' dividend policy in effect on the date of the Merger Agreement, not
declare, set aside, make or pay any dividends or other distributions with
respect to its capital stock or purchase or redeem any shares of its capital
stock; (j) not authorize or make any capital expenditure in excess of $250,000
individually or $1,000,000 in the aggregate; or (k) not increase the number of
shares authorized or issued and outstanding of its capital stock, nor grant
any option, warrant, call, commitment, right or agreement of any character
relating to its capital stock, nor issue or sell any shares of its capital
stock or securities convertible into such capital stock, or any bonds,
promissory notes, debentures or other corporate securities, except pursuant to
the exercise of options or rights outstanding on the date of the Merger
Agreement.
In addition, Davis has agreed, subject to fiduciary obligations of the Davis
Board of Directors under applicable law as advised in writing by outside legal
counsel, that the Davis Board will recommend adoption and approval of the
Merger Agreement and shall use its best efforts to solicit and secure from its
shareholders their adoption and approval of the Merger Agreement.
NO SOLICITATION
The Merger Agreement provides that Davis will not, directly or indirectly,
through any officer, director, employee, representative or agent of it or any
of its subsidiaries, (i) solicit, initiate or encourage any inquiries or
proposals that constitute, or could reasonably be expected to lead to, a
proposal or offer for a merger, consolidation, business combination, sale of
substantial assets, sale of shares of capital stock (including without
limitation by way of a tender offer) or similar transactions involving it or
any of its subsidiaries, other than the transactions contemplated by the
Merger Agreement (any of the foregoing inquiries or proposals being referred
to in the Merger Agreement as an "Acquisition Proposal"), (ii) engage in
negotiations or discussions concerning, or provide any non-public information
to any person or entity relating to, any Acquisition Proposal, or (iii) agree
to, approve or recommend any Acquisition Proposal; provided, however, that
nothing contained in the Merger Agreement shall prevent Davis or the Davis
Board of Directors from (a) furnishing non-public information to, or entering
into discussions or negotiations with, any person or entity in connection with
an unsolicited bona fide written Acquisition Proposal by such person or entity
or recommending an unsolicited bona fide written Acquisition Proposal to the
shareholders of Davis, if and only to the extent that (1) the Davis Board
believes in good faith (after consultation with and based on the written
opinion of its financial advisor) that such Acquisition Proposal could, if
consummated, result in a transaction more favorable to its shareholders from a
financial point
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of view than the transaction contemplated by the Merger Agreement (any such
more favorable Acquisition Proposal being referred to in the Merger Agreement
as a "Superior Proposal") and the Davis Board determines in good faith based
on a written opinion of outside legal counsel that such action is necessary
for it to comply with its fiduciary duties to shareholders under applicable
law and (2) prior to furnishing such non-public information to, or entering
into discussions or negotiations with, such person or entity, the Davis Board
receives from such person or entity an executed confidentiality agreement; or
(b) taking any position, pursuant to Rules 14d-9 and 14e-2 under the Exchange
Act, with regard to an Acquisition Proposal consisting of a commenced tender
offer (other than a tender offer commenced by public announcement alone) that
is consistent with the advice of its counsel concerning the Davis Board's
fiduciary duties under applicable law.
Davis is required to notify U.S. Filter upon receipt of any Acquisition
Proposal or request for non-public information or access to its properties,
books or records in connection with an Acquisition Proposal.
INDEMNIFICATION AND INSURANCE
U.S. Filter has agreed that, from and after the Effective Time, it will
cause Davis to indemnify, defend and hold harmless the present and former
directors, officers, employees and agents of Davis and its subsidiaries
against all liabilities arising out of actions or omissions occurring at or
prior to the Effective Time, to the full extent permitted under Georgia law
and Davis' Articles of Incorporation and Bylaws as in effect at the date of
the Merger Agreement, including provisions relating to advances of expenses.
U.S. Filter has also agreed to use its reasonable efforts to maintain in
effect for two years after the Effective Time Davis' existing directors' and
officers' liability insurance policy, subject to certain limitations,
including the right to replace policies and to limit the premium costs of such
coverage with respect to claims arising from facts or events which occurred at
or prior to the Effective Time.
CONDITIONS
The respective obligations of U.S. Filter, Sub and Davis to effect the
Merger are subject to the following conditions, among others: (a) the Merger
Agreement shall have been approved and adopted by the shareholders of Davis
and no right of dissent shall be applicable in connection therewith; (b) the
waiting period applicable to the consummation of the Merger under the HSR Act
shall have expired or been terminated; (c) the Registration Statement shall
have become effective and shall not be the subject of a stop order or
proceedings seeking a stop order; (d) the absence of any temporary restraining
order, injunction or other order or legal or regulatory restraint or
prohibition preventing, or the enactment of any law making illegal, the
consummation of the Merger, or limiting or restricting U.S. Filter's conduct
or operation of Davis' business after the merger; (e) the approval of the
shares of U.S. Filter Common Stock to be issued in the Merger for listing on
the New York Stock Exchange upon official notice of issuance; (f) the accuracy
in all material respects of the representations and warranties of Davis, in
the case of U.S. Filter and Sub, and of U.S. Filter and Sub, in the case of
Davis, set forth in the Merger Agreement; (g) the performance in all material
respects of all obligations of Davis, in the case of U.S. Filter and Sub, and
of U.S. Filter and Sub, in the case of Davis, required to be performed under
the Merger Agreement; (h) the receipt of certain legal opinions, including the
opinion of Kirkpatrick & Lockhart LLP, counsel to U.S. Filter, to the effect
that the Merger will be treated for federal income tax purposes as a tax-free
reorganization within the meaning of Section 368(a) of the Code; and (i)
certain employees of Davis shall have entered into employment agreements with
U.S. Filter and certain change in control employment agreements between Davis
and certain of its employees shall have been terminated.
The obligations of U.S. Filter and Sub to consummate the Merger are also
subject to the following conditions among others: (a) all required
governmental and material third party authorizations shall have been obtained;
(b) the receipt of letters from Price Waterhouse LLP, Davis' independent
accountants, and KPMG Peat Marwick LLP, U.S. Filter's independent accountants,
with respect to the qualification of the Merger as a pooling of interests for
accounting purposes; (c) the receipt of letters from the affiliates of Davis,
within the meaning of Rule 145 under the Securities Act, with respect to their
obligations under the Securities Act upon resale of any shares of U.S. Filter
Common Stock issued to them in connection with the Merger and to the effect
that such
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persons have not transferred shares of Davis Common Stock or U.S. Filter
Common Stock within the 30 days preceding the Effective Time and will not
transfer any shares of U.S. Filter Common Stock prior to the date that U.S.
Filter publishes results covering at least 30 days of post-merger operations;
(d) the Davis Rights shall have been redeemed immediately prior to the
Effective Time; (e) the resignation of all directors of Davis and its
subsidiaries, except for those designated by U.S. Filter as directors of the
continuing corporation or its subsidiaries; and (f) following action by the
committees administering Davis' Employees Stock Option Plan and Directors
Stock Option Plan, all holders of outstanding options under those plans shall
have acknowledged in writing that the holders' receipt of shares of U.S.
Filter Common Stock as Merger consideration shall be in full settlement of
such options.
TERMINATION; TERMINATION FEES AND EXPENSES
The Merger Agreement may be terminated at any time prior to the Effective
Time:
(a) by mutual written consent of U.S. Filter and Davis; or
(b) by U.S. Filter if the Average Market Price of the U.S. Filter Common
Stock is greater than $24.83; or
(c) by Davis if the Average Market Price of the U.S. Filter Common Stock
is less than $16.83; or
(d) by either U.S. Filter or Davis if the Merger shall not have been
consummated by December 31, 1996 (provided that the right to terminate the
Merger Agreement on this basis will not be available to any party whose
failure to fulfill any material obligation under the Merger Agreement has
been a cause of or has resulted in the failure of the Merger to occur on or
before such date); or
(e) by U.S. Filter or Davis, if (i) the other party has breached any
representation or warranty contained in the Merger Agreement (except where
such breach would not have a material adverse effect on the party having
made such representation or warranty and its subsidiaries taken as a whole
and would not have a material adverse effect upon the transactions
contemplated by the Merger Agreement), or (ii) there has been a breach of a
covenant or agreement set forth in the Merger Agreement on the part of the
other party, which shall not have been cured within two business days
following receipt by the breaching party of written notice of such breach
from the other party (other than those described under "--No Solicitation,"
as to which there shall be no cure period); or
(f) by either U.S. Filter or Davis if a court of competent jurisdiction
or other governmental authority shall have issued a nonappealable final
order, decree or ruling or taken any other action, in each case having the
effect of permanently restraining, enjoining or otherwise prohibiting the
Merger; or
(g) by U.S. Filter or Davis in the event that any condition precedent to
the obligations of such party to consummate the transactions contemplated
by the Merger Agreement has become impossible of satisfaction, other than
as a result of the breach of the Merger Agreement by the party attempting
to terminate the Merger Agreement; or
(h) by either U.S. Filter or Davis, if, at the Davis shareholders'
meeting (including any adjournment or postponement thereof), the requisite
vote of the shareholders of Davis in favor of the Merger Agreement and the
Merger shall not have been obtained; or
(i) by U.S. Filter, if (i) Davis shall provide non-public information to
or engage in negotiations regarding any Acquisition Proposal with any
person other than USF or its affiliates, (ii) the Davis Board shall have
withdrawn or modified its recommendation of the Merger Agreement or the
Merger or shall have resolved to do any of the foregoing; (iii) the Davis
Board shall have recommended to the shareholders of Davis an Acquisition
Proposal other than one made by U.S. Filter or an affiliate of U.S. Filter;
or (iv) Davis shall have amended or otherwise altered the provisions of the
Rights Agreement other than as provided for in the Merger Agreement.
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In the event of any termination of the Merger Agreement by either U.S.
Filter or Davis as provided above, the Merger Agreement will become void and
there will be no liability or obligation on the part of U.S. Filter, Sub or
Davis or their respective officers, directors, stockholders or affiliates,
except to the extent that such termination results from the willful breach by
a party of the Merger Agreement, provided that the provisions relating to fees
and expenses shall survive such termination.
Except as set forth below, whether or not the Merger is consummated, all
fees and expenses incurred in connection with the Merger Agreement and the
transactions contemplated thereby will be paid by the party incurring such
expenses, except that all fees and expenses, other than attorneys' fees,
incurred in relation to the printing and filing of this Proxy
Statement/Prospectus and the Registration Statement will be shared equally by
U.S. Filter and Davis.
The Merger Agreement provides that Davis will reimburse U.S. Filter for out-
of-pocket expenses incurred by U.S. Filter relating to the transactions
contemplated by the Merger Agreement prior to termination (including, but not
limited to, fees and expenses of U.S. Filter's counsel, accountants and
financial advisors) upon the termination of the Merger Agreement by U.S.
Filter or Davis pursuant to paragraph (h) above or by U.S. Filter pursuant to
paragraph (i) above.
Davis will be obligated to pay U.S. Filter a termination fee of $3,000,000
upon the earliest to occur of the following events: (x) the termination of the
Merger Agreement by U.S. Filter or Davis pursuant to paragraph (h) above,
provided that an Acquisition Proposal shall have been announced or otherwise
disclosed at or prior to the Davis shareholders' meeting, or (y) by U.S.
Filter pursuant to clauses (ii), (iii) or (iv) of paragraph (i) above. Davis
will be obligated to pay U.S. Filter a termination fee of $1,500,000 upon the
termination of the Merger Agreement pursuant to clause (i) of paragraph (i)
above.
AMENDMENT AND WAIVER
The Merger Agreement may be amended at any time by action taken or
authorized by the respective Boards of Directors of U.S. Filter, Sub and
Davis, but after approval by the shareholders of Davis of the Merger Agreement
and the transactions contemplated thereby, no amendment shall be made which by
law requires further approval by such shareholders, without such further
approval. The parties to the Merger Agreement, by action taken or authorized
by their respective Boards of Directors, may extend the time for performance
of the obligations or other acts of the other parties to the Merger Agreement,
may waive inaccuracies in the representations or warranties contained in the
Merger Agreement and may waive compliance with any agreements or conditions
contained in the Merger Agreement.
THE SHAREHOLDER AGREEMENTS
Following is a summary of the Shareholder Agreements. Such summary is
qualified in its entirety by reference to the full text of the form of
Shareholder Agreement attached to this Proxy Statement/Prospectus as Annex C.
Pursuant to the Shareholder Agreements, the individual parties thereto
(each, a "Shareholder") have each agreed that, until the earlier of (i) the
Effective Time or (ii) the date on which the Merger Agreement is terminated in
accordance with its terms (the earlier of such time and such date being
referred to herein as the "Shareholder Expiration Date"), the Shareholder will
vote, or take action by written consent with respect to, all of his shares of
Davis Common Stock (x) in favor of the adoption and approval of the Merger
Agreement and the transactions contemplated thereby, as such Merger Agreement
may be modified or amended from time to time (but not to reduce the
consideration to be received thereunder), and (y) against any action, omission
or agreement which would or could impede or interfere with, or have the effect
of discouraging, the Merger, including, without limitation, any Acquisition
Proposal other than the Merger.
41
<PAGE>
At the request of U.S. Filter the Shareholder will execute and deliver to
U.S. Filter an irrevocable proxy and irrevocably appoint U.S. Filter or its
designee his or her attorney and proxy to vote or give consent with respect to
all of his or her shares of Davis Common Stock for the purposes set forth
above. Any such proxy will terminate on the Shareholder Expiration Date.
Each Shareholder Agreement provides that none of its provisions will affect
in any way the performance of a Shareholder's duties, including fiduciary
duties, as a director of Davis.
Each Shareholder Agreement contains the agreement of the Shareholder that,
among other things, until the Shareholder Expiration Date, he will: (a) not,
and will not agree to, sell, transfer, pledge, hypothecate, encumber, assign,
tender or otherwise dispose of any of his shares of Davis Common Stock (or any
interest therein) (other than in connection with certain transfers for estate
planning purposes, provided certain conditions are met); (b) other than as
expressly contemplated by the Shareholder Agreement, not grant any powers of
attorney or proxies or consents in respect of any of his or her shares of
Davis Common Stock, deposit any of his or her shares of Davis Common Stock
into a voting trust, enter into a voting agreement with respect to any of his
or her shares of Davis Common Stock or otherwise restrict the ability of the
holder of any of his or her shares of Davis Common Stock freely to exercise
all voting rights with respect thereto; (c) in the Shareholder's capacity as a
shareholder of Davis, not initiate, solicit or encourage, directly or
indirectly, any inquiries or the making or implementation of any Acquisition
Proposal or engage in any negotiations concerning, or provide any confidential
information or data to, or have any discussions with, any person relating to
an Acquisition Proposal, or otherwise facilitate any effort or attempt to make
or implement an Acquisition Proposal, and will cease any existing activities
related to the foregoing; (d) notify U.S. Filter if any such inquiry or
proposal is received by such Shareholder; and (e) not take any action that,
based upon the advice of U.S. Filter's accountants, would or could prevent the
Merger from qualifying for pooling of interests accounting treatment.
42
<PAGE>
DAVIS SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data of Davis for each of the five full
fiscal years set forth below are derived from the audited consolidated
financial statements of Davis. Each fiscal year of Davis is ended April 30.
This data should be read in conjunction with the financial statements and
other financial information included or incorporated herein by reference.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED APRIL 30,
-------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA,
PERCENTAGES AND RATIOS)
<S> <C> <C> <C> <C> <C>
Net sales.................. $226,489 $215,649 $202,621 $190,990 $186,719
Income (loss) before income
taxes and the cumulative
effect of the change in
the method of accounting
for income taxes.......... $ 10,076 $ 5,807 $ (8,395) $ 390 $ (1,250)
Net income (loss) before
the cumulative effect of
the change in the method
of accounting for income
taxes..................... $ 5,749 $ 3,448 $ (5,340) $ 194 $ (844)
Cumulative effect of the
change in the method of
accounting for income
taxes..................... $ 0 $ 0 $ 0 $ 459 $ 0
Net income (loss).......... $ 5,749 $ 3,448 $ (5,340) $ 653 $ (844)
PRIMARY EARNINGS PER SHARE:
Net income (loss) per share
before the cumulative
effect of the change in
the method of accounting
for income taxes.......... $ 1.78 $ 1.06 $ (1.64) $ 0.06 $ (0.26)
Cumulative effect per share
of the change in the
method of accounting for
income taxes.............. $ 0.00 $ 0.00 $ 0.00 $ 0.14 $ 0.00
Net income (loss) per
share..................... $ 1.78 $ 1.06 $ (1.64) $ 0.20 $ (0.26)
FULLY DILUTED EARNINGS PER
SHARE:
Net income (loss) per share
before the cumulative
effect of the change in
the method of accounting
for income taxes.......... $ 1.72 $ 1.05 $ (1.64) $ 0.06 $ (0.26)
Cumulative effect per share
of the change in the
method of accounting for
income taxes.............. $ 0.00 $ 0.00 $ 0.00 $ 0.14 $ 0.00
Net income (loss) per
share..................... $ 1.72 $ 1.05 $ (1.64) $ 0.20 $ (0.26)
Cash dividends per share... $ 0.39 $ 0.08 $ 0.00 $ 0.00 $ 0.10
Average shares outstanding. 3,236 3,261 3,261 3,265 3,266
Gross margin as a
percentage of net sales... 16.7% 14.8% 14.8 % 16.5% 15.5 %
Net income (loss) as a
percentage of net sales... 2.5% 1.6% (2.6)% 0.3% (0.5)%
Net income (loss) as a
percentage of beginning
stockholders' equity...... 22.75% 15.5% (19.3)% 2.4% (3.0)%
AT YEAR-END
Total assets............... $ 74,632 $ 81,536 $ 82,085 $ 79,341 $ 82,402
Working capital............ $ 25,805 $ 30,593 $ 31,731 $ 33,782 $ 41,891
Current ratio.............. 1.74 1.78 1.84 2.19 2.98
Long term debt, less
current portion........... $ 6,845 $ 14,787 $ 19,425 $ 20,719 $ 30,051
Stockholders' equity....... $ 29,656 $ 25,332 $ 22,309 $ 27,635 $ 27,089
Ratio of stockholders'
equity to total
liabilities............... 0.66 0.45 0.37 0.53 0.49
Stockholders' equity per
share..................... $ 9.16 $ 7.77 $ 6.83 $ 8.50 $ 8.30
</TABLE>
43
<PAGE>
DAVIS MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Davis generates the major portion of its revenues from its traditional
business of marketing water distribution equipment and supplies, including
underground pipe, pipe fittings, valves, fire hydrants and water meters. These
products are purchased from numerous manufacturers for distribution through a
network of 23 service center warehouses in nine southeastern, southwestern and
western states. These products are sold principally to independent
contractors, industrial customers, municipalities and other government
agencies, and private utilities. Davis believes that it is one of the largest
distributors of water distribution equipment and supplies in the southeast,
based on annual sales of such products.
Davis also offers comprehensive, turnkey solutions to the growing public
concern about water quality and wastewater treatment. Davis custom designs,
manufactures and installs water and wastewater treatment equipment custom
tailored for municipal and industrial use and distributes related materials
that enable municipalities and industry to meet applicable health and water
quality standards. Water treatment plants and wastewater systems that process
up to five million gallons of water per day are among the large systems built
by Davis at its Thomasville, Georgia facilities and sold throughout the United
States by Davis' sales force and manufacturers' representatives. Davis also
sells process materials that are used to control odor in municipal wastewater
collection and treatment systems and other process materials that treat water
and condition sludge for disposal. These products are distributed by Davis
through its own sales force and manufacturers' representatives primarily to
municipal and industrial customers.
The following table illustrates the contributions to Davis' annual net
sales, operating income (loss), and assets attributable to regions of the
United States served by Davis. Export sales are included in "Other."
<TABLE>
<CAPTION>
OPERATING
NET SALES INCOME (LOSS) ASSETS
------------ ---------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Fiscal 1996:
Southeastern...................... $142,062 63% $ 6,087 60 % $59,745 80%
Midwestern........................ 38,683 17% 1,844 18 % 8,107 11%
Western........................... 8,558 4% 58 1 % 1,473 2%
Rocky Mountain.................... 27,921 12% 1,487 15 % 4,813 6%
Other............................. 9,265 4% 600 6 % 494 1%
-------- --- -------- ---- ------- ---
$226,489 100% $ 10,076 100 % $74,632 100%
======== === ======== ==== ======= ===
Fiscal 1995:
Southeastern...................... $131,569 61% $ 4,236 73 % $65,787 81%
Midwestern........................ 33,777 16% 1,018 18 % 7,911 10%
Western........................... 12,717 6% (860) (15)% 1,819 2%
Rocky Mountain.................... 24,689 11% 1,056 18 % 5,316 6%
Other............................. 12,897 6% 357 6 % 703 1%
-------- --- -------- ---- ------- ---
$215,649 100% $ 5,807 100 % $81,536 100%
======== === ======== ==== ======= ===
Fiscal 1994:
Southeastern...................... $123,452 61% $ (3,449) 41 % $62,398 76%
Midwestern........................ 32,236 16% (1,602) 19 % 7,914 10%
Western........................... 17,130 8% (361) 4 % 5,822 7%
Rocky Mountain.................... 16,624 8% 491 (6)% 5,248 6%
Other............................. 13,179 7% (3,474) 42 % 703 1%
-------- --- -------- ---- ------- ---
$202,621 100% $ (8,395) 100 % $82,085 100%
======== === ======== ==== ======= ===
</TABLE>
44
<PAGE>
Davis' export sales in fiscal 1996, 1995 and 1994 totaled $1,737,000,
$1,120,000 and $1,776,000, respectively. Export sales consisted principally of
water and wastewater treatment equipment and were made primarily in Canada,
Mexico, and Puerto Rico.
RESULTS OF OPERATIONS
Net Sales
Net sales for fiscal 1996 increased 5.0% as compared to fiscal 1995, while
fiscal 1995 net sales increased 6.4% as compared to fiscal 1994. Set forth
below is sales information for the past three fiscal years regarding Davis'
principal product classes:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
--------------------------------------------------
1996 1995 1994
---------------- ---------------- ----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Water distribution equipment
and supplies:
Pipes and fittings........ $ 91,826 40% $ 92,862 43% $ 76,197 38%
Valves, hydrants, water
meters and accessories... 78,286 35% 73,960 34% 68,231 34%
-------- --- -------- --- -------- ---
170,112 75% 166,822 77% 144,428 72%
-------- --- -------- --- -------- ---
Water and wastewater
equipment:
Treatment equipment ...... 22,965 10% 20,721 10% 33,013 16%
Pumping equipment......... 8,102 4% 6,234 3% 6,678 3%
Process materials and
services................. 25,310 11% 21,872 10% 18,502 9%
-------- --- -------- --- -------- ---
56,377 25% 48,827 23% 58,193 28%
-------- --- -------- --- -------- ---
Total..................... $226,489 100% $215,649 100% $202,621 100%
======== === ======== === ======== ===
</TABLE>
Net sales by Davis' water distribution business increased by 2.0% in fiscal
1996 as compared to fiscal 1995 and increased by 15.5% in fiscal 1995 when
compared to fiscal 1994. The increase in net sales in each period is
attributed to increased activity in the commercial and residential land
development and construction markets as a result of the improvement in the
national economy and the increased efforts by Davis' sales force to increase
sales. This increased activity led to an increased demand for Davis' water
distribution products, which resulted in both increased sales volume and
generally higher per unit prices. The slower rate of growth during fiscal 1996
reflects the slower rate of growth in the overall economy during that period.
Net sales by Davis' water and wastewater treatment business increased by
15.5% in fiscal 1996 as compared to fiscal 1995 and decreased by 16.1% in
fiscal 1995 as compared to fiscal 1994. The increase in water and wastewater
treatment sales for fiscal 1996 as compared to fiscal 1995 is attributed to
the improvement in the economy. The decrease in water and wastewater treatment
sales for fiscal 1995 is a direct result of the Taulman shutdown in the fourth
quarter of fiscal 1994. Operating results for fiscal 1995 and fiscal 1996
exclude the operations of the Turbitrol division of Taulman. See Note 3 of
Notes to Davis Water & Waste Industries, Inc. Consolidated Financial
Statements. Excluding the effects of the Taulman shutdown, net sales by the
remainder of the water and wastewater treatment business increased by 10.8% in
fiscal 1995 as compared to fiscal 1994. The increase in net sales was due to
the improvement in the economy, which resulted in an increase in the volume of
products sold.
Cost of products sold
The gross profit margin (the difference between net sales and cost of
products sold expressed as a percentage of net sales) was 16.7% for fiscal
1996 and 14.8% for both fiscal 1995 and 1994. The overall increase in the
margin for fiscal 1996 as compared to fiscal 1995 resulted from management's
efforts to increase margins through improved product mix and focus on products
with higher margins. The gross profit margin for fiscal
45
<PAGE>
1995 as compared to fiscal 1994 remained unchanged, although the gross profit
margin for fiscal 1995 excluded the operating results of the Turbitrol
division of Taulman as a result of management's decision to shut down the
Turbitrol division in the fourth quarter of fiscal 1994. See Note 3 of Notes
to Davis Water & Waste Industries, Inc. Consolidated Financial Statements.
Selling, general and administrative expenses
When measured as a percentage of net sales, selling, general and
administrative expenses were 11.9%, 11.4%, and 14.0% for fiscal 1996, 1995 and
1994, respectively. The increase in selling, general and administrative
expense as a percentage of net sales in fiscal 1996 as compared to fiscal 1995
is due to increased levels of incentive compensation, including stock
compensation, earned by management and employees, which resulted from improved
operating results and increases in the market value of Davis Common Stock
during the year. The decrease in selling, general and administrative expense
as a percentage of net sales for fiscal 1995 as compared to fiscal 1994 is
attributed to the 6.4% increase in sales and a $3,978,000 decrease in
expenses. The decrease in expenses is primarily due to the exclusion of the
operating results of Taulman from the fiscal 1995 operating results and
management's continuing efforts to reduce costs where possible.
Interest expense
Interest expense decreased by 23.5% in fiscal 1996 as compared to fiscal
1995 and increased by 6.6% in fiscal 1995 as compared to fiscal 1994. The
decrease in fiscal 1996 compared to fiscal 1995 was due primarily to the
reduction of $4,144,000 or 23.5% in Davis' average borrowing, while the
average borrowing rate remained relatively unchanged. The reduction in Davis'
average borrowings occurred because of management's efforts to control costs
and levels of inventory and a reduction in the days to collect accounts
receivable. The increase in fiscal 1995 compared to fiscal 1994 was due
primarily to an increase in the average borrowing rate, despite a decline in
the average amount of long-term and short-term debt. During fiscal 1995,
Davis' average borrowing rate increased 160 basis points, or 25.4%, while
average borrowings declined by $3,482,000, or 16.5%, when compared to fiscal
1994. The increase in the average borrowing rate was due to higher rates which
were established in connection with a renegotiation of the SunTrust Bank
revolving loan agreement during fiscal 1994. See Note 5 of Notes to Davis
Water & Waste Industries, Inc. Consolidated Financial Statements. The decrease
in average borrowings from fiscal 1995 to fiscal 1994 was a result of
management's continued efforts to control inventories and improvements in
average days to collect accounts receivable.
Provision (benefit) for income taxes
The effective income tax provision (benefit) rates for fiscal 1996, 1995 and
1994 were 42.9%, 40.6% and (36.4%), respectively. The effective tax rate for
fiscal 1996 was higher than the federal statutory rate due to the impact of
state income taxes, an increase in the nondeductible portion of meals and
entertainment expenses and the nondeductible portion of the accrual for
compensation expense related to incentive stock options outstanding. The
effective tax rate for fiscal 1995 was higher than the federal statutory rate
due to the impact of state income taxes and an increase in the nondeductible
portion of meals and entertainment expenses. The Omnibus Budget Reconciliation
Act of 1993 ("OBRA"), which was enacted on August 10, 1993, raised the
statutory corporate income rate from 34% to 35% on taxable income in excess of
$10,000,000 and limited deductibility of meals and entertainment expenses.
Based upon OBRA's enactment date, OBRA did not impact fiscal 1994 results of
operations, but by limiting the deduction of meals and entertainment costs,
OBRA increased income tax expense during fiscal 1996 and 1995 by approximately
$87,000 and $89,000, or $.03 and $.03 per share, respectively.
In the second quarter of fiscal 1994, Davis agreed to a settlement with the
Internal Revenue Service ("IRS") in connection with its examination of Davis'
federal income tax returns for the four years ended April 30, 1992. The IRS
adjustments related principally to the timing of recognition of certain
expense items for tax purposes. The aggregate amount allocated to various
identifiable intangible assets and their weighted average lives were not
significantly changed. The effects of these adjustments did not materially
impact Davis' results of operations or financial position.
46
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The primary sources of liquidity for Davis are funds generated internally
from operations and bank borrowings. Set forth below for the past three years
is information regarding the sources and amounts of internally generated
funds:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-------------------------
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Net income (loss)................................ $ 5,749 $ 3,448 $(5,340)
Depreciation and amortization.................... 1,494 2,110 2,689
Deferred taxes................................... 469 (430) (4,536)
Change in the Taulman reserve.................... (2,425) (1,480) 8,895
------- ------- -------
$ 5,287 $ 3,648 $ 1,708
======= ======= =======
</TABLE>
When internally generated funds have been insufficient to support
operations, capital expenditures and acquisitions, Davis has been able to
borrow funds to meet its needs.
At April 30, 1996, Davis had $24,657,000 of available borrowing capacity
under its revolving loan agreement with SunTrust Bank. These available funds,
together with a cash balance of approximately $1,720,000, placed Davis'
potential cash availability at $26,377,000 as of April 30, 1996. See Note 5 of
Notes to Davis Water & Waste Industries, Inc. Consolidated Financial
Statements. Davis' management believes that Davis' internally generated funds
and the amount available under the revolving term loan agreement are
sufficient to support its activities for the foreseeable future. At the
present time, Davis has no commitments for significant capital expenditures or
acquisitions of other businesses.
Davis' working capital decreased in fiscal 1996 by $4,788,000 when compared
to fiscal 1995. The decrease in working capital was due primarily to decreases
of $2,026,000, $4,606,000 and $976,000 in cash, accounts receivable and
inventories, respectively, offset by a $4,056,000 decrease in accounts
payable. Davis' working capital decreased in fiscal 1995 by $1,138,000 when
compared to fiscal 1994. This decrease in working capital was due primarily to
an increase in accounts payable of $2,921,000 offset by a decrease in
inventories of $1,748,000. Set forth below is Davis' working capital position
and certain liquidity comparisons at the dates indicated:
<TABLE>
<CAPTION>
APRIL 30,
----------------------------
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Working capital................................ $ 25,805 $ 30,593 $ 31,731
-------- -------- --------
Cash........................................... $ 1,720 $ 3,746 $ 2,100
Accounts receivable, net....................... 35,189 39,795 39,158
Inventories.................................... 17,802 18,778 20,526
-------- -------- --------
Total...................................... 54,711 62,319 61,784
Accounts payable............................... (20,102) (24,158) (21,237)
Current portion of long-term debt.............. (135) (249) (216)
-------- -------- --------
$ 34,474 $ 37,912 $ 40,331
======== ======== ========
</TABLE>
The two most significant assets of Davis are accounts receivable and
inventory. Davis measures the effectiveness of its accounts receivable
management program by a calculation which estimates the number of days which
it takes Davis to collect accounts receivable. For fiscal 1996, Davis' average
number of days to collect its accounts receivable decreased by 7.7 days as
compared to fiscal 1995. The decrease in days outstanding in fiscal 1996 when
compared to fiscal 1995 occurred as a result of a decrease in accounts
receivable of approximately $4,606,000, or 11.6%, despite an increase in net
sales of 5.0%. The decrease in average days outstanding in fiscal 1995 when
compared to fiscal 1994 reflected an increase in accounts receivable of
$637,000,
47
<PAGE>
or 1.6%, despite an increase in net sales of 6.4%. The decrease on the average
days to collect accounts receivable has resulted from continuing management
efforts to collect receivables on a timely basis.
Davis measures the effectiveness of its inventory management program by a
calculation which uses average quarterly inventory amounts to estimate the
number of times inventory turns on an annual basis. For fiscal 1996 and 1995,
Davis' inventory turns increased by approximately half a complete turn when
compared to fiscal 1995 and 1994, respectively. These increases are due to
management's efforts to maintain a lower level of inventory while continuing
to ensure adequate product availability.
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 30,
--------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Average days to collect accounts receivable................... 53.3 61.0 65.6
Inventory turns............................................... 9.8 9.2 8.7
</TABLE>
Average long-term and short-term borrowings decreased by $4,144,000, or
23.4%, during fiscal 1996 when compared to fiscal 1995. Average long-term and
short-term borrowings decreased by $3,482,000, or 16.5%, during fiscal 1995
when compared to fiscal 1994. These decreases are due to the improved
profitability of Davis, management's efforts to improve collection of accounts
receivable and Davis' computerized inventory program which enables Davis to
better manage its inventory levels and its purchasing program. Davis' average
borrowing rate decreased 10 basis points during fiscal 1996 when compared to
fiscal 1995 due to lower rates Davis was able to obtain under the SunTrust
Bank revolving loan agreement because of the improved financial results.
Davis' average borrowing rate increased 160 basis points during fiscal 1995
when compared to fiscal 1994 due to higher rates under the SunTrust Bank
revolving loan agreement. See Note 5 of Notes to Davis Water & Waste
Industries, Inc. Consolidated Financial Statements. The table below sets forth
average borrowing balances and the average interest rate over the past three
fiscal years.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-----------------------
1996 1995 1994
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Average long-term debt.............................. $12,924 $17,146 $20,653
Weighted average interest rate...................... 7.8% 7.9% 6.3%
Average short-term borrowings....................... $ 607 $ 529 $ 504
Weighted average interest rate...................... 7.9% 6.7% 4.4%
</TABLE>
The payment of cash dividends is approved by the Board of Directors and
depends, among other factors, on earnings, capital requirements, and the
operating and financial condition of Davis. Additionally, under the terms of
Davis' line of credit with SunTrust Bank, any cash dividend payment requires
the prior approval of SunTrust Bank unless certain financial requirements are
met. During the third quarter of fiscal 1992, as a result of losses sustained
by Davis, the Board of Directors elected to forego the payment of quarterly
cash dividends. Due to improved operating results during fiscal 1995, the
Board of Directors, with the approval of SunTrust Bank, resumed payment of
semi-annual cash dividends. Cash dividends of $0.08 per share were paid during
the third quarter of fiscal 1995, and cash dividends of $0.14 per share were
paid in the first quarter of fiscal 1996. As a result of continued
improvements in profitability, the Board resumed payment of quarterly cash
dividends in the third quarter of fiscal 1996. During the third and fourth
quarters of fiscal 1996, the Board of Directors authorized cash dividends of
$0.15 and $0.10 per share, respectively. On June 14, 1996, the Board of
Directors authorized a cash dividend of $0.11 per share for the first quarter
of fiscal 1997.
SEASONALITY
Davis typically experiences a seasonal downturn in the third fiscal quarter
of each year. Harsh weather during the third fiscal quarter usually restricts
construction activities in Davis' more northern and mountainous sales markets,
thereby reducing the demand for the Company's products in these areas. This
seasonality is normally reflected in reduced sales and earnings of Davis in
the third quarter. Certain portions of Davis' sales markets, notably South
Georgia, Florida, Texas, Arizona, Nevada and Southern California, are not
significantly
48
<PAGE>
affected by the seasonal change. See Note 11 of Notes to Davis Water & Waste
Industries, Inc. Consolidated Financial Statements.
IMPACT OF INFLATION
Inflationary pressures were moderate over most of the past three years. To
date, Davis has been able to offset most cost increases through periodic price
increases, labor efficiencies and higher productivity.
RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock--Based
Compensation," which Davis is required to adopt in fiscal 1997. Davis has not
determined whether to adopt the accounting requirements or the alternative
disclosure requirements of this pronouncement.
49
<PAGE>
UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma combined consolidated financial data
present the Pro Forma Combined Consolidated Balance Sheet of U.S. Filter at
March 31, 1996, giving effect to the Merger and the May 31, 1996 acquisition
by U.S. Filter of Zimpro as if they were consummated on that date. Also
presented are the Pro Forma Combined Consolidated Statements of Operations of
U.S. Filter for the fiscal years ended March 31, 1994, 1995 and 1996, after
giving effect to the Acquisitions as if they had been consummated as of the
beginning of the respective periods presented. U.S. Filter's fiscal year ends
on March 31, and Davis' fiscal year ends on April 30. Pro forma combined
statement of operations information for the years ended March 31, 1994, 1995
and 1996 combines the results of U.S. Filter for the years then ended with the
results of Davis for the years ended April 30, 1994, 1995 and 1996,
respectively. Zimpro's fiscal year ends on December 31. Pro forma data for the
years ended March 31, 1994, 1995 and 1996 combine the results of U.S. Filter
for the years then ended with the results of Zimpro for the years ended
December 31, 1993, 1994 and 1995, respectively.
The pro forma data are based on the historical combined statements of U.S.
Filter, Davis and Zimpro giving effect to the Acquisitions under the pooling
of interests method of accounting and the assumptions and adjustments outlined
in the accompanying Notes to Unaudited Pro Forma Combined Consolidated
Financial Information. The pro forma data reflect 3-for-2 splits of the U.S.
Filter Common Stock effective on each of December 5, 1994 and July 15, 1996.
The pro forma adjustments set forth in the following unaudited pro forma
combined consolidated financial data are estimates and may differ from the
actual adjustments when they become known.
The unaudited pro forma combined consolidated statement of operations for
the fiscal years ended March 31, 1994, 1995 and 1996 include certain charges
recorded by U.S. Filter, Davis and Zimpro as follows:
Fiscal year ended March 31, 1994
The results of operations of U.S. Filter for the fiscal year ended March 31,
1994 included certain charges totaling $2,359,000 related to the
rationalization of certain wastewater operations. These charges were included
in U.S. Filter's historical results of operations in selling, general and
administrative expenses in the accompanying unaudited pro forma combined
consolidated statement of operations for the fiscal year ended March 31, 1994.
The results of operations of Davis for the fiscal year ended April 30, 1994
included a provision for the shutdown of the Turbitrol division of Davis'
Taulman Company subsidiary and related intangible assets of $8,895,000. This
provision was included in other expense in Davis' historical results of
operations in the accompanying unaudited pro forma combined consolidated
statement of operations for the fiscal year ended March 31, 1994.
Fiscal year ended March 31, 1995
The results of operations of Davis for the fiscal year ended April 30, 1995
included a provision for the shutdown of the Turbitrol division of Davis'
Taulman Company subsidiary of $678,000. This provision was included in other
expense in Davis' historical results of operations in the accompanying
unaudited pro forma combined consolidated statement of operations for the
fiscal year ended March 31, 1995.
Fiscal year ended March 31, 1996
The results of operations of Zimpro for the year ended December 31, 1995
included the write-off of $3,337,000 with respect to patents and equipment
which recorded values were deemed by Zimpro management to have been impaired.
These write-offs were included in Zimpro's historical results of operations in
cost of sales and selling, general and administrative expenses in the
accompanying unaudited pro forma combined consolidated statement of operations
for the fiscal year ended March 31, 1996.
The pro forma data give effect to the charges described above and assume
that each outstanding share of, and each outstanding option to purchase, Davis
Common Stock is converted into the right to receive 1.3995
50
<PAGE>
shares of U.S. Filter Common Stock. The following unaudited pro forma combined
consolidated financial data do not give effect to anticipated expenses related
to the Acquisitions and do not reflect certain cost savings that management of
U.S. Filter 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, U.S. Filter believes the Acquisitions will enable it
to continue to achieve economies of scale, such as enhanced purchasing power
and increased asset utilization. No assurances can be made as to the amount of
cost savings, if any, that actually will be realized.
The pro forma data are provided for comparative purposes only. They do not
purport to be indicative of the results that actually would have occurred if
the Acquisitions had been consummated on the dates indicated or that may be
obtained in the future. The unaudited pro forma combined consolidated
financial data should be read in conjunction with the notes thereto and the
audited consolidated financial statements of Davis and the notes thereto
attached to this Proxy Statement/Prospectus and filed in its report on Form
10-K for the year ended April 30, 1996, the audited consolidated financial
statements of Zimpro and the notes thereto filed in U.S. Filter's report on
Form 8-K dated May 31, 1996 as amended on Form 8-K/A dated June 28, 1996 and
the audited consolidated financial statements of U.S. Filter and the notes
thereto filed in its report on Form 10-K for the year ended March 31, 1996, as
well as the information included herein under the captions "Davis Selected
Consolidated Financial Data" and "Davis Management's Discussion and Analysis
of Financial Condition and Results of Operations."
51
<PAGE>
UNITED STATES FILTER CORPORATION
UNAUDITED PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
(in thousands)
<TABLE>
<CAPTION>
PRO FORMA
--------------------------------
HISTORICAL
--------------------------- ADJUSTMENTS
U.S. FILTER DAVIS ZIMPRO ADJUSTMENTS REFERENCE COMBINED
----------- ------- ------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash................... $ 16,545 $ 1,720 $ 140 $(1,000) a(ii) $ 17,405
Short-term invest-
ments................. 65 -- -- 65
Accounts receivable,
net................... 177,658 35,189 6,008 218,855
Cost and estimated
earnings in excess of
billings on uncom-
pleted contracts...... 31,258 1,419 898 33,575
Inventories............ 55,755 17,802 1,756 75,313
Prepaid expenses....... 7,230 692 -- 7,922
Deferred taxes......... 3,577 4,194 -- 7,771
Other current assets... 9,139 685 249 10,073
-------- ------- ------- --------
Total current assets. 301,227 61,701 9,051 370,979
-------- ------- ------- --------
Property, plant and
equipment, net......... 156,025 6,358 3,606 165,989
Investment in leasehold
interests, net......... 27,688 -- -- 27,688
Cost in excess of net
assets of businesses
acquired, net.......... 271,891 -- -- 271,891
Other assets............ 32,180 6,573 911 39,664
-------- ------- ------- --------
$789,011 $74,632 $13,568 $876,211
======== ======= ======= ========
LIABILITIES AND SHARE-
HOLDERS' EQUITY
Current liabilities:
Accounts payable....... $ 77,761 $20,102 $ 2,361 $100,224
Accrued liabilities.... 84,097 13,563 2,294 99,954
Current portion of
long-term debt........ 1,394 135 6,363 (4,260) a(ii) 3,632
Billings in excess of
costs and estimated
earnings on uncom-
pleted contracts...... 13,338 943 1,516 15,797
Other current liabili-
ties.................. 21,380 1,153 1,822 24,355
-------- ------- ------- --------
Total current liabil-
ities............... 197,970 35,896 14,356 243,962
-------- ------- ------- --------
Notes payable........... 30,413 -- -- 30,413
Long-term debt, exclud-
ing current portion.... 8,286 6,845 -- 15,131
Convertible subordinated
debt................... 200,000 -- -- 200,000
Deferred taxes.......... 1,929 -- -- 1,929
Other liabilities....... 9,078 2,235 1,702 13,015
-------- ------- ------- --------
Total liabilities.... 447,676 44,976 16,058 504,450
-------- ------- ------- --------
Shareholders' equity:
Convertible preferred
stock................. -- -- 20 (20) a(i) --
Common stock........... 422 33 -- 25 a(i),(ii) 480
Additional paid-in
capital............... 337,715 9,422 3,980 3,255 a(i),(ii) 354,372
Translation adjust-
ment.................. 1,836 -- -- 1,836
Retained earnings (ac-
cumulated deficit).... 1,362 20,201 (6,490) 15,073
-------- ------- ------- --------
Total shareholders'
equity.............. 341,335 29,656 (2,490) 371,761
-------- ------- ------- --------
$789,011 $74,632 $13,568 $876,211
======== ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these pro forma combined
financial data.
52
<PAGE>
UNITED STATES FILTER CORPORATION
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31, 1994
(in thousands, except per share and share data)
<TABLE>
<CAPTION>
PRO FORMA
--------------------------------
HISTORICAL
----------------------------- ADJUSTMENTS
U.S. FILTER DAVIS ZIMPRO ADJUSTMENTS REFERENCE COMBINED
----------- -------- ------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $180,421 $202,621 $29,470 $412,512
Cost of sales........... 132,811 172,654 21,383 326,848
-------- -------- ------- --------
Gross profit.......... 47,610 29,967 8,087 85,664
Selling, general and
administrative
expenses............... 52,484 28,461 9,774 90,719
-------- -------- ------- --------
Operating income
(loss)............... (4,874) 1,506 (1,687) (5,055)
-------- -------- ------- --------
Other income (expense):
Interest expense...... (2,077) (1,252) (715) 595 b(i) (3,449)
Other................. 1,174 (8,649) 93 (7,382)
-------- -------- ------- --------
(903) (9,901) (622) (10,831)
-------- -------- ------- --------
Income (loss) before
income taxes......... (5,777) (8,395) (2,309) (15,886)
Provision (benefit) for
income taxes........... (3,236) (3,055) (796) (7,087)
-------- -------- ------- --------
Net income (loss)..... $ (2,541) $ (5,340) $(1,513) $ (8,799)
======== ======== ======= ========
Net income per common
share................ $ (0.17) $ (0.39)
======== ========
Weighted average number
of shares outstanding.. 18,680 24,547
======== ========
</TABLE>
The accompanying notes are an integral part of these pro forma combined
financial data.
53
<PAGE>
UNITED STATES FILTER CORPORATION
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31, 1995
(in thousands, except per share and share data)
<TABLE>
<CAPTION>
PRO FORMA
--------------------------------
HISTORICAL
---------------------------
U.S. ADJUSTMENTS
FILTER DAVIS ZIMPRO ADJUSTMENTS REFERENCE COMBINED
-------- -------- ------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenue................. $272,032 $215,649 $31,678 $519,359
Cost of sales........... 193,432 183,654 21,669 398,755
-------- -------- ------- --------
Gross profit.......... 78,600 31,995 10,009 120,604
Selling, general and
administrative
expenses............... 64,015 24,483 8,983 97,481
-------- -------- ------- --------
Operating income...... 14,585 7,512 1,026 23,123
-------- -------- ------- --------
Other income (expense):
Interest expense...... (5,384) (1,335) (795) 595 b(i) (6,919)
Other................. 1,787 (370) 25 1,442
-------- -------- ------- --------
(3,597) (1,705) (770) (5,477)
-------- -------- ------- --------
Income before income
taxes................ 10,988 5,807 256 17,646
Provision (benefit) for
income taxes........... 2,657 2,359 (204) 4,812
-------- -------- ------- --------
Net income............ $ 8,331 $ 3,448 $ 460 $ 12,834
======== ======== ======= ========
Net income per common
share................ $ 0.34 $ 0.43
======== ========
Weighted average number
of shares outstanding.. 22,539 28,407
======== ========
</TABLE>
The accompanying notes are an integral part of these pro forma combined
financial data.
54
<PAGE>
UNITED STATES FILTER CORPORATION
UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31, 1996
(in thousands, except per share and share data)
<TABLE>
<CAPTION>
PRO FORMA
--------------------------------
HISTORICAL
---------------------------
U.S. ADJUSTMENTS
FILTER DAVIS ZIMPRO ADJUSTMENTS REFERENCE COMBINED
-------- -------- ------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $472,537 $226,489 $28,877 $727,903
Cost of sales........... 328,057 188,720 21,796 538,573
-------- -------- ------- --------
Gross profit.......... 144,480 37,769 7,081 189,330
Selling, general and
administrative
expenses............... 109,525 26,877 12,281 148,683
-------- -------- ------- --------
Operating income
(loss)............... 34,955 10,892 (5,200) 40,647
-------- -------- ------- --------
Other income (expense):
Interest expense...... (12,546) (1,022) (851) 595 b(i) (13,824)
Other................. 4,963 206 (35) 5,134
-------- -------- ------- --------
(7,583) (816) (886) (8,690)
-------- -------- ------- --------
Income (loss) before
income taxes......... 27,372 10,076 (6,086) 31,957
Provision for income
taxes.................. 7,082 4,327 646 (646) b(ii) 11,409
-------- -------- ------- --------
Net income (loss)..... $ 20,290 $ 5,749 $(6,732) $ 20,548
======== ======== ======= ========
Net income per common
share................ $ 0.54 $ 0.47
======== ========
Weighted average number
of shares outstanding.. 36,464 42,331
======== ========
</TABLE>
The accompanying notes are an integral part of these pro forma combined
financial data.
55
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL INFORMATION
The unaudited pro forma combined consolidated balance sheet has been
prepared to reflect the Acquisitions of all the outstanding capital stock of
Davis and Zimpro in exchange for 4,817,349 (1.3995 shares of U.S. Filter
Common Stock for each outstanding share, and each outstanding option or other
right to acquire a share, of Davis Common Stock) and 877,611 shares of U.S.
Filter Common Stock, respectively. The transactions have been accounted for on
a pooling of interests basis. Additionally, the unaudited pro forma combined
consolidated balance sheet reflects the repayment of $4,335,000 of
indebtedness of Zimpro outstanding at May 31, 1996 with the delivery of
172,491 shares of U.S. Filter Common Stock and $1,000,000 in cash.
(a) The unaudited pro forma combined consolidated balance sheet reflects the
financial position of Davis at April 30, 1996 and Zimpro at December 31,
1995 and has been adjusted to reflect the above as follows:
(i) To record the equity adjustments required to reflect the
Acquisitions of Davis and Zimpro on a pooling of interests basis;
and
(ii) To record the repayment of indebtedness of Zimpro ($4,260,000
outstanding at December 31, 1995) in exchange for 172,491 shares
of U.S. Filter Common Stock and $1,000,000 in cash.
(b) For the fiscal years ended March 31, 1994, 1995 and 1996, the historical
results of operations reflect Davis' results of operations for the years
ended April 30, 1994, 1995 and 1996 and reflect Zimpro's results of
operations for the years ended December 31, 1993, 1994 and 1995,
respectively and have been adjusted to reflect the above as follows:
(i) To adjust interest expense related to the indebtedness of Zimpro
repaid at the date of acquisition; and
(ii) To adjust the provision for income taxes to reflect the combined
results of operations.
56
<PAGE>
COMPARISON OF SHAREHOLDER RIGHTS
Upon consummation of the Merger, the shareholders of Davis, a Georgia
corporation, will become stockholders of U.S. Filter, a Delaware corporation.
Differences between the Georgia Business Corporation Code ("GBCC") and the
Delaware General Corporation Law ("DGCL"), as well as Davis' Amended and
Restated Articles of Incorporation (the "Davis Articles"), and Bylaws (the
"Davis Bylaws") and U.S. Filter's Restated Certificate of Incorporation (the
"U.S. Filter Certificate") and U.S. Filter's Amended and Restated Bylaws (the
"U.S. Filter Bylaws") will result in changes in the rights of shareholders of
Davis when they become stockholders of U.S. Filter. Following is a description
of certain of such differences, based on the GBCC and the DGCL as in effect on
the date hereof and the respective charters and bylaws of Davis and U.S.
Filter. Certain provisions of the DGCL and of the U.S. Filter Certificate and
Bylaws could have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from attempting to acquire, control
of U.S. Filter.
QUORUM AND VOTING REQUIREMENTS
To constitute a quorum, Section 216 of the DGCL requires at least one-third
of the shares entitled to vote at a meeting of stockholders. Beyond this
limitation, the DGCL allows a corporation to specify, in its certificate of
incorporation or bylaws, the number of shares and/or the amount of other
securities having voting power, the holders of which shall be present or
represented by proxy at any meeting in order to constitute a quorum for, and
the votes that shall be necessary for, the transaction of any business.
Under the DGCL, if a corporation fails to specify any voting requirements in
its corporate documents: (i) a majority of the shares entitled to vote,
present in person or represented by proxy, will constitute a quorum at a
meeting of stockholders; (ii) in all matters other than the election of
directors, the affirmative vote of the majority of shares present in person or
represented by proxy at the meeting and entitled to vote on the subject matter
shall be the act of the stockholders (directors shall be elected by a
plurality of votes); and (iii) where a separate vote by a class or classes is
required, a majority of the outstanding shares of such class or classes,
present in person or represented by proxy, constitutes a quorum entitled to
take action with respect to a vote on that matter and the affirmative vote of
a majority of the shares of such class or classes present in person or
represented by proxy shall be the act of such class or classes.
The U.S. Filter 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 U.S. Filter. The
founders and the original directors of U.S. Filter 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 U.S. Filter. See "--Special Meetings of Stockholders," "--
Amendments to Certificate or Articles of Incorporation" and "--Amendments to
Bylaws."
According to Section 14-2-725 of the GBCC, unless the articles of
incorporation or the GBCC provide otherwise, a majority of the votes entitled
to be cast on a particular matter by a voting group constitutes a quorum of
that voting group for action on that matter. Under Section 14-2-727, the
articles of incorporation or a bylaw adopted under the GBCC may provide for a
greater or lesser quorum (but not less than one-third of the votes entitled to
be cast) or a greater voting requirement for shareholders (or voting groups of
shareholders) than is provided for in the GBCC; however, an amendment to the
articles of incorporation or bylaws that changes or deletes a greater quorum
or voting requirement must meet the same quorum requirement and be adopted by
the same vote and voting groups required to take action under the quorum and
voting requirements prescribed in the provision being amended. Unless the GBCC
or the articles of incorporation or a bylaw adopted by the shareholders
requires a greater number of affirmative votes, action on a matter (other than
the election of directors) will be approved if the votes cast favoring the
action exceed the votes cast opposing the action. Section 14-2-728 states that
directors are elected by a plurality of the votes cast by the shares entitled
to vote in the election at which a quorum is present unless the articles of
incorporation provide otherwise.
57
<PAGE>
DIVIDENDS
Section 170 of the DGCL permits dividends to be paid out of the
corporation's surplus, as defined in the DGCL, or, in case there is no
surplus, out of the corporation's net profits of the current or preceding
fiscal year, or both, unless net assets are less than the capital of all
outstanding preferred stock of the corporation.
Section 14-2-640 of the GBCC authorizes the board of directors to make
distributions to its shareholders subject to the restriction of the articles
of incorporation and so long as the corporation would still be able to pay its
debts as they become due in the usual course of business; or so long as the
corporation's total assets are more than the sum of its total liabilities. The
Davis Articles require distributions to shareholders, in cash or property, to
be made out of the capital surplus of Davis.
PREEMPTIVE RIGHTS
Neither the DGCL nor the GBCC confers preemptive rights on shareholders.
Thus, unless the corporation's certificate or articles of incorporation
expressly grant such rights, shareholders have no preemptive rights. The Davis
Articles deny shareholders the preemptive right to subscribe for or purchase
any shares of stock or other securities issued by Davis, and the U.S. Filter
Certificate does not confer preemptive rights on holders of U.S. Filter Common
Stock.
PROXIES
Section 212 of the DGCL authorizes each stockholder to authorize another
person or persons to act for such stockholder by proxy, but no such proxy may
be voted after three years from its date, unless the proxy provides for a
longer period.
Under Section 14-2-722 of the GBCC, no proxy may be voted after 11 months
from its effective date, unless the proxy provides for a longer period.
RECORD DATE
Under Section 213 of the DGCL, a corporation may fix the record date at not
more than 60 nor less than 10 days before a meeting, nor more than 60 days
prior to any other action.
Section 14-2-707 of the GBCC states that the record date is to be fixed not
more than 70 days before a meeting or action requiring a determination of
shareholders. The Davis Bylaws state that the Board of Directors may fix a
record date in advance, such date to be not more than 50 days and not less
than 10 days prior to the date on which a particular action requiring such
determination of shareholders is to be taken.
SPECIAL MEETINGS OF STOCKHOLDERS
Section 211 of the DGCL allows special meetings of stockholders to be called
by the board of directors or any person authorized under the certificate of
incorporation or the bylaws of the corporation. Section 222 of the DGCL
requires that a written notice of the time, place and specific purposes of
such meeting must be given to each stockholder entitled to vote at the meeting
not less than 10 nor more than 60 days prior to the scheduled date of the
special meeting, unless such notice is waived pursuant to Section 229.
The U.S. Filter Certificate states that special meetings of stockholders may
be called at any time by the board or by a majority of the members of the
board; provided, however, that where a proposal requiring stockholder approval
is made by or on behalf of a Related Person (as defined therein) or director
affiliated with a Related Person, or where a Related Person otherwise seeks
action requiring stockholder approval, then the affirmative vote of a majority
of the Continuing Directors (as defined therein) shall also be required to
call a special meeting for the purpose of considering such proposal or
obtaining such approval.
Section 14-2-702 of the GBCC permits the board of directors or any person
specified in the corporation's articles of incorporation or bylaws to call
special meetings of shareholders. A special meeting may also be called by the
owners of at least 25%, or such greater or lesser percentage as the articles
of incorporation or bylaws provide, of the votes entitled to be cast on any
issue proposed to be considered at the special meeting. The
58
<PAGE>
provisions of the GBCC regarding notice of meetings are essentially the same
as the provisions of the DGCL. The Davis Bylaws allow shareholders owning not
less than 70% of the shares of Davis to call a special meeting. Further, the
Davis Bylaws require notice to be given not less than 10 nor more than 50 days
before such a meeting shall be held.
ADVANCE NOTICE REQUIREMENT
The U.S. Filter Bylaws provide that stockholder proposals, including
director nominations, may be considered at a meeting only if written notice of
that proposal is delivered to U.S. Filter from 30 to 60 days in advance of the
meeting, or within ten days after notice of the meeting is first given to
stockholders.
STOCKHOLDER LIST
Under Section 219 of the DGCL, the stockholders of a corporation have the
right to examine the list of stockholders entitled to vote during ordinary
business hours, for a period beginning at least 10 days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at
the place where the meeting it to be held.
Section 14-2-720 of the GBCC does not have the 10-day requirement; rather,
it mandates that a list of shareholders must be available for inspection by
any shareholder only at the time and place of the meeting.
ACTION WITHOUT MEETING
Under Section 228 of the DGCL, unless a corporation's certificate of
incorporation provides otherwise, any action that may be taken at an annual or
special meeting of the stockholders of a corporation may be taken without a
meeting by the execution of a written consent by the holders of outstanding
stock having not less than the minimum amount of votes necessary to take such
action at a meeting where all stockholders entitled to vote on such action are
present. The U.S. Filter Certificate and U.S. Filter Bylaws provide that
stockholders do not have the power to consent in writing without a meeting to
the taking of any action.
Like the DGCL, the GBCC also provides for the written consent of
shareholders. Under Section 14-2-704 of the GBCC, unless a corporations'
articles of incorporation provide otherwise, any action which may be taken at
a meeting of the shareholders of a corporation may be taken without a meeting,
by written consent, if such action is taken by all of the shareholders
entitled to vote on such action.
AMENDMENTS TO CERTIFICATE OR ARTICLES OF INCORPORATION
Section 242 of the DGCL permits a corporation to amend its certificate of
incorporation so long as the amended certificate of incorporation contains
only provisions that could be lawfully and properly included in an original
certificate of incorporation filed at the time the amendment is filed.
Amendments must be adopted by the board of directors and approved by a
majority of the outstanding stock entitled to vote thereon and by a majority
of the outstanding stock of each class entitled to vote as a class with
respect to the amendment. Class voting is required, whether or not a class is
entitled to vote thereon by the certificate of incorporation, when a proposed
amendment would increase or decrease the number or par value of the authorized
shares of a class or alter or change the powers, preferences or rights of the
shares of a class so as to affect them adversely. However, the number of
authorized shares of any such class or classes of stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of stock of the corporation
entitled to vote irrespective of such class voting requirement, if so provided
in the original certificate of incorporation, in any amendment thereto which
created such class or classes of stock or which was adopted prior to the
issuance of any shares of such class or classes of stock, or in any amendment
thereto which was authorized by a resolution or resolutions adopted by the
affirmative vote of the holders of a majority of such class or classes of
stock.
The U.S. Filter Certificate provides that any amendments to the U.S. Filter
Certificate that relate to specified Articles therein (those dealing with
corporate governance, limitation of director liability or amendments to the
U.S. Filter Certificate), in addition to being approved by the Board of
Directors and a majority of U.S. Filter's outstanding voting stock, must also
be approved by either (i) a majority of directors who are not Related Persons,
59
<PAGE>
or (ii) the holders of at least 80% of the outstanding U.S. Filter 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.
Under Section 14-2-1002 of the GBCC, the board of directors may amend the
articles of incorporation to take the following actions without obtaining
shareholder approval: (i) extend the corporation's duration if it was
incorporated at a time the law required limited duration; (ii) delete the
names and addresses of the initial directors, initial registered agent or
registered office; (iii) change each issued and unissued authorized share of
an outstanding class of stock into a greater number of whole shares if the
corporation has only shares of that class outstanding; (iv) change or
eliminate the par value of each issued and unissued share of an outstanding
class if the corporation has only shares of that class outstanding; or (v)
change the corporate name. Other amendments must be approved by the board of
directors and by the shareholders by a majority of the votes entitled to be
cast on the amendment by each voting group entitled to vote on the amendment
unless the articles of incorporation, the board of directors or another
provision of the GBCC requires a higher vote. Under Section 14-2-1004, the
holders of the outstanding shares of a class are entitled to vote as a
separate voting group (unless shareholder voting is not required by virtue of
Section 14-2-1002) on a proposed amendment if the amendment would, among other
things, change the number of authorized shares of a class (unless the articles
of incorporation provide otherwise) or change the designation, rights,
preferences, or limitations of the shares of a class.
AMENDMENTS TO BYLAWS
Section 109 of the DGCL states that the power to adopt, amend or repeal
bylaws rests with those stockholders entitled to vote on such matters,
provided, however, a corporation's certificate of incorporation may
additionally confer such power upon the directors. Conferring the power to
adopt, amend or repeal bylaws upon the directors shall not divest, nor shall
it limit, the stockholders' power to adopt, amend or repeal bylaws.
The U.S. Filter Certificate provides that the U.S. Filter Bylaws may only be
altered, amended, repealed or rescinded by either (i) a majority of directors
who are not Related Persons, or (ii) the holders of at least 80% of the
outstanding U.S. Filter 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.
Section 14-2-1020 of the GBCC permits a corporation's board of directors to
amend, repeal or adopt bylaws, unless (i) the articles of incorporation
reserve this power exclusively to the shareholders in whole or in part or (ii)
the shareholders, in amending or repealing a particular bylaw, expressly
reserve the power to amend or repeal that particular bylaw. The shareholders
alone may amend, repeal or adopt bylaws limiting the authority of the board of
directors or establishing staggered terms for directors. In addition, if a
corporation is subject to the GBCC's business combination or fair price
provisions, the board of directors may amend, repeal or adopt a bylaw fixing a
greater shareholder quorum or voting requirement as provided in Sections 14-2-
1113 or 14-2-1133. Unless provided otherwise in a corporation's articles of
incorporation or bylaws, a bylaw fixing a greater quorum or voting requirement
for the board of directors may be adopted, amended or repealed by the
affirmative vote of a majority of the votes entitled to be cast by the
shareholders or by a majority of the directors.
CLASSIFIED BOARD AND REMOVAL OF DIRECTORS
The U.S. Filter Certificate and U.S. Filter 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).
Section 141 of the DGCL permits any director or the entire board of
directors to be removed, with or without cause, by the holders of a majority
of the shares then entitled to vote at an election of directors, except that:
(i) in the case of a corporation whose board is classified, directors may be
removed only for cause unless the certificate of incorporation provides
otherwise; or (ii) in the case of a corporation having cumulative voting, if
less than the entire board is to be removed, no director may be removed
without cause if the votes cast against
60
<PAGE>
his removal would be sufficient to elect him if then cumulatively voted at an
election of the entire board of directors, or, if there are classes of
directors, at an election of the class of directors of which he is a part.
U.S. Filter stockholders are not entitled to vote cumulatively.
Unless the articles of incorporation provide otherwise, Section 14-2-808 of
the GBCC authorizes a corporation's shareholders to remove one or more
directors, with or without cause, by the vote of the holders of a majority of
the outstanding shares of the corporation entitled to vote. If a director is
elected by a voting group of shareholders, only shareholders of that voting
group may participate in the vote to remove him. If cumulative voting is
authorized, a director may not be removed if the number of votes sufficient to
elect him under cumulative voting is voted against his removal. If cumulative
voting is not authorized, a director may be removed only by a majority of the
votes entitled to be cast. Directors elected to staggered terms may be removed
only for cause, unless the articles of incorporation or a bylaw adopted by the
shareholders provide otherwise. The Davis Articles provide for staggered
terms.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL and Sections 14-2-851 and 14-2-852 of the GBCC both
state that a corporation is required to indemnify a director to the extent
that the director has been successful, on the merits or otherwise, in the
defense of any proceeding to which he was a party because of his status as a
director of the corporation. A corporation may indemnify any director or
officer made a party to a proceeding if such director or officer acted in a
manner he believed in good faith to be in or not opposed to the best interests
of the corporation and, in the case of any criminal proceeding, if the person
did not have reasonable cause to believe that his conduct was unlawful. A
corporation may not indemnify a director in a proceeding by or in the right of
the corporation in which the director is adjudged liable to the corporation
unless the court determines that such indemnification is fair, or (under the
GBCC only) in connection with any other proceeding in which he is adjudged
liable on the basis that he improperly received a personal benefit.
The U.S. Filter Bylaws and Davis Bylaws state that both corporations shall
indemnify to the full extent permitted by applicable law a director or officer
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative by reason of the fact that he is or was a
director or officer of the corporation or is or was serving at the request of
the corporation in such a capacity, subject to certain restrictions.
VOTING REQUIRED FOR MERGERS, CONSOLIDATIONS AND SALE OF ASSETS
In general, Sections 251 and 271 of the DGCL state that a merger,
consolidation or sale of all or substantially all of a corporation's assets
must be approved by the stockholders of each constituent corporation by the
affirmative vote of the holders of a majority of the outstanding shares
entitled to vote on the transaction. Unless the corporation's certificate of
incorporation requires otherwise: stockholders of the surviving corporation
need not authorize a merger if: (i) the agreement of merger does not amend the
certificate of incorporation of the surviving corporation; (ii) each share of
the surviving corporation's stock outstanding immediately prior to the
effective date of the merger will be an identical outstanding or treasury
share of the corporation after the effective date of the merger; and (iii)
either no shares of the corporation's common stock and no shares, securities
or obligations convertible into such stock will be issued or delivered
pursuant to the merger or the authorized unissued shares or treasury shares of
the corporation's common stock to be issued pursuant to the merger plus those
initially issuable upon conversion of any other shares, securities or
obligations to be issued or delivered in the merger do not exceed 20% of the
shares of the corporation's common stock outstanding immediately prior to the
effective date of the merger. The DGCL also outlines requirements that allow a
merger of a corporation with or into a wholly-owned subsidiary without a vote
of stockholders.
In connection with the approval of proposed mergers and share exchanges,
Section 14-2-1103 of the GBCC generally requires the affirmative vote of a
majority of all votes entitled to be cast on the plan for such merger or share
exchange by all shares entitled to vote on the plan, voting as a single group,
and the affirmative vote of a
61
<PAGE>
majority of the votes entitled to be cast by holders of shares of each voting
group entitled to vote as a group under the corporation's articles of
incorporation. Under 14-2-1202, the sale of all or substantially all of the
assets of a corporation must be approved by the affirmative vote of a majority
of all the votes entitled to be cast on the matter, regardless of voting
groups.
Under the GBCC, shareholders of the surviving corporation need not approve a
merger if the post-merger articles of incorporation will not differ from the
pre-merger articles; if each shareholder of the surviving corporation whose
shares were outstanding immediately before the merger will hold the same
number of shares (with identical designations, preferences, limitations and
relative rights) after the merger; and if the number and kind of shares
outstanding immediately after the merger, plus the number and kind of shares
issuable as a result of the merger, do not exceed the total number and kind of
shares of the surviving corporation authorized by its articles of
incorporation immediately before the merger.
Both the DGCL and the GBCC permit corporations to require higher votes for
approval of the transactions described above in their articles of
incorporation or bylaws.
BUSINESS COMBINATION WITH INTERESTED SHAREHOLDERS
Section 203 of the DGCL outlines the general rule that a corporation shall
not engage in any "Business Combination" with an "Interested Stockholder"
(generally defined as any person, other than the corporation or any majority-
owned subsidiary, beneficially owning at least 15% of the voting stock of the
corporation) for a period of three years following the time that such
stockholder became an Interested Stockholder. The prohibition of Section 203
will not apply if certain super-majority votes are obtained, or if the
corporation elects not to be governed by the section. Neither the U.S. Filter
Certificate nor U.S. Filter Bylaws currently excludes U.S. Filter from the
restrictions imposed by Section 203. U.S. Filter's stockholders, by adopting
an amendment to the U.S. Filter Certificate or U.S. Filter Bylaws, may elect
not to be governed by Section 203, effective twelve months after adoption.
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.
Conversely, Sections 14-2-1131, 14-2-1132 and 14-2-1133 of the GBCC
regarding "Interested Shareholders" do not apply to a Georgia corporation
unless it has affirmatively elected in its bylaws to be governed by them.
These provisions require certain super-majority votes for transactions with
any "Interested Shareholders" (generally defined as any person, other than the
corporation or any subsidiary, beneficially owning at least 10% of the voting
stock of the corporation). Repeal or amendment of such a bylaw must be
approved by at least two-thirds of the directors who are not affiliates of the
Interested Shareholder and by a majority of the votes entitled to be cast by
the holders of shares not beneficially owned by the Interested Shareholder.
The Davis Bylaws elect to be governed by the sections of the GBCC concerning
business combinations.
The GBCC generally prohibits Georgia corporations from entering into certain
Business Combination transactions with any Interested Shareholder for a period
of five years following the time such shareholder becomes an Interested
Shareholder unless: (i) prior to such time, the corporation's board of
directors approves the business combination or the transaction resulting in
the shareholder becoming an interested shareholder; (ii) the interested
shareholder acquires 90% or more of the outstanding voting stock of the
corporation (excluding "affiliated shares" held by affiliates, subsidiaries or
benefit plans) as part of the transaction in which it becomes an Interested
Shareholder; or (iii) subsequent to becoming an Interested Shareholder, such
shareholder acquires 90% or more of the outstanding voting stock of the
corporation (excluding affiliated shares) and a majority of the remaining
outstanding voting stock (excluding affiliated shares) approve the business
combination.
62
<PAGE>
FAIR PRICE PROVISIONS
The DGCL does not contain any specific fair price provisions.
The GBCC contains fair price provisions (Sections 14-2-1110, 14-2-1111, 14-
2-1112, 14-2-1113) that will apply to any corporation electing to be governed
by such provisions. Under the fair price provisions, the GBCC requires any
business combination (i) to be unanimously approved by the continuing
directors, as long as the continuing directors constitute three members of the
board of directors at the time of the approval, or (ii) to be recommended by
at least two-thirds of the continuing directors and approved by a majority of
the votes entitled to be cast.
Such a vote is not required for a business combination under certain
conditions. First, the aggregate value of cash and non-cash consideration to
be received by shareholders per share must be equal to the highest of the
following: (i) the fair market value (as defined in Section 14-2-1110(10)) per
share; (ii) the highest price paid per share by an Interested Stockholder
prior to the business combination in question; or (iii) if non-common shares
are involved, the highest preferential amount to which holders are entitled.
Second, the consideration for the business combination must be in cash (or in
the same form as the Interested Shareholder previously paid for shares of the
same class). Third, after an Interested Shareholder became an Interested
Shareholder, but prior to the consummation of the business combination, unless
approved by a majority of the continuing directors, there shall have been: (i)
no failure to pay dividends; (ii) no reduction in the rate of dividends paid;
(iii) no increase in the annual rate of dividends to reflect a
reclassification and (iv) no increase in the percentage ownership of the
Interested Shareholder by more than one percent in a twelve-month period.
Finally, the Interested Shareholder must not have received a benefit of
financial assistance or tax credits in connection with the business
combination. Davis, through its bylaws, explicitly elects to be governed by
such provisions.
CONFLICTING INTEREST TRANSACTIONS
Section 144 of the DGCL states that contracts and transactions between a
corporation and one or more of its directors or officers, or organizations in
which they serve in such capacities or have a financial interest, will not be
void or voidable solely because such director or officer acts or participates
in a board or committee meeting authorizing the contract or transaction if:
(i) the material facts of the relationship or interest and as to the contract
or transaction are disclosed or known to the board or committee and the board
or committee in good faith authorizes the contract or transaction by the
affirmative vote of a majority of the disinterested directors, even though the
disinterested directors are less than a quorum; or (ii) the material facts as
to the relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon and the
contract or transaction is specifically approved in good faith by the
stockholders; or (iii) the contract or transaction is fair to the corporation
as of the time that it is authorized by the board, a committee thereof or the
stockholders.
Section 14-2-860 of the GBCC states that a director has a conflicting
interest with respect to a transaction effected or proposed by the corporation
(or any other entity in which the corporation has a controlling interest) if
(i) whether or not the transaction is brought before the board for action, to
the knowledge of the director at the "time of commitment" (as defined in the
GBCC) the director or a related person is a party to the transaction or has a
beneficial financial interest in or is so closely linked to the transaction
and of such financial significance to the director or a related person that it
would reasonably be expected to exert an influence on the director's judgment
if he or she were called upon to vote on the transaction; or (ii) the
transaction is brought (or is of such character and significance to the
corporation that it would in the normal course be brought) before the board
for action, and to the knowledge of the director at the time of commitment any
of the following persons is either a party to the transaction or has a
beneficial financial interest so closely linked to the transaction and of such
financial significance to such person that it would reasonably be expected to
exert an influence on the director's judgment if he or she were called upon to
vote on the transaction: (a) an entity (other than the corporation) of which
the director is a director, general partner, agent or employee; (b) a person
that controls one or more of the entities specified in subparagraph (a) above
or an entity that is controlled by, or is under common control with, one or
more of the entities specified in subparagraph (a) above; or (c) an individual
who is a general partner, principal or employer of the director.
63
<PAGE>
A director's conflicting interest transaction may not be enjoined, set
aside, or give rise to an award of damages or other sanctions, in an action by
a shareholder or by or in the right of the corporation, on the ground of an
interest in the transaction of such director or any person with whom such
director has a personal, economic or other association, if (i) the transaction
receives the affirmative vote of a majority (but not less than two) of the
disinterested directors or a committee thereof who voted on the transaction
after required disclosure to them to the extent the information is not known
by them; (ii) a majority of the votes entitled to be cast by disinterested
shareholders were cast in favor of the transaction after (A) notice to the
shareholders describing the conflicting interest transaction, (B) disclosure
by such director, prior to the shareholders' vote, to the Secretary of the
company of the number, and identity of the persons holding or controlling the
vote, of all shares that to the knowledge of the director are beneficially
owned (or the voting of which is controlled) by such director or by a related
person of the director, or both, and (C) required disclosure to the
shareholders who voted on the transaction to the extent the required
information was not known by them; or (iii) the transaction, judged in the
circumstances at the time of commitment, is established to have been fair to
the corporation. The provisions of the GBCC that are applicable to directors
also apply to officers.
APPRAISAL RIGHTS
Section 262 of the DGCL states that stockholders entitled to vote on a
merger or consolidation have the right to serve upon the corporation a written
demand for appraisal of their shares provided, however, that no appraisal
rights shall be available for the shares of any class of stock which stock was
(1) listed on a national securities exchange or designated as a national
market system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc., or (ii) held of record by more than
2,000 stockholders. Further, no appraisal rights shall be available for any
shares of stock of the constituent corporation surviving a merger if the
merger did not require for its approval the vote of the stockholders of the
surviving corporation. After determining the stockholders entitled to an
appraisal, the Delaware Court of Chancery shall appraise the shares,
determining their fair value exclusive of any element of value arising from
the accomplishment or expectation of the merger or consolidation.
The GBCC, in Section 14-2-1302, grants shareholders the right to dissent and
receive payment of the fair value of their shares in the event of: (i)
amendments to the articles of incorporation materially and adversely affecting
their rights or interests as shareholders; (ii) sales of all or substantially
all of the corporation's assets (unless the sale is pursuant to a court order
and the proceeds are distributed to the shareholders within one year after the
sale); or (iii) mergers or share exchanges on which the shareholders are
entitled to vote. This right is not available when the affected shares are
listed on a national securities exchange or held of record by more than 2,000
shareholders unless (i) the articles of incorporation or a resolution of the
board of directors approving the transaction provides otherwise or (ii) in a
plan of merger or share exchange, the holders of such shares are required to
accept anything other than shares of the surviving corporation or another
publicly-held corporation listed on a national securities exchange or held of
record by more than 2,000 shareholders, except for cash in lieu of fractional
shares.
DISSOLUTION
Under Section 275 of the DGCL, a corporation may be dissolved upon a
resolution of the board of directors and the affirmative vote of the majority
of the outstanding stock of the corporation entitled to vote thereon.
Dissolution may also be authorized without director action if all of the
stockholders entitled to vote thereon consent in writing.
The Georgia requirements are similar. Under 14-2-1402 of the GBCC, unless
the articles of incorporation or the board of directors require a greater
vote, the board of directors' proposal to dissolve must be approved by a
majority of all of the votes entitled to be cast by the shareholders on that
proposal.
64
<PAGE>
LEGAL MATTERS
The validity of the shares of U.S. Filter Common Stock to be issued in
connection with the Merger will be passed upon by Damian C. Georgino, Vice
President, General Counsel and Secretary of U.S. Filter. Certain legal matters
in connection with the Merger Agreement will be passed upon for U.S. Filter by
Kirkpatrick & Lockhart LLP, Pittsburgh, Pennsylvania, and for Davis by Alston
& Bird, Atlanta, Georgia.
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 have been incorporated herein by
reference in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, which report is incorporated herein by
reference, and upon the authority of said firm as experts in accounting and
auditing.
The consolidated financial statements of Davis Water & Waste Industries,
Inc. as of April 30, 1996 and 1995 and for each of the three years in the
period ended April 30, 1996 included in this Proxy Statement/Prospectus have
been so included 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.
STOCKHOLDER PROPOSALS
Pursuant to Rule 14a-8 under the Exchange Act, U.S. Filter stockholders may
present proper proposals for inclusion in U.S. Filter's proxy statement and
for consideration at the next annual meeting of its stockholders by submitting
such proposals to U.S. Filter in a timely manner. As noted in U.S. Filter's
proxy statement relating to its 1996 Annual Meeting of Stockholders, in order
to be so included for the 1997 annual meeting, shareholder proposals must be
received by U.S. Filter no later than March 11, 1997, and must otherwise have
complied with the requirements of Rule 14a-8. Any such proposals should be
addressed to the Secretary of U.S. Filter, 40-004 Cook Street, Palm Desert,
California 92211.
65
<PAGE>
INDEX TO DAVIS
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants........................................... F-2
Management's Responsibility for Financial Statements........................ F-2
Consolidated Statement of Operations........................................ F-3
Consolidated Balance Sheet.................................................. F-4
Consolidated Statement of Changes in Stockholders' Equity................... F-5
Consolidated Statement of Cash Flows........................................ F-6
Notes to Consolidated Financial Statements.................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of DAVIS WATER & WASTE INDUSTRIES, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in stockholders' equity and
of cash flows present fairly, in all material respects, the financial position
of DAVIS WATER & WASTE INDUSTRIES, Inc. and its subsidiaries 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.
Price Waterhouse LLP
Atlanta, Georgia
June 13, 1996
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The consolidated financial statements included in this report were prepared
by the Company in conformity with generally accepted accounting principles.
Management's best estimates and judgments were used where appropriate.
Management is responsible for the integrity of the financial statements and
for other financial information included in this report. The financial
statements have been audited by the Company's independent accountants, Price
Waterhouse LLP. As set forth in their report, their audit was conducted in
accordance with generally accepted auditing standards and formed the basis for
their opinion on the accompanying financial statements. They evaluated the
system of internal accounting controls and performed such tests and other
procedures as they deemed necessary to reach and express an opinion on the
fairness of the financial statements.
The Company maintains a system of internal accounting controls which is
designed to provide a reasonable assurance that assets are safeguarded and
that the financial records reflect the authorized transactions of the Company.
As a part of this process, the Company has an internal auditor who evaluates
the adequacy and effectiveness of internal accounting controls.
The Audit Committee of the Board of Directors is composed of Directors who
are neither officers nor employees of the Company. The Committee meets
periodically with management, the internal auditor and the independent
accountants to discuss auditing, internal accounting control and financial
reporting matters. The internal auditor and the independent accountants have
full and free access to meet with the Audit Committee, with and without
management being present.
R. Doyle White Stan White
Chairman of the Board, Secretary/Treasurer
President and Chief and Chief Financial Officer
Executive Officer
F-2
<PAGE>
DAVIS WATER & WASTE INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-----------------------------
1996 1995 1994
--------- --------- ---------
(IN THOUSANDS, EXCEPT SHARE
DATA)
<S> <C> <C> <C>
Net sales....................................... $ 226,489 $ 215,649 $ 202,621
Cost of products sold........................... 188,720 183,654 172,654
--------- --------- ---------
Gross profit margin............................. 37,769 31,995 29,967
Selling, general and administration............. 26,877 24,483 28,461
Interest expense................................ 1,022 1,335 1,252
Other income, net............................... 206 308 246
Provision for Taulman shutdown and related
intangible assets (Note 3)..................... 0 678 8,895
--------- --------- ---------
Income (loss) before income taxes............... 10,076 5,807 (8,395)
Provision (benefit) for income taxes............ 4,327 2,359 (3,055)
--------- --------- ---------
Net income (loss)............................... $ 5,749 $ 3,448 $ (5,340)
========= ========= =========
EARNINGS (LOSS) PER SHARE OF COMMON STOCK:
Net income (loss) per share--primary............ $ 1.78 $ 1.06 $ (1.64)
========= ========= =========
Net income (loss) per share--fully diluted...... $ 1.72 $ 1.05 $ (1.64)
========= ========= =========
Weighted average shares outstanding--primary.... 3,234,824 3,261,351 3,260,608
Weighted average shares outstanding--fully
diluted........................................ 3,340,242 3,284,170 3,260,608
</TABLE>
(The accompanying notes are an integral part of these financial statements.)
F-3
<PAGE>
DAVIS WATER & WASTE INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
APRIL 30,
------------------
1996 1995
-------- --------
(IN THOUSANDS,
EXCEPT
PER SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 1,720 $ 3,746
Accounts receivable, less allowance for doubtful ac-
counts ($1,261 at April 30, 1996 and $1,135 at April
30, 1995) (Note 1).................................. 35,189 39,795
Inventories (Notes 1 and 4).......................... 17,802 18,778
Prepaid expenses..................................... 692 631
Cost and estimated earnings in excess of billings on
uncompleted contracts............................... 1,419 1,097
Prepaid income taxes................................. 685 0
Deferred income taxes (Note 7)....................... 4,194 5,634
-------- --------
Total current assets............................... 61,701 69,681
Property, plant and equipment (Note 1):
Land................................................. 1,016 1,040
Buildings and improvements........................... 5,858 5,667
Manufacturing equipment.............................. 5,597 5,633
Transportation and office equipment.................. 8,348 8,066
Construction in progress............................. 281 295
-------- --------
21,100 20,701
Less--accumulated depreciation......................... (14,742) (14,407)
-------- --------
6,358 6,294
Deferred income taxes (Note 7)........................ 706 0
Other assets.......................................... 5,867 5,561
-------- --------
$ 74,632 $ 81,536
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 5)........... $ 135 $ 249
Accounts payable..................................... 20,102 24,158
Accrued salaries and commissions..................... 6,702 3,735
Other accrued liabilities (Notes 3 and 6)............ 6,861 8,883
Billings in excess of cost and estimated earnings on
uncompleted contracts............................... 943 1,449
Customer deposits.................................... 1,153 614
-------- --------
Total current liabilities.......................... 35,896 39,088
-------- --------
Long-term debt, less current portion (Note 5).......... 6,845 14,787
-------- --------
Deferred income taxes (Note 7)......................... 0 265
-------- --------
Other accrued liabilities (Note 6)..................... 2,235 2,064
-------- --------
Commitments and contingent liabilities (Note 9)........
Stockholders' equity (Note 8)
Common stock, $.01 par value: 50,000,000 shares
authorized; 3,265,308 shares issued................. 33 33
Capital in excess of par value......................... 9,788 9,788
Retained earnings...................................... 20,201 15,705
-------- --------
30,022 25,526
Treasury stock at cost--29,129 shares at April 30, 1996
and 19,379 shares at April 30, 1995................... (366) (194)
-------- --------
29,656 25,332
-------- --------
$ 74,632 $ 81,536
======== ========
</TABLE>
(The accompanying notes are an integral part of these financial statements.)
F-4
<PAGE>
DAVIS WATER & WASTE INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CAPITAL IN TOTAL
COMMON EXCESS OF RETAINED TREASURY STOCKHOLDERS'
STOCK PAR VALUE EARNINGS STOCK EQUITY
------ ---------- -------- -------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
Balance at April 30, 1993 $33 $9,788 $17,922 $(108) $27,635
Issuance of common stock in
connection with employee
benefit plans............... (43) 181 138
Purchase of treasury stock... (124) (124)
Net (loss)................... (5,340) (5,340)
--- ------ ------- ----- -------
Balance at April 30, 1994 33 9,788 12,539 (51) 22,309
Issuance of common stock in
connection with employee
benefit plans............... (21) 122 101
Dividends paid, $.08 per
share....................... (261) (261)
Purchase of treasury stock (265) (265)
Net income................... 3,448 3,448
Balance at April 30, 1995.... 33 9,788 15,705 (194) 25,332
--- ------ ------- ----- -------
Issuance of common stock in
connection with employee
benefit plans............... 10 102 112
Purchase of treasury stock... (274) (274)
Dividends paid, $.39 per
share....................... (1,263) (1,263)
Net income................... 5,749 5,749
--- ------ ------- ----- -------
Balance at April 30, 1996 $33 $9,788 $20,201 $(366) $29,656
=== ====== ======= ===== =======
</TABLE>
(The accompanying notes are an integral part of these financial statements.)
F-5
<PAGE>
DAVIS WATER & WASTE INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
----------------------------
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)................................ $ 5,749 $ 3,448 $ (5,340)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:..........
Depreciation and amortization................... 1,494 2,110 2,689
(Decrease) increase in reserve for Taulman
shutdown and write off of intangible assets.... (2,425) (1,480) 8,895
Provision for doubtful accounts................. 632 472 665
Loss on sale of property, plant and equipment... 22 0 86
Deferred income taxes........................... 469 (430) (4,536)
Decrease (increase) in accounts receivable...... 3,974 (1,109) (1,723)
Decrease (increase) in inventories.............. 976 1,748 (2,450)
(Increase) decrease in cost and estimated
earnings in excess of billings on uncompleted
contracts...................................... (322) (125) 280
(Increase) in other assets (1,052) (393) (15)
(Decrease) increase in billings in excess of
cost and estimated earnings on uncompleted
contracts...................................... (506) (752) 32
Increase in accounts payable and accrued
expenses....................................... 24 3,898 4,290
-------- -------- --------
Net cash provided by operating activities..... 9,035 7,387 2,873
-------- -------- --------
INVESTING ACTIVITIES
Purchase of property, plant and equipment........ (1,656) (1,566) (837)
Proceeds from sale of property, plant and
equipment....................................... 76 855 70
-------- -------- --------
Net cash (used in) investing activities....... (1,580) (711) (767)
-------- -------- --------
FINANCING ACTIVITIES
Proceeds from long-term debt..................... 62,131 56,292 54,549
Principal payments made on long-term debt........ (70,187) (60,897) (55,921)
Proceeds from sale of stock...................... 112 101 138
Purchase of treasury stock....................... (274) (265) (124)
Dividends paid................................... (1,263) (261) 0
-------- -------- --------
Net cash (used in) financing activities....... (9,481) (5,030) (1,358)
-------- -------- --------
CASH
(Decrease) increase in cash during period........ (2,026) 1,646 748
Cash and cash equivalents at beginning of year... 3,746 2,100 1,352
-------- -------- --------
Cash and cash equivalents at end of year......... $ 1,720 $ 3,746 $ 2,100
======== ======== ========
</TABLE>
(The accompanying notes are an integral part of these financial statements.)
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1996, 1995, AND 1994
NOTE 1--DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
Description of Business
Davis Water & Waste Industries, Inc. ("Davis") manufactures and markets
products relating to the distribution and treatment of water and wastewater.
Basis of Presentation
The accompanying financial statements include the accounts of Davis and its
wholly-owned subsidiary, The Taulman Company ("Taulman"). All significant
intercompany balances and transactions have been eliminated in consolidation.
Certain amounts in the prior year statements have been reclassified to conform
to the current year presentation.
Accounts Receivable
Accounts receivable at April 30, 1996 and 1995 include amounts under long-
term contracts of approximately $2,504,000 and $4,060,000, respectively.
Balances billed but not paid by customers pursuant to retainage provisions in
long-term contracts will be due upon completion of the contracts and
acceptance by the owner and aggregated approximately $1,493,000 and $2,216,000
at April 30, 1996 and 1995, respectively. Approximately $700,000 of these
retention balances are expected to be collected during the year ended April
30, 1997, with the remainder to be collected during the following year.
Concentration of Credit Risk
Davis grants credit to its customers, who are primarily involved in the
construction and real estate industries, including independent contractors,
developers, municipalities and industrial customers. To secure its interest in
trade accounts receivable, Davis obtains bonds or liens where considered
prudent. The majority of Davis' sales are made to customers located in the
Southeast. Other important markets include Texas, California and the Rocky
Mountain states.
Inventories
Inventories are carried at the lower of cost (first-in, first-out) or market
value.
Property, Plant and Equipment
Fixed assets are stated at cost. Depreciation is calculated using
principally the straight-line method over the estimated useful lives of the
assets. Expenditures for additions and improvements are charged to property
accounts; maintenance and repairs are charged to expense. Upon retirement or
sale, the cost of the asset and related accumulated depreciation are removed
from the accounts and any resulting gain or loss is included in income.
The approximate annual rates of depreciation are 4% to 14% for buildings and
improvements, 14% to 20% for manufacturing equipment and 14% to 33 1/3% for
transportation and office equipment.
Intangible Assets
Intangible assets resulting from the acquisition of certain assets and
liabilities of Taulman were being amortized on a straight line basis over
their estimated useful lives ranging from one to 40 years. As a result of the
shutdown or reorganization of Taulman, these intangibles were written off (see
Note 3).
Treasury Stock
Treasury stock is carried at cost determined using the first-in, first-out
method. Any excess of cost over proceeds from re-issuance of treasury stock is
charged to retained earnings; any excess of proceeds over cost is credited to
retained earnings to the extent of any prior charges and thereafter credited
to capital in excess of par.
F-7
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
APRIL 30, 1996, 1995, AND 1994
Revenue
Income from short-term contracts for the manufacture or installation of
water and wastewater treatment and pumping equipment is recognized at time of
shipment or when installation is completed, respectively. Income from long-
term contracts for the manufacture of process equipment and control systems
used in water and wastewater treatment facilities was recognized on the
percentage-of-completion basis; however, revenues are no longer recognized in
Davis' operations for these types of contracts due to the shutdown of Taulman.
Income is recognized from the sale of water distribution equipment and
supplies and process materials and supplies at the time of shipment.
Commission income from the sale of products manufactured by others is
recognized when the customer's order is shipped by the third party
manufacturer.
Income Taxes
Davis accounts for income taxes under SFAS No. 109, "Accounting for Income
Taxes" (FAS 109). FAS 109 requires the recognition of deferred tax liabilities
and assets for the expected future tax consequences of temporary differences
between the carrying amounts and the tax basis of other assets and
liabilities.
Net Income (Loss) Per Share
Net income (loss) per share is computed by dividing net income (loss) by the
average number of common shares outstanding, increased by common equivalent
shares determined using the treasury stock method.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions that affect the reported amount 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.
Statement of Cash Flows
Cash equivalents are considered to be short term, highly liquid investments
with original maturities of three months or less.
Supplemental disclosure of cash flows follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
--------------------
1996 1995 1994
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash paid during the year for:
Interest.............................................. $1,172 $1,429 $1,276
Income taxes.......................................... 4,278 2,423 1,272
------ ------ ------
$5,450 $3,852 $2,548
====== ====== ======
</TABLE>
NOTE 2--POTENTIAL SALE OF DAVIS
On June 10, 1996, Davis entered into a definitive Agreement and Plan of
Merger (the "Agreement") with United States Filter Corporation ("U.S. Filter")
whereby USF/DWW Acquisition Corporation, a wholly-owned subsidiary of U.S.
Filter, would be merged with and into Davis with Davis as the surviving
entity. Each outstanding share of common stock of Davis, par value $0.01 per
share, would be exchanged for 0.933 share of U.S. Filter common stock, par
value $0.01 per share (the "Exchange Ratio"). In the event that the average
market price per share of U.S. Filter Common Stock for the 20 consecutive
trading days beginning on the 25th trading day prior to the vote of Davis'
stockholders' on the merger ("Average Market Price") is less than $28
F-8
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
APRIL 30, 1996, 1995, AND 1994
per share, the Exchange Ratio shall be adjusted to $26.12 divided by the
Average Market Price. If the Average Market Price is greater than $34 per
share, the Exchange Ratio shall be adjusted to $31.72 divided by the Average
Market Price. Davis may terminate the Agreement if the Average Market Price of
U.S. Filter Common Stock is less than $25.25 and U.S. Filter may terminate the
Agreement if the Average Market Price of the U.S. Filter common stock is
greater than $37.25.
Under the terms of the Agreement, all outstanding unexercised stock options
of Davis, whether or not then exercisable, would be converted into the right
to receive 0.933 share of U.S. Filter Common Stock (the "Option Exchange
Ratio"). The Option Exchange Ratio shall be adjusted in the same manner as the
Exchange Ratio for Davis' common stock based on certain levels of the Average
Market Price of U.S. Filter Common Stock as described above.
The consummation of the merger transaction is subject to approval by Davis'
stockholders and certain other conditions. The transaction is expected to be
consummated by August 31, 1996.
NOTE 3--PROVISION FOR TAULMAN SHUTDOWN AND RELATED INTANGIBLE ASSETS:
During the fourth quarter of fiscal 1994, Davis adopted a plan to shutdown
or reorganize the operations of Taulman. Substantially all of Taulman's
operations are contained within its Turbitrol Instrumentation and Control
division; these operations are in the process of being shut down. Taulman
Composting Systems, an immaterial component of Taulman, was combined with
Davis' Process division. 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. Accordingly, the results of
operations of Taulman during fiscal 1996 and 1995 were excluded from the
results of operations of Davis.
Taulman is engaged in the environmental pollution control business,
primarily through the design, manufacture and sale of process equipment and
control systems used in water and wastewater treatment facilities. Revenues
and expenses on its long- term contracts are recognized on the percentage-of -
completion basis. Taulman has ceased bidding on new contracts, has terminated
its sales force and is working to complete its current obligations on long-
term contracts during the estimated two and one half year period from the
decision to shut down. The provision for losses during the shutdown period
reflects declining revenues and relatively high levels of general and
administrative costs necessary to complete the shutdown of these operations.
During fiscal 1996 and 1995, activity within the reserve for anticipated
losses during the shutdown period is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
----------------------
1996 1995
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Balance, beginning of year........................ $ 4,507 $ 5,987
Operating loss of Taulman......................... (2,425) (2,158)
Adjustment to reserve............................. 0 678
---------- ----------
Balance, end of year.............................. $ 2,082 $ 4,507
========== ==========
</TABLE>
The adjustment in fiscal 1995 to the reserve represented an increase in the
reserve resulting from a revised estimate of the anticipated losses during the
shutdown period. There have been no changes to the plan for shutting down
Taulman since the adoption of the plan in the fourth quarter of fiscal 1994.
F-9
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
APRIL 30, 1996, 1995, AND 1994
The Taulman shutdown represents the discontinuation of a product line.
Therefore, Taulman's results of operations through the fourth quarter of
fiscal 1994 have been included as components of continuing operations in the
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. 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 APRIL 30,
----------------------
1996 1995 1994
------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales............................................. $4,843 $11,252 $15,871
Cost of products sold................................. 5,370 9,791 14,465
Selling, general and administrative expense........... 1,913 3,445 4,302
Assets................................................ 3,626 5,252 12,523
Liabilities........................................... 2,730 2,614 10,111
</TABLE>
Assets and liabilities at April 30, 1996, 1995 and 1994 consisted primarily
of accounts receivable, inventory, accounts payable, accrued expenses and
intercompany debt.
Intangible assets written off in fiscal 1994 as a part of the shutdown
included a technology licensing agreement of $1,321,000, noncompete agreements
of $1,155,000 and goodwill of $432,000. The technology licensing agreement was
written off because Davis, in response to changing marketplace demands,
elected to forego its exclusive North American rights to this waste composting
technology during the fourth quarter of fiscal 1994. Recently developed
methods for waste composting are much more economical and substantially
reduced the demand for Davis' licensed technology. The noncompete agreements
and goodwill were written off because their value will not be recovered as a
result of the shutdown.
NOTE 4--INVENTORIES:
Inventories are summarized as follows:
<TABLE>
<CAPTION>
APRIL 30,
---------------
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Finished goods and products purchased for resale............. $15,925 $16,137
Work-in-process.............................................. 1,347 2,073
Raw materials and purchased components....................... 530 568
------- -------
$17,802 $18,778
======= =======
</TABLE>
NOTE 5--LONG-TERM DEBT:
During the first quarter of fiscal 1996, Davis and SunTrust Bank Central
Florida, National Association ("STBNA") entered into a second amendment to the
October 13, 1992 loan agreement. The second amendment extended the loan
maturity through April 30, 1997, reduced the principal amount Davis can borrow
to $30,000,000, provided specific guidelines that Davis must meet to eliminate
the security interest that STBNA has on Davis' accounts receivable and
inventory, eliminated the working capital requirement and limited the amount
of cash that Davis may spend in connection with acquisitions without the prior
consent of STBNA to $2,500,000 per year during the term of the loan agreement.
The amended loan agreement also permits Davis to choose between the then
current prime rate or the then current LIBOR rate plus or minus various basis
point rates for advances under the revolving term loan, depending on Davis
achieving certain financial results. Davis was in compliance with the
financial covenants of the loan agreement as of April 30, 1996.
F-10
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
APRIL 30, 1996, 1995, AND 1994
On June 6, 1996, STBNA extended the loan maturity to April 30, 1998, and
because of Davis' improved operating results and meeting the established
guidelines, eliminated the security interest on Davis' accounts receivable and
inventory.
As of April 30, 1996, the interest on balances outstanding under the STBNA
revolving term note was payable at either STBNA's prime commercial rate less
50 basis points or LIBOR plus 150 basis points. Davis pays a commitment fee
equal to one-fourth of one percent per annum on the average daily unused
portion of the revolving term note.
The payment of cash dividends is subject to the approval by the Board of
Directors and depends on, among other factors, earnings, capital requirements,
and the operating and financial condition of Davis. The payment of cash
dividends also requires the prior approval of STBNA unless certain financial
requirements are met. During the first, third and fourth quarters of fiscal
1996, Davis' Board of Directors authorized cash dividends of $0.14, $0.15 and
$0.10 per share, which were paid on July 3, 1995, January 5, 1996 and April
12, 1996 to stockholders of record on June 26, 1995, December 26, 1995 and
April 1, 1996, respectively.
Notes payable and long-term debt consist of:
<TABLE>
<CAPTION>
APRIL 30,
--------------
1996 1995
------ -------
(IN THOUSANDS)
<S> <C> <C>
Revolving term loan due April 1997 with interest at prime;
maturity was extended to April 30, 1998 by STBNA in letter
dated June 6, 1996............................................. $5,343 $13,110
Promissory note with interest at prime with monthly installment
payments secured by an airplane................................ 0 242
Capitalized lease with interest at 7.70% with monthly
installment payments through April 1998........................ 50 75
Capitalized lease with interest at 4.90% with monthly
installment payments through February 1998..................... 165 248
Capitalized lease with interest at 4.90% with monthly
installment payments through November 1998..................... 61 0
Loans payable to insurance companies with interest at varying
rates secured by cash surrender value of life insurance
policies approximating $1,947 and $1,818 at April 30, 1996 and
1995, respectively............................................. 1,361 1,361
------ -------
6,980 15,036
Amounts due within one year..................................... 135 249
------ -------
Amounts due after one year...................................... $6,845 $14,787
====== =======
</TABLE>
Annual maturities of long-term debt in each of the succeeding five years
from April 30, 1996 are approximately $135; $5,470; $14; $0; and $0
respectively. Loans payable to insurance companies secured by cash surrender
value in the amount of $1,361 do not have a stated maturity date.
F-11
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
APRIL 30, 1996, 1995, AND 1994
NOTE 6--PENSION PLAN:
Davis has a defined benefit pension plan covering substantially all of its
employees. The benefits are based on years of service and the employee's
highest average compensation earned during any consecutive five-year period
within the last ten years of employment, reduced by payments from Social
Security. Pension cost is funded at amounts determined by management but not
less than the minimum funding required by the Employee Retirement Income
Security Act of 1974 (ERISA). At April 30, 1996, the assets of this Plan
included cash equivalents and equity and fixed income mutual funds.
Participants of certain acquired companies received service credit for vesting
in the Plan upon date of acquisition or termination of any former benefit
plans. The cost of these benefits will be amortized over 18 years, which is
the average remaining service period of the participants.
Davis also has a supplemental defined benefit pension plan (the Supplemental
Plan) covering all Davis officers. The Supplemental Plan provides for annual
disability benefits in amounts of 50%-80% of base pay at the time of the
disabling injury, to be paid to participants who become permanently disabled.
This benefit will terminate at age 65. Additionally, the Supplemental Plan
provides for retirement benefits to participants representing approximately
50%-80% of base pay at the date of retirement, reduced by payments from Social
Security. These retirement benefits will be paid over the expected lifetime of
the participant. Davis has not funded the Supplemental Plan. This plan is not
subject to ERISA funding requirements. The Davis intends to fund the
Supplemental Plan as benefits are paid.
Net periodic pension cost of these plans for fiscal 1996, 1995 and 1994
included the following components:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30, 1996 YEAR ENDED APRIL 30, 1995 YEAR ENDED APRIL 30, 1994
------------------------------ ------------------------------ ------------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS BENEFITS ASSETS
-------------- ------------ ------------- ------------ ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Service cost benefit
earned during the
period................. $ 386 $ 47 $ 350 $ 40 $ 362 $ 37
Interest cost on
projected
benefit obligation..... 680 114 613 112 623 114
Actual return on plan
assets................. (1,481) (900) (809)
Net amortization and
deferral............... 567 73 37 73 25 71
-------------- ----------- ------------- ------------ ------------- ------------
Net periodic pension
cost................... $ 152 $234 $ 100 $225 $ 201 $222
============== =========== ============= ============ ============= ============
</TABLE>
Assumptions used to determine net periodic pension cost for these plans for
fiscal 1996, 1995 and 1994 were:
<TABLE>
<CAPTION>
AS OF APRIL 30,
---------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Discount rates....................................... 7.5% 7.5% 7.5%
Rates of increase in compensation levels............. 4.5% 4.5% 4.5%
Expected long-term rate of return on assets.......... 9.0% 9.0% 9.0%
</TABLE>
F-12
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
APRIL 30, 1996, 1995, AND 1994
The following table sets forth these plans' funded status and amounts
recognized on Davis' consolidated balance sheet at April 30, 1996 and April 30,
1995.
<TABLE>
<CAPTION>
APRIL 30, 1996 APRIL 30, 1995
----------------------- -----------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Actuarial present value of
benefit obligations:
Accumulated benefit obligation
Vested....................... $ 7,698 $ 1,637 $6,982 $ 1,602
Nonvested.................... 317 298
------- ------- ------ -------
$ 8,015 $ 1,637 $7,820 $ 1,602
======= ======= ====== =======
Plan assets at fair value...... $10,351 $9,156
Projected benefit obligation... 9,984 $ 1,637 9,007 $ 1,602
------- ------- ------ -------
Projected benefit obligation
less than (in excess of) plan
assets........................ 367 (1,637) 149 (1,602)
Unrecognized prior service
costs......................... (136) 291 (149) 367
Unrecognized net loss (gain)... (39) (114) 433 (74)
Additional liability........... (161) (274)
Unrecognized net asset at May
1, 1996 being amortized over
19 years and 15 years,
respectively.................. (722) (16) (812) (19)
------- ------- ------ -------
Pension (liability) recognized
in the balance sheet.......... $ (530) $(1,637) $ (379) $(1,602)
======= ======= ====== =======
</TABLE>
NOTE 7--INCOME TAXES:
The components of the provision for income tax expense (benefit) are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
----------------------
1996 1995 1994
------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current tax expense:
Federal............................................ $3,248 $2,297 $ 1,237
State.............................................. 610 492 244
Deferred tax expense (benefit):
Federal............................................ 395 (362) (3,820)
State.............................................. 74 (68) (716)
------ ------ -------
$4,327 $2,359 $(3,055)
====== ====== =======
</TABLE>
F-13
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
APRIL 30, 1996, 1995, AND 1994
Deferred tax liabilities (assets) recorded under FAS 109 are comprised of
the following at April 30, 1996 and 1995:
<TABLE>
<CAPTION>
APRIL 30,
----------------
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Depreciation................................................. $ 122 $ 211
Change in the method of inventory accounting for income tax
purposes.................................................... 0 393
------- -------
Gross deferred tax liabilities............................. 122 604
------- -------
Deferred tax assets:
Pension.................................................... (832) (725)
Vacation................................................... (317) (365)
Other employee benefit plans............................... (623) (413)
Warranty reserves.......................................... (233) (177)
Inventory.................................................. (649) (639)
Allowance for doubtful accounts............................ (479) (431)
Noncompete agreements...................................... (155) (187)
Shutdown reserve for Taulman............................... (1,524) (2,488)
Other...................................................... (210) (548)
------- -------
Gross deferred tax assets................................ (5,022) (5,973)
------- -------
$(4,900) $(5,369)
======= =======
</TABLE>
A reconciliation between the actual income tax expense (benefit) and the
amount computed by applying the federal income tax rate (34.0%) in 1996, 1995
and in 1994 to pre-tax income from continuing operations follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
----------------------
1996 1995 1994
------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Computed amount based on federal statutory rate......... $3,426 $1,974 $(2,854)
Increases (reductions) in taxes:
State income taxes, net of federal income tax benefit... 402 232 (322)
Tax on meals and entertainment expense disallowed....... 144 132 54
Nondeductible accrual for incentive stock options....... 373 0 0
Other................................................... (18) 21 77
------ ------ -------
Provision (benefit)..................................... $4,327 $2,359 $(3,055)
====== ====== =======
</TABLE>
NOTE 8--STOCKHOLDERS' EQUITY:
During the third quarter of fiscal 1995, the Board of Directors approved the
Davis Water & Waste Industries, Inc. 1994 Employee Stock Option Plan (the
"Employees Plan") and the Davis Water & Waste Industries, Inc. Directors Stock
Option Plan (the "Directors Plan"). Both Plans were approved by the
stockholders of Davis at the 1995 Annual Meeting of Stockholders on September
8, 1995.
Under the Employees Plan and the Directors Plan (collectively, the "Plans"),
options to acquire up to 250,000 and 75,000 shares of Davis' common stock,
respectively, may be granted to employees and outside directors of Davis,
respectively, by a committee of the Board of Directors. No options may be
granted after ten years from the date of approval of the Plans by the Board.
Options granted under the Plans vest evenly over five
F-14
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
APRIL 30, 1996, 1995, AND 1994
years and are exercisable for a period not exceeding ten years after the date
of grant at a price equal to the quoted market value of the common stock as of
the date of grant. Optionees may exercise the options by paying cash,
exchanging Davis shares having a quoted market value equal to or less than the
exercise price, by instructing Davis to retain shares of stock upon the
exercise of the option with a quoted market value equal to the exercise price
as payment, or exchanging property or services as may be acceptable to the
committee of the Board. The options are not transferable except to the
optionee's beneficiaries. The Plans may be amended or terminated at the
discretion of the Board. Compensation expense is accrued for the Plans for
options as earned by the optionees as the difference between the quoted market
price at the period end and the option price multiplied by the number of
options. Accrued compensation expense is adjusted for the changes in the
quoted market value of the stock from period to period. At April 30, 1996 and
1995, total compensation expense accrued for the Plans aggregated
approximately $1,176,000 and $74,000, respectively.
Under the Employees Plan in December 1994, the Board granted options to
acquire 162,660 shares to certain Davis officers at an option price of $7.75
per share, which was equal to the quoted market price for the shares of Davis'
common stock at the date of grant. All but 1,000 of the options were
outstanding at April 30, 1996. No options were canceled or expired during
fiscal year 1996 and 1,000 shares were exercised. At April 30, 1996, options
for the purchase of 87,340 shares of common stock were available to be granted
under the Employees Plan.
Under the Directors Plan in December 1994, options to acquire 32,000 shares
of common stock were granted to the outside directors of Davis at an option
price of $7.75 per share, which was equal to the quoted market price for the
shares of Davis' common stock at the date of grant. All such options were
outstanding at April 30, 1996. No options were exercised, canceled or expired
during fiscal 1996. At April 30, 1996, options for the purchase of 43,000
shares of common stock were available to be granted under the Directors Plan.
During fiscal 1989, the stockholders of Davis approved a qualified employee
stock purchase plan (the "1988 ESP Plan"). During fiscal 1992, the
stockholders of Davis approved an amendment to the 1988 ESP Plan increasing
the shares of common stock reserved for issuance under this plan from 80,000
to 160,000 shares. Under the terms of the 1988 ESP Plan, all regular full time
employees and officers of Davis may purchase common stock of Davis quarterly
at 85% of the lower of market value on the offering date or the termination
date of the offering period. The 1988 ESP Plan will terminate at such time as
all shares made available under the plan have been issued. During fiscal 1996,
1995, and 1994, 9,223, 13,616 and 24,225 shares, respectively, were issued
under the plan, and at April 30, 1996, 15,309 shares of common stock were
reserved and available for issuance.
During August 1988, a Long-Term Incentive Plan (the "Incentive Plan") was
approved by Davis' stockholders. The Board of Directors had previously
approved the Incentive Plan whereby certain key officers (the participants)
would become eligible to receive performance shares provided Davis achieves
specified financial goals over four year periods. Performance shares represent
rights to receive common stock or, at the election of the participant, a
combination of cash and common stock. During fiscal 1996, 349 shares of common
stock were distributed and payments of $2,967 were made to participants under
the 1991-1994 Incentive Plan. During fiscal 1994 and fiscal 1995, the Board of
Directors determined not to approve a Long-Term Incentive Plan for key
officers but instead proposed the adoption of a stock option plan for the key
employees of Davis (as discussed above).
The cost of the Incentive Plan is limited to twice the grant price at the
grant date of the maximum number of performance shares issuable. The grant
price is determined by the higher of the book value per share or the average
of the closing price of Davis' common stock for a period prior to and
following the public release of the preceding year's annual earnings. The
grant price of the performance shares granted during fiscal 1993 was
F-15
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
APRIL 30, 1996, 1995, AND 1994
$8.30. The estimated costs of the Incentive Plan are charged to income over
the applicable four year periods. During the fiscal year ended April 30, 1996
$50,000 was expensed, and for fiscal years 1995 and 1994, no income or expense
was recognized.
Davis purchases shares of its common stock to be held as treasury stock
until needed for issuance through Davis' employee stock plans and directors
and employees stock option plans discussed above.
On December 15, 1989, the Board of Directors of Davis adopted a Share Rights
Plan and, in connection therewith, declared a dividend distribution of one
Right for each outstanding share of Davis' common stock to stockholders of
record at the close of business on January 8, 1990. Davis had 3,248,621 shares
of its common stock outstanding at such date. The Share Rights Plan generally
provides that 20 days following a public announcement that a person or a group
of affiliated or associated persons have become owners of 10% or more of
Davis' Common Stock (and have thus become an "Acquiring Person"), each Right
will entitle the registered holder to purchase from Davis common stock at a
purchase price per share equal to 20% of current market value. Any Rights
beneficially owned by an Acquiring Person or any of the Acquiring Person's
affiliates or associates are not exercisable. The number of shares that each
holder of a Right will be entitled to receive upon exercise is equal to one
share of common stock multiplied by a fraction, the numerator of which is the
number of shares of common stock outstanding on the date of the first public
announcement that a person has become an Acquiring Person (the "Stock
Acquisition Date") and the denominator of which is the number of Rights
outstanding on the Stock Acquisition Date that are not beneficially owned by
the Acquiring Person or its affiliates or associates. Until such time as the
Rights become exercisable, (a) the Rights will be evidenced by the common
stock certificates and will be transferred with and only with such common
stock certificates, (b) new common stock certificates issued after January 8,
1990 will contain a notation incorporating the Rights Agreement by reference
and (c) the surrender for transfer of any certificates for common stock will
also constitute the transfer of the Rights associated with the common stock
represented by such certificate. In connection with the merger agreement with
U.S. Filter (Note 2), the Share Rights Plan was amended whereby the Rights
will not become effective upon consummation of the merger.
F-16
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
APRIL 30, 1996, 1995, AND 1994
NOTE 9--COMMITMENTS AND CONTINGENT LIABILITIES:
Davis leases certain warehouse facilities and equipment, principally
trucking equipment, under operating leases. Certain leases provide for
additional rental based on actual usage and many leases have renewal options.
Under some leases Davis agrees to pay insurance costs and increases in
property taxes. Total rent expense amounted to approximately $2,737,000 in
1996, $3,009,000 in 1995, and $3,141,000 in 1994, of which $233,000, $251,000
and $250,000 was for truck rental based on mileage. Davis leases certain
computer equipment and a front end loader under noncancelable capital lease
agreements (see Note 5). The original capitalized cost of leases included in
property and equipment was $386,629. As of April 30, 1996 the net book value
of leased equipment totaled $303,317. Minimum lease and rental commitments
under non-cancelable capital and operating leases in effect at April 30, 1996
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING APRIL 30, CAPITAL LEASES OPERATING LEASES TOTAL COMMITMENTS
--------------------- -------------- ---------------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C>
1997.................... $146 $2,270 $2,416
1998.................... 127 1,812 1,939
1999.................... 15 1,531 1,546
2000.................... 935 935
2001.................... 377 377
2002-2004................ 68 68
---- ------ ------
Total minimum lease
payments................. 288 $6,993 $7,281
====== ======
Less--Amount representing
interest................. (12)
----
Present value of minimum
lease payments........... $276
====
</TABLE>
The nature of Davis' business results in a certain amount of litigation.
Accordingly, Davis is a party (as plaintiff and defendant) to a number of
lawsuits incidental to its business, and in certain of such matters, claims
have been asserted against Davis in substantial amounts. Management believes
that Davis has meritorious defenses to these claims and together with its
insurance carriers, is vigorously defending them.
NOTE 10--FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and Cash Equivalents
The carrying amount reflected in the consolidated balance sheet approximates
the fair value of cash and cash equivalents.
Notes Payable and Long-term Debt
Substantially all of the balance of long-term debt is represented by a
variable rate revolving term loan. Because this variable rate approximates a
market rate of interest at year end, the carrying amount of notes payable and
long-term debt approximates fair value.
F-17
<PAGE>
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
APRIL 30, 1996, 1995, AND 1994
NOTE 11--QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized unaudited quarterly consolidated financial data is as follows:
<TABLE>
<CAPTION>
FULLY
PRIMARY NET DILUTED NET
INCOME INCOME DIVIDENDS PAID
NET SALES GROSS PROFIT NET INCOME PER SHARE PER SHARE PER SHARE
--------- ------------ ---------- ----------- ----------- --------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
1996 Fiscal Quarter
First................. $ 59,683 $ 8,817 $1,162 $0.36 $0.35 $0.14
Second................ 58,867 10,158 1,816 0.56 0.55 0.00
Third................. 52,457 8,680 1,156 0.36 0.35 0.15
Fourth................ 55,482 10,114 1,615 0.48 0.48 0.10
-------- ------- ------ ----- ----- -----
$226,489 $37,769 $5,749 $1.78 $1.72 $0.39
======== ======= ====== ===== ===== =====
1995 Fiscal Quarter
First................. $ 50,914 $ 7,250 $ 518 $0.16 $0.16 $0.00
Second................ 56,056 8,754 1,299 0.40 0.40 0.00
Third................. 52,730 7,868 776 0.23 0.23 0.08
Fourth................ 55,949 8,123 855 0.27 0.26 0.00
-------- ------- ------ ----- ----- -----
$215,649 $31,995 $3,448 $1.06 $1.05 $0.08
======== ======= ====== ===== ===== =====
</TABLE>
Primary and fully diluted earnings per share for the fiscal year ended April
30, 1996 do not equal the sum of primary and fully diluted earnings per share
for each quarter during fiscal year due to the application of the treasury
stock method for determining the impact of certain common stock equivalents.
The net income for the fourth quarter of fiscal 1995 includes an additional
provision of $678,000 for management's revised estimate of the Taulman
shutdown reserve. See Note 3 to Notes of the Consolidated Financial
Statements.
F-18
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
DATED AS OF JUNE 10, 1996
AMONG
UNITED STATES FILTER CORPORATION,
USF/DWW ACQUISITION CORPORATION
AND
DAVIS WATER & WASTE INDUSTRIES, INC.
(AS AMENDED ON JULY 10, 1996)
A-1
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER ("Agreement"), dated as of June 10, 1996, by
and among United States Filter Corporation, a Delaware corporation ("USF"),
USF/DWW Acquisition Corporation, a Delaware corporation and a wholly owned
subsidiary of USF ("Sub"), and Davis Water & Waste Industries, Inc., a Georgia
corporation ("DWW"). DWW and Sub are the only parties to the merger hereby
contemplated and are sometimes referred to herein as the "Constituent
Corporations", and DWW is sometimes referred to herein as the "Continuing
Corporation."
WHEREAS, the respective Boards of Directors of the Constituent Corporations
have approved this Agreement and deem it advisable and in the best interests
of their respective corporations and shareholders that Sub merge with and into
DWW on the terms and conditions herein set forth, whereby DWW will become a
wholly owned subsidiary of USF and the shareholders of DWW will become
stockholders of USF (the "Merger");
WHEREAS, concurrently with the execution and delivery of this Agreement and
as a condition and inducement to USF's willingness to enter into this
Agreement, Jasper C. Davis III, Marthalene M. Davis, R. R. Davis, Ann R.
Davis, H. Forbes Davis, Nan Davis and R. Doyle White, each of whom is a
shareholder of DWW ("Shareholders"), have entered into Shareholder Agreements
(the "Shareholder Agreements") with USF pursuant to which the Shareholders
have agreed to vote their shares of Common Stock, $.01 par value, of DWW ("DWW
Common Stock") in favor of the Merger;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, for financial accounting purposes, it is intended that the Merger
shall be accounted for as a pooling of interests.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
parties agree as follows:
ARTICLE I
THE MERGER
Section 1.01 The Merger. At the Effective Time (as defined in Section 1.02)
and subject to and upon the terms and conditions of this Agreement, the
Georgia Business Corporation Code (the "Georgia BCC") and the Delaware General
Corporation Law (the "Delaware GCL"), Sub shall be merged with and into DWW,
the separate corporate existence of Sub shall cease, and DWW shall continue as
the Continuing Corporation.
Section 1.02 Effective Time of the Merger. As soon as practicable on or
after the Closing Date, a certificate of merger shall be filed with the
Secretary of State of the State of Georgia in accordance with the Georgia BCC,
and a certificate of merger shall be filed with the Secretary of State of the
State of Delaware in accordance with the Delaware GCL. The Merger shall be
effective at such time as is specified in the certificates of merger so filed
(the "Effective Time").
Section 1.03 Closing. The closing of the Merger (the "Closing") will take
place at 10:00 a.m., prevailing time, on a date to be specified by USF and
DWW, which shall be as soon as practicable after all of the conditions to the
Merger set forth in Article VI have been satisfied or waived, subject to the
rights of termination and abandonment hereinafter set forth (the "Closing
Date"), at a place mutually agreed to in writing by USF and DWW.
A-2
<PAGE>
Section 1.04 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of the Georgia BCC
and the Delaware GCL. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time all the property, rights, privileges,
powers and franchises of DWW and Sub shall vest in the Continuing Corporation,
and all debts, liabilities and duties of DWW and Sub shall become the debts,
liabilities and duties of the Continuing Corporation.
Section 1.05 Articles of Incorporation; By-Laws; Directors; and Officers. At
the Effective Time:
(a) The Articles of Incorporation of the Continuing Corporation shall be
amended to read in their entirety as set forth in Exhibit A;
(b) The Bylaws of DWW as in effect immediately prior to the Effective
Time shall be the Bylaws of the Continuing Corporation;
(c) The directors of Sub at the Effective Time shall be the initial
directors of the Continuing Corporation and hold office as provided in the
Bylaws of the Continuing Corporation; and
(d) The officers of Sub shall be the initial officers of the Continuing
Corporation, until their successors are elected or appointed.
ARTICLE II
CONVERSION OF SECURITIES
Section 2.01 Conversion of Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holder of any
shares of DWW Common Stock or capital stock of Sub:
(a) Each issued and outstanding share of the capital stock of Sub shall
be converted into and become one fully paid and nonassessable share of
Common Stock, par value $.01 per share, of the Continuing Corporation.
(b) Subject to adjustment as set forth below, each issued and outstanding
share of DWW Common Stock, but other than shares of DWW Common Stock issued
and held in the treasury of DWW, shall be converted into and shall become,
by virtue of the Merger and without any further action by the holder
thereof, .933 share of Common Stock of USF, par value $.01 per share ("USF
Common Stock") (the "Exchange Ratio"). Notwithstanding the foregoing and
subject to the termination provisions set forth in Sections 7.01(b) and
(c):
In the event the Average Market Price (as hereinafter defined) of the
USF Common Stock is less than $28.00 per share, the Exchange Ratio
shall be adjusted (the "Adjusted Exchange Ratio") using the following
formula:
$26.12 / Average Market Price = Adjusted Exchange Ratio; and
In the event the Average Market Price of the USF Common Stock is more
than $34.00 per share, the Exchange Ratio shall be adjusted using the
following formula:
$31.72 / Average Market Price = Adjusted Exchange Ratio.
The Average Market Price of a share of USF Common Stock shall be
calculated by averaging the closing per share sale prices for the 20
consecutive trading days beginning on the 25th trading day prior to the
Shareholders' Meeting on which there were any trades in USF Common Stock.
In such Average Market Price calculations, numbers shall be carried to four
decimal places. The daily closing per share sale prices shall be those
reported in The Wall Street Journal for New York Stock Exchange--Composite
Transactions.
(c) Each share of DWW Common Stock issued and held in the treasury of DWW
immediately prior to the Effective Time shall automatically be canceled and
retired without any conversion thereof, and no cash shall be exchangeable
therefor.
A-3
<PAGE>
Section 2.02 Exchange of Certificates.
(a) After the Effective Time, each holder of a certificate formerly
evidencing shares of DWW Common Stock which have been converted pursuant to
Section 2.01(b), upon surrender of the same to American Stock Transfer & Trust
Company or another exchange agent selected by USF and reasonably satisfactory
to DWW (the "Exchange Agent") as provided in Section 2.02(b) hereof, shall be
entitled to receive in exchange therefor (i) a certificate or certificates
representing the number of whole shares of USF Common Stock into which such
shares of DWW Common Stock shall have been converted as provided in this
Article II and (ii) as provided in Section 2.04, cash in lieu of any
fractional share of USF Common Stock into which such shares of DWW Common
Stock would have otherwise been converted, without any interest thereon. Until
so surrendered, each certificate formerly evidencing shares of DWW Common
Stock which have been so converted will be deemed for all corporate purposes
of USF to evidence ownership of the number of whole shares of USF Common Stock
for which the shares of DWW Common Stock formerly represented thereby were
exchanged and the right to receive cash as herein provided, without any
interest thereon; provided, however, that until such certificate is so
surrendered, no dividend payable to holders of record of USF Common Stock as
of any date subsequent to the Effective Time shall be paid to the holder of
such certificate in respect of the shares of USF Common Stock evidenced
thereby and such holder shall not be entitled to vote such shares of USF
Common Stock on any matter submitted to a vote of stockholders of USF. Upon
surrender of a certificate formerly evidencing shares of DWW Common Stock
which have been so converted, there shall be paid to the record holder of the
certificates of USF Common Stock issued in exchange therefor (i) at the time
of such surrender, the amount of dividends and any other distributions
theretofore paid with respect to such shares of USF Common Stock as of any
date subsequent to the Effective Time to the extent the same has not yet been
paid to a public official pursuant to abandoned property, escheat or similar
laws and (ii) at the appropriate payment date, the amount of dividends and any
other distributions with a record date after the Effective Time but prior to
surrender and a payment date subsequent to surrender payable with respect to
such shares of USF Common Stock. No interest shall be payable with respect to
the payment of such dividends.
(b) As soon as practicable after the Effective Time, the Exchange Agent
shall send a notice and a transmittal form to each holder of certificates
formerly evidencing shares of DWW Common Stock (other than certificates
formerly representing shares of DWW Common Stock to be canceled pursuant to
Section 2.01(c)) advising such holder of the effectiveness of the Merger and
the procedure for surrendering to the Exchange Agent (who may appoint
forwarding agents with the approval of USF) such certificates for exchange
into certificates evidencing USF Common Stock (including cash in lieu of any
fractional share). Each holder of certificates theretofore evidencing shares
of DWW Common Stock, upon proper surrender thereof to the Exchange Agent
together and in accordance with such transmittal form, shall be entitled to
receive in exchange therefor certificates evidencing USF Common Stock
(including cash in lieu of any fractional share) deliverable in respect of the
shares of DWW Common Stock theretofore evidenced by the certificates so
surrendered. Notwithstanding the foregoing, neither the Exchange Agent nor any
party hereto shall be liable to a holder of certificates theretofore
representing shares of DWW Common Stock for any amount which may be required
to be paid to a public official pursuant to any applicable abandoned property,
escheat or similar law.
(c) If any certificate evidencing shares of USF Common Stock is to be
delivered to a person other than the person in whose name the certificates
surrendered in exchange therefor are registered, it shall be a condition to
the issuance of such certificate evidencing shares of USF Common Stock that
the certificates so surrendered shall be properly endorsed or accompanied by
appropriate stock powers and otherwise in proper form for transfer, that such
transfer otherwise be proper and that the person requesting such transfer pay
to the Exchange Agent any transfer or other taxes payable by reason of the
foregoing or establish to the satisfaction of the Exchange Agent that such
taxes have been paid or are not required to be paid.
(d) In the event any certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
certificate to be lost, stolen or destroyed, the Continuing Corporation will
issue in exchange for such lost, stolen or destroyed certificate the
certificate evidencing shares of USF Common
A-4
<PAGE>
Stock deliverable in respect thereof, as determined in accordance with this
Article II. When authorizing such issue of the certificate for shares of USF
Common Stock in exchange therefor, the Board of Directors of the Continuing
Corporation may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate to give the Continuing Corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the Continuing
Corporation with respect to the certificate alleged to have been lost, stolen
or destroyed.
(e) Adoption of this Agreement by the shareholders of DWW shall constitute,
as an integral part of the Merger, ratification of the appointment of, and the
reappointment of, said Exchange Agent.
Section 2.03 No Further Transfers. After the Effective Time, there shall be
no registration of transfers of shares on the stock transfer books of DWW of
the shares of DWW Common Stock that were outstanding immediately prior to the
Effective Time.
Section 2.04 No Fractional Shares. Neither certificates nor scrip for
fractional shares of USF Common Stock will be issued, but in lieu thereof each
holder of DWW Common Stock or Outstanding Options otherwise entitled to a
fraction of a share of USF Common Stock shall receive from USF an amount in
cash equal to the closing per share sale price of a share of USF Common Stock,
as reported in The Wall Street Journal for New York Stock Exchange--Composite
Transactions, for the day of the Effective Time, multiplied by the fraction of
a share of USF Common Stock to which such shareholder or option holder would
be otherwise entitled. No USF stock split or dividend shall relate to any
fractional share interest, and no such fractional share interest shall entitle
the owner thereof to vote or to any rights of a stockholder of USF.
Section 2.05 Anti-Dilution Provisions. In the event USF changes the number
of shares of USF Common Stock issued and outstanding prior to the Effective
Time as a result of a stock split, stock dividend, or similar recapitalization
with respect to such stock and the record date therefor (in the case of stock
dividend) or the effective date thereof (in the case of a stock split or
similar capitalization for which a record date is not established) shall be
prior to the Effective Time, the Exchange Ratio, as adjusted, and the Average
Market Prices set forth in Sections 7.01(b) and (c) of this Agreement, shall
be proportionately adjusted to reflect such stock split, stock dividend or
other recapitalization.
Section 2.06 Stock Legends; Agreements by Certain Shareholders. Certificates
representing shares of USF Common Stock issued to persons deemed to be
affiliates of DWW (as that term is used for purposes of Rule 145 under the
United States Securities Act of 1933, as amended (the "Securities Act")) on
the date of the Shareholders' Meeting shall bear the legend set forth in
paragraph E of Exhibit B hereto.
Section 2.07 DWW Employees and Directors Stock Options.
(a) Subject to adjustment as set forth in Section 2.07(b), at the Effective
Time, each share of DWW Common Stock subject to an employee or director stock
option to purchase shares of DWW Common Stock, issued by DWW and outstanding
and unexercised as of the date hereof and as of 11:59 P.M. on the date
preceding the Effective Time (the "Outstanding Options"), whether or not then
exercisable in accordance with its terms, shall be converted into the right to
receive .933 share of USF Common Stock (the "Option Exchange Ratio").
(b) In the event the Average Market Price of the USF Common Stock is less
than $28.00 per share, the Option Exchange Ratio shall be adjusted (the
"Adjusted Option Exchange Ratio") using the following formula:
$26.12 / Average Market Price = Adjusted Option Exchange Ratio; and
In the event the Average Market Price of the USF Common Stock is more than
$34.00 per share, the Option Exchange Ratio shall be adjusted using the
following formula:
$31.72 / Average Market Price = Adjusted Option Exchange Ratio.
A-5
<PAGE>
(c) At the Closing, USF shall deliver certificates to each holder of an
Outstanding Option representing the whole shares of USF Common Stock
deliverable in respect of such Outstanding Option pursuant to this Section
2.07, together with cash in lieu of any fractional share, against receipt from
such holder of any transfer or employee withholding taxes payable by reason of
the foregoing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF DWW
DWW hereby represents and warrants to USF and Sub as follows:
Section 3.01 Organization. DWW and each of its Subsidiaries is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, has all requisite corporate power to own,
lease and operate its property and to carry on its business as now being
conducted, and is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which the failure to be so
qualified would have a material adverse effect on the business, assets
(including intangible assets), condition (financial or otherwise), results of
operations or prospects ("Material Adverse Effect") of DWW and its
Subsidiaries, taken as a whole.
Section 3.02 Capitalization.
(a) The authorized capital stock of DWW consists of 50,000,000 shares of
Common Stock, $.01 par value. As of April 30, 1996, (i) 3,265,308 shares of
DWW Common Stock were issued and outstanding, all of which are validly issued,
fully paid and nonassessable, (ii) 29,121 shares of DWW Common Stock were held
in the treasury of DWW or by Subsidiaries of DWW, (iii) 250,000 shares of DWW
Common Stock were reserved for issuance pursuant to stock options granted and
outstanding under the DWW 1994 Employees Stock Option Plan (the "Employees
Stock Option Plan"), (iv) 75,000 shares of DWW Common Stock were reserved for
issuance pursuant to the DWW 1994 Directors Stock Option Plan (the "Directors
Stock Option Plan"), (v) 160,000 shares of DWW Common Stock were reserved for
issuance pursuant to the DWW 1988 Employee Stock Purchase Plan, (vi) 50,269
shares of DWW Common Stock were reserved for issuance pursuant to contingent
stock awards granted under any Long-Term Incentive Plan of DWW and (vii) 9,125
shares of DWW Common Stock were reserved for issuance pursuant to contingent
stock awards granted under the DWW Salary Incentive Plan. All shares of DWW
Common Stock subject to issuance as specified above, upon issuance on the
terms and conditions specified in the instruments pursuant to which they are
issuable, will be duly authorized, validly issued, fully paid and
nonassessable.
(b) There are no obligations, contingent or otherwise, of DWW or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any shares of DWW
Common Stock or the capital stock of any Subsidiary or to provide funds to or
make any investment (in the form of a loan, capital contribution or otherwise)
in any such Subsidiary or any other entity.
(c) Except for restrictions on transfer arising under the federal securities
laws, included in the Shareholder Agreements or as described in Schedule 3.02,
there are no existing restrictions on transfer, voting trusts, shareholder
agreements or registration covenants known to DWW relating to any outstanding
shares of capital stock of DWW or any of its Subsidiaries. None of the
outstanding shares of DWW Common Stock was issued in violation of the
preemptive rights of any present or former shareholder and DWW's shareholders
are not entitled to preemptive rights.
(d) Except as set forth in this Section 3.02 or pursuant to the Rights
Agreement, there are no equity securities of any class of DWW or any of its
Subsidiaries, or any security exchangeable into or exercisable for such equity
securities, issued, reserved for issuance or outstanding. Except as set forth
in this Section 3.02 or in Schedule 3.02, and except for the rights under the
Rights Agreement, there are no options, warrants, equity
A-6
<PAGE>
securities, calls, rights, commitments or agreements of any character to which
DWW or any of its Subsidiaries is a party or by which it is bound obligating
DWW or any of its Subsidiaries to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of capital stock of DWW or any of
its Subsidiaries or obligating DWW or any of its Subsidiaries to grant,
extend, accelerate the vesting of or enter into any such option, warrant,
equity security, call, right, commitment or agreement. Except for the
Shareholder Agreements, there are no voting trusts, proxies or other
agreements or understandings with respect to the shares of capital stock of
DWW.
(e) DWW and the Rights Agent have entered into an Amendment to the Rights
Agreement dated as of the date hereof in the form set forth as Exhibit C
hereto.
Section 3.03 Charter Documents. The copies of the Amended and Restated
Articles of Incorporation of DWW and Bylaws of DWW as currently in effect
which have been heretofore delivered to USF are complete and correct.
Section 3.04 Subsidiaries. All of the outstanding shares of capital stock of
each of DWW's Subsidiaries are duly authorized, validly issued, fully paid and
nonassessable and all such shares are owned of record and beneficially by DWW
or another Subsidiary free and clear of all security interests, Liens, claims,
pledges, agreements, limitations on DWW's voting rights, charges or other
encumbrances of any nature. Schedule 3.04 discloses with respect to each of
DWW's Subsidiaries (i) its name, (ii) the jurisdiction of its organization,
and (iii) the respective numbers of its authorized and outstanding shares or
other equity interests and the owners thereof. There are no existing options,
warrants, calls, commitments or agreements of any character obligating any
Subsidiary to issue shares of capital stock of any Subsidiary or to transfer
any issued shares of capital stock of any Subsidiary to any person other than
DWW or another Subsidiary. Except for the capital stock of DWW's Subsidiaries
and except as set forth on Schedule 3.04, neither DWW nor any of its
Subsidiaries directly or indirectly owns any equity or similar interest in, or
any interest convertible into or exchangeable or exercisable for, any
corporation, partnership, joint venture or other business association or
entity.
Section 3.05 Authority; No Conflict; Required Filings and Consents.
(a) DWW has all requisite corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of DWW, subject only to the approval of this
Agreement and the Merger by DWW's shareholders under the Georgia BCC. The
Board of Directors of DWW (the "DWW Board") has unanimously approved this
Agreement and the transactions contemplated hereby by resolutions which did
not provide for rights of dissent under Section 1302 of the Georgia BCC,
directed that this Agreement and the Merger be submitted to the shareholders
for adoption, in accordance with the law of the State of Georgia and DWW's
Amended and Restated Articles of Incorporation and Bylaws, and has recommended
that the shareholders of DWW approve and adopt this Agreement and the Merger.
This Agreement has been duly executed and delivered by DWW and, assuming the
due authorization, execution and delivery by USF and Sub, constitutes the
valid and binding obligation of DWW, enforceable in accordance with its terms,
except as such enforceability may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or relating to
creditors rights generally and (ii) the availability of injunctive relief and
other equitable remedies.
(b) The execution and delivery of this Agreement by DWW does not, and the
consummation of the transactions contemplated hereby will not, (i) conflict
with, or result in any violation or breach of any provision of the Amended and
Restated Articles of Incorporation or Bylaws of DWW, (ii) result in any
violation or breach of, or constitute (with or without notice or lapse of
time, or both) a default (or give rise to a right of termination, cancellation
or acceleration of any obligation or loss of any material benefit) under any
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
lease, contract or other agreement, instrument or obligation to which DWW or
any of its Subsidiaries is a party or by which any of them or any of their
properties or assets may be bound, or (iii) subject to obtaining the approval
of DWW's shareholders of the Merger and compliance with the requirements set
forth in Section 3.05(c) below, conflict with or violate any permit,
concession,
A-7
<PAGE>
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to DWW or any of its Subsidiaries or any of its or their
properties or assets, except in the case of (ii) and (iii) for any such
conflicts, violations, defaults, terminations, cancellations or accelerations
which would not have a Material Adverse Effect on DWW and its Subsidiaries,
taken as a whole.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with any Governmental Authority is required by or with
respect to DWW or any of its Subsidiaries in connection with the execution and
delivery of this Agreement or the consummation of the transactions
contemplated hereby, except for (i) the filing of certificates of merger with
the Georgia Secretary of State and the Delaware Secretary of State, (ii)
filings pursuant to the pre-merger notification requirements of the HSR Act,
(iii) the filing of a Registration Statement on Form S-4 with the United
States Securities and Exchange Commission ("SEC") in accordance with the
Securities Act, (iv) the filing of the Proxy Statement with the SEC in
accordance with the United States Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and (v) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required
under applicable state securities laws and the laws of any foreign country.
Section 3.06 SEC Filings; Financial Statements.
(a) DWW has filed all forms, reports and documents required to be filed by
DWW with the SEC and has previously furnished to USF a true and complete copy
of each of (i) its Annual Report on Form 10-K for the year ended April 30,
1995, (ii) its Quarterly Report on Form 10-Q for the periods ended July 31 and
October 31, 1995, and January 31, 1996, (iii) its definitive proxy statement
with respect to the 1995 annual meeting of shareholders, and (iv) all other
reports or other correspondence filed by it with the SEC pursuant to the
Exchange Act since April 30, 1995, in each case as filed with the SEC
(collectively, together with any forms, reports and documents filed by DWW
with the SEC after the date hereof until the Closing, the "DWW SEC Reports").
Each such report, when filed, complied in all material respects with the
requirements of the Exchange Act and the applicable rules and regulations
thereunder and, as of their respective dates, none of such reports 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
light of the circumstances under which they were made, not misleading.
(b) Each of the consolidated financial statements (including, in each case,
any related notes) contained in the DWW SEC Reports complied as to form in all
material respects with the applicable rules and regulations of the SEC with
respect thereto, was prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods involved
(except as may be indicated in the notes to such financial statements) and
fairly presented the consolidated financial position of DWW and its
Subsidiaries as at the respective dates and the consolidated results of their
operations and cash flows for the periods indicated, except that the unaudited
interim financial statements (i) were or are subject to normal year-end
adjustments which were not or are not expected to be material in amount, and
(ii) do not contain footnote disclosure. The unaudited balance sheet of DWW as
of January 31, 1996 is referred to herein as the "DWW Balance Sheet."
Section 3.07 Indebtedness; Absence of Undisclosed Liabilities.
(a) Schedule 3.07 sets forth a list of each instrument which evidences
Indebtedness of DWW or any Subsidiary, and the aggregate principal amount
thereof outstanding as of the date hereof, and indicates each such instrument
that contains a restriction, limitation or encumbrance, of any kind, on the
ability of DWW or any Subsidiary to pay dividends on its respective capital
stock. The total aggregate principal amount outstanding as of the date hereof
of all such Indebtedness is $5,087,530.31, which includes $250,000.00 in face
amount of outstanding letters of credit. Except as set forth in Schedule 3.07,
all of such instruments are in full force and effect and neither DWW, nor any
Subsidiary (as the case may be) is in default thereunder, nor, to the
knowledge of DWW, is any other party to any such instrument in default
thereunder, nor to the knowledge of DWW, does any condition exist that, with
the giving of notice or lapse of time or both, would constitute a default
thereunder, which default could reasonably be expected to give rise to a right
on the part of some party thereto to terminate such instrument, accelerate the
obligations thereunder or claim damages in a material amount thereunder,
except
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such default (i) as to which requisite waivers or consents have been obtained
or (ii) which is curable and is cured within the applicable period for cure
permitted under such instruments. Schedule 3.07 also sets forth a list of each
other instrument or agreement that contains a restriction, limitation or
encumbrance, of any kind, on the ability of DWW or any Subsidiary to pay
dividends on its respective capital stock.
(b) Schedule 3.07 also sets forth all contracts and other agreements and
arrangements pursuant to which DWW or any Subsidiary has agreed to indemnify
or exonerate any officer, director or key employee of DWW or of any Subsidiary
with respect to any matter. Except as described Schedule 3.07, there are no
circumstances which might give rise to any obligation or liability on the part
of DWW or any Subsidiary so to indemnify any such officer, director or key
employee.
(c) Except as disclosed in Schedule 3.07 or as disclosed in the DWW SEC
Reports, DWW and its Subsidiaries do not have any liabilities as of the date
hereof, either accrued or contingent (whether or not required to be reflected
in financial statements in accordance with generally accepted accounting
principles), and whether due or to become due, other than (i) liabilities
reflected or reserved against in the DWW Balance Sheet, (ii) liabilities
specifically described in this Agreement, or in the Schedules to this
Agreement, and (iii) liabilities which are not, individually or in the
aggregate, material to the business, results, operations, financial condition
or prospects of DWW and its Subsidiaries, taken as a whole.
Section 3.08 Absence of Certain Changes or Events. Since the date of the DWW
Balance Sheet, DWW and its Subsidiaries have conducted their businesses only
in the ordinary course and in a manner consistent with past practice and,
since such date, there has not been (i) any Material Adverse Effect with
respect to DWW and its Subsidiaries, taken as a whole, and no fact or
condition is known to exist which is reasonably likely to cause a Material
Adverse Effect with respect to DWW and its Subsidiaries, taken as a whole, in
the future; (ii) any material change by DWW in its accounting methods,
principles or practices except as required by concurrent changes in generally
accepted accounting principles; or (iii) except as disclosed in the Schedules
to this Agreement, any other action or event that would have required the
consent of USF pursuant to Section 5.05 of this Agreement had such action or
event occurred after the date of this Agreement.
Section 3.09 Tax Matters.
(a) Each of DWW and its Subsidiaries has prepared and timely filed, and will
file on a timely basis, all material federal, state, local and foreign
returns, estimates, information statements and reports ("Returns") relating to
any and all Taxes concerning or attributable to DWW or its Subsidiaries or
their operations and required to be filed on or prior to the Effective Time.
(b) Each such Return was true, correct and complete on the respective date
on which it was filed and, to the knowledge of DWW, no event has since
occurred requiring any amendment thereto, which amendment has not been made in
a manner such that each such Return remains true, correct and complete.
(c) DWW as of the Effective Time: (A) will have paid all Taxes it is
required to pay prior to the Effective Time and (B) will have withheld with
respect to its employees all federal and state income taxes, FICA, FUTA and
other Taxes required to be withheld.
(d) The accounts shown on the DWW Balance Sheet (excluding amounts
classified thereon as deferred) are sufficient for the discharge of all Taxes
attributable or with respect to all periods, or portions thereof, prior to the
date of the DWW Balance Sheet remaining unpaid as of such date, except as set
forth in Schedule 3.09. There is no Tax deficiency outstanding or assessed, or
to DWW's knowledge proposed, against DWW that is not reflected as a liability
on the DWW Balance Sheet nor has DWW executed any waiver of any statute of
limitations on or extending the period for the assessment or collection of any
Tax. No tax audit or examination is now pending or currently in progress with
respect to DWW or its subsidiaries.
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Section 3.10 Certain Transactions. Except as set forth in Schedule 3.10,
none of the officers or directors of DWW or of any of its Subsidiaries nor any
Affiliate of DWW, and, to the knowledge of DWW, none of the key employees of
DWW or of any of its Subsidiaries, is currently a party to any transaction
with DWW or any of its Subsidiaries (other than for services as an employee,
officer or director), including, without limitation, any contract, agreement
or other arrangement (a) providing for the furnishing of services to or by,
(b) providing for rental of real or personal property to or from, or (c)
otherwise requiring payments to or from, any such officer, director, Affiliate
or key employee, any member of the family of any such officer, director or key
employee or any corporation, partnership, trust or other entity in which any
such officer, director or key employee has a substantial interest or which is
an Affiliate of such officer, director or key employee.
Section 3.11 Required Authorizations. Schedule 3.11 sets forth a true and
complete list of all Required Authorizations which DWW or any of its
Subsidiaries must give or obtain for the execution and delivery of this
Agreement by DWW or the consummation by DWW or any of its Subsidiaries of any
of the transactions contemplated hereby or in order to enable all the issued
and outstanding capital stock of DWW to be converted as contemplated by
Article II.
Section 3.12 Litigation. Except as set forth in Schedule 3.12 or as
indicated in any of the DWW SEC Reports, there are no suits, litigations,
investigations, actions or proceedings of any kind pending or (to the
knowledge of DWW) threatened against DWW or any Subsidiary, nor (to the
knowledge of DWW) is any such matter pending or threatened against any other
person, which, if adversely determined, could have a Material Adverse Effect
with respect to DWW.
Section 3.13 Compliance with Law; Regulatory Compliance.
(a) Except as set forth in Schedule 3.13, neither DWW nor any of its
Subsidiaries is or has been in violation of any applicable federal, state,
provincial, local or foreign law, regulation, ordinance or other requirement
of any Governmental Authority relating to it or to its securities, property,
operations or business, except for violations which would not have a Material
Adverse Effect on DWW and its Subsidiaries taken as a whole. Except as set
forth in Schedule 3.13, as of the date of this Agreement, there is no
outstanding order, writ, judgment, stipulation, injunction, decree,
determination, award or other order of any court or governmental agency or
instrumentality, domestic or foreign, against or affecting DWW, any of its
Subsidiaries or any of the assets of DWW or its Subsidiaries, except those
which would not have a Material Adverse Effect with respect to DWW.
(b) Except as to those the absence of which would not have a Material
Adverse Effect with respect to DWW, DWW and its Subsidiaries possess, or have
made timely application for, all Governmental Approvals with and under all
federal, state, provincial, local and foreign laws and Governmental
Authorities, required by DWW and its Subsidiaries to carry on any substantial
part of their respective businesses as presently conducted and to use and
operate any of their respective property and assets. All such Governmental
Approvals are in full force and effect and neither DWW nor any of its
Subsidiaries is in violation of any such Governmental Approval or any other
permit, license, approval, authorization or registration applicable to it or
to the operation of its respective business, and no event or condition or
state of facts exists (or would exist upon the giving of notice or lapse of
time or both) that could result in such a violation. Except as disclosed in
Schedule 3.13, no proceeding is pending or, to the knowledge of DWW,
threatened to revoke, suspend or materially modify any such Governmental
Approval possessed by DWW or its Subsidiaries or deny any renewal thereof.
(c) Except as disclosed in Schedule 3.13, DWW and its Subsidiaries have made
all Governmental Filings required to be made with any Governmental Authority
with respect to the operation of their respective businesses and the use and
operation of their respective properties and assets, except Governmental
Filings, the absence of which would not have a Material Adverse Effect with
respect to DWW.
Section 3.14 Contracts. Set forth in Schedule 3.14 is a list of the fifteen
largest (measured by the dollar amount of the remaining portion to be paid)
contracts, agreements, commitments, understandings and obligations,
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including without limitation, leases or subleases of real or personal
property, which involve any payment by or to DWW or any of its Subsidiaries
and which have a remaining term of more than 180 days (taking into account the
effect of any renewal options) and are not cancelable without penalties by DWW
or any of its Subsidiaries, as the case may be, on 30 days' or less notice.
Except as set forth in Schedule 3.14 or in the DWW SEC Reports, neither DWW
nor any of its Subsidiaries is a party to any other contract, agreement,
commitment, undertaking or obligation, including, without limitation, leases
or subleases of real or personal property, (i) which if terminated or lost
would have a Material Adverse Effect with respect to DWW and its Subsidiaries,
taken as a whole or (ii) which was not entered into in the ordinary course
(all of the documents listed in Schedule 3.14, together with those set forth
in the DWW SEC Reports, are referred to collectively as the "Contracts").
Except as set forth in Schedule 3.14, all of the Contracts are in full force
and effect and neither DWW nor any of its Subsidiaries (as the case may be) is
in default thereunder, nor, to the knowledge of DWW, is any other party to any
Contract in default thereunder, nor, to the best of DWW's knowledge, does any
condition exist that, with the giving of notice or lapse of time or both,
would constitute a default thereunder, which default would give rise to a
right on the part of some party thereto to terminate such Contract or claim
damages thereunder, except such default (i) as to which requisite waivers or
consents have been obtained or (ii) which is curable and is cured within the
applicable period for cure permitted under such Contract.
Section 3.15 Real Property. Schedule 3.15 sets forth a list of the location
of, and a description of the general nature of the facilities on, each item of
Real Property held in fee. DWW or one of its Subsidiaries (as the case may be)
has good and marketable fee title to each item of Real Property owned in fee
by it as of the date of this Agreement, whether or not reflected in the DWW
Balance Sheet, in each case free and clear of all Liens, except for (i)
easements, covenants, rights-of-way and other encumbrances or restrictions of
record, (ii) zoning restrictions, and (iii) Liens for current taxes not yet
due, provided that any such Lien does not either adversely affect the value of
the Real Property or prohibit or materially interfere with the operations of
the business of DWW or any of its Subsidiaries, as the case may be. DWW has
made available to USF a true and complete copy of each deed and title report
in the possession of DWW or any Subsidiary representing or relating to the
Real Property. The use and operation of all Real Property conform to all
restrictive covenants and restrictions and conditions affecting title.
Section 3.16 Intellectual Property Rights. Schedule 3.16 discloses all of
the trademarks, service marks, trade names, copyrights, copyright
applications, letters patent, patent applications and licenses of any of the
foregoing owned or used by or registered in the name of DWW or any of its
Subsidiaries. DWW or its Subsidiaries has the right, title and interest in and
to, or has the exclusive right to use, the intellectual property rights
disclosed on Schedule 3.16 and all other processes, know-how, show-how,
formulae, trade secrets, inventions, discoveries, improvements, blueprints,
specifications, drawings, designs, and other proprietary rights necessary or
applicable to the businesses conducted by DWW and its Subsidiaries
(collectively, "Intellectual Property"), free and clear of all Liens. Schedule
3.16 separately discloses all Intellectual Property under license or in which
DWW or any of its Subsidiaries otherwise has rights. The Intellectual Property
is valid and not the subject of any interference, opposition, reexamination or
cancellation. To the knowledge of DWW, no person is infringing upon nor has
any person misappropriated any Intellectual Property. Except with respect to
issues related to the termination by The Taulman Company of its License
Agreement with Firma Weiss Kessel-, Anlagen- und Maschinenbau G.m.b.H., none
of which issues, individually or in the aggregate, will have a Material
Adverse Effect upon DWW or any of its Subsidiaries, neither DWW nor any of its
Subsidiaries is infringing upon the intellectual property rights of any other
person.
Section 3.17 Environmental Matters. In addition to and not in limitation of
the representations and warranties in Sections 3.12 and 3.13, except as
disclosed in Schedule 3.17, Schedule 3.12 or Schedule 3.13:
(a) There have been and there exist no events, incidents, conditions,
actions, agreements or circumstances which could reasonably be expected to
give rise to any liability, loss or expense under any Environmental Law or
form the basis for any Environmental Action with respect to DWW, its
Subsidiaries, or any Premises which liability, loss or expense or
Environmental Action could have a Material Adverse Effect individually or
in the aggregate on DWW and its Subsidiaries taken as a whole. Neither DWW
nor
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any of its Subsidiaries has received any notice from any Governmental
Authority or other person, and to the knowledge of DWW, no such notice has
been issued to any other person which indicates the occurrence or existence
of events, incidents, conditions, actions, agreements or circumstances
which could reasonably be expected to give rise to any liability, loss or
expense under any Environmental Law or form the basis for any Environmental
Action with respect to DWW, its Subsidiaries, or any Premises.
(b) No Regulated Material has been or is being Released on or to any
property or facility owned, leased, or operated by DWW, its Subsidiaries,
or their respective Predecessors, in such manner that under any
Environmental Law: (i) could impose material liability for damages,
investigation, or Response Actions; (ii) could materially affect the value
of DWW or its Subsidiaries or their respective businesses, property or
assets; or (iii) could result in the imposition of a Lien on the property
or assets of DWW or its Subsidiaries. Neither DWW nor any of its
Subsidiaries is required to place any notice or restriction relating to the
presence of any Regulated Material at any Real Property or in any deed to
any Real Property.
(c) To DWW's knowledge, no Regulated Material has been Released at any
other site by DWW or its Subsidiaries, by their respective Predecessors, or
by any contractor or agent acting on their behalf (including but not
limited to any person transporting or distributing Regulated Materials on
behalf of DWW, its Subsidiaries or Predecessors), in such manner that under
any Environmental Law could impose liability for damages, investigation, or
Response Actions.
(d) Any underground or aboveground existing storage tanks and associated
piping are in sound condition and have been properly maintained, tested and
monitored in compliance with applicable Environmental Laws, and no spills
or leaks have occurred from or in relation with such tanks and piping on
the Real Property or the Premises. Any tanks on the Real Property which
were previously removed from service have been properly closed in
compliance with all applicable Environmental Laws. With respect to each
tank which has been removed from service or closed, testing and
observations confirm either that there were no spills, leaks or other
contamination related to such tanks and associated piping, or that any such
contamination has been removed.
Section 3.18 Insurance. DWW and each of its Subsidiaries has in effect valid
and effective policies of insurance, issued by companies believed by DWW to be
sound and reputable, insuring DWW or such Subsidiary (as the case may be) for
losses customarily insured against by others engaged in similar lines of
business. Such policies are reasonable, in both scope and amount, in light of
the risks attendant to the businesses conducted by DWW and its Subsidiaries.
Neither DWW nor any of its Subsidiaries will have any liability after the
Effective Time for retrospective or retroactive premium adjustments. Schedule
3.18 sets forth a list (by holder) of all insurance policies held by DWW or
any of its Subsidiaries, indicating the type of coverage, the amount of
coverage and the insuring entity with respect to each such policy. Schedule
3.18 also discloses the manner in which DWW and its Subsidiaries provide
coverage for workers' compensation claims.
Section 3.19 Employment and Change in Control Agreements.
(a) Schedule 3.19 sets forth a true and complete list of all agreements with
any officer, director or employee of DWW or any of its Subsidiaries to which
DWW or any of its Subsidiaries is a party, providing for the terms of his or
her employment with DWW or any of its Subsidiaries and the terms of his or her
severance or other payments upon termination of such employment (the
"Employment Agreements"). DWW has previously furnished to USF true and
complete copies of all Employment Agreements, together with all amendments
thereto (if any). Except as set forth in Schedule 3.19, since the date of the
DWW Balance Sheet, neither DWW nor any Subsidiary has (i) effected any
increase in salary, wage or other compensation of any kind, whether current or
deferred, to any officer, director, employee, agent, broker or consultant,
other than routine increases to employees (excluding key employees) consistent
with past practice or (ii) made any contribution to any trust or plan for the
benefit of employees except as required by the terms thereof as now in effect.
(b) Except as set forth in Schedule 3.19 or as disclosed in DWW SEC Reports
filed prior to the date of this Agreement, and except as provided for in this
Agreement, neither DWW nor any of its Subsidiaries is a party to
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any oral or written (i) agreement with any officer or other key employee of
DWW or any of its Subsidiaries (A) the benefits of which are contingent, or
the terms of which are materially altered, upon the occurrence of a
transaction involving DWW of the nature contemplated by this Agreement or (B)
providing for compensation payments that would not be deductible by DWW for
federal income tax purposes, (ii) agreement with any officer or other key
employee of DWW or any of its Subsidiaries providing any compensation
guarantee in excess of $100,000 per annum, or (iii) agreement or Benefit Plan,
any of the benefits of which will be increased, or the vesting of the benefits
of which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by
this Agreement.
Section 3.20 Labor Relations. DWW and each Subsidiary is in material
compliance with all federal and state laws respecting employment and
employment practices, terms and conditions of employment and wages and hours.
The relations of DWW and each of its Subsidiaries with their employees are
amicable and there have not been, nor to the knowledge of DWW are there
presently, any attempts to organize employees, nor to the knowledge of DWW are
there plans for any such attempts. No employee of DWW or any of its
Subsidiaries is represented by any union or other labor organization. No
representation election, arbitration proceeding, grievance, labor strike, or
other labor trouble is pending or, to the knowledge of DWW, threatened,
against, involving or affecting DWW or any of its Subsidiaries. DWW and each
Subsidiary is not and has not been engaged in any unfair labor practice, and,
to the knowledge of DWW, no unfair labor practice complaint against DWW or any
of its Subsidiaries is pending or, to the knowledge of DWW, threatened before
the National Labor Relations Board, the Equal Employment Opportunity
Commission or any similar state or local agency, by or on behalf of any
employee of DWW or any of its Subsidiaries.
Section 3.21 Employee Benefit Plans.
(a) DWW has set forth on Schedule 3.21 all employee benefit plans (as
defined in Section 3(3) of ERISA) and all bonus, stock option, stock purchase,
fringe benefit, incentive, deferred compensation, supplemental retirement,
post-retirement health or welfare plan, severance and other employee benefit
plans and arrangements, written or otherwise, maintained by DWW or any trade
or business (whether or not incorporated) which is a member or which is under
common control with DWW (an "ERISA Affiliate") within the meaning of Section
414 of the Code, or any Subsidiary of DWW for the benefit of, or relating to,
any current or former employee of DWW or an ERISA Affiliate (together, the
"DWW Group") or with respect to which DWW or an ERISA Affiliate may have
liability (together, the "Benefit Plans").
(b) With respect to each Benefit Plan, DWW has made available to USF a true
and correct copy of (i) the most recent annual report (Form 5500) filed with
the Internal Revenue Service ("IRS"), (ii) such Benefit Plan (or in the case
of an unwritten Benefit Plan, a written summary thereof), (iii) each trust
agreement and group annuity contract, if any, relating to such Benefit Plan
and (iv) the most recent actuarial report or valuation relating to a Benefit
Plan subject to Title IV of ERISA.
(c) Each of the Benefit Plans and all related trusts, insurance contracts
and funds have been created, maintained, funded and administered in all
respects in compliance with all applicable laws and in compliance with the
plan document, trust agreement, insurance policy or other writing creating the
same or applicable thereto. No Benefit Plan is or is proposed to be under
audit or investigation, and no completed audit of any Benefit Plan has
resulted in the imposition of any tax, fine or penalty.
(d) No prohibited transaction (within the meaning of Section 406 of ERISA
and Section 4975 of the Code) with respect to any Benefit Plan exists or has
occurred that could subject any member of the DWW Group to any liability or
tax under Part 5 of Title I of ERISA or Section 4975 of the Code. No member of
the DWW Group, nor any administrator or fiduciary of any Benefit Plan, nor any
agent of any of the foregoing, has engaged in any transaction or acted or
failed to act in a manner that will subject any member of the DWW Group to any
liability for a breach of fiduciary or other duty under ERISA or any other
applicable law. With the exception of the requirements of Section 4980B of the
Code, no post-retirement benefits are provided under any Benefit Plan that is
a welfare benefit plan as described in ERISA Section 3(1).
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(e) Schedule 3.21 discloses each Benefit Plan that purports to be a
qualified plan under Section 401(a) of the Code and exempt from United States
federal income tax under Section 501(a) of the Code (a "Qualified Plan"). With
respect to each Qualified Plan, a determination letter (or opinion or
notification letter, if applicable) has been received from the IRS that such
plan is qualified under Section 401(a) of the Code and exempt from federal
income tax under Section 501(a) of the Code, as the Code was amended by the
Tax Reform Act of 1986 and later statutes affecting the permissible limit on
includable compensation for Qualified Plans and the direct rollover rules
applicable to lump-sum distributions. No Qualified Plan has been amended since
the date of the most recent such letter applicable to such Qualified Plan. No
member of the DWW Group, nor any fiduciary of any Qualified Plan, nor any
agent of any of the foregoing, has taken any action that would adversely
affect the qualified status of a Qualified Plan or the qualified status of any
related trust.
(f) Each Benefit Plan which is a defined benefit plan within the meaning of
Section 3(35) of ERISA (a "Defined Benefit Plan") is identified on Schedule
3.21. No Defined Benefit Plan sponsored or maintained by any member of the DWW
Group has been terminated or partially terminated after September 1, 1974,
except as set forth on Schedule 3.21. Each Defined Benefit Plan identified as
terminated on Schedule 3.21 has met the requirement for standard termination
of single-employer plans contained in Section 4041(b) of ERISA. During the
five-year period ending at the Effective Time, no member of the DWW Group has
transferred a Defined Benefit Plan to a corporation that was not, at the time
of transfer, related to the transferor as described in Section 414 of the
Code.
(g) No Benefit Plan is a multiemployer plan within the meaning of Section
3(37) or Section 4001(a)(3) of ERISA (a "Multiemployer Plan"). No member of
the DWW Group has withdrawn from any Multiemployer Plan or incurred any
withdrawal liability to or under any Multiemployer Plan. No Benefit Plan
covers any employees of any member of the DWW Group in any foreign country or
territory.
(h) With respect to the Benefit Plans, individually and in the aggregate, no
event has occurred, and to the knowledge of DWW, there exists no condition or
set of circumstances, in connection with which DWW could be subject to any
liability that is reasonably likely to have a Material Adverse Effect on DWW
and its Subsidiaries, taken as a whole, under ERISA, the Code or any other
applicable law.
(i) With respect to the Benefit Plans, individually and in the aggregate,
there are no funded benefit obligations for which contributions have not been
made or properly accrued and there are no unfunded benefit obligations which
have not been accounted for by reserves, or otherwise properly footnoted in
accordance with generally accepted accounting principles, in the financial
statements of DWW.
Section 3.22 Pooling of Interests. To its knowledge, and subject to
satisfaction of the conditions set forth in Section 6.02(l) and Section
6.03(f) hereof, neither DWW nor any of its Rule 145 Affiliates has taken or
agreed to take any action which would prevent the Merger from being accounted
for as a pooling of interests.
Section 3.23 Registration Statement; Proxy Statement/Prospectus. The
information supplied by DWW for inclusion in the registration statement on
Form S-4 pursuant to which shares of USF Common Stock issued in the Merger
will be registered with the SEC (the "Registration Statement") shall not at
the time the Registration Statement is declared effective by the SEC contain
any untrue statement of a material fact or omit to state any material fact
required to be stated in the Registration Statement or necessary in order to
make the statements in the Registration Statement, in light of the
circumstances under which they were made, not misleading. The information
supplied by DWW for inclusion in the proxy statement/prospectus to be sent to
the shareholders of DWW in connection with the meeting of DWW's shareholders
(the "Shareholders' Meeting") to consider this Agreement and the Merger (the
"Proxy Statement") shall not, on the date the Proxy Statement is first mailed
to shareholders of DWW, at the time of the Shareholders' Meeting and at the
Effective Time, contain any statement which, at such time and in light of the
circumstances under which it shall be made, is false or misleading with
respect to any material fact, or omit to state any material fact necessary in
order to make the statements made in the Proxy Statement not false or
misleading; or omit to state any material fact necessary to correct any
statement with respect to DWW and its Subsidiaries in any earlier
communication with respect to the solicitation of proxies
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for the Shareholders' Meeting which has become false or misleading. If at any
time prior to the Effective Time any event relating to DWW or any of its
Affiliates, officers or directors should become known to DWW which should be
set forth in an amendment to the Registration Statement or a supplement to the
Proxy Statement, DWW shall promptly inform USF.
Section 3.24 Certain Fees. Except as set forth in Schedule 3.24, neither DWW
nor any of its Subsidiaries nor any of their respective officers, directors or
employees has employed any broker or finder or incurred any liability for any
brokerage fee, commission or finders' fee in connection with any of the
transactions contemplated hereby, other than the engagement by DWW of Dillon,
Read & Co. Inc., whose fee will be paid by DWW.
Section 3.25 No Existing Discussions. As of the date hereof, DWW is not
engaged, directly or indirectly, in any discussions or negotiations with any
other party with respect to an Acquisition Proposal.
Section 3.26 Sections 1111(2) and 1132 of the Georgia BCC Not Applicable.
Neither the shareholder vote required by Section 1111(2) of the Georgia BCC,
nor the prohibitions of Section 1132 of the Georgia BCC applicable to an
"interested shareholder" engaging in a "business combination" (as defined in
Sections 1110 and 1131), will apply to the execution, delivery or performance
of this Agreement, or the Shareholder Agreements or the consummation of the
Merger or the other transactions contemplated by this Agreement or by the
Shareholder Agreements.
Section 3.27 Disclosure. No representation or warranty of DWW in this
Agreement or any certificate, schedule, statement, document or instrument
furnished or to be furnished to USF pursuant hereto or in connection herewith
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact required to be stated herein or therein or
necessary to make any statement herein or therein not misleading, and all such
representations, warranties, certificates, schedules, statements, documents
and instruments, together with the information contained in the DWW SEC
Reports, considered in the aggregate, do not omit and will not omit to state
any fact which is material to the business, assets (including intangible
assets), condition (financial or otherwise), results of operations or
prospects of DWW and its Subsidiaries, taken as a whole.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF USF AND SUB
Each of USF and Sub represents and warrants to DWW as follows:
Section 4.01 Organization of USF and Sub.
(a) USF is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, has all requisite corporate
power to own, lease and operate its property and to carry on its business as
now being conducted, and is duly qualified to do business and is in good
standing as a foreign corporation in each jurisdiction in which the failure to
be so qualified would have a Material Adverse Effect on USF and its
Subsidiaries, taken as a whole.
(b) Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware.
Section 4.02 Capitalization of USF and Sub.
(a) The authorized capital stock of USF consists of 75,000,000 shares of
Common Stock, $.01 par value, and 3,000,000 shares of Preferred Stock, $.10
par value. As of April 30, 1996, 28,428,382 shares of USF Common Stock were
issued and outstanding, all of which are validly issued, fully paid and
nonassessable, and no shares of USF Preferred Stock were issued and
outstanding. Any share of USF Common Stock, when issued in accordance with
Article II hereof, will be duly authorized and validly issued, and will be
fully paid and nonassessable.
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(b) The authorized capital stock of Sub consists of 1,000 shares of common
stock, par value $.01 per share, of which 1,000 shares are issued and
outstanding, all of which are duly authorized and validly issued and are fully
paid and nonassessable, and owned, beneficially and of record, by USF.
Section 4.03 Authority; No Conflict; Required Filings and Consents.
(a) USF and Sub have all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated by this
Agreement. The execution and delivery of this Agreement and the consummation
of the transactions contemplated by this Agreement have been duly authorized
by all necessary corporate action on the part of USF and Sub. This Agreement
has been duly executed and delivered by USF and Sub and, assuming the due
authorization, execution and delivery by DWW, constitutes the valid and
binding obligation of USF and Sub, enforceable in accordance with its terms,
except as such enforceability may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or relating to
creditors' rights generally and (ii) the availability of injunctive relief and
other equitable remedies.
(b) The execution and delivery of this Agreement by USF and Sub does not,
and the consummation of the transactions contemplated by this Agreement will
not, (i) conflict with, or result in any violation or breach of any provision
of the Certificate of Incorporation, as amended, or the Amended and Restated
Bylaws of USF, or the Certificate of Incorporation or Bylaws of Sub, (ii)
other than under the USF Multicurrency Revolving Credit Agreement, result in
any violation or breach of, or constitute (with or without notice or lapse of
time, or both) a default (or give rise to a right of termination, cancellation
or acceleration of any obligation or loss of any material benefit) under any
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
lease, contract or other agreement, instrument or obligation to which USF or
Sub is a party or by which either of them or either of their properties or
assets may be bound, or (iii) conflict with or violate any permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to USF or Sub or any of its or their properties or
assets, except in the case of (ii) and (iii) for any such conflicts,
violations, defaults, terminations, cancellations or accelerations which would
not have a Material Adverse Effect on USF and its Subsidiaries, taken as a
whole.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Authority, is required by or with
respect to USF or any of its Subsidiaries in connection with the execution and
delivery of this Agreement or the consummation of the transactions
contemplated hereby, except for (i) the filing of certificates of merger with
the Georgia Secretary of State and the Delaware Secretary of State, (ii)
filings pursuant to the pre-merger notification requirements of the HSR Act,
(iii) the filing of a Form S-4 Registration Statement with the SEC in
accordance with the Securities Act, (iv) the filing of the Proxy Statement
with the SEC in accordance with the Exchange Act, and (v) such consents,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable state securities laws and the laws of any
foreign country.
Section 4.04 SEC Filings; Financial Statements
(a) USF has filed all forms, reports and documents required to be filed by
USF with the SEC and has previously furnished to DWW a true and complete copy
of each of (i) its Annual Report on Form 10-K for the year ended March 31,
1995, (ii) its Quarterly Report on Form 10-Q for the periods ended June 30,
September 30 and December 31, 1995, (iii) its definitive proxy statement with
respect to the 1995 annual meeting of shareholders, and (iv) all other reports
or other correspondence filed by it with the SEC pursuant to the Exchange Act
since March 31, 1995, in each case as filed with the SEC (collectively,
together with any forms, reports and documents filed by USF with the SEC after
the date hereof until the Closing, the "USF SEC Reports"). Each such report,
when filed, complied in all material respects with the requirements of the
Exchange Act and the applicable rules and regulations thereunder and, as of
their respective dates, none of such reports 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 light of the
circumstances under which they were made, not misleading.
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(b) Each of the consolidated financial statements (including, in each case,
any related notes) contained in the USF SEC Reports complied as to form in all
material respects with the applicable rules and regulations of the SEC with
respect thereto, was prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods involved
(except as may be indicated in the notes to such financial statements) and
fairly presented the consolidated financial position of USF and its
Subsidiaries as at the respective dates and the consolidated results of their
operations and cash flows for the periods indicated, except that the unaudited
interim financial statements (i) were or are subject to normal year-end
adjustments which were not or are not expected to be material in amount, and
(ii) do not contain footnote disclosure. The unaudited balance sheet of USF as
of December 31, 1995 is referred to herein as the "USF Balance Sheet."
Section 4.05 Absence of Undisclosed Liabilities. Except as disclosed in the
USF SEC Reports, USF and its Subsidiaries do not have any liabilities as of
the date hereof, either accrued or contingent (whether or not required to be
reflected in financial statements in accordance with generally accepted
accounting principles), and whether due or to become due, other than (i)
liabilities reflected or reserved against in the USF Balance Sheet, (ii)
liabilities specifically described in this Agreement, or in the Schedules to
this Agreement, and (iii) liabilities which are not, individually or in the
aggregate, material to the business, results, operations, financial condition
or prospects of USF and its Subsidiaries, taken as a whole.
Section 4.06 Absence of Certain Changes or Events. Since the date of the USF
Balance Sheet, there has not been (i) any Material Adverse Effect with respect
to USF and its Subsidiaries, taken as a whole, and no fact or condition exists
which is reasonably likely to cause a Material Adverse Effect with respect to
USF and its Subsidiaries, taken as a whole, in the future; or (ii) any
material change by USF in its accounting methods, principles or practices
except as required by concurrent changes in generally accepted accounting
principles.
Section 4.07 Tax Matters. The accounts shown on the USF Balance Sheet
(excluding amounts classified thereon as deferred) are sufficient for the
discharge of all Taxes attributable or with respect to all periods, or
portions thereof, prior to the date of the USF Balance Sheet remaining unpaid
as of such date. There is no Tax deficiency outstanding or assessed, or to
USF's knowledge proposed, against USF that is not reflected as a liability on
the USF Balance Sheet.
Section 4.08 Litigation. Except as set forth in any of the USF SEC Reports,
there are no suits, litigations, investigations, actions or proceedings of any
kind pending or (to the knowledge of USF) threatened against USF or any
Subsidiary, nor (to the knowledge of USF) is any such matter pending or
threatened against any other person, which, if adversely determined, could
have a Material Adverse Effect with respect to USF.
Section 4.09 Compliance with Law; Regulatory Compliance. Except as disclosed
in the USF SEC Reports:
(a) Neither USF nor any of its Subsidiaries is or has been in violation
of any applicable federal, state, provincial, local or foreign law,
regulation, ordinance or other requirement of any Governmental Authority
relating to it or to its securities, property, operations or business,
except for violations which would not have a Material Adverse Effect on USF
and its Subsidiaries taken as a whole. As of the date of this Agreement,
there is no outstanding order, writ, judgment, stipulation, injunction,
decree, determination, award or other order of any court or governmental
agency or instrumentality, domestic or foreign, against or affecting USF,
any of its Subsidiaries or any of the assets of USF or its Subsidiaries,
except those which would not have a Material Adverse Effect.
(b) There have been and there exist no events, incidents, conditions,
actions, agreements or circumstances which could reasonably be expected to
give rise to any liability, loss or expense under any Environmental Law or
form the basis for any Environmental Action with respect to USF, its
Subsidiaries, or any Premises which liability, loss or expense or
Environmental Action could have a Material Adverse Effect on USF and its
Subsidiaries taken as a whole.
(c) To the knowledge of USF, no prohibited transaction (within the
meaning of Section 406 of ERISA and Section 4975 of the Code) with respect
to any benefit plan (as defined in Section 3(3) of ERISA) of
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USF or its domestic Subsidiaries (collectively, "USF Benefit Plans") exists
or has occurred that could subject USF or its domestic Subsidiaries to any
liability or tax under Part 5 of Title I of ERISA or Section 4975 of the
Code. With the exception of the requirements of Section 4980B of the Code,
no post-retirement benefits are provided under any Benefit Plan that is a
welfare benefit plan as described in ERISA Section 3(1). With respect to
each USF Benefit Plan that purports to be a Qualified Plan, a determination
letter (or opinion or notification letter, if applicable) has been received
from the IRS that such plan is qualified under Section 401(a) of the Code
and exempt from federal income tax under Section 501(a) of the Code, as the
Code was amended by the Tax Reform Act of 1986 and later statutes affecting
the permissible limit on includable compensation for Qualified Plans and
the direct rollover rules applicable to lump-sum distributions. Neither USF
nor any of its domestic Subsidiaries, nor any fiduciary of any Qualified
Plan, nor any agent of any of the foregoing, has taken any action that
would adversely affect the qualified status of a Qualified Plan or the
qualified status of any related trust. Except for the IWT, Inc. Hourly Wage
Employees Pension Plan, as to which an application for termination is
pending, no USF Benefit Plan is a defined benefit plan within the meaning
of Section 3(35) of ERISA.
Section 4.10 Registration Statement; Proxy Statement/Prospectus. The
information supplied by USF for inclusion in the Registration Statement shall
not at the time the Registration Statement is declared effective by the SEC
contain any untrue statement of a material fact or omit to state any material
fact required to be stated in the Registration Statement or necessary in order
to make the statements in the Registration Statement, in light of the
circumstances under which they were made, not misleading. The information
supplied by USF for inclusion in the Proxy Statement shall not, on the date
the Proxy Statement is first mailed to shareholders of DWW, at the time of the
Shareholders' Meeting and at the Effective Time, contain any statement which,
at such time and in light of the circumstances under which it shall be made,
is false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements made in the Proxy
Statement not false or misleading; or omit to state any material fact
necessary to correct any statement with respect to USF and its Subsidiaries in
any earlier communication with respect to the solicitation of proxies for the
Shareholders' Meeting which has become false or misleading. If at any time
prior to the Effective Time any event relating to USF or any of its
Affiliates, officers or directors should become known to USF which should be
set forth in an amendment to the Registration Statement or a supplement to the
Proxy Statement, USF shall promptly inform DWW.
Section 4.11 Interim Operations of Sub. Sub was formed solely for the
purpose of engaging in the transactions contemplated by this Agreement, has
engaged in no other business activities and has conducted its operations only
as contemplated by this Agreement.
Section 4.12 Disclosure. No representation or warranty of USF in this
Agreement or any certificate, schedule, statement, document or instrument
furnished or to be furnished to DWW pursuant hereto or in connection herewith
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact required to be stated herein or therein or
necessary to make any statement herein or therein not misleading, and all such
representations, warranties, certificates, schedules, statements, documents
and instruments, together with the information contained in the USF SEC
Reports, considered in the aggregate, do not omit and will not omit to state
any fact which is material to the business, assets (including intangible
assets), condition (financial or otherwise), results of operations or
prospects of USF and its Subsidiaries, taken as a whole.
ARTICLE V
COVENANTS
Section 5.01 No Solicitation. From and after the date hereof until the
earlier of the termination of this Agreement in accordance with Article VII
and the Effective Time:
(a) DWW shall not, directly or indirectly, through any officer, director,
key employee, representative or agent of DWW or any of its Subsidiaries,
(i) solicit, initiate, or encourage any inquiries or proposals that
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constitute, or could reasonably be expected to lead to, a proposal or offer
for a merger, consolidation, business combination, sale of substantial
assets, sale of shares of capital stock (including without limitation by
way of a tender offer) or similar transactions involving DWW or any of its
Subsidiaries, other than the transactions with USF contemplated by this
Agreement (any of the foregoing inquiries or proposals being referred to in
this Agreement as an "Acquisition Proposal"), (ii) engage in negotiations
or discussions concerning, or provide any non-public information to any
person or entity relating to, any Acquisition Proposal, or (iii) agree to
approve or recommend any Acquisition Proposal; provided, however, that
nothing contained in this Agreement shall prevent DWW or the DWW Board from
(A) furnishing non-public information to, or entering into discussions or
negotiations with, any person or entity in connection with an unsolicited
bona fide written Acquisition Proposal by such person or entity or
recommending an unsolicited bona fide written Acquisition Proposal to the
shareholders of DWW, if and only to the extent that (1) the DWW Board
believes in good faith (after consultation with its financial advisor, and
based upon the written opinion of such financial advisor) that such
Acquisition Proposal could, if consummated, result in a transaction (an
"Acquisition Transaction") more favorable to DWW's shareholders from a
financial point of view than the transaction contemplated by this Agreement
(any such more favorable Acquisition Transaction being referred to in this
Agreement as a "Superior Proposal") and the DWW Board determines in good
faith based on written advice of outside legal counsel, that such action is
necessary for DWW to comply with its fiduciary duties to shareholders under
applicable law and (2) prior to furnishing such non-public information to,
or entering into discussions or negotiations with, such person or entity,
the DWW Board receives from such person or entity an executed
confidentiality agreement; or (B) taking any position with regard to an
Acquisition Proposal pursuant to Rules 14d-9 and 14e- 2 under the Exchange
Act which is consistent with the advice of counsel concerning the DWW
Board's fiduciary duties under applicable law with respect to a tender
offer commenced by a third party (other than by public announcement alone).
(b) DWW shall notify USF immediately upon receipt by DWW (or its
advisors) of any Acquisition Proposal or any request for non-public
information in connection with a possible Acquisition Proposal or for
access to the properties, books or records of DWW by any person or entity.
Such notice shall be made orally and in writing and shall indicate in
reasonable detail the identity of the offer or and the terms and conditions
of such proposal, inquiry or contact.
Section 5.02 Shareholder Approval.
(a) As promptly as practicable following the execution and delivery of
this Agreement, unless this Agreement shall have been previously terminated
in accordance with Article VII, DWW shall submit this Agreement and the
Merger to its shareholders for approval and adoption at a meeting of its
shareholders called by DWW for such purpose. Unless this Agreement shall
have been previously terminated in accordance with Article VII and subject
to Section 5.01, the DWW Board shall recommend that the shareholders of DWW
vote to approve and adopt this Agreement and the Merger and the other
matters to be submitted to DWW's shareholders in connection therewith and
shall use its best efforts to solicit and secure from its shareholders
their approval and adoption of this Agreement and the Merger.
(b) Unless this Agreement shall have been previously terminated in
accordance with Article VII, USF, as the sole stockholder of Sub, shall,
prior to the Effective Time, consent in writing to the approval and
adoption of this Agreement and the Merger.
Section 5.03 Letter of DWW's Accountants. DWW shall use all reasonable
efforts to cause to be delivered to USF a letter of Price Waterhouse LLP,
DWW's independent auditors, dated a date within two business days before the
date on which the Registration Statement shall become effective and addressed
to USF, in form customary in scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the Registration Statement.
Section 5.04 Rights Agreement. Unless this Agreement shall have been
previously terminated in accordance with Article VII and subject to Section
5.01, DWW shall not amend or otherwise alter the provisions of the Rights
Agreement other than as provided in Exhibit C.
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Section 5.05 Conduct of the Business of DWW and its Subsidiaries. During the
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement in accordance with Article VII and the Effective
Time, DWW agrees as to itself and its Subsidiaries (except to the extent that
USF shall otherwise consent in writing), to carry on its business in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted, to pay its debts and taxes when due subject to good
faith disputes over such debts or taxes, to pay or perform its other
obligations when due, and, to use all reasonable efforts consistent with past
practices and policies to preserve intact its present business organization,
keep available the services of its present officers and key employees and
preserve its relationships with customers, suppliers, distributors, licensors,
licensees, and others having business dealings with it, to the end that its
goodwill and ongoing business be substantially unimpaired at the Effective
Time. DWW shall promptly notify USF of any event or occurrence not in the
ordinary course of business of DWW. Except as expressly contemplated by this
Agreement or with the prior written consent of USF, and not in limitation of
the foregoing, during the aforesaid period DWW shall (and shall cause its
Subsidiaries to):
(a) preserve and maintain its corporate existence and all of its rights,
privileges and franchises reasonably necessary or desirable in the normal
conduct of its business, except to the extent contemplated by any
transactions specifically permitted by this Agreement;
(b) not acquire any stock or other interest in, nor (except in the
ordinary course of business) purchase any assets of, any corporation,
partnership, association or other business organization or entity or any
division thereof (except any stock or assets distributed to DWW or any of
its Subsidiaries as part of any bankruptcy or other creditor settlement or
pursuant to a plan of reorganization), nor agree to do any of the
foregoing;
(c) not sell, lease, assign, transfer or otherwise dispose of any of its
assets (including, without limitation, patents, trade secrets or licenses),
nor suffer to exist or create any Lien on any of its assets, except as
permitted by this Agreement or in the ordinary course of business and
except that DWW and each of its Subsidiaries may sell or otherwise dispose
of any assets which are obsolete;
(d) not incur any Indebtedness, other than as a result of borrowings or
drawdowns, the issuance of letters of credit for the account of DWW and the
incurrence of interest, letter of credit reimbursement obligations and
other obligations under the terms of the Amended and Restated Loan
Agreement by and between DWW and Sun Bank, National Association, dated
October 13, 1992, as the same has been amended through the date of this
Agreement, which Indebtedness shall be incurred only for working capital
purposes;
(e) not (i) alter, amend or repeal any provision of its Amended and
Restated Articles of Incorporation or Bylaws or its certificate of
incorporation or by-laws (as the case may be), (ii) change the number or
identity of its directors (other than as a result of the death, retirement
or resignation of a director), (iii) form or acquire any subsidiaries not
existing as of the date of this Agreement, (iv) except in the ordinary
course conduct of its business, enter into, modify or terminate any
Contracts or agree to do so, (v) modify or terminate any Employment
Agreement, or (vi) declare, pay, commit to or incur any obligation of any
kind for the payment of any bonus, additional salary or compensation or
retirement, termination, welfare or severance benefits payable or to become
payable to any of its employees or such other persons, except for such
matters as are required pursuant to the terms of any existing Employment
Agreement or Benefit Plan;
(f) maintain its books, accounts and records in the usual, ordinary and
regular manner and in material compliance with all applicable laws;
(g) pay and discharge all Taxes imposed upon it or upon its income or
profits, or upon any property belonging to it, prior to the date on which
penalties attach thereto, except to the extent that DWW is currently
contesting, in good faith and by proper proceedings, the payment of such
Taxes and DWW maintains appropriate reserves with respect thereto;
(h) not settle any tax claim against DWW or any of its Subsidiaries or
any litigation (net of applicable insurance proceeds) in excess of $50,000
individually or $250,000 in the aggregate;
(i) use its best efforts to meet its obligations under all Contracts, and
not become in default thereunder;
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(j) maintain its business and assets in good repair, order and condition,
reasonable wear and tear excepted, and maintain insurance upon such
business and assets at least comparable in amount and kind to that in
effect on the date hereof;
(k) use its best efforts to maintain its present relationships and
goodwill with suppliers, brokers, manufacturers, representatives,
distributors, customers and others having business relations with it
(provided that it may pursue overdue accounts and otherwise exercise lawful
remedies in its customary fashion);
(l) carry on and operate its business in, and only in, the usual, regular
and ordinary course in substantially the same manner as heretofore
conducted and use its best efforts to cause the representations and
warranties of DWW set forth in this Agreement to be true and correct, in
all respects, on and as of the Effective Time, subject only to changes in
the ordinary course of business;
(m) except in accordance with DWW's dividend policy currently in effect,
not declare, set aside, make or pay any dividends or other distributions
with respect to its capital stock, including, without limitation, in the
case of DWW, the DWW Common Stock, or purchase or redeem any shares of its
capital stock, including, without limitation, in the case of DWW, the DWW
Common Stock, or agree to take any such action;
(n) not authorize or make any capital expenditure in excess of $250,000
individually, or if the aggregate of the amount of such capital expenditure
together with the amounts of all other capital expenditures since the date
of this Agreement shall exceed $1,000,000;
(o) use its best efforts not to violate any law or regulation applicable
to it nor violate any order, injunction or decree applicable to the conduct
of its business; and
(p) not increase the number of shares authorized or issued and
outstanding of its capital stock, including, without limitation, in the
case of DWW, the DWW Common Stock, nor grant or make any pledge, option,
warrant, call, commitment, right or agreement of any character relating to
its capital stock, including, without limitation, in the case DWW, the DWW
Common Stock, nor issue or sell any shares of its capital stock, including,
without limitation, in the case of DWW, the DWW Common Stock, or securities
convertible into such capital stock, or any bonds, promissory notes,
debentures or other corporate securities or become obligated so to sell or
issue any such securities or obligations, except, in any case, issuance of
shares of DWW Common Stock pursuant to the exercise of options or other
rights outstanding as of the date hereof and referred to in Section 3.02.
Section 5.06 Access to Information. Upon reasonable notice, DWW shall (and
shall cause its Subsidiaries to) (i) afford to the officers, employees,
accountants, counsel and other representatives of USF, access, during normal
business hours during the period prior to the earlier of the termination of
this Agreement and the Effective Time, to all its properties, books,
contracts, commitments, records, officers, employees, accountants,
accountants' work papers, correspondence and affairs, and (ii) cause its and
their officers and employees to furnish, to USF, Sub and their authorized
representatives, any and all financial, technical and operating data and other
information pertaining to the businesses of DWW and its Subsidiaries as USF or
Sub shall from time to time reasonably request. In addition, without limiting
the generality of the foregoing, DWW will, and will cause each of its
Subsidiaries to, make available to USF and Sub for examination true and
complete copies of all Returns filed by DWW or any of its Subsidiaries,
together with all available revenue agents' reports, all other reports,
notices and correspondence concerning tax audits or examinations and analyses
of all provisions for reserves or accruals of taxes, including deferred taxes.
Section 5.07 Required Authorizations.
(a) USF, Sub and DWW shall each, and DWW shall cause each of its
Subsidiaries to, use its best efforts to give or obtain, as promptly as
practicable, all Required Authorizations (if any) required to be given or
obtained by it, respectively, to permit USF and Sub, on the one hand, and DWW,
on the other, to consummate the transactions contemplated by this Agreement
and to realize the respective benefits to each party contemplated hereby;
provided that DWW and its Subsidiaries shall not incur fees and expenses in
excess of $250,000 in the aggregate in order to obtain any such Required
Authorizations described in clause (ii) of the definition thereof without the
prior written consent of USF.
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(b) Without limiting the generality of the foregoing, USF, Sub and DWW shall
each use its best efforts to file as promptly as practicable its pre-merger
notification under the HSR Act and thereafter to respond as promptly as
practicable to all inquiries received in connection with the pre-merger
notification made according to the HSR Act for additional information or
documents or otherwise and shall take all such other actions as may be
necessary or advisable to comply with, or obtain a waiver from, the provisions
thereof.
(c) Without limiting the generality of the foregoing, USF, Sub and DWW shall
each cooperate with the others in filing in a timely manner any applications,
requests, reports, registrations or other documents, including, without
limitation, all reports and documents required to be filed by or under the
Securities Act or the Exchange Act (including, without limitation, the
Registration Statement and the Proxy Statement), with any Governmental
Authority having jurisdiction with respect to the transactions contemplated
hereby and in consulting with and seeking favorable action from any
Governmental Authority, and USF shall use its best efforts to cause the
Registration Statement to become effective.
(d) Without limiting the generality of the foregoing, DWW shall, and shall
cause each of its Subsidiaries to, use its best efforts to obtain all
approvals or consents of any person needed in order that the Contracts
continue in full force and effect under the same terms and conditions
currently in effect following the consummation of the transactions
contemplated by the Agreement.
(e) Without limiting the generality of the foregoing, USF shall use its best
efforts to obtain, prior to the Effective Time, the approval for the listing,
subject to official notice of issuance, on the New York Stock Exchange of the
shares of USF Common Stock to be issued pursuant to Article II.
Section 5.08 Financial Statements of DWW.
DWW shall deliver to USF promptly upon completion any and all internal
financial reports, schedules or analyses prepared by or for the senior
management of DWW and its business from time to time from the date hereof
through the Effective Time or earlier termination of this Agreement in
accordance with Article VII. As soon as practicable but in any event within 45
days after the end of each fiscal quarter of DWW, commencing with July 31,
1996, and within 60 days after the end of the fiscal year ended April 30,
1996, as the case may be, through the Effective Time or earlier termination of
this Agreement in accordance with Article VII, DWW will deliver to USF
unaudited consolidated and consolidating balance sheets of DWW and its
Subsidiaries as at the end of such fiscal quarter and as at the end of the
comparative fiscal quarter of the preceding year, together with the related
unaudited statements of consolidated income and cash flows for the fiscal
quarters then ended. All such financial statements of DWW shall present
fairly, in all material respects, the financial position, results of
operations and cash flows of DWW and its Subsidiaries, as at or for the
periods indicated (and, in the case of all such financial statements which are
interim financial statements, shall contain all adjustments necessary so to
present fairly) and shall be prepared in accordance with generally accepted
accounting principles (other than to omit certain footnotes which might be
required thereby and subject, in the case of interim financial statements, to
normal year-end adjustments) consistent with past practice, except as
otherwise indicated in such statements. All such financial statements of DWW
shall be certified, on behalf of DWW, by the President and Chief Executive
Officer and by the Secretary-Treasurer of DWW.
Section 5.09 Public Announcements. Neither USF, Sub nor DWW shall make any
press release or other written public statement concerning the matters covered
by this Agreement without the approval of the other parties hereto, except as
required by law or applicable regulation, and each shall in all events use its
best efforts to permit such other parties an opportunity to review and comment
upon any such release or statement prior to dissemination.
Section 5.10 Benefit Plans. Except as required by law or the terms of any
Benefit Plan, from the date hereof until the Effective Time or the earlier
termination of this Agreement in accordance with Article VII, no award or
grant under the Benefit Plans shall be made without the consent of USF; it
being understood that no options, warrants or other rights to acquire
securities of DWW or any of its Subsidiaries shall be granted by DWW or
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any of its Subsidiaries. The DWW 1988 Employee Stock Purchase Plan shall be
amended to provide for the suspension of the offering period thereunder from
July 1, 1996 until any termination of this Agreement pursuant to Article VII,
and for termination of such plan effective at the Effective Time. At USF's
request, DWW shall terminate the DWW 401(k) Profit Sharing Plan and the
Taulman Company Employee Investment Plan immediately prior to the Effective
Time and shall file such plans with the Internal Revenue Service and request a
determination letter with regard thereto prior to the Effective Time. No
distributions shall be made from either the DWW 401(k) Profit Sharing Plan or
the Taulman Company Employee Investment Plan on account of the termination of
such plans until the Internal Revenue Service has issued favorable
determination letters. No other amendment to (other than revisions required to
comply with the Code or ERISA), or termination of, any of the Benefit Plans
shall be made without the consent of USF.
Section 5.11 Tax-Free Reorganization. USF and DWW shall each use its best
efforts to cause the Merger to be treated as a reorganization within the
meaning of Section 368(a) of the Code.
Section 5.12 Pooling Accounting. USF and DWW shall each use its best efforts
to cause the business combination to be effected by the Merger to be accounted
for as a pooling of interests. DWW shall use its best efforts to cause its
Rule 145 Affiliates not to take any action that would adversely affect the
ability of USF to account for the business combination to be effected by the
Merger as a pooling of interests.
Section 5.13 Affiliate Agreements. Within two weeks following the date of
this Agreement, DWW will provide USF with a list of those persons who are, in
DWW's reasonable judgment, "affiliates" of it within the meaning of Rule 145
promulgated under the Securities Act ("Rule 145") (each such person who is an
"affiliate" within the meaning of Rule 145 is referred to as a "Rule 145
Affiliate"). DWW shall provide USF with such information and documents as USF
shall reasonably request for purposes of reviewing such list and DWW shall
notify USF in writing regarding any change in the identity of its Rule 145
Affiliates prior to the Closing Date. DWW shall deliver or cause to be
delivered to USF prior to the Effective Time from each of its Rule 145
Affiliates, an executed Affiliate Agreement, in substantially the form
attached hereto as Exhibit B (each an "Affiliate Agreement"). USF shall be
entitled to place appropriate legends on the certificates evidencing any USF
Common Stock to be received by such Rule 145 Affiliates pursuant to the terms
of this Agreement, and to issue appropriate stop transfer instructions to the
transfer agent for the USF Common Stock, consistent with the terms of the
Affiliate Agreements.
Section 5.14 Representations, Covenants and Conditions; Further Assurances.
(a) USF, Sub and DWW will each use its best efforts (i) to take, and to
cause their respective subsidiaries (if any, including, without limitation, in
the case of USF, Sub) to take, all actions necessary to render accurate as of
the Effective Time their respective representations and warranties contained
herein, (ii) to refrain, and to cause their respective subsidiaries (if any,
including, without limitation, in the case of USF, Sub) to refrain, from
taking any action which would render any such representation or warranty
inaccurate in any material respect as of such time and (iii) to perform or
cause to be satisfied, and to cause their respective subsidiaries (if any,
including, without limitation, in the case of USF, Sub) to perform or cause to
be satisfied, each covenant or condition to be performed or satisfied by them.
(b) USF, Sub and DWW each agrees to use its best efforts to take, or cause
to be taken, all action, and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations and existing
agreements or otherwise required to be taken or done by it to consummate the
transactions contemplated hereby; provided that DWW and its Subsidiaries shall
not incur fees and expenses in excess of $250,000 in the aggregate in order to
take any such action or do any such thing without the prior written consent of
USF.
Section 5.15 Notice of Breach, Potential Breach or Adverse Change. Each
party shall promptly notify the other of any change, circumstance or event
which would cause any of the representations or warranties made by the
notifying party pursuant to this Agreement to be untrue as of the date hereof
or at the Closing or which prevents the notifying party from complying with
any of its obligations hereunder.
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Section 5.16 Employee Matters.
(a) At the Effective Time, all employees of DWW and its Subsidiaries shall,
at USF's option, become employees of USF or its Subsidiaries or remain
employees of the Continuing Corporation or its Subsidiaries ("Retained
Employees") and, in either case, shall be allowed to participate as of the
Effective Time in the medical and dental benefit plans and life and disability
insurance plans paid for by USF as employees of USF with a waiver of any
waiting period and of any pre-existing condition limitations. To the extent
permitted by applicable law and the terms of such plans, the period of service
with DWW and the Subsidiaries of all Retained Employees shall be recognized
for eligibility purposes under USF Benefit Plans according to established
eligibility requirements. In addition, if the Effective Time falls within an
annual period of coverage under any group health plan or group dental plan of
USF or its Subsidiaries, each Retained Employee shall be given credit for
covered expenses paid by that employee under the comparable Benefit Plans,
other than Benefit Plans the cost of which are paid entirely by the employee,
during the applicable coverage period through the Effective Time towards the
satisfaction of any deductible limitation and out-of-pocket maximum that may
apply under the group health plan or group dental plan of USF and its
Subsidiaries excluding any and all plan co-payments.
(b) At the Effective Time, DWW shall pay the lump sum value of R. Doyle
White's Supplemental Retirement Plan with DWW in accordance with the terms
thereof and in accordance with Section 3(b)(iii) of the Employment Agreement
between USF, DWW and R. Doyle White.
Section 5.17 Indemnification.
(a) USF shall cause the Continuing Corporation to indemnify, defend and hold
harmless the present and former directors, officers, employees, and agents of
DWW and its Subsidiaries (each, an "Indemnified Party") against all
liabilities arising out of actions or omissions occurring at or prior to the
Effective Time (including the transactions contemplated by this Agreement) to
the full extent permitted under Georgia law and DWW's Articles of
Incorporation and Bylaws as in effect on the date hereof, including provisions
relating to advances of expenses incurred in the defense of any litigation.
Without limiting the foregoing, in any case in which approval by USF or the
Continuing Corporation is required to effectuate any indemnification, USF or
the Continuing Corporation, as appropriate, shall direct, at the election of
the Indemnified Party, that the determination of any such approval shall be
made by independent counsel mutually agreed upon between USF or the Continuing
Corporation, as appropriate, and the Indemnified Party.
(b) USF shall use its reasonable efforts (and DWW shall cooperate prior to
the Effective Time in these efforts) to maintain in effect for a period of two
years after the Effective Time DWW's existing directors' and officers'
liability insurance policy (provided that USF may substitute therefor (i)
policies of at least the same coverage and amounts containing terms and
conditions which are substantially no less advantageous or (ii) with the
consent of DWW given prior to the Effective Time, any other policy) with
respect to claims arising from facts or events which occurred at or prior to
the Effective Time (including the transactions contemplated by this Agreement)
and covering persons who are currently covered by such insurance; provided,
that USF shall not be obligated to make premium payments for such two-year
period in respect of such policy (or coverage replacing such policy) which
exceed, for the portion related to DWW's directors and officers, 200% of the
annual premium payments on DWW's current policy in effect as of the date of
this Agreement (the "Maximum Amount"). If the amount of the premiums necessary
to maintain or procure such insurance coverage exceeds the Maximum Amount, USF
shall use its reasonable efforts to maintain the most advantageous policies of
directors' and officers' liability insurance obtainable for a premium equal to
the Maximum Amount.
(c) If USF or the Continuing Corporation or any of their respective
successors or assigns shall consolidate with or merge into any other person
and shall not be the continuing or surviving person of such consolidation or
merger or shall transfer all or substantially all of their respective assets
to any person, then and in each case proper provision shall be made so that
the successors and assigns of USF or the Continuing Corporation, as
appropriate, shall assume the obligations set forth in this Section 5.17.
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(d) The provisions of this Section 5.17 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Person and his or her heirs
and representatives.
ARTICLE VI
CONDITIONS TO MERGER
Section 6.01 Conditions to Each Party's Obligation To Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction prior to the Closing Date of the
following conditions:
(a) Shareholder Approval. This Agreement and the Merger shall have been
approved and adopted by a majority of all the votes entitled to be cast by
all shares of DWW Common Stock entitled to vote thereon, and no right of
dissent shall be applicable in connection therewith.
(b) HSR Act. The pre-merger filing and waiting period requirements
applicable to the Merger under the HSR Act shall have expired or shall have
been terminated.
(c) Registration Statement. The Registration Statement shall have become
effective under the Securities Act and shall not be the subject of any stop
order or proceedings seeking a stop order.
(d) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger or limiting or
restricting USF's conduct or operation of the business of DWW after the
Merger shall have been issued, nor shall there be any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to the
Merger which makes the consummation of the Merger illegal.
(e) NYSE. The shares of USF Common Stock to be issued in the Merger shall
have been listed on the New York Stock Exchange.
Section 6.02 Additional Conditions to Obligations of USF and Sub. The
obligations of USF and Sub to effect the Merger are subject to the
satisfaction of each of the following additional conditions, any of which may
be waived in writing exclusively by USF and Sub:
(a) Representations and Warranties. The representations and warranties of
DWW set forth in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and (except to the extent such
representations and warranties are made as of an earlier date, which
representations and warranties shall be true and correct in all material
respects at and as of such date) as of the Closing Date as though made on
and as of the Closing Date, in each case except for changes contemplated by
this Agreement, and USF shall have received a certificate signed on behalf
of DWW by the President and Chief Executive Officer and by the Secretary-
Treasurer of DWW to such effect.
(b) Performance of Obligations of DWW. DWW shall have performed in all
material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date, and USF shall have received a
certificate signed on behalf of DWW by the President and Chief Executive
Officer and by the Secretary-Treasurer of DWW to such effect.
(c) Required Authorizations. All Required Authorizations shall have been
obtained.
(d) Tax Opinion. USF shall have received a written opinion from
Kirkpatrick & Lockhart LLP, counsel to USF, to the effect that the Merger
will be treated for federal income tax purposes as a tax-free
reorganization within the meaning of Section 368(a) of the Code. In
rendering such opinion, counsel may rely upon representations and
certificates of USF, Sub and DWW.
(e) Letter of Accountants. USF shall have received a letter of Price
Waterhouse LLP, DWW's independent auditors, dated the Closing Date,
updating the letter referred to in Section 5.03.
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(f) Opinion of Counsel to DWW. USF shall have been furnished opinions of
Alston & Bird and Alexander & Vann, counsel to DWW, dated the date of the
Effective Time, in form mutually satisfactory to the parties.
(g) Pooling Letter. USF shall have received letters from KPMG Peat
Marwick LLP and Price Waterhouse LLP, dated the date of the Proxy
Statement, which letters shall be confirmed in writing at the Effective
Time, each stating that the business combination to be effected by the
Merger will qualify as a pooling of interests transaction under generally
accepted accounting principles.
(h) Affiliate Agreements. USF shall have received from each of DWW's Rule
145 Affiliates an executed copy of an Affiliate Agreement substantially in
the form of Exhibit B hereto.
(i) Common Stock Purchase Rights. All of the Common Stock Purchase Rights
outstanding under the Rights Agreement shall have been redeemed immediately
prior to the Effective Time.
(j) Resignation of Directors. USF shall have received letters of
resignation, effective immediately following the Effective Time, executed
and tendered by each of the existing directors of DWW and each of its
Subsidiaries (other than any directors whom USF shall have designated as
directors of the Continuing Corporation pursuant to Section 2.02 or as
directors of any Subsidiary of DWW), or, to the extent such resignations
are not obtained, such other evidence, satisfactory to USF, that such
directors shall have been duly and lawfully removed (without cost or other
liability to DWW or any of its Subsidiaries other than pursuant to any
agreement or other arrangements with such directors existing and in effect
as of the date hereof) effective immediately following the Effective Time.
(k) Outstanding Options.
(i) The Employees Stock Option Plan Committee and/or the Compensation
Committee, as appropriate, of the DWW Board shall have declared,
pursuant to Section 7.2 of the Employees Stock Option Plan and the
Directors Stock Option Plan, respectively, that all Outstanding Options
shall be converted as of the Effective Time into the right to receive
shares of USF Common Stock as provided in Section 2.07 of this
Agreement, and shall have since the date of this Agreement made no
other declarations or taken any other actions regarding the Outstanding
Options.
(ii) The holder of each Outstanding Option shall have acknowledged in
writing to USF and the Continuing Corporation that such holder's
receipt of shares of USF Common Stock in exchange for any Outstanding
Option shall be in full settlement of such Outstanding Option and that
such holder understands that each such Outstanding Option shall, as of
the Effective Time, represent only the right to receive shares of USF
Common Stock in accordance with Section 2.07 of this Agreement and
shall otherwise be canceled.
(l) Employment Agreements. At the Effective Time, each of the employees
of DWW or its Subsidiaries named in Schedule 3.07(c) hereto shall have
entered into an Employment Agreement with USF in the form set forth in
Exhibit D, E, F or G hereto, as appropriate, and each of the Change in
Control Employment Agreements in effect immediately prior to the Effective
Time between DWW and each of the persons named in Schedule 3.07(c) shall
have been terminated.
Section 6.03 Additional Conditions to Obligations of DWW.
The obligation of DWW to effect the Merger is subject to the satisfaction of
each of the following additional conditions, any of which may be waived in
writing exclusively by DWW:
(a) Representations and Warranties. The representations and warranties of
USF and Sub set forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and (except to the
extent such representations and warranties are made as of an earlier date,
which representations and warranties shall be true and correct in all
material respects at and as of such date) as of the Closing Date as though
made on and as of the Closing Date, in each case except for changes
contemplated by this Agreement, and DWW shall have received a certificate
signed on behalf of USF by the Chief Executive Officer and the Chief
Financial Officer of USF to such effect.
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(b) Performance Of Obligations of USF and Sub. USF and Sub shall have
performed in all material respects all obligations required to be performed
by them under this Agreement at or prior to the Closing Date, and DWW shall
have received a certificate signed on behalf of USF by the Chief Executive
Officer and the Chief Financial Officer of USF to such effect.
(c) Tax Opinion. DWW shall have received the opinion of Kirkpatrick &
Lockhart LLP, counsel to USF, to the effect that the Merger will be treated
for federal income tax purposes as a tax-free reorganization within the
meaning of Section 368(a) of the Code. In rendering such opinion, counsel
may rely upon representations and certificates of USF, Sub and DWW.
(d) Opinion of Counsel to USF. DWW shall have received from Damian C.
Georgino, Vice President, General Counsel and Corporate Secretary of USF,
an opinion, dated as of the Closing Date in form mutually satisfactory to
the parties.
(e) Fairness Opinion. DWW shall have received from Dillon, Read & Co.
Inc. a letter dated the date of the Proxy Statement which provides that the
Exchange Ratio is fair to the shareholders of DWW from a financial point of
view.
(f) Employment Agreements. At the Effective Time, USF shall have entered
into an Employment Agreement in the form set forth in Exhibit D, E, F or G
hereto, as appropriate, with each of the employees of DWW or its
Subsidiaries named in Schedule 3.07(c) hereto.
ARTICLE VII
TERMINATION AND AMENDMENT
Section 7.01 Termination. This Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time, whether before or after
approval by the shareholders of DWW, by written notice by the terminating
party to the other party under the circumstances set forth below:
(a) by mutual written consent of USF and DWW; or
(b) by USF if the Average Market Price of the USF Common Stock is greater
than $37.25; or
(c) by DWW if the Average Market Price of the USF Common Stock is less
than $25.25; or
(d) by either USF or DWW if the Merger shall not have been consummated by
December 31, 1996 (provided that the right to terminate this Agreement
under this Section 7.01(d) shall not be available to any party whose
failure to fulfill any material obligation under this Agreement has been a
cause of or has resulted in the failure of the Merger to occur on or before
such date); or
(e) by USF or DWW, if (i) the other party has breached any representation
or warranty contained in this Agreement (except where such breach would not
have a Material Adverse Effect on the party having made such representation
or warranty and its Subsidiaries taken as a whole and would not have a
material adverse effect upon the transactions contemplated by this
Agreement), or (ii) there has been a breach of a covenant or agreement set
forth in this Agreement on the part of the other party, which shall not
have been cured within two business days following receipt by the breaching
party of written notice of such breach from the other party (other than
those set forth in Section 5.01, as to which there shall be no cure
period); or
(f) by either USF or DWW if a court of competent jurisdiction or other
Governmental Authority shall have issued a nonappealable final order,
decree or ruling or taken any other action, in each case having the effect
of permanently restraining, enjoining or otherwise prohibiting the Merger;
or
(g) by USF or DWW in the event that any condition precedent to the
obligations of such party to consummate the transactions contemplated
hereby has become impossible of satisfaction, other than as a result of the
breach of this Agreement by the party attempting to terminate this
Agreement; or
(h) by either USF or DWW, if, at the Shareholders' Meeting (including any
adjournment or postponement thereof), the requisite vote of the
shareholders of DWW in favor of this Agreement and the Merger shall not
have been obtained; or
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(i) by USF, if (i) DWW, pursuant to Section 5.01(a) hereof (or
otherwise), shall provide non-public information to or engage in
negotiations regarding any Acquisition Proposal with any person other than
USF or its Affiliates, (ii) the DWW Board shall have withdrawn or modified
its recommendation of this Agreement or the Merger or shall have resolved
to do any of the foregoing; (iii) the DWW Board shall have recommended to
the shareholders of DWW an Acquisition Transaction other than one made by
USF or an Affiliate of USF; or (iv) DWW shall have amended or otherwise
altered the provisions of the Rights Agreement other than as provided in
Exhibit C.
Section 7.02 Effect of Termination. In the event of termination of this
Agreement as provided in Section 7.01, this Agreement shall immediately become
void and there shall be no liability or obligation on the part of USF, DWW,
Sub or their respective officers, directors, shareholders or Affiliates,
except as set forth in Section 7.03 and further except that nothing herein
shall relieve any party from liability for any willful breach of this
Agreement.
Section 7.03 Fees and Expenses.
(a) Except as set forth in this Section 7.03, all fees and expenses incurred
in connection with this Agreement and the transactions contemplated hereby
shall be paid by the party incurring such expenses, whether or not the Merger
is consummated; provided, however, that USF and DWW shall share equally all
fees and expenses, other than attorneys' fees, incurred in relation to the
printing and filing of the Proxy Statement (including any related preliminary
materials) and the Registration Statement (including financial statements and
exhibits) and any amendments or supplements.
(b) DWW shall reimburse USF for out-of-pocket expenses incurred by USF
relating to the transactions contemplated by this Agreement prior to
termination (including, but not limited to, fees and expenses of USF's
counsel, accountants and financial advisors), upon the termination of this
Agreement by USF or DWW pursuant Section 7.01(h) or USF pursuant to Section
7.01(i).
(c) (i) DWW shall pay USF a termination fee of $3,000,000 upon the earliest
to occur of the termination of this Agreement (x) by USF or DWW pursuant to
Section 7.01(h), provided that an Acquisition Proposal shall have been
announced or otherwise disclosed at or prior to the Shareholders' Meeting, or
(y) by USF pursuant to Section 7.01(i), subsection (ii), (iii) or (iv);
(ii) DWW shall pay USF a termination fee of $1,500,000 upon the termination
of this Agreement pursuant to Section 7.01(i), subsection (i).
(d) The expenses and fees, if applicable, payable pursuant to Section
7.03(b) and 7.03(c) shall be paid within one business day after the first to
occur of any of the events described in Section 7.03(b) or 7.03(c).
Section 7.04 Amendment. This Agreement may be amended by the parties hereto,
by action taken or authorized by their respective Boards of Directors, at any
time before or after approval of the matters presented in connection with the
Merger by the shareholders of DWW, but, after any such approval, no amendment
shall be made which by law requires further approval by such shareholders
without such further approval. This Agreement may not be amended except by an
instrument in writing signed on behalf of all of the parties hereto.
Section 7.05 Extension; Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto by the other
parties hereto and (iii) waive compliance with any of the agreements or
conditions contained herein for their benefit. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid only if set forth
in a written instrument signed on behalf of such party.
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ARTICLE VIII
MISCELLANEOUS
Section 8.01 Nonsurvival of Representations, Warranties and Agreements. None
of the representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Effective
Time, except for the agreements contained in Article II, Sections 7.02, 7.03,
the last sentence of Section 7.04 and Article VIII, and the agreements of the
Rule 145 Affiliates delivered pursuant to Section 5.13. The Confidentiality
Agreement dated May 14, 1996 between USF and DWW shall survive the execution
and delivery of this Agreement.
Section 8.02 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, telecopied
(which is confirmed) or mailed by registered certified mail (return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(a) if to USF or Sub, to
United States Filter Corporation
40-004 Cook Street
Palm Desert, CA 92211
Attention: Damian C. Georgino, Esq.
Vice President, General Counsel
and Secretary
Telephone: (619) 340-0098
Telecopier: (619) 341-9368
with a copy to:
Kirkpatrick & Lockhart LLP
1500 Oliver Building
Pittsburgh, PA 15222
Attention: Janice C. Hartman, Esq.
Telephone: (412) 355-6444
Telecopier: (412) 355-6501
(b) if to DWW, to
Davis Water & Waste Industries, Inc.
1820 Metcalf Avenue
Thomasville, GA 31792
Attention: R. Doyle White
Telephone: (912) 226-5733
Telecopier: (912) 225-1632
with a copy to:
Alston & Bird
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309
Attention: M. Hill Jeffries, Esq.
Telephone: (404) 881-7000
Telecopier: (404) 881-7777
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Section 8.03 Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement they shall be deemed to
be followed by the words "without limitation." The phrases "the date of this
Agreement," "the date hereof," and terms of similar import, unless the context
otherwise requires, shall be deemed to refer to June 10, 1996.
Section 8.04 Knowledge. All references in this Agreement or any certificate
to knowledge of any person shall mean the knowledge of any officer or officers
of such person (but only the officer executing any such certificate, in the
case of a certificate) and shall reflect due inquiry by such officer or
officers in connection specifically with respect to the statement made to such
knowledge.
Section 8.05 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each
of the parties and delivered to the other parties, it being understood that
all parties need not sign the same counterpart.
Section 8.06 Entire Agreement; No Third Party Beneficiaries. This Agreement
(including the documents and the instruments referred to herein) constitutes
the entire agreement and supersedes all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof, and is not intended to confer upon any person other than the parties
hereto any rights or remedies hereunder.
Section 8.07 Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Delaware.
Section 8.08 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns.
IN WITNESS WHEREOF, USF, Sub and DWW have caused this Agreement to be signed
by their respective officers thereunto, duly authorized as of the date first
written above.
Davis Water & Waste Industries, Inc. United States Filter Corporation
/s/ R. Doyle White /s/ Richard J. Heckmann
By: ___________________________ By: ___________________________
Title: Chairman, President and CEO Title: Chairman, President and CEO
USF/DWW Acquisition Corporation
/s/ Damian C. Georgino
By: ___________________________
Title: President
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Annex 1
DEFINITIONS
For purposes of this Agreement (to which this Annex 1 is attached and of
which this Annex 1 forms a part), the following terms shall have the meanings
set forth below:
"Acquisition Proposal" shall have the meaning assigned thereto in Section
5.01(a) of this Agreement.
"Acquisition Transaction" shall have the meaning assigned thereto in Section
5.01(a) of this Agreement.
"Adjusted Exchange Ratio" shall have the meaning assigned thereto in Section
2.01(b) of this Agreement.
"Adjusted Option Exchange Ratio" shall have the meaning assigned thereto in
Section 2.07(b) of this Agreement.
"Affiliate" of DWW shall mean any "affiliate" of DWW as defined in Rule 12b-
2 under the Exchange Act and, without limiting the generality of the
foregoing, shall include any person that beneficially owns (within the meaning
of Rule 13d-3 under the Exchange Act) 5% or more of the DWW Common Stock, but
shall not include USF or Sub.
"Affiliate Agreement" shall have the meaning assigned thereto in Section
5.13 of this Agreement.
"Agreement" shall mean this Agreement and Plan of Merger.
"Average Market Price" shall have the meaning assigned thereto in Section
2.01(b) of this Agreement.
"Benefit Plans" shall have the meaning assigned thereto in Section 3.21(a)
of this Agreement.
"Closing" shall have the meaning assigned thereto in Section 1.03 of this
Agreement.
"Closing Date" shall have the meaning assigned thereto in Section 1.03 of
this Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as amended, or any
successor statute thereto.
"Constituent Corporations" shall have the meaning assigned thereto in the
preamble to this Agreement.
"Continuing Corporation" shall have the meaning assigned thereto in the
preamble to this Agreement.
"Contracts" shall have the meaning assigned thereto in Section 3.14 of this
Agreement.
"Defined Benefit Plan" shall have the meaning assigned thereto in Section
3.21(f) of this Agreement.
"Delaware GCL" shall mean the Delaware General Corporation Law, as amended.
"Directors Stock Option Plan" shall have the meaning assigned thereto in
Section 2.07 of this Agreement.
"DWW" shall mean Davis Water & Waste Industries, Inc., a Georgia
corporation.
"DWW Balance Sheet" shall have the meaning assigned thereto in Section
3.06(b) of this Agreement.
"DWW Board" shall have the meaning assigned thereto in Section 3.05(a) of
this Agreement.
"DWW Common Stock" shall have the meaning assigned thereto in the preamble
to this Agreement.
"DWW Group" shall have the meaning assigned thereto in Section 3.21(a) of
this Agreement.
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"DWW SEC Reports" shall have the meaning assigned thereto in Section 3.06(a)
of this Agreement.
"Employees Stock Option Plan" shall have the meaning assigned thereto in
Section 2.06 of this Agreement.
"Effective Time" shall have the meaning assigned thereto in Section 1.02 of
this Agreement.
"Employment Agreements" shall have the meaning assigned thereto in Section
3.19(a) of this Agreement.
"Environmental Action" shall mean any civil, criminal or administrative
action, suit, summons, citation, complaint, claim, demand, judgment, order,
Lien, notice of violation, proceeding or hearing, or investigation based upon
or related to (i) any Environmental Law, Environmental Approval or
Environmental Condition, or (ii) to the presence, manufacture, generation,
processing, distribution, use, sale, receipt, storage, disposal, transport,
treatment, disposal, handling, Release or threatened Release of any Regulated
Material.
"Environmental Approvals" shall mean collectively all Governmental Approvals
required under Environmental Laws.
"Environmental Condition" shall mean the presence of a Regulated Material
(other than a naturally-occurring substance) on, at or in a property
(including, but not limited to, the presence in surface water, groundwater,
soils or subsurface strata).
"Environmental Law" shall mean any federal, state, provincial, foreign, or
local statute, law, rule, regulation, ordinance, code, or policy having the
force of law relating to protection of the environment, natural resources, or
public or employee health and safety, or relating to the production,
generation, use, storage, treatment, processing, transportation or disposal of
Regulated Materials, including, without limitation: the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. (S) 9601 et
seq. ("CERCLA"); the Superfund Amendments and Reauthorization Act, Public Law
99-499, 100 Stat. 1613; Resource Conservation and Recovery Act ("RCRA"), 42
U.S.C. (S)6901, et seq.; the National Environmental Policy Act, 42 U.S.C.
(S)4321; the Safe Drinking Water Act, 42 U.S.C. (S)300f et seq.; the Toxic
Substances Control Act ("TSCA"), 15 U.S.C. (S)2601 et seq.; the Federal
Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. (S)136, et seq.; the
Federal Hazardous Material Transportation Law, 49 U.S.C. (S)5101; the Federal
Water Pollution Control Act, 33 U.S.C. (S)1251 et seq.; the Oil Pollution Act
of 1990, 33 U.S.C. (S)2701, et seq.; the Clean Air Act, 42 U.S.C. (S)7401 et
seq., the Occupational Safety and Health Act, 29 U.S.C. (S)651 et seq., and
counterpart state and local laws, and regulations adopted thereunder.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" shall have the meaning assigned thereto in Section 3.21(a)
of this Agreement.
"Exchange Act" shall have the meaning assigned thereto in Section 3.05(c) of
this Agreement.
"Exchange Agent" shall have the meaning assigned thereto in Section 2.02(a)
of this Agreement.
"Exchange Ratio" shall have the meaning assigned thereto in Section 2.01(b)
of this Agreement.
"Georgia BCC" shall mean the Georgia Business Corporation Code, as amended.
"Governmental Authority" means any nation or government, any state, province
or other political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of a government
with jurisdiction over the matter in question.
"Governmental Approval" means any permit, license, authorization, consent,
approval, waiver, exception, variance, order, or exemption issued by any
Governmental Authority.
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"Governmental Filings" means any plans, filings, reports, notifications, or
other submissions required to be made to any Governmental Authority.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Indebtedness" shall mean, with respect to DWW, at any date, and regardless
of whether the indebtedness or obligation was created before, on or after the
date hereof (without duplication): (i) all indebtedness for borrowed money, or
other obligations or liabilities for borrowed money (including, without
limitation, letters of credit) of DWW or any Subsidiary, whether matured or
unmatured, liquidated or unliquidated, direct or contingent, joint or several,
and whether now existing or hereafter created; (ii) all indebtedness for
borrowed money secured by any mortgage, lien, pledge, charge or encumbrance
upon any property or asset of DWW or any Subsidiary; (iii) all indebtedness,
obligations or liabilities of others of the type described in the preceding
clauses (i) and (ii) which DWW or any Subsidiary has guaranteed, assumed or is
in any other way liable for; and (iv) all amendments, renewals, extensions or
refundings of any such indebtedness, obligation or liability.
"Intellectual Property" shall have the meaning assigned thereto in Section
3.16 of this Agreement.
"IRS" shall mean the Internal Revenue Service.
"Liens" shall mean all mortgages, deeds of trust, pledges, liens, leases,
security interests, security agreements, conditional sales agreements, notes,
easements, restrictions, encroachments and other charges or encumbrances of
any kind whatsoever.
"Material Adverse Effect" shall have the meaning assigned thereto in Section
3.01 of this Agreement.
"Merger" shall have the meaning assigned thereto in the preamble to this
Agreement.
"Multiemployer Plan" shall have the meaning assigned thereto in Section
3.21(g) of this Agreement.
"Option Exchange Ratio" shall have the meaning assigned thereto in Section
2.07(a) of this Agreement.
"Outstanding Options" shall have the meaning assigned thereto in Section
2.07(a) of this Agreement.
"Predecessor" shall mean (i) a predecessor entity which has been merged with
DWW or any Subsidiary of DWW, or (ii) the predecessor owner or operator of any
of the property or assets owned or operated by DWW or any Subsidiary of DWW,
where DWW or its Subsidiary is liable (whether by reason of the contractual
assumption of liabilities, indemnification obligations or by other operation
of law) for the actions or inactions of such predecessor.
"Premises" shall mean real property in which DWW or any Subsidiary at any
time has or ever had any interest, including, without limitation, ownership,
lease, rental, mortgage and security interests, or on which any of them at any
time has or ever had conducted any operations.
"Proxy Statement" shall have the meaning assigned thereto in Section 3.23 of
this Agreement.
"Qualified Plan" shall have the meaning assigned thereto in Section 3.21(e)
of this Agreement.
"Real Property" shall mean all real property owned by DWW or any Subsidiary,
including, without limitation, any property for which DWW or any Subsidiary
hold any right to acquire an ownership interest in such real property.
"Registration Statement" shall have the meaning assigned thereto in Section
3.23 of this Agreement.
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<PAGE>
"Regulated Material" means any pollutant, contaminant, hazardous substance,
hazardous material, toxic substance, toxic pollutant, solid waste, municipal
waste, industrial waste, or hazardous waste, that is defined as such and is
subject to regulation under any applicable Environmental Law.
"Release" shall mean the spilling, leaking, pumping, pouring, emitting,
discharging, injecting, escaping, leaching, dumping or disposal of any
Regulated Material into surface water, groundwater, soil, the land surface or
subsurface, or ambient air.
"Required Authorizations" shall mean, with respect to any person, (i) all
Governmental Approvals and (ii) all notices, permits, approvals, consents,
qualifications, waivers or other actions of third parties under any lease,
note, mortgage, indenture, agreement or other instrument (or, in the case of
DWW, under any Contract or Employment Agreement) or under any other third-
party franchise, license or permit, other than any such consents,
authorizations, approvals, permits, qualifications, waivers, orders,
registrations, filings, applications or other actions, the absence of which
could not have a Material Adverse Effect with respect to such person.
"Response Action" shall mean any action taken in the investigation, removal,
confinement, remediation or cleanup of a Release or any Environmental
Condition. "Response" and "Response Actions" include, without limitation, any
action with constitutes a "removal" action or "remedial" action as defined by
Section 101 of CERCLA, 42 U.S.C. (S)9601(23) and (24).
"Retained Employees" shall have the meaning assigned thereto in Section
5.16(a) of this Agreement.
"Returns" shall have the meaning assigned thereto in Section 3.09(a) of this
Agreement.
"Rights Agent" shall mean Wachovia Bank of North Carolina, N.A.
"Rights Agreement" shall mean the Rights Agreement dated as of December 31,
1992 by and between DWW and the Rights Agent.
"Rule 145" shall have the meaning assigned thereto in Section 5.13 of this
Agreement.
"Rule 145 Affiliate" shall have the meaning assigned thereto in Section 5.13
of this Agreement.
"SEC" shall have the meaning assigned thereto in Section 3.05(c) of this
Agreement.
"Securities Act" shall have the meaning assigned thereto in Section 2.05 of
this Agreement.
"Shareholders" shall have the meaning assigned thereto in the preamble to
this Agreement.
"Shareholder Agreements" shall have the meaning assigned thereto in the
preamble to this Agreement.
"Shareholders' Meeting" shall have the meaning assigned thereto in Section
3.23 of this Agreement.
"Sub" shall mean USF/DWW Acquisition Corporation, a Delaware corporation and
a wholly owned subsidiary of USF.
"Subsidiary" shall mean, with respect to any party, any corporation, other
organization, whether incorporated or unincorporated, of which (i) such party
or any other Subsidiary of such party is a general partner (excluding
partnerships, the general partnership interests of which held by such party or
any Subsidiary of such party do not have a majority of the voting interest in
such partnership) or (ii) at least a majority of the securities or other
interests having by their terms ordinary voting power to elect a majority of
the Board of Directors or others performing similar functions with respect to
such corporation or other organization is directly or indirectly owned or
controlled by such party or by any one or more of its Subsidiaries, or by such
party and one or more of its Subsidiaries.
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<PAGE>
"Superior Proposal" shall have the meaning assigned thereto in Section
5.01(a) of this Agreement.
"Tax" or, collectively, "Taxes," shall mean any and all federal, state,
local and foreign taxes, assessments and other governmental charges, duties,
impositions and liabilities including taxes based upon or measured by gross
receipts, income, profits, sales, use and occupation, and value added, ad
valorem, transfer, franchise, withholding, payroll, recapture, employment,
excise and property taxes, together with all interest, penalties and additions
imposed with respect to such amounts and any obligations under any agreements
or arrangements with any other person with respect to such amounts and
including any liability for taxes of a predecessor entity.
"USF" shall mean United States Filter Corporation, a Delaware corporation.
"USF Balance Sheet" shall have the meaning assigned thereto in Section
4.04(b) of this Agreement.
"USF Benefit Plans" shall have the meaning assigned thereto in Section 4.09
of this Agreement.
"USF Common Stock" shall have the meaning assigned thereto in Section
2.01(b) of this Agreement.
"USF Multicurrency Revolving Credit Agreement" shall mean the Amended and
Restated Multicurrency Revolving Credit Agreement dated as of November 30,
1995 among USF, certain of its Subsidiaries, and the First National Bank of
Boston, as Managing Agent, First Interstate Bank of California and ABN Amro
Bank N.V., as Co-Agents, and certain other banks and financial institutions
listed and named therein.
"USF SEC Reports" shall have the meaning assigned thereto in Section 4.04(a)
of this Agreement.
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<PAGE>
ANNEX B
Dillon, Read & Co., Inc.
535 Madison Avenue
New York, New York 10022
July 22, 1996
The Board of Directors
Davis Water & Waste Industries, Inc.
1820 Metcalf Avenue
Thomasville, GA 31799-1419
Dear Sirs:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders (the "Shareholders") of shares of common stock, par value
$0.01 per share ("Davis Common Stock"), of Davis Water & Waste Industries,
Inc. ("Davis") of the consideration to be received by the Shareholders
pursuant to the Agreement and Plan of Merger, dated as of June 10, 1996 (the
"Merger Agreement"), by and among United States Filter Corporation ("U.S.
Filter") and Davis, pursuant to which Davis will be merged with and into U. S.
Filter (the "Merger") and Davis will become a wholly owned subsidiary of U. S.
Filter.
In the event the Merger is consummated, each issued and outstanding share of
Davis Common Stock, other than shares of Davis Common Stock to be cancelled
pursuant to the Merger Agreement, shall be converted into 1.3995 (the
"Exchange Ratio") shares of U. S. Filter Common Stock, par value $0.01 ("U. S.
Filter Shares"). The terms and conditions of the Merger are more fully set
forth in the Merger Agreement.
Dillon, Read & Co. Inc. has acted as financial advisor to the Board of
Directors of Davis in connection with the Merger and will receive a fee upon
the consummation thereof. In the ordinary course of business, we have traded
securities of Davis and U. S. Filter for our own account and for the accounts
of our customers and, accordingly, may at any time hold a long or short
position in such securities.
In arriving at our opinion we have reviewed, among other things, the Merger
Agreement and certain business and financial information relating to Davis,
including certain financial projections, estimates and analyses provided to us
by Davis, and have reviewed and discussed the businesses and prospects of
Davis and its subsidiaries with representatives of Davis' management. We have
considered certain financial and stock market data of Davis and have compared
that information to similar data for other publicly held companies in
businesses considered to be generally comparable to that of Davis.
We have also reviewed certain publicly available business and financial
information relating to U. S. Filter, including certain information concerning
the estimates of the future operating and financial performance prepared by
industry experts unaffiliated with U. S. Filter, and have had discussions with
certain representatives of management of U. S. Filter. We have considered
certain financial and stock market data of U. S. Filter and have compared that
information to similar data for publicly held companies in businesses
considered to be generally comparable to that of U. S. Filter.
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<PAGE>
In arriving at our opinion, we have also considered the financial terms of
certain other mergers and acquisitions which we believe to be generally
comparable to the Merger and have considered such other information, financial
studies and analyses, and financial, economic and market criteria as we deemed
relevant and appropriate.
In connection with our review, we have not independently verified any of the
foregoing information and have relied on its being complete and accurate in
all material respects. We have not made an independent evaluation or appraisal
of any assets or liabilities (contingent or otherwise) of Davis or U. S.
Filter or any of their respective subsidiaries, nor have we been furnished
with any such evaluation or appraisal that has not been publicly disclosed.
With respect to the financial projections, estimates and analyses provided to
us by Davis, we have assumed, with your permission, that all such information
was reasonably prepared on bases reflecting the best currently available
estimates and judgments of management of Davis as to future financial
performance and was based upon the historical performance of Davis and certain
estimates and assumptions which were reasonable at the time made. Our opinion
is based on economic, monetary and market conditions existing on the date
hereof.
In rendering this opinion, we are not rendering any opinion as to the value of
U. S. Filter or making any recommendation to the Shareholders in respect of
the advisability of disposing of or retaining U. S. FIlter Shares received
pursuant to the Merger. In addition, we are not making any recommendation
regarding whether or not it is advisable for Shareholders to vote in favor of
the Merger.
Based upon and subject to the foregoing, we are of the opinion, as of the date
hereof, that the consideration to be received by the Shareholders pursuant to
the Merger Agreement is fair, from a financial point of view, to the
Shareholders.
Very truly yours,
/s/ Dillon, Read & Co. Inc.
DILLON, READ & CO. INC.
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<PAGE>
ANNEX C
SHAREHOLDER AGREEMENT
THIS SHAREHOLDER AGREEMENT, dated as of June 10, 1996, by and between UNITED
STATES FILTER CORPORATION, a Delaware corporation ("USF"), and the shareholder
listed on the signature page hereof (the "Shareholder");
WITNESSETH:
WHEREAS, the Shareholder, as of the date hereof, is the owner of the number
of shares of Common Stock, par value $.01 per share (the "Common Stock"), of
DAVIS WATER & WASTE INDUSTRIES, INC., a Georgia corporation (the "Company"),
set forth below the name of the Shareholder on the signature page hereof (the
"Shares");
WHEREAS, in reliance upon the execution and delivery of this Agreement, USF
and a wholly owned subsidiary of USF ("Sub") will enter into an Agreement and
Plan of Merger, dated as of the date hereof (the "Merger Agreement"), with the
Company which provides, among other things, that upon the terms and subject to
the conditions thereof, Sub will be merged with and into the Company, and the
Company will become a wholly owned subsidiary of USF (the "Merger"); and
WHEREAS, to induce USF to enter into the Merger Agreement and to incur the
obligations set forth therein, the Shareholder is entering into this Agreement
pursuant to which the Shareholder agrees to vote in favor of the Merger and
certain other matters as set forth herein, and to make certain agreements with
respect to the Shares upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein and for other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, the
parties hereto agree as follows:
1. Voting of Shares; Proxy. (a) The Shareholder agrees that until the
earlier of the Effective Time (as defined in the Merger Agreement) and the
date on which the Merger Agreement is terminated in accordance with Article
VII thereof (the earliest thereof being hereinafter referred to as the
"Expiration Date"), the Shareholder shall vote all Shares owned by the
Shareholder at any meeting of the Company's shareholders (whether annual or
special and whether or not an adjourned meeting), or, if applicable, take
action by written consent (i) for adoption and approval of the Merger
Agreement and in favor of the Merger and any other transaction contemplated by
the Merger Agreement as such Merger Agreement may be modified or amended from
time to time and (ii) against any action, omission or agreement which would or
could impede or interfere with, or have the effect of discouraging, the
Merger, including, without limitation, any Acquisition Transaction (as defined
in the Merger Agreement) other than the Merger. Any such vote shall be cast or
consent shall be given in accordance with such procedures relating thereto as
shall ensure that it is duly counted for purposes of determining that a quorum
is present and for purposes of recording the results of such vote or consent.
(b) At the request of USF, the Shareholder, in furtherance of the transactions
contemplated hereby and by the Merger Agreement, and in order to secure the
performance by the Shareholder of his duties under this Agreement, shall
promptly execute, in accordance with the provisions of Section 722 of the
Georgia Business Corporation Code, and deliver to USF, an irrevocable proxy,
substantially in the form of Annex A hereto, and irrevocably appoint USF or
its designees, with full power of substitution, his attorney and proxy to
vote, or, if applicable, to give consent with respect to, all of the Shares
owned by the Shareholder in respect of any of the matters set forth in, and in
accordance with the provisions of, clauses (i) and (ii) above of Section 1(a).
The Shareholder acknowledges that the proxy executed and delivered by him
shall be coupled with an interest, shall constitute, among other things, an
inducement for USF to enter into the Merger Agreement, shall be irrevocable
and shall not be terminated by operation of law upon the occurrence of any
event, including, without limitation, the death or incapacity of the
Shareholder. Notwithstanding any provision contained in such proxy, such proxy
shall terminate upon the Expiration Date.
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<PAGE>
2. Covenants of the Shareholder. The Shareholder covenants and agrees for
the benefit of USF that, until the Expiration Date, he will:
(a) not sell, transfer, pledge, hypothecate, encumber, assign, tender or
otherwise dispose of, or enter into any contract, option or other
arrangement or understanding with respect to the sale, transfer, pledge,
hypothecation, encumbrance, assignment, tender or other disposition of, any
of the Shares owned by him or any interest therein;
(b) other than as expressly contemplated by this Agreement, not grant any
powers of attorney or proxies or consents in respect of any of the Shares
owned by him, deposit any of the Shares owned by him into a voting trust,
enter into a voting agreement with respect to any of the Shares owned by
him or otherwise restrict the ability of the holder of any of the Shares
owned by him freely to exercise all voting rights with respect thereto;
(c) not, and he shall direct and use his best efforts to cause his agents
and representatives not to, initiate, solicit or encourage, directly or
indirectly, any inquiries or the making or implementation of any
Acquisition Proposal or engage in any negotiations concerning, or provide
any confidential information or data to, or have any discussions with, any
person relating to an Acquisition Proposal, or otherwise facilitate any
effort or attempt to make or implement an Acquisition Proposal. The
Shareholder shall immediately cease and cause to be terminated any existing
activities, including discussions or negotiations with any parties,
conducted heretofore with respect to any of the foregoing and will take the
necessary steps to inform his agents and representatives of the obligations
undertaken in this Section 2(c). The Shareholder shall notify USF
immediately if any such inquiries or proposals are received by, any such
information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with, him;
(d) not take any action whatsoever that, based on advice from USF's or
the Company's independent auditors, would or could prevent the Merger from
qualifying for "pooling of interests" accounting treatment; and
(e) use his best efforts to take, or cause to be taken, all action, and
do, or cause to be done, all things necessary or advisable in order to
consummate and make effective the transactions contemplated by this
Agreement and the Merger Agreement, including, without limitation, to enter
into an affiliate's letter agreement substantially in the form of Appendix
B to the Merger Agreement.
3. Covenants of USF. USF covenants and agrees for the benefit of the
Shareholder that (a) immediately upon execution of this Agreement, USF shall
enter into the Merger Agreement, and (b) until the Expiration Date, it shall
use all reasonable efforts to take, or cause to be taken, all action, and do,
or cause to be done, all things necessary or advisable in order to consummate
and make effective the transactions contemplated by this Agreement and the
Merger Agreement, consistent with the terms and conditions of each such
agreement; provided, however, that nothing in this Section 3 or any other
provision of this Agreement is intended, nor shall it be construed, to limit
or in any way restrict USF's right or ability to exercise any of its rights
under the Merger Agreement.
4. Representations and Warranties of the Shareholder. The Shareholder
represents and warrants to USF that: (a) the execution, delivery and
performance by the Shareholder of this Agreement will not conflict with,
require a consent, waiver or approval under, or result in a breach of or
default under, any of the terms of any contract, commitment or other
obligation (written or oral) to which the Shareholder is bound; (b) this
Agreement has been duly executed and delivered by the Shareholder and
constitutes a legal, valid and binding obligation of the Shareholder,
enforceable against the Shareholder in accordance with its terms; (c) the
Shareholder is the sole owner of the Shares and the Shares represent all
shares of Common Stock owned by the Shareholder at the date hereof, and the
Shareholder does not have any right to acquire, nor is he the "beneficial
owner" (as such term is defined in Rule 13d-3 under the Securities Exchange
Act of 1934, as amended) of, any other shares of any class of capital stock of
the Company or any securities convertible into or exchangeable or exercisable
for any shares of any class of capital stock of the Company (other than shares
subject to options granted by the Company); (d) the Shareholder has full
right, power and authority to execute and deliver this Agreement and to
perform his
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<PAGE>
obligations hereunder, subject only to any interest which the spouse of the
Shareholder may have in the Shares owned by the Shareholder, such spouse
having executed a Shareholder Agreement in his or her own right; and (e) the
Shareholder owns the Shares free and clear of all liens, claims, pledges,
charges, proxies, restrictions, encumbrances, voting trusts and voting
agreements of any nature whatsoever other than as provided by this Agreement.
The representations and warranties contained herein shall be made as of the
date hereof and as of each day from the date hereof through and including the
Effective Time (as defined in the Merger Agreement).
5. Adjustments; Additional Shares. In the event (a) of any stock dividend,
stock split, merger (other than the Merger), recapitalization,
reclassification, combination, exchange of shares or the like of the capital
stock of the Company on, of or affecting the Shares or (b) that the
Shareholder shall become the beneficial owner of any additional shares of
Common Stock or other securities entitling the holder thereof to vote or give
consent with respect to the matters set forth in Section 1, then the terms of
this Agreement shall apply to the shares of capital stock or other instruments
or documents held by the Shareholder immediately following the effectiveness
of the events described in clause (a) or the Shareholder becoming the
beneficial owner thereof as described in clause (b), as though, in either
case, they were Shares hereunder.
6. Legend. Concurrently with the execution of this Agreement, the
Shareholder is surrendering to the Company the certificates representing the
Shares, and is hereby requesting that the following legend be placed on the
certificates representing such Shares and shall request that such legend
remain thereon until the Expiration Date:
"The shares of capital stock represented by this certificate are subject to
a Shareholder Agreement, dated as of June 10, 1996, between and
United States Filter Corporation, which, among other things, restricts the
sale or transfer of such shares except in accordance therewith and contains
certain voting restrictions to which such shares are subject."
In the event that the Shareholder shall become the beneficial owner of any
additional shares of Common Stock or other securities entitling the holder
thereof to vote or give consent with respect to the matters set forth in
Section 1, the Shareholder shall, upon acquiring such beneficial ownership,
surrender to the Company the certificates representing such shares or
securities and request that the foregoing legend be placed on such
certificates and remain thereon until the Expiration Date. In the event that
USF requests that an irrevocable proxy be executed and delivered by the
Shareholder to it pursuant to Section 1, the Shareholder shall promptly
surrender to the Company the certificates representing the Shares covered by
such proxy and cause the foregoing legend to be revised to replace at the end
of such legend the words "and contains certain voting restrictions to which
such shares are subject" with the following:
", and such shares are also subject to an irrevocable proxy provided under
Section 722 of the Georgia Business Corporation Code"
The Shareholder shall provide USF with satisfactory evidence of his compliance
with this Section 6 on or prior to the date five business days after the
execution hereof or of the request relating to the Shareholder's proxy, as the
case may be.
7. Director's Fiduciary Duties. Notwithstanding anything to the contrary
contained herein, no provision hereof shall affect in any way the performance
of the Shareholder's duties, including fiduciary duties, as a director of the
Company.
8. Specific Performance. The Shareholder acknowledges that the agreements
contained in this Agreement are an integral part of the transactions
contemplated by the Merger Agreement, and that, without these agreements, USF
would not enter into the Merger Agreement, and acknowledges that damages would
be an inadequate remedy for any breach by him of the provisions of this
Agreement. Accordingly, the Shareholder and USF each agree that the
obligations of the parties hereunder shall be specifically enforceable and
neither party shall take any action to impede the other from seeking to
enforce such right of specific performance.
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<PAGE>
9. Notices. All notices, requests, claims, demands and other communications
hereunder shall be effective upon receipt (or refusal of receipt), shall be in
writing and shall be delivered in person, by telecopy or telefacsimile, by
telegram, by next-day courier service, or by mail (registered or certified
mail, postage prepaid, return receipt requested) to the Shareholder at the
address listed on the signature page hereof, and to USF at
40-004 Cook Street, Palm Desert, California 92211, Attention: Damian C.
Georgino, Vice President, General Counsel and Secretary, telecopy number (619)
341-9368, or to such other address or telecopy number as any party may have
furnished to the other in writing in accordance herewith.
10. Binding Effect; Survival. Upon execution and delivery of this Agreement
by USF, this Agreement shall become effective as to the Shareholder at the
time the Shareholder executes and delivers this Agreement. This Agreement
shall inure to the benefit of and be binding upon the parties hereto and their
respective heirs, personal representatives, successors and assigns.
11. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia applicable to agreements made
and to be performed entirely within such State.
12. Counterparts. This Agreement may be executed in two counterparts, both
of which shall be an original and both of which together shall constitute one
and the same agreement.
13. Effect of Headings. The section headings herein are for convenience of
reference only and shall not affect the construction hereof.
14. Additional Agreements; Further Assurance. Subject to the terms and
conditions herein provided, each of the parties hereto agrees to use all
reasonable efforts to take, or cause to be taken, all action and to do, or
cause to be done, all things necessary, proper or advisable to consummate and
make effective the transactions contemplated by this Agreement. The
Shareholder will provide USF with all documents which may reasonably be
requested by USF and will take reasonable steps to enable USF to obtain all
rights and benefits provided it hereunder.
15. Amendment; Waiver. No amendment or waiver of any provision of this
Agreement or consent to departure therefrom shall be effective unless in
writing and signed by USF and the Shareholder, in the case of an amendment, or
by the party which is the beneficiary of any such provision, in the case of a
waiver or a consent to depart therefrom.
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto all as of the day and year first above written.
UNITED STATES FILTER CORPORATION
By: _________________________________
Name:
Title:
SHAREHOLDER
Name: _______________________________
Address:
_____________________________________
_____________________________________
Number of Shares:
_____________________________________
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<PAGE>
Annex A
[FORM OF PROXY]
IRREVOCABLE PROXY
In order to secure the performance of the duties of the undersigned pursuant
to the Shareholder Agreement, dated as of June 10, 1996 (the "Shareholder
Agreement"), between the undersigned and United States Filter Corporation, a
Delaware corporation, a copy of such agreement being attached hereto and
incorporated by reference herein, the undersigned hereby irrevocably appoints
Richard J. Heckmann, Damian C. Georgino and Kevin L. Spence, and each of them,
the attorneys, agents and proxies, with full power of substitution in each of
them, for the undersigned and in the name, place and stead of the undersigned,
in respect of any of the matters set forth in clauses (i) and (ii) of Section
1(a) of the Shareholder Agreement, to vote or, if applicable, to give written
consent, in accordance with the provisions of said Section 1(a) and otherwise
act (consistent with the terms of the Shareholder Agreement) with respect to
all shares of Common Stock, par value $.01 per share (the "Shares"), of Davis
Water & Waste Industries, Inc., a Georgia corporation (the "Company"), whether
now owned or hereafter acquired, which the undersigned is or may be entitled
to vote at any meeting of the Company held after the date hereof, whether
annual or special and whether or not an adjourned meeting, or, if applicable,
to give written consent with respect thereto. This Proxy is coupled with an
interest, shall be irrevocable and binding on any successor in interest of the
undersigned and shall not be terminated by operation of law upon the
occurrence of any event, including, without limitation, the death or
incapacity of the undersigned. This Proxy shall operate to revoke any prior
proxy as to the Shares heretofore granted by the undersigned. This Proxy shall
terminate on July 10, 1997. This Proxy has been executed in accordance with
Section 722 of the Georgia Business Corporation Code.
Dated: ___________________________________
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