SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. __)
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
Environment One Corporation
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: Set forth the amount on which
the filing fee is calculated and state how it was determined.
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ X ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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[Logo]
May 22, 1998
ENVIRONMENT ONE CORPORATION
To Our Shareholders:
You are cordially invited to attend a Special Meeting of Shareholders of
Environment One Corporation (the "Company") to be held on June 11, 1998 at the
offices of Stoel Rives LLP, 900 SW Fifth Avenue, 26th Floor, Portland, Oregon at
9:00 A.M., local time (the "Special Meeting").
At the Special Meeting, you will be asked to approve an Agreement and Plan
of Merger, dated as of February 24, 1998 (the "Merger Agreement"), by and among
the Company, Precision Castparts Corp., an Oregon corporation ("PCC"), and EOC
Acquisition Corporation, a New York corporation and a wholly owned direct
subsidiary of PCC ("EOC"), pursuant to which EOC will be merged with and into
the Company (the "Merger"), with the Company surviving the Merger. Details of
the proposed Merger and other important information are contained in the
accompanying Proxy Statement.
The Merger is the second and final step in the acquisition of the Company
by PCC pursuant to the terms of the Merger Agreement. The first step provided
for in the Merger Agreement was a tender offer by EOC (the "Offer") for all the
outstanding shares of common stock of the Company (the "Shares"). Promptly after
expiration of the Offer on March 30, 1998, EOC purchased 3,714,046 Shares for
$15.25 in cash per Share.
In the Merger, the Company's remaining shareholders (other than EOC, PCC
and the Company) will receive the same consideration paid in the tender offer,
$15.25 in cash for each Share owned, and thereafter they will have no further
equity interest in the Company.
Your Board of Directors, after careful consideration, has unanimously
approved the Merger Agreement and determined that the Offer and the Merger are
fair and in the best interests of the Company and its shareholders. In addition,
in connection with its approval of the transaction with PCC, the Board of
Directors of the Company received a written opinion dated February 23, 1998 from
Miller, Johnson & Kuehn, Inc. to the effect that, as of the date of such opinion
and subject to certain matters stated therein, the $15.25 per Share price to be
received by the holders of Shares (other than PCC, EOC and the Company) in the
Offer and the Merger was fair to such holders from a financial point of view.
The full text of the written opinion dated February 23, 1998 of Miller, Johnson
& Kuehn, Inc., which sets forth the assumptions made, matters considered and
limitations on the review undertaken, is attached as Annex A to the enclosed
Proxy Statement and should be read carefully in its entirety. Your Board of
Directors recommends that you vote FOR the approval and adoption of the Merger
Agreement.
Approval of the proposed Merger requires the affirmative vote of the
holders of 66 2/3% of the outstanding Shares. As a result of the completion of
the Offer, EOC beneficially owns and has the right to vote at the Special
Meeting sufficient Shares to cause the Merger Agreement to be approved without
the affirmative vote of any other shareholder. While this means that approval of
the proposal by the requisite vote of shareholders is assured, management
believes
ENVIRONMENT ONE CORPORATION
2773 BALLTOWN ROAD - SCHENECTADY, NEW YORK 12309-1090
TELEPHONE 518-346-6161 - FAX 518-346-6188 - www.eone.com
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that it is important that your Shares in the Company be represented at the
Special Meeting, regardless of the number of Shares you hold.
We urge you to read the enclosed material carefully and request that you
sign, date and return the enclosed proxy form in the enclosed envelope as soon
as possible. You may, of course, attend the Special Meeting and vote in person,
even if you have previously returned your proxy card.
Sincerely,
Stephen V. Ardia
Chairman of the Board,
President and CEO
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ENVIRONMENT ONE CORPORATION
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 11, 1998
To the Shareholders of Environment One Corporation:
At the direction of the Board of Directors, notice is hereby given that a
Special Meeting (the "Special Meeting") of Shareholders of Environment One
Corporation, a New York corporation, will be held on June 11, 1998 at the
offices of Stoel Rives LLP, 900 SW Fifth Avenue, 26th Floor, Portland, Oregon at
9:00 A.M., local time, for the following purposes:
1. To consider and vote upon a proposal to approve an Agreement and Plan of
Merger, dated as of February 24, 1998 (the "Merger Agreement"), by and
among the Company, Precision Castparts Corp. ("PCC"), and EOC Acquisition
Corporation ("EOC"), pursuant to which: (a) EOC will be merged with and
into the Company (the "Merger"), with the Company as the surviving
corporation, and all of the common stock of the Company, par value $.10 per
share (the "Common Stock"), will be owned by PCC; and (b) each share of
Common Stock (a "Share"), other than Shares held by EOC, PCC or the
Company, will be converted into the right to receive $15.25 in cash,
without interest; and
2. To transact such other business as may properly come before the Special
Meeting and any adjournments thereof.
The Company's Board of Directors has fixed the close of business on May 13,
1998 as the record date for the determination of shareholders entitled to notice
of and to vote at the Special Meeting. Only shareholders of the Company of
record at such time will be entitled to notice of and to vote at the Special
Meeting and any adjournments thereof.
There is enclosed, as a part of this Notice, a Proxy Statement, and the
annexes thereto, which contains further information regarding the Special
Meeting, the Merger and other related matters. To ensure that your vote will be
counted, please complete, date and sign the enclosed proxy form and return it
promptly in the enclosed postage-paid envelope, whether or not you plan to
attend the Special Meeting. Executed proxies with no instructions indicated
thereon will be voted for approval and adoption of the Merger Agreement and the
Merger. You may revoke your
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proxy in the manner described in the accompanying Proxy Statement at any time
before it is voted at the Special Meeting.
Edward J. Grogan
Corporate Secretary
May 22, 1998
Niskayuna, New York
YOUR VOTE IS IMPORTANT
PLEASE COMPLETE AND SIGN THE ACCOMPANYING FORM OF PROXY AND
RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE WHETHER OR NOT
YOU INTEND TO BE PRESENT AT THE SPECIAL MEETING. NO POSTAGE
IS REQUIRED IF MAILED IN THE UNITED STATES. RETURNING YOUR
PROXY DOES NOT AFFECT YOUR RIGHT TO CHANGE YOUR VOTE OR VOTE
IN PERSON IN THE EVENT YOU ATTEND THE SPECIAL MEETING.
PLEASE DO NOT SEND IN YOUR COMMON STOCK CERTIFICATES AT THIS
TIME.
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ENVIRONMENT ONE CORPORATION
2773 Balltown Road
Niskayuna, New York 12309-1090
PROXY STATEMENT
FOR A SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 11, 1998
This Proxy Statement is being furnished in connection with the solicitation
of proxies by the Board of Directors of Environment One Corporation, a New York
corporation (the "Company"), to be used at a Special Meeting of Shareholders to
be held at the offices of Stoel Rives LLP, 900 SW Fifth Avenue, 26th Floor,
Portland, Oregon at 9:00 A.M., local time, and any adjournments or postponements
thereof. The mailing address of the principal executive offices of the Company
is 2773 Balltown Road, Niskayuna, New York 12309-1090. This Proxy Statement and
the Proxy Form and Notice of Special Meeting, all enclosed herewith, are first
being mailed to the shareholders of the Company on or about May 22, 1998.
The purpose of the Special Meeting is to consider and act upon a proposal
recommended by the Board of Directors of the Company to approve and adopt the
Agreement and Plan of Merger, dated as of February 24, 1998 (the "Merger
Agreement"), by and among the Company, Precision Castparts Corp., an Oregon
corporation ("PCC"), and EOC Acquisition Corporation, a New York corporation and
a wholly owned direct subsidiary of PCC ("EOC"), pursuant to which EOC will be
merged with and into the Company (the "Merger"), with the Company as the
surviving corporation.
EOC was formed at the direction of PCC for the purpose of entering into the
Merger Agreement and effecting the transactions contemplated thereby. For
further information regarding PCC and EOC, see "Information Concerning EOC and
PCC."
Pursuant to the Merger Agreement, as the first step in the acquisition of
the Company by PCC and EOC, on March 3, 1998, EOC commenced a cash tender offer
(the "Offer") for all of the outstanding shares of common stock of the Company,
par value $.10 per share (the "Shares"), at $15.25 per Share in cash. After
expiration of the Offer on March 30, 1998, EOC purchased 3,714,046 Shares, which
is approximately 86.5% of the outstanding Shares. The Merger is the second and
final step in the acquisition by PCC and EOC of all of the outstanding Shares.
In the Merger each outstanding Share, other than Shares held by EOC, PCC or the
Company, will be converted into the right to receive $15.25 in cash, without
interest, and the holders of such Shares will thereafter have no remaining
equity interest in the Company.
As a result of the purchase of Shares pursuant to the Offer, EOC has the
right to vote sufficient Shares to cause the Merger Agreement to be approved and
adopted without the affirmative vote of any other shareholder.
Only holders of record of Shares at the close of business on May 13, 1998
(the "Record Date") are entitled to notice of, and to vote at, the Special
Meeting. The Shares represent the only
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outstanding voting securities of the Company, and each Share represents the
right to cast one vote. As of the Record Date, there were 4,295,827 Shares
outstanding held by approximately 915 holders of record.
Each shareholder is requested to sign and return the enclosed proxy card in
order to ensure that his or her Shares are voted. Proxies in the form enclosed,
unless previously revoked, will be voted at the Special Meeting. A shareholder
giving a proxy may revoke it at any time before it is voted at the Special
Meeting by sending in a proxy bearing a later date, by delivering a written
notice of revocation or by attending the Special Meeting in person and casting a
ballot or delivering notice of revocation of the proxy. If a choice or
instruction is specified by the shareholder on a signed and returned proxy card,
the proxy will be voted in accordance with such specification. If no choice or
instruction is specified by such shareholder on a signed and returned proxy
card, the proxy will be voted as recommended by the Board of Directors. THE
BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT.
Under the Company's Bylaws, 66 2/3 percent of the outstanding Shares
entitled to vote represented in person or by proxy is required for a quorum at
the Special Meeting. Section 903 of the New York Business Corporation Law
("NYBCL") requires the affirmative vote of 66 2/3% of the outstanding Shares
entitled to vote hereon, or 2,863,884 Shares based on the number of Shares
outstanding on the Record Date, for approval of the Merger Agreement. EOC
beneficially owns and has the right to vote 3,714,046 Shares, or approximately
86.5% of the outstanding Shares, and therefore can, and intends to, cause the
Merger Agreement to be approved and adopted without the affirmative vote of any
other shareholder.
After the initial mailing of this Proxy Statement, proxies may be solicited
by telephone, telegram or personally by directors, officers and other employees
of the Company (who will not receive any additional compensation therefor). All
expenses with respect to the solicitation of proxies, including printing and
postage costs, will be paid by the Company.
All information contained in this Proxy Statement concerning PCC and EOC
has been supplied by PCC and EOC. With the exception of the aforementioned
information, all information contained in this Proxy Statement has been supplied
by the Company.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT, AND IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. THIS PROXY STATEMENT DOES NOT CONSTITUTE THE
SOLICITATION OF A PROXY IN ANY JURISDICTION FROM ANY PERSON TO WHOM IT
IS UNLAWFUL TO MAKE SUCH PROXY SOLICITATION IN SUCH JURISDICTION. THE
DELIVERY OF THIS PROXY STATEMENT SHALL NOT, UNDER ANY CIRCUMSTANCES,
IMPLY THAT THERE HAS
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NOT BEEN ANY CHANGE IN THE INFORMATION SET FORTH HEREIN SINCE THE DATE
OF THIS PROXY STATEMENT.
THE DATE OF THIS PROXY STATEMENT IS MAY 22, 1998.
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TABLE OF CONTENTS
INTRODUCTION...................................................................1
GENERAL .................................................................1
VOTING AT THE SPECIAL MEETING.............................................2
THE MERGER.....................................................................3
BACKGROUND OF THE MERGER..................................................3
RECOMMENDATION OF THE BOARD OF DIRECTORS..................................5
OPINION OF MILLER, JOHNSON & KUEHN, INC...................................6
INTERESTS OF CERTAIN PERSONS IN THE MERGER................................8
PAYMENT OF MERGER CONSIDERATION FOR THE SHARES...........................10
PURPOSE OF THE OFFER AND THE MERGER......................................10
ACCOUNTING TREATMENT OF THE MERGER.......................................11
CERTAIN LEGAL MATTERS; REGULATORY APPROVALS..............................11
THE MERGER AGREEMENT.....................................................12
CERTAIN FEDERAL INCOME TAX CONSEQUENCES..................................15
INFORMATION CONCERNING THE COMPANY............................................16
INFORMATION CONCERNING EOC AND PCC ...........................................17
PRICE RANGE OF THE SHARES; DIVIDENDS..........................................18
OWNERSHIP OF SHARES BY DIRECTORS, OFFICERS AND FIVE PERCENT
SHAREHOLDERS..................................................................18
INDEPENDENT PUBLIC ACCOUNTANTS................................................20
SHAREHOLDER PROPOSALS FOR ANNUAL MEETING......................................21
PROXY SOLICITATION; REVOCATION OF PROXIES.....................................21
OTHER MATTERS.................................................................22
ANNEXES
Annex A--Opinion of Miller, Johnson & Kuehn, Inc.
Annex B--Form 10-KSB for the Fiscal Year Ended December 31, 1997 and Form 10-QSB
for the Quarterly Period Ended March 31, 1998
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INTRODUCTION
GENERAL
This Proxy Statement is being furnished to shareholders of Environment One
Corporation, a New York corporation (the "Company"), in connection with the
solicitation of proxies by the Board of Directors of the Company (the "Board of
Directors" or the "Board") from holders of the outstanding shares of the common
stock of the Company, par value $.10 per share (the "Shares"), for use at the
special meeting of shareholders to be held on June 11 at 9:00 A.M., local time,
at the offices of Stoel Rives LLP, 900 SW Fifth Avenue, 26th Floor, Portland,
Oregon, and at any adjournments or postponements thereof (the "Special
Meeting").
At the Special Meeting, shareholders will be asked to approve and adopt the
Agreement and Plan of Merger, dated as of February 24, 1998 (the "Merger
Agreement"), by and among the Company, Precision Castparts Corp., an Oregon
corporation ("PCC"), and EOC Acquisition Corporation, a New York corporation and
a wholly owned direct subsidiary of PCC ("EOC"). The Merger Agreement provides
for the merger (the "Merger") of EOC with and into the Company, with the Company
to be the surviving corporation (the "Surviving Corporation") in the Merger. As
a result of the Merger, the Company will become a wholly owned direct subsidiary
of PCC.
On February 24, 1998, the Company entered into the Merger Agreement with
PCC and EOC. On March 3, 1998, EOC commenced a cash tender offer for all
outstanding Shares pursuant to an Offer to Purchase (which, together with the
related letters of transmittal, constituted the "Offer"), at a price per Share
of $15.25 in cash. In accordance with the terms of the Merger Agreement, EOC
accepted for payment pursuant to the Offer 3,714,046 Shares, consisting of all
Shares validly tendered and not withdrawn as of such date, at $15.25 in cash per
Share. The Merger is intended to follow the purchase of Shares pursuant to the
Offer as the second and final step in the acquisition of the Company pursuant to
the Merger Agreement.
Under the Company's Bylaws, 66 2/3% of the outstanding Shares entitled to
vote, represented in person or by proxy, is required for a quorum at the Special
Meeting. Section 903 of the New York Business Corporation Law ("NYBCL") requires
the affirmative vote of at least 66 2/3% of the outstanding Shares as of the
Record Date (as defined below), or approximately 2,863,884 Shares, for approval
of the Merger Agreement. As a result of the purchase of Shares pursuant to the
Offer, EOC owns 3,714,046 Shares constituting approximately 86.5% of the issued
and outstanding Shares. EOC beneficially owns and has the right to vote
3,714,046 Shares, or approximately 86.5% of the outstanding Shares, and
therefore can cause the Merger Agreement to be approved and adopted without the
affirmative vote of any other shareholder.
Pursuant to the terms of the Merger Agreement, after the approval and
adoption of the Merger Agreement by the shareholders of the Company, the
satisfaction or waiver of the other conditions to the Merger and the filing of a
Certificate of Merger or Consolidation with the Secretary of State of the State
of New York in accordance with Sections 901 and 904 of the
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NYBCL (the date and time of such filing is hereinafter referred to as the
"Effective Time"), each Share issued and outstanding immediately prior to the
Effective Time (other than Shares held in the treasury of the Company or owned
by PCC or EOC (which will be canceled and retired without any conversion thereof
and without any payment with respect thereto)) will be canceled, extinguished
and converted into the right to receive $15.25 per Share in cash, without
interest thereon. At the Effective Time, the stock transfer books of the Company
shall be closed and no transfer of Shares shall thereafter be made.
VOTING AT THE SPECIAL MEETING
The Board of Directors has fixed the close of business on May 13, 1998 as
the record date (the "Record Date") for the determination of shareholders
entitled to notice of and to vote at the Special Meeting. At the close of
business on May 13, 1998, there were 4,295,827 Shares issued and outstanding,
each of which is entitled to one vote at the Special Meeting, held by
approximately 915 holders of record.
Shares represented by a properly signed, dated and returned proxy will be
treated as present at the meeting for purposes of determining a quorum, without
regard to whether the proxy is marked as casting a vote or abstaining. Proxies
relating to "street name" Shares that are voted by brokers will be counted as
Shares present for purposes of determining the presence of a quorum, but will
not be treated as Shares having voted at the Special Meeting as to the Merger
proposal if authority to vote is withheld by the broker. As indicated above,
Section 903 of NYBCL requires the affirmative vote of at least 66 2/3% of the
outstanding Shares for approval of the Merger Agreement. Accordingly,
abstentions and broker non-votes will have the same effect as votes against the
approval of the Merger Agreement.
In order to vote on the approval of the Merger Agreement at the Special
Meeting, shareholders may attend the Special Meeting or promptly sign, date and
return the enclosed proxy form in the enclosed envelope.
INSTRUCTIONS WITH REGARD TO THE SURRENDER OF SHARE CERTIFICATES TO THE
PAYING AGENT, TOGETHER WITH A LETTER OF TRANSMITTAL TO BE USED FOR THIS PURPOSE,
WILL BE FORWARDED TO THE COMPANY'S SHAREHOLDERS AS PROMPTLY AS PRACTICABLE
FOLLOWING THE EFFECTIVE TIME. SHAREHOLDERS SHOULD SURRENDER SHARE CERTIFICATES
ONLY AFTER RECEIVING A LETTER OF TRANSMITTAL. SHAREHOLDERS SHOULD NOT SEND ANY
STOCK CERTIFICATES AT THIS TIME.
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THE MERGER
BACKGROUND OF THE MERGER
In late 1997, in view of increasing consolidation in the Company's market
sectors, the emergence of competitors with greater financial resources, combined
marketing and distribution networks and additional products and services, and
the recent growth in the Company's revenues and earnings, the Board of Directors
began considering several alternatives for the Company's future. These
alternatives included (i) staying on its current course and executing the
strategic plan that was in place, (ii) identifying acquisition targets and
implementing an acquisition-oriented growth strategy, and (iii) identifying
potential strategic partners which would merge with or acquire the Company.
In keeping with that approach, in September 1997 the Company engaged The
Nassau Group, Inc. ("Nassau"), an investment banking firm that specializes in
the water and wastewater industry, to assist in its consideration of these
alternatives. In September 1997, Nassau made a presentation to the Board
concerning the valuations of publicly traded enterprises in the pump and valve
industry as well as the more general environmental water and wastewater
treatment industry. Nassau also addressed a variety of strategic options
available to the Company, including the possibility of growth through
acquisitions as well as exit options, such as a sale to domestic or foreign
acquirers. At the same time, the management team made a preliminary
recommendation to the Board that given the dynamic changes occurring among its
own competitors and peers, the Company might best be able to exploit the
opportunities it faced by merging with a strategic player in the industry. The
player would most likely be larger and would also allow the Company to execute
its own niche-oriented strategic plan and provide a challenging and rewarding
growth environment for the Company's employees.
While the Board continued to have confidence in the Company's business
prospects as an independent entity, it determined that the stock market
environment and changes in the competitive landscape made it appropriate to
examine the viability of a merger or sale of the Company at this juncture.
Although the Board did not determine to sell the Company at that point, it
authorized management to have Nassau determine the level of interest among a
defined group of well-financed, potential strategic acquirers.
In October 1997, Nassau prepared a confidential package of descriptive
material on the Company with the cooperation of the Company's senior management
in order to be able to solicit expressions of interest and to respond to
unsolicited inquiries. Between October 1997 and January 1998, Nassau held
discussions with approximately 20 parties, domestic and foreign, with a
strategic interest in the Company. These discussions, conducted under the terms
of confidentiality agreements between the Company and the potential acquirers,
involved the parties' assessment of the Company's business, as well as terms of
potential indications of interest.
In December 1997, Nassau reported to the Board that there were fewer than
five parties which had expressed interest in pursuing an acquisition of the
Company at terms which the Board
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would find attractive. After consideration of the levels of interest indicated
by these parties, the Board instructed Nassau and senior management to move
forward and negotiate with one of the prospects, PCC, the best possible
transaction, although Nassau continued discussions with the other parties which
had expressed interest while negotiations with PCC proceeded.
On December 10, 1997, PCC submitted a preliminary indication of interest.
PCC was invited to attend a management presentation on December 22, 1997, which
it did. PCC subsequently submitted a draft letter of intent to acquire the
Company, which included a proposal that the purchase price be paid in a
combination of $12.50 per Share cash at closing and a contingent payment right
of up to an additional $3.00 per Share in 1999 if the Company achieved certain
revenue and earnings objectives in 1998.
The Company's Board of Directors met in January 1998, and approved the
offer on a preliminary basis, subject to certain clarifications. The Company's
legal and financial advisors contacted PCC to clarify and negotiate certain
details of the contingent payment and other terms and conditions contained in
the letter of intent. On January 21, 1998, the Company and PCC, with the support
of their respective Boards of Directors, executed an exclusive, non-binding
letter of intent and PCC began its due diligence immediately.
After execution and delivery of the letter of intent, PCC entered into a
formal due diligence period during which it received access to the Company's
records and documents and received additional management presentations. After
several weeks of negotiations and due diligence, the Company informed PCC that
it preferred an all-cash transaction, and would be willing to accept a price of
$15.25 per Share in cash at closing. On February 16, 1998, PCC informed the
Company that its Board of Directors had approved the revised terms of the
transaction.
On February 23, 1998, Miller, Johnson and Kuehn, Inc. ("MJK") presented a
written opinion to the Company's Board that the proposed transaction was fair to
the Company's shareholders from a financial point of view. On that same day, the
Board of Directors held a meeting to discuss the proposed Offer and Merger, the
Merger Agreement, and related matters. After hearing presentations by the
Company's legal and financial advisors, the Board of Directors considered and
discussed the proposed transaction. The Board of Directors then proceeded to
unanimously approve the Offer, the Merger and the Merger Agreement. The Company
executed the Merger Agreement after the close of business on February 24, 1998.
On February 25, 1998, the Company issued a press release announcing the
execution and delivery of the Merger Agreement.
On March 3, 1998, EOC commenced the Offer. The Offer expired on March 30,
1998, and EOC purchased 3,714,046 Shares thereunder for an aggregate
consideration of approximately $56,639,201.
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EOC obtained all funds needed for the Offer from PCC, which made an
unsecured advance to EOC prior to the consummation of the Offer. PCC obtained
the funds needed for the Offer from its general corporate funds and from
borrowings under its existing credit facility.
PCC's existing facility is a credit agreement with a syndicate of 11 banks,
for which Bank of America, N.A. is the agent. The credit agreement contains
various standard financial covenants, including maintenance of minimum net
worth, fixed charge coverage ratio and leverage ratio. The credit agreement
includes a $250 million revolving facility, pursuant to which outstanding
amounts bear interest at interest rates of (a) an offshore rate equal to the
effective LIBOR, plus an applicable margin of 0.30 percent to 0.875 percent
based on the consolidated leverage ratio, (b) an overnight base rate equal to
the higher of the federal funds rate or the prime rate of the agent bank plus
0.50 percent, or (c) a rate negotiable between each bank and PCC. PCC intends to
repay amounts due under the revolving credit facility out of funds generated
from operations or by refinancing the facility at maturity. The revolving credit
line matures in July 2001.
RECOMMENDATION OF THE BOARD OF DIRECTORS
On February 24, 1998, the Board of Directors of the Company approved the
Offer, the Merger Agreement and the Merger by unanimous vote and, subject to the
fiduciary duties of the Board, resolved to recommend that shareholders vote FOR
approval of the Merger Agreement. The Board determined that the Offer and the
Merger were fair to and in the best interests of the shareholders of the
Company.
In reaching its conclusions, the Board of Directors considered a number of
factors, including the following:
(a) The advantages in a competitive environment of strategically aligning
with a large, well-capitalized company such as PCC.
(b) The projected financial condition, results of operations, prospects
and strategic objectives of the Company, as well as the risks involved
in achieving those prospects and objectives taking into account
economic and market conditions.
(c) The belief of the Board that, in view of the number of parties
canvased by management and Nassau and the number of parties who
received information with respect to the Company, it was unlikely that
any otherwise desirable party potentially interested in submitting a
proposal to acquire the Company had not been afforded the opportunity
to do so.
(d) The likelihood that the Merger would be consummated, including a
consideration of the conditions to the Offer and the fact that the
Offer and the Merger are not subject to a financing contingency.
(e) The financial and other terms and conditions of the Merger Agreement.
(f) The written opinion delivered to the Board by MJK stating that the
cash consideration to be received by stockholders pursuant to the
Offer and the Merger is fair to such holders from a financial point of
view. A copy of the written
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opinion, which sets forth the assumptions made, procedures followed,
and other matters considered and limits of the review by MJK, is
attached hereto as Annex A. STOCKHOLDERS ARE URGED TO READ SUCH
OPINION IN ITS ENTIRETY.
(g) The fact that the consideration to be received by the stockholders
pursuant to the Offer represented a premium over the then current
prevailing market price for the Company's common stock.
(h) The fact that the structure of the acquisition of the Company by PCC
involved a cash tender offer for all shares to be commenced within
five business days of the public announcement of the acquisition, to
be followed promptly by a merger for the same consideration, thereby
enabling stockholders to obtain cash for their shares at the earliest
possible time.
(i) The fact that, if required by the fiduciary duties of the Board under
New York law, the Company could approve or recommend a tender offer
competing with the PCC offer or terminate the Merger Agreement and
enter into a definitive acquisition agreement with another party for a
transaction financially superior, subject to payment of the applicable
termination fee specified in the Merger Agreement.
(j) The fact that PCC had completed its due diligence investigation and
that the Merger Agreement is not subject to termination as a result of
such due diligence.
(k) The presentations of Nassau to the Board as to various financial and
other matters deemed relevant to the Board's consideration, including
general industry trends, consolidation in the Company's industry
sector, other comparable transactions and the consideration paid by
the acquirers in those transactions, and the condition of the stock
market in general.
The foregoing discussion of the information and factors considered and
given weight by the Board is not intended to be exhaustive. In view of the
variety of factors considered in connection with its evaluation of the Offer and
the Merger, the Board did not find it practicable to, and did not, quantify or
otherwise assign relative weights to the specific factors considered in reaching
its determination. In addition, individual members of the Board may have given
different weights to different factors.
OPINION OF MILLER, JOHNSON & KUEHN, INC.
In connection with the Offer and the Merger, the Company requested that MJK
evaluate the fairness, from a financial point of view, to the holders of Shares
(other than PCC and EOC) of the consideration to be received by such holders in
the Offer and the Merger. On February 23, 1998, MJK delivered a written opinion
to the Board of Directors of the Company to the effect that, as of the date of
such opinion and based upon and subject to certain matters stated in such
opinion, the cash consideration to be received by holders of Shares (other than
PCC and its affiliates) in the Offer and the Merger was fair, from a financial
point of view, to such holders.
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In arriving at its opinion, MJK reviewed the Merger Agreement and held
discussions with the Company's senior management concerning the business,
operations and prospects of the Company. MJK examined certain publicly available
business and financial information relating to the Company as well as certain
financial forecasts and other data for the Company which were provided to MJK by
or otherwise discussed with the management of the Company. MJK reviewed the
financial terms of the Offer and the Merger as set forth in the Merger Agreement
in relation to, among other things: current and historical market prices and
trading volumes of the Shares; the historical and projected earnings and
operating data of the Company; and the capitalization and financial condition of
the Company. MJK reviewed a Descriptive Memorandum dated November 1997 and a
Project Pump Status Report dated December 16, 1997 provided by Nassau. MJK also
considered, to the extent publicly available, the financial terms of certain
other similar transactions recently effected which MJK considered relevant in
evaluating the Offer and the Merger and analyzed certain financial, stock market
and other publicly available information relating to the businesses of other
companies whose operations MJK considered relevant in evaluating those of the
Company. In addition to the foregoing, MJK conducted such other analyses and
examinations and considered such other financial, economic and market criteria
as MJK deemed appropriate in arriving at its opinion. MJK noted that its opinion
was necessarily based upon information available, and financial, stock market
and other conditions and circumstances existing and disclosed, to MJK as of the
date of its opinion.
In rendering its opinion, MJK assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information publicly available or furnished to or otherwise reviewed by or
discussed with MJK. With respect to financial forecasts and other data provided
to or otherwise reviewed by or discussed with MJK, the management of the Company
advised MJK that such forecasts and other data were reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
management of the Company as to the future financial performance of the Company.
MJK did not make and was not provided with an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of the Company.
MJK was not requested to, and did not, participate in the negotiation or
structuring of the Offer and the Merger. No other limitations were imposed by
the Company on MJK with respect to the investigations made or procedures
followed by MJK in rendering its opinion.
THE FULL TEXT OF THE WRITTEN OPINION OF MJK DATED FEBRUARY 23, 1998, WHICH
SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN, IS ATTACHED HERETO AS ANNEX A AND IS INCORPORATED HEREIN BY
REFERENCE. HOLDERS OF SHARES ARE URGED TO READ THIS OPINION CAREFULLY IN ITS
ENTIRETY. MJK'S OPINION IS DIRECTED ONLY TO THE FAIRNESS OF THE CASH
CONSIDERATION TO BE RECEIVED BY HOLDERS OF SHARES (OTHER THAN PCC AND EOC) IN
THE OFFER AND THE MERGER FROM A FINANCIAL POINT OF VIEW, DOES NOT ADDRESS ANY
OTHER ASPECT OF THE OFFER, THE MERGER OR RELATED TRANSACTIONS AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD
VOTE AT THE SPECIAL MEETING. THE
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SUMMARY OF THE OPINION OF MJK SET FORTH IN THIS PROXY STATEMENT IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
MJK was retained by the Board of Directors to render an opinion as to the
fairness, from a financial point of view, to the stockholders of the Company of
the consideration to be paid in the Offer and the Merger. Pursuant to an
engagement letter with MJK, the Company paid MJK a $10,000 cash retainer fee
upon execution of the engagement letter, and an additional $15,000 at the time
MJK rendered its opinion. In addition, the Company has agreed to reimburse MJK
for its reasonable out-of-pocket expenses; provided, however, that MJK must
obtain the prior approval of the Company to any such expenses if the aggregate
of such expenses exceeds $5,000. The Company has also agreed to indemnify MJK
and certain related parties against certain liabilities, including liabilities
under the federal securities laws.
MJK was selected by the Company based on MJK's experience and expertise.
MJK regularly engages in the valuation of businesses and their securities in
connection with mergers and acquisitions, underwritings, secondary distributions
of securities, private placements and valuations for estate, corporate and other
purposes.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Board of Directors with respect to
the Merger, shareholders should be aware that certain members of the Company's
management and Board have certain interests which may be considered conflicts of
interest in connection with the Merger.
Pursuant to the Merger Agreement, the Company has entered into an
Employment Agreement with Stephen Ardia, providing for Mr. Ardia to serve as the
Company's President for a term of one year beginning on the date that the Offer
is consummated, after which his employment may be continued on an at-will basis
by mutual agreement of the parties. The agreement provides that Mr. Ardia will
be paid a base salary at the annual rate of $150,000 (which is consistent with
his current salary arrangements). He will be entitled to participate in the
Company's bonus plan through December 31, 1998, and in a similar bonus plan
during the three month period January 1, 1999 through March 28, 1999. Mr. Ardia
will also be entitled to participate in PCC's stock option and stock purchase
programs, in accordance with the terms of those programs. Mr. Ardia may
terminate the agreement upon thirty days' written notice to the Company any time
after the first three months of its effectiveness.
The Company also has a Change in Control Agreement with Mr. Ardia dated
January 5, 1998, providing for a payment to Mr. Ardia upon the occurrence of a
"Change of Control" (as defined in the agreement) equal to (i) the amount of his
annual base salary in effect on the date of the Change of Control, and (ii) an
amount equal to the sum of (A) the bonus payable to Mr. Ardia for the year
during which the Change of Control occurs, prorated through the date of the
Change of Control, plus (b) the average annual bonus paid to Mr. Ardia for the
two complete
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fiscal years that precede the fiscal year during which the Change of Control
occurs. In addition, the Company shall waive for twelve months following his
termination any required premium payment due from Mr. Ardia to allow him to
continue his coverage under the Company's group health plan. A "Change of
Control," as defined in the agreement, occurred upon EOC's acceptance for
payment and payment for Shares pursuant to the Offer.
Pursuant to the Merger Agreement, the Company has also entered into
Employment Agreements with Philip Welsh to serve as Vice President of Finance;
Mark Alexander to serve as Vice President of Marketing; David Doin to serve as
Vice President of Sales; Brian Buchinski to serve as Director of Manufacturing;
George Vorsheim to serve as Director of Communication; George Earle to serve as
Director of Engineering and Kathleen Parry to serve as National Sales Manager;
each for two-year terms beginning on the date that the Offer was consummated.
These agreements provide for an annual salary of $80,000, $95,000, $90,000,
$75,000, $70,000, $80,000, and $80,000 for Mr. Welsh, Mr. Alexander, Mr. Doin,
Mr. Buchinski, Mr. Vorsheim, Mr. Earle and Ms. Parry, respectively (which are
consistent with their current salary arrangements). Each of the foregoing
employees will be entitled to participate in the Company's bonus plan through
December 31, 1998, and in a similar bonus program for the three month period
January 1, 1999 through March 28, 1999. Thereafter, any bonus program provided
will be consistent with bonus programs provided by PCC to similarly situated
employees. These employees will also be entitled to participate in PCC's stock
option and stock purchase programs, in accordance with the terms of those
programs.
The agreements, which may be terminated by either party upon thirty days'
written notice, provide for a severance benefit equal to the following: (i) if
the employee is terminated before the first anniversary of the effective date of
the agreement, the remaining balance of the employee's base salary for the
portion of year from the date of termination until the first anniversary of the
effective date, plus 100% of any calendar year 1998 bonus to which the employee
would have been entitled had he or she remained employed by the Company through
December 31, 1998, plus the Severance Payment (as defined below); or (ii) if the
employee is terminated after the first anniversary of the effective date of the
agreement and prior to the second anniversary of the effective date, ten months'
pay at the employee's then current salary level (the "Severance Payment"). In
addition, the Company shall waive for the remainder of the unexpired term of the
agreement any required premium payment due from the employee to allow the
employee to continue his or her coverage under the Company's group health plan.
The employee is ineligible for the payments described in this paragraph if he or
she voluntarily resigns or withdraws from employment, is terminated for "cause"
(as defined in the agreement), terminates employment as a result of the
expiration of the term of the agreement, breaches certain confidentiality or
non-competition provisions in the agreement, or accepts reasonably comparable
employment with an affiliate of PCC.
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PAYMENT OF MERGER CONSIDERATION FOR THE SHARES
PCC and the Company have appointed The Bank of New York to act as the
paying agent (the "Paying Agent"). As soon as reasonably practicable after
consummation of the Merger, the Paying Agent will send a transmittal letter and
instructions to each person that was a record holder of Shares immediately prior
to the Effective Time advising such holder of the procedure for surrendering his
or her certificate or certificates in exchange for $15.25 in cash for each
formerly outstanding Share. To receive the payment to which they are entitled
pursuant to the terms of the Merger Agreement, shareholders must carefully
comply with the instructions on such transmittal letter and return it, along
with their certificates, to the Paying Agent pursuant to the terms thereof. DO
NOT SEND SHARE CERTIFICATES WITH YOUR PROXY. Interest will not be paid on the
amounts payable upon surrender of certificates which formerly represented the
Shares. It is therefore recommended that certificates be surrendered promptly
after consummation of the Merger. If, with respect to any Shares, the cash price
of $15.25 per Share is to be paid to a person who is not the holder of record of
such Shares, the amount of any applicable stock transfer taxes will be required
to be paid by the record holders or such other person prior to the payment of
the $15.25 amount per Share unless satisfactory evidence of the payment of such
taxes, or exemption therefrom, is submitted to the Paying Agent. None of the
Paying Agent, PCC, EOC or the Company shall be liable to a holder of Shares for
any cash delivered pursuant to the Merger Agreement to any public official
pursuant to applicable abandoned property, escheat and similar laws.
One year after consummation of the Merger, the Paying Agent will deliver to
the Company any cash funds not theretofore disbursed to holders of certificates
formerly representing Shares, and thereafter the holders of such certificates
shall look to the Surviving Corporation (subject to applicable abandoned
property, escheat or other similar laws and laws affecting creditors' rights
generally) for any cash payments due as a result of the Merger for the Shares
formerly represented by such certificates.
Because the Shares will be listed on the Nasdaq National Market (the "NNM")
at the Record Date, pursuant to Section 910 of the NYBCL, holders of Shares will
not be entitled to exercise dissenters' rights if the Merger is approved.
PURPOSE OF THE OFFER AND THE MERGER
The purpose of the Offer and the Merger is for PCC to acquire the entire
equity interest in the Company. The Merger will allow PCC to acquire all
outstanding Shares not tendered and purchased pursuant to the Offer. The
acquisition of the entire equity interest in the Company has been structured as
a cash tender offer and a cash merger in order to provide a prompt and orderly
transfer of ownership of the Company from the public shareholders of the Company
to PCC.
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ACCOUNTING TREATMENT OF THE MERGER
The Offer and the Merger will be accounted for under the "purchase" method
of accounting whereby the purchase price will be allocated based on fair values
of assets acquired and liabilities assumed.
CERTAIN LEGAL MATTERS; REGULATORY APPROVALS
There are no material federal regulatory requirements which remain to be
complied with to consummate the Merger.
The Company is not aware of any license or regulatory permit that appears
to be material to the business of the Company and its subsidiaries, taken as a
whole, that might be adversely affected by the Merger or, except for the filing
of a Certificate of Merger or Consolidation with the Secretary of State of the
State of New York, of any approval or other action by any governmental,
administrative or regulatory agency or authority, domestic or foreign, that
would be required prior to the Merger.
Antitrust
- ---------
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), and the rules promulgated thereunder by the Federal Trade
Commission (the "FTC"), the Offer could not be consummated until notifications
had been given and certain information had been furnished to the FTC and the
Antitrust Division of the U.S. Department of Justice (the "Antitrust Division").
The waiting period under the HSR Act expired on March 18, 1998. The Antitrust
Division and the FTC, as well as state antitrust enforcement agencies,
frequently scrutinize the legality under the antitrust laws of transactions such
as the Merger. The termination of the HSR Act waiting period does not preclude
the Antitrust Division, the FTC or state antitrust enforcement agencies from
challenging the Merger on antitrust grounds. Accordingly, at any time before or
after the Effective Time, either the Antitrust Division, the FTC or the attorney
general of one or more states could take such action under the antitrust laws as
it deems necessary or desirable in the public interest.
New York Takeover Statute
- -------------------------
Section 912 of the NYBCL prohibits a New York corporation such as the
Company from engaging in a "Business Combination" (defined as a variety of
transactions, including mergers) with an "Interested Shareholder" (defined
generally as a person that is the beneficial owner of 20% or more of a
corporation's outstanding voting stock) for a period of five years following the
date that such person became an Interested Shareholder unless (a) prior to the
date such person became an Interested Shareholder, the board of directors of the
corporation approved either the Business Combination or the transaction that
resulted in the person becoming an Interested Shareholder, (b) subsequent to the
date such person became an Interested Stockholder, the Business Combination is
approved by the board of directors of the corporation and authorized at
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a meeting of stockholders, and not by written consent, by the affirmative vote
of a majority of the holders of the outstanding voting stock of the corporation
not owned by the Interested Stockholder, or (c) the shareholders of the
corporation as a result of the Business Combination receive fair and adequate
consideration as determined under the statute. Because the Company's Board of
Directors has approved the Offer and the Merger, the prohibition of Section 912
will not apply to the Merger. Accordingly, EOC and PCC do not intend to comply
with the requirements of Section 912 of the NYBCL. The foregoing summary of
Section 912 does not purport to be complete and is qualified in its entirety by
reference to Section 912.
THE MERGER AGREEMENT
The statements made in this Proxy Statement summarizing the Merger
Agreement and the terms of the Merger are qualified in their entirety by
reference to the text of the Merger Agreement, and are expressly made subject to
the more complete information set forth therein.
The Merger
- ----------
If the Merger Agreement is approved and the other conditions therein have
been timely satisfied or waived, EOC will be merged with and into the Company at
the Effective Time. The Merger will become effective at such time as a
Certificate of Merger or Consolidation is filed with the Secretary of State of
the State of New York in accordance with the applicable provisions of the NYBCL.
The Company will be the Surviving Corporation and will be a direct
subsidiary of PCC. Upon consummation of the Merger, each Share outstanding
immediately prior thereto (other than Shares held by PCC, EOC or the Company,
which shares will be canceled) will be converted into and will become
automatically and without any action on the part of the holder thereof, the
right to receive $15.25 in cash, without interest. Holders of certificates which
formerly represented Shares will thereupon have no continuing interest in, or
rights as shareholders of, the Company. At the Effective Time, each outstanding
share of common stock of EOC will be converted automatically into a share of
common stock of the Surviving Corporation, the stock transfer books of the
Company shall be closed and no transfer of Shares shall thereafter be made.
The Merger Agreement further provides that the directors of EOC at the
Effective Time will be the initial directors of the Surviving Corporation, the
officers of EOC at the Effective Time will be the initial officers of the
Surviving Corporation, and the Certificate of Incorporation and Bylaws of the
Company as in effect at the Effective Time will be the initial Certificate of
Incorporation and Bylaws of the Surviving Corporation.
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Shareholders' Meeting; Required Vote
- ------------------------------------
The Merger Agreement provides that, if required under applicable law in
order to consummate the Merger, the Company, acting through its Board, will, in
accordance with New York law and the Certificate of Incorporation and Bylaws of
the Company: (a) call and hold a special meeting of the Company's shareholders
as soon as practicable following the consummation of the Offer for the purpose
of approving the Merger; (b) subject to its fiduciary duties under applicable
laws as advised as to legal matters by counsel, include in the proxy statement
prepared by the Company for filing with the Securities and Exchange Commission
(the "SEC") and distribution to the Company's shareholders in advance of the
special meeting, the recommendation of its Board in favor of the Merger; (c) use
its best efforts to obtain and furnish the information required to be included
by it in such proxy statement and to cause such proxy statement to be mailed to
its shareholders following the consummation of the Offer; and (d) use its best
efforts to solicit from its shareholders proxies in favor of approval of the
Merger.
The only shareholder vote necessary to approve the Merger is the
affirmative vote of the holders of 66 2/3% of the outstanding Shares, including
Shares held by PCC and its affiliates.
Designation of Directors
- ------------------------
The Merger Agreement provides that, upon the purchase by EOC of Shares
pursuant to the Offer, EOC will be entitled to designate a number of directors
(rounded up to the nearest whole number) on the Company's Board that is equal to
the product of the total number of directors on the Company's Board multiplied
by the percentage that the aggregate number of Shares then beneficially owned by
EOC (or any affiliate of EOC) bears to the total number of Shares then
outstanding, and the Company will use its best efforts to increase the size of
the Board or to obtain the resignations of such number of directors as is
necessary to enable EOC's designees to be elected as directors of the Company.
Pursuant to these provisions, on March 31, 1998, six of the seven directors
resigned from the Board and EOC designated four persons who were subsequently
elected as directors.
Conditions to the Merger; Termination and Amendment of the Merger Agreement
- ---------------------------------------------------------------------------
Pursuant to the Merger Agreement, the respective obligations of each of
PCC, EOC and the Company to effect the Merger shall be subject to the
satisfaction, prior to the closing of the transactions contemplated by the
Merger Agreement, of the following conditions: (a) all required authorizations,
consents, and approvals of all governmental agencies and authorities shall have
been obtained and the waiting period under the HSR Act will have expired or been
terminated early; (b) if necessary under applicable law, the Merger shall have
been approved by at least 66 2/3 percent of the Shares of the Company; (c) no
law, statute, rule, regulation, decree, order, injunction or ruling by any
governmental entity shall remain in effect and prohibit, restrain, enjoin or
restrict the consummation of the Merger; (d) no action, suit or other proceeding
shall be pending against any party to prohibit, restrain, enjoin, restrict or
otherwise prevent the
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consummation of the Merger; and (e) EOC shall have previously accepted for
payment and paid for all Shares validly tendered and not withdrawn pursuant to
the Offer.
The Merger Agreement may be terminated at any time prior to the closing
date of the Merger (a) by mutual consent of PCC, EOC and the Company; (b) by
either PCC or the Company if any governmental entity has promulgated or issued a
law, statute, rule, regulation, decree, order, injunction, or ruling or taken
any other action prohibiting, restraining, enjoining, restricting or otherwise
prohibiting the Merger that has become final and nonappealable; (c) by PCC, if
not then in default, upon written notice to the Company if (A) the Company
breaches in any material respect any of its representations or warranties or
defaults in the observance or performance of any of its covenants or agreements
except for breaches or defaults which, individually or in the aggregate, would
not have a Combined Material Adverse Effect (as defined in the Merger Agreement)
or materially impair the ability of the parties to consummate the transactions
contemplated by the Merger Agreement, or (B) the Board of Directors of the
Company or any committee thereof has withdrawn or modified in a manner adverse
to PCC or EOC its approval or recommendation of the Merger Agreement; or (d) by
the Company, if not then in default, upon written notice to PCC if (A) PCC
breaches in any material respect any of its representations or warranties or
defaults in the observance or performance of any of its covenants or agreements,
except for breaches or defaults which, individually or in the aggregate, would
not have a Combined Material Adverse Effect or materially impair the ability of
the parties to consummate the transactions contemplated by the Merger Agreement,
or (B) if the Company determines after consultation with its counsel that it is
necessary to terminate the Merger or the Merger Agreement in order for its
directors to comply with their fiduciary duties under applicable law.
In the event of the termination of the Merger Agreement, the Merger
Agreement shall forthwith become void and there shall be no liability on the
part of any party thereto except as described in the provisions of the Merger
Agreement relating to fees and expenses; provided, however, that nothing in the
Merger Agreement will relieve any party from liability for any breach thereof
before termination.
The Merger Agreement may not be amended except by written agreement of the
parties thereto.
Expenses
- --------
Except as specifically provided in the Merger Agreement, each party to the
Merger Agreement agreed to bear its own respective expenses incurred in
connection with the Offer, the Merger, the Merger Agreement and the transactions
contemplated thereby.
Further Actions
- ---------------
Subject to the terms and conditions of the Merger Agreement, each of the
parties thereto agreed to cooperate in the preparation and filing of this Proxy
Statement and any amendments
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thereof by furnishing such necessary information as may be requested in
connection with the foregoing. Pursuant to the Merger Agreement, if any state's
takeover law should become applicable to the Merger, EOC, PCC and the Company
have agreed to use their best efforts to take such actions as are necessary so
that the transactions contemplated by the Merger Agreement may be consummated as
promptly as practicable on the terms contemplated thereby and otherwise to
minimize the effects of any such statute on such transactions.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary addresses the material federal income tax
consequences to holders of Shares who have their Shares exchanged for the right
to receive $15.25 per Share in cash as a result of the Merger. The summary does
not address all aspects of federal income taxation that may be relevant to
particular holders of Shares and thus, for example, may not be applicable to
holders of Shares who are not citizens or residents of the United States, who
are employees and who acquired their Shares pursuant to the exercise of
incentive stock options or who are entities that are otherwise subject to
special tax treatment under the Internal Revenue Code of 1986, as amended (the
"Code") (such as insurance companies, tax-exempt entities and regulated
investment companies); nor does this summary address the effect of any
applicable foreign, state, local or other tax laws. The discussion assumes that
each holder of Shares holds such Shares as a capital asset within the meaning of
Section 1221 of the Code. The federal income tax discussion set forth below is
included for general information only and is based upon present law. The precise
tax consequences of the Merger will depend on the particular circumstances of
the holder. SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
SPECIFIC FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES TO THEM OF
THE PROPOSED TRANSACTION.
The receipt of cash for Shares pursuant to the Merger will be a taxable
transaction for federal income tax purposes and may also be a taxable
transaction under applicable state, local or foreign tax laws. In general, a
shareholder who receives cash for Shares pursuant to the Merger will recognize
gain or loss for federal income tax purposes equal to the difference between the
amount of cash received in exchange for the Shares exchanged and such
shareholder's adjusted tax basis in such Shares. Such gain or loss will be a
capital gain or loss, and will be a long-term capital gain or loss if the holder
has held the Shares for more than one year at the time of sale. Under current
law, the gain or loss will be calculated separately for each block of Shares
exchanged pursuant to the Merger.
Under the Taxpayer Relief Act of 1997, an individual taxpayer who has held
a capital asset for more than 18 months generally will be taxed on gain from the
sale of that asset at a maximum rate of 20%. A 28% maximum rate generally
applies to sale of a capital asset held more than one year, but not more than 18
months. The maximum federal tax rate applicable to ordinary income (including
dividends and short-term capital gains recognized by individuals) is 39.6%. The
maximum federal tax rate applicable to all capital gains and ordinary income
recognized by a corporation is 35%. It is possible that legislation may be
enacted that would change the maximum federal tax rate applicable to long-term
capital gains, possibly with
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retroactive effect. It is not possible to predict whether or in what form any
such legislation may be enacted.
Withholding
- -----------
Unless a shareholder complies with certain reporting and/or certification
procedures or is an exempt recipient under applicable provisions of the Code
(and regulations promulgated thereunder), such shareholder may be subject to a
"backup" withholding tax of 31% with respect to any payments received in the
Merger. Shareholders should contact their brokers to ensure compliance with such
procedures. Foreign shareholders should consult with their tax advisors
regarding withholding taxes in general.
INFORMATION CONCERNING THE COMPANY
The Company is a New York corporation with its principal offices located at
2772 Balltown Road, Niskayuna, New York 12309-1090; the telephone number is
(518) 346-6161. The Company is an environment-oriented product and service
company engaged in the development of low pressure sewer systems for real estate
developments. The Company also develops detection systems designed to forestall
shutdown of electric power generators operated by electric utility companies.
The Company has entered into foreign markets and license agreements with respect
to certain products. A copy of the Company's Form 10-KSB for the fiscal year
ended December 31, 1997, as well as a copy of the Company's Form 10-QSB for the
quarterly period ended March 31, 1998, accompany this proxy statement as Annex
B. EXHIBITS TO THE FORM 10-KSB AND FORM 10-QSB, INCLUDING EXHIBIT 27, FINANCIAL
DATA SCHEDULE, WILL BE FURNISHED WITHOUT CHARGE UPON RECEIPT OF A WRITTEN
REQUEST MAILED TO ENVIRONMENT ONE CORPORATION, 2773 BALLTOWN ROAD, NISKAYUNA, NY
12309-1090, ATTENTION: PHILIP WELSH.
The Company is subject to the information filing requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and, in accordance
therewith, is obligated to file with the SEC periodic reports, proxy statements
and other information relating to its business, financial condition and other
matters. Information as of particular dates concerning the Company's directors
and officers, their remuneration, stock options granted to them, the principal
holders of the Company's securities and any material interest of such persons in
transactions with the Company is required to be disclosed in reports filed with
the SEC or in proxy statements distributed to the Company's stockholders and
filed with the SEC. Such reports, proxy statements and other information,
including the Schedule 14D-9 filed by the Company in connection with the Offer,
may be inspected at the SEC's office at 450 Fifth Street, NW, Washington, D.C.,
20549, and also should be available for inspection at the regional offices of
the SEC located in the Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois, and 7 World Trade Center, 13th Floor, New York,
New York. Copies of such materials should be obtainable, upon payment of the
SEC's customary charges, by writing to the SEC's principal office at 450 Fifth
Street, NW, Washington, D.C., 20549. The information also should be available at
the offices of the NNM, 1735 K Street, N.W., Washington, D.C.
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20006-1500. Such material may also be accessed through an Internet Web site
maintained by the SEC at http://www.sec.gov.
INFORMATION CONCERNING EOC AND PCC
EOC is a newly formed New York corporation and a wholly owned direct
subsidiary of PCC. To date, EOC has not conducted any business other than in
connection with its formation and capitalization and the transactions
contemplated by the Merger Agreement. Until immediately prior to the time EOC
purchased Shares pursuant to the Offer, EOC had no significant assets or
liabilities other than those created pursuant to the Merger Agreement. Because
EOC is a newly formed corporation, no meaningful financial information regarding
EOC is available.
PCC, an Oregon corporation, is a worldwide manufacturer of complex metal
components and products. PCC is the market leader in manufacturing large,
complex structural investment castings and is the leading manufacturer of
airfoil castings used in jet engine aircrafts. In addition, PCC actively
participates in the industrial gas turbine, fluid management, industrial
metalworking tools and machines, tunsten carbide and other metal products
markets, and has recently expanded into the pulp and paper market.
The principal executive offices of PCC and EOC are located at 4650 SW
Macadam Avenue, Suite 440, Portland, Oregon 97201; the telephone number is (503)
417-4800.
PCC is subject to the informational filing requirements of the Exchange Act
and, in accordance therewith, is required to file periodic reports, proxy
statements and other information with the Commission relating to its business,
financial condition and other matters. Information as of particular dates
concerning PCC's directors and officers, their remuneration, stock options
granted to them, the principal holders of PCC's securities and any material
interest of such persons in transactions with PCC is required to be described in
proxy statements distributed to PCC's shareholders and filed with the
Commission. Such reports, proxy statements and other information should be
available for inspection at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
should also be available for inspection at the regional offices of the
Commission located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and 7 World Trade Center, 13th Floor, New York, New
York 10048. Copies of such materials may also be obtained by mail, upon payment
of the Commission's customary fees, by writing to its principal office at 450
Fifth Street, N.W., Washington, D.C. 20549. The information should also be
available for inspection at the New York Stock Exchange, Inc., 20 Broad Street,
New York, New York 10005. Such material may also be accessed through an Internet
Web site maintained by the SEC at http://www.sec.gov.
17
<PAGE>
PRICE RANGE OF THE SHARES; DIVIDENDS
The Shares are listed and traded principally on the NNM under the trading
symbol "EONE." The following table sets forth, for the quarters indicated, the
high and low sales prices per Share as reported by the NNM.
<TABLE>
<CAPTION>
High Low
-------- --------
<S> <C> <C>
Year Ended December 31, 1995:
First Quarter......................................... $ 3 1/4 $ 2 1/4
Second Quarter........................................ 4 1/4 2 3/8
Third Quarter......................................... 4 7/8 3 7/8
Fourth Quarter........................................ 5 1/2 4 5/8
Year Ended December 31, 1996:
First Quarter......................................... $ 5 1/2 $ 4 3/4
Second Quarter........................................ 6 4 1/2
Third Quarter......................................... 5 3/4 4 3/4
Fourth Quarter........................................ 6 5 3/8
Year Ended December 31, 1997:
First Quarter......................................... $ 7 3/4 $ 5 5/8
Second Quarter........................................ 9 3/4 6 3/8
Third Quarter......................................... 10 1/4 8 3/4
Fourth Quarter........................................ 10 7/8 9 3/4
Year Ending December 31, 1998:
First Quarter (January - March)....................... $ 15 3/4 $ 9 5/8
</TABLE>
On February 24, 1998, the last full trading day prior to the announcement
of the execution of the Merger Agreement, both the high and low sales prices per
Share on the NNM were $13.00. On May 14, 1998, the last full trading day for
which quotations were available at the time of printing this Proxy Statement,
both the high and low sales prices per Share on the NNM were $14 7/8.
The Company paid no dividends on the Shares during 1997 and 1996.
SHAREHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE SHARES.
OWNERSHIP OF SHARES BY DIRECTORS, OFFICERS AND FIVE PERCENT SHAREHOLDERS
The following table sets forth information regarding the beneficial
ownership of Shares as of May 4, 1998 for (i) each person who beneficially owns
more than 5% of the Shares, (ii)
18
<PAGE>
each director of the Company, (iii) all persons who served as chief executive
officer of the Company during 1997, (iv) the other most highly compensated
executive officers whose annual salary and bonus during 1997 exceeded $100,000,
and (v) all directors and officers as a group.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature Percent
Title of Class Beneficial Owner of Beneficial Owner of Class
- -------------- ------------------- ------------------- --------
<S> <C> <C> <C>
Common stock EOC Acquisition Corporation 3,714,046 86.5%
Suite 440
4650 SW Macadam Ave.
Portland, OR 97201
Common stock William C. McCormick (1) -0- -0-
Director
Suite 440
4650 SW Macadam Ave.
Portland, OR 97201
Common stock Stephen C. Riedel (1) -0- -0-
Director
Suite 440
4650 SW Macadam Ave.
Portland, OR 97201
Common stock William D. Larsson (1) -0- -0-
Director
Suite 440
4650 SW Macadam Ave.
Portland, OR 97201
Common stock David W. Norris (1) -0- -0-
Director
Suite 440
4650 SW Macadam Ave.
Portland, OR 97201
Common stock Stephen V. Ardia -0- -0-
Director
President and CEO
2772 Balltown Road
Niskayuna, NY 12309-1090
19
<PAGE>
Name and Address of Amount and Nature Percent
Title of Class Beneficial Owner of Beneficial Owner of Class
- -------------- ------------------- ------------------- --------
Common stock Mark E. Alexander -0- -0-
Vice President-Marketing
2772 Balltown Road
Niskayuna, NY 12309-1090
Common stock David M. Doin -0- -0-
Vice President-Sales
2772 Balltown Road
Niskayuna, NY 12309-1090
Common stock George A. Earle -0- -0-
Director of Engineering
2772 Balltown Road
Niskayuna, NY 12309-1090
Common stock Philip W. Welsh -0- -0-
Vice President-Finance,
Chief Financial Officer
Treasurer
2772 Balltown Road
Niskayuna, NY 12309-1090
Common stock All directors and officers -0- -0-
as a group
Total number of Shares outstanding 4,295,827 100%
(1) Messrs. McCormick, Riedel, Larsson and Norris own 70,986, 11,750, 13,926,
and 1,501 shares, respectively, of the common stock of PCC (including options
that are exercisable within 60 days). Each of Messrs. McCormick, Riedel, Larsson
and Norris disclaim beneficial ownership of the Shares held by EOC.
</TABLE>
All outstanding shares of EOC are held by PCC.
INDEPENDENT PUBLIC ACCOUNTANTS
Representatives of KPMG Peat Marwick LLP, the Company's independent
certified public accountants for the current fiscal year, are not expected to be
present at the Special Meeting.
20
<PAGE>
SHAREHOLDER PROPOSALS FOR ANNUAL MEETING
Because of the nature of the Special Meeting, the date for the next Annual
Meeting has not been established. If the Merger is approved, no meeting will be
held. However, if it is not approved, the Board of Directors will make
provisions for presentation of proposals by shareholders at the next annual
meeting, provided that such proposals are submitted by eligible shareholders who
have complied with the relevant regulations of the SEC. Shareholder proposals
intended to be submitted for presentation at the next annual meeting of
shareholders of the Company must be in writing and must be received by the
Company at its executive offices no later than 60 days prior to the date of the
Annual Meeting.
PROXY SOLICITATION; REVOCATION OF PROXIES
Proxies are being solicited by and on behalf of the Board of Directors. All
expenses of this solicitation, including the cost of preparing and mailing this
Proxy Statement, will be borne by the Company. In addition to solicitation by
use of the mails, proxies may be solicited by directors, officers and employees
of the Company in person or by telephone, telegram or other means of
communication. Such directors, officers and employees will not be additionally
compensated, but may be reimbursed for out-of-pocket expenses in connection with
such solicitation. Arrangements will also be made with custodians, nominees and
fiduciaries for forwarding of proxy solicitation material to beneficial owners
of Shares held of record by such persons, and the Company may reimburse such
custodians, nominees and fiduciaries for reasonable expenses incurred in
connection therewith.
If the Special Meeting is adjourned for any reason, the approval of the
Merger Agreement shall be considered and voted upon by shareholders at the
subsequent adjourned meeting.
IT IS URGED THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, SHAREHOLDERS ARE
URGED TO FILL IN, SIGN AND RETURN THE ACCOMPANYING FORM OF PROXY IN THE ENCLOSED
ENVELOPE.
You may revoke your proxy at any time prior to its exercise by sending in a
proxy bearing a later date, by delivering a written notice of revocation or by
attending the Special Meeting in person and casting a ballot or delivering
notice of revocation of your proxy.
21
<PAGE>
OTHER MATTERS
The Board does not know of any other business which may be presented for
consideration at the Special Meeting. If any business not described herein
should come before the Special Meeting, the persons named in the enclosed proxy
will vote on those matters in accordance with their best judgment.
BY ORDER OF THE BOARD
OF DIRECTORS
Edward J. Grogan, Corporate Secretary
May 22, 1998
22
<PAGE>
ANNEX A
MILLER, JOHNSON & KUEHN, INCORPORATED
INVESTMENT SECURITIES
February 23, 1998
Board of Directors
Environment One Corporation
2773 Balltown Road
Niskayuna, NY 12309-1090
Members of the Board,
You have requested our opinion as to whether the consideration to be
received by the shareholders of the Company pursuant to the acquisition (the
"Transaction") of all the issued and outstanding shares of capital stock of
Environment One Corp. (the "Company") on a fully diluted basis ("Common Stock")
by Precision Castpart Corp. (the "Acquiror") is fair, from a financial point of
view.
We are not opining as to any other transactions or contractual arrangements
previously entered into, or to be entered into (whether or not in connection
with the Transaction) between the Company, or its Board of Directors or
management, on the one hand, and the Acquiror (or any of its affiliates) or any
other person, on the other, including without limitation, any agreements entered
into and the payments made in connection therewith. Additionally, our opinion
relates solely to whether the consideration is fair, from a financial point of
view, to the shareholders of the Company and we have not been requested to opine
to, and this opinion does not in any manner address, the Company's underlying
decision to proceed with or effect the Transaction.
We understand that (i) the purchase price per share to be paid by the
Acquiror for the Common Stock will be $15.25 in cash; (ii) the aggregate
consideration to be received by the shareholders of the Company in connection
with the Transaction is $72,014,297, and; (iii) the Acquiror will attempt to
purchase the Common Stock from the shareholders of the Company after announcing
a tender offer to the shareholders for the consideration mentioned in (i) above.
As a customary part of our investment banking business, we are engaged in
the valuation of businesses and their securities in connection with mergers and
acquisitions, underwriting and secondary distributions of securities, private
placements, and valuations for estate, corporate and other purposes. For our
services in rendering this opinion, the Company will pay us a fee and indemnify
us against certain liabilities. We have never managed a public offering of stock
for either the Company or the Acquiror, have not acted as a financial advisor in
the Transaction for
<PAGE>
either the Company or the Acquiror, do not provide research coverage on the
Company or the Acquiror and, in the ordinary course of our business, do not make
a market in the stock of
either the Company or the Acquiror.
In arriving at our opinion, we have undertaken such review, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
As the Transaction is to provide the shareholders of the Company with cash and
not securities of any kind from the Acquiror, we have limited our evaluation to
a review of the business and financial condition of the Company. Among other
things, we have reviewed, but have not limited our review to: (i) the Letter of
Intent, dated January 21, 1998, signed by both the Company and the Acquiror;
(ii) a draft of the Agreement and Plan of Merger dated February 22, 1998,
between the Acquiror and the Company, which we assume will conform in all
substantive respects to the definitive executed agreement; (iii) the Descriptive
Memorandum dated November 1997 provided by The Nassau Group, Inc. (the
"Memorandum") and; (iv) the Project Pump Status Report, dated December 16, 1997,
provided by The Nassau Group, Inc. In addition we have (i) conducted interviews
with management of the Company; (ii) toured its facilities; (iii) reviewed and
discussed with Company management the three year financial projections included
in the Memorandum, which, on our request, has been augmented by the Company to
include a balance sheet and statement of cash flows; (iv) reviewed financial and
other publicly available information with respect to the Company including
annual reports, Forms 10-KSB and 10-QSB and proxy statements; (v) consulted
government and industry economic statistics that could have a direct bearing on
the company; and (vi) examined securities data on comparable mergers and
acquisitions of similar public companies, to the extent available.
In conducting our analysis and arriving at the opinion contained herein,
(i) we have relied upon and assumed the accuracy and completeness of the
financial and other information (including the financial statements and
projections of the Company) provided to us and prepared by The Nassau Group,
Inc. and the Company's senior management and their representations relating
thereto, and we have not independently verified any such information or
representations; (ii) with respect to the Company's projections, budgets and
current estimates, we have assumed based upon representations of the Company's
senior management that they have been reasonably prepared on bases reflecting
the best currently available estimates and judgments of the Company's senior
management as to the expected future performance of the Company; (iii) we have
relied upon and assumed the accuracy and completeness of the information
provided by, and the representations of, the Company's senior management in
respect of which our understandings set forth on this opinion are based
(including, without limitation, the representations of the Company's senior
management that the final terms and conditions of the operative documents
referred to in the preceding paragraph will, in all material respects, reflect
the terms and conditions set forth in the drafts of such documents that were
provided to us); (iv) we do not assume any responsibility for the information or
current estimates provided to us and we have further relied upon the assurance
of the Company's senior management that they are unaware of any facts that would
make the information provided to us incomplete or misleading; (v) we have not
performed or obtained any independent appraisals or valuations of specific
assets of the Company and we express no opinion as to its liquidation value;
(vi) our analysis is necessarily based on economic, monetary, market and other
conditions existing and which can be evaluated as of the date of our opinion;
however such conditions are subject to rapid and
<PAGE>
unpredictable change; and (vii) we have not been authorized by the Company or
the Board to solicit, nor have we solicited, offers for transactions alternative
to the Transaction, nor have we been asked to advise the Company or the Board as
to financial alternatives to the
Transaction.
Finally, in rendering our opinion, we have considered the current price per
share of the Company's Common Stock and current market conditions. We have also
examined the trading volume and liquidity of the Company's Common Stock and its
current price per share in historical context of the last four years.
This opinion is furnished pursuant to our engagement letter dated February
18, 1998 as one element in the Board's and Shareholder's consideration of the
proposed Transaction. This opinion is not to be used for any other purpose or
reproduced, disseminated, quoted or referred to at any time, in whole or in
part, in any manner, or for any purpose, without our prior written consent.
Based upon and subject to the foregoing, and upon such other factors as we
consider relevant, it is our opinion that the consideration to be received by
the shareholders of the Company pursuant to the Transaction is fair, from a
financial point of view, to the shareholders of the Company.
Very truly yours,
Miller, Johnson & Kuehn, Inc.
<PAGE>
ANNEX B
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number 1-7037
ENVIRONMENT ONE CORPORATION
- --------------------------------------------------------------------------------
(Name of small business issuer in its charter)
NEW YORK 14-1505298
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation of organization)
2773 Balltown Road, Niskayuna, New York 12309-1090
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (518) 346-6161
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Title of each class
Common Stock $.10 par value
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to filing requirements for the past 90 days.
Yes [ X ] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosures will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
Revenue for the year ended December 31, 1997: $24,330,721
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of January 30, 1998: $36,326,438
The number of shares of Common Stock, par value $.10 outstanding as of January
30, 1998: 4,295,827
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
Environment One Corporation
Form 10-KSB
Part I
Item 1. Business
The Environment One Corporation (EONE) is an environment-oriented product and
service company which started operations in January 1969. The Company operates
in two business segments: (A) Sewer Systems Business and (B) Detection Systems
Business. In January, 1996, the Company sold its Cirrus Incipient Fire Detector
(IFD) product line to PROTEC Fire Detection, plc of Nelson, Lancashire, England.
Information regarding this sale is set forth below in Item 6. Information
regarding the percentages of total sales attributable to the two business
segments for the past two fiscal years is set forth below in Item 6.
Potential Change of Control
On February 24, 1998 the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") among the Company, Precision Castparts Corp. (PCC), an
Oregon Corporation, and a wholly owned subsidiary of PCC (Purchaser), for the
Purchaser to acquire all shares (fully diluted) of common stock of the Company
for $15.25 per share. The Merger Agreement is discussed in Items 10, 11 and 12
and explained in the Company's Solicitation/Recommendation Statement on Form
14D-9 filed with the Commission on March 3, 1998 which is incorporated by
reference within Item 13 to this filing.
Sewer Systems
Low pressure sewer systems in the market today were pioneered by EONE. It has
proven to be an economical and effective method of handling wastewater in
otherwise difficult real estate developments including: waterfront, hilly
terrain, very flat lands and areas with high water tables. As more and more
communities are looking for cost effective solutions to wastewater collection
problems, EONE's pressure sewer systems (EONE Sewers), are increasingly used in
mainstream municipal and real estate development applications.
Grinder pumps developed by the Company make the pressure sewer system feasible.
These units accept wastewater from point sources, grind it into a fine slurry,
and pressurize it to permit transport through small diameter pipe. This small
diameter pressurized pipe can follow the contour of the terrain, resulting in
reduced costs of installation compared to conventional gravity lines. Several
models of the grinder pump are manufactured with and without storage tanks.
The manufacture of the grinder pump involves use of independent suppliers for
several of the components. Fabrication, machining, assembly and testing of the
assembled units are completed at the Company's plant.
The principal markets served by the pressure sewer systems are city and county
sewer districts, residential builders and land developers along with individual
homeowners. Products are sold to these markets from regional sales offices
across the United States and through a network of more than 30 distributors
throughout the United States, Canada, Europe and Japan. Several other pump
manufacturers offer grinder pumps and compete with EONE in these markets.
Environment One's positive displacement pump and tank are unique, offering
several distinct advantages over the centrifugal pump. The Company believes it
is well known in this marketplace.
<PAGE>
Environment One Corporation
Form 10-KSB
Part I (con't.)
Detection Systems
The Company's Detection Systems' products include: (1) Generator Condition
Monitor; and (2) Hydrogen Control Cabinet. These detection instruments are based
on the Company's expertise in the detection of sub-microscopic particles and gas
monitoring.
Generator Condition Monitor (GCM)
The GCM is designed to provide early warning of certain thermal failure
conditions which could lead to shutdown of hydrogen-cooled electric power
generators. The monitor also facilitates preventive maintenance of such
equipment. The principal market served is the electric utility industry, both
domestic and international. Customers are served by direct sales from the
Company's marketing function or by manufacturers' representatives in certain
parts of the world. There are only two other manufacturers of this equipment
worldwide and the Company is believed to be the leader in this market.
As a companion to the GCM, the Company also manufactures and sells an instrument
for air-cooled electric generators (GCM-A). This extends the marketing of
condition monitors to include hydroelectric and gas turbine driven generating
stations.
As an ancillary product to the GCM, the Company sells tagging compounds under
the name GEN-TAGS that are applied to critical areas of large electric power
generator units. The tagging compounds will assist utilities to quickly locate
"hot spots" developing in generators causing the GCM to alarm at which time a
sample of the overheated tagging compound (pyrolysate) is collected. Analysis of
the sample determines the location of the "hot spot" area. Depending on the area
of overheating, a different "fingerprint" or "chemical signature" will identify
each area for location of potential trouble.
Hydrogen Control Cabinet (HCC)
The HCC continuously analyzes the purity of hydrogen and controls the rate of
scavenging in hydrogen-cooled turbine generators. It is vital to maintain the
purity of the hydrogen because it directly affects both efficiency and safety.
To maintain a hydrogen purity of approximately 98% in the generator casing, a
small quantity of hydrogen gas is continuously scavenged from the generator's
end seals and discharged to the atmosphere.
The major components of the HCC are two completely independent, interactive
hydrogen sensors and associated electronics that were designed by Environment
One. The micro-controller based system and explosion proof design represents a
new generation of hydrogen purity analyzer.
The HCC is sold direct by the Detection Systems marketing function and has the
potential for sale to the same customer base as the GCM.
<PAGE>
Environment One Corporation
Form 10-KSB
Part I (con't.)
Financial Data - 2 Year Summary
Industry segment information is included in Note 8 to the Company's consolidated
financial statements included in Item 7.
Net Sales Backlog
The backlog of unshipped orders by industry segment is shown below. Generally,
all orders in the backlog at year-end are shipped during the following year. The
backlog has been calculated by EONE's normal practice of including only orders
that are to be delivered within twelve months. While these orders are firm, they
could be subject to change or cancellation in the future. In the past, the
effect of changes and cancellations has not been significant.
Net Sales Backlog as of December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Sewer Systems ... $1,600,811 1,403,661
Detection Systems 2,051,205 517,788
---------- ----------
$3,652,016 1,921,449
========== ==========
</TABLE>
Sources of Supply
Principal components used in the manufacture of the Company's grinder pump
include a motor, high density polyethylene parts, cast iron parts, fabricated
stainless steel and solid state controls. The principal components of the GCM
and HCC include fabricated aluminum, sheet metal and stainless steel, assembled
miscellaneous electronics, printed circuit boards and mechanical gauges.
The Company does not believe that it is dependent on any one supplier or
subcontractor to the extent that termination or loss of the supplier or
subcontractor relationship would have a material adverse effect on the Company's
business.
Patents
Since inception, the Company has been issued numerous U.S. and foreign patents
and it has filed numerous patent applications relating to product features. The
Company believes that patent protection is important and materially strengthens
its competitive position with respect to all the specific products that it now
markets. The Company, however, does not depend on any single patent or group of
patents.
Research and Development
All research and development costs are charged directly to operations as
incurred. Research and development costs were approximately $215,000 and
$177,000 in 1997 and 1996, respectively.
<PAGE>
Environment One Corporation
Form 10-KSB
Part I (con't.)
Environmental
Compliance by the Company with federal, state and local environmental protection
laws during 1997 and 1996 had no material effect upon capital expenditures,
earnings or the competitive position of the Company.
Employees
At December 31, 1997, the Company had 99 full-time employees.
Principal Customers
The Company had sales equaling 9% and 6% of total company sales to one customer
in 1997 and 1996, respectively.
Foreign Operations and Export Sales
The Company has entered into foreign markets and license agreements with respect
to certain products. In December 1990, Environment One Corporation Japan Co.
Ltd. was founded in Tokyo, Japan as a 70% owned subsidiary of the Company. The
purpose of this corporation is to promote the adaptation and sales of low
pressure sewer systems in Japan.
Export sales of low pressure sewer systems were approximately 6.1% and 2.8% of
total Company sales in 1997 and 1996, respectively. Export sales of detection
instruments (including IFD) were approximately 6.3% and 4.5% of total Company
sales in 1997 and 1996, respectively.
Cautionary Statement for the Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a
"safe harbor" for forward-looking statements to encourage companies to provide
prospective information about themselves while limiting unwarranted litigation,
provided that the statements are identified as forward-looking and are
accompanied by meaningful cautionary statements regarding important factors that
could cause actual results to differ materially from those projected in the
statement. The Company desires to take advantage of the "safe harbor" provisions
of the Act, and is including the information set forth below in the Form 10-KSB
to point out the inherent difficulties in predicting the impact of certain
factors.
While the Company believes that its assumptions underlying any forward-looking
statements are reasonable, the following information includes important factors
which could cause the Company's actual results to differ materially from any
result which might be projected, forecasted, estimated, or budgeted by the
Company in its forward-looking statements, whether contained in this Form 10-KSB
or otherwise:
1. Heightened competition, including the intensification of price competition,
the entry of new competitors, and the introduction of new products by new and
existing competitors.
2. Failure to obtain new customers or retain existing customers.
<PAGE>
Environment One Corporation
Form 10-KSB
Part I (con't.)
Cautionary Statement for the Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995 (con't.)
3. Adverse publicity and news coverage impacting the Company's reputation and
sales potential.
4. Inability to carry out marketing and sales plans due to unforeseen factors.
5. Significant economic downturns in the geographic market areas serviced by the
Company.
6. Higher service, administrative, or general expenses occasioned by the need
for additional advertising, marketing, administrative, or management information
systems expenditures.
7. A lack of availability of raw materials, necessary manufacturing equipment,
or contract manufacturers to meet the Company's needs.
8. Underutilization of the Company's manufacturing resources, resulting in
production inefficiencies and higher costs.
9. Start-up expenses, inefficiencies, delays, and increased depreciation costs
in connection with the start of production in new facilities and expansions of
existing facilities.
10.The acquisition of fixed and other assets, including inventory and
receivables, and the making or incurring of any expenditures and expenses,
including but not limited to depreciation and research and development expenses.
11. Any revaluation of assets or related expenses and the amount of, and any
changes to, tax rates.
12. Loss or retirement of key executives.
13. Any activities of parties with which the Company has agreements or
understandings, including matters affecting any investment or joint venture in
which the Company has an investment.
14. The amount, type, and cost of the financing available to the Company, and
any changes to that financing.
15. Adverse results in significant litigation or regulatory proceedings.
16. Adverse changes in laws, regulations, interpretations, and enforcement
policies affecting the company and its business operations.
17. Natural disasters, work stoppages, and other events beyond the control of
the Company.
The foregoing list of factors should not be construed as exhaustive, or as any
admission regarding the adequacy of disclosures made by the Company prior to the
filing of this Form 10-KSB.
Item 2. Property
The Company's headquarters in Niskayuna, New York is located in a modern,
concrete and steel frame, electrically and gas heated and air conditioned
building on approximately 35 acres of wooded land owned in fee. This facility is
subject to a mortgage as described in Note 2 to the Company's consolidated
financial statements included in Item 7. All segments of the business are
operated from the Company's headquarters.
Management believes that the Company's facilities are well maintained, in good
operating condition, adequately covered by insurance and are well adapted to its
present needs.
<PAGE>
Environment One Corporation
Form 10-KSB
Part I (con't.)
Item 3. Legal Proceedings
In the second quarter of 1997, the Company was served with a complaint by a
former distributor, Abaxial Associates, Inc., who was terminated for cause in
1996. The action was filed in the Ontario Court of Justice (General Division),
in Toronto, Canada. Prior to termination, Abaxial Associates, Inc. was a
distributor for the Company's grinder pumps in the Province of Ontario. The
plaintiff's complaint seeks monetary damages in the amount of $1,600,000
(Canadian Dollars), plus interest and costs based on allegations of
misrepresentation and breach of contract relating to the Company's termination
of its relationship with the plaintiff.
Management of the Company is of the opinion that the claim, filed as a result of
termination of the business relationship with Abaxial Associates, Inc., is
unsubstantiated and without merit and that the Company acted properly in
terminating its relationship with Abaxial Associates, Inc. The Company has
engaged legal counsel in Toronto, Canada and intends to vigorously defend the
action. Although no assurances can be given, the Company's management believes
the ultimate outcome of this allegation will not have a material adverse affect
on the financial position or results of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
None
<PAGE>
Environment One Corporation
Form 10-KSB
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Price Range of Common Stock
The Company's common stock is traded on the The Nasdaq Stock Market (Nasdaq)
under the trading symbol EONE. The following table sets forth the high and low
sales prices of the common stock for the calendar quarters indicated, as
reported by the Nasdaq:
High Low
---- ---
1997
Quarter 1 7 3/4 5 5/8
Quarter 2 9 3/4 6 3/8
Quarter 3 10 1/4 8 3/4
Quarter 4 10 7/8 9 3/4
1996
Quarter 1 5 1/2 4 3/4
Quarter 2 6 4 1/2
Quarter 3 5 3/4 4 3/4
Quarter 4 6 5 3/8
Approximate Number of Security Holders
Title of Class: Approximate Number of Holders at 12/31/97:
--------------- ------------------------------------------
Common Stock $.10 par value 2150 (1)
(1) Includes shareholders of record in "nominee" or "street" name held by
brokers and others.
Dividends
The Company paid no dividends on its common stock during 1997 and 1996. The
Company's policy with regard to payment of dividends is evaluated annually with
consideration given to future growth and operating fund requirements. Currently,
Company policy is not to pay dividends.
<PAGE>
Environment One Corporation
Form 10-KSB
Part II (con't.)
Item 6. Management's Discussion and Analysis and Results of Operations
Cash provided from operations, as shown by the statement of cash flows (Item 7),
for 1997 was $2,789,000. This represented an increase of $1,862,000 when
compared to 1996. Net income represented $1,960,000 of the operating cash flow
while non-cash expenses of depreciation/amortization and compensation, current
and deferred, added $627,000 and $755,000, respectively. Major working capital
adjustments included an increase in receivables of $295,000 and a decrease in
accounts payable of $106,000 Investment in capital expenditures for 1997
amounted to $470,000 and represented an increase of $46,000 over 1996. The major
components of capital expenditures in 1997 were an upgrade to the Company's main
computer system, tooling and equipment expenditures in the Sewer Systems
Business for cost reduction, enhanced product performance and to improve the
manufacturing process along with a new trade show exhibit for the Sewer Systems
Business.
In January, 1996, the Company concluded an agreement with PROTEC Fire Detection,
plc of Nelson, Lancashire, England for the sale of its Cirrus IFD product line.
In a two-stage transaction with an approximate value of $750,000, the Company
transferred all Cirrus IFD assets and operations to PROTEC and simultaneously
entered into a product technology development contract that was concluded during
1996.
In September, 1996, the Company recognized the potential uncollectibility of a
note receivable from General Testing Corporation incurring a pre-tax write-off
of $136,000. After failure to receive timely payments on the note, the Company,
through legal counsel, served notice of default on the note to General Testing
Corporation. General Testing Corporation did not cure the payment defaults in
the period required. The Company has pursued collection on the note with little
success.
The following table shows selected balance sheet information for 1997 and 1996
expressed in thousands of dollars:
<TABLE>
<CAPTION>
1997 1996
------- ------
<S> <C> <C>
Current Assets ..... $10,405 7,614
Current Liabilities 4,049 3,628
Working Capital .... 6,356 3,986
Total Assets ....... 14,092 11,255
Long-Term Debt ..... 1,162 1,500
Shareholders' Equity 7,859 5,713
</TABLE>
In 1997, the Company, for all of its systems, began a year 2000 conversion
project to address all necessary changes, testing and implementation. Project
completion for internal systems is estimated to be 3/31/99. Cost for the project
is estimated to be immaterial. The bulk of the systems affected are serviced by
highly reliable third parties who have been contacted by Company personnel and
have provided feedback that any resulting changes will be done in a timely
manner to meet the 3/31/99 deadline.
<PAGE>
Environment One Corporation
Form 10-KSB
Part II (con't.)
Summary
The following table shows a summary of operating results for the years 1997 and
1996 expressed as a percentage of sales:
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
Net Sales
Sewer Systems 87.1 % 86.9 %
Detection Systems 10.9 8.8
Corporate 2.0 4.3
----- -----
Total Sales 100.0 100.0
Cost of Sales 61.9 66.2
----- -----
Gross Margin 38.1 33.8
Selling, Marketing and G&A 24.9 23.6
----- -----
Income from Operations 13.2 10.2
Other Expense .2 .8
----- -----
Income Before Income Taxes 13.0 9.4
Income Tax Expense 4.9 3.6
----- -----
Net Income 8.1 % 5.8 %
===== ====
</TABLE>
Notes: Amounts referred to below are set forth in Item 7. Gross changes
between years include all businesses. Detailed revenue and cost
analyses exclude the effect of the sale of the IFD as part of Detection
Systems.
Twelve Months Ended December 31, 1997 and 1996
Revenues for the period increased by $2,794,000 or 13.0% when compared to 1996.
Sewer Systems sales increased by $2,473,000 while Detection Systems sales
increased $759,000. The increased sales in Sewer Systems are attributable to the
investment and focus the Company has placed on sales and marketing. Increased
sales are being realized from the Company's revamped distribution system along
with project sales that are increasing in number and size.
The Detection Systems revenue increase is attributable to increases in both GCM
and HCC on a year to year comparative basis. Following the sale of the IFD
business, the Detection Systems selling and marketing organization was able to
focus on a single market, the electric power generation market, resulting in
increased penetration and sales to those customers. Also, the Company's sales of
the HCC benefited from being in its second full year after product introduction
in 1995.
<PAGE>
Environment One Corporation
Form 10-KSB
Part II (con't.)
Twelve Months Ended December 31, 1997 and 1996 (con't.)
Cost of Sales increased by $791,000 when compared to 1996. As a percent of
sales, cost of sales fell to 61.9% in 1997 versus 66.2% in 1996. Direct cost of
sales fell in terms of percent of sales due to product mix and material cost
reductions. Partially offsetting this was an increase in non-labor indirect cost
of sales.
Selling and Marketing costs increased $231,000 when compared to 1996. Sewer
Systems costs in this category increased $310,000 while costs in Detection
Systems decreased $49,000. Offsetting the overall increase were costs avoided
due to the sale of the IFD. Contributing to the increase in Sewer Systems
marketing costs were full year expenses associated with the operations of sales
offices opened in 1996 and the national sales manager hired in 1996, increased
cost for the Florida sales office, sales literature, sales promotion and trade
shows along with increased labor costs. Detection Systems marketing costs
decreased primarily due to reductions in labor and internal sales commission
expenses.
General and Administrative costs, including research and development (R&D)
expense, increased $765,000 over 1996. Excluding R&D, general and administrative
costs increased $727,000. The increase in general and administrative costs is
primarily a result of the growth performance sharing and deferred executive
compensation plan adopted in 1996. This plan allows for bonus and deferred
compensation to be paid and/or accrued only if the Company, as a whole, meets
specified targets for growth in sales, growth in earnings and return on assets.
Other general and administrative expenses showing increases in 1997 over 1996
were labor costs, investor relations, training, travel, legal, consultants and
miscellaneous expenses. Decreases in year to year expenses were realized in
expenses for directors fees, temporary help and allocation of facilities costs.
Research and development labor costs increased $67,000 while non-labor costs
decreased $29,000. R&D costs in Sewer Systems remained virtually flat while
costs in Detection Systems increased $38,000. The increase in Detection Systems
costs is primarily a result of increased expenditures related to new design work
in both the HCC and GCM that were incurred in 1997.
Interest expense decreased to $157,000 in 1997 when compared to $249,000 in
1996. Interest income of $40,000 was recorded due to overnight investment of the
available cash balances. The Company eliminated short-term line of credit
borrowing in 1997 while paying back $338,000 in principal payments on its
long-term debt. The Company's borrowing rate over bank prime rate remained at
prime for the line of credit and prime plus one-half point for the term loan.
Continued control over expenses and capital expenditures, cash provided by
operations, reductions in borrowing and reduced interest rates all contributed
to the reduction in interest expense on a comparative basis.
<PAGE>
Environment One Corporation
Form 10-KSB
Part II (con't.)
Twelve Months Ended December 31, 1997 and 1996 (con't.)
Income Taxes during 1997 and 1996 were $1,204,000 and $767,000, respectively. As
a percent of income before taxes, both years were approximately 38%.
Liquidity
Through cash provided by operations and availability under the operating line of
credit, the Company was able to meet its working capital needs and capital
expenditure requirements in 1997. The Company's line of credit availability was
increased to $5.0 million during 1997. There was no borrowing against the line
of credit as of December 31, 1997. The Company complied with all applicable loan
covenants throughout 1997 and 1996.
Management believes that the Company will be able to meet its cash requirements
in 1998 as a result of cash generated from operations. The line of credit
expires in April of 1998 and is currently being considered for renewal with the
Company's lender. Although no assurances can be given, management is confident
that, if requested, negotiations for renewal will result in a successful
outcome.
Effects of Inflation and Changing Prices
The impact of general inflation on the Company's operations has not been
significant to date and the Company believes inflation will continue to have an
insignificant impact. In response to the limited effect of inflation and
changing prices on the Company's manufacturing and operating costs, the Company
has historically used selling price adjustments, cost containment programs and
improved operating efficiencies to offset the otherwise negative impact on its
operations.
Item 7. Financial Statements
Index to Financial Statements:
Independent Auditors' Report
Consolidated Balance Sheet as of December 31, 1997
Consolidated Statements of Income for the Years Ended
December 31, 1997 and 1996
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1997 and 1996
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997 and 1996
Notes to Consolidated Financial Statements
<PAGE>
Independent Auditors' Report
The Shareholders and Board of Directors
Environment One Corporation:
We have audited the consolidated financial statements of Environment One
Corporation and subsidiary as listed in the accompanying index. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Environment One
Corporation and subsidiary as of December 31, 1997, and the results of their
operations and their cash flows for each of the years in the two-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
-------------------------
KPMG Peat Marwick LLP
Albany, New York
February 6, 1998, except as to note 11,
which is as of February 24, 1998
<PAGE>
<TABLE>
<CAPTION>
ENVIRONMENT ONE CORPORATION
AND SUBSIDIARY
Consolidated Balance Sheet
December 31, 1997
Assets
<S> <C>
Current assets:
Cash and cash equivalents .............................. $ 2,507,866
Receivables:
Trade (note 2) ..................................... 5,330,624
Other .............................................. 3,216
------------
5,333,840
Less allowance for doubtful accounts ............... (106,981)
------------
Net receivables ............................... 5,226,859
Inventories (note 2):
Finished products .................................. 483,906
Work in process .................................... 385,013
Raw materials and supplies ......................... 1,399,533
------------
Total inventories ............................. 2,268,452
Prepaid expenses and other current assets (note 5) ..... 401,837
------------
Total current assets .......................... 10,405,014
------------
Property, plant and equipment (note 2):
Land and land improvements ............................. 334,491
Building and building improvements ..................... 2,324,333
Machinery and equipment ................................ 5,371,630
Construction in progress ............................... 95,393
------------
8,125,847
Less accumulated depreciation .......................... 4,868,005
------------
Net property, plant and equipment ............. 3,257,842
Patents and other assets, net ............................... 104,185
Deferred income taxes (note 5) .............................. 325,197
------------
$ 14,092,238
============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ENVIRONMENT ONE CORPORATION
AND SUBSIDIARY
Consolidated Balance Sheet, Continued
December 31, 1997
Liabilities and Shareholders' Equity
<S> <C>
Current liabilities:
Book overdraft ............................................... $ 531,498
Current installments of long-term debt (note 2) .............. 338,100
Accounts payable ............................................. 1,812,407
Income taxes payable (note 5) ................................ 350,257
Accrued expenses:
Payroll and related costs (note 6) ....................... 457,777
Interest ................................................. 11,685
Warranty ................................................. 315,000
Other accrued expenses ................................... 232,194
------------
Total current liabilities ........................... 4,048,918
Long-term debt, excluding current installments (note 2) ........... 1,162,394
Deferred compensation (note 6) .................................... 953,429
------------
Total liabilities ................................... 6,164,741
------------
Minority interest ................................................. 68,760
------------
Shareholders' equity (note 4):
Common stock of $.10 par value per share. Authorized 6,000,000
shares; issued 4,257,724 shares .......................... 425,772
Additional paid-in capital ................................... 7,969,197
Accumulated deficit .......................................... (116,119)
------------
8,278,850
Less cost of 80,704 common shares in treasury (note 6) ....... (420,113)
------------
Total shareholders' equity .......................... 7,858,737
------------
Commitments and contingencies (notes 3, 10 and 11)
$ 14,092,238
============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ENVIRONMENT ONE CORPORATION
AND SUBSIDIARY
Consolidated Statements of Income
Years ended December 31, 1997 and 1996
1997 1996
------------ ------------
<S> <C> <C>
Net sales ........................................... $ 24,330,721 21,536,430
Cost of goods sold .................................. 15,048,746 14,258,235
------------ ------------
Gross profit ............................... 9,281,975 7,278,195
------------ ------------
Operating expenses:
Selling and marketing .......................... 2,734,121 2,502,644
General and administrative ..................... 3,333,238 2,568,645
------------ ------------
Total operating expenses ................... 6,067,359 5,071,289
------------ ------------
Income from operations ..................... 3,214,616 2,206,906
------------ ------------
Other income (expense):
Interest expense ............................... (157,220) (248,725)
Interest income ................................ 40,335 --
Miscellaneous income (notes 1(a) and 6) ........ 91,906 46,774
Minority interest in (income) loss of subsidiary (25,692) 16,237
------------ ------------
(50,671) (185,714)
------------ ------------
Income before income taxes ................. 3,163,945 2,021,192
Income tax expense (note 5) ......................... 1,203,900 766,505
------------ ------------
Net income ................................. $ 1,960,045 1,254,687
============ ============
Per share amounts:
Basic earnings ............................. $ .46 $ .30
============ ============
Diluted earnings ........................... $ .44 $ .29
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ENVIRONMENT ONE CORPORATION
AND SUBSIDIARY
Consolidated Statements of Shareholders' Equity
Years ended December 31, 1997 and 1996
Total
Additional share-
Common paid-in Accumulated Treasury holders'
stock capital deficit stock equity
----------- ------------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ 412,761 7,295,115 (3,330,851) (29,216) 4,347,809
Exercise of options (22,600 shares
of common stock) 2,260 16,778 - (14,340) 4,698
Tax benefit from exercise of options - 38,182 - - 38,182
Acquisition of 6,775 shares of
common stock - - - (34,490) (34,490)
Issuance of 999 shares of
common stock from treasury - 1,189 - 3,806 4,995
Issuance of 19,755 shares of
common stock 1,976 95,525 - - 97,501
Net income - 1996 - - 1,254,687 - 1,254,687
----------- ------------- ------------- ----------- --------------
Balance at December 31, 1996 416,997 7,446,789 (2,076,164) (74,240) 5,713,382
Exercise of options (5,500 shares
of common stock) 550 13,126 - (6,579) 7,097
Tax benefit from exercise of options - 7,414 - - 7,414
Issuance of 82,257 shares of
common stock 8,225 491,242 - (369,461) 130,006
Issuance of 5,363 shares of common
stock from treasury - - - 30,167 30,167
Compensation expense on issuance of
10,000 warrants - 10,626 - - 10,626
Net income - 1997 - - 1,960,045 - 1,960,045
----------- ------------- ------------- ----------- --------------
Balance at December 31, 1997 $ 425,772 7,969,197 (116,119) (420,113) 7,858,737
=========== ============= ============= =========== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ENVIRONMENT ONE CORPORATION
AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1997 and 1996
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income .................................................. $ 1,960,045 1,254,687
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ......................... 627,498 596,293
Gain on termination of defined benefit pension plan ... (63,000) --
Gain on sale of equipment and patents ................. -- (291,544)
Loss on write-off of note receivable .................. -- 135,533
Minority interest in income (loss) of subsidiary ...... 25,692 (16,237)
Non-cash compensation expense ......................... 140,632 102,496
Accrual for deferred compensation ..................... 614,135 369,461
Deferred income taxes ................................. (191,739) (271,539)
Increase in receivables ............................... (295,438) (2,209,701)
Decrease (increase) in inventories .................... 3,648 (422,539)
Decrease (increase) in prepaid expenses ............... (66,832) 4,378
Increase (decrease) in accounts payable ............... (106,459) 774,313
Increase in income taxes payable ...................... 48,127 347,726
Increase in accrued expenses .......................... 93,030 554,013
----------- -----------
Net cash provided by operating activities ......... 2,789,339 927,340
----------- -----------
Cash flows from investing activities:
Capital expenditures, including patents ..................... (469,605) (423,701)
Proceeds from sale of equipment and patents ................. -- 300,000
----------- -----------
Net cash used in investing activities ............. (469,605) (123,701)
----------- -----------
Cash flows from financing activities:
Net increase in book overdraft .............................. 531,498 --
Net decrease in note payable to bank ........................ (75,000) (475,000)
Proceeds from issuance of common stock ...................... 7,097 4,698
Purchases of treasury stock ................................. -- (34,490)
Capital contribution by minority interest ................... -- 10,775
Principal payments on long-term debt ........................ (338,100) (338,100)
----------- -----------
Net cash provided by (used in) financing activities 125,495 (832,117)
----------- -----------
Net increase (decrease) in cash and cash equivalents ............ 2,445,229 (28,478)
Cash and cash equivalents at beginning of year .................. 62,637 91,115
----------- -----------
Cash and cash equivalents at end of year ........................ $ 2,507,866 62,637
=========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ENVIRONMENT ONE CORPORATION
AND SUBSIDIARY
Consolidated Statements of Cash Flows, Continued
Years ended December 31, 1997 and 1996
1997 1996
---------- ----------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ................................................ $ 163,167 251,503
========== ==========
Income taxes ............................................ $1,347,512 689,173
========== ==========
Supplemental disclosure of non-cash financing activity:
Exchange of 892 and 2,390 shares of common stock in full and
partial payment of exercise price on options during 1997 and
1996, respectively ......................................... $ 6,579 14,340
========== ==========
Tax benefit from exercise of stock options .................. $ 7,414 38,182
========== ==========
Issuance of 65,681 deferred compensation shares to treasury .... $ 369,461 --
========== ==========
Issuance of 5,363 deferred compensation shares from treasury ... $ 30,167 --
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
ENVIRONMENT ONE CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
(1) Summary of Significant Accounting Policies
(a)Description of Business
Environment One Corporation (the "Company") is an
environment-oriented product and service company, which started
operations in January of 1969. The Company operates in two
business segments: (1) low pressure sewer systems, and (2)
detection systems.
The Sewer Systems business primarily manufactures and services
grinder pumps pioneered by the Company to make low pressure
sewer systems feasible. The low pressure sewer system has proven
to be an economical and effective method of sewering otherwise
difficult land developments including: waterfront, hilly
terrain, very flat lands and areas with high water tables. As
more and more communities are looking for cost effective
solutions to waste water collection problems, Environment One
Corporation's solution, EONE Sewers, is increasingly used in
mainstream municipal and developer applications. The principal
markets served by the Company are city and county sewer
districts, builders, land developers, and individual homeowners.
Products are sold by direct sales from the Company's marketing
function and through dealer networks across the United States,
Canada, Europe, and Japan. There are other pump manufacturers
offering grinder pumps for these markets. All but one of the
Company's competitors offer a centrifugal type of pump.
The Detection Systems business manufactures the Generator Condition
Monitor and the Hydrogen Control Cabinet. The Generator
Condition Monitor is designed to provide early warning of
certain thermal failure conditions, which could lead to shutdown
of hydrogen cooled electric power generators. The Hydrogen
Control Cabinet continuously analyzes the purity of hydrogen and
controls the rate of scavenging in hydrogen cooled turbine
generators. The Detection Systems products are sold by direct
sales from the Company's marketing function and through an
independent network of distributors in the United States,
Canada, and a few countries overseas. There are believed to be
only two other manufacturers of this type of detection systems
equipment worldwide.
The Company concluded an agreement with PROTEC Fire Detection, plc
of Nelson, Lancashire, England on January 16, 1996 for the sale
of its Cirrus IFD product line, previously a component of the
Detection Systems business. As a part of this agreement, the
Company sold all Cirrus IFD assets, with a net book value at the
date of sale of $8,456, for a realized gain of $291,544. The
gain, net of certain other expenses, is included in
miscellaneous income in the accompanying 1996 consolidated
statement of income.
<PAGE>
ENVIRONMENT ONE CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
In April 1994, the Company sold its measurements division which had
previously been a component of the Detection Systems business.
As part of the consideration received in this sale, the Company
accepted a five-year promissory note receivable of $141,458.
During 1996, the Company determined that the remaining balance
on the note was uncollectible and recorded a loss on the
write-off of the outstanding balance of $135,533. The loss is
included in miscellaneous income in the accompanying 1996
consolidated statement of income.
(b)Principles of Consolidation
The consolidated financial statements include the financial
statements of Environment One Corporation and its majority-owned
foreign subsidiary, which was incorporated in 1990. All
significant intercompany balances and transactions have been
eliminated in consolidation.
(c)Cash Equivalents
Cash equivalents of $2,289,844 at December 31, 1997 consist of
overnight Eurodollar time deposits issued by a significant
Northeastern United States bank. These overnight time deposits
are not insured by the Federal Deposit Insurance Corporation.
For purposes of the consolidated statements of cash flows, the
Company considers all highly liquid debt instruments with
original maturities of three months or less to be cash
equivalents.
(d)Per Share Amounts
On December 31, 1997, the Company adopted the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 128,
Earnings per Share. SFAS No. 128 establishes standards for
computing and presenting earnings per share ("EPS"). SFAS No. 128
supersedes Accounting Principles Board ("APB") Opinion No. 15,
Earnings per Share and related interpretations. SFAS No. 128
requires dual presentation of basic and diluted EPS on the face
of the income statement for all entities with complex capital
structures and specifies additional disclosure requirements.
Basic EPS excludes dilution and is computed by dividing income
available to common shareholders by the weighted average number
of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity
(such as stock options). All prior-period EPS data have been
restated to conform to the provisions of SFAS No. 128.
<PAGE>
ENVIRONMENT ONE CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
The following tables provide calculations of basic and diluted
earnings per share:
Year ended December 31, 1997
<TABLE>
<CAPTION>
Weighted Per
Net average share
income shares amounts
---------- ---------- -----
<S> <C> <C> <C>
Basic earnings per share ............. $1,960,045 4,228,077 $ .46
=====
Effect of dilutive securities:
Options and warrants ............. -- 147,016
Deferred compensation plan ....... -- 58,489
---------- ----------
Diluted earnings per share ........... $1,960,045 4,433,582 $ .44
========== ========== =====
</TABLE>
Year ended December 31, 1996
<TABLE>
<CAPTION>
Weighted Per
Net average share
income shares amounts
---------- ---------- ----
<S> <C> <C> <C>
Basic earnings per share .......... $1,254,687 4,128,175 $.30
====
Effect of dilutive securities:
Options ....................... -- 90,156
Deferred compensation plan .... -- 65,681
---------- ---------- ----
Diluted earnings per share ........ $1,254,687 4,284,012 $.29
========== ========== ====
</TABLE>
(e)Revenues, Costs and Inventories
Sales and related cost of goods sold are recognized when products
are shipped to customers. Inventories are valued at the lower of
cost or market (net realizable value), costs being determined
principally on the basis of standards, which approximate average
current production costs.
<PAGE>
ENVIRONMENT ONE CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(f) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation on
property, plant and equipment is computed using the
straight-line method for financial reporting purposes, and
accelerated methods for income tax purposes. For financial
reporting purposes, the Company provides for depreciation of
property, plant and equipment over the following estimated
useful lives:
Land improvements 5-20 years
Building and building improvements 5-45 years
Machinery and equipment 2-20 years
(g)Patents and Other Assets
The costs of patents covering products expected to be viable are
deferred and amortized on a straight-line basis over twenty
years from the date of filing or seventeen years from the date
of issue, whichever is greater. The deferred costs of specific
patent applications are written off if a patent application is
rejected. Loan financing fees are amortized straight line over
the term of the loan to which they relate.
(h)Research and Development
All research and development costs are charged directly to
operations as incurred. Research and development costs of
approximately $215,000 and $177,000 during 1997 and 1996,
respectively, are included in general and administrative
expenses.
(i) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and tax credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
(j) Foreign Currency Translation
Accounts of the foreign subsidiary have been translated into U.S.
dollars substantially in accordance
with SFAS No. 52.
(k)Stock Option Plans
Prior to January 1, 1996, the Company accounted for its stock option
plan in accordance with the provisions of APB Opinion No. 25,
Accounting for Stock Issued to Employees, and related
interpretations. As such, compensation expense would be recorded
on the date of grant only if, and to the extent that, the
current market price of the underlying stock exceeded the
<PAGE>
ENVIRONMENT ONE CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
exercise price. On January 1, 1996, the Company adopted SFAS No.
123, Accounting for Stock-Based Compensation, which permits
entities to recognize as expense over the vesting period the
fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to
apply the provisions of APB Opinion No. 25 and provide pro forma
net income and pro forma earnings per share disclosures for
employee stock option grants made in 1995 and future years as if
the fair-value based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma
disclosure requirements of SFAS No. 123.
(l) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
Of
The Company adopted the provisions of SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, on January 1, 1996. This Statement requires that
long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset.
If such assets are considered to be impaired, the impairment to
be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets.
Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell. Adoption of
SFAS No. 121 did not have a material impact on the Company's
financial position, results of operations or liquidity.
(m)Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to
prepare these consolidated financial statements in conformity
with generally accepted accounting principles. Actual results
could differ from those estimates.
(2) Short-term and Long-term Debt
The Company has available a $5,000,000 line of credit of which $5,000,000
is available at December 31, 1997. The line is secured by trade
accounts receivable and inventories. The Company had $0 outstanding on
this line of credit at December 31, 1997. The interest rate on this
short-term borrowing at December 31, 1997 is based upon the bank's
prime rate and was 8.50%. The line of credit, unless extended or
renewed, expires on April 29, 1998.
<PAGE>
ENVIRONMENT ONE CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
The Company's long-term debt consisted of the following at December 31,
1997:
<TABLE>
<CAPTION>
<S> <C>
Construction note, payable in installments of $28,175
monthly beginning January 1, 1995, plus interest based
on the bank's prime rate plus (% at December 31, 1997
(9.0% at December 31, 1997), maturing December 31, 2000.
Secured by real property $ 1,500,494
Less installments due within one year 338,100
------------
Long-term debt, excluding current installments $ 1,162,394
============
</TABLE>
The line of credit and construction loan agreements require compliance
with certain financial loan covenants related to minimum current, debt
service coverage and debt to worth ratios, as well as minimum working
capital and net worth, and limitations on capital expenditures. At
December 31, 1997, the Company was in compliance with these covenants.
Future principal payments on long-term debt are as follows:
1998 $ 338,100
1999 338,100
2000 824,294
----------
$1,500,494
==========
The Company is not required to maintain compensating balances pursuant to
the credit terms under its line of credit with the bank.
(3) Leases
The Company is a party to noncancellable operating leases for the rental
of equipment and office space. Total rent expense incurred by the
Company under operating leases during 1997 and 1996 was $34,889 and
$17,057, respectively.
The future minimum lease payments under noncancellable operating leases
as of December 31, 1997 are as follows:
Year ending
1998 $ 51,659
1999 40,409
2000 37,614
2001 17,306
--------
$146,988
========
<PAGE>
ENVIRONMENT ONE CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(4) Shareholders' Equity
During 1997 and 1996, 5,500 and 22,600 shares of the Company's common
stock were issued upon exercise of stock options for $13,676 and
$19,038, respectively. In addition, during 1997 and 1996, 10,000
shares of common stock were issued to the Company's Chairman as
compensation and valued in the amount of $70,000 and $47,501
respectively. During 1996, 999 shares of common stock held in treasury
were issued as compensation to other individuals and valued in the
amount of $4,995.
Also, during 1997, the Company issued 10,000 warrants at an exercise
price of $9.125 to an outside consultant, that resulted in a charge to
earnings in the amount of $10,626 using the Black Scholes
option-pricing model.
(a)Amended and Restated Stock Option Plan
The Company's Amended and Restated Stock Option Plan was established
in 1971 authorizing 100,000 shares for option grants. During
1991, the shareholders approved an amendment to the plan,
authorizing 400,000 shares for option grants. Under the plan,
options to purchase common shares may be granted to directors,
officers and other key employees of the Company, and such shares
may be authorized and unissued shares, or issued and reacquired
shares, as determined by the Board of Directors. The option
price per share may not be less than the fair market value of a
share of common stock on the date the option is granted, and the
maximum term of an option may not exceed ten years. Options
granted under the plan generally are exercisable 20% per year
beginning one year from the date of grant. During 1997 and 1996,
the Company granted options for 10,715 and 38,182 shares,
respectively, under this plan.
At December 31, 1997 and 1996, the Company has reserved 319,691 and
316,976 shares, respectively, of its common stock for the
exercise of stock options under this plan, of which 278,634 and
246,285 shares, respectively, were exercisable. The
weighted-average exercise price per share of those options
exercisable under this plan was $3.28 and $3.14 at December 31,
1997 and 1996, respectively.
(b)1996 Incentive Compensation Plan
During 1996, the Company adopted a stock award and incentive plan
that permits the issuance of incentive stock options,
non-qualified stock options, stock appreciation rights (SARS)
and restricted stock awards to selected directors, officers and
key employees of the Company, and such shares may be authorized
and unissued shares, or issued and reacquired shares, as
determined by the Board of Directors. The plan allows grants for
options on 300,000 shares of common stock and provides that the
term of each award be determined by the Committee of the Board
of Directors ("Committee") charged with administering the plan,
but cannot exceed 10 years.
<PAGE>
ENVIRONMENT ONE CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
Under the terms of the plan, options granted may be either
non-qualified or incentive stock options and the exercise price,
determined by the Committee, may not be less than the fair
market value of a share of common stock on the date of grant.
SARS, and SARS granted in tandem with options, shall be
exercisable only to the extent the underlying options are
exercisable, and in no event less than six months from the date
of grant, and the grant price shall be equal to the exercise
price of the underlying options. In addition, the Committee may
grant restricted stock to participants of the plan at no cost.
Other than the restrictions that limit the sale and transfer of
these shares, participants are entitled to all rights of a
shareholder. During 1997 and 1996, the Company granted incentive
stock options for 57,785 and 24,000 shares, respectively, under
this plan.
At December 31, 1997 and 1996, the Company has reserved 81,785 and
24,000 shares, respectively, of its common stock for the
exercise of options under this plan of which 11,943 and 0
shares, respectively, were exercisable. The weighted average
exercise price per share of those options exercisable under this
plan was $6.26 at December 31, 1997.
(c)Plans for Non-Employee Directors
During 1996, the Company adopted a non-qualified stock option plan
for the benefit of all directors who are not employees of the
Company. The plan allows grants for options on 100,000 shares of
common stock and such shares may be authorized and unissued
shares, or issued and reacquired shares, as determined by a
committee of the Board of Directors comprised of disinterested
directors.
The option price per share may not be less than the fair market
value of a share of common stock on the date the option is
granted , and the maximum term of an option may not exceed ten
years. Options granted under the plan shall become exercisable
in full one year from the date of grant. During 1997 and 1996,
the Company granted 5,856 and 9,090 shares, respectively, under
this plan.
At December 31, 1997 and 1996, the Company has reserved 14,946 and
9,090 shares, respectively, of its common stock for the exercise
of options under this plan of which 9,090 shares were
exercisable at December 31, 1997.
In addition, during 1996, the Company established a stock grant
plan for non-employee directors that entitles each non-employee
director to receive a stock grant equivalent to $10,000 on
September 1st of each year following election to the Board of
Directors. The grant is in lieu of all cash compensation for
their participation on the Board of Directors. For the years
ended December 31, 1997 and 1996, the Company granted 6,576 and
9,755 shares of common stock, the equivalent of $60,006 and
$50,000, respectively, which has been recognized as non-cash
compensation expense in the accompanying consolidated statements
of income.
<PAGE>
ENVIRONMENT ONE CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
The following tables summarize, by date of grant, the number of
options and warrants issued and the exercise price per share.
Options are generally exercisable 20% per year beginning one
year from date of grant and expire ten years from date of grant:
Date of Grant Number of Options Issued Option Price
------------- ------------------------ ------------
June 1988 22,500 $ 0.9375
May 1990 19,000 $ 2.3750
July 1991 16,500 $ 1.4375
July 1992 30,000 $ 2.8750
April 1993 47,000 $ 2.6250
May 1994 41,000 $ 2.3750
May 1995 48,500 $ 3.0000
May 1995 100,000 (a) $ 2.8500
December 1995 14,544 (b) $ 5.5000
May 1996 23,182 (a) $ 5.2500
July 1996 36,500 $ 5.1300
September 1996 2,500 $ 5.3750
December 1996 9,090 (b) $ 5.5000
March 1997 34,000 $ 6.5000
May 1997 25,000 (a) $ 7.0000
October 1997 9,500 $ 10.6250
December 1997 5,856 (b) $ 10.2500
(a) Exercisable 50% at date of grant and 50% one year from the date
of grant.
(b) Exercisable in full one year from the date of grant.
Date of Grant Number of Warrants Issued Warrant Price
September 1997 10,000 (c) $ 9.1250
(c) Exercisable 100% at date of grant.
<PAGE>
ENVIRONMENT ONE CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
The following table summarizes stock option transactions during 1997 and
1996:
<TABLE>
<CAPTION>
Weighted-average
Option shares exercise price per share
------------- ------------------------
<S> <C> <C>
Balance at December 31, 1995 304,894 $ 2.70
Options granted 71,272 5.22
Options exercised (22,600) 0.84
Options expired (3,500) 2.45
-----------
Balance at December 31, 1996 350,066 3.34
Options granted 74,356 7.49
Options exercised (5,500) 2.49
Options expired (2,500) 2.62
-----------
Balance at December 31, 1997 416,422 4.09
===========
</TABLE>
The following table summarizes those stock options outstanding and
exercisable at December 31, 1997:
<TABLE>
<CAPTION>
Weighted-
Weighted- average Weighted-
average remaining average
Shares exercise contractual Shares exercise
Range option exercise price outstanding price life exercisable price
--------------------------- ----------- ----- ---- ----------- -----
<S> <C> <C> <C> <C> <C>
$ 0.9375 - 1.4375 10,750 $ 1.40 3.3 years 10,750 $ 1.40
2.3750 - 3.0000 245,500 2.77 6.7 years 209,800 2.78
5.1300 - 7.0000 144,816 5.86 8.8 years 79,117 5.57
10.2500 - 10.6250 15,356 10.48 9.9 years - -
----------- -----------
416,422 299,667
=========== ===========
</TABLE>
<PAGE>
ENVIRONMENT ONE CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
The per share weighted-average fair value of stock options granted during
1997 and 1996 was $4.48 and $3.22 on the dates of grant using the
Black Scholes option-pricing model with the following weighted-average
assumptions: 1997 - expected dividend yield of 0%, risk-free interest
rate of approximately 6.5%, volatility of approximately 35%, and an
expected life of 10 years; 1996 - expected dividend yield of 0%,
risk-free interest rate of approximately 6.5%, volatility of
approximately 37%, and an expected life of 10 years.
The Company applies APB Opinion No. 25 in accounting for its stock option
plans and, accordingly, no compensation cost has been recognized for
its stock options in the accompanying consolidated statements of
income. Had the Company determined compensation cost based on the fair
value at the grant date for its stock options under SFAS No. 123, the
Company's net income and related per share amounts would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996
--------------- ------------
<S> <C> <C>
Net income:
As reported $ 1,960,045 1,254,687
=============== ============
Pro forma $ 1,890,151 1,113,193
=============== ============
Per share amounts:
Basic earnings per share
As reported $ .46 .30
=============== ============
Pro forma $ .45 .27
=============== ============
Diluted earnings per share
As reported $ .44 .29
=============== ============
Pro forma $ .43 .26
=============== ============
</TABLE>
Pro forma net income and earnings per share reflect only options granted
after January 1, 1995. Therefore, the full impact of calculating
compensation cost for stock options under SFAS No. 123 is not
reflected in the pro forma amounts presented above because
compensation cost is reflected over the options' vesting periods,
generally five years, and compensation cost for options granted prior
to January 1, 1995 is not considered.
<PAGE>
ENVIRONMENT ONE CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(5) Income Taxes
Income tax expense for the years ended December 31, 1997 and 1996
consists of:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Current:
Federal $ 1,275,647 958,044
State 119,992 80,000
----------- -----------
1,395,639 1,038,044
Deferred (191,739) (271,539)
----------- -----------
$ 1,203,900 766,505
=========== ===========
</TABLE>
The following table reconciles the expected tax expense at the Federal
statutory rate to the effective tax rate.
<TABLE>
<CAPTION>
1997 1996
------------------------ ------------------------
Amount % Amount %
----------- ---- ----------- ----
<S> <C> <C> <C> <C>
Computed expected tax expense $ 1,075,741 34.0% $ 687,205 34.0%
State taxes, net of Federal benefit 79,195 2.5 52,800 2.6
Research and experimentation credit (13,826) (0.4) (6,600) (0.3)
Loss (income) of foreign subsidiary (20,820) (0.7) 12,881 0.6
Nondeductible expenses 23,943 0.8 15,247 0.8
Other 59,667 1.9 4,972 0.2
----------- ---- ----------- ----
$ 1,203,900 38.1% $ 766,505 37.9%
=========== ==== =========== ====
</TABLE>
<PAGE>
ENVIRONMENT ONE CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
For the year ended December 31, 1997, the deferred income tax benefit of
$191,739 results from the changes in temporary differences. The tax
effects of temporary differences that give rise to deferred tax assets
and deferred tax liabilities as of December 31, 1997 are presented
below:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax assets:
Accounts receivable, due to allowance for
doubtful accounts $ 36,374
Inventories, principally due to additional costs
inventoried for tax purposes pursuant to the Tax Reform
Act of 1986 and inventory reserves 80,405
Warranty accrual 107,100
Pension settlement 16,421
Deferred compensation 324,166
Property, plant and equipment, due to differences in
depreciation lives and methods 1,031
------------
Total gross deferred tax assets 565,497
Less valuation allowance -
------------
565,497
Deferred tax liability:
Prepaid expenses (11,334)
------------
Net deferred tax asset $ 554,163
============
</TABLE>
At December 31, 1996, the net deferred tax asset was $362,424 and there
was no recorded valuation allowance.
At December 31, 1997, the Company has New York State investment tax
credit carryforwards of approximately $20,000.
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary
differences become deductible. Management considers the projected
future taxable income and tax planning strategies, as well as
carryback opportunities, in making this assessment. In order to fully
realize the net deferred tax asset, the Company will need to generate
future taxable income of approximately $1,600,000. For the years ended
December 31, 1997 and 1996, the Company's Federal taxable income was
approximately $3,300,000 and $2,600,000, respectively. Based upon the
level of historical taxable income, projections for future taxable
income and carryback opportunities over the periods in which the
deferred tax assets are deductible, management believes it is more
likely than not the Company will realize the benefits of these
deductible differences. The amount of the deferred tax asset
considered realizable, however, could be reduced in the near term if
estimates of future taxable income are reduced.
<PAGE>
ENVIRONMENT ONE CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
At December 31, 1997, $228,966 of deferred tax assets are included in
other current assets.
(6) Employee Benefit Plans
(a)Retirement and Profit Sharing Plans
During 1997, the Company terminated its non-contributory defined
benefit pension plan and all eligible employees were provided
with the opportunity to receive a lump-sum payment, rollover the
amount available to their respective 401(k) participant account
or have an annuity purchased on their behalf. As a result of the
termination, the Company realized a gain of $63,000.
Net periodic pension cost for the year ended December 31, 1996
included the following components:
Service cost - benefits earned during
the period $ 143,561
Interest cost on projected benefit
obligation 94,985
Actual return on plan assets (40,671)
Net amortization and deferral 1,247
----------
Net periodic pension cost $ 199,122
==========
Assumptions used in accounting for the pension plan as of December
31, 1996 were:
Discount rate 7.25%
Rate of increase in compensation levels 6.00%
Expected long-term rate of return on assets 8.00%
During 1992, the Company established a 401(k) savings plan that is
available to all employees who meet certain eligibility
requirements. The Company does not contribute to this plan as of
December 31, 1997.
(b)Deferred Compensation Plans
(i) Growth Performance Sharing
During 1996, the Company established a Growth Performance
Sharing ("GPS") plan for all employees based on the
achievement of certain objectives that include sales growth,
profit growth and return on assets. During 1997 and 1996, the
Company recorded $447,284 and $357,126, respectively, of
expense under the GPS plan, and at December 31, 1997 the
unpaid portion, in the amount of $272,792, is included in
accrued payroll and related costs in the accompanying 1997
consolidated balance sheet.
<PAGE>
ENVIRONMENT ONE CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(ii) Deferred Compensation Plan
Effective January 1, 1996, the Company adopted the Deferred
Compensation Plan for Certain Executive Employees (the
"Plan"), which is a non-qualified deferred compensation plan
for a select group of management and highly-compensated
employees. The purpose of the Plan is to permit eligible
employees to defer the receipt of up to 75% of future GPS
bonuses, to have the deferred GPS bonuses applied to acquire
shares of common stock, and to have the shares distributed at
a future date selected by the employee or, if earlier, upon
the employee's involuntary termination of employment. The
Company will match an additional amount equal to 25% of the
deferred GPS bonus.
During 1997, the Company issued 65,681 shares of common stock,
with a cost of $369,461, to a rabbi trust for distribution to
the participating employees at such time as elected. Those
shares placed in the trust have been accounted for as treasury
shares by the Company and there is no additional compensation
expense recorded for appreciation in share value. As
originally elected, one employee received a distribution of
5,363 shares of common stock from treasury.
During 1997 and 1996, the Company recorded $614,135 and
$369,461, respectively, of expense under the Plan.
(7) Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
(a) Cash and Cash Equivalents, Accounts Receivable, Book Overdraft,
Accounts Payable, Income Taxes Payable and Accrued Expenses
The carrying amount of cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses approximates
fair value because of the short maturity of these instruments.
(b)Long-term Debt
The interest rate on the Company's long-term debt is periodically
reset according to changes in the bank's prime rate which is
reflective of current market rates (see note 2). Consequently,
the carrying value of the long-term debt approximates fair
value.
(8) Industry Segment Information
The Company's operations consist of two segments that are concerned with
the development, production and marketing of products. Sewer Systems
consists of products designed to transport and treat sanitary sewer
waste. Operations of the Detection Systems segment include the
production and sale of products designed to protect equipment and
facilities and until January 1996 included the production and sale of
the Cirrus IFD product line as discussed in note 1(a). For the years
ended December 31, 1996 and 1997, the revenue, income from operations
and total assets specifically attributable to the Cirrus IFD product
<PAGE>
ENVIRONMENT ONE CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
line have been recorded within Corporate due to the sale of this
product line. Also, during 1996 the Company established a Growth
Performance Sharing plan, as discussed in note 6(b), that is based on
the Company's achievement of certain objectives. The expenses recorded
by the Company under this plan have been presented within Corporate
because such expenses are based upon the performance of the Company as
a whole. Total revenue includes sales to unaffiliated customers; there
are no intersegment sales.
<TABLE>
<CAPTION>
Sales to unaffiliated customers Income (loss) from operations
------------------------------- -----------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sewer Systems $ 21,196,777 18,724,259 2,997,062 2,237,321
Detection Systems 2,652,961 1,893,907 1,156,718 463,638
Corporate 480,983 918,264 (939,164) (494,053)
-------------- -------------- ------------ -------------
Total $ 24,330,721 21,536,430 3,214,616 2,206,906
============== ============== ============ =============
<CAPTION>
Total assets
---------------------------------
1997 1996
---- ----
<S> <C> <C>
Sewer Systems $ 8,939,881 8,728,565
Detection Systems 1,324,173 999,135
Corporate 3,828,184 1,517,974
------------- --------------
Total $ 14,092,238 11,245,674
============= ==============
<CAPTION>
Property, plant and equipment
------------------------------------------------------------------------------
Additions Depreciation and amortization
------------------------------- -----------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sewer Systems $ 220,623 319,050 440,129 441,867
Detection Systems 9,630 29,800 43,511 47,568
Corporate 214,407 54,918 74,192 74,170
------------- ------------- ----------- -----------
Total $ 444,660 403,768 557,832 563,605
============= ============= =========== ===========
</TABLE>
<PAGE>
ENVIRONMENT ONE CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
Amortization and abandonment
of intangible assets
----------------------------
1997 1996
---- ----
<S> <C> <C>
Sewer Systems $ 69,666 32,688
Detection systems - -
--------- ---------
Total $ 69,666 32,688
========= ==========
</TABLE>
Export sales of low pressure sewer systems were approximately 6.1% and
2.8% of total Company sales in 1997 and 1996, respectively. Export
sales of detection instruments were approximately 6.3% and 4.5% of
total Company sales in 1997 and 1996, respectively.
(9) Business and Credit Concentrations
(a)Concentration of Credit Risk and Sales to Major Customers
Financial instruments which potentially subject the Company to a
concentration of credit risk principally consist of trade
receivables. The Company sells products to customers primarily
in the United States. At December 31, 1997 and 1996, eight
customers comprised approximately 49% and 43%, respectively, of
trade accounts receivable. To reduce credit risk, the Company
performs ongoing credit evaluations of customers but generally
does not require collateral. Allowances are maintained for
potential credit losses, and such losses have been within
management's expectations.
During 1997 and 1996, sales to eight customers comprised
approximately 42% and 36%, respectively, of the Company's
consolidated net sales. No individual customer comprised more
than 10% of consolidated net sales in 1997 and 1996.
(b)Concentration of Purchasing Risk
During both 1997 and 1996, approximately 52% of the Company's
purchases were made from ten vendors. No individual vendor
comprised more than 10% of total purchases in 1997 and 1996.
(10) Contingent Liabilities
During 1997, an action was brought against the Company based on
allegations of misrepresentation and breach of contract relating to
the Company's termination of its relationship with Abaxial Associates,
Inc. (the "plaintiff"). The plaintiff seeks monetary damages in the
amount of $1,600,000 (CDN), plus interest and certain other costs. In
the opinion of management, the plaintiff's business relationship with
the Company was terminated for cause and the claim is unsubstantiated
and without merit. Although no assurances can be given, the Company's
management believes the ultimate outcome of this allegation will not
have a material adverse affect on the financial position or results of
operations of the Company.
<PAGE>
ENVIRONMENT ONE CORPORATION
AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(11) Subsequent Event
On February 24, 1998, the Company entered into an Agreement and Plan of
Merger (the "Agreement") with Precision Castparts Corp. and EOC
Acquisition Corporation providing for the acquisition, subject to the
terms and conditions of the Agreement, by Precision Castparts Corp.,
through its wholly-owned subsidiary EOC Acquisition Corporation, of
all the outstanding shares, including all options and warrants (vested
and unvested), of common stock of the Company for $15.25 per share in
cash, net of the exercise price in the case of all options and
warrants. Under the terms and conditions of the Agreement, the Company
will be the surviving corporation and a wholly-owned subsidiary of
Precision Castparts Corp.
As a result of the Company's acceptance of the terms and conditions of
the Agreement, the Company will be required to pay an outside
consultant a transaction fee, contingent on the closing of the
aforementioned transaction, of approximately $800,000. In addition,
the Company has agreed to indemnify the outside consultant against
certain liabilities, if any.
Additionally, as a result of the Company's acceptance of the terms and
conditions of the Agreement, the Company will be required under the
conditions of a Change in Control Agreement dated January 5, 1998, to
pay the Company's Chairman approximately $350,000, plus a prorated
portion of any 1998 bonus amount to which he is entitled. Also, the
Company has agreed to waive any required health insurance premium that
would be due from the Chairman for a twelve-month period following his
termination.
In addition, pursuant to the Agreement, the Company has entered into
certain other ancillary agreements with specific directors, officers
and key employees of the Company. These agreements are as follows:
(i) The Company entered into employment agreements with eight
named officers and employees for periods of one to two years.
(ii) The Company entered into a stockholder agreement with certain
named directors, officers and employees, under which those
individuals agreed to tender all of their respective shares,
including all options (vested and unvested), of common stock
so long as the offer price is not less than $15.25 per share
in cash.
<PAGE>
Environment One Corporation
Form 10-KSB
Part II (con't.)
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
None
Environment One Corporation
Form 10-KSB
Part III
Item 9. Directors and Executive Officers of the Company
Date
Name Position Office Began Age
---- -------- ------------ ---
Walter W. Aker Director Dec 1968 79
Mark E. Alexander Vice President January 1998 41
John L. Allen Director May 1993 54
Stephen V. Ardia Chairman May 1995 56
President, CEO Sept 1996
David M. Doin Vice President Sept 1991 42
Angelo Dounoucos Director May 1988 65
President, CEO Retired, Sept 1996
Lars Grenback Director May 1993 54
Robert G. James Director May 1984 73
Rolf E. Soderstrom Director May 1991 65
Philip W. Welsh Vice President May 1995 40
Treasurer, CFO
All executive officers of the Corporation are included in the preceding table.
Executive officers serve until the Board of Directors' meeting immediately
following the Annual Meeting of Shareholders or until their successors are
elected.
Directors elected at the Company's Annual Meeting serve until the next Annual
Meeting. All of the above directors were elected by the Shareholders at the
Annual Meeting held May 15, 1997.
<PAGE>
Environment One Corporation
Form 10-KSB
Part III (con't.)
Business Experience During the Past Five Years:
Walter W. Aker
He was vice president of the Company from 1968 to 1975 and from 1982 to 1993. He
was elected corporate secretary from 1976 to 1993.
Mark E. Alexander
He was appointed vice president of marketing in January, 1998. He began his
career with Environment One in January, 1990 as a regional sales manager in the
Sewer Systems Business. He was promoted to national sales manager in 1994 and to
director of marketing in 1995. He earned his master of business administration
in 1995 from Pepperdine University.
John L. Allen
He is managing partner for the Financial Services Practice, North America, for
Heidrick & Struggles, Inc., a global executive search firm. He is located in the
New York, NY office and is also a director of the firm. Prior to his joining the
firm in 1991, he had 24 years in banking including nearly thirteen as a chief
executive officer of Amoskeag Bank Shares, Inc. and Key Bank of Southeastern New
York. He has a bachelor of science degree in business administration from
Rochester Institute of Technology, a master of public administration from the
Graduate School of Public Affairs, State University of New York (SUNY) Albany,
and is a graduate of the Harvard Business School Program for Management
Development.
Stephen V. Ardia
He was elected president and chief executive officer on September 1, 1996. He
received his master of business administration from Rutgers University and a
bachelor of science degree from the U.S. Merchant Marine Academy. After working
with Goulds Pumps, Inc. since 1965, he became its president in 1985. He retired
in 1994 joining Environment One Corporation as chairman in May, 1995. He
presently serves as a member of the board of directors of MaxTec Holdings of
Dallas, Texas.
David M. Doin
He was elected vice president in September, 1991 and also served as the general
manager of the Detection Systems Business until January, 1998 when he was
appointed vice president of sales. He received his bachelor of science degree in
business from the State University of New York at Albany in 1983. He joined the
Company in 1977 in Measurement Services sales and was appointed product manager,
Scientific Instruments, in 1981.
Angelo Dounoucos
He was vice president and director of Environment One Corporation from 1969 to
1976. He rejoined the Company in 1986 after eight years as a project marketing
manager at the General Electric Corporate Research and Development Center. He
was elected president on January 1, 1989 and chief executive officer on March
14, 1990. He retired as president and chief executive officer on September 1,
1996.
Lars Grenback
He received his bachelor of economics and business administration degree from
Uppsala University, Sweden in 1969 and his university certificate in marketing,
advertising and public relations in 1970. Since 1975, he has been working with
the low pressure sewer system in the Scandinavian countries and has been
president of Svensk Kommunalteknik AB since 1980.
<PAGE>
Environment One Corporation
Form 10-KSB
Part III (con't.)
Business Experience of Executive Officers During the Past Five Years (con't.)
Robert G. James
He received his bachelor of science degree from Northwestern University, his
master's degree in business administration from Harvard Business School in 1948
and his doctorate in economics from the Harvard Graduate School in 1952. He is
vice chairman of Enterprise Asset Management Inc. He is also a Certified Public
Accountant.
Rolf E. Soderstrom
He received his bachelor of science degree in engineering from Tufts University
and his master's degree from Northeastern University. He has thirty-five years
of line management experience as vice president of Motorola, executive vice
president of Codex Corporation and assistant general manager of the Systems
Division of the Foxboro Company. He is president of the TCS Group, a management
consulting firm; director of AG-BAG International Limited, a farm equipment
supplier, a director of Walpole Massachusetts Cooperative Bank; and a managing
director of the Nassau Group, a private investment banking company.
Philip W. Welsh
He was elected treasurer in May, 1995 and was appointed vice president and chief
financial officer in January, 1998. Prior to January, 1998 he served as the
director of finance. He received his bachelor of science degree in business from
the Pennsylvania State University in 1979 and his master of business
administration from the California State University at Long Beach in 1987.
Before joining the Company in 1992, he had worked for Hughes Aircraft Company in
Los Angeles, California as a finance and accounting manager.
Compliance with Section 16(a) of the Exchange Act
The Company believes that all directors, executive officers and holders of more
than 10% of the Company's common stock complied with all Section 16(a) filing
requirements in the fiscal year ended December 31, 1997, except for the
following: Mr. Dounoucos filed a late Form 5 with respect to one transaction and
failed to include on his Form 5 an additional transaction, each of which
occurred in 1997 under stock-based compensation plans maintained by the Company
for non-employee directors; Mr. Grenback did not file a required Form 4 with
respect to three transactions occurring in 1997; and each of Messrs. Allen,
Aker, Grenback, James and Soderstrom failed to file a Form 5 with respect to two
transactions under stock-based compensation plans maintained by the Company for
non-employee directors.
<PAGE>
Environment One Corporation
Form 10-KSB
Part III (con't.)
Item 10. Executive Compensation
Compensation of Executive Officers
The following table sets forth information concerning compensation paid by the
Company to (i) all persons who served as chief executive officer of the Company
during 1997, and (ii) the other most highly compensated executive officers whose
annual salary and bonus during 1997 exceeded $100,000.
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
-------------------------------------------------- ---------
Other Annual Options/ All Other
Name and Salary Bonus Compensation SARs Compensation
Principal Position Year $ ($) ($) (#) ($) (1)
- - ------------------ ---- - --- --- --- -------
<S> <C> <C> <C> <C> <C> <C>
Stephen V. Ardia 1997 150,000 224,148 70,000 25,000 45,906
Chairman of the 1996 46,222 113,816 47,500 23,182 21,474
Board, President & 1995 0 0 45,000 101,818 0
CEO since 9/1/96
Mark E. Alexander 1997 91,250 81,817 6,000 16,758
Vice-President - 1996 79,232 37,575 4,000 7,172
Marketing 1995 60,000 35,906 6,000 16,000
David M. Doin 1997 79,100 59,103 5,000 12,107
Vice President - 1996 76,400 28,985 2,000 5,535
Sales 1995 76,400 20,000 5,000 0
George A. Earle 1997 77,851 48,030 4,000 9,534
Director of 1996 71,400 27,091 2,500 5,169
Engineering 1995 71,400 10,685 6,000 0
Philip W. Welsh 1997 77,750 58,091 6,000 11,897
Vice President - 1996 71,000 26,936 4,000 5,141
Finance, Chief 1995 69,769 3,610 6,000 0
Financial Officer,
Treasurer
</TABLE>
(1) For 1997, represents the Corporation's matching contribution under the
Deferred Compensation Plan for Certain Executive Employees of
Environment One Corporation.
<PAGE>
Environment One Corporation
Form 10-KSB
Part III (con't.)
Executive Compensation (cont.):
Option Grants in Last Fiscal Year
The following table provides further information on grants of stock options
pursuant to the Company's Amended and Restated Stock Option Plan and 1996
Incentive Compensation Plan in fiscal year 1997, with respect to each of the
named executive officers in the Summary Compensation Table.
<TABLE>
<CAPTION>
% of Total Options Exercise or
Options Granted to Employees Base Price Expiration
Name Granted (#) in Fiscal Year ($/Sh) Date
- - ---- ----------- -------------- ------ ----
<S> <C> <C> <C> <C>
S. Ardia 25,000 36% $7.00 5/15/2007
M. Alexander 6,000 9% $6.50 3/20/2007
D. Doin 5,000 7% $6.50 3/20/2007
G. Earle 4,000 6% $6.50 3/20/2007
P. Welsh 6,000 9% $6.50 3/20/2007
</TABLE>
Aggregated Option Exercises in Last Fiscal Year and FY-End Option Value
The following table provides information for the named executive officers with
respect to (i) stock options exercised in fiscal year 1997, (ii) the number of
stock options held at the end of fiscal year 1997, and (iii) the value of
in-the-money stock options at the end of fiscal year 1997.
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised In-the-Money
Shares Acquired Value Options at 12/31/97 Options at 12/31/97
Name On Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- - ---- --------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
S. Ardia --- --- 137,501 12,499 $939,549 $43,747
M. Alexander --- --- 12,200 15,800 93,421 92,309
D. Doin --- --- 18,750 13,000 153,257 78,467
G. Earle --- --- 15,100 11,400 122,275 67,725
P. Welsh --- --- 11,000 15,000 83,571 85,909
</TABLE>
<PAGE>
Environment One Corporation
Form 10-KSB
Part III (con't.)
Executive Compensation (cont.):
Employment Agreement and Change of Control Agreement with Mr. Ardia
The Company has entered into an Employment Agreement with Mr. Ardia, providing
for Mr. Ardia to serve as the Company's President for a term of one year
beginning on the date that the tender offer (the "Offer") of Precision Castparts
Corp. ("PCC") and EOC Acquisition Corporation (the "Purchaser") is consummated
(see Item 11), after which his employment may be continued on an at-will basis
by mutual agreement of the parties. The agreement provides that Mr. Ardia will
be paid a base salary at the annual rate of $150,000 (which is consistent with
his current salary arrangements). He will be entitled to participate in the
Company's bonus plan through December 31, 1998, and in a similar bonus plan
during the three month period January 1, 1999 through March 28, 1999. Mr. Ardia
will also be entitled to participate in PCC's stock option and stock purchase
programs, in accordance with the terms of those programs. Mr. Ardia may
terminate the agreement upon thirty days' written notice to the Company any time
after the first three months of its effectiveness.
The Company also has a Change in Control Agreement with Mr. Ardia dated January
5, 1998, providing for a payment to Mr. Ardia upon the occurrence of a "Change
of Control" (as defined in the agreement) equal to (i) the amount of his annual
base salary in effect on the date of the Change of Control, and (ii) an amount
equal to the sum of (A) the bonus payable to Mr. Ardia for the year during which
the Change of Control occurs, prorated through the date of the Change of
Control, plus (b) the average annual bonus paid to Mr. Ardia for the two
complete fiscal years that precede the fiscal year during which the Change of
Control occurs. In addition, the Company shall waive for twelve months following
his termination any required premium payment due from Mr. Ardia to allow him to
continue his coverage under the Company's group health plan. A "Change of
Control," as defined in the agreement, would occur upon the Purchaser's
acceptance for payment and payment for Shares pursuant to the Offer (See Item
11).
Employment Agreements with Messrs. Alexander, Doin, Earle and Welsh
The Company also has entered into two-year Employment Agreements with Mr.
Alexander to serve as Vice President of Marketing; Mr. Doin to serve as Vice
President, General Manager; Mr. Earle to serve as Director of Engineering; and
Mr. Welsh to serve as Vice President of Finance. These agreements provide for an
annual salary of $95,000 for Mr. Alexander, $90,000 for Mr. Doin, $80,000 for
Mr. Earle, and $80,000 for Mr. Welsh, respectively (which are consistent with
their current salary arrangements). Each of the foregoing employees will be
entitled to participate in the Company's bonus plan through December 31, 1998,
and in a similar bonus program for the three month period January 1, 1999
through March 28, 1999. Thereafter, any bonus program provided will be
consistent with bonus programs provided by PCC to similarly situated employees.
These employees will also be entitled to participate in PCC's stock option and
stock purchase programs, in accordance with the terms of those programs.
The agreements, which may be terminated by either party upon thirty days'
written notice, provide for a severance benefit equal to the following: (i) if
the employee is terminated before the first anniversary of
<PAGE>
Environment One Corporation
Form 10-KSB
Part III (con't.)
the effective date of the agreement, the remaining balance of the employee's
base salary for the portion of year from the date of termination until the first
anniversary of the effective date, plus 100% of any calendar year 1998 bonus to
which the employee would have been entitled had he or she remained employed by
the Company through December 31, 1998, plus the Severance Payment (as defined
below); or (ii) if the employee is terminated after the first anniversary of the
effective date of the agreement and prior to the second anniversary of the
effective date, ten months' pay at the employee's then current salary level (the
"Severance Payment"). In addition, the Company shall waive for the remainder of
the unexpired term of the agreement any required premium payment due from the
employee to allow the employee to continue his or her coverage under the
Company's group health plan. The employee is ineligible for the payments
described in this paragraph if he or she voluntarily resigns or withdraws from
employment, is terminated for "cause" (as defined in the agreement), terminates
employment as a result of the expiration of the term of the agreement, breaches
certain confidentiality or non-competition provisions in the agreement, or
accepts reasonably comparable employment with an affiliate of PCC.
Compensation of Directors
As compensation for attendance at Board and Committee meetings, directors who
are not employees of the Company receive a stock grant on September 1st of each
year for a number of shares having an aggregate value of $10,000, based upon the
fair market value of the Company's common stock at the close of business on the
date of grant. In addition, non-employee directors receive a grant of stock
options on the third Tuesday of each December. Each such grant to a director
relates to a total number of shares of the Company's common stock having an
aggregate fair market value, at the close of business on the date of grant,
equal to $10,000. The exercise price of these options is fixed at the fair
market value of the Company's common stock at the close of business on the date
of grant. The Board of Directors believes that this equity-based system of
compensation is beneficial in that it more closely aligns the long-term
interests of directors with those of the Company's shareholders.
As a general rule, directors who are officers or employees of the Company
receive no compensation for attendance at Board or Committee meetings. The
Company does have a Letter of Understanding with Mr. Ardia dated May 22, 1995,
providing for Mr. Ardia to serve as Chairman of the Board. Pursuant to this
Letter of Understanding, Mr. Ardia received a grant of 10,000 shares of common
stock in 1997 having an aggregate market value (on the date of grant) of
$70,000. In addition, during 1997 Mr. Ardia received an option to purchase
25,000 shares of common stock at an exercise price of $7.00 per share, the
market value on the date of grant.
<PAGE>
Environment One Corporation
Form 10-KSB
Part III (con't.)
Item 11. Security Ownership of Certain Beneficial Owners and Management
Security Ownership of Certain Beneficial Owners
The following table sets forth, as of March 3, 1998, the ownership of the
Company's common stock by any person who is known by the Company to be the
beneficial owner of more than five percent of the common stock.
Name and Address Amount and Nature Percentage of
of Beneficial Owner of Beneficial Ownership Outstanding Shares
------------------- ----------------------- ------------------
Angelo Dounoucos 243,528(a) 5.60%
720 St. Davids Lane
Schenectady, NY 12309
Robert and Ardis James 486,317(b) 11.31%
Foundation
80 Ludlow Drive
Chappaqua, NY 10514
Cenith Partners L.P. 401,510(c) 9.35%
One Financial Center
Boston, MA 02110
(a) Includes 56,000 shares issuable upon exercise of stock options that are
exercisable within 60 days of March 3, 1998, 60,000 shares held jointly
with his wife and 7,300 shares held in his wife's IRA.
(b) Includes 3,381 shares held by Robert G. James, 43,400 shares held in
custodian accounts for his children, and 3,636 shares issuable upon
exercise of currently exercisable stock options held by Robert G.
James.
(c) Includes 5,000 shares held by Stephen G. Rabinovitz, sole general
partner of Cenith Partners L.P.
<PAGE>
Environment One Corporation
Form 10-KSB
Part III (con't.)
Security Ownership of Certain Beneficial Owners and Management (cont.):
Security Ownership of Management
The following table sets forth, as of March 3, 1998, the ownership of the
Company's common stock by each of the Company's current directors, named
executive officers and all directors and executive officers as a group.
<TABLE>
<CAPTION>
Amount and Nature Percentage of Outstanding
Name of Beneficial Ownership(a)(c) Shares
- - ---- ----------------------------- ------
<S> <C> <C>
Walter W. Aker* 189,377(b) 4.40%
Lars G. Grenback* 161,883(b) 3.77%
John L. Allen* 7,683 0.18%
Stephen V. Ardia*+ 190,201(b) 4.29%
Robert G. James* 486,317(b) 11.31%
Angelo Dounoucos* 243,528(b) 5.60%
Rolf E. Soderstrom* 16,683(b) 0.39%
Mark E. Alexander+ 14,008 0.33%
David M. Doin+ 24,004 0.56%
George A. Earle+ 21,094 0.49%
Philip W. Welsh+ 17,225 0.40%
All directors and executive 1,395,859(d) 30.42%
officers as a group
</TABLE>
* Director
+ Executive Officer
(a) Includes all shares for which the named individual possessed sole or
shared voting or investment power, even if beneficial ownership has
been disclaimed as to any of these shares by the named individual.
(b) The listed amounts include shares as to which certain directors are
beneficial owners but not the sole beneficial owner as follows: Mr.
Aker's wife holds 15,000 shares; Mr. Ardia's wife holds 2,600 shares in
an IRA; Mr. Dounoucos's wife holds 7,300 shares in an IRA, and 60,000
shares jointly with Mr. Dounoucos; Mr. Grenback is President of Svensk
Kommunalteknik AB, which holds 153,000 shares, and Mr. Grenback's wife
holds 1,000 shares; 435,900 shares are held by the
<PAGE>
Environment One Corporation
Form 10-KSB
Part III (con't.)
Security Ownership of Certain Beneficial Owners and Management (cont.):
Robert and Ardis James Foundation and 43,400 shares are held in
custodian accounts for Mr. James' children; and Mr. Soderstrom holds
10,000 shares jointly with his wife.
(c) Includes the following shares which the individuals have the right to
acquire, within 60 days of the record date, through exercise of stock
options issued by the Company: Mr. Aker - 3,636 shares, Mr. Allen -
3,636 shares, Mr. Ardia - 137,501 shares, Mr. Dounoucos - 56,000
shares, Mr. Grenback - 3,636 shares, Mr. James - 3,636 shares, Mr.
Soderstrom - 3,636 shares, Mr. Alexander - 13,400 shares, Mr. Doin -
19,750 shares, Mr. Earle - 15,900 shares, Mr. Welsh - 12,200 shares.
These shares are included in the total number of shares outstanding for
the purpose of calculating the percentage ownership of each of the
foregoing individuals and of the group as a whole, but in calculating
the percentage of each individual, the number of outstanding shares
does not include options of other individuals listed in the table.
(d) Includes 292,831 shares issuable upon exercise of stock options that
are exercisable within 60 days of March 3, 1998, and 728,200 shares for
which certain directors and executive officers are beneficial owners,
but not the sole beneficial owners, as set forth in note (b) above.
Changes in Control
The Company has executed an Agreement and Plan of Merger dated as of February
24, 1998 (the "Merger Agreement") among the Company, the Purchaser, and PCC. The
Purchaser is a New York corporation and a wholly owned subsidiary of PCC, an
Oregon Corporation
Pursuant to the Merger Agreement, among other things, the Purchaser commenced a
tender offer on March 3, 1998 to purchase all of the issued and outstanding
shares of the Company's common stock (the "Shares") at a price of $15.25 per
Share, net to the seller in cash, as described in the Purchaser's Offer to
Purchase dated March 3, 1998 and the related Letter of Transmittal (which Offer
to Purchase and related Letter of Transmittal together constitute the "Offer").
The Offer is scheduled to expire at 12:00 midnight, eastern time, on Monday,
March 30, 1998, unless extended. The Offer is subject to, among other things,
the condition that a number of shares representing not less than 66b percent of
all outstanding Shares on a fully diluted basis be validly tendered prior to the
expiration of the Offer and not withdrawn (the "Minimum Condition"). The Merger
Agreement also provides for the merger of the Purchaser with and in to the
Company (the "Merger") as soon as practicable after the consummation of the
Offer. Following the consummation of the Merger (the "Effective Time"), the
Company will be the surviving corporation and a wholly owned subsidiary of PCC.
In the Merger, each Share issued and outstanding immediately prior to the
Effective Time (other than Shares held by PCC, the Purchaser or in the treasury
of the Company, all of which will be canceled) will be converted into the right
to receive cash in the amount of $15.25.
The terms of the Merger Agreement, a summary of the events leading up to the
Offer and the execution of the Merger Agreement and other information concerning
the Offer and the Merger are contained in the Offer to Purchase and in the
Solicitation/Recommendation Statement on Schedule 14D-9 of the Company (the
"Schedule 14D-9") with respect to the Offer, which was filed with the Commission
on March 3, 1998. Certain other documents (including the Merger Agreement) have
been filed with the Commission as Exhibits to the Tender Offer Statement on
Schedule 14D-1 of the Purchaser and PCC and to the Schedule 14D-9.
<PAGE>
Environment One Corporation
Form 10-KSB
Part III (con't.)
Item 12. Certain Relationships and Related Transactions
The Company entered into an Agreement and Plan of Merger with Precision
Castparts Corp. (PCC) on February 24, 1998 that is described in Item 11.
Pursuant to that, Rolf E. Soderstrom, who is a member of the Company's Board of
Directors, is also a managing director of The Nassau Group, Inc. ("Nassau"), an
investment banking firm. Nassau has been retained by the Board of Directors to
act as a financial advisor to the Company with respect to the Offer and the
Merger. Pursuant to an engagement letter with Nassau, the Company (i) has paid
Nassau a monthly cash retainer of $5,000 beginning on September 15, 1997 and
continuing on the 15th day of each succeeding month during the period of
Nassau's engagement; (ii) has issued to Nassau a warrant to purchase 10,000
Shares exercisable within three years of September 22, 1997, the date of the
engagement letter, at an exercise price equal to the closing price of a Share on
September 22, 1997 ($9.125); and (iii) will pay a transaction fee to Nassau in
the amount of 1.1% or the aggregate consideration in a transaction resulting in
a sale of the Company (approximately $804,000 based upon the $15.25 per Share
Offer Price and the existence of certain long-term indebtedness of the Company)
less 50% of the total cash retainer previously paid (the "Transaction Fee"). The
Transaction Fee is contingent upon closing of such a transaction. The Company
has also agreed to indemnify Nassau and certain related parties against certain
liabilities, including liabilities under the federal securities laws.
<PAGE>
Environment One Corporation
Form 10-KSB
Part III (con't.)
Item 13. Exhibits and Reports on Form 8-K
Exhibits
2.1 Agreement and Plan of Merger dated as of February 24, 1998 among PCC,
Purchaser and the Company, previously filed March 3, 1998 as Exhibit 1 to the
Company's Solicitation/Recommendation Statement on Form 14D-9 (File No.
5-35464), and incorporated by reference.
3.1 Registrant's Certificate of Incorporation, as amended, incorporated by
reference to Exhibit 3.1 to Form 10-Q Report for the period ending 6/30/88.
(File No. 1-7037)
3.2 Registrant's by-laws, as amended, incorporated by reference to Exhibit 3.2
to Form 10-Q Report for the period ending 6/30/88. (File No. 1-7037)
3.3 Registrant's amendment to Certificate of Incorporation.
4.1 Specimen of Registrant's Common Stock Certificate incorporated by reference
to Exhibit 4.0 of Registration Statement. (File No. 2-38321)
4.2 $2,500,000 Secured Working Capital Revolving Line of Credit Loan dated
August 19, 1992 between the Registrant and Fleet Bank of New York incorporated
by reference to previously filed Form 10-KSB.
4.3 $3,000,000 Loan and Security Agreement dated December 30, 1992 between the
Registrant and Fleet Bank of New York incorporated by reference to previously
filed Form 10-KSB.
4.4 Note and Secured Revolving Line of Credit Agreement Modification Agreement
No. 2 dated March 20, 1995 between the Registrant and Fleet Bank of New York
incorporated by reference to previously filed Form 10-KSB.
4.5 Note and Loan and Security Agreement Modification Agreement No. 2 dated
March 20, 1995 between the Registrant and Fleet Bank of New York incorporated by
reference to previously filed Form 10-KSB.
4.6 Note and Secured Revolving Line of Credit Agreement Modification Agreement
No. 3 dated March 30, 1995 between the Registrant and Fleet Bank of New York
incorporated by reference to previously filed Form 10-KSB.
4.7 Note and Loan and Security Agreement Modification Agreement No. 3 dated
March 30, 1995 between the Registrant and Fleet Bank of New York incorporated by
reference to previously filed Form 10-KSB.
4.8 Note and Secured Revolving Line of Credit Agreement Modification Agreement
No. 4 dated October 18, 1995 between the Registrant and Fleet Bank of New York
incorporated by reference to previously filed Form 10-KSB.
<PAGE>
Environment One Corporation
Form 10-KSB
Part III (con't.)
Exhibits and Reports on Form 8-K (con't.)
4.9 Note and Loan and Security Agreement Modification Agreement No. 4 dated
October 18, 1995 between the Registrant and Fleet Bank of New York incorporated
by reference to previously filed Form 10-KSB.
4.10 Building Loan Agreement Modification Agreement dated November 15, 1995
between the Registrant and Fleet Bank of New York incorporated by reference to
previously filed Form 10-KSB.
4.11 $2,500,000 Secured Working Capital Revolving Line of Credit Note dated
October 18, 1995 between the Registrant and Fleet Bank of New York incorporated
by reference to previously filed Form 10-KSB.
4.12 Note and Secured Revolving Line of Credit Agreement Modification Agreement
No. 5 dated June 17, 1996 between the Registrant and Fleet Bank of New York.
4.13 Note and Loan and Security Agreement Modification Agreement No. 5 dated
June 17, 1996 between the Registrant and Fleet Bank of New York.
4.14 Note and Secured Revolving Line of Credit Agreement Modification Agreement
No. 6 dated June 17, 1997 between the Registrant and Fleet Bank of New York.
4.15 Note and Loan and Security Agreement Modification Agreement No. 6 dated
June 17, 1997 between the Registrant and Fleet Bank of New York.
10.1 Registrant's 1972 Stock Option Plan incorporated by reference to Exhibit
10.1 to Form 10-K Report for the year ended 12/31/88. (File No. 1-7037)
10.2 Registrant's 1996 Incentive Compensation Plan incorporated by reference to
Exhibit 10.2 to Form 10-KSB for the year ended 12/31/96 by Form S-8 filed
10/31/96. (Registration No.33-15225)
10.3 Registrant's 1996 Incentive Compensation Plan for Non-Employee Directors
incorporated by reference to Exhibit 10.3 to Form 10-KSB for the year ended
12/31/96 by Form S-8 filed 10/31/96.
(Registration No. 33-15221)
10.4 Registrant's Non-Employee Directors Stock Grant Plan incorporated by
reference to Exhibit 10.4 to Form 10-KSB for the year ended 12/31/96 by Form S-8
filed 10/31/96. (Registration No. 33-15223)
10.5 Registrant's Amended and Restated Stock Option Plan incorporated by
reference to Exhibit 10.5 to Form 10-KSB for the year ended 12/31/96 by Form S-8
filed 10/31/96. (Registration No. 33-15227)
10.6 Registrant's Deferred Compensation Plan for Certain Executive Employees of
Environment One Corporation incorporated by reference to Exhibit 10.6 to Form
10-KSB for the year ended 12/31/96 by Form S-8 filed 10/31/96. (Registration No.
33-15229)
<PAGE>
Environment One Corporation
Form 10-KSB
Part III (con't.)
Exhibits and Reports on Form 8-K (con't.)
10.7 Registrant's Deferred Compensation Plan for Certain Executive Employees of
Environment One Corporation incorporated by reference to Exhibit 10.7 to Form
10-KSB for the year ended 12/31/97 by Form S-8 filed 12/23/97. (Registration No.
333-43093)
10.8 Confidentiality Agreement previously filed March 3, 1998 as Exhibit 3 to
the Company's Solicitation/Recommendation Statement on Form 14D-9 (File No.
5-35464), and incorporated by reference.
10.9 Employment Agreement with Mr. Ardia previously filed March 3, 1998 as
Exhibit 4 to the Company's Solicitation/Recommendation Statement on Form 14D-9
(File No. 5-35464), and incorporated by reference.
10.10 Change in Control Agreement with Mr. Ardia previously filed March 3, 1998
as Exhibit 5 to the Company's Solicitation/Recommendation Statement on Form
14D-9 (File No. 5-35464), and incorporated by reference.
10.11 Form of Employment Agreements with Messrs. Alexander, Doin, Earle, and
Welsh previously filed March 3, 1998 as Exhibit 6 to the Company's
Solicitation/Recommendation Statement on Form 14D-9 (File No. 5-35464), and
incorporated by reference.
23.1 Consent of Independent Auditors, KPMG Peat Marwick LLP.
Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter ended December 31,
1997.
<PAGE>
Environment One Corporation
Form 10-KSB
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Registrant has duly caused this Annual Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Environment One Corporation
(Registrant)
/s/Stephen V. Ardia 3/27/98
- - ------------------- -------
Stephen V. Ardia Date
Chairman, President and CEO
Pursuant to the requirements of the Securities Exchange Act of 1934 this report
has been signed by the following persons, which included the chairman and chief
executive officer, chief financial officer and a majority of the Board of
Directors on behalf of the Registrant and in the capacities and on the dates
indicated.
/s/Stephen V. Ardia 3/27/98 /s/Angelo Dounoucos 3/27/98
- - --------------------------------- ---------------------------------
Stephen V. Ardia Date Angelo Dounoucos Date
Chairman, President and CEO Director
/s/Philip W. Welsh 3/27/98 /s/Lars Grenback 3/27/98
- - --------------------------------- ---------------------------------
Philip W. Welsh Date Lars Grenback Date
Vice President, CFO and Treasurer Director
/s/Walter W. Aker 3/27/98 /s/Robert G. James 3/27/98
- - --------------------------------- ---------------------------------
Walter W. Aker Date Robert G. James Date
Director Director
/s/John L. Allen 3/27/98
- - --------------------------------- ---------------------------------
John L. Allen Date Rolf E. Soderstrom Date
Director Director
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
Commission File Number 0-5633
ENVIRONMENT ONE CORPORATION
---------------------------
(Name of small business issuer in its charter)
New York 14-1505298
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation of organization) Identification No.)
2773 Balltown Road, Niskayuna, NY 12309-1090
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (518) 346-6161
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares of Common Stock, par value $.10 as of March 31, 1998:
4,295,827.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]
<PAGE>
Environment One Corporation
FORM 10-QSB
INDEX
Part I. Financial Information-
Item 1. Financial Statements
Consolidated Balance Sheets March 31, 1998 and December 31, 1997
Consolidated Statements of Income for the Three Months Ended March 31,
1998 and 1997
Consolidated Statements of Cash Flows for the Three Months Ended March
31, 1998 and 1997
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II. Other Information
Signatures
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
<TABLE>
<CAPTION>
Environment One Corporation
Consolidated Balance Sheets
March 31, 1998 and December 31, 1997
Assets 3/31/98 12/31/97
------------ ------------
<S> <C> <C>
Current Assets
Cash and Cash Equivalents $ 3,911,828 1,976,368
Accounts Receivable, Net 3,349,153 5,226,859
Inventories
Raw Materials 1,435,246 1,399,533
Work in Process 327,853 385,013
Finished Goods 549,969 483,906
------------ ------------
2,313,068 2,268,452
Other Current Assets 355,503 401,837
------------ ------------
Total Current Assets 9,929,552 9,873,516
------------ ------------
Property, Plant and Equipment
Land 334,491 334,491
Buildings 2,337,099 2,324,333
Machinery and Equipment 5,501,228 5,371,630
Construction in Progress 19,762 95,393
Less: Accumulated Depreciation (5,003,005) (4,868,005)
------------ ------------
Net Property, Plant and Equipment 3,189,575 3,257,842
Other Assets 424,481 429,382
------------ ------------
Total Assets 13,543,608 13,560,740
============ ============
Liabilities and Shareholders' Equity
Current Liabilities
Current Installments - Long Term Debt 338,100 338,100
Accounts Payable 1,699,130 1,812,407
Accrued Expenses 1,180,169 1,366,913
------------ ------------
Total Current Liabilities 3,217,399 3,517,420
Deferred Compensation 953,429 953,429
Minority Interest 63,787 68,760
Long Term Debt 1,077,869 1,162,394
------------ ------------
Total Liabilities 5,312,484 5,702,003
------------ ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Environment One Corporation
Consolidated Balance Sheets
March 31, 1998 and December 31, 1997
3/31/98 12/31/97
------------ ------------
<S> <C> <C>
Shareholders' Equity
Common Stock at Par Value 431,621 425,772
Additional Paid in Capital 8,577,493 7,969,197
Retained Earnings / (Accumulated Deficit) 256,268 (116,119)
------------ ------------
9,265,382 8,278,850
Less: Treasury Stock at Cost (1,034,258) (420,113)
------------ ------------
Total Shareholders' Equity 8,231,124 7,858,737
------------ ------------
Total Liabilities and Shareholders' Equity $ 13,543,608 13,560,740
============ ============
</TABLE>
(See Accompanying Notes to Consolidated Financial Statements)
<PAGE>
<TABLE>
<CAPTION>
Environment One Corporation
Consolidated Statements of Income
For the Three Months Ended March 31, 1998 and 1997
Three Months Ended March 31,
-------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Revenue $ 5,431,521 4,547,725
----------- -----------
Costs and Expenses
Cost of Sales 3,134,768 2,934,433
Selling and Marketing 779,627 601,876
General and Administrative 916,443 738,377
Interest Expense, Net 3,605 41,984
Other Income, Net (3,209) (2,489)
----------- -----------
Total Expenses, Net 4,831,234 4,314,181
----------- -----------
Net Income Before Taxes 600,287 233,544
Income Tax Expense 227,900 88,600
----------- -----------
Net Income $ 372,387 144,944
=========== ===========
Per Share Amounts:
Basic Earnings per Common Share $ 0.09 0.03
Diluted Earnings per Common Share 0.08 0.03
=========== ===========
</TABLE>
(See Accompanying Notes to Consolidated Financial Statements)
<PAGE>
<TABLE>
<CAPTION>
Environment One Corporation
Consolidated Statements of Cash Flows
For the Three Months Ended March 31,1998 and 1997
Three Months Ended March 31,
------------------------------
1998 1997
<S> <C> <C>
Cash Flows-Operating Activities:
Net Income $ 372,387 144,944
Adjustments to Reconcile Net Earnings
to Net Cash Provided (Used) by Operating Activities:
Depreciation and Amortization 139,901 144,117
Decrease (Increase) - Accounts Receivable, Net 1,877,706 425,143
Decrease (Increase) - Inventories (44,616) (199,549)
Decrease (Increase) - Prepaid Expenses 46,334 (119,026)
Decrease (Increase) - Other L/T Assets 0 6,044
Increase (Decrease) - Accounts Payable (113,277) (438,660)
Increase (Decrease) - Accrued Expenses and Other Liabilities (186,744) (234,068)
Increase (Decrease) - Minority Interest (4,973) 11,803
----------- -----------
Net Cash Provided (Used) by Operating Activities 2,086,718 (259,252)
----------- -----------
Cash Flows Used in Investing Activities:
Capital Expenditures (66,733) (122,899)
----------- -----------
Cash Flows From Financing Activities:
Increase (Decrease) - Book Overdraft 0 87,904
Increase (Decrease) - Note Payable to Bank 0 379,000
Increase (Decrease) - Long Term Debt (84,525) (84,524)
Issuance of Common Stock 0 7,101
----------- -----------
Net Cash Provided (Used) by Financing Activities (84,525) 389,481
----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents 1,935,460 7,330
Cash and Cash Equivalents at Beginning of Period 1,976,368 62,637
----------- -----------
Cash and Cash Equivalents at End of Period $ 3,911,828 69,967
=========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Environment One Corporation
Consolidated Statements of Cash Flows
For the Three Months Ended March 31,1998 and 1997
Three Months Ended March 31,
------------------------------
1998 1997
<S> <C> <C>
Supplemental disclosure of non-cash financing activity:
Issuance of 58,489 in 1998 and 65,681 in 1997
shares of common stock held in trust,
recorded as treasury stock as part of the Company's
deferred compensation plan for certain executive officers $ 614,135 369,461
=========== ===========
Cash paid during the year for:
Interest $ 33,332 46,406
=========== ===========
Income Taxes $ 252,874 274,811
=========== ===========
</TABLE>
(See Accompanying Notes to Consolidated Financial Statements)
<PAGE>
Environment One Corporation
Notes to Consolidated Financial Statements
For the Three Months Ended March 31, 1998 and 1997
(Unaudited)
1. In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments, which are only of a
normal recurring nature, necessary to fairly present Environment One
Corporation's financial position as of March 31, 1998 and December 31, 1997 as
well as the results of operations and cash flows for the three months ended
March 31, 1998 and 1997. Operating results for any quarter are not necessarily
indicative of results for any future periods.
2. Net earnings per share computations are based on basic and diluted
number of shares of Common Stock outstanding for the periods ending March 31,
1998 and 1997. The basic and diluted number of shares of Common Stock
outstanding for the periods ending March 31, 1998 and 1997 are 4,294,527 and
4,495,400 for 1998 and 4,218,121 and 4,388,470 for 1997.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
The following information should be read in conjunction with the consolidated
financial statements and notes thereto included in Item 1 of this Quarterly
Report, and the consolidated financial statements and notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1997.
Revenue for the period increased $884,000, or 19.4% over the same period last
year. Increases from the quarter ended March 31, 1997 were recorded in both
Sewer Systems and Detection Systems businesses.
Revenue from the Company's Sewer Systems business continues to show improvement
over prior periods. Management is of the opinion that the addition of a more
powerful distribution network, increases in the number and size of municipal
projects, continued growth in the overall market and realignment of its sales
territories accounts for this growth and bodes well for future growth.
As part of the Detection Systems business revenue increase, sales of the
Company's Generator Condition Monitor showed significant improvement as the
Company was able to complete shipment on two large international projects during
the period. Sales of the Company's Hydrogen Control Cabinet also improved over
the prior period due to continued market acceptance and completion of delivery
on a large international project.
<PAGE>
Cost of Sales increased $200,000 when compared to the same period last year.
Expressed in percent of sales, cost of sales decreased from 64.5% in the first
three months of 1997 to 57.7% in the three months ended March 31, 1998. The
improvement in gross margin is mainly attributable to product sales mix
resulting from strong sales of the Company's Detection Systems business
products. Increased expenses in indirect non-labor categories of scrap,
maintenance, professional services and miscellaneous manufacturing costs were
recognized during the period ending March 31, 1998.
Selling and Marketing costs increased $178,000 compared to the first quarter of
1997. The majority of this increase resulted from increased expenditures in
travel and living, advertising, promotion, trade shows and miscellaneous
marketing costs as the Company continues its effort to support the Sewer Systems
business distribution network.
General and Administrative costs, including research and development, increased
$178,000 over the same period last year. Research and development costs
increased $36,000 while other general and administrative costs increased
$142,000.
Increased expenditures in other general and administrative costs are
attributable to increases in legal, consultant and directors fees along with
miscellaneous expenses. Partially offsetting these increases was a reduction in
the accrual for growth performance sharing expense. In the first quarter of
1996, the Company implemented a new growth performance sharing plan to take the
place of its profit sharing plan. Targets for growth in sales and operational
earnings along with return on assets were established and are reviewed on an
annual basis. Quarterly expense accruals are made based on the performance of
the Company.
Interest expense decreased $38,000 over the first three months of 1997. During
the period in 1998, the Company had no borrowing against its line of credit and
only incurred interest expense on long term debt.
Financial Position and Liquidity
(all figures rounded to the nearest 000's)
Cash needs for the first three months of 1998 were met primarily by cash
provided by operations. Highlighting the operating cash category was a reduction
of $1,900,000 in accounts receivable. Capital expenditures declined to $67,000
from $123,000 during the same period last year. Short term borrowing remained at
$0 while during the same period last year the Company increased its borrowing by
$379,000.
Continued control over inventory, operating expenses and capital expenditures
along with forecasted cash receipts will enable the Company to meet its
day-to-day working capital requirements in the near term.
<PAGE>
Cautionary Statement for the Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a
"safe harbor" for forward-looking statements to encourage companies to provide
prospective information about themselves while limiting unwarranted litigation,
provided that the statements are identified as forward-looking and are
accompanied by meaningful cautionary statements regarding important factors that
could cause actual results to differ materially from those projected in the
statement. The Company desires to take advantage of the "safe harbor" provisions
of the Act, and is including the information set forth below in the Form 10-QSB
to point out the inherent difficulties in predicting the impact of certain
factors.
While the Company believes that its assumptions underlying any forward-looking
statements are reasonable, the following information includes important factors
which could cause the Company's actual results to differ materially from any
result which might be projected, forecasted, estimated, or budgeted by the
Company in its forward-looking statements, whether contained in this Form 10-QSB
or otherwise.
1. Heightened competition, including the intensification of price competition,
the entry of new competitors, and the introduction of new products by new
and existing competitors.
2. Failure to obtain new customers or retain existing customers.
3. Adverse publicity and news coverage impacting the Company's reputation and
sales potential.
4. Inability to carry out marketing and sales plans due to unforeseen factors.
5. Significant economic downturns in the geographic market areas serviced by
the Company.
6. Higher service, administrative, or general expenses occasioned by the need
for additional advertising, marketing, administrative, or management
information systems expenditures.
7. A lack of availability of raw materials, necessary manufacturing equipment,
or contract manufacturers to meet the Company's needs.
8. Underutilization of the Company's manufacturing resources, resulting in
production inefficiencies and higher costs.
9. Start-up expenses, inefficiencies, delays, and increased depreciation costs
in connection with the start of production in new facilities and expansions
of existing facilities.
10. The acquisition of fixed and other assets, including inventory and
receivables, and the making or incurring of any expenditures and expenses,
including but not limited to depreciation and research and development
expenses.
11. Any revaluation of assets or related expenses and the amount of, and any
changes to, tax rates.
12. Loss or retirement of key executives.
13. Any activities of parties with which the Company has agreements or
understandings, including matters affecting any investment or joint venture
in which the Company has an investment.
<PAGE>
14. The amount, type, and cost of the financing available to the Company, and
any changes to that financing.
15. Adverse results in significant litigation or regulatory proceedings.
16. Adverse changes in laws, regulations, interpretations, and enforcement
policies affecting the company and its business operations.
17. Natural disasters, work stoppages, and other events beyond the control of
the Company.
The foregoing list of factors should not be construed as exhaustive, or as any
admission regarding the adequacy of disclosures made by the Company prior to the
filing of this Form 10-QSB.
<PAGE>
Environment One Corporation
FORM 10-QSB
Part II - Other Information
Change in Control
On February 24, 1998 the Company entered into an Agreement and Plan of Merger
among the Company, Precision Castparts Corp. (PCC), an Oregon Corporation, and a
wholly owned subsidiary of PCC, EOC Acquisition Corp. (Purchaser) for the
Purchaser to acquire all shares (fully diluted) of common stock of the company
for $15.25 per share. This agreement is explained in the Company's Solicitation
/ Recommendation Statement on Form 14D-9 filed with the Commission on March 3,
1998. At the close of the tender offer on March 30, 1998, approximately 86% of
the shares had been tendered. On April 2, 1998, PCC accepted the tendered shares
for payment. PCC is currently in the process of calling a special meeting of
shareholders to be held sometime in June, 1998. At that meeting, PCC intends to
complete the merger of the Purchaser into the Company.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
ENVIRONMENT ONE CORPORATION
Date: May 13, 1998 By:/s/Stephen V. Ardia
-------------------
Stephen V. Ardia
Chairman, President and CEO
Date: May 13, 1998 By:/s/Philip W. Welsh
------------------
Philip W. Welsh
Chief Financial Officer
Treasurer
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
[X] PLEASE MARK VOTES REVOCABLE PROXY
AS IN THIS EXAMPLE ENVIRONMENT ONE CORPORATION
SPECIAL MEETING OF SHAREHOLDERS Authorization, For Against Abstain
JUNE 11, 1998 approval and [ ] [ ] [ ]
THIS PROXY IS SOLICITED BY THE adoption of an Agreement and Plan of
BOARD OF DIRECTORS. Merger dated as of February 24, 1998, by
and among the Company, a New York
The undersigned hereby appoints corporation, Precision Castparts Corp.,
William C. McCormick and William D. an Oregon corporation ("PCC"), and EOC
Larsson as proxies, each with power Acquisition Corporation, a New York
to appoint his substitute, and hereby corporation and direct wholly owned
authorizes each of them to represent and subsidiary of PCC ("EOC"), pursuant to
vote all the shares of common stock of which (A) EOC would be merged with and
Environment One Corporation (the into the Company, with the Company
"Company") held of record by the surviving the merger, (B) the Company
undersigned on May 13, 1998, that the would thereupon become a wholly owned
undersigned would be entitled to vote if subsidiary of PCC, and (C) each
personally present at the Special outstanding share of the Company's
Meeting to be held on June 11, 1998, or common stock, par value $.10 per share
at any adjournment or postponement (the "Shares"), other than Shares held
thereof, (1) as specified herein the by EOC, PCC or the Company, would be
matter listed herein and more fully converted into the right to receive
described in the Notice of Special $15.25 in cash, without interest.
Meeting and Proxy Statement of said
meeting, receipt of which is THE BOARD OF DIRECTORS UNANIMOUSLY
acknowledged, and (2) in their RECOMMENDS A VOTE "FOR" THE ABOVE
discretion on such other matters as PROPOSAL.
may properly come before the meeting
or any adjournment or postponement The shares represented by this proxy will
thereof. be voted as directed by the shareholder. IF
NO DIRECTION IS GIVEN, SHARES WILL BE VOTED
FOR THE PROPOSAL.
THIS PROXY WILL BE VOTED FOR THE PROPOSAL
UNLESS INSTRUCTIONS TO THE CONTRARY ARE
INDICATED. Please note that abstaining from
the vote on the proposal will have the same
Please be sure to sign -------------- effect as a vote AGAINST the proposal.
and date this Proxy | Date |
in the box below. | | Please sign exactly as your name appears
- ---------------------------------------- on this Proxy. When shares are held by
| | joint tenants, both should sign. When
| | signing as attorney, executor,
| | administrator, trustee or guardian, please
| | give full title as such. If a corporation,
| | please sign in full corporate name by an
| | authorized officer. If a partnership,
- -----Shareholder-----Co-holder (if------ please sign in partnership name by an
sign above any) sign above authorized person.
- ---------------------------------------------------------------------------------------
Detach above card, sign, date and mail in postage paid envelope provided.
ENVIRONMENT ONE CORPORATION
2773 Ballstown Road
Niskayuna, New York 12309-1090
- ---------------------------------------------------------------------------------------
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
- ---------------------------------------------------------------------------------------
</TABLE>
