<PAGE>
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
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
Air & Water Technologies Corporation
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Air & Water Technologies Corporation
------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (check the appropriate box):
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: Class
A Common Stock, $.01 par value; 5 1/2% Series A Convertible
Exchangeable Preferred Stock, $.01 par value.
(2) Aggregate number of securities to which transaction applies:
6,500,000 shares of Class A Common Stock; 1,200,000 shares of 5 1/2%
Series A Convertible Exchangeable Preferred Stock.
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: (1) Class A Common Stock:
$8.9375/2/; 5 1/2% Series A Convertible Exchangeable Preferred Stock:
$50.00/3/
(4) Proposed maximum aggregate value of transaction: $118,093,750
- - --------
(1) Set forth the amount on which the filing fee is calculated and state how it
was determined.
[X] 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: $23,618.75
(2) Form, Schedule or Registration Statement No.: Schedule 14A
(3) Filing Party: Air & Water Technologies Corporation
(4) Date Filed: April 1, 1994
/2/ Market value per share of the Class A Common Stock based on the average of
the high and low sales prices on March 29, 1994, a date within five business
days prior to the date of filing of the preliminary Proxy Statement on April 1,
1994.
/3/ Value per share of the 5 1/2% Series A Convertible Exchangeable Preferred
Stock based on the book value of the shares as of the date of filing of the
preliminary Proxy Statement on April 1, 1994.
<PAGE>
AIR & WATER Air & Water Technologies
TECHNOLOGIES Corporation
CORPORATION U.S. Highway 22 West and
Station Road
Branchburg, NJ 08876
Eckardt C. Beck
Chairman and Chief Executive
Officer
May 24, 1994
Dear Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders of Air
& Water Technologies Corporation, a Delaware corporation ("AWT" or the
"Company"), which will be held at the Fiddler's Elbow Country Club, located at
Rattlesnake Bridge Road, Far Hills, New Jersey, on Tuesday, June 14, 1994, at
2.00 p.m., local time.
At this important meeting, in addition to the election of directors for the
ensuing year and other matters described in the accompanying Proxy Statement,
there will be a vote to approve certain issuances of Company securities
pursuant to an Investment Agreement, dated as of March 30, 1994, among the
Company, Compagnie Generale des Eaux, a French corporation and the Company's
largest shareholder ("CGE"), and Anjou International Company, a Delaware
corporation and a wholly-owned subsidiary of CGE ("Anjou"), pursuant to which,
among other things, the Company will (i) issue to CGE 1,200,000 shares of a
newly designated series of Preferred Stock, designated as 5 1/2% Series A
Convertible Exchangeable Preferred Stock, convertible into 4,800,000 shares of
Class A Common Stock, for cash consideration of $60,000,000, and (ii) issue to
Anjou an aggregate of 6,500,000 shares, subject to adjustment, of Class A
Common Stock in connection with the acquisition from Anjou, pursuant to a
merger and exchange of shares, respectively, of PSC Professional Services
Group, Inc., a Minnesota corporation ("PSG"), and 2815869 Canada, Inc., a
Canadian corporation ("PSG Canada"), each a wholly-owned subsidiary of Anjou.
The Board of Directors has approved, by unanimous vote, the transactions with
CGE and Anjou and recommends that the Company's shareholders vote FOR approval
of the issuances of Company securities contemplated by the Investment
Agreement. To assist you in evaluating the proposed transactions, the Company
has included in the accompanying Proxy Statement detailed information
concerning the Investment Agreement and such transactions.
YOUR VOTE IS IMPORTANT. Approval of the matters to be voted on at the Annual
Meeting requires that at least a majority of the Company's voting stock be
represented at the meeting. We hope you will be able to attend the meeting.
Whether you plan to attend the meeting or not, it is important that your shares
are represented. Therefore, you are urged promptly to complete, sign, date and
return the enclosed proxy card in accordance with the instructions set forth on
the card. Should you desire to revoke your proxy, you may do so at any time
before the proxy is voted by delivering to the Company a written notice of
revocation or a duly executed proxy bearing a later date. Any shareholder who
has executed a proxy but is present at the meeting and who wishes to vote in
person may do so by revoking his, her or its proxy as described in the
preceding sentence.
Sincerely,
Eckardt C. Beck
Chairman and Chief Executive Officer
<PAGE>
AIR & WATER TECHNOLOGIES CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 14, 1994
The Annual Meeting of Shareholders of Air & Water Technologies Corporation
("AWT" or the "Company") will be held at the Fiddler's Elbow Country Club,
located at Rattlesnake Bridge Road, Far Hills, New Jersey, on Tuesday, June 14,
1994, at 2:00 p.m., local time, to consider and act upon the following:
1. The approval of certain issuances of Company securities pursuant to an
Investment Agreement, dated as of March 30, 1994, among the Company,
Compagnie Generale des Eaux, a French corporation and the Company's
largest shareholder ("CGE"), and Anjou International Company, a Delaware
corporation and a wholly-owned subsidiary of CGE ("Anjou"), pursuant to
which, among other things, the Company will (i) issue to CGE 1,200,000
shares of a newly designated series of Preferred Stock, designated as 5
1/2% Series A Convertible Exchangeable Preferred Stock, convertible into
4,800,000 shares of Class A Common Stock, for cash consideration of
$60,000,000, and (ii) issue to Anjou an aggregate of 6,500,000 shares,
subject to adjustment, of Class A Common Stock in connection with the
acquisition from Anjou, pursuant to a merger and exchange of shares,
respectively, of PSC Professional Services Group, Inc., a Minnesota
corporation ("PSG"), and 2815869 Canada, Inc., a Canadian corporation
("PSG Canada"), each a wholly-owned subsidiary of Anjou.
2. The election of eleven members of the Board of Directors.
3. The ratification of the appointment of Arthur Andersen & Co. as the
Company's independent public accountants for the Company's 1994 fiscal
year.
4. The transaction of such other business as may properly come before the
meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on May 12, 1994 as the
record date for the determination of shareholders entitled to notice of and to
vote at the meeting and at any adjournments thereof.
BY ORDER OF THE BOARD OF DIRECTORS
Douglas A. Satzger
Secretary
May 24, 1994
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE URGED TO COMPLETE,
SIGN, DATE AND MAIL THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE
ENCLOSED STAMPED ENVELOPE. YOU MAY REVOKE THE PROXY AT ANY TIME PRIOR TO ITS
USE BY DELIVERING TO THE COMPANY A WRITTEN NOTICE OF REVOCATION OR A DULY
EXECUTED PROXY BEARING A LATER DATE. ANY SHAREHOLDER WHO HAS EXECUTED A PROXY
BUT IS PRESENT AT THE MEETING AND WHO WISHES TO VOTE IN PERSON MAY DO SO BY
REVOKING HIS, HER OR ITS PROXY AS DESCRIBED IN THE PRECEDING SENTENCE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
VOTING SECURITIES......................................................... 1
PRINCIPAL SHAREHOLDERS.................................................... 2
PROPOSAL ONE--THE INVESTMENT TRANSACTION.................................. 4
General................................................................. 4
Background of the Investment Transaction................................ 6
Consideration of Financing Options to Increase Liquidity.............. 6
Contacts with CGE..................................................... 6
Letter Agreement...................................................... 7
Investment Agreement.................................................. 8
Recent Developments..................................................... 8
Recommendation of the Company's Board of Directors...................... 8
Opinion of Financial Advisor............................................ 10
Pro Forma Analysis.................................................... 11
Analysis of Terms of Comparable Transactions.......................... 12
Comparison of Financing Terms......................................... 13
Discounted Cash Flow Analysis of the PSG Group........................ 13
Comparable Company Financial Analysis................................. 13
Interest of Certain Persons in the Investment Transaction............... 14
Issuance of Series A Preferred Stock.................................... 15
General............................................................... 15
Dividends............................................................. 15
Liquidation Preference................................................ 15
Exchange.............................................................. 16
Conversion............................................................ 16
Redemption............................................................ 16
Voting................................................................ 16
Ranking............................................................... 17
Restrictions on Resale; Registration Rights........................... 17
Acquisition of the PSG Group............................................ 17
General............................................................... 17
Purchase Price for the PSG Group...................................... 17
Mechanics of the Acquisition.......................................... 18
Adjustment of Acquisition Consideration............................... 18
Other Provisions...................................................... 18
Restrictions on Resale; Registration Rights........................... 18
Accounting Treatment of the Acquisition Transaction................... 18
Certain Covenants of the Company........................................ 19
Representation on the Board of Directors; Management.................. 19
No-Shop............................................................... 20
Registration Rights................................................... 20
Access to Books and Records........................................... 20
Insurance; Bonding.................................................... 20
Miscellaneous......................................................... 20
Certain Covenants of CGE and Anjou...................................... 20
Conduct of the PSG Group.............................................. 20
Voting of Shares; Acquisitions and Sales of Shares.................... 21
Joint Efforts......................................................... 21
Intercompany Accounts................................................. 21
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Undertakings............................................... 21
Tax Indemnity; Other Agreements...................................... 22
Certain Covenants of the Company, CGE and Anjou........................ 22
Affiliate Transactions............................................... 22
Filings and Consents................................................. 22
Regulatory Review and Approvals........................................ 23
General.............................................................. 23
U.S. Antitrust Laws.................................................. 23
The Exon-Florio Amendment............................................ 23
Conditions to the Investment Transaction, Termination and Expenses..... 24
Use of Proceeds........................................................ 24
Certain Federal Income Tax Consequences of the Investment Transaction.. 24
Gain or Loss to Company on Issuance of Securities.................... 24
Limitation on Use of Net Operating Losses............................ 24
Tax-free Treatment of Merger and Exchange............................ 24
Nondeductibility of Certain Payments Related to Change-in-Control.... 25
INFORMATION CONCERNING CGE, ANJOU AND THE PSG GROUP...................... 26
Compagnie Generale des Eaux............................................ 26
Information About CGE's Business..................................... 26
Beneficial Ownership of Class A Common Stock by CGE.................. 26
Anjou International Company............................................ 26
The PSG Group.......................................................... 26
Services............................................................. 26
Markets and Customers................................................ 28
Backlog.............................................................. 28
Competition.......................................................... 28
Regulation........................................................... 29
Bonding.............................................................. 29
Insurance............................................................ 30
Patents and Trademarks............................................... 30
Employees............................................................ 30
Properties........................................................... 30
Legal Proceedings.................................................... 30
SELECTED FINANCIAL DATA OF AWT........................................... 31
SELECTED HISTORICAL COMBINED FINANCIAL DATA OF PSG GROUP................. 33
PSG GROUP'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS............................................... 34
Dependency on Key Projects............................................. 34
Results of Operations.................................................. 34
Fiscal Year 1993 Compared to Fiscal Year 1992........................ 34
Fiscal Year 1992 Compared to Fiscal Year 1991........................ 35
First Quarter 1994 Compared to First Quarter 1993.................... 35
Liquidity and Capital Resources........................................ 36
Fiscal Year 1993 Compared to Fiscal Year 1992........................ 36
Fiscal Year 1992 Compared to Fiscal Year 1991........................ 36
First Quarter 1994 Compared to First Quarter 1993.................... 37
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.............. 37
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS............... 40
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROPOSAL TWO--ELECTION OF DIRECTORS....................................... 44
Information Concerning the Nominees..................................... 44
Committees of the Board of Directors and Meetings Held.................. 47
Compensation Committee Interlocks and Insider Participation........... 48
Compensation of Directors............................................... 48
PROPOSAL THREE--RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC
ACCOUNTANTS.............................................................. 49
EXECUTIVE COMPENSATION AND OTHER INFORMATION.............................. 50
Summary Compensation Table.............................................. 50
Employment Contracts and Termination and Change-in-Control Arrangements. 51
Option Grants in Last Fiscal Year....................................... 53
Aggregated Option Exercises in Last Fiscal Year, and FY-End Option
Values................................................................. 54
Supplemental Pension Plan............................................... 54
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEE OF THE BOARD OF
DIRECTORS................................................................ 54
Compensation Policy for Executive Officers.............................. 54
Discussion of 1993 Compensation for the Chairman and Chief Executive
Officer................................................................ 55
STOCK PERFORMANCE GRAPH................................................... 57
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................ 57
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934...... 58
SHAREHOLDER PROPOSALS FOR 1995 ANNUAL MEETING............................. 58
ADDITIONAL INFORMATION WITH RESPECT TO THE COMPANY........................ 58
OTHER MATTERS............................................................. 59
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES............................... F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS.................................. F-2
COMBINED BALANCE SHEETS................................................... F-3
COMBINED STATEMENTS OF INCOME............................................. F-4
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY.................... F-5
COMBINED STATEMENTS OF CASH FLOWS......................................... F-6
NOTES TO COMBINED FINANCIAL STATEMENTS.................................... F-7
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES..................... F-15
SCHEDULE V--COMBINED PROPERTY, EQUIPMENT, FURNITURE AND FIXTURES.......... F-16
SCHEDULE VI--COMBINED ACCUMULATED DEPRECIATION OF PROPERTY, EQUIPMENT,
FURNITURE AND FIXTURES................................................... F-17
</TABLE>
iii
<PAGE>
AIR & WATER TECHNOLOGIES CORPORATION
U.S. HIGHWAY 22 WEST AND STATION ROAD
BRANCHBURG, NEW JERSEY 08876
----------------
ANNUAL MEETING OF SHAREHOLDERS
JUNE 14, 1994
----------------
PROXY STATEMENT
The enclosed proxy is solicited by the Board of Directors of Air & Water
Technologies Corporation ("AWT" or the "Company") for use at the Annual Meeting
of Shareholders to be held at the Fiddler's Elbow Country Club, located at
Rattlesnake Bridge Road, Far Hills, New Jersey, on Tuesday, June 14, 1994, at
2:00 p.m., local time, and at any adjournments thereof (the "Annual Meeting").
A shareholder giving a proxy has the right to revoke it at any time before it
is voted by delivering to the Company a written notice of revocation or a duly
executed proxy bearing a later date. Any shareholder who has executed a proxy
but is present at the Annual Meeting and who wishes to vote in person may do so
by revoking his, her or its proxy as described in the preceding sentence. This
proxy statement and the enclosed proxy card are first being mailed to
shareholders on or about May 24, 1994. All shares represented by valid proxies
pursuant to this solicitation (and not revoked before they are exercised) will
be voted as specified on the proxy card. If a proxy is signed but no
specification is given, the shares will be voted to approve the issuances of
certain Company securities pursuant to the Investment Agreement, dated as of
March 30, 1994 (the "Investment Agreement"), among the Company, Compagnie
Generale des Eaux, a French corporation and the Company's largest shareholder
("CGE"), and Anjou International Company, a Delaware corporation and a wholly-
owned subsidiary of CGE ("Anjou"), to elect the Board's nominees to the Board
of Directors, in favor of the ratification of the appointment of Arthur
Andersen & Co. as the Company's independent public accountants for its 1994
fiscal year, and, in the discretion of the proxyholders, on any other matter
that may properly come before the meeting.
The cost of soliciting proxies, including expenses in connection with
preparing and mailing this Proxy Statement, will be borne by the Company. The
solicitation of proxies may be made by directors, officers and regular
employees of the Company or any of its subsidiaries personally or by mail,
telephone, facsimile communication or telegraph. No additional compensation
will be paid for such solicitation. In addition, arrangements will be made with
brokerage houses and other custodians, nominees and fiduciaries to forward
proxy soliciting material to the beneficial owners of stock held of record by
such persons, and the Company will reimburse them for reasonable out-of-pocket
expenses incurred by them in so doing. In addition, the Company has engaged the
services of Kissel-Blake Inc. to solicit proxies and will pay such proxy
soliciting agent $5,000 plus expenses in connection therewith. Solicitation by
such firm may be by mail, personal interview, telephone or telegraph.
VOTING SECURITIES
At May 12, 1994 (the "Record Date"), the Company had outstanding 25,318,281
shares of Class A Common Stock, par value $.001 per share (the "Class A Common
Stock"). Each holder of Class A Common Stock will have the right to one vote
for each share standing in such holder's name on the books of the
<PAGE>
Company as of the close of business on the Record Date. Holders of the
Company's securities will not have any dissenters' rights in connection with
any of the matters to be voted on at the Annual Meeting.
The presence in person or by proxy of a majority of the votes entitled to be
cast will constitute a quorum for purposes of conducting business at the Annual
Meeting. Assuming that a quorum is present, the proposal to approve the
issuances of Company securities pursuant to the Investment Agreement will
require the affirmative vote of a majority of the shares present or represented
and entitled to vote at the meeting; directors will be elected by a plurality
vote; and the proposal to ratify the appointment of the independent public
accountants will require the affirmative vote of a majority of the shares
present or represented and entitled to vote at the Annual Meeting. With respect
to the tabulation of votes on any matter, abstentions are treated as votes
against a proposal, while broker non-votes have no effect on the vote. CGE HAS
AGREED TO VOTE OR CAUSE TO BE VOTED ALL OF THE SHARES OF CLASS A COMMON STOCK
BENEFICIALLY OWNED BY IT, REPRESENTING 24.5% OF THE OUTSTANDING SHARES OF SUCH
CLASS, FOR THE ELECTION OF THE BOARD OF DIRECTORS' NOMINEES AND IN FAVOR OF
PROPOSALS ONE AND THREE HEREIN. IN ADDITION, CERTAIN OTHER SHAREHOLDERS WHO
BENEFICIALLY OWN AN AGGREGATE OF 9.5% OF THE OUTSTANDING CLASS A COMMON STOCK
HAVE INFORMALLY INDICATED TO THE COMPANY THEIR INTENTION TO VOTE THEIR SHARES
IN FAVOR OF THE PROPOSALS INCLUDED IN THIS PROXY STATEMENT. ACCORDINGLY, THERE
IS A REASONABLE LIKELIHOOD THAT ALL OF THE MATTERS SUBMITTED TO THE
SHAREHOLDERS WILL BE APPROVED, ALTHOUGH THE PASSAGE OF EACH PROPOSAL IS NOT
ASSURED. SHAREHOLDER APPROVAL OF THE INVESTMENT TRANSACTION (PROPOSAL ONE) MAY
BE RAISED BY THE COMPANY AS A DEFENSE IN THE EVENT OF A SUBSEQUENT CHALLENGE TO
THE INVESTMENT TRANSACTION.
PRINCIPAL SHAREHOLDERS
The following table sets forth information as of March 30, 1994, as to the
beneficial ownership of AWT's Class A Common Stock by (i) each person known by
the Company to be the beneficial owner of more than five percent of the
outstanding shares of the Class A Common Stock, (ii) each current director of
AWT, (iii) each nominee for the Board of Directors who is not currently serving
on the Board, (iv) each executive officer named in the Summary Compensation
Table herein, and (iv) all current executive officers and directors of AWT as a
group.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF PERCENT OF
CLASS A CLASS A
NAME OF PERSON OR GROUP COMMON STOCK(1) COMMON STOCK
- - ----------------------- --------------- ------------
<S> <C> <C>
Eckardt C. Beck................................. 326,265 1.3%
Arthur L. Glenn................................. 32,000 *
Harvey Goldman(2)............................... 85,176 *
Enrique F. Senior(3)............................ 1,906,011 7.5
Brian D. Young.................................. 0 *
Douglas M. Costle(4)............................ 41,890 *
Joseph L. Boren(5).............................. 44,187 *
Richard M. Dowd(6).............................. 3,750 *
John W. Morris.................................. 3,079 *
Alain Brunais(7)................................ 6,203,475 24.5
Jacques-Henri David(7).......................... 6,203,475 24.5
Claudio Elia(7)................................. 6,203,475 24.5
Jean-Dominique Deschamps(7)..................... 6,203,475 24.5
Nicholas DeBenedictis(7)........................ 0 *
William Kriegel(7).............................. 0 *
Carol Lynn Green................................ 0 *
Douglas A. Satzger(8)........................... 18,000 *
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF PERCENT OF
CLASS A CLASS A
NAME OF PERSON OR GROUP COMMON STOCK(1) COMMON STOCK
- - ----------------------- --------------- ------------
<S> <C> <C>
Donald A. Deieso(9)........................... 52,500 *
Joseph P. Matturo(10)......................... 24,750 *
Allen & Company Incorporated(3)............... 1,906,011 7.5
711 Fifth Avenue
New York, New York 10022
Compagnie Generale des Eaux(7)................ 6,203,475 24.5
52 rue d'Anjou
75384 Paris Cedex 08
France
The Capital Group, Inc.(11)................... 2,809,500 11.1
333 South Hope Street
Los Angeles, California 90071
Brinson Partners(11).......................... 1,954,900 7.7
3 First National Plaza
Chicago, Illinois 60670
State of Wisconsin Investment Board(11)....... 2,409,478 9.5
P.O. Box 7842
Madison, Wisconsin 53207
All current directors and executive officers
as a group (17 persons)(12).................. 8,773,396 34.65
</TABLE>
- - --------
* Less than 1% ownership
(1) The number of shares of Class A Common Stock issued and outstanding on
March 30, 1994 was 25,318,281. The calculation of percentage ownership for
each beneficial owner is based upon the number of shares of Class A Common
Stock issued and outstanding at March 30, 1994, plus shares of Class A
Common Stock subject to options or convertible securities held by such
person at such date which are then exercisable or convertible or become
exercisable or convertible within 60 days thereafter.
(2) Includes 11,875 shares which may be acquired upon the exercise of options.
(3) Includes shares of Class A Common Stock owned by Allen & Company
Incorporated, of which Enrique F. Senior is a Managing Director, as well
as shares owned by Mr. Senior and certain of his family members. Allen &
Company Incorporated disclaims beneficial ownership of shares held of
record by Mr. Senior and his family members, each of whom also disclaims
beneficial ownership of the shares held of record by Allen & Company
Incorporated.
(4) Includes 7,362 shares which may be acquired upon the exercise of options.
(5) Includes 11,875 shares which may be acquired upon the exercise of options.
(6) Consists of 3,750 shares which may be acquired upon the exercise of
options.
(7) Consists of shares of Class A Common Stock owned beneficially and of
record by CGE, including the 500,000 shares purchased upon execution of
the Letter Agreement, dated March 18, 1994, between the Company and CGE.
See "Proposal One--The Investment Transaction--Background of the
Investment Transaction--Letter Agreement." Each of Messrs. Brunais, David,
Elia, Deschamps, DeBenedictis and Kriegel is an employee, officer or
director of CGE or one of its affiliates and disclaims beneficial
ownership of all such shares.
(8) Includes 17,000 shares which may be acquired upon the exercise of options.
(9) Consists of 52,500 shares which may be acquired upon the exercise of
options.
(10) Includes 18,750 shares which may be acquired upon the exercise of options.
(11) Information as to beneficial ownership of Class A Common Stock is based
solely on Schedules 13G or 13D filed with the Securities and Exchange
Commission.
(12) Includes an aggregate of 155,425 shares which may be acquired upon the
exercise of options.
On March 30, 1994, the Company entered into the Investment Agreement with CGE
and Anjou, pursuant to which the Company has agreed, subject to certain
conditions, to issue certain of its securities to CGE and Anjou. See "Proposal
One--The Investment Transaction."
3
<PAGE>
PROPOSAL ONE
THE INVESTMENT TRANSACTION
GENERAL
At the Annual Meeting, shareholders are being asked to approve the issuance
of certain securities of the Company pursuant to an Investment Agreement, dated
as of March 30, 1994 (the "Investment Agreement"), among the Company, Compagnie
Generale des Eaux, a French corporation and the Company's largest shareholder
("CGE"), and Anjou International Company, a Delaware corporation and a wholly-
owned subsidiary of CGE ("Anjou"). As more fully described below, the
Investment Agreement, together with a Letter Agreement between the Company and
CGE, dated March 18, 1994 (the "Letter Agreement"), provide for a closer
relationship between the Company and CGE which the Company believes will
strengthen its competitive and financial position and increase its working
capital availability.
CGE and its subsidiaries are a diversified group of local service companies
primarily engaged in providing a comprehensive range of public, institutional
and industrial service needs for water, power, heating and urban maintenance.
In France, CGE, together with its subsidiaries, is one of the nation's largest
cable broadcasters and cellular telephone network operators and one of the
leading managers of private health clinics and parking lots. As of the Record
Date, CGE was the beneficial holder of 6,203,475 shares of Class A Common
Stock, constituting 24.5% of the outstanding shares of Class A Common Stock of
the Company. See "Principal Shareholders." If the Company's shareholders
approve the issuance of the securities of the Company pursuant to the
Investment Agreement, CGE will, directly or indirectly, own approximately 40%
of the outstanding shares of Class A Common Stock and have approximately 48% of
the voting rights of shareholders of the Company.
Briefly summarized, subject to the terms and conditions of the Investment
Agreement and the Letter Agreement:
(i) The Company will issue 1,200,000 shares of a newly designated series
of its authorized Preferred Stock, designated as 5 1/2% Series A
Convertible Exchangeable Preferred Stock ("Series A Preferred Stock"),
convertible into 4,800,000 shares of Class A Common Stock, to CGE for cash
consideration of $60,000,000. See "--Issuance of Series A Preferred Stock."
(ii) The Company will acquire from Anjou, by merger and exchange of
shares, respectively, PSC Professional Services Group, Inc., a Minnesota
corporation ("PSG"), and 2815869 Canada, Inc., a Canadian corporation ("PSG
Canada"), each a wholly-owned subsidiary of Anjou (such subsidiaries being
collectively referred to herein as the "PSG Group"), for an aggregate
purchase price of 6,500,000 shares of Class A Common Stock, subject to
adjustment. See "--Acquisition of the PSG Group."
(iii) CGE has agreed to certain financial undertakings, which include
assistance and support to enable the Company to obtain up to $125,000,000
of bank debt financing on an unsecured basis (and assistance and support in
obtaining up to $125,000,000 of bridge financing if the transactions
contemplated by the Letter Agreement and the Investment Agreement are not
consummated by June 14, 1994), as well as support to the Company in
obtaining certain letters of credit for the Company's water and waste water
management and air pollution projects. See "--Background of the Investment
Transaction--Letter Agreement" and "--Certain Covenants of CGE and Anjou--
Financial Undertakings."
(iv) CGE has agreed that, for so long as CGE (with its affiliates) is the
largest shareholder of the Company, AWT will be CGE's exclusive vehicle in
the United States, its possessions and its territories for CGE's water and
waste water management and air pollution activities. CGE shall also assist
the Company in developing its water and waste water management and air
pollution activities in both
4
<PAGE>
Canada and Mexico, subject to certain limitations, and CGE and the Company
will establish a privileged commercial relationship for the development of
air pollution activities in Europe. See "--Certain Covenants of CGE and
Anjou--Joint Efforts."
(v) The Company has increased the size of its Board of Directors from
nine to eleven members and has appointed two persons designated by CGE to
serve on the Board of Directors and the Executive Committee of the Board
until the Annual Meeting. In addition, the Company has agreed that after
the closing of the transactions contemplated by the Investment Agreement,
the Board of Directors and senior management of the Company shall include
certain persons who are designated by CGE. See "--Certain Covenants of the
Company--Representation on the Board of Directors; Management."
(vi) The Company has granted certain demand and "piggy back" registration
rights to CGE and Anjou with respect to all shares of Class A Common Stock
and Series A Preferred Stock owned from time to time by CGE, Anjou and
their affiliates. See "--Certain Covenants of the Company--Registration
Rights."
In connection with the execution of the Letter Agreement, the Company issued
500,000 shares of Class A Common Stock to CGE for an aggregate purchase price
of $5,000,000. See "--Background of the Investment Transaction--Letter
Agreement."
The Investment Agreement grants CGE a number of other rights, including,
among other things, access to the books, records and employees of the Company
for so long as CGE owns at least 26% of the outstanding shares of Class A
Common Stock on a fully diluted basis at that time. See "--Certain Covenants of
the Company." CGE and Anjou have also agreed to a number of additional
covenants, including, among other things, limitations on the conduct of the PSG
Group prior to the closing of the Investment Transaction, the voting of all of
shares of Class A Common Stock held by CGE in favor of the Investment
Transaction, and settlement of intercompany accounts between CGE, Anjou and the
PSG Group. See "--Certain Covenants of CGE and Anjou." CGE has also agreed on
behalf of itself and its affiliates that certain transactions between AWT and
any of its affiliates and CGE or any of its affiliates, as well as any claims
by AWT against CGE or any of its affiliates, will be subject to approval by a
majority of the Independent Directors (as defined in the Investment Agreement).
See "--Certain Covenants of the Company, CGE and Anjou--Affiliate
Transactions."
The affirmative vote of a majority of the shares of Class A Common Stock
present or represented and entitled to vote at the Annual Meeting is required
to approve the issuances by the Company of the shares of Series A Preferred
Stock and Class A Common Stock referred to in paragraphs (i) and (ii) above
(collectively referred to hereinafter as the "Investment Transaction").
Approval by the Company's shareholders of such issuances is required under the
rules of the American Stock Exchange.
Certain aspects of the Investment Transaction were subject to review by the
Federal Trade Commission ("FTC") and the Department of Justice pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("HSR Act") and the United
States Government under the provisions of Section 5021 of the Omnibus Trade and
Competitiveness Act of 1988, as amended (the "Exon-Florio Amendment"), and such
review has been completed without objection by such authorities.
On March 17, 1994, the last full trading day prior to the date of public
announcement of the Letter Agreement between the Company and CGE contemplating
the Investment Transaction and related covenants and agreements, the reported
high and low sales prices per share of Class A Common Stock on the American
Stock Exchange Composite Tape were $9 7/8 and $9 3/8, respectively. On March
29, 1994, the last full trading day prior to the execution of the Investment
Agreement, the high and low sales prices per share of Class A Common Stock on
the American Stock Exchange Composite Tape were $9 and $8 7/8, respectively. On
May 19, 1994, the high and low sales prices per share of Class A Common Stock
on the American Stock Exchange Composite Tape were $8 3/8 and $7 7/8,
respectively.
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THE DESCRIPTIONS OF THE TERMS OF THE INVESTMENT AGREEMENT AND THE SERIES A
PREFERRED STOCK (INCLUDING THE 5 1/2% CONVERTIBLE SUBORDINATED NOTES FOR WHICH
THE SERIES A PREFERRED STOCK MAY BE EXCHANGED) CONTAINED IN THIS PROXY
STATEMENT, WHICH THE COMPANY BELIEVES ADDRESS ALL MATERIAL TERMS OF THEREOF,
ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE EXPRESS PROVISIONS OF THE
INVESTMENT AGREEMENT, THE CERTIFICATE OF DESIGNATION OF THE SERIES A PREFERRED
STOCK AND THE FORM OF 5 1/2% CONVERTIBLE SUBORDINATED NOTES, COPIES OF WHICH
ARE INCLUDED WITH THIS PROXY STATEMENT IN ANNEX I.
The affirmative vote of a majority of the votes present or represented and
entitled to vote at the Annual Meeting is required to approve Proposal One.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL ONE DESCRIBED BELOW.
---
BACKGROUND OF THE INVESTMENT TRANSACTION
Consideration of Financing Options to Increase Liquidity. During the last
quarter of fiscal year 1993 and the first two quarters of fiscal year 1994, the
Company had been exploring various options to raise capital in either a
privately placed or underwritten public offering of debt securities. During
that period the Company also explored, through its financial advisor, Allen &
Company Incorporated, the possible placement of equity securities with a
strategic investor. The Company was exploring such options with a view to,
among other matters, refinancing $100,000,000 principal amount of 11.18% Senior
Notes held by The Prudential Insurance Company of America (the "Prudential
Notes"), which contain certain financial and other restrictive covenants with
respect to the Company and its subsidiaries relating to, among other things,
the maintenance of certain financial ratios, the incurrence of additional
indebtedness, the creation of liens, guarantees, investments, the sale of
assets and the payment of dividends on or the redemption, repurchase,
acquisition or retirement of securities of the Company or its subsidiaries. The
Company believed that, if such restrictive covenants, especially the
restriction on the Company's ability to grant liens on its assets, were
eliminated through the repayment of the Prudential Notes, the Company would be
able to pledge such assets to secure expanded borrowing capacity from its
existing or new lenders. Among the transactions considered by the Company were
private placements or, alternatively, underwritten offerings of high-yield debt
securities and, possibly, various forms of equity securities, as well as
replacement of, and an increase in, the amount of the Company's working capital
facilities with its bank lenders. Discussions were held between members of
senior management of the Company and prospective placement agents and
underwriters, and the Board of Directors was periodically informed by senior
management as to the content and status of such discussions.
Contacts with CGE. CGE has been a greater than five percent beneficial owner
of the Company's Class A Common Stock since June 1990, when CGE consummated the
purchase of 3,584,872 shares of Class A Common Stock from the Company. CGE
acquired additional shares of Class A Common Stock from time to time
thereafter, increasing its beneficial ownership to approximately 23%
immediately prior to the execution of the Letter Agreement. In response to a
Schedule 13D filed by CGE on September 20, 1993, which reported that CGE may
seek to influence the Company's management, AWT reviewed with Allen & Company
Incorporated various strategic alternatives and, through Allen & Company
Incorporated, contacted CGE's financial advisor, Lazard Freres & Company, to
explore the possibility of transactions with CGE that could accomplish the same
objectives discussed above. In addition, by letter dated February 18, 1994,
AWT, pursuant to an existing contractual obligation to notify CGE of a
prospective financing possibly involving the issuance of equity securities,
informed CGE that it was exploring various financing alternatives.
On March 10, 1994, Allen & Company Incorporated was contacted by CGE with an
alternative proposal designed to provide additional liquidity for the Company,
permit refinancing of the Prudential Notes and strengthen the Company's
competitive position. On March 14, 1994, CGE proposed in more detail the
financing and related transactions first proposed on March 10, 1994. On March
16, 1994, members of management of the Company and CGE and their respective
financial and legal advisors conducted detailed discussions regarding the terms
of an equity investment by CGE in the Company, in connection with which
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CGE would assist the Company in obtaining financing, including for the purpose
of repaying the Prudential Notes, and the structure and terms of the Investment
Agreement. Subject to AWT Board approval and certain other conditions, the
parties agreed upon the basic terms of the proposed transactions. At a special
meeting held on March 17, 1994, the Company's Board of Directors, after careful
consideration of the comparative merits of the Company's financing options and
other information as it deemed relevant, including advice from the Company's
advisors, unanimously approved the Investment Transaction and related
arrangements, subject to certain conditions, including shareholder approval and
receipt of a written opinion from Allen & Company Incorporated that the
transaction is fair to the Company's shareholders (other than CGE) from a
financial point of view. At the March 17th meeting, Allen & Company
Incorporated advised the Board of Directors that, based on the terms of the
Letter Agreement, the information at that time available to Allen & Company
Incorporated regarding the Investment Transaction and the work performed
through such date by Allen & Company Incorporated, Allen & Company Incorporated
expected to be in a position, upon execution of a definitive agreement and
completion of Allen & Company Incorporated's review, to render an opinion that
the transactions contemplated in connection with the Letter Agreement would be
fair, from a financial point of view, to the existing shareholders of the
Company (other than CGE). The Company and CGE delivered the Letter Agreement on
March 18, 1994.
Letter Agreement. In connection with the execution of the Letter Agreement,
CGE purchased 500,000 shares of the Company's Class A Common Stock for a total
purchase price of $5,000,000. The Company also agreed to increase the size of
the Board of Directors by two directors and appointed two persons designated by
CGE, Mr. Claudio Elia, President and Chief Executive Officer of Anjou, and Mr.
Alain Brunais, an employee of CGE, as directors of the Company. Messrs. Elia
and Brunais were also appointed to the Executive Committee of the Board. In
addition, CGE agreed that in the event the Investment Transaction is not closed
on or before June 14, 1994 and the Company has not theretofore been able to
obtain up to $125,000,000 of debt financing to repay the Prudential Notes, CGE
will provide any assistance and support necessary for a bank or other financial
institution to provide bridge financing to the Company for up to $125,000,000
on a senior basis at a rate equal to the three-month LIBOR rate plus 325 basis
points, any such loan to be repaid as promptly as practicable and in any event
within six months. CGE also agreed that, after the closing of the Investment
Transaction, it will (i) provide any assistance and support necessary to enable
the Company to obtain up to $125,000,000 of permanent bank debt financing on an
unsecured basis to repay the Prudential Notes at an interest rate not in excess
of the market rate for a seven-year fixed-rate swap against the three-month
LIBOR rate plus 125 basis points, with a covenant package that does not include
a negative pledge restriction on the Company's assets and permits normal
working capital borrowing by the Company, and (ii) co-sign on a case-by-case
basis with the Company applications for letters of credit with respect to the
Company's water and waste water management and air pollution projects, subject
to approval by CGE, which CGE acknowledges could reach or exceed the level of
letters of credit currently carried by the Company.
CGE currently expects to provide to AWT, after the closing of the Investment
Transaction and in satisfaction of its obligations under the Letter Agreement,
a seven-year revolving line of credit of up to $125,000,000 on an unsecured
basis at an interest rate not in excess of the three-month LIBOR rate plus 125
basis points, with a commitment fee of 0.45% of the undrawn amount and a
covenant package that does not include a negative pledge restriction on the
Company's assets and permits normal working capital borrowing by the Company.
The Company has also agreed in the Letter Agreement not to (i) adopt any
shareholder rights plan (or any arrangement which is designed to disadvantage
CGE on the basis of the size of its shareholding), (ii) make any material
change in the Company's capital structure or issue any capital stock except as
provided in the Letter Agreement or (iii) modify or enter into any employee
benefit arrangements or any agreements with employees or grant any severance or
termination compensation rights to employees. The foregoing restrictions
terminate in the event that (x) CGE materially breaches any of its obligations
or representations contained in the Letter Agreement or in the Investment
Agreement or (y) CGE commences a tender offer for or acquires
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more than 1% of the outstanding shares of Class A Common Stock (except as
contemplated by the Letter Agreement) or commences any solicitation of proxies
from the Company's shareholders not approved by the Company's Board of
Directors.
Investment Agreement. After the execution of the Letter Agreement, the
Company and CGE, with the assistance of its legal counsel and other advisors,
began preparing and negotiating the Investment Agreement and other definitive
documents related to the Investment Transaction. On March 30, 1994, the
Company, CGE and Anjou executed and delivered the Investment Agreement.
RECENT DEVELOPMENTS
On May 13, 1994, the Company filed a Current Report on Form 8-K (the "8-K
Report") with the Securities and Exchange Commission (the "Commission")
disclosing that the Company had determined to liquidate its asbestos abatement
business and take a charge of approximately $35 million in connection therewith
for its second quarter of fiscal 1994. The Company also reported in the 8-K
Report its expectation that it would have a net loss from continuing operations
for the second quarter of fiscal 1994 of approximately $18 million.
The Company had previously reported in its Annual Report on Form 10-K for the
fiscal year ended October 31, 1993 (the "1993 Form 10-K"), which was filed with
the Commission in January 1994, that it would discontinue its asbestos
abatement operation and that the operation had been considered a discontinued
operation for financial reporting purposes as of the Company's 1993 fiscal
year. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note (4) of Notes to Consolidated Financial
Statements in the 1993 Form 10-K, as amended, and the 8-K Report, copies of
which have been delivered to shareholders together with this Proxy Statement.
The Company's determination to liquidate its asbestos abatement business and
take the additional charge was based upon consideration of a number of factors
occurring in fiscal 1994 that caused the Company to conclude that it would be
unable to realize value through the sale of the business and associated assets.
The Company's efforts to sell the business on a reasonable basis had been
unsuccessful and, since the announcement of the Company's plans to discontinue
the operation, the business's performance had continued to deteriorate. Factors
that contributed to the declining performance included the loss of management
and other personnel with the experience and skill necessary for the business to
be operated profitably and without continuing negative cash flows,
deteriorating margins both with respect to new project contracts and existing
backlog, greater difficulties in obtaining change orders from clients, and the
likelihood of further erosion of margins due to substantial increases in
required workers' compensation contributions for a significant percentage of
the business's employees.
The Company has apprised CGE of the decision to liquidate the asbestos
abatement business and the anticipated operating loss for the fiscal quarter,
and CGE has informed the Company of its intention to proceed with the
transactions contemplated by the Investment Agreement, subject to approval by
the Company's shareholders and other conditions set forth in the Investment
Agreement. The Company has also notified its institutional lenders of these
developments and is seeking any waivers or amendments that may be required
under applicable loan documentation.
RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS
The Board of Directors of the Company, by unanimous vote on March 17, 1994,
approved the execution and delivery of the Letter Agreement and the
transactions contemplated thereby and authorized the negotiation, execution and
delivery of the Investment Agreement, and recommends that the shareholders vote
FOR approval of the issuance of the Series A Preferred Stock and Class A Common
Stock in the Investment Transaction. A summary of certain factors considered
material by the Board of Directors in approving the transactions contemplated
by the Letter Agreement and Investment Agreement is set forth below:
8
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(a) the material potential operational and economic benefits to the
Company from the joint efforts contemplated with CGE, including: (i)
serving as CGE's exclusive vehicle for water and wastewater management and
air pollution activities in the United States, its possessions and its
territories; (ii) the establishment of a privileged commercial relationship
with CGE for the development of air pollution activities in Europe; and
(iii) CGE's assistance to the Company in developing its water and
wastewater management and air pollution activities in both Canada and
Mexico, subject to existing contractual agreements and taking into account
the respective interests of the parties;
(b) the combination of the PSG Group with AWT's subsidiary, Metcalf &
Eddy Services, Inc., to form a leading water and wastewater management
services group of companies in the United States and the potential
synergies arising from such combination;
(c) the current business, properties and prospects of the Company and its
subsidiaries, the financial and operational condition of the Company and
its subsidiaries and the long-term strategy of the Company;
(d) information available to the Company regarding the PSG Group's
business, properties and prospects and its financial and operational
condition;
(e) their belief that a strategic alliance with CGE will significantly
enhance the Company's competitive position in the U.S. market by permitting
the Company to provide a greater variety of enhanced and value-added
international services to U.S.-based multinational customers;
(f) the substantial increase in the Company's available cash and access
to capital that will occur as a result of the sales of Class A Common Stock
and Series A Preferred Stock to CGE, as well as CGE's financial
undertakings, which will permit the Company to repay the Prudential Notes,
obtain support for applications for letters of credit and result in
increased ability of the Company to take advantage of strategic
opportunities in local access and in value-added services within the United
States which may be available from time to time and to generally strengthen
its competitive position throughout North America;
(g) the timing, relative certainty and cost of consummating the
transactions contemplated by the Letter Agreement and Investment Agreement,
as compared to alternative financing options such as a private placement or
a public offering of debt and/or equity securities or through others;
(h) the attractive cost and terms of long-term financing available to the
Company with the assistance of CGE;
(i) the terms of the Letter Agreement, Investment Agreement and related
documents;
(j) the Board of Directors' belief that the strategic and competitive
position of the Company will be significantly enhanced beyond what could be
achieved by the Company alone or through other available alliances that the
Company could reasonably anticipate;
(k) the advice of Allen & Company Incorporated to the effect that the
Investment Transaction is fair to the Company's shareholders (other than
CGE) from a financial point of view (see "Opinion of Financial Advisor"
below);
(l) the reserved right of the Company to terminate the Investment
Agreement if the Board of Directors determines in good faith, based upon
the advice of counsel, that such termination is legally required for the
discharge by the Board of its fiduciary duty in order to agree to or
endorse any "takeover proposal", as well as the absence of any lock-up
options in favor of CGE or any break-up fee; and
(m) that the closing of the Investment Transaction is conditioned upon
approval by the Company's shareholders of the issuances of the Series A
Preferred Stock and Class A Common Stock contemplated thereby.
In assessing the transactions contemplated by the Investment Agreement, the
Board of Directors considered three broad categories of material benefits which
the Board anticipated that the Company and its shareholders would receive: the
improved financial strength and flexibility of the Company as a consequence
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of the proposed transactions; the related growth potential resulting from the
Company being CGE's exclusive vehicle for water and wastewater management and
air pollution activities in the United States and other markets and from the
combination of the PSG Group and Metcalf & Eddy Services, Inc.; and
considerations relating to the exercise of the Board of Directors' fiduciary
obligations to the Company's shareholders, including the fairness of the
Investment Transaction to the Company's shareholders from a financial point of
view. In assessing the financial benefits to the Company, the Board placed
great weight on the factors enumerated in subparagraphs (f), (g) and (h) above,
as well as the economic benefit resulting from the combination of the PSG Group
with Metcalf & Eddy Services, Inc. as described in subparagraph (b) above. In
its evaluation of the Company's prospects for future growth, the Board relied
upon the factors described in subparagraphs (a), (b), (c), (d), (e) and (j)
above. Finally, the fact that Allen & Company Incorporated had advised the
Company's Board of Directors based on information then available that the
transactions were fair to the Company's shareholders (other than CGE) from a
financial point of view, coupled with factors listed in subparagraphs (l) and
(m), were material to the Board's endorsement of the transactions contemplated
by the Investment Agreement.
The Board of Directors also considered certain anticipated and possible
consequences of the transactions contemplated by the Investment Agreement which
would not or may not be favorable to the Company, including the likely
preclusion of certain other potential alliances and the relative loss of
freedom of action resulting from the closer relationship with CGE, risks
associated with a combination with the PSG Group (including in relation to the
assumption of liabilities), and the likely limitation on the Company's use of
its net operating losses (NOLs) to offset future federal income taxes.
In assessing potential negative factors that might result from the
consummation of the transactions contemplated by the Investment Agreement the
Board of Directors concluded that future major alliances with parties other
than CGE were unlikely and that a closer relationship with CGE was in the best
interests of the Company's shareholders. Furthermore, the risks from the
assumption of PSG's liabilities were determined not to be material, or to
outweigh the perceived benefits from the acquisition of PSG and other
transactions contemplated by the Investment Agreement. Finally, the Board of
Directors concluded that limitation on the use of the Company's NOLs was not a
reason that should preclude the transactions contemplated by the Investment
Agreement.
The Board of Directors reserves the right, pursuant to the Investment
Agreement, to terminate the Investment Agreement in accordance with its terms
notwithstanding shareholder approval.
OPINION OF FINANCIAL ADVISOR
The Company formally retained Allen & Company Incorporated ("Allen &
Company") on November 15, 1993 to act as its financial advisor and agent to
assist the Company in developing an overall plan for its corporate and
financial development and to consider and advise the Company regarding
opportunities available to the Company with a view toward maximizing
shareholder value. In connection with the engagement, the Company requested
that Allen & Company evaluate the fairness, from a financial point of view, of
the Investment Transaction and related arrangements. Allen & Company has
delivered to the Board of Directors its written opinion dated May 24, 1994, to
the effect that, as of such date and based upon and subject to certain matters
as stated in such opinion, the Investment Transaction and related arrangements
are fair, from a financial point of view, to the existing holders of the
Company's Class A Common Stock (other than CGE). Allen & Company's opinion
addressed only the fairness from a financial point of view of the terms of the
Investment Transaction and related arrangements and is not a recommendation to
any public shareholder of the Company as to how such a shareholder should vote
at the Annual Meeting. No limitations were imposed by the Board of Directors
upon Allen & Company with respect to the investigations made or procedures
followed by Allen & Company in rendering its opinion. In reaching this opinion,
Allen & Company relied upon the accuracy and completeness of all financial and
other information provided to it or which was publicly available, and did not
independently verify such information.
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A COPY OF ALLEN & COMPANY'S OPINION, WHICH SETS FORTH THE ASSUMPTIONS MADE,
MATTERS CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN, IS INCLUDED WITH THIS
PROXY STATEMENT AS ANNEX II AND SHOULD BE READ BY SHAREHOLDERS CAREFULLY IN ITS
ENTIRETY.
In arriving at its opinion, Allen & Company considered, among other things,
(i) the business and financial aspects of the Investment Transaction and
related arrangements; (ii) the Company's need for capital, alternatives for
raising capital and the relative costs of such alternatives; (iii) the business
and financial condition of the Company and the PSG Group, the Company's current
capital structure, and the terms of its current credit facilities; (iv) the
historical and current markets, and recent trading activity, for the Class A
Common Stock and for other securities of certain companies believed by Allen &
Company to be comparable to the Company; (v) other transactions, either
consummated or pending, involving the acquisition or a strategic investment
believed by Allen & Company to be comparable to the Investment Transaction;
(vi) information provided by managements of AWT and the PSG Group, as well as
other information available, regarding their respective assessments of the
Company's and the PSG Group's prospects and the prospects for the environmental
industry in general, including a continuing trend toward consolidation in the
industry and the capital intensive nature of operations therein; (vii)
information available regarding financings generally comparable to CGE's and
Anjou's investment in the Series A Preferred Stock and Class A Common Stock and
CGE's commitment for interim and permanent debt financing, as well as recent
trends in the pricing and terms of preferred stock and debt financings since
the date of the announcement of the Investment Transaction; and (viii) the
views of AWT's management concerning the strategic and operational benefits
which might result from the acquisition of the PSG Group, as well as the
strategic advantages that management believes may be realized from an alliance
with CGE in the United States and elsewhere.
In connection with its review, Allen & Company did not independently verify
any of the information provided to or otherwise reviewed by Allen & Company and
relied upon such information being complete and accurate in all material
respects. With respect to financial forecasts and pro forma analyses provided,
Allen & Company assumed that they were reasonably prepared on bases reflecting
the best currently available judgments and estimates of management of AWT and
the PSG Group. In addition, Allen & Company did not make an independent
evaluation or appraisal of the assets or liabilities, contingent or otherwise,
of AWT or the PSG Group, nor was Allen & Company furnished with any such
appraisals. Allen & Company assumed that, in the course of obtaining the
necessary regulatory and governmental approvals for the proposed Investment
Transaction, no restrictions will be imposed that will have a material adverse
effect on the contemplated benefits of the Investment Transaction to the
Company. Allen & Company's opinion was also based on economic, monetary and
market conditions existing on the date thereof.
As summarized under "--General" above, the Investment Transaction involves a
number of diverse components which will affect the Company from both a
financial and operational point of view. A complete analysis of the transaction
requires the application of the appropriate methodologies to each component and
the evaluation of the results of those methodologies taken as a whole. The
following paragraphs summarize the significant qualitative and quantitative
analyses performed by Allen & Company in connection with its opinion and the
presentation of its opinion to the Board of Directors. This summary does not
purport to be a complete description of the analyses underlying Allen &
Company's opinion.
Pro Forma Analysis. Allen & Company compared the potential financial
performance of the Company under three scenarios based on the five-year
financial projections prepared by the respective managements of the Company and
the PSG Group. The first scenario represented the Company's potential financial
performance without a financial restructuring or any other type of
restructuring. Under the first scenario the Company's existing working capital
facility would not be sufficient to fund the Company's working capital
requirements to maintain revenues at their current level and the financial
results improved from a significant net loss per share in the first projection
period to a net income of approximately $0.47 per share in the fifth projection
period. The second scenario represented the Company's potential financial
performance with a financial restructuring comparable to that being considered
prior to the receipt of the CGE proposal of March 10, 1994. The second scenario
was analyzed twice, first with estimated market rates at the time of the
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announcement of the Investment Transaction and second with the estimated market
rates as of approximately two weeks prior to the first mailing of this proxy
statement to AWT's shareholders. Under both runs of the second scenario, the
Company would have sufficient working capital to fund its projected revenue
growth, and net earnings would improve from a significant net loss per share in
the first projection period to net income in the fifth projection period of
approximately $1.25 per share for the first run and net income of approximately
$1.22 per share for the second run. The third scenario represented the
Company's potential financial performance under the terms of the Investment
Transaction and related arrangements. Under the third scenario, the Company
would have sufficient working capital to fund the revenue growth reflected in
the financial projections prepared by the managements of the Company and the
PSG Group, and net earnings would improve from a significant net loss per share
in the first projection period to net income per share of approximately $1.55
per share in the fifth projection period. The financial projections prepared by
the managements of the Company and the PSG Group excluded potential
improvements in the financial performance of the Company due to any additional
revenue streams brought about by the Company's relationship with CGE. The pro
forma analysis summarized above was performed for the purpose of comparing
certain expected effects of selected alternative strategies and the results,
therefore, are not intended to represent actual future results of operations of
the Company.
Analysis of Terms of Comparable Transactions. To evaluate the structure of
and consideration included in the Investment Transaction and related
arrangements in their entirety, Allen & Company compared the various components
of three completed transactions in the environmental industry that Allen &
Company believes are comparable based upon publicly available information. The
three comparable transactions selected were: (i) the acquisition of a
controlling interest in The Brand Companies, Inc. by Chemical Waste Management,
Inc. (ii) the acquisition of a controlling interest in Wheelabrator
Technologies Inc. by Waste Management, Inc; and (iii) the formation of Rust
International, Inc. by Waste Management, Inc., Chemical Waste Management, Inc.,
Waste Management International plc, Wheelabrator Technologies Inc. and The
Brand Companies, Inc.
Allen & Company considered, among other factors, (i) if the acquirer were in
a related industry; (ii) if the acquirer held an ownership interest in the
target prior to the announcement of the transaction; (iii) what percentage of
ownership of the target was acquired in the transaction; (iv) if a vote of the
target's shareholders was held to approve the transaction; (v) the amount of
cash consideration given by the acquirer and (vi) the amount and form of other
consideration given by the acquirer, including but not limited to (a) assets
contributed such as subsidiaries, other operating businesses, notes and
reimbursement rights; (b) financial support, such as the commitment to provide
financing and the terms of such financing; (c) credit enhancement to enable the
target to obtain financing from a third party on terms more favorable than the
target could obtain independently; (d) strategic commitments such as the
formation of exclusive alliances to enhance the target's competitiveness; (e)
commitments to generate certain minimum amounts of additional revenue for the
target; (f) below-market licensing agreements; (g) options to purchase
subsidiaries or businesses of the acquirer; (h) non-competition agreements; (i)
management services; (j) commitments to reimburse the target for business
development expenses; (k) the assignment of credits from certain suppliers to
the acquirer, and (l) commitments by the acquirer not to engage in self-dealing
transactions.
Allen & Company then compared the consideration received by the acquirer,
including but not limited to (a) preferred shares, including the number,
economic and structural terms and voting rights of such preferred shares; (b)
common shares, including the number and the voting rights of such common
shares; (c) options to purchase additional capital stock of the target, the
percentage ownership associated with such option and the voting rights of such
capital stock issued upon exercise of such option; (d) the right to nominate
directors to the Board of Directors of the target, the number of such rights
granted and the resulting percentage of the Board controlled by the acquirer,
and (e) the ability of the acquirer to designate certain executive officers of
the target. Based on this review, the contemplated benefits to the Company from
the Investment Transaction and related arrangements appear to be within the
range indicated by other completed transactions judged by Allen & Company to be
comparable.
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Comparison of Financing Terms. With regard to the Series A Preferred Stock,
Allen & Company reviewed and analyzed certain publicly available financial
information for eighteen convertible preferred stock offerings completed since
July 1, 1992 with S&P credit ratings of B and B-. In addition to other terms,
Allen & Company compared (i) the principal amount of the offering, (ii) the
issue price, (iii) the dividend yield, (iv) the conversion premium, (v) the
type and length of call protection, (vi) the yield as of the date one day
before the announcement date of the Investment Transaction and (vii) the yield
approximately two weeks prior to the date of mailing of this proxy statement.
Allen & Company derived and considered the mean for (i) the dividend yield,
(ii) the conversion premium, (iii) the length of call protection, (iv) the
yield as of the date one day before the announcement date of the Investment
Transaction and (v) the yield approximately two weeks prior to the date of
mailing of this proxy statement. Allen & Company noted that for offerings
completed since 1993, the mean dividend yield was 6.4%, the mean conversion
premium was 23.50% and the mean period for call protection was 3.4 years.
With regard to the $125 million permanent debt financing, Allen & Company
reviewed and analyzed certain publicly available financial information for
twenty-seven debt offerings completed since January 1, 1994 with S&P credit
ratings of B or B-. In addition to other terms, Allen & Company compared (i)
the principal amount of the offering, (ii) the offer price, (iii) the coupon
and (iv) the yield to maturity on the issue date. Allen & Company derived and
considered the mean for (i) the coupon and (ii) the yield to maturity on the
issue date. Allen & Company noted, for offerings completed since 1994, with S&P
credit ratings of B or B-, the mean coupon was approximately 9.9% and the mean
yield to maturity was approximately 9.9%.
Discounted Cash Flow Analysis of the PSG Group. Allen & Company conducted a
discounted cash flow analysis for the purpose of determining an equity value
range for the PSG Group. Allen & Company calculated the unlevered after-tax
free cash flows that the PSG Group is expected to generate during the years
ending June 1995 through 2004 based substantially upon financial projections
prepared by the managements of the PSG Group and the Company without taking
into account the potential synergies resulting from the acquisition of the PSG
Group estimated by the managements of the Company and the PSG Group. Allen &
Company also calculated a range of terminal asset values of the PSG Group at
the end of the ten-year period ending July 31, 2004 by applying a range of
multiples (based on current trading multiples for comparable companies and an
assessment of the long-term business prospects of the PSG Group) to the
unlevered net income of the PSG Group at the end of the ten-year period. The
unlevered after-tax free cash flows and the range of terminal asset values were
then discounted to present values using a range of discount rates chosen by
Allen & Company based upon an analysis of the weighted average cost of capital
to AWT. This discounted cash flow analysis indicated a range of equity values
of between approximately $116 million and $219 million for the PSG Group on a
stand-alone basis (i.e., without synergies).
Comparable Company Financial Analysis. With regard to the relative market
valuation of the Company, Allen & Company reviewed and analyzed certain
publicly available financial information for nine public environmental service
companies (Allwaste, Inc., Browning-Ferris Industries, Inc., Clean Harbors,
Inc., Laidlaw Inc., Rust International Inc., Safety Kleen Corp., United States
Filter Corporation, Wheelabrator Technologies Inc., and WMX Technologies,
Inc.). Such financial information included, among other things, (i) market
valuations; (ii) ratios of equity market values to 1994 projected net earnings
as derived from publicly available information; (iii) ratios of total market
capitalization to earnings before interest expense and income taxes, including
amortization and depreciation ("EBITDA") for the trailing twelve months as
derived from publicly available information; (iv) operating performance; and
(v) the capitalization of each such company. Allen & Company derived and
considered the mean for various categories of information examined in the group
of selected comparable companies. Allen & Company noted that the ratio of total
market capitalization to EBITDA for the trailing twelve months was 17.5x for
the Company, as compared to a mean of 9.0x for the selected companies and that
the ratio of equity market values to projected 1994 net earnings was 30.1x for
the Company, as compared to a mean of 18.3x for the selected companies.
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The preparation of a fairness opinion is a complex process and is not
susceptible to partial analysis or summary description. Selecting portions of
the summary set forth above, without considering the analyses by Allen &
Company as a whole, particularly in light of the diverse nature of other
components of the Investment Transaction and related arrangements, could create
an incomplete view of the processes underlying Allen & Company's opinion. In
arriving at its opinion, Allen & Company considered the results of all its
analyses and did not assign any particular weight to the results of any
particular analysis. The analysis was prepared for the purpose of Allen &
Company's providing its opinion as to the fairness, from a financial point of
view, of the Investment Transaction and related arrangements to the existing
holders of the Class A Common Stock (other than CGE) and does not purport to be
an appraisal or to necessarily reflect the prices at which businesses or
securities of the Company actually may be sold or the relative merits of other
transactions which the Company might pursue in the alternative. The foregoing
summary is qualified by reference to the written opinion of Allen & Company
which is included with this Proxy Statement as Annex II.
Allen & Company is a nationally recognized investment banking firm which, as
a part of its investment banking business, is continually engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities and private placements. Allen &
Company was selected by the Company as its financial advisor based on such
qualifications and the Company's prior experience with Allen & Company. As
described under "--Background of the Investment Transaction" above, the Company
entered into a formal engagement agreement with Allen & Company as of November
15, 1993 pursuant to which Allen & Company agreed to act as the Company's
financial advisor and assist it in formulating an overall strategic plan and
advise the Company regarding various alternative transactions consistent with
such plan. Allen & Company is rendering its opinion as part of the services
rendered under that agreement. Allen & Company was not paid a retainer in
connection with the engagement, but is entitled pursuant to such agreement to
the payment of fees upon the consummation of certain transactions, including
equity or debt financings, acquisitions and other transactions which may
constitute a change-in-control. Pursuant to the Company's agreement with Allen
& Company, and subsequent negotiations as reflected in an amendment of the
engagement letter, Allen & Company has been paid $250,000 in connection with
the engagement and will be entitled to an additional fee of $7,500,000 upon the
consummation of the Investment Transaction. The Company also agreed to
indemnify Allen & Company pursuant to customary indemnification provisions and
to reimburse certain of Allen & Company's expenses. Allen & Company has acted
as the Company's financial adviser in other contexts, including in evaluating
certain of the Company's other financing options, and has received compensation
for financial advisory services rendered to the Company in the past. Mr.
Enrique F. Senior, a Managing Director of Allen & Company, has served as a
Director of the Company and a member of the Executive Committee of the Board of
Directors since 1987. In addition, Allen & Company and Mr. Senior and certain
of his family members beneficially owned an aggregate of 1,906,011 shares of
Class A Common Stock as of March 30, 1994.
INTEREST OF CERTAIN PERSONS IN THE INVESTMENT TRANSACTION
In anticipation of the consummation of the transactions contemplated by the
Investment Agreement, the Company has entered into an amendment of its
employment agreement with Eckardt C. Beck, the Company's Chief Executive
Officer and Chairman of the Board of Directors, to provide for certain payments
and other benefits to Mr. Beck upon the cessation of his employment after the
closing of such transactions. The Company has also entered into agreements with
Arthur L. Glenn, Douglas A. Satzger and Donald A. Deieso, and with certain
other executive officers, which provide for each executive's continued
employment, and related severance payments, following a change-in-control of
the Company (including the consummation of the transactions contemplated by the
Investment Agreement). In addition, the Company's Long-Term Incentive
Compensation Plan provides that, upon a change-in-control of the Company, as
determined by the Board of Directors, any outstanding options not then fully
exercisable shall immediately become fully exercisable. The Board of Directors
has determined that the consummation of the transactions contemplated
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by the Investment Agreement will constitute such change-in-control. Any options
held by directors of the Company will also become fully exercisable upon the
consummation of such transactions, pursuant to such determination. See
"Executive Compensation and Other Information--Employment Contracts and
Termination and Change-in-Control Arrangements."
Certain of the current directors of the Company, as well as certain nominees
for election as directors at the Annual Meeting, are affiliated with entities
which are parties to, or otherwise involved in the transactions contemplated
by, the Investment Agreement. Enrique F. Senior, a director of the Company
since 1987, is a Managing Director of Allen & Company, which has served as a
financial advisor to the Company in connection with the transactions
contemplated by the Investment Agreement and has delivered to the Board of
Directors an opinion as to the fairness of such transactions to the Company's
shareholders (other than CGE) from a financial point of view. See "--Opinion of
Financial Advisor." Claudio Elia and Alain Brunais, the individuals designated
by CGE for appointment to the Board of Directors upon execution of the Letter
Agreement, are President and Chief Executive Officer of Anjou International
Company and an employee of CGE, respectively. Mr. Elia is also one of five
individuals designated by CGE for nomination for election as directors at the
Annual Meeting, pursuant to the terms of the Investment Agreement. The other
four designees of CGE are Jacques-Henri David, a Director General of CGE, Jean-
Dominique Deschamps, an Executive Vice President of CGE, Nicholas DeBenedictis,
Chairman of Philadelphia Suburban Corporation, and William Kriegel, Chairman,
President and Chief Executive Officer of Sithe Energies, Inc. See "Proposal
Two--Election of Directors--Information Concerning the Nominees" and "--Certain
Covenants of the Company--Representation on the Board of Directors;
Management."
ISSUANCE OF SERIES A PREFERRED STOCK
General. Pursuant to the terms of the Investment Agreement, the Company has
agreed, subject to the terms and conditions set forth therein, to issue to CGE,
on the closing of the Investment Transaction, 1,200,000 shares of its 5 1/2%
Series A Convertible Exchangeable Preferred Stock, $.01 par value per share
(the "Series A Preferred Stock"), convertible into 4,800,000 shares of Class A
Common Stock, for an aggregate cash purchase price of $60,000,000. The Series A
Preferred Stock is exchangeable for the Company's 5 1/2% Convertible
Subordinated Notes with a maturity of 10 years from the date of issuance of
such notes (the "Convertible Debt").
Dividends. The holders of shares of Series A Preferred Stock will be entitled
to receive, when, as and if declared by the Board of Directors, out of funds
legally available therefor, cumulative dividends at an annual rate of $2.75 per
share, payable in cash quarterly in arrears in equal amounts on March 31, June
30, September 30 and December 31 of each year (each a "Dividend Payment Date"),
commencing on June 30, 1994. Dividends other than for a full quarterly period
shall accrue on the basis of the actual number of days elapsed in a 365-day
year. Quarterly dividends which are not paid in full in cash will cumulate
without interest until declared and paid by the Board of Directors. Holders of
the Series A Preferred Stock will be entitled to receive all accrued dividends
in preference to and priority over dividends on the Company's Class A Common
Stock, and no distribution in respect of the Class A Common Stock and no
redemption, purchase, retirement or acquisition for value of Class A Common
Stock may occur, or money be set apart therefor, unless all dividends accrued
on the Series A Preferred Stock through the immediately preceding Dividend
Payment Date have been declared and paid. If the Series A Preferred Stock is
exchanged into Convertible Debt, the interest rate will be 5 1/2% per annum.
Liquidation Preference. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Company, holders
of shares of Series A Preferred Stock shall be entitled to be paid out of the
assets of the Company available for distribution to its shareholders an amount
in cash equal to $50 for each share outstanding, plus accrued and unpaid
dividends thereon to the date fixed for liquidation, dissolution or winding up,
whether or not declared to the date of such payment, before any payment shall
be made or any assets distributed to the holders of the Class A Common Stock.
Neither a voluntary sale, lease, or other transfer of all or substantially all
of the assets of the Company, nor a consolidation or merger of the
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Company with or into another person, shall be considered a liquidation,
dissolution or winding up of the Company for these purposes.
Exchange. Commencing June 30, 1997, the Series A Preferred Stock is
exchangeable, in whole and not in part, at the sole option of the Company, at
any time, for the Company's 5 1/2% Convertible Subordinated Notes, having a
maturity of ten years from the date of issuance of the Series A Preferred
Stock, on not less than 30 nor more than 60 days' prior written notice. Each
share of Series A Preferred Stock is exchangeable for $50 principal amount of
Convertible Debt. The form of the Company's 5 1/2% Convertible Subordinated
Notes is attached to this Proxy Statement as Attachment A to the Company's
Certificate of Designation for its Series A Preferred Stock, which is included
as Exhibit A to the Investment Agreement attached as Annex I to this Proxy
Statement.
Conversion. The Series A Preferred Stock and Convertible Debt are
convertible, in whole or in part, at the option of the holder, at any time and
from time to time, into shares of Class A Common Stock at a conversion price
equal to $12.50 per share of Class A Common Stock. The ratio at which the
Series A Preferred Stock and Convertible Debt are convertible into shares of
Class A Common Stock is subject to adjustment (using a weighted average in the
case of items (iii), (iv), (v) and (vi) below so as to preserve the fully
diluted percentage of Class A Common Stock into which the Series A Preferred
Stock and Convertible Debt are convertible) in the event of: (i) stock
dividends, stock reclassifications or recapitalizations, stock splits, reverse
stock splits and the like; (ii) dividends or other distributions of cash or
assets or evidence of indebtedness; (iii) dividends or other distributions of
securities or rights convertible into or exercisable for shares of any class of
common stock of the Company at a price less than the then conversion price per
common share of the Series A Preferred Stock; (iv) issuance of shares of any
class of common stock of the Company (other than common stock issued upon
conversion of the Series A Preferred Stock, the Convertible Debt or the
Company's 8% Convertible Subordinated Debentures due May 15, 2015, or pursuant
to the Company's stock option plans or other stock related employee
compensation plans approved by the Board of Directors) at a price less than the
then conversion price per common share of the Series A Preferred Stock; (v)
issuance of securities or rights convertible into or exercisable for shares of
any class of common stock of the Company at a purchase price less than the then
conversion price per common share of the Series A Preferred Stock; and (vi)
repurchase by the Company, directly or indirectly, of shares of any class of
common stock at a price in excess of the then conversion price per common share
of the Series A Preferred Stock.
Redemption. The Series A Preferred Stock is not redeemable before June 30,
1997. Between June 30, 1997 and June 30, 2000, the Series A Preferred Stock
will be redeemable, in whole or in part, at the option of the Company on not
less than 30 or more than 60 days' prior written notice. The Company may
exercise this option during such time period only if for 20 trading days within
any period of 30 consecutive trading days, including the last trading day of
such period, the closing price of the Class A Common Stock exceeds $18.75,
subject to adjustments. After June 30, 2000, the Series A Preferred Stock will
be redeemable by the Company at any time. The same redemption provisions apply
to the Convertible Debt. The redemption price will be 103.85% of the
liquidation preference, plus accrued and unpaid dividends to the date of
redemption, after June 30, 1997 and will decrease by .55% each year until it
reaches 100% of the liquidation preference, plus accrued and unpaid dividends
to the date of redemption, whereupon it will remain fixed. The Series A
Preferred Stock is perpetual preferred stock.
Voting. Holders of Series A Preferred Stock and Convertible Debt are entitled
to vote with the holders of Class A Common Stock on all matters submitted for a
vote of holders of Class A Common Stock, and are entitled to that number of
votes equal to the number of votes to which the shares of Class A Common Stock
issuable upon conversion of such shares of Series A Preferred Stock and
Convertible Debt would have been entitled if such shares of Class A Common
Stock had been outstanding at the time of the applicable vote and related
record date. In addition, the Series A Preferred Stock and Convertible Debt
will vote separately as a class on any amendments to the Restated Certificate
of Incorporation or By-Laws of the Company, whether by merger, consolidation,
combination, reclassification or otherwise, which would alter or circumvent the
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voting powers, rights and preferences of the Series A Preferred Stock or
Convertible Debt. No amendment or alteration of the dividends payable,
liquidation preference or par value of the Series A Preferred Stock, or
interest rate and principal amount of the Convertible Debt, may be effected
without the consent of each holder of Series A Preferred Stock or Convertible
Debt, respectively.
Ranking. The Series A Preferred Stock will, with respect to dividend rights
and rights on liquidation, winding up and dissolution, rank prior to all
classes of the Company's equity securities, including the Class A Common Stock.
The Convertible Debt will be subordinated to the Company's senior debt and
senior subordinated debt.
Restrictions on Resale; Registration Rights. The Series A Preferred Stock
will be "restricted securities" as that term is defined in Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"). Consequently,
resales of such shares by CGE, unless registered under the Securities Act, will
be subject to the timing, volume and other limitations of Rule 144, and the
stock certificate or certificates issued by the Company to CGE representing the
shares of Series A Preferred Stock will bear a legend to that effect. Under the
Investment Agreement, CGE has certain registration rights with respect to such
shares. See "--Certain Covenants of the Company--Registration Rights."
THE DESCRIPTION OF THE TERMS OF THE SERIES A PREFERRED STOCK AND CONVERTIBLE
DEBT CONTAINED IN THIS PROXY STATEMENT, WHICH THE COMPANY BELIEVES ADDRESSES
ALL MATERIAL TERMS OF SUCH SECURITIES, IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE EXPRESS PROVISIONS OF THE COMPANY'S CERTIFICATE OF DESIGNATION
FOR ITS 5 1/2% SERIES A CONVERTIBLE EXCHANGEABLE PREFERRED STOCK AND THE FORM
OF 5 1/2% CONVERTIBLE SUBORDINATED NOTES ATTACHED AS ATTACHMENT A THERETO. A
COPY OF THE CERTIFICATE OF DESIGNATION IS ATTACHED AS EXHIBIT A TO THE
INVESTMENT AGREEMENT WHICH IS INCLUDED WITH THIS PROXY STATEMENT IN ANNEX I.
ACQUISITION OF THE PSG GROUP
General. In an effort to strengthen the Company's competitive and financial
position, and to implement CGE's commitment to utilize the Company as CGE's
exclusive vehicle in the United States, its possessions and its territories for
CGE's water and waste water management and air pollution activities, CGE and
Anjou have agreed to transfer to the Company, and the Company has agreed to
acquire, PSG and PSG Canada (collectively, the "PSG Group") for an aggregate of
6,500,000 shares of Class A Common Stock, subject to adjustment. All of the
outstanding shares of capital stock of PSG and PSG Canada are owned by Anjou, a
Delaware corporation and wholly-owned subsidiary of CGE. As more fully
described below, the PSG Group specializes in the area of water and wastewater
management and for the twelve-month period ended December 31, 1993 had total
revenues of approximately $80 million. The PSG Group's principal executive
offices are located at 14950 Heathrow Forest Parkway, Suite 200, Houston, Texas
77032, telephone (713) 449-1500. The Company believes that the acquisition of
the PSG Group will position the Company to expand its water and waste water
management contract operations to new markets within the United States and
Canada.
Purchase Price for the PSG Group. The purchase price for the PSG Group was
negotiated between the Company and CGE. In determining the acquisition price,
the Company relied principally on the following factors:
(a) the competitive position of the PSG Group in its markets, its growth
prospects and its complementing the Company's water and wastewater
management operations;
(b) the historical and projected financial performance of the PSG Group;
(c) the quality of the PSG Group's management;
(d) potential synergies arising from the combination of the PSG Group
with the Company's subsidiary, Metcalf & Eddy Services, Inc.;
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(e) possible consequences which might not be favorable to the Company
such as the assumption of liabilities and the likely limitation on the
Company's use of its NOLs to offset future federal income taxes; and
(f) the form of consideration to be received by CGE and the impact on
AWT's overall capitalization and credit standing.
Mechanics of the Acquisition. Subject to the terms and conditions of the
Investment Agreement and the Plan of Merger attached as Exhibit B thereto, upon
the closing of the Investment Transaction (the "Closing"):
(i) a newly formed Minnesota subsidiary of the Company (the "Merger
Subsidiary") will be merged (the "Merger") with and into PSG, whereupon the
separate existence of the Merger Subsidiary will cease, PSG will be the
surviving corporation and a wholly-owned subsidiary of the Company, and all
outstanding capital stock of PSG held by Anjou immediately prior to the
effective time of the Merger will be converted into the right to receive
5,850,000 shares of Class A Common Stock; and
(ii) Anjou will exchange all of the outstanding capital stock of PSG
Canada for 650,000 shares of Class A Common Stock.
Adjustment of Acquisition Consideration. Anjou and the Company have agreed
that the purchase price for the acquisition of the PSG Group will be adjusted
upwards or downwards, as the case may be, to the extent that Final
Stockholder's Equity (as defined) at the date of the Closing (which excludes
cash and cash equivalents and intangible assets such as goodwill, patents,
trademarks and unamortized debt discount) of the PSG Group is greater or less
than, as the case may be, $12,741,000.
Other Provisions. In connection with the acquisition of the PSG Group, CGE
and Anjou have made pre-closing representations and warranties in the
Investment Agreement with respect to the PSG Group which are customary for
transactions of this nature, including (subject to standard materiality
qualifications) representations as to the absence of undisclosed material
liabilities and material adverse changes in the business, financial condition
and results of operations of the PSG Group, title to property and assets,
collectibility of receivables and absence of liabilities under environmental
laws. CGE and Anjou have also covenanted that the business of the PSG Group
will continue to be operated in the ordinary course consistent with past
practices. Such representations, warranties and covenants will be repeated at
closing but will not survive the closing of the Investment Transaction.
Anjou also agreed to indemnify the Company for taxes and related costs and
expenses relating to the PSG Group with respect to the pre-closing tax periods.
The amount of any payment under such indemnity is generally reduced by any
corresponding post-closing tax benefits available to the Company or the PSG
Group and is only payable when the aggregate covered tax liabilities (less tax
offsetting benefits) exceed a "basket" equal to $250,000 plus the tax reserves
reflected on the PSG Group's financial statements, as adjusted from time to
time to reflect prior payments.
Restrictions on Resale; Registration Rights. The Class A Common Stock issued
to Anjou as consideration for the acquisition of the PSG Group will be
"restricted securities" as that term is defined in Rule 144 under the
Securities Act. Consequently, resales of such shares by Anjou, unless
registered under the Securities Act, will be subject to the timing, volume and
other limitations of Rule 144, and the stock certificate or certificates issued
by the Company to Anjou representing the shares of Class A Common Stock will
bear a legend to that effect. Under the Investment Agreement, Anjou has certain
registration rights with respect to such shares. See "--Certain Covenants of
the Company--Registration Rights."
Accounting Treatment of the Acquisition Transaction. The acquisition of the
PSG Group will be accounted for under the purchase method of accounting as
prescribed under generally accepted accounting principles. Under this method of
accounting, the purchase price will be allocated to the assets acquired and
liabilities assumed of the PSG Group based on their estimated fair values as of
the closing of the Investment
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Transaction. The Company has not yet determined the final allocation of the
purchase price. Any excess of purchase price over the estimated fair value of
the tangible net assets acquired will be recorded as goodwill, which will be
amortized on a straight-line basis over their estimated useful lives. The
operating results of the PSG Group will be included with those of the Company
after the closing date of the Investment Transaction. See "Unaudited Pro Forma
Combined Condensed Financial Statements."
THE DESCRIPTION OF THE TERMS OF THE MERGER CONTAINED IN THIS PROXY STATEMENT,
WHICH THE COMPANY BELIEVES ADDRESSES ALL MATERIAL TERMS OF THE MERGER, IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE EXPRESS PROVISIONS OF THE PLAN OF
MERGER AND THE INVESTMENT AGREEMENT. A COPY OF THE PLAN OF MERGER IS ATTACHED
AS EXHIBIT B TO THE INVESTMENT AGREEMENT.
CERTAIN COVENANTS OF THE COMPANY
Representation on the Board of Directors; Management. The Company has agreed
that CGE will have the right to cause the Company to include, as nominees for
the Company's Board of Directors recommended by the Board for election by the
shareholders, a number of directors (rounded down to the next whole number if
CGE owns in the aggregate less than one-half of the outstanding shares,
treating the shares of Series A Preferred Stock owned by CGE as having been
converted into shares of Class A Common Stock, or, if otherwise, rounded up to
the next whole number) that is equal to the product of the total number of
directors on the Board times a fraction the numerator of which is the aggregate
number of shares of Class A Common Stock owned by CGE and its Affiliates
(assuming conversion of the Series A Preferred Stock (or other securities
convertible into or exercisable or exchangeable for shares of Class A Common
Stock) held by CGE or its Affiliates) and the denominator of which is the total
number of shares of Class A Common Stock outstanding (assuming conversion of
the Series A Preferred Stock (or other securities convertible into or
exercisable or exchangeable for shares of Class A Common Stock) held by CGE or
its affiliates). The Company has further agreed that CGE will have
proportionate representation on all Committees of the Board (other than any
Special Committee of Independent Directors) to the same extent as CGE is
entitled to representation on the Board of Directors. Upon execution of the
Letter Agreement, Messrs. Brunais and Elia were designated by CGE and each was
appointed by the Company to the Board of Directors and also to the Executive
Committee of the Board. See "--Background of the Investment Transaction--Letter
Agreement".
In accordance with the terms of the Investment Agreement, the Company has
agreed that the Board of Directors will consist of 11 directors, with five
directors who are designated by CGE (Messrs. David, Elia, Deschamps,
DeBenedictis and Kriegel of those nominated for election at the Annual
Meeting), one Independent Director (as defined below) (Ms. Green of those
nominated for election at the Annual Meeting), and five directors consisting of
Messrs. Beck, Costle, Dowd, Morris and Senior. "Independent Director" is
defined for purposes of the Investment Agreement as any director who is not an
employee, agent or representative of the Company, CGE or any of their
respective Affiliates or Associates (as defined in the Investment Agreement)
and may include any person acting as outside counsel or financial advisor for
either the Company or CGE or any of their respective Affiliates or Associates.
All Independent Directors shall be satisfactory to CGE, and the Company has
agreed that the Chairman of the Board shall be a designee of CGE. CGE HAS
AGREED THAT, IN THE EVENT THE INVESTMENT TRANSACTION IS NOT APPROVED BY THE
COMPANY'S SHAREHOLDERS AT THE ANNUAL MEETING, IT WILL CAUSE THE NOMINEES FOR
DIRECTOR OTHER THAN MESSRS. BECK, COSTLE, DOWD, MORRIS, SENIOR, ELIA AND DAVID
TO RESIGN AS DIRECTORS OF THE COMPANY IMMEDIATELY FOLLOWING THE ANNUAL MEETING.
See "Proposal Two--Election of Directors" for a description of the nominees for
director of the Company.
The Company and CGE have agreed that Mr. Beck will continue as Chairman and
Chief Executive Officer of the Company until closing of the Investment
Transaction, whereupon CGE will have the right to designate the Chief Executive
Officer and Chief Financial Officer of the Company. CGE has agreed that current
management will participate in such transition and has agreed to cause all
agreements of the Company with its employees to be honored.
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No-Shop. Pursuant to the Investment Agreement, the Company may not nor may
the Company permit any of its subsidiaries or any of its or their respective
officers, directors, employees, agents or advisers to initiate, solicit or
encourage, or take any other action to facilitate (including by way of
furnishing nonpublic information, except to the extent determined in good faith
by the Board of Directors of the Company (the "Board") based on the advice of
counsel to be legally required for the discharge by the Board of its fiduciary
duties), any inquiries or the making of any proposal which constitutes, or may
reasonably be expected to lead to, any takeover proposal (as defined below) or,
except to the extent determined in good faith by the Board based on the advice
of counsel to be legally required for the discharge by the Board of its
fiduciary duties, agree to or endorse any takeover proposal, or participate in
any discussion or negotiations, or provide third-parties with any nonpublic
information, relating to any such inquiry or proposal. The Company shall
promptly inform CGE orally and in writing of any such inquiry or proposal.
"Takeover proposal" shall mean any tender or exchange offer, proposal for a
merger, consolidation or other business combination involving the Company or
any of its subsidiaries (other than that involving solely an acquisition of a
business or assets by the Company or any of its subsidiaries) or any proposal
or offer to acquire in any manner a significant (i.e., more than 10% of the
then outstanding shares of the Company) equity interest in, or a significant
(i.e., more than 10% of the consolidated total assets of the Company) portion
of the assets of (including the stock or assets of subsidiaries) the Company,
but excluding the Investment Transaction contemplated by the Investment
Agreement.
Registration Rights. Pursuant to the terms of the Investment Agreement, CGE
and Anjou will have the right to require on up to four occasions that the
Company register all shares of Class A Common Stock, Series A Preferred Stock
or Convertible Debt owned from time to time by CGE and its Affiliates for sale
to the public under the Securities Act (a "demand registration"), provided that
the Company is not obligated (i) to effect more than one demand registration in
any six-month period, (ii) to effect a demand registration for less than five
percent of the outstanding Class A Common Stock or (iii) to effect a demand
registration within six months of CGE or Anjou selling any shares pursuant to a
piggyback registration (as defined below). In addition, CGE and Anjou will have
the right to participate in registrations by the Company of its Class A Common
Stock (a "piggyback registration"). The Company will pay the registration
expenses on behalf of CGE and Anjou, including certain related fees and
expenses. See the form of Registration Rights Agreement included in Annex I to
this Proxy Statement.
Access to Books and Records. The Company has agreed that for so long as CGE
beneficially owns directly or indirectly at least 26% of the outstanding shares
of Class A Common Stock on a fully-diluted basis, CGE will have access on
reasonable terms to the books, records and employees of the Company and its
subsidiaries and to the provision by the Company of all information reasonably
requested by CGE, subject to confidentiality obligations that may be owed at
the time by the Company to third parties and to appropriate confidentiality
arrangements and requirements of law.
Insurance; Bonding. The Company has agreed that as of the closing of the
Investment Transaction, it will cause outstanding surety bonds issued for the
benefit of the PSG Group under any of Anjou's surety agreements to be replaced
by surety bonds issued under the Company's surety agreements. The Company also
anticipates replacing the PSG Group's existing insurance coverage, which is
provided through Anjou, with insurance coverage provided by the Company.
Miscellaneous. The Company has also made certain customary representations
and warranties in the Investment Agreement. It is a condition to the closing of
the Investment Transaction that the representations and warranties be accurate
in all material respects and the Company has agreed to use its reasonable best
efforts to bring about the satisfaction of the conditions.
CERTAIN COVENANTS OF CGE AND ANJOU
Conduct of the PSG Group. CGE and Anjou have agreed that up until the closing
of the Investment Transaction (with the exception of certain payments by the
PSG Group to Anjou in respect of taxes of the
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PSG Group), CGE and Anjou will cause the PSG Group to conduct its business in
the ordinary course of business consistent with past practice and to use its
best efforts to preserve intact its business organizations and relationships
with third parties and to keep available the services of its present officers
and employees. CGE and Anjou also will not permit the PSG Group to: (i) adopt
or propose any change in its certificate of incorporation or by-laws; (ii)
merge or consolidate with any other Person (as defined in the Investment
Agreement) or acquire a material amount of assets of any other Person; (iii)
sell, lease, license or otherwise dispose of any material assets or property
except (A) pursuant to existing contracts or commitments and (B) in the
ordinary course consistent with past practice; or (iv) agree or commit to do
any of (i), (ii) or (iii). Upon closing of the Investment Transaction, Anjou
will deliver to the Company the resignations of all directors of the PSG Group
who will not be officers, directors or employees of the PSG Group after the
Investment Transaction.
Voting of Shares; Acquisitions and Sales of Shares. CGE has agreed to vote at
the Annual Meeting or any adjournment thereof all of its shares of Class A
Common Stock to approve the issuance of the Series A Preferred Stock and Class
A Common Stock in the Investment Transaction. CGE has also agreed to give the
Company two days' prior written notice of any acquisition of more than 1% of
the outstanding shares of the Company's Class A Common Stock prior to the
Closing, and one day's prior written notice of any sale of Company securities
by CGE after the Closing if, to the knowledge of CGE, such sale would result in
any party's beneficially owning more than 15% of the outstanding shares of
Class A Common Stock.
Joint Efforts. CGE has agreed on behalf of itself and its Affiliates (as
defined in the Investment Agreement) that, after the closing of the Investment
Transaction, the Company will become CGE's exclusive vehicle in the United
States, its possessions and its territories for CGE's water and waste water
management and air pollution activities. After the closing of the Investment
Transaction, CGE will, and will cause its Affiliates to, assist the Company in
developing its water and wastewater management and air pollution activities in
both Canada and Mexico, subject to existing contractual arrangements and taking
into account the respective interests of the Company and CGE and its
Affiliates. Pursuant to this arrangement, CGE will, and will cause its
Affiliates to, offer the Company an active participation in any new water
management investments by CGE or any of its Affiliates in the United States
which are too capital-intensive for the Company to undertake on a stand-alone
basis. In addition, CGE and its Affiliates and the Company will establish a
privileged commercial relationship for the development of air pollution
activities in Europe.
Intercompany Accounts. CGE and Anjou have agreed that all intercompany
accounts between CGE, Anjou or their Affiliates, on the one hand, and PSG, on
the other hand, will be settled as of the Closing of the Investment
Transaction. All amounts for money borrowed by the PSG Group from, or owed by
the PSG Group to, Anjou and its affiliates as of December 31, 1993
($8,513,000), the accrued pension liability of the PSG Group owed to Anjou and
its affiliates as of December 31, 1993 ($2,200,000) and any increase in
intercompany balances owed by PSG Canada to Anjou and its affiliates from
December 31, 1993 through the Closing will be contributed to the PSG Group's
stockholder's equity. The increase in intercompany balances owed by the PSG
Group to Anjou and its affiliates from December 31, 1993 through the Closing
will remain outstanding and will be evidenced by a promissory note maturing one
year from the date of the Closing and bearing interest at the prime rate
announced from time to time by Citibank, N.A. At least five business days prior
to the closing of the Investment Transaction, Anjou will prepare and deliver to
the Company a statement setting out in reasonable detail the calculation of all
such intercompany account balances based on the latest available financial
information, and will provide the Company upon its request with supporting
documentation to verify the intercompany charges and transactions.
Financial Undertakings. In the Letter Agreement, CGE agreed that in the event
the Investment Transaction is not closed on or before June 14, 1994 and the
Company has not theretofore been able to obtain up to $125,000,000 of debt
financing to repay the Prudential Notes, CGE will provide any assistance and
support necessary for a bank or other financial institution to provide bridge
financing to the Company for up to $125,000,000 on a senior basis at a rate
equal to the three-month LIBOR rate plus 325 basis points, any such loan to be
repaid as promptly as practicable, but in any event within six months. CGE also
agreed that,
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after the closing of the Investment Transaction, it will (i) provide any
assistance and support necessary to enable the Company to obtain up to
$125,000,000 of permanent bank debt financing on an unsecured basis to repay
the Prudential Notes at an interest rate not in excess of the market rate for a
seven-year fixed-rate swap against the three-month LIBOR rate plus 125 basis
points with a covenant package that does not include a negative pledge
restriction on the Company's assets and permits normal working capital
borrowing by the Company, and (ii) co-sign on a case-by-case basis with the
Company applications for letters of credit of the Company's water and
wastewater management and air pollution projects, subject to approval by CGE,
which CGE acknowledges could reach or exceed the level of letters of credit
currently carried by the Company. See "--Background of the Investment
Transaction--Letter Agreement".
CGE currently expects to provide to AWT, after the closing of the Investment
Transaction and in satisfaction of its obligations under the Letter Agreement,
a seven-year revolving line of credit of up to $125,000,000 on an unsecured
basis at an interest rate not in excess of the three-month LIBOR rate plus 125
basis points, with a commitment fee of 0.45% of the undrawn amount and a
covenant package that does not include a negative pledge restriction on the
Company's assets and permits normal working capital borrowing by the Company.
Tax Indemnity; Other Agreements. Anjou has agreed to indemnify the Company
against undisclosed tax liabilities of the PSG Group, to the extent such
liabilities exceed an amount equal to the sum of $250,000 plus the amount of
the reserves for taxes provided for on the books and records of the PSG Group,
minus certain adjustments. In addition, in the event that CGE materially
breaches any of its obligations or representations contained in the Letter
Agreement or in the Investment Agreement, CGE has agreed that certain
standstill provisions of the Stock Purchase Agreement dated May 13, 1990 (the
"Stock Purchase Agreement") shall be reinstated for an additional three-year
period from the date of the Letter Agreement. Pursuant to the Stock Purchase
Agreement, CGE has agreed, for the period prior to May 13, 1995, that if it or
any of its Affiliates (as such term is defined under the Securities
Act)(collectively, the "Purchaser Group")) receives a bona fide offer from an
unaffiliated third party to purchase any shares of Class A Common Stock then
owned by the Purchaser Group and the Purchaser Group desires to accept such
offer, CGE will promptly notify the Company in writing specifying the amount of
shares of Class A Common Stock proposed to be sold, the proposed purchase price
therefor and the other material terms and conditions of the offer, including
the proposed date of the closing for such sale. The Company may agree to
purchase the shares of Class A Common Stock referred to in the notice upon
notification to CGE within ten business days of receipt of the notice. CGE is
not, however, obligated to notify the Company of third party offers with
respect to any sales proposed to be made by it in accordance with the volume
limitations specified in Rule 144(e)(1) promulgated under the Securities Act.
CERTAIN COVENANTS OF THE COMPANY, CGE AND ANJOU
Affiliate Transactions. CGE has agreed on behalf of itself and its Affiliates
that any transactions (or series of related transactions) between the Company
and any of its Affiliates and CGE or any of its Affiliates will be on an arm's
length basis. Any such transaction (or series of related transactions) having
an aggregate value in excess of $1,000,000 and any settlement of the existing
litigation between the Company and the Puerto Rico Aqueduct and Sewer Authority
must be approved by a majority of the Independent Directors or a special
committee thereof. The Company, CGE and Anjou have further agreed that after
the Closing of the Investment Transaction, all claims by the Company against
CGE or its Affiliates under the Investment Agreement (including but not limited
to any purchase price adjustment for the acquisition of the PSG Group) shall be
taken only by majority approval of such Independent Directors or Special
Committee.
Filings and Consents. Each of the Company, CGE and Anjou have agreed to
cooperate with each other in good faith and to use their reasonable best
efforts in making all required governmental filings and obtaining at the
earliest practicable date all necessary approvals and consents from
governmental entities and third parties.
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REGULATORY REVIEW AND APPROVALS
General. The Company and CGE are generally obligated under the Investment
Agreement to make all necessary governmental filings relating to the Investment
Transaction, including those required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended ("HSR Act") and to use their best efforts
to furnish, as promptly as practicable, all information and documents requested
under each of such laws and to otherwise cooperate with the applicable
regulatory authorities in order to obtain all required regulatory approvals in
as expeditious a manner as possible. The Company and CGE also filed a voluntary
notification under the provisions of Section 5021 of the Omnibus Trade and
Competitiveness Act of 1988, as amended (the "Exon-Florio Amendment"). The
regulatory review periods under the HSR Act and the Exon-Florio Amendment have
expired without objection by the applicable regulatory authorities.
There can be no assurance that the Company and CGE will be able to obtain all
necessary regulatory approvals or other actions that are required to consummate
the Investment Transaction. Furthermore, it is possible that any one or more of
such regulatory approvals or other actions which have not yet been received or
taken may impose material conditions on the Company or CGE or may be
conditioned on material modifications being made to the Investment Transaction
or the receipt of undertakings from the Company or CGE, which conditions,
modifications or understandings could have an adverse effect on the Company.
Each of the Company and CGE have agreed to use their respective best efforts to
resolve such objections, if any, as the applicable regulatory authorities may
assert with respect to the Investment Transaction. Subject to applicable law,
if the Company's shareholders approve the Investment Agreement, the Board of
Directors reserves the right, for any reason, to amend or waive any right under
the Investment Agreement or any agreement relating thereto without further
shareholder action and for any reason including in order to obtain receipt of
necessary regulatory approvals in a timely manner.
U.S. Antitrust Laws. Under the HSR Act and the rules promulgated thereunder
by the Federal Trade Commission (the "FTC") the closing of the Investment
Transaction may not be consummated until notifications have been given and
certain information has been furnished to the FTC and the Antitrust Division of
the Department of Justice (the "Antitrust Division") and the applicable waiting
period has expired or been terminated. On or about April 7, 1994, the Company
and CGE filed notification and report forms under the HSR Act with the FTC and
the Antitrust Division relating to the transactions contemplated by the
Investment Agreement. The waiting period under the HSR Act has expired without
any challenge to the Investment Transaction by the FTC or the Antitrust
Division.
At any time before or after the consummation of the Investment Transaction,
notwithstanding that the waiting period under the HSR Act has expired, the
Antitrust Division, the FTC or any state could take such action under U.S.
antitrust laws as it deems necessary or desirable in the public interest. Such
action could include seeking to enjoin the consummation of the Investment
Transaction or seeking divestiture of substantial assets of the Company.
Private parties may also seek to take legal action under U.S. antitrust laws
under certain circumstances.
The Exon-Florio Amendment. The Exon-Florio Amendment empowers the President
of the United States to prohibit or suspend an acquisition of, or investment
in, a United States company by a foreign person if the President finds, after
investigation, credible evidence that the foreign person might take action that
threatens to impair the national security of the United States and that other
provisions of existing law do not provide adequate and appropriate authority to
protect the national security. The Exon-Florio Amendment permits parties that
it might affect to voluntarily submit notification to the Chairman of the
Committee on Foreign Investment in the United States ("CFIUS"). Any
determination that an investigation is called for must be made within 30 days
of such notice. The Company and CGE jointly notified CFIUS in writing of the
transactions contemplated by the Investment Agreement on or about April 7,
1994, and the review period under the Exon-Florio Amendment has expired without
any challenge to the Investment Transaction by the CFIUS.
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CONDITIONS TO THE INVESTMENT TRANSACTION, TERMINATION AND EXPENSES
Consummation of the Investment Transaction is subject to the satisfaction of
the following conditions, which may not be unilaterally waived by any party:
(i) any applicable waiting period under the HSR Act relating to the Investment
Transaction shall have expired or been terminated; (ii) no provision of any
applicable law or regulation and no judgment, injunction, order or decree shall
prohibit the consummation of the Investment Transaction; (iii) all actions by
or in respect of or filings with any governmental body, agency, official or
authority required to permit the consummation of the Investment Transaction
under the provisions of the Exon-Florio Amendment shall have been taken, made
or obtained; and (iv) the issuance of the Securities pursuant to the Investment
Agreement shall have been approved by the Company's shareholders in accordance
with applicable rules and regulations of the American Stock Exchange.
Consummation by the Company of the Investment Transaction is subject to the
satisfaction of certain customary conditions as to performance by CGE and Anjou
of their obligations under the Investment Agreement, the accuracy of CGE's
representations and warranties, delivery of certain legal opinions, the receipt
by the Company of a written opinion from Allen & Company to the effect that the
Investment Transaction is fair, from a financial point of view, to the
shareholders of the Company (other than CGE) and delivery to the Company of
other documentation it reasonably requests. Any of these conditions may be
waived by the Company.
Consummation by CGE and Anjou of the Investment Transaction is also subject
to the satisfaction of certain customary conditions as to performance by the
Company of its obligations under the Investment Agreement, the accuracy of the
Company's representations and warranties, delivery of certain legal opinions,
and delivery to CGE and Anjou of other documentation it reasonably requests.
Any of these conditions may be waived by either CGE or Anjou.
The Investment Agreement may be terminated at any time prior to the closing
of the Investment Transaction:
(i) by mutual written agreement of the Company, CGE and Anjou;
(ii) by either CGE or the Company if the closing of the Investment
Transaction shall not have been consummated on or before September 1, 1994;
(iii) by either CGE or the Company if there shall be any law or
regulation that makes consummation of the Investment Transaction illegal or
otherwise prohibited or if consummation of the Investment Transaction would
violate any nonappealable final order, decree or judgment of any court or
governmental body having competent jurisdiction; or
(iv) by CGE if the Company has caused to be duly called and held a
meeting of its shareholders as required by Section 6.4 of the Investment
Agreement and at such meeting the requisite number of votes were not
obtained to approve the issuance of the Securities pursuant to the
Investment Agreement under applicable law.
The party desiring to terminate the Investment Agreement shall give notice of
such termination to each other party.
If the Investment Agreement is terminated as permitted above, such
termination shall be without liability of any party unless such termination
shall result from the willful failure of any party to fulfill a condition to
the performance of the obligations of the other parties or to perform a
covenant of the Investment Agreement or from a willful breach by any of CGE,
Anjou or the Company.
Upon a termination of the Investment Agreement, most of the Company's
obligations under the Investment Agreement will cease except that CGE's
registration rights as described above will continue for so long as CGE owns
Securities. All costs and expenses incurred in connection with the Investment
Agreement and the Investment Transaction will be paid by the party incurring
such cost or expense.
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USE OF PROCEEDS
It is anticipated that the net proceeds to be received by the Company from
the Investment Transaction will be applied toward the reduction of certain
outstanding indebtedness. In particular, the Company will utilize the net
proceeds to repay its 11.18% $100,000,000 principal amount Senior Notes to The
Prudential Insurance Company of America and a portion of its outstanding
borrowings under its existing credit facility with the First National Bank of
Chicago. See Notes to Unaudited Pro Forma Combined Condensed Financial
Statements. There can be no assurance that the Company will be successful in
its efforts to utilize the proceeds from the Investment Transaction in a manner
that contributes to the profitable growth of the Company's business.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE INVESTMENT TRANSACTION
The following is a summary of certain federal income tax consequences to the
Company arising from the Investment Transaction and related transactions. The
summary is based on advice of counsel, but no ruling has been sought and there
can be no assurance that the Internal Revenue Service will take a similar view
of such consequences. Further, this discussion does not address all aspects of
taxation of the Investment Transaction.
Gain or Loss to Company on Issuance of Securities. Neither the issuance by
the Company of the Series A Preferred Stock for cash consideration nor the
issuance by the Company of its Class A Common Stock in consideration of the
acquisition of PSG and PSG Canada will result in taxable gain or loss to the
Company.
Limitation on Use of Net Operating Losses. As of its taxable year ended
October 31, 1993, the Company had net operating losses ("NOLs") available for
carryforward for federal income tax purposes of approximately $75 million.
Under section 382 of the Internal Revenue Code of 1986 (the "Code"), if the
Company undergoes an "ownership change" (as defined below), the Company's
ability to use its pre-ownership change NOLs (i.e., NOLs accrued through the
date of the ownership change) is limited to an annual amount equal to the
product of (i) a statutory rate prescribed monthly by the Treasury Department
(5.42% for April 1994) and (ii) the value of the Company's outstanding stock
immediately before the ownership change (excluding certain capital
contributions). Any allowable portion of the pre-ownership change NOLs that is
not used in a particular taxable year following the ownership change can be
carried forward to subsequent taxable years until the NOLs expire, usually 15
years after they are generated.
Generally, an ownership change occurs if the percentage of the value of the
Company's stock owned by one or more statutorily-defined "5-percent
shareholders" has increased by more than 50 percentage points over the lowest
percentage of that value owned by those 5-percent shareholders at any time
during a "testing period," which is generally the shorter of the three-year
period preceding the ownership change or the period following the most recent
prior ownership change.
The Company believes that it is likely that the Investment Transaction will
result in an ownership change as a consequence of the resulting significant
increase in Company stock ownership by CGE and Anjou when combined with
previous shifts in ownership of Company stock. If so, the Company believes that
its ability to use its NOL's will be limited to approximately $14 million per
year, based on the current statutory rate and value of Company stock.
Tax-free Treatment of Merger and Exchange. The acquisition of PSG by merger
and the exchange of PSG Canada shares for shares of Class A Common Stock are
intended to qualify as a tax-free reorganization under the Code. In connection
therewith, the Company has made certain representations and has agreed to
refrain from taking actions which would jeopardize such tax-free treatment to
Anjou. The Company has agreed to indemnify Anjou if the Company takes any such
action and tax liability to Anjou results therefrom.
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Nondeductibility of Certain Payments Related to Change-in-Control. Section
280G of the Code prohibits a deduction for certain payments to, inter alia, an
officer of the Company if the payments are contingent on a "change in ownership
or effective control" within the meaning of that section. The Company believes
that it is likely that approximately $4.2 million of the payments and
arrangements for the benefit of Mr. Beck described above (see "Executive
Compensation and Other Information--Employment Contracts and Termination and
Change-in-Control Arrangements") will therefore be nondeductible.
INFORMATION CONCERNING CGE, ANJOU AND THE PSG GROUP
COMPAGNIE GENERALE DES EAUX
Information About CGE's Business. The following information has been provided
by CGE to the Company expressly for use herein. The Company has not
independently verified such information.
CGE is a publicly traded French company, with a current market value of
approximately $13 billion and fiscal year 1993 total revenues of approximately
$25 billion. CGE and its subsidiaries are a diversified group of local service
companies primarily engaged in providing a comprehensive range of public,
institutional and industrial service needs for water and wastewater treatment,
waterworks construction, waste management, building and construction,
communications and healthcare services. In France, CGE, together with its
subsidiaries, is one of the nation's largest cable broadcasters and cellular
telephone network operators and one of the leading managers of private health
clinics and parking lots. CGE's principal business and office address is 52 rue
d'Anjou, 75384 Paris Cedex 08, France.
Beneficial Ownership of Class A Common Stock by CGE. Following its
acquisition of 500,000 shares of Class A Common Stock upon the execution of the
Letter Agreement on March 18, 1994, CGE held 6,203,475 shares of the Company's
Class A Common Stock, representing 24.5% ownership and voting interest in the
Company. Upon closing of the Investment Transaction, CGE will own approximately
48% of the outstanding voting securities of the Company. The percentages are
based on the number of outstanding shares of Class A Common Stock as of the
Record Date.
ANJOU INTERNATIONAL COMPANY
Anjou is a Delaware corporation and wholly-owned subsidiary of CGE. Anjou
functions as a holding company for CGE's United States subsidiaries. Anjou is
the record owner of all of the outstanding shares of PSC Professional Services
Group, Inc. and 2815869 Canada, Inc. (collectively, the "PSG Group").
THE PSG GROUP
Since its acquisition in 1981, PSG has been a wholly-owned subsidiary of
Anjou International Company and an indirect wholly-owned subsidiary of CGE. PSG
was originally incorporated in Minnesota in 1944, and since 1978 PSG has been
operating, maintaining and managing water and wastewater treatment facilities,
sludge and biosolid waste disposal programs and public works projects, and
providing operations assistance primarily to municipal entities and also to
industrial entities. In the following description, references to the PSG Group
are intended, where appropriate, to include PSG Canada.
SERVICES
Operations and Maintenance Services. The PSG Group provides its clients with
complete services for the operations, maintenance and management of treatment
facilities in the various water and wastewater, and sludge and biosolid waste
management markets. These services range from assisting owners and operators in
addressing individual operating needs to the assumption by the PSG Group of
complete responsibility for operating complex treatment facilities. The PSG
Group does not, however, own any treatment facilities. The PSG Group believes
that it is one of the leaders in providing operations, maintenance and
management
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services for water and wastewater treatment facilities, and sludge and biosolid
waste management services, particularly in the area of large municipal waste
treatment systems.
Water Supply and Wastewater Treatment Services. The PSG Group provides
operations, maintenance and management services for water supply and wastewater
treatment facilities, primarily for cities, municipalities and other local
governmental entities. Under each of the PSG Group's contracts, the client owns
the water supply or wastewater treatment facilities and subcontracts to the PSG
Group, for a fixed annual fee, the provision of staff, supervision and
management for the operations, maintenance and management of the facilities. In
addition, as contract operator, the PSG Group is responsible for the efficient
operation and maintenance of the facilities, for maintaining compliance with
federal, state and local regulations, and for fulfilling all relevant reporting
requirements with respect to the facilities.
Examples of water treatment facilities which the PSG Group operates include
Newark, NJ; Brockton, MA; Plaquemines Parish, LA; and Pikeville, KY. The PSG
Group's wastewater treatment facility contracts include Ottawa, Canada; New
Orleans, LA; Oklahoma City, OK; and Sioux City, IA.
Sludge and Biosolid Waste Management Services. The PSG Group has extensive
experience in planning and implementing large sludge and biosolid waste
management plans. In addition to managing all of the sludge and biosolid waste
disposal programs under the PSG Group's wastewater treatment facility
contracts, the PSG Group has been engaged by clients to assist in the
management and disposal of sludge and biosolid waste generated as a byproduct
of the wastewater treatment process. The PSG Group is experienced in planning
and implementing alternative technologies and facilities for sludge and
biosolid waste management, including waste minimization programs, landfills,
incinerators, composting and land application as fertilizers and soil
nutrients.
Public Works. The PSG Group provides a full range of public works services
under contract to small towns, villages and municipalities, including: meter
reading, sanitation services, street maintenance, customer billing, and parks
and grounds maintenance. The PSG Group has, and is able to provide clients
with, computer software which schedules and tracks maintenance duties for
public works projects. These services are typically provided by PSG under
operation, maintenance and management contracts with a municipality's public
works department for a fixed annual fee. These contracts typically result in
lower costs and reduced administrative burdens for a municipality's personnel.
Composting. The PSG Group has extensive experience in operating and
maintaining composting facilities and effectively controlling and reducing
offensive odors. Solid waste composting, along with recycling and source
reduction, is utilized by local governments as a means of reducing landfills.
In a composting facility, the non-decomposable waste is removed, and the
organic waste is shredded and then efficiently broken down in the composting
process, by naturally occurring micro-organisms, in which moisture content,
aeration and temperature of the organic waste is controlled so as to accelerate
the biological decomposition. Through further processing, composting produces a
fine humus-like soil product which is sold or otherwise disposed of as a soil
fertilizer or mulch. The PSG Group's management believes that composting is an
expanding market and has positioned the PSG Group to increase its business in
this market segment.
Consulting Services. The PSG Group has expertise in and provides consulting
services for assessing project designs, operations problems, developing
operations and maintenance manuals, and training municipal employees. The PSG
Group's largest consulting project is for Kaiser Engineers, program manager for
the metropolitan sanitary district in Boston, for consulting work on the Boston
Harbor cleanup. This consulting project began in 1984 and currently expires in
1995.
Collection Systems Services. The PSG Group has provided television
inspection, cleaning and mapping services for wastewater collection systems and
has had experience in providing such services for more than 2,000 wastewater
collection systems throughout the United States. In addition, PSG is
responsible for the
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operation, maintenance and management of wastewater collection systems as part
of its contracts with several wastewater treatment facilities.
Pumping Stations. The PSG Group operates approximately 365 pumping stations
through full service operations and maintenance contracts.
MARKETS AND CUSTOMERS
The PSG Group markets its services primarily to municipal customers
throughout the United States, Canada and Puerto Rico. Operations, maintenance
and management contract revenues constitute about 97% of the PSG Group's total
revenues. The balance of revenues is derived from the PSG Group's consulting
services. Industrial clients account for less than 1% of the PSG Group's total
revenues. In fiscal year 1993 the largest single contract, the Oklahoma City
wastewater treatment facility contract, accounted for 12.2% of total revenue,
down from 14.8% in fiscal year 1992. This decreased percentage was due to the
increase in total revenues during fiscal year 1993.
The PSG Group's contracts are generally for terms of 3 to 5 years with
provisions for renewal. The contracts generally provide for fixed annual fees,
payable monthly. The PSG Group's client relationships are generally long term
and have been excellent. New client relationships are developed largely through
personal contact with public officials. A Client Development staff is
maintained on a regional basis to develop new business.
New projects are acquired through competitive bidding for contracts, in which
selection is based on the bidder's qualifications and price. Based on the
number and size of municipal water and wastewater treatment facilities known to
be operated under contract by private firms, the PSG Group believes that it is
the largest provider of operations, maintenance and management services for
municipal water and wastewater facilities in the United States. The PSG Group
operates approximately 70 water and wastewater facilities, processing in excess
of 600 million gallons per day.
The PSG Group has experienced no difficulty in obtaining raw materials used
in its operations and relies on a broad range of suppliers, the loss of any of
which would not have a material adverse effect on the PSG Group's business.
BACKLOG
As of December 31, 1993 total backlog for the PSG Group was approximately
$306,528,000 as compared to approximately $286,316,000 as of December 31, 1992.
The total backlog at December 31, 1993 represents work for which the PSG Group
has entered into a signed agreement or purchase order with respect thereto or
has received an order to proceed with work up to a specified dollar amount. Of
this amount, the PSG Group estimates that approximately $80,093,000 represents
work which will be completed in the next 12 months. Additionally, the PSG
Group's current estimate of work for which the PSG Group has been notified that
it has been chosen for a contract is approximately $2,300,000. Backlog amounts
have historically resulted in revenues; however, no assurance can be given that
all amounts included in backlog will ultimately be realized, even if covered by
written contracts or work orders. Most of the PSG Group's long-term contracts
contain escalation provisions designed to protect the PSG Group against
increases in electric unit costs and repair and replacement costs. The PSG
Group's total backlog as of December 31, 1993 and 1992 include approximately
87% and 85%, respectively, of work to be performed for municipal agencies.
COMPETITION
The PSG Group faces substantial competition in each market in which it
operates. The PSG Group competes primarily on its operations, maintenance and
management experience, its prices and its expertise and ability to aid the
client in finding creative, cost-effective solutions to client problems. The
PSG Group also relies upon its experience and trade name, "PSG" in the water,
wastewater, sludge and biosolid waste
28
<PAGE>
management, composting, public works and operations consulting fields. Many
companies compete in the PSG Group's markets and no assurance can be given that
other companies, some of which may have greater resources than the PSG Group,
will not enter the PSG Group's markets.
Clients of the PSG Group's water and wastewater and other services are
primarily municipal governmental entities and typically award contracts on the
basis of qualifications and price. In obtaining treatment facility operations
contracts, technical qualifications are required; however, price is generally a
key determining factor. Treatment facility operations agreements are generally
for three to five-year periods, with various renewal options up to five years
in duration, and contain certain escalation provisions for inflation.
REGULATION
There is significant environmental regulation at the federal, state and local
levels which impacts the business and operations of the PSG Group. Many of
these regulatory regimes, such as the federal Clean Water Act and the federal
Safe Drinking Water Act, impose substantial and costly technical requirements
on municipalities and other potential PSG Group customers. Other laws impose
licensing, cleanup and other requirements on persons who treat, handle or
dispose of solid and hazardous wastes. In addition to potentially providing
business opportunities for the PSG Group, these laws often impose liability on
operators of facilities similar to those operated by the PSG Group. The
liability is often strict and joint and several, which may lead to potential
liability to the PSG Group for non-compliance with environmental laws or for
cleanup of hazardous waste that may exist at facilities operated by the PSG
Group. A brief description of a few of the relevant federal laws follows.
The Safe Drinking Water Act of 1974 sets drinking water contamination levels,
defines contaminants which may cause adverse health effects and establishes
criteria for the operation of water supply facilities. All public water systems
are subject to the terms of this Act, which requires significant reporting,
sampling, record keeping and public notification requirements.
The Federal Water Pollution Control Act of 1972 (the "Clean Water Act")
establishes standards, permits and enforcement procedures relating to the
discharge of pollutants from industrial and municipal wastewater sources.
Industries which discharge into public sewer systems are subject to stringent
controls, inspections, monitoring and testing requirements and require
facilities which can adequately treat the waste water prior to discharge.
The Comprehensive Environmental Response, Compensation and Liability Act of
1980 ("CERCLA" or "Superfund") imposes liability, regardless of fault or the
legality of the original conduct, on certain classes of persons that
contributed to the release of a "hazardous substance" into the environment.
These persons include the current or previous owner or operator of a site and
companies that disposed or arranged for the disposal of the hazardous
substances found at a site. CERCLA also authorizes the Environmental Protection
Agency and, in some cases, private parties to take actions in response to
threats to the public health or the environment and to seek recovery of the
costs incurred from other responsible persons. In the course of its operations,
the PSG Group operates sites which may become subject to a CERCLA cleanup.
Because CERCLA liability is strict, and joint and several, the PSG Group may
become wholly responsible for any potential costs of removal or remediation and
for any injury to natural resources at the landfills, waste treatment or
management facilities, composting facilities or other sites it operates.
BONDING
The PSG Group is often required to procure bid, performance, material and
labor bonds from surety companies, particularly for clients in the public
sector. The PSG Group has been able, through Anjou, to provide all required
bonds. Anjou is required to indemnify surety companies providing bid and
performance bonds for any payments the sureties are required to make under the
bonds. In connection with the proposed acquisition of the PSG Group by AWT,
arrangements will be made to replace the existing outstanding surety bonds with
surety bonds issued under AWT's surety bond facilities. AWT expects that it
will be able to replace such surety bonds at commercially reasonable rates.
29
<PAGE>
INSURANCE
The PSG Group currently maintains through Anjou different types of insurance,
including Workers' Compensation, commercial liability, automobile liability,
property insurance, boiler and machinery, fidelity insurance, fiduciary
liability, employment practices liability and foreign property and liability
insurance.
The PSG Group believes that it presently maintains adequate insurance
coverage for all of its present operational activities, except that, like other
companies in its industry, the PSG Group has been limited in obtaining
additional environmental liability insurance due to drastic increases in the
cost of such coverage caused by aggressive federal enforcement of federal
environmental regulations and legal decisions adverse to the insurance
industry.
A successful claim or claims in an amount in excess of the PSG Group's
insurance coverage or for which there is no coverage could have a material
adverse effect on the PSG Group; however, the PSG Group's management believes
that insurance for company operations and other exposures has always been
adequate to cover any reasonable contingency.
As part of the proposed acquisition of the PSG Group by AWT, it is
anticipated that the PSG Group's existing insurance coverage, which is provided
through Anjou, will be replaced by insurance provided through AWT.
PATENTS AND TRADEMARKS
The PSG Group is neither the holder nor licensee of any significant patent,
trademark or service mark relevant to the conduct of its business.
EMPLOYEES
As of February 28, 1994, the PSG Group had approximately 904 full-time
employees, of which 138 employees are represented by various unions under
several contracts. The PSG Group considers relations with the unions and its
employees to be good.
PROPERTIES
The PSG Group believes its facilities are suitable and adequate for its
current operations and administrative needs. The principal properties of the
PSG Group are as follows:
<TABLE>
<CAPTION>
APPROXIMATE SQUARE LEASE
LOCATION FUNCTION FOOTAGE OWNED FOOTAGE LEASED EXPIRATION
- - -------- ---------------- ------------------ -------------- --------------
<S> <C> <C> <C> <C>
Houston, TX............. Corporate Office 13,812 1998
Houston, TX............. Land 4.23 Acres
Houston, TX............. Warehouse 1,800 1995
Toronto, Canada......... Regional Office 300 1994
Providence, RI.......... Regional Office 1,250 1994
Nolensville, TN......... Regional Office 1,100 Month-to-Month
Knoxville, TN........... Regional Office 642 1994
San Mateo, CA........... Regional Office 250 Month-to-Month
New Orleans, LA......... Regional Office 500 1995
St. Paul, MN............ Regional Office 500 1994
</TABLE>
Most of the regional offices are utilized for client development staff. The
PSG Group operates and provides services from approximately 50 project
facilities, all of which are owned by the PSG Group's clients.
LEGAL PROCEEDINGS
In the normal course of its business, the PSG Group is involved in various
civil litigation and arbitration matters which, if concluded against the
interests of the PSG Group, would not in the opinion of the PSG Group
management have a material adverse impact on the PSG Group's financial
condition or ability to engage in the normal conduct of its business.
30
<PAGE>
SELECTED FINANCIAL DATA OF AWT
The following table presents selected historical financial data for AWT as
of, and for the five fiscal years ended October 31, 1993 and the three-month
periods ended January 31, 1994 and 1993 and selected pro forma financial data
for the year ended October 31, 1993 and for the three months ended January 31,
1994. The data as of, and for the five fiscal years ended October 31, 1993, are
derived from the consolidated financial statements of AWT audited by Arthur
Andersen & Co. The financial statements for the three-month periods ended
January 31, 1994 and 1993 are unaudited. In the opinion of AWT's management,
all adjustments, including normal recurring adjustments, necessary for a fair
presentation of the financial statements for the three-month periods, have been
reflected therein. All information contained herein should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and the consolidated financial statements and notes
thereto of AWT as included in the Company Annual Report on Form 10-K for its
fiscal year ended October 31, 1993 and quarterly report on Form 10-Q for the
fiscal quarter ended January 31, 1994, which are being delivered to
shareholders together with this Proxy Statement and the "Unaudited Pro Forma
Combined Condensed Financial Statements" included elsewhere in this Proxy
Statement. Operating results for the three-month period ended January 31, 1994
are not necessarily indicative of the results that may be expected for the full
year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 31 FISCAL YEARS ENDED OCTOBER 31,
---------------------------- ----------------------------------------------------------
1994 1993
PRO PRO
1994 FORMA(7) 1993 1993 FORMA(7) 1992 1991(1) 1990(2) 1989(2)
-------- -------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales................... $132,227 $155,244 $161,099 $630,377 $707,977 $672,949 $620,129 $581,244 $586,053
Cost of sales........... 106,211 122,898 119,132 453,898 509,394 495,292 461,544 418,772 456,150
Selling, general and
administrative
expenses............... 34,669 40,369 33,348 139,047 157,970 153,801 146,992 119,822 95,199
Amortization of
goodwill............... 1,719 2,078 1,708 6,835 8,321 6,745 6,183 5,577 5,334
PRASA litigation(3)..... -- -- -- -- -- 7,000 -- -- --
Restructuring charge(4). -- -- -- -- -- -- 16,000 -- --
Provision for asset
valuation(5)........... 17,300 17,300 -- -- -- -- -- -- --
Operating income (loss)
from continuing
operations............. (27,672) (27,401) 6,911 30,597 32,292 10,111 (10,590) 37,073 29,370
Interest income......... 393 507 157 852 1,328 1,335 2,563 5,315 3,119
Interest expense........ (6,304) (5,052) (6,111) (24,589) (19,977) (22,680) (21,429) (33,283) (37,188)
Other income (expense),
net(6)................. (745) (747) (474) (2,218) (2,254) (1,712) (932) 2,093 6,668
Income (loss) from
continuing operations
before income taxes,
minority interest and
extraordinary item..... (34,328) (32,693) 483 4,642 11,389 (12,946) (30,388) 11,198 1,969
Provision for income
taxes.................. (22) 89 121 68 522 819 1,482 5,853 5,176
Minority interest....... (138) (138) 83 21 21 265 (90) 2,532 2,101
Income (loss) from
continuing operations
before extraordinary
item................... (34,168) (32,644) 279 4,553 10,846 (14,030) (31,780) 2,813 (5,308)
Discontinued operations. (3,229) N/A 100 (10,108) N/A 3,994 5,885 3,692 2,089
Extraordinary item...... -- -- -- -- -- -- -- (26,490) 2,144
Net income (loss)....... $(37,397) N/A $ 379 $ (5,555) N/A $(10,036) $(25,895) $(19,985) $ (1,075)
Earnings (loss) per
share from continuing
operations before
extraordinary item..... $ (1.38) $ (1.05) $ .01 $ .18 $ .24 $ (.56) $ (1.41) $ .15 $ (1.04)
Discontinued
operations............ $ (.13) N/A $ .01 $ (.40) N/A $ .16 $ .26 $ .20 $ .17
Extraordinary item..... $ -- N/A $ -- $ -- N/A $ -- $ -- $ (1.41) $ .17
Earnings (loss) per
share.................. $ (1.51) $ .02 $ (.22) $ (.40) $ (1.15) $ (1.06) $ (.70)
Weighted average shares
outstanding............ 24,818 31,818 24,823 24,815 31,815 24,812 22,437 18,854 12,357
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
JANUARY 31, 1994 FISCAL YEARS ENDED OCTOBER 31,
----------------------- --------------------------------------------
HISTORICAL PRO FORMA(7) 1993 1992 1991 1990 1989
---------- ------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $ 64,917 $134,033 $101,921 $113,339 $127,766 $176,544 $ 70,013
Total assets............ 584,380 693,148 602,035 613,819 596,429 593,142 473,017
Goodwill................ 235,283 292,510 237,002 242,149 245,875 212,143 206,289
Total long-term debt.... 221,738 246,738 222,456 221,975 224,669 225,179 253,272
Stockholders' equity(8). 173,033 282,936 210,314 216,447 225,785 200,922 55,192
</TABLE>
- - --------
(1) On October 31, 1991, the Company completed a merger ("Merger") with Metcalf
& Eddy. See Note (2) of the Notes to Consolidated Financial Statements of
the Company included in the Company's 1993 Annual Report on Form 10-K being
delivered to shareholders together with this Proxy Statement for the
respective pro forma effect of the Merger on earnings (loss) per share.
(2) On June 25, 1990, Metcalf & Eddy issued approximately 207,000 Shares of its
Common Stock in connection with the acquisition of Petrolgroup, Inc.
("PIECO"). On July 7, 1989, the Company sold 850,000 shares of Metcalf &
Eddy Common Stock in a public offering. As a result of these transactions,
the Company's ownership in Metcalf & Eddy was reduced to approximately 82%.
On a pro forma basis, assuming these transactions had occurred as November
1, 1988, minority interest in affiliates would have increased $130,000 and
$757,000 for the fiscal years ended October 31, 1990 and 1989,
respectively. The resulting pro forma net income (loss) before
extraordinary item would have been $2,863,000 and ($6,065,000) for the
fiscal years ended October 31, 1990 and 1989, respectively. During 1991,
the Company's ownership percentage remained unchanged until October 31,
1991 when the Company completed its Merger with Metcalf & Eddy.
(3) See Note (15) of the Notes to Consolidated Financial Statements of the
Company included in the Company's 1993 Annual Report on Form 10-K being
delivered to shareholders together with this Proxy Statement.
(4) See Note (2) of the Notes to Consolidated Financial Statements of the
Company included in the Company's 1993 Annual Report on Form 10-K being
delivered to shareholders together with this Proxy Statement.
(5) See Note (3) of the Notes to Consolidated Financial Statement of the
Company included in the Company's Quarterly Report on Form 10-Q for the
Quarter ended January 31, 1994 being delivered to shareholders together
with this Proxy Statement.
(6) Includes gains of $2,776,000 and $7,001,000 in 1990 and 1989, respectively,
on the sale/issuance of approximately 1% and 6% in 1990 and 1989,
respectively, of Metcalf & Eddy Common Stock.
(7) See Unaudited Pro Forma Combined Condensed Financial Statements included
elsewhere in this Proxy Statement.
(8) As of January 31, 1994, net tangible book value per share amounted to
$(3.19) on a historical basis and $(.83) on a pro forma basis.
32
<PAGE>
SELECTED HISTORICAL COMBINED FINANCIAL DATA OF PSG GROUP
The following table presents selected historical combined financial data for
the PSG Group as of, and for the five fiscal years ended, December 31, 1993 and
the three-month periods ended March 31, 1994 and 1993. The data as of December
31, 1993 and 1992, and for the three years in the period ended December 31,
1993, are derived from the combined financial statements of the PSG Group
audited by Arthur Andersen & Co. The financial data as of December 31, 1991,
1990, and 1989, for the two years in the period ended December 31, 1990, and
the three month periods ended March 31, 1994 and 1993 is unaudited. In the
opinion of the PSG Group's management, all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of those
financial statements, have been reflected therein. All information contained
herein should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations," and the combined financial
statements and notes thereto of the PSG Group as included in this Proxy
Statement.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
-------------------- -------------------------------------------
1994 1993 1993 1992 1991 1990 1989
--------- --------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales.................. $ 23,017 $ 18,623 $77,600 $62,140 $47,484 $36,809 $25,055
Cost of sales.......... 19,679 15,846 65,586 52,351 40,919 32,158 21,448
Selling, general and
administrative
expenses.............. 2,708 2,185 8,833 7,355 4,930 3,813 2,935
Amortization of
goodwill.............. 33 58 166 220 231 218 143
Operating income from
continuing operations. $ 597 $ 534 $ 3,015 $ 2,214 $ 1,404 $ 620 $ 529
Interest income........ 114 102 476 380 1,138 476 271
Interest expense....... (138) (141) (516) (591) (1,148) (941) (352)
Other income (expense),
net................... (2) (23) (36) 105 -- 69 (51)
Income before income
taxes................. $ 571 $ 472 $ 2,939 $ 2,108 $ 1,394 $ 224 $ 397
Provision for income
taxes................. 256 205 1,275 939 691 196 190
Income from continuing
operations............ $ 315 $ 267 $ 1,664 $ 1,169 $ 703 $ 28 $ 207
Cumulative effect of
accounting changes.... -- 78 78 -- -- -- --
Net income............. $ 315 $ 345 $ 1,742 $ 1,169 $ 703 $ 28 $ 207
<CAPTION>
MARCH 31, DECEMBER 31,
-------------------- -------------------------------------------
1994 1993 1993 1992 1991 1990 1989
--------- --------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets........... $ 29,177 $ 26,187 $28,444 $26,202 $23,069 $22,466 $13,314
Total long-term debt... 8,372 9,472 8,472 9,172 11,486 14,204 9,500
Stockholder's equity... 4,486 2,710 4,183 2,460 1,151 448 420
</TABLE>
33
<PAGE>
PSG GROUP'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Since 1978 the PSG Group has operated, maintained and managed water and
wastewater treatment facilities, sludge and biosolid waste disposal programs
and other public works contracts. While the PSG Group does have industrial
clients, municipal clients represent 99% of the PSG Group's business revenues.
DEPENDENCY ON KEY PROJECTS
Over the last five years, the PSG Group's dependence on key projects has
significantly diminished. During fiscal year 1993, the PSG Group's largest
revenue project (Oklahoma City) provided 12.2% of the PSG Group's total
revenues, compared to 14.8% of total revenues during fiscal year 1992 and 19.2%
of total revenues during fiscal year 1991, and down from 40% of total revenues
during fiscal year 1988. The following table summarizes the contributions of
projects which contributed over 5% of the PSG Group's total revenues during
fiscal year 1993:
<TABLE>
<S> <C>
Oklahoma City, OK................................................... 12.2%
New Orleans, LA..................................................... 8.9%
Brockton, MA........................................................ 7.2%
Ottawa, Canada...................................................... 6.9%
Plaquemines Parish, LA.............................................. 6.6%
Cranston, RI........................................................ 5.5%
</TABLE>
The remaining 42 clients of the PSG Group accounted for 52.7% of the PSG
Group's total revenues during fiscal year 1993.
RESULTS OF OPERATIONS
FISCAL YEAR 1993 COMPARED TO FISCAL YEAR 1992. Sales of $77,600,000 for the
fiscal year ended December 31, 1993 reflected a 24.9% increase from $62,140,000
in the prior year. The increase in sales was attributable to new contracts and
contract amendments obtained in mid to late 1992 and from new contracts and
amendments initiated in 1993 which included the facilities at Newark, NJ,
Wakulla County, FL, Boston, MA and Moore, OK. New projects and contract scope
changes increased the PSG Group's annual revenues by approximately $8,380,000
during fiscal year 1993.
With the exception of the Boston Harbor contract, the above were all new
contracts which have an initial term of five years. The Boston Harbor contract,
a consulting project which is due to be completed by December 1995, is listed
as a result of an amendment which expanded the scope of the contract.
Gross profits of $11,848,000 for fiscal year 1993 were $2,279,000 above
fiscal year 1992. Cost of Sales as a percentage of sales did not change
materially between fiscal years 1992 and 1993. The Company's gross profit as a
percentage of sales increased slightly to 15.4% during 1993 from 13.3% in 1992
due to the reduction of goodwill related to the PSG Group's sales of the
package plant operation in Florida.
Selling, general and administrative ("SG&A") expenses of $8,833,000 for
fiscal year 1993 increased $1,478,000 from $7,355,000 in the prior fiscal year.
As a percentage of sales SG&A expenses decreased slightly to 11.38% for fiscal
year 1993 from 11.84% in fiscal year 1992. The dollar increase in SG&A expenses
during fiscal year 1993 was due to planned increases in staff, marketing
support and equipment and supplies necessary to support continued growth.
Increased expenses for marketing support represented $755,000 of the increase
over fiscal year 1992 and is due to continued investment in new business
development.
Operating income of $3,015,000 during fiscal year 1993 increased by $801,000,
or 36.2%, from fiscal year 1992 as a result of increased gross profits, which
more than offset the higher SG&A expenses.
34
<PAGE>
Interest expense was attributable to interest paid on the PSG Group's
revolving note owed to its parent company, Anjou. Interest expense in fiscal
year 1993 totaled $516,000 compared to $591,000 in fiscal year 1992. The
reduction in interest expense was due to a reduction in the average monthly
balance on the revolving note from $9,215,000 during fiscal year 1992 to
$8,613,000 during fiscal year 1993 and to a slightly lower average interest
rate. The average interest rate on the revolving note was 6% per annum during
fiscal year 1993 and 6.25% per annum during fiscal year 1992.
FISCAL YEAR 1992 COMPARED TO FISCAL YEAR 1991. Sales of $62,140,000 for the
fiscal year 1992 reflected a 30.8% increase from $47,484,000 during fiscal year
1991. The increase in sales was attributable to new contracts, principally for
water and wastewater treatment facilities, at New Orleans, LA, Ottawa, Canada,
and Plaquemines Parish, LA. New projects accounted for $10,480,000 of the
increase in the PSG Group's sales during fiscal year 1992. All of the new
contracts had an initial term of five years.
Gross profits of $9,569,000 for fiscal year 1992 were $3,235,000 above gross
profits in fiscal year 1991. Cost of Sales increased $11,421,000 in fiscal year
1992 due to higher sales volumes. However, gross margins on sales improved from
13.3% during fiscal year 1991 to 15.4% during fiscal year 1992. The main reason
for the increase in gross profits on sales during fiscal year 1992 was the
improved gross profits at the PSG Group's package plant operation in Florida.
In May 1993, the PSG Group sold substantially all the assets of the package
plant operation in Florida.
Selling, general and administrative expenses of $7,355,000 during fiscal year
1992 increased by $2,425,000 from fiscal year 1991. As a percentage of sales
SG&A expenses increased from 10.38% in fiscal year 1991 to 11.84% in fiscal
year 1992. The principal reasons for the increase, other than the increase in
sales volumes during fiscal year 1992, were increased expenses of approximately
$300,000 on improving training, safety, marketing and computer software at the
head office, to improve the PSG Group's level of performance and to prepare for
anticipated future growth; increased expenses attributable to marketing efforts
for large municipal contracts which were considered strong sales prospects for
the future of approximately $350,000; and legal expenses with respect to the
settlement of several lawsuits of approximately $150,000.
Operating income of $2,214,000 during fiscal year 1992 increased by $810,000,
or 57.6%, from fiscal year 1991 as a result of increased gross profits, which
were partially offset by the increase in selling, general and administrative
expenses.
Interest expense was attributable to interest paid on the PSG Group's
revolving note owed to its parent company Anjou. Interest expense in fiscal
year 1992 totaled $591,000 compared to $1,148,000 in fiscal year 1991. This
reduction in interest expense was due to a reduction in the average monthly
balance on the revolving note from $12,935,000 during fiscal year 1991 to
$9,215,000 during fiscal year 1992 and due to lower interest rates. The average
interest rate on the revolving note was 6.25% per annum during fiscal year 1992
and was 8.46% per annum during fiscal year 1991.
FIRST QUARTER 1994 COMPARED TO FIRST QUARTER 1993. Sales of $23,017,000 for
first quarter 1994 increased 23.5% from $18,623,000 in first quarter 1993. The
increase in sales was attributable to new contracts and contract amendments
obtained between March 1, 1993 and March 31, 1994. During this period new
contracts were initiated at facilities in Newark, NJ, Wakulla County, FL,
Moore, OK and Humacao, PR. Revenue increases also resulted from amendments to
existing contracts for changes on the Hawaii Kai, Plaquemines Parish, LA and
the Boston Harbor projects.
Gross profits of $3,305,000 for first quarter 1994 were $586,000 above first
quarter 1993. The increase in gross profits is attributable to the increase in
sales. Gross margin at 14.4% for the first quarter 1994, was slightly below the
14.6% for the first quarter 1993 due to lower negotiated gross profits on some
of the more recent new contracts.
Selling, general and administrative ("SG&A") expenses of $2,708,000 for first
quarter 1994 increased $523,000 from $2,185,000 in first quarter 1993. As a
percentage of sales, SG&A was 11.8% for first quarter 1994 compared to 11.7%
for first quarter 1993. The dollar increase in SG&A expenses between quarters
is
35
<PAGE>
primarily related to salary increases effective in January 1994, additional
staff needed to support the growth of the company with additional
administration and marketing personnel, increased depreciation, increased
supplies and increased marketing expenses due to greater expenditures required
to capitalize on expanding new business opportunities.
The changes discussed above resulted in operating income of $597,000 during
first quarter 1994 representing an increase of $63,000, or 11.8% from first
quarter 1993.
The provision for income taxes for first quarter 1994 increased because of
the overall increase in pre-tax income.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the PSG Group's liquidity to support its working capital
requirements was obtained from cash flows from continuing operations and from a
revolving note facility (the "revolving note") with Anjou, the PSG Group's
parent company. Working capital requirements of the PSG Group which are in
excess of internally generated funds have been financed by funds drawn under
the revolving note. At the end of fiscal year 1993, the outstanding balance on
the revolving note was $8,472,000, a reduction of $700,000 from the outstanding
balance of $9,172,000 at the end of fiscal year 1992. The outstanding balance
on the revolving note at the end of fiscal year 1992 was $1,953,000 lower than
the balance of $11,125,000 at the end of fiscal year 1991. At March 31, 1994,
the outstanding balance on the revolving note was approximately $8,372,000. The
cash flows required to reduce the revolving note were derived from continuing
operations.
As part of the proposed acquisition of the PSG Group by AWT, the then
outstanding balance on the revolving note at the time of the acquisition will
be contributed to the PSG Group's shareholder's equity by Anjou.
FISCAL YEAR 1993 COMPARED TO FISCAL YEAR 1992. Cash provided from operating
activities was $2,800,000 in fiscal year 1993, a decrease of 57.6% over the
1992 level of $6,600,000. The $3,800,000 decrease was attributable primarily to
an increase in receivables during 1993 as compared with 1992.
Net capital expenditures and project investments (deferred charges) during
fiscal year 1993 were approximately $3,700,000, an increase of 32.1% over the
1992 net capital expenditure and project investments of approximately
$2,800,000. The $900,000 increase was attributable primarily to investments in
new projects.
Net cash outflows due to financing activities amounted to $700,000 in fiscal
year 1993 compared to a net outflow of $2,400,000 in 1992. The reduced net
outflow of $1,700,000 was primarily due to reduced net repayments on
borrowings.
FISCAL YEAR 1992 COMPARED TO FISCAL YEAR 1991. Cash provided from operating
activities was $6,600,000 in fiscal year 1992, an increase of 11.9% over the
1991 level of $5,900,000. The $700,000 increase was attributable primarily to
reduced receivables during 1992 as a result of two large receivables earned in
1991 and paid in 1992.
Net capital expenditures and project investments (deferred charges) during
fiscal year 1992 were approximately $2,800,000, an increase of $100,000 from
the 1991 net capital expenditure of $2,700,000. The increase of $100,000 was
attributable primarily to higher investments in new projects which more than
offset lower capital expenditures.
Net cash outflows due to financing activities amount to approximately
$2,400,000 in fiscal year 1992 compared to a net outflow of $2,700,000 in 1991.
The reduced net outflow of $300,000 was primarily due to reduced net repayments
on borrowings.
At March 31, 1994, and December 31, 1993, the PSG Group had commitments of
approximately of $0 (unaudited) and $900,000, respectively, related to capital
expenditures applicable to existing contracts and general corporate purposes.
Should the PSG Group be successful in obtaining customer contracts in the
future, substantial capital expenditures might be necessary and in such case
the PSG Group would expect to finance such expenditures with additional loans
from its parent and/or other affiliates.
36
<PAGE>
FIRST QUARTER 1994 COMPARED TO FIRST QUARTER 1993
Cash provided from operating activities was approximately $1,876,000 for
first quarter 1994 compared to a net cash outflow of approximately $657,000 for
first quarter 1993. The net increase in cash inflow is primarily the result of
an increase in accounts payable of approximately $805,000 in first quarter 1994
due to timing differences in issuing accounts payable checks and a decrease in
receivables of approximately $1,074,000 in first quarter 1994 as compared to
first quarter 1993.
Net capital expenditures and project investments were approximately $994,000
in first quarter 1994 and approximately $885,000 in first quarter 1993.
Net cash outflows due to financing activities of $100,000 in first quarter
1994 were due to a $100,000 net reduction of the revolving note with Anjou
compared to a $300,000 net increase of the revolving note in first quarter
1993.
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
have been prepared by the Company's management from its historical consolidated
financial statements being delivered to shareholders together with this Proxy
Statement and from the historical financial statements of the PSG Group which
are included in this Proxy Statement. The Unaudited Pro Forma Combined
Condensed Statements of Operations of the Company for the three months ended
January 31, 1994 and for the year ended October 31, 1993, and the Unaudited Pro
Forma Combined Condensed Balance Sheet as of January 31, 1994 have been
prepared to illustrate the estimated effects of the Investment Transaction
which includes the acquisition of the PSG Group recorded under the purchase
method of accounting. The Unaudited Pro Forma Combined Condensed Statements of
Operations for the three months ended January 31, 1994 and for the year ended
October 31, 1993 were prepared as if the Investment Transaction was effective
as of November 1, 1993 and November 1, 1992, respectively. The Unaudited Pro
Forma Combined Condensed Balance Sheet was prepared as if the Investment
Transaction was effective as of January 31, 1994. The pro forma adjustments
described in the accompanying notes are based upon preliminary estimates and
certain assumptions that management of the Company believes are reasonable in
such circumstances. The unaudited pro forma combined condensed financial
statements are not necessarily indicative of what the financial position or
results of operations actually would have been if the Investment Transaction
had occurred on the applicable dates indicated. Moreover, they are not intended
to be indicative of future results of operations or financial position. Each of
the Unaudited Pro Forma Combined Condensed Statements of Operations includes
the historical sales and costs of the Company and the PSG Group, adjusted for
costs and expenses which are attributable to the Investment Transaction, such
as interest expense impacts resulting from the new capital structure and
amortization of goodwill. Pro forma results exclude any potential benefits
which may be realized upon the PSG Group's consolidation into the Company or
any benefits which might accrue to the Company as a result of the increase in
working capital availability or the strategic alliance provided by or
contemplated by the Investment Transaction. The unaudited pro forma combined
condensed financial statements should be read in conjunction with the
historical consolidated financial statements of the Company and the related
notes thereto being delivered to shareholders together with this Proxy
Statement. See "Additional Information with Respect to the Company." The
unaudited pro forma combined condensed financial statements should also be read
in conjunction with the historical financial statements of the PSG Group which
are included in this Proxy Statement. See "Index to Financial Statements."
37
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF JANUARY 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL(A) PSG(B) ADJUSTMENTS COMBINED
------------- ------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS:
Current Assets:
Cash and Cash Equivalents....... $ 7,215 $ 1,796 $ 6,650 (f) $ 15,661
Accounts Receivable............. 104,350 11,651 20,000 (f) 136,001
Costs and Estimated Earnings in
Excess of Billings on
Uncompleted Contracts.......... 71,990 2,278 -- 74,268
Inventories..................... 30,579 353 -- 30,932
Prepaid Expenses and Other
Current Assets................. 18,792 614 (406)(v) 19,000
Net Current Assets of
Discontinued Operations........ 21,193 -- -- 21,193
-------- ------- -------- --------
Total Current Assets.......... 254,119 16,692 26,244 297,055
Property, Plant and Equipment..... 45,266 3,199 -- 48,465
Investments in Environmental
Treatment Facilities............. 19,277 -- -- 19,277
Deferred Debt Issuance Costs...... 4,033 -- (472)(i) 3,561
Goodwill.......................... 235,283 1,108 56,119 (c) 292,510
Net Non-current Assets of
Discontinued Operations.......... 6,908 -- -- 6,908
Other Assets...................... 19,494 8,178 (2,300)(k) 25,372
-------- ------- -------- --------
Total Assets.................. $584,380 $29,177 $ 79,591 $693,148
======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY:
Current Liabilities:
Short-term borrowings........... $ 39,354 $ -- $(39,354)(f) $ --
Current installments of Long-
Term Debt...................... 1,525 -- -- 1,525
Accounts Payable and accrued
expenses....................... 117,133 12,381 (2,904)(x) 126,610
Billings in Excess of Costs and
Estimated Earnings on
Uncompleted Contracts.......... 27,544 3,663 -- 31,207
U.S. and Foreign Income Taxes... 3,646 114 (80)(x) 3,680
-------- ------- -------- --------
Total Current Liabilities..... 189,202 16,158 (42,338) 163,022
Long-term Debt.................... 221,738 -- 25,000 (g) 246,738
Deferred Income Tax and other..... -- 161 (116)(v) 45
Minority Interest in Affiliates... 407 -- -- 407
Total Stockholders' Equity........ 173,033 12,858 97,045 (j) 282,936
-------- ------- -------- --------
Total Liabilities and
Stockholders' Equity......... $584,380 $29,177 $ 79,591 $693,148
======== ======= ======== ========
</TABLE>
The accompanying notes to the unaudited pro-forma combined financial statements
should be read in conjunction with these statements.
38
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL(1) PSG(M) ADJUSTMENTS(Q) COMBINED
------------- ------- -------------- --------
<S> <C> <C> <C> <C>
FOR THE YEAR ENDED OCTOBER
31, 1993:
Sales....................... $630,377 $77,600 $ -- $707,977
Cost of Sales............... 453,898 65,586 (10,090)(w) 509,394
General and Administrative
Expenses................... 139,047 8,833 10,090 (w) 157,970
Amortization of Goodwill.... 6,835 166 1,320 (c) 8,321
-------- ------- -------- --------
Operating Income............ 30,597 3,015 (1,320) 32,292
Interest Expense, net....... 23,737 40 (5,128)(o) 18,649
Other Expense, net.......... 2,218 36 -- 2,254
-------- ------- -------- --------
Income Before Taxes and
Minority Interest.......... 4,642 2,939 3,808 11,389
Income Taxes................ 68 1,275 (821)(r) 522
Minority Interest........... 21 -- -- 21
-------- ------- -------- --------
Income from Continuing
Operations................. $ 4,553 $ 1,664 $ 4,629 $ 10,846
======== ======= ======== ========
Earnings per Share.......... $ .18 NA NA $ .24 (s)
======== ======= ======== ========
FOR THE THREE MONTHS ENDED
JANUARY 31, 1994:
Sales....................... $132,227 $23,017 $ -- $155,244
Cost of Sales............... 106,211 19,679 (2,992)(w) 122,898
General and Administrative
Expenses................... 34,669 2,708 2,992 (w) 40,369
Provision for Asset
Valuation.................. 17,300 -- -- 17,300
Amortization of Goodwill.... 1,719 33 326(c) 2,078
-------- ------- -------- --------
Operating Income (loss)..... (27,672) 597 (326) (27,401)
Interest Expense, net....... 5,911 24 (1,390)(o) 4,545
Other Expense, net.......... 745 2 -- 747
-------- ------- -------- --------
Income (loss) Before Taxes
and Minority Interest...... (34,328) 571 1,064 (32,693)
Income Taxes................ (22) 256 (145)(r) 89
Minority Interest........... (138) -- -- (138)
-------- ------- -------- --------
Income (Loss) from
Continuing Operations...... $(34,168) $ 315 $ 1,209 $(32,644)
======== ======= ======== ========
Loss per Share.............. $ (1.38) NA NA $ (1.05)(s)
======== ======= ======== ========
</TABLE>
The accompanying notes to the unaudited pro-forma combined financial statements
should be read in conjunction with these statements.
39
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
GENERAL
The PSG Group acquisition will be accounted for using the purchase method of
accounting. The Company has not yet determined the final allocation of the
purchase price. The total purchase price will be based upon the Company's stock
price on the date of the PSG Group acquisition and will be allocated to the
tangible assets, identifiable assets and liabilities based upon their
respective fair values. Such values will differ from those set forth in the
historical financial statements of the PSG Group and from those set forth
herein. However it is anticipated that the final allocation of purchase price
will not have a material effect on pro forma results of operations presented
herein. For purposes of this pro forma information, the unallocated excess of
the purchase price over net assets acquired is amortized over 40 years. The
depreciation and amortization of the amounts ultimately allocated to assets and
liabilities will be based upon their estimated useful lives.
- - --------
(a) Represents the historical balance sheet of the Company as of January 31,
1994.
(b) Represents the historical balance sheet of the PSG Group as of March 31,
1994.
(c) The unallocated excess of purchase price over net assets acquired
attributable to the Investment Transaction is determined as follows
(dollars in thousands).
<TABLE>
<CAPTION>
JANUARY 31, 1994 NOVEMBER 1, 1992
---------------- ----------------
<S> <C> <C>
Purchase price:
Issuance of 6,500,000 shares of Common
Stock valued at $10 per share for all
PSG Group common stock (j)............. $ 65,000 $ 65,000
Estimate of fees and expenses (h)......... 4,875 4,875
-------- --------
69,875 69,875
Less:
Historical PSG Group Equity (d), (j).... (12,858) (11,632)
PSG Group Deferred Taxes (v)............ 290 70
Settlement of taxes payable to PSG's
parent (x)............................. (80) (902)
Cancellation of accrued intercompany
pension obligation (x)................. (2,610) (1,567)
Settlement of intercompany accounts (x). (294) (90)
Distribution of PSG Group available cash
to its parent (y)...................... 1,796 2,140
-------- --------
Increase in goodwill.................... 56,119 57,894
PSG Group existing goodwill............. 1,108 1,530
-------- --------
Total unallocated excess of purchase
price over net assets acquired
(goodwill)............................. $ 57,227 $ 59,424
-------- --------
Amortization (n)........................ $ 326(e) $ 1,320
-------- --------
</TABLE>
(d) Historical equity includes $8,372,000 and $9,172,000 of advances from the
PSG Group's parent as of the January 31 and November 1 pro forma dates,
respectively. Under provision of the Investment Agreement intercompany
advances will be capitalized.
(e) Represents amortization for three months ended January 31, 1994.
(f) Reflects the impact on cash resulting from the Investment Transaction
(dollars in thousands):
<TABLE>
<S> <C>
Sale of 500,000 shares of Common Stock at $10 per share (j)........ $ 5,000
Sale of 5% Convertible Exchangeable Preferred Stock (j)............ 60,000
Proceeds from CGE line of credit (g)(p)............................ 125,000
</TABLE>
40
<PAGE>
<TABLE>
<S> <C>
Retirement of Prudential Notes (g).............................. (107,500)
Company fees and expenses (h)................................... (9,800)
Payment under employment contract (k)........................... (4,900)
Payment of outstanding short-term borrowings (o)................ (39,354)
Repurchase of accounts receivable sold under the Company's
accounts receivable
facility (u)................................................... (20,000)
Distribution of PSG Group cash to its parent (y)................ (1,796)
---------
Net cash impact............................................... $ 6,650
=========
</TABLE>
(g) Reflects the impact of changes in long-term debt resulting from the
Investment Transaction (dollars in thousands):
<TABLE>
<S> <C>
New debt:
Proceeds from CGE line of credit............................... $ 125,000
Retirement of Prudential Notes................................. (100,000)
---------
$ 25,000
=========
</TABLE>
The Company and Prudential have reached an agreement to allow the Company
to retire the Prudential Notes for $105,000,000 in cash together with a
prepayment fee of $2,500,000 payable in cash or Company Common Stock. For
purposes of the pro forma statements the prepayment fee is assumed to be
paid in cash. The $7,500,000 ($7,500,000 net of tax) excess of redemption
price over the carrying value of the Prudential Notes along with
unamortized debt issuance costs will be recorded as an extraordinary loss
upon retirement of the Prudential Notes (See Note j).
(h) Estimated fees and expenses are estimated to be allocated to the elements
of the Investment Transaction as follows (dollars in thousands):
<TABLE>
<S> <C>
CGE line of credit (i).............................................. $ 50
Sale of 500,000 Common Shares for cash (j).......................... 400
Sale of 5 1/2% Convertible Exchangeable Preferred Stock (j)......... 4,475
Purchase of the PSG Group (c)....................................... 4,875
------
$9,800*
======
</TABLE>
--------
* Assumes direct fees of $50,000 on the CGE line of credit. All other fees
and expenses have been estimated at $9,750 and have been allocated to the
elements of the Investment Transaction on a pro rata basis. Included in
estimated fees and expenses is an estimate of $7,750 of fees for the
Company's Financial Advisor. See "Opinion of Financial Advisor" elsewhere
in this Proxy Statement.
(i) Reflects changes in deferred debt issuance costs (dollars in thousands):
<TABLE>
<S> <C>
CGE line of credit................................................... $ 50
Write-off of unamortized issuance costs applicable to the Prudential
Notes (j)........................................................... (522)
-----
$(472)
=====
</TABLE>
(j) Changes in Stockholders' Equity resulting from the Investment Transaction
(dollars in thousands):
<TABLE>
<S> <C>
Sale of 500,000 shares of Common Stock (f)....................... $ 5,000
Sale of 5 1/2% Convertible Exchangeable Preferred Stock (f)...... 60,000
Issuance of 6,500,000 shares of Common Stock for the PSG Group
(c)............................................................. 65,000
Elimination of historical PSG Group equity (c)................... (12,858)
Prudential Notes redemption premium (g)*......................... (7,500)
</TABLE>
41
<PAGE>
<TABLE>
<S> <C>
Write-off unamortized deferred debt issuance costs on Prudential
Notes (i)*....................................................... (522)
Forgiveness of loan to Chairman and related payments (k)*......... (7,200)
Estimated fees on sale of 500,000 shares of common stock (h)...... (400)
Estimated fees on sale of 5 1/2% Convertible Exchangeable
Preferred Stock (h).............................................. (4,475)
-------
$97,045
=======
</TABLE>
--------
* The tax benefit of these items is assumed to be $0, given the expected pro
forma consolidated tax position.
(k) Upon consummation of the Investment Transaction the Company under the terms
of an employment agreement, has agreed to a forgiveness of a $2,300,000
non-interest bearing loan to its Chairman (included in other assets),
approximately $1,500,000 of other payments and benefits provided for in the
employment agreement and approximately $3,400,000 of estimated tax
payments. See "Employment Contracts and Termination and Change-in-Control
Arrangements" elsewhere in this Proxy Statement.
(l) Represents the historical results of operations of the Company for the
fiscal year ended October 31, 1993 and for the three months ended January
31, 1994.
(m) Represents the historical results of operations of the PSG Group for the
fiscal year ended December 31, 1993 and for the three months ended March
31, 1994.
(n) Represents amortization of goodwill (40 year life) resulting from the
acquisition of the PSG Group.
(o) Reflects change in interest expense resulting from the Investment
Transaction as follows (dollars in thousands):
<TABLE>
<CAPTION>
THREE
YEAR ENDED MONTHS ENDED
OCTOBER 31, 1993 JANUARY 31, 1994
---------------- ----------------
<S> <C> <C>
Interest on new debt:
Commercial bank facility of $125,000 (at
an assumed rate of 7.6%)*.............. $ 9,500 $ 2,375
Reduction in interest on Prudential
Notes.................................. (11,180) (2,795)
Reduction in amortization of deferred
debt issuance cost on Prudential Notes. (385) (14)
Reduction in interest on payment of
outstanding short-term borrowings**(u). (3,063) (956)
------- -------
$(5,128) $(1,390)
======= =======
</TABLE>
--------
* Actual rates will be determined at time of facility commitment. Facility
term is estimated at seven years.
** Interest rates on short-term borrowings assumed at average rate of 6.6%.
(p) See "Background of the Investment Transaction--Letter Agreement."
(q) No adjustment is assumed for any benefit to be achieved upon consolidation
of the PSG Group with the Company.
(r) Represents adjusted tax provision to reflect the estimated tax impacts of
the pro forma combination.
(s) Earnings (loss) per share from continuing operations is calculated as
follows (tables in thousands except per share amounts):
42
<PAGE>
<TABLE>
<CAPTION>
THREE
YEAR ENDED MONTHS ENDED
OCTOBER 31, 1993 JANUARY 31, 1994
---------------- ----------------
<S> <C> <C>
Average shares:
Company existing weighted average shares
outstanding............................ 24,815 24,818
Sale of 500,000 new shares of Common
Stock for cash......................... 500 500
Issuance of 6,500,000 shares of Common
Stock for the PSG Group................ 6,500 6,500
------- --------
Adjusted weighted average shares...... 31,815 31,818
======= ========
Pro Forma Calculation:
Pro forma earnings (loss) from
continuing operations.................. $10,846 $(32,644)
Less preferred dividends................ (3,300) (825)
------- --------
Income (loss) available to common
shareholders........................... $ 7,546 $(33,469)
======= ========
Weighted average shares outstanding..... 31,815 31,818
======= ========
Earnings (loss) per share (t)............. $ 0.24 $ (1.05)
======= ========
</TABLE>
(t) Fully-diluted earnings per share are not presented as the assumed
conversion of the Company's $115,000,000 8% Convertible Notes and 5 1/2%
Convertible Exchangeable Preferred Stock is assumed to be anti-dilutive to
amounts presented herein.
(u) For purposes of pro forma interest calculations, the reduction in interest
expense includes actual interest on outstanding short-term borrowings as
well as expenses associated with the Company's accounts receivable facility
to the extent cash generated from the Investment Transaction exceeds short-
term borrowings and would have eliminated the need to utilize the accounts
receivable facility. No interest income has been assumed on the remaining
cash balances for the periods presented.
(v) Reflects the establishment of a deferred tax valuation reserve for the PSG
Group's net deferred tax assets not expected to be realized given the
Company's current tax position as follows (dollar in thousands):
<TABLE>
<CAPTION>
AS OF
JANUARY 31, 1994
----------------
<S> <C>
Deferred income tax assets--current....................... $ 406
Deferred income tax liabilities--non-current.............. (116)
-----
Net deferred tax assets................................... 290
Valuation reserve (c)..................................... (290)
-----
-0-
-----
</TABLE>
(w) Reflects reclassification of certain estimated PSG Group's expenses for
consistent presentation with the Company financial statements.
(x) Reflects settlement of the PSG Group's income tax, intercompany and accrued
pension obligations to its parent as provided for in the Investment
Agreement.
(y) Reflects distribution of available PSG Group cash to its parent as provided
for in the Investment Agreement.
43
<PAGE>
PROPOSAL TWO
ELECTION OF DIRECTORS
INFORMATION CONCERNING THE NOMINEES
The Company's Restated Certificate of Incorporation and By-Laws provide for
the Company's business to be managed by or under the direction of the Board of
Directors. Under the Company's By-Laws, the number of directors is fixed from
time to time by the Board of Directors and directors serve in office until the
next annual meeting of shareholders and until their successors have been
elected and qualified or until their earlier death, resignation or removal.
Pursuant to the terms of the Investment Agreement dated as of March 30, 1994,
the Company has agreed that CGE will have representation on the Board of
Directors (and all committees thereof other than any Special Committee of
"Independent Directors" (as defined below)) that is proportionate to the
aggregate number of shares of Class A Common Stock owned by CGE (rounded down
to the next whole number if CGE owns in the aggregate less than one-half of the
outstanding shares of Class A Common Stock, treating the shares of 5 1/2%
Series A Convertible Exchangeable Preferred Stock owned by CGE as having been
converted, or, if otherwise, rounded up to the next whole number). In
connection with the transactions contemplated by the Investment Agreement, the
Board of Directors voted on March 17, 1994 to increase the size of the Board of
Directors from nine to eleven and to appoint Messrs. Brunais and Elia, officers
and employees of CGE and Anjou, respectively, to serve on the Board until the
upcoming Annual Meeting. In addition, the Board of Directors agreed to nominate
for election as directors at the Annual Meeting five individuals designated by
CGE (Messrs. Elia, David, Deschamps, DeBenedictis and Kriegel) and an
additional Independent Director (a director not employed by the Company or CGE
or their respective affiliates) satisfactory to CGE (Ms. Green). The Chairman
of the Board of Directors shall be a designee of CGE. The Board of Directors
has also nominated Messrs. Beck, Costle, Dowd, Morris and Senior as directors
for election at the Annual Meeting. See "Proposal One--The Investment
Transaction."
The nominees for director other than Messrs. Beck, Costle, Dowd, Morris,
Senior, Elia and David have agreed that, in the event the transactions
contemplated by the Investment Agreement are not approved by the Company's
shareholders at the Annual Meeting, they will resign as directors of the
Company immediately following the Annual Meeting. In that contingent event, the
Company has been informed that it is the collective intention of Messrs. Beck,
Costle, Dowd, Morris, Senior, Elia and David to appoint four persons, including
three persons (Messrs. Boren, Glenn and Goldman) who are currently directors of
the Company, to fill the vacancies on the Board of Directors that will then
exist. The eleventh director to be appointed in such circumstance has not been
identified as of the date of this Proxy Statement.
The Board of Directors recommends that the shareholders elect the nominees
named below as directors of the Company. The persons named on the enclosed
proxy card intend to vote the shares represented by such proxy, unless the
shareholder executing the proxy otherwise instructs, for the election to the
Board of Directors of each of the eleven nominees named below.
The Company has no reason to believe that any such nominees will be unable,
if elected, to serve as a director. If such an event should occur, however, the
persons named on the enclosed proxy card intend to vote the shares represented
by the enclosed proxy for the remainder of the nominees, and for such
substitute nominee or nominees as the Company's current Board of Directors may
select. Messrs. Beck, Costle, Dowd, Morris and Senior currently serve as
directors of the Company for terms expiring at the Annual Meeting and were last
elected at the Company's 1993 Annual Meeting.
44
<PAGE>
<TABLE>
<CAPTION>
POSITIONS AND OTHER RELATIONSHIPS WITH
NAME AGE THE COMPANY AND BUSINESS EXPERIENCE
---- --- --------------------------------------
<S> <C> <C>
Eckardt C. Beck......... 50 Chairman of the Board of Directors, Chief Executive
Officer and member of the Executive Committee. Mr.
Beck was elected Chairman of the Board of Directors
and Chief Executive Officer of the Company in October
1987 and its President in June 1989 and Chairman of
the Board of Directors of Research-Cottrell, Inc.
("RCI") in January 1988. He was elected President of
Metcalf & Eddy Companies Inc. ("Metcalf & Eddy") in
June 1989 and Chairman of the Board of Directors and
Chief Executive Officer of Metcalf & Eddy in August
1988. Prior thereto, he served as Managing Director
of RCI since November 1987. He served as Chairman and
Vice Chairman of Environment Treatment and Technolo-
gies Corp., now known as OHM Corporation ("OHM"),
which provides environmental remediation and analyti-
cal testing services, from July 1986 until July 1987.
Prior thereto, Mr. Beck, a founder of Environmental
Testing and Certification Corporation ("ETC" and
OHM's predecessor), served as Chairman of the Board
of ETC since it was organized in January 1981. In Au-
gust 1984, Mr. Beck was named President of ETC, and
he remained in that position until July 1986. Prior
to forming ETC, Mr. Beck was Assistant Administrator
of the EPA for Water and Waste Management. Prior
thereto, he served as a regional administrator for
the EPA.
Douglas M. Costle....... 54 Director and member of the Audit Committee and Compen-
sation and Stock Option Committee. Mr. Costle also
served as a director of Metcalf & Eddy from 1988 to
October 1991. Mr. Costle, Administrator of the EPA
from 1977 to 1981, became a director of the Company
in August 1988. He is presently a Distinguished Se-
nior Fellow of the Institute for Sustainable Communi-
ties at Vermont Law School. He served as dean of Ver-
mont Law School from July 1987 to July 1991. Prior
thereto, Mr. Costle was counsel to the law firms of
Wald, Harkrader & Ross in Washington, D.C. and Up-
dike, Kelly and Spellacy in Hartford, Connecticut.
Mr. Costle also serves as a director of Clean Sites,
Inc., an independent non-profit corporation estab-
lished to help accelerate the clean-up of abandoned
hazardous waste sites in the United States.
Richard M. Dowd......... 54 Director and member of the Compensation and Stock Op-
tion Committee. Mr. Dowd became a director of the
Company in June 1989. He has served since 1984 as the
President of R.M. Dowd and Co., an environmental con-
sulting firm. From 1981 to 1984, Mr. Dowd served as
the Director of the Washington, D.C. Office of Envi-
ronmental Research and Technology, Inc. Prior there-
to, since 1977, Mr. Dowd was the Science Policy Advi-
sor to the Administrator of the EPA.
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
POSITIONS AND OTHER RELATIONSHIPS WITH
NAME AGE THE COMPANY AND BUSINESS EXPERIENCE
---- --- --------------------------------------
<S> <C> <C>
John W. Morris.......... 72 Director and member of the Audit Committee. General
Morris became a director of the Company in June 1992.
From 1988 to October 1991, General Morris served as a
director of Metcalf & Eddy Companies Inc. General
Morris served as the Chief of Engineers, U.S. Army
Corps of Engineers from 1976 to 1980 and presently
serves as President of the National Waterways Founda-
tion, Chairman of the Water Resources Congress,
Chairman of the Environmental Effects Committee of
the U.S. Committee on Large Dams and President of JW
Morris Ltd., an engineering consulting firm. From
1986 to 1987 he served as President and Chairman of
the Engineering Group of Planning Research Corpora-
tions.
Enrique F. Senior....... 50 Director and member of the Executive Committee. Mr.
Senior has been a Managing Director of Allen & Com-
pany Incorporated, an investment banking firm, for
more than the past five years. Mr. Senior became a
director of the Company in October 1987 and also
serves as a director of dick clark productions, inc.,
Savoy Pictures Entertainment, Inc. and IVI Publish-
ing, Incorporated.
Jacques-Henri David..... 50 Director General of CGE since 1992. Mr. David was for-
merly Chairman and CEO of Banque Stern from 1989 to
1992. Mr. David is on the Board of Directors of sev-
eral French and non-French companies (among others,
Certainteed and Saint-Gobain Corp. in the United
States, Eridania, Beghin-Say and Banque Worms in
France). He is also Vice-Chairman of the Economic
Commission of the French Chief Executives' Board and
Chairman of that Board's forecasting institute.
Claudio Elia............ 51 President and Chief Executive Officer of Anjou Inter-
national Company, the United States holding company
subsidiary of CGE, since 1988 and a director of the
Company since March 17, 1994. In this capacity, Mr.
Elia is the representative of CGE in the United
States. He also holds the position of President and
Chief Executive Officer of Montenay International
Corporation, a United States waste-to-energy company
which is part of CGE's activities in the United
States. Mr. Elia is also the President and CEO of
Limbach Holdings, Inc., a leading American
climatization company.
Jean-Dominique Des- 56 Adjunct Director General and Executive Vice President
champs................. of CGE and Executive Vice President since 1989. Mr.
Deschamps is also Chairman and a Director of PSG and
Polymetrics, Inc. in the United States. He is also a
Director of Compagnie de l'Eau et de l'Ozone, Compa-
gnie des Eaux de Paris, Compagnie Fermiere de Serv-
ices Publics, Societe des Eaux de Versailles et de
St. Cloud, Societe Guyanaise des Eaux, Societe
d'Exploitation des Eaux de Guinee, Compagnie Generale
de Bruxelles, Anjou International Company, Hinckley &
Schmitt and Kruger Systems AS.
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
POSITIONS AND OTHER RELATIONSHIPS WITH
NAME AGE THE COMPANY AND BUSINESS EXPERIENCE
---- --- --------------------------------------
<S> <C> <C>
Nicholas DeBenedictis... 48 Chairman of Philadelphia Suburban Corporation ("PSC")
(the parent company of Philadelphia Suburban Water
Company, one of America's leading investor-owned wa-
ter utilities), since May 1993. Mr. DeBenedictis
joined PSC in July 1992 as its President and Chief
Executive Officer, and from July 1992 to May 1993
also served as Chairman of PSC's principal subsidi-
ary, Philadelphia Suburban Water Company. From 1989
to 1992, Mr. DeBenedictis was Senior Vice President
of Corporate and Public Affairs for Philadelphia
Electric Company. Prior thereto, he served as Presi-
dent of the Greater Philadelphia Chamber of Commerce.
Mr. DeBenedictis also formerly served as Secretary
for the Department of Environmental Resources (1983
to 1986) and Director of the Office of Economic De-
velopment (1981 to 1983) for the Commonwealth of
Pennsylvania. He serves on the Board of Directors of
the PNC East Bank Advisory Board, the Greater Phila-
delphia Chamber of Commerce, the Philadelphia Conven-
tion and Visitors Bureau, the Pennsylvania Environ-
mental Council, and The Children's Hospital of Phila-
delphia. Mr. DeBenedictis is also a member of the
Board of Advisors of the School of Business Adminis-
tration of Drexel University.
William Kriegel......... 48 Chairman of the Board, President and Chief Executive
Officer of Sithe Energies, Inc. since it was formed
in 1984. Prior to coming to the United States in
1984, Mr. Kriegel co-founded an unaffiliated French
energy company that within three years of its forma-
tion in 1980 became France's largest privately-owned
company engaged in the development of small hydro-
electric projects. In 1978, he co-founded S.I.I.F.,
an unaffiliated company specializing in the purchase
and rehabilitation of residential buildings and his-
torical properties in France.
Carol Lynn Green........ 47 Partner in the Washington, DC law office of Bryan, Ca-
ve, McPheeters & McRoberts since 1986. Prior thereto,
Ms. Green served at the United States Department of
Justice from 1980 to 1986 as the first Assistant
Chief of the Environmental Enforcement Section.
</TABLE>
Each of the current directors Joseph L. Boren (director since 1988), Alain
Brunais (director since 1994), Arthur L. Glenn (director since 1993) and Harvey
Goldman (director since 1989) have declined to stand for re-election, but all
except Mr. Brunais have agreed that in the event the transactions contemplated
by the Investment Agreement are not consummated, to serve as appointees to fill
resulting vacancies on the Board of Directors.
COMMITTEES OF THE BOARD OF DIRECTORS AND MEETINGS HELD
During fiscal 1993, the Board of Directors of the Company held a total of
five meetings.
The Executive Committee of the Board of Directors, of which Messrs. Beck,
Senior and Young are members, met four times during fiscal 1993. The function
of the Executive Committee is to exercise, when
47
<PAGE>
the full Board is not in session, the powers of the Board in the management of
the business and affairs of the Company.
The Compensation and Stock Option Committee of the Board of Directors met
five times during fiscal 1993. Messrs. Costle and Dowd are the members of the
Compensation and Stock Option Committee, which reviews, approves and makes
recommendations on the Company's compensation policies, practices and
procedures to ensure that legal and fiduciary responsibilities of the Board of
Directors are carried out and that such policies, practices and procedures
contribute to the success of the Company. The Compensation and Stock Option
Committee also administers the Company's Long-Term Incentive Compensation Plan.
The Audit Committee of the Board of Directors met two times during fiscal
1993. Messrs. Costle and Morris serve as members of the Audit Committee, which
reviews the engagement of the Company's independent accountants, reviews annual
financial statements, considers matters relating to accounting policy and
internal controls and reviews the scope of annual audits.
The Company does not have a standing Nominating Committee.
During fiscal 1993, each of the incumbent directors of the Company attended
at least 75% of the aggregate number of meetings of the Board of Directors and
Committees on which he served during the period he served on the Board of
Directors, except that Mr. Senior did not attend three meetings of the Board of
Directors.
Compensation Committee Interlocks and Insider Participation. The Compensation
and Stock Option Committee of the Board of Directors has two members--Messrs.
Costle and Dowd.
COMPENSATION OF DIRECTORS
Directors who are not employees of AWT or any of its affiliated companies
receive an annual fee of $18,000 for service on the Board of Directors and an
additional $7,500 per annum for service on each Committee thereof. Directors
are also reimbursed for out-of-pocket expenses of attending Board and Committee
meetings. In addition, pursuant to the Long-Term Incentive Compensation Plan,
on July 31 of each year, each director who is a member of the Compensation and
Stock Option Committee as of such date is granted a non-qualified option to
purchase either (i) 3,000 shares of Class A Common Stock, if the director has
served less than one year on the Committee, or (ii) 500 shares of Class A
Common Stock, if the director has served one year or more on the Committee. The
options granted vest annually in four equal installments commencing one year
from the date of grant with exercise prices equal to the fair market value of
the Class A Common Stock on the grant date. The Long-Term Incentive
Compensation Plan provides that, upon a "change-in-control" of the Company (as
determined by the Board of Directors), any outstanding options not therefore
fully exercisable shall immediately become exercisable in their entirety. The
Board of Directors has determined that the consummation of the transactions
contemplated by the Investment Agreement will constitute a "change-in-control"
for purposes of such plan.
48
<PAGE>
PROPOSAL THREE
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed Arthur Andersen & Co. as the Company's
independent public accountants for the year ending October 31, 1994. Arthur
Andersen & Co. served as the Company's independent public accountants for the
year ended October 31, 1993. Although the appointment of independent public
accountants is not required to be approved by shareholders, the Board of
Directors believes shareholders should participate in the selection of the
Company's independent public accountants. Accordingly, the shareholders will be
asked at the Annual Meeting to ratify the Board's appointment of Arthur
Andersen & Co. as the Company's independent public accountants for the year
ending October 31, 1994. Representatives of Arthur Andersen & Co. will be
present at the Annual Meeting. They will have an opportunity to make a
statement if they so desire and will be available to respond to appropriate
questions of the shareholders.
In the event that ratification of the appointment of Arthur Andersen & Co. is
not obtained at the Annual Meeting, the Board of Directors will reconsider its
appointment.
The affirmative vote of a majority of the votes present or represented and
entitled to vote at the Annual Meeting is required to ratify the appointment of
the independent public accountants.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL THREE DESCRIBED ABOVE.
---
49
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY COMPENSATION TABLE
The following table shows, for the fiscal years ended October 31, 1993, 1992
and 1991 ("Fiscal 1993", "Fiscal 1992" and "Fiscal 1991", respectively) the
cash compensation paid by AWT, as well as certain other compensation paid or
accrued for those years, to each of the six most highly compensated executive
officers of AWT in all capacities in which they served.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
--------------------------- -----------------------
AWARDS
-----------------------
RESTRICTED SECURITIES ALL OTHER
NAME AND OTHER ANNUAL STOCK UNDERLYING COMPENSA-
PRINCIPAL POSITION YEAR SALARY($) COMPENSATION($) AWARD(S)($) OPTIONS(#) TION($)
------------------ ---- --------- --------------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Eckardt C. Beck......... 1993 356,400 94,507(1) 0 26,000 145,389(2)
Chairman of the Board
and 1992 356,000 94,507 0 0 157,399
Chief Executive Officer 1991 356,000 * 0 0 *
Arthur L. Glenn......... 1993 139,263(3) 0 22,000(4) 73,000 0
President and Chief
Operating Officer
Harvey Goldman.......... 1993 180,002 0 0 15,000 17,282(5)
Executive Vice 1992 180,002 0 0 15,000 22,379
President 1991 178,877 * 0 0 *
Douglas A. Satzger...... 1993 153,333 0 0 15,000 465(5)
Senior Vice President 1992 170,000 0 0 0 85
& General Counsel 1991 62,551(6) * 0 0 *
Donald A. Deieso........ 1993 175,000 0 0 20,000 8,642(5)
Executive Vice
President 1992 175,000 0 0 0 11,501
For Operations 1991 168,335 * 0 0 *
Joseph P. Matturro...... 1993 153,005 0 0 15,000 636(5)
Vice President 1992 153,005 0 0 0 459
For Administration 1991 153,005 * 0 0 *
</TABLE>
- - --------
* Under the Securities and Exchange Commission's transition rules, no
disclosure is required.
(1) "Other Annual Compensation" for Mr. Beck in Fiscal 1993 includes $75,000
($6,250 per month) paid to Mr. Beck as a housing allowance, as well as
other amounts paid to Mr. Beck for time spent on behalf of AWT in
Massachusetts and to reimburse Mr. Beck for real estate and income taxes in
Massachusetts.
(2) "All Other Compensation" for Mr. Beck in Fiscal 1993 consists of the
following: (i) a contribution of $1,799 to AWT's Thrift Plan; (ii) a
contribution of $8,125 to AWT's Supplemental Pension Plan; and (iii)
$135,465 of interest imputed to a loan made by AWT to Mr. Beck more fully
described below.
(3) Represents amounts paid to Mr. Glenn since joining AWT on April 12, 1993.
Mr. Glenn is paid a base salary of $250,000 per annum.
(4) As of October 31, 1993, Mr. Glenn held 2,000 shares of restricted Class A
Common Stock with an aggregate value of $27,750. The Company's Long-Term
Incentive Compensation Plan provides that, upon a "change-in-control" of
the Company (as determined by the Board of Directors), all restrictions on
these shares will lapse. The Board of Directors has determined that the
consummation of the transactions contemplated by the Investment Agreement
will constitute a "change-in-control" for purposes of such plan.
(5) "All Other Compensation" for Fiscal 1993 consists of (i) $1,732 contributed
to AWT's Thrift Plan and $15,550 contributed to AWT's Supplemental Pension
Plan on behalf of Mr. Goldman; (ii) $465 contributed to AWT's Thrift Plan
on behalf of Mr. Satzger, (iii) $8,642 contributed to AWT's Supplemental
Pension Plan on behalf of Mr. Deieso; and (iv) $636 contributed to AWT's
Thrift Plan on behalf of Mr. Matturro.
(6) Represents amounts paid to Mr. Satzger in Fiscal 1991 from the start of his
employment on June 18, 1991.
50
<PAGE>
EMPLOYMENT CONTRACTS AND TERMINATION AND CHANGE-IN-CONTROL ARRANGEMENTS
On August 20, 1990, the Board of Directors of AWT made a one-year, interest-
free, unsecured loan of $2,300,000 to Mr. Beck. This loan was made to Mr. Beck,
a founder of AWT and its then Chairman of the Board, Chief Executive Officer
and President, so that he could satisfy certain personal financial obligations
without having to sell a substantial portion of his equity investment in the
Company. AWT does not currently intend to make loans to other members of
management with terms similar to those of Mr. Beck's loan. As more fully
described below, pursuant to Amendment No. 3 to the Employment Agreement (as
hereinafter defined), dated March 17, 1994 ("Amendment No. 3"), the Company has
agreed to forgive this loan, subject to and upon consummation of the
transactions contemplated by the Investment Agreement.
In order to ensure that AWT would continue to have the benefit of Mr. Beck's
services for a sufficient period of time to implement the Board of Directors'
corporate strategies and to properly motivate Mr. Beck during such period, the
Company entered into an Employment Agreement, dated as of August 20, 1991,
between AWT and Mr. Beck that, among other things, extended Mr. Beck's
employment term with AWT for a five-year term (the "Employment Agreement").
Pursuant to the Employment Agreement, Mr. Beck agreed to serve as AWT's
Chairman of the Board of Directors and Chief Executive Officer for a five-year
term and to serve as a director and officer of AWT's subsidiaries. The
Employment Agreement provides that Mr. Beck shall maintain a substantial equity
interest in AWT until the expiration of his employment and that he will advise
the Executive Committee of the Board of Directors of any proposed sales by him
of AWT stock. If the Executive Committee of the Board of Directors determines
that any proposed sale would reduce Mr. Beck's equity interest in AWT to a
level that is unacceptable to the Executive Committee, in its reasonable
judgment, Mr. Beck would be precluded from consummating such sale
notwithstanding the associated market risk that might result from such a
determination by the Executive Committee. In consideration for Mr. Beck's
agreeing to maintain a substantial equity interest in AWT throughout the term
of his employment (at a time when the closing market price of AWT's Class A
Common Stock was $18.75 per share), subject to Amendment No. 3, AWT agreed in
the Employment Agreement that, on each anniversary of the date of the
Employment Agreement, if Mr. Beck remains an employee of AWT serving in the
capacities of Chairman of the Board and Chief Executive Officer at that time,
AWT will forgive one-fifth of the unsecured, non-interest bearing loan to Mr.
Beck in the original principal amount of $2,300,000 to the extent that all or
any portion of the loan remains outstanding. AWT further agreed to forgive such
loan in its entirety in the event of Mr. Beck's death, termination for
disability (as defined), termination by AWT other than for Cause (as defined),
termination by Mr. Beck in the event of a material breach of the Employment
Agreement by AWT (such event is defined as "Good Reason"), or upon a change of
control (as defined) of AWT. In addition, if Mr. Beck's employment is
terminated by Mr. Beck for "Good Reason," or by AWT for any reason other than
for "Cause," or by reason of Mr. Beck's death or disability, Mr. Beck is
entitled to payment of all "Accrued Benefits" (as defined) through the date of
termination, and to payment of all salary payments that Mr. Beck would have
been entitled to had his employment not been so terminated. Under the terms of
the Employment Agreement, Mr. Beck is entitled to an annual salary, subject to
cost-of-living adjustments, of $356,000 for such services, participation in
stock option and other bonus and incentive programs available to other senior
executives, as well as a housing allowance of $6,250 per month and
reimbursement for certain other living and associated expenses (such as income
and real estate taxes) directly incurred by Mr. Beck in Massachusetts as a
result of the time spent there performing his duties for various AWT
subsidiaries.
In each of Fiscal 1992 and 1993, Mr. Beck advised AWT's Board of Directors
that, in light of AWT's financial performance, Mr. Beck had concluded that it
was inappropriate and not in AWT's best interests to have the initial
installment of the loan forgiven as scheduled and, accordingly, Mr. Beck waived
the requirement that a portion of the loan be forgiven as scheduled. As a
result, the Executive Committee twice amended the Employment Agreement to
reflect this fact and added a sixth, and then a seventh year, to the employment
term so that Mr. Beck's Employment Agreement with AWT currently expires on
August 20, 1998, although the obligation to continue to serve as Chairman of
the Board and Chief Executive Officer of AWT ceases on August 20, 1996, the
original termination date under the Employment Agreement prior to
51
<PAGE>
such amendments thereto. In addition, the first installment of the loan is now
scheduled to be forgiven on August 20, 1994. In addition to the foregoing, Mr.
Beck has also voluntarily elected to forego the annual cost-of-living
adjustment and his participation in bonus programs provided for under the
Employment Agreement in view of AWT's financial performance.
In anticipation of the consummation of the transactions contemplated by the
Investment Agreement, the Company has agreed in Amendment No. 3 to the
Employment Agreement that, in the event of a "CGE Transaction" (defined as the
closing of the transactions contemplated by the Investment Agreement) and
cessation of Mr. Beck's employment with the Company as contemplated by the
Investment Agreement, in addition to all other payments and benefits provided
for in the Employment Agreement, Mr. Beck will be entitled to receive from the
Company a cash bonus in a lump sum (the "Payment") equal to the sum of: (a) any
income tax imposed on the amount of forgiveness of the $2,300,000 unsecured,
non-interest bearing loan by the Company to him, (b) any excise tax on any
excess parachute payments under Section 4999 of the Internal Revenue Code of
1986, as amended, and (c) any income tax owed on the Payment. Mr. Beck and the
Company have also mutually acknowledged that, effective upon the date of
closing of the transactions contemplated by the Investment Agreement, Mr.
Beck's employment with AWT will cease and that such cessation will be treated
as termination of his employment other than for Cause, pursuant to the
Employment Agreement. The aggregate value of the foregoing benefits to Mr.
Beck, including the payment of salary and benefits under the Employment
Agreement and the payment provided for in Amendment No. 3, is estimated by the
Company to be approximately $7.2 million. See note (j) of Notes to Unaudited
Pro Forma Combined Condensed Financial Statements included in this Proxy
Statement.
In addition, Mr. Beck and the Company have also agreed to amend Mr. Beck's
stock option agreement whereby the Company granted to Mr. Beck an incentive
stock option, vesting 25% per year over a four-year period from the date of
grant on August 12, 1993, to purchase 26,000 shares of the Company's Class A
Common Stock at an exercise price of $11.75 per share (the "Option"). As a
result of the amendment, subject to consummation of the CGE Transaction and
cessation of Mr. Beck's employment as contemplated by the Investment Agreement,
the Option will become immediately vested and fully exercisable, and the option
will remain exercisable until August 12, 2003. Amendment No. 3 also provides
that Mr. Beck, not later than three business days prior to the closing of the
transactions contemplated by the Investment Agreement, may elect to have the
Option surrendered and cancelled for cash consideration equal to the value of
the Option as determined by the "Black-Scholes" method calculated at the time
of the election based on the balance of the Option's original ten-year term.
The Company also entered into agreements in March 1994 (the "Retention
Agreements") with Messrs. Glenn, Satzger and Deieso, and with certain other
executive officers, which provide for each executive's employment by the
Company for an initial period of two years beginning upon the occurrence of a
Change-in-Control of the Company (as defined). The Retention Agreements provide
for an annual salary of $250,000, $200,000 and $210,000 for Messrs. Glenn,
Satzger and Deieso, respectively. Salaries under the agreements may be
increased by the Board of Directors, in its sole discretion, taking into
account the earnings and overall productivity of the Company, available
resources, the performance of the executive and such other factors as it deems
relevant. In addition, the agreements with Mr. Deieso and certain other
executives provide that the executive will be eligible to receive a bonus of up
to $30,000 in each year of the initial two-year period if, at any time during
the initial two-year term, certain operating targets are met. If, during the
initial two-year term, the Company terminates the executive's employment other
than for death, Disability (as defined), or justifiable cause (as defined) or
the executive terminates his employment for Good Reason (as defined), the
executive will be entitled to receive an amount equal to the balance of the
salary due to him for the remainder of the initial two-year term. In addition,
in that event, the executive will be entitled to exercise any options which
were exercisable on the date of termination until 90 days after the end of the
initial two-year term of the agreement or, if earlier, the date of termination
of the option. The consummation of the transactions contemplated by the
Investment Agreement would constitute a Change-in-Control as defined in the
Retention Agreements.
52
<PAGE>
AWT's Long-Term Incentive Compensation Plan provides that, upon a "change-
in-control" of the Company (as determined by the Board of Directors), any
outstanding options not theretofore fully exercisable shall immediately become
exercisable in their entirety. The Board of Directors has determined that the
consummation of the transactions contemplated by the Investment Agreement will
constitute a "change-in-control" for purposes of such plan.
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information regarding the grant of stock
options under AWT's Long-Term Incentive Compensation Plan to the six named
executive officers of AWT during Fiscal 1993. The potential realizable values
that would exist for the respective options are based on assumed rates of
annual compound stock price appreciation of 5% and 10% from the date of grant
over the full term of the option. Actual gains, if any, on stock options,
exercises and stock holdings are dependent on the future performance of the
Class A Common Stock.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------
POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED
SECURITIES ANNUAL RATES OF STOCK
UNDERLYING % OF TOTAL PRICE APPRECIATION FOR
OPTIONS OPTIONS GRANTED EXERCISE OPTION TERM
GRANTED TO EMPLOYEES PRICE EXPIRATION -----------------------
NAME (#)(1) IN FISCAL YEAR ($/SH)(2) DATE 5%($) 10%($)
---- ---------- --------------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Eckardt C. Beck......... 26,000 2.70% $11.75 8/12/2003 192,400 486,720
Arthur L. Glenn......... 50,000 5.19% $11.00 4/12/2003 346,000 876,000
23,000 2.39% $11.75 8/12/2003 170,200 430,560
Harvey Goldman.......... 15,000 1.56% $11.75 8/12/2003 111,000 280,800
Douglas A. Satzger...... 15,000 1.56% $11.75 8/12/2003 111,000 280,800
Donald A. Deieso........ 20,000 2.08% $11.75 8/12/2003 148,000 374,000
Joseph P. Matturro...... 15,000 1.56% $11.75 8/12/2003 111,000 280,800
</TABLE>
- - --------
(1) Options granted in Fiscal 1993 vest annually in four equal installments
commencing one year from the date of grant. Under the terms of the
Company's Long-Term Incentive Compensation Plan, the Compensation
Committee retains discretion, subject to plan limits, to modify the terms
of outstanding options and to reprice the options. The options were
granted for a term of 10 years, subject to earlier termination in certain
events related to termination of employment. The Long-Term Incentive
Compensation Plan provides that, upon a "change-in-control" of the Company
(as determined by the Board of Directors), any outstanding options not
theretofore fully exercisable shall immediately become exercisable in
their entirety. The Board of Directors has determined that the
consummation of the transactions contemplated by the Investment Agreement
will constitute a "change-in-control" for purposes of such plan. See,
also, "Employment Contracts and Termination and Change-in-Control
Arrangements" regarding the amendment of Mr. Beck's option.
(2) The exercise price may be paid in cash, in shares of Class A Common Stock
valued at their fair market value on the date of exercise or pursuant to a
cashless exercise procedure under which the optionee provides irrevocable
instructions to a brokerage firm to sell the purchased shares and to remit
to AWT, out of the sale proceeds, an amount equal to the exercise price
plus all applicable withholding taxes, if any.
53
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR, AND FY-END OPTION VALUES
The following table sets forth information with respect to the named
executives concerning unexercised options, held as of October 31, 1993. No
options were exercised during Fiscal 1993 by any of the named executive
officers.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
FY-END AT FY-END(1)
----------------------------------- -------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) (#) ($) ($)
---- --------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C>
Eckardt C. Beck......... 0 26,000 N/A 55,250
Arthur L. Glenn......... 0 73,000 N/A 192,625
Harvey Goldman.......... 8,125 26,000 0(2) 31,875
Douglas A. Satzger...... 14,500 34,500 0(2) 31,875
Joseph P. Matturro...... 15,000 30,000 0(2) 31,875
Donald A. Deieso........ 43,750 41,250 0(2) 42,500
</TABLE>
- - --------
(1) The exercise price of the options held by the above-named executives is
$11.75 per share, or $11.00 per share in the case of Mr. Glenn's option to
purchase 50,000 shares, in each case the fair market value of AWT's Common
Stock on the date of grant. The value of unexercised in-the-money options
at fiscal year end assumes a fair market value for the Class A Common Stock
of $13.875, the closing sale price per share of the Class A Common as
reported on the American Stock Exchange Composite Tape for October 31,
1993.
(2) The exercisable options and certain of the unexercisable options held by
Messrs. Goldman, Satzger, Matturro and Deieso were not in-the-money as of
October 31, 1993.
SUPPLEMENTAL PENSION PLAN
The following table shows the estimated annual benefits payable upon
retirement to participants in the Company's Supplemental Pension Plan.
Estimated Annual Retirement Benefits
<TABLE>
<CAPTION>
YEARS OF SERVICE
------------------------------------
BONUS
REMUNERATION
------------ 15 20 25 30 35
<S> <C> <C> <C> <C> <C>
$25,000 $5,625 $7,500 $9,375 $11,250 $13,125
50,000 11,250 15,000 18,750 22,500 26,250
75,000 16,875 22,500 28,125 33,750 39,375
100,000 22,500 30,000 37,500 45,000 52,500
125,000 28,125 37,500 46,875 56,250 65,625
</TABLE>
Certain officers and key employees, of whom three are named in the Summary
Compensation Table, participate in an unfunded supplemental pension plan which
provides additional annual retirement benefits equal to 1.5% of the average of
the participant's final five bonuses multiplied by the participant's years of
service, up to a maximum of 35 years. No separate accounts are maintained and
no amounts are vested until a participant reaches retirement in the employ of
AWT. Officers named in the Summary Compensation Table have been credited with
the following years of service: Mr. Beck, 6 years, Mr. Goldman, 8 years, and
Mr. Deieso, 4 years.
54
<PAGE>
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEE
OF THE BOARcD OF DIRECTORS
Decisions on compensation of the Company's executives generally are made by
the two-member Compensation and Stock Option Committee of the Board of
Directors (the "Compensation Committee" or "Committee"). Each member of the
Compensation Committee is a non-employee director. Set forth below is a report
of Messrs. Costle and Dowd in their capacity as the Board's Compensation
Committee addressing the Company's compensation policies for Fiscal 1993 as
they affected Mr. Beck and Mr. Glenn, Mr. Goldman, Mr. Satzger, Dr. Deieso and
Mr. Matturro (the "Executive Officers").
COMPENSATION POLICY FOR EXECUTIVE OFFICERS
Under the supervision of the Compensation Committee, the Company has
developed and implemented compensation policies and programs that seek to
retain and motivate employees of the Company whose performance contributes to
the Company's goal of maximizing shareholder value in an industry that
continues to experience sluggish growth, overcapacity, intense competition and
marginal profitability. The Compensation Committee is of the opinion that
managing through a depressed market, such as the environmental markets of the
last few years, requires dedicated employees who can keep the Company on track
and position it for future competitive advantage. The Compensation Committee's
compensation policies attempt to align the Executive Officers' interests with
those of the shareholders by providing incentive compensation related to the
value of the Company's Class A Common Stock. Compensation decisions are made by
the Compensation Committee after reviewing recommendations prepared by the
Company's Chief Executive Officer, with the assistance of other Company
personnel. Historically, the Company has sought to combine salaries with stock
option awards and restricted stock awards and selected cash bonuses to provide
a balanced compensation package for its executives. The balance established by
the Committee is designed to reward past performance, retain key employees and
encourage future performance.
In approving and establishing compensation for an Executive Officer, several
factors are considered by the Compensation Committee. Performance criteria
include individual performance, overall Company performance versus that of its
competitors and performance of the price of the Company's Class A Common Stock
in comparison to prior levels and to the relative stock prices of its
competitors. Emphasis is placed upon an individual's integrity, loyalty and
competence in his or her areas of responsibility. When evaluating the foregoing
performance criteria in setting executive compensation, the Committee gives
greatest weight to those factors it believes have or will contribute the most
towards maximizing shareholder value and increasing the Company's financial
viability. The factors that contribute the most towards these goals vary
depending on the state of the environmental services industry in which the
Company operates.
Based upon the Committee's determination, after reviewing the Chief Executive
Officer's recommendations, none of the executives named above received salary
increases in Fiscal 1993. Although the Compensation Committee recognized these
individuals' past contributions and their significant efforts on behalf of the
Company in Fiscal 1993, the decision not to increase salaries was based
primarily on disappointing operating results and performance of the Company's
Class A Common Stock, the need to continue to maintain effective cost controls
and the state of the Company's liquidity as a general matter.
In addition to regular salary payments to Executive Officers in Fiscal 1993,
the Compensation Committee granted stock options to each of the Executive
Officers. Each of Messrs. Goldman, Satzger and Matturro received a grant of
15,000 options, exercisable over a four-year period, at an exercise price of
$11.75 per share, the fair market value of the Company's Class A Common Stock
on the date of grant. Mr. Deieso received a grant of 20,000 options,
exercisable over a four-year period, at an exercise price of $11.75 per share,
the fair market value of the Class A Common Stock on the date of grant. In
addition, Mr. Glenn received grants of 50,000 and 23,000 options exercisable
over a four-year period at exercise prices of $11.00 and $11.75, respectively,
the fair market value of the Class A Common Stock on the respective grant
dates. Mr. Glenn also received a grant of 2,000 restricted shares of Class A
Common Stock. In deciding to make these awards,
55
<PAGE>
the Compensation Committee's primary consideration was the Company's need to
retain the services of these key employees. During Fiscal 1993, the market
value of the Company's Class A Common Stock fell as a result of the Company's
financial performance as well as market factors that affected all stocks in the
environmental services industry. As a result of the decrease in the fair market
value of the Class A Common Stock, the Compensation Committee believed that the
Company's ability to retain existing employees would be impaired. Of particular
importance in making this determination, the Compensation Committee considered
the fact that these Executive Officers had not received salary increases or
profit sharing contributions in the last two fiscal years and that prior option
grants to Executive Officers and other officers and employees were no longer
serving their purpose of motivating outstanding long-term contributions by
high-performing employees since the exercise price of those options was
substantially higher than the market price of the Company's Class A Common
Stock. The amount of options previously granted to and held by Executive
Officers were taken into account when determining the amount of new option
awards.
DISCUSSION OF 1993 COMPENSATION FOR THE CHAIRMAN AND CHIEF EXECUTIVE OFFICER
In considering the compensation for the Chairman and Chief Executive Officer
for Fiscal 1993, the Compensation Committee has reviewed Mr. Beck's existing
compensation arrangements and both Company and individual performance. The 1991
Employment Agreement between the Company and Mr. Beck was structured to provide
him with a fully competitive base salary and annual incentive opportunity.
Under the terms of the Employment Agreement, Mr. Beck is entitled to an annual
salary, subject to cost-of-living adjustments, of $356,000 for such services,
participation in stock option and other bonus and incentive programs available
to other Executive Officers, as well as a housing allowance and reimbursement
for certain other living and associated expenses directly incurred by Mr. Beck
as a result of the time spent performing his duties as Chief Executive Officer
of the Company. The Committee made the following determinations regarding Mr.
Beck's compensation for Fiscal 1993: Mr. Beck's base salary remained unchanged
in Fiscal 1993 from the base salary authorized in 1992. Stock options for
26,000 shares of the Company's Class A Common Stock were awarded during Fiscal
1993 primarily in view of Mr. Beck's contribution to the Company to date, the
fact that Mr. Beck had never before been the recipient of incentive options,
and the Committee's determination that it wants to motivate Mr. Beck to remain
in the employ of the Company. As part of its determination, the Compensation
Committee also took into account the fact that Mr. Beck had previously
voluntarily elected to forego the annual cost-of-living adjustment and his
participation in stock option and bonus programs provided for under his
Employment Agreement in view of the Company's financial performance.
Compensation and Stock Option
Committee
Douglas M. Costle
Richard M. Dowd
56
<PAGE>
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that might incorporate future
filings, including this Proxy Statement, in whole or in part, the preceding
report and the Performance Graph below shall not be incorporated by reference
into any such filings.
STOCK PERFORMANCE GRAPH
(ART)
AIR & WATER TECHNOLOGIES CORPORATION
Data Points on Stock Performance Graph in Proxy
<TABLE>
<CAPTION>
AWT S&P Fidelity
------- ------- --------
<S> <C> <C> <C>
8/89 100 100 100
10/90 100 87 101
10/91 122 111 114
10/92 72 118 102
10/93 77 130 109
2/94 61 131 114
</TABLE>
The above graph shows a comparison of the cumulative total return since
August 10, 1989, the date of the Company's initial public offering, in (i) the
Company's Class A Common Stock, (ii) the S&P 500 Composite Stock Price Index,
and (iii) the Fidelity Select Environmental Services Fund. The stock price
performance shown on the graph below is not necessarily indicative of future
price performance.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On August 20, 1990, the Board of Directors of AWT made a one-year, interest-
free, unsecured loan of $2,300,000 to Mr. Beck. This loan was made to Mr. Beck,
a founder of AWT and its then Chairman of the Board, Chief Executive Officer
and President, so that he could satisfy certain personal financial obligations
without having to sell a substantial portion of his equity investment in the
Company. In each of the next three fiscal years, the Board of Directors of AWT
extended the term of the loan and modified its terms. The
57
<PAGE>
Company does not currently intend to make loans to other members of its
management with terms similar to those of Mr. Beck's loan. In addition,
pursuant to Amendment No. 3 to Mr. Beck's Employment Agreement, the Company has
agreed to forgive this loan, subject to and upon consummation of the
transactions contemplated by the Investment Agreement, as discussed more fully
in "Employment Contracts and Termination and Change-in-Control Arrangements"
above.
See "Proposal One--The Investment Transaction--Interest of Certain Persons in
the Investment Transaction" for a description of the interests of CGE and Allen
& Company Incorporated, each a beneficial owner of more than five percent of
the Company's Class A Common Stock, in the transactions contemplated by the
Investment Agreement.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's directors and officers, and persons who own more than
10% of the Company's Common Stock, to file with the Securities and Exchange
Commission (the "SEC") initial reports of beneficial ownership and reports of
changes in beneficial ownership of Class A Common Stock and other equity
securities of the Company. Officers, directors and greater than 10% beneficial
owners are required by SEC regulations to furnish the Company with copies of
all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended October 31, 1993, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than 10% beneficial owners were complied with, except that option
grants to purchase the following numbers of shares of Class A Common Stock were
reported late on Forms 5 that were filed late by the following officers and
directors of the Company: Eckardt C. Beck: 26,000 shares; Arthur L. Glenn:
73,000 shares; Harvey Goldman: 15,000 shares; Douglas A. Satzger: 15,000
shares; Joseph P. Matturro: 15,000 shares; Donald A. Deieso: 20,000 shares;
Joseph L. Boren: 10,000 shares; Anthony DiMichele, Jr.: 15,000 shares; Ruthanne
G. Neely: 11,000 shares; Joseph M. Morena: 10,000 shares; Richard M. Dowd: 500
shares; Douglas M. Costle: 500 shares. In addition, a grant of 2,000 restricted
shares of Class A Common Stock to Mr. Glenn was reported late on a late-filed
Form 5.
SHAREHOLDER PROPOSALS FOR 1995 ANNUAL MEETING
Any proposal intended to be presented by a shareholder at the 1995 Annual
Meeting must be received by the Company no later than January 24, 1995 to be
considered for inclusion in the Proxy Statement for the 1995 Annual Meeting.
Any proposal should be addressed to Douglas A. Satzger, Secretary, Air & Water
Technologies Corporation, U.S. Highway 22 West and Station Road, Branchburg,
New Jersey 08876 and should be sent by certified mail, return receipt
requested.
ADDITIONAL INFORMATION WITH RESPECT TO THE COMPANY
The following documents previously filed by the Company with the Securities
and Exchange Commission are incorporated by reference in this Proxy Statement
and are being delivered to shareholders together with this Proxy Statement:
Annual Report on Form 10-K, as amended, for the fiscal year ended October 31,
1993; Quarterly Report on Form 10-Q, as amended, for the quarterly period ended
January 31, 1994; and Current Report on Form 8-K dated May 13, 1994.
Any statement contained in a document incorporated by reference in this Proxy
Statement will be deemed to be modified or superseded for purposes of this
Proxy Statement to the extent that a statement contained in this Proxy
Statement or in any other subsequently filed document which is incorporated by
reference in this Proxy Statement modifies or supersedes such statement. Any
statement so modified or superseded will not be deemed, except as modified or
superseded, to constitute a part of this Proxy Statement.
58
<PAGE>
The Company will provide, without charge, to each person to whom this Proxy
Statement is delivered, upon written or oral request of such person, by first
class mail or other equally prompt means within one business day of receipt of
such request, a copy of any and all of the information incorporated by
reference in the Proxy Statement (not including the exhibits to the information
that is incorporated by reference unless such exhibits are specifically
incorporated by reference to the information that this Proxy Statement
incorporates). Written requests should be addressed to the Secretary, Air &
Water Technologies Corporation, U.S. Highway 22 West and Station Road,
Branchburg, NJ 08876. Oral request may be made by telephone to the following
number: (908) 685-4677.
OTHER MATTERS
The Board of Directors does not know of any matters, other than those
referred to in the accompanying Notice for the 1994 Annual Meeting, to be
presented at that meeting for action by the shareholders. However, if any other
matters are properly brought before the meeting or any adjournments thereof, it
is intended that votes will be cast with respect to such matters, pursuant to
the proxies, in accordance with the best judgment of the person acting under
the proxies.
By Order of the Board of Directors
Douglas A. Satzger
Secretary
May 24, 1994
59
<PAGE>
PROFESSIONAL SERVICES GROUP, INC.
AND ITS CANADIAN AFFILIATE--PSG CANADA, INC.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants on Financial Statements......... F-2
Combined Balance Sheets at December 31, 1992 and 1993 and March 31, 1994
(unaudited)............................................................. F-3
Combined Statements of Income for each of the three years in the period
ended December 31, 1993 and the three months ended March 31, 1993 and
1994 (unaudited)........................................................ F-4
Combined Statements of Changes in Stockholder's Equity for each of the
three years in the period ended December 31, 1993 and the three months
ended March 31, 1994 (unaudited)........................................ F-5
Combined Statements of Cash Flows for each of the three years in the
period ended December 31, 1993 and the three months ended March 31, 1993
and 1994 (unaudited).................................................... F-6
Notes to Combined Financial Statements................................... F-7
Report of Independent Public Accountants on Schedules.................... F-14
Schedule V--Combined Property, Equipment, Furniture and Fixtures for each
of the three years in the period ended December 31, 1993 and the three
months ended March 31, 1994 (unaudited)................................. F-15
Schedule VI--Combined Accumulated Depreciation of Property, Equipment,
Furniture and Fixtures for each of the three years in the period ended
December 31, 1993 and the three months ended March 31, 1994 (unaudited). F-16
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Anjou International Company:
We have audited the accompanying combined balance sheets of Professional
Services Group, Inc., and its subsidiary and 2815869 Canada, Inc. (hereinafter
referred to as PSG Canada, Inc.) (which are both subsidiaries of Anjou
International Company), as of December 31, 1993 and 1992, and the related
combined statements of income, stockholder's equity and cash flows for each of
the three years in the period ended December 31, 1993. These combined financial
statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of
Professional Services Group, Inc., and its subsidiary and PSG Canada, Inc., as
of December 31, 1993 and 1992, and the results of their combined operations and
their combined cash flows for each of the three years in the period ended
December 31, 1993, in conformity with generally accepted accounting principles.
As discussed in Notes 7 and 8 of the notes to combined financial statements,
in 1993, the Companies adopted Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes," and SFAS No. 112, "Employers'
Accounting for Postemployment Benefits."
Arthur Andersen & Co.
Houston, Texas
March 28, 1994
F-2
<PAGE>
PROFESSIONAL SERVICES GROUP, INC.
AND ITS CANADIAN AFFILIATE--PSG CANADA, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
MARCH 31 ------------------------
ASSETS 1994 1993 1992
------ ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.............. $ 1,796,000 $ 1,014,000 $ 2,140,000
Receivables
Client accounts, less allowance for
doubtful accounts of $264,000,
$246,000 and $204,000, respectively... 10,791,000 11,568,000 8,659,000
Unbilled revenue representing contract
costs and profits in excess of amounts
billed................................ 2,278,000 2,779,000 2,396,000
Due from affiliated companies.......... -- -- 303,000
Notes and other........................ 860,000 690,000 652,000
Inventories of supplies................ 353,000 222,000 444,000
Deferred tax assets.................... 406,000 401,000 252,000
Prepayments and other current assets... 208,000 278,000 169,000
----------- ----------- -----------
Total current assets.................. 16,692,000 16,952,000 15,015,000
----------- ----------- -----------
PROPERTY, EQUIPMENT, FURNITURE AND
FIXTURES, at cost...................... 7,208,000 6,885,000 5,772,000
Accumulated depreciation and
amortization.......................... (4,009,000) (3,723,000) (2,817,000)
----------- ----------- -----------
Net property, equipment, furniture and
fixtures............................. 3,199,000 3,162,000 2,955,000
NON-CURRENT RECEIVABLES (Note 1)....... 4,578,000 4,129,000 4,984,000
GOODWILL............................... 1,108,000 1,141,000 1,530,000
DEFERRED CHARGES (Note 1).............. 3,600,000 3,060,000 1,718,000
----------- ----------- -----------
Total assets.......................... $29,177,000 $28,444,000 $26,202,000
=========== =========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued
liabilities........................... $12,087,000 $10,670,000 $ 9,294,000
Billings in excess of contract costs
and accrued profits................... 3,663,000 4,703,000 3,584,000
Due to Parent Company.................. 294,000 41,000 393,000
Income taxes, including amounts payable
to Parent Company of $80,000, $0 and
$902,000, respectively................ 114,000 199,000 1,117,000
----------- ----------- -----------
Total current liabilities............. 16,158,000 15,613,000 14,388,000
----------- ----------- -----------
DEFERRED TAX LIABILITIES................ 116,000 131,000 182,000
ACCRUED POSTEMPLOYMENT BENEFITS......... 45,000 45,000 --
LONG-TERM REVOLVING DEBT, payable to
Parent Company (Notes 2 and 4)......... 8,372,000 8,472,000 9,172,000
COMMITMENTS AND CONTINGENCIES........... -- -- --
STOCKHOLDER'S EQUITY:
Common stock of Professional Services
Group, Inc., $1 par value per share,
2,000 shares authorized and 1,250
shares issued and outstanding......... 1,000 1,000 1,000
Common stock of PSG Canada, Inc., $0.78
par value per share, 190,000 shares
authorized and 190,000 shares issued
and outstanding....................... 148,000 148,000 148,000
Additional paid-in capital............. 4,424,000 4,424,000 4,424,000
Cumulative effect of Canadian currency
translation........................... (39,000) (27,000) (8,000)
Retained deficit....................... (48,000) (363,000) (2,105,000)
----------- ----------- -----------
Total stockholder's equity............ 4,486,000 4,183,000 2,460,000
----------- ----------- -----------
Total liabilities and stockholder's
equity............................... $29,177,000 $28,444,000 $26,202,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-3
<PAGE>
PROFESSIONAL SERVICES GROUP, INC.
AND ITS CANADIAN AFFILIATE--PSG CANADA, INC.
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31 YEARS ENDED DECEMBER 31
---------------------------- -------------------------------------
1994 1993 1993 1992 1991
------------- ------------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES................ $ 23,017,000 $ 18,623,000 $77,600,000 $62,140,000 $47,484,000
DIRECT COST OF REVENUES. 19,712,000 15,904,000 65,752,000 52,571,000 41,150,000
------------- ------------- ----------- ----------- -----------
GROSS MARGIN............ 3,305,000 2,719,000 11,848,000 9,569,000 6,334,000
GENERAL AND
ADMINISTRATIVE
EXPENSES............... 2,708,000 2,185,000 8,833,000 7,355,000 4,930,000
OTHER (INCOME) EXPENSE:
Interest income....... (114,000) (102,000) (476,000) (380,000) (1,138,000)
Interest expense...... 138,000 141,000 516,000 591,000 1,148,000
(Gain) loss on sale of
property, equipment,
furniture and
fixtures............. -- 4,000 10,000 (82,000) --
Other (income)
expense.............. 2,000 19,000 26,000 (23,000) --
------------- ------------- ----------- ----------- -----------
INCOME BEFORE INCOME
TAXES.................. 571,000 472,000 2,939,000 2,108,000 1,394,000
PROVISION FOR INCOME
TAXES.................. 256,000 205,000 1,275,000 939,000 691,000
------------- ------------- ----------- ----------- -----------
INCOME BEFORE CUMULATIVE
EFFECT OF ACCOUNTING
CHANGES................ 315,000 267,000 1,664,000 1,169,000 703,000
CUMULATIVE EFFECT OF
ACCOUNTING CHANGES, net
(Notes 7 and 8)........ -- 78,000 78,000 -- --
------------- ------------- ----------- ----------- -----------
NET INCOME.............. $ 315,000 $ 345,000 $ 1,742,000 $ 1,169,000 $ 703,000
============= ============= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-4
<PAGE>
PROFESSIONAL SERVICES GROUP, INC.
AND ITS CANADIAN AFFILIATE--PSG CANADA, INC.
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993 AND THE THREE MONTHS ENDED
MARCH 31, 1994
<TABLE>
<CAPTION>
CAPITAL STOCK CUMULATIVE
--------------------- EFFECT
PROFESSIONAL PSG ADDITIONAL OF CANADIAN
SERVICES CANADA PAID-IN CURRENCY RETAINED
GROUP, INC. INC. CAPITAL TRANSLATION DEFICIT TOTAL
------------ -------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1,
1991................... $1,000 $ -- $4,424,000 $ -- $(3,977,000) $ 448,000
NET INCOME FOR 1991..... -- -- -- -- 703,000 703,000
------ -------- ---------- -------- ----------- ----------
BALANCE, December 31,
1991................... 1,000 -- 4,424,000 -- (3,274,000) 1,151,000
FORMATION OF PSG CANADA,
INC.................... -- 148,000 -- -- -- 148,000
CURRENCY TRANSLATION
ADJUSTMENT............. -- -- -- (8,000) -- (8,000)
NET INCOME FOR 1992..... -- -- -- -- 1,169,000 1,169,000
------ -------- ---------- -------- ----------- ----------
BALANCE, December 31,
1992................... 1,000 148,000 4,424,000 (8,000) (2,105,000) 2,460,000
CURRENCY TRANSLATION
ADJUSTMENT............. -- -- -- (19,000) -- (19,000)
NET INCOME FOR 1993..... -- -- -- -- 1,742,000 1,742,000
------ -------- ---------- -------- ----------- ----------
BALANCE, December 31,
1993................... 1,000 148,000 4,424,000 (27,000) (363,000) 4,183,000
CURRENCY TRANSLATION
ADJUSTMENT (unaudited). -- -- -- (12,000) -- (12,000)
NET INCOME FOR THREE
MONTHS Ended March 31,
1994 (unaudited)....... -- -- -- -- 315,000 315,000
------ -------- ---------- -------- ----------- ----------
BALANCE, March 31, 1994
(unaudited)............ $1,000 $148,000 $4,424,000 $(39,000) $ (48,000) $4,486,000
====== ======== ========== ======== =========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-5
<PAGE>
PROFESSIONAL SERVICES GROUP, INC.
AND ITS CANADIAN AFFILIATE--PSG CANADA, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 YEARS ENDED DECEMBER 31
---------------------- ----------------------------------
1994 1993 1993 1992 1991
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income............ $ 315,000 $ 345,000 $1,742,000 $1,169,000 $ 703,000
Adjustments to
reconcile net income
to net cash provided
by (used in)
operating
activities--
Provision for doubtful
accounts............. 18,000 12,000 200,000 402,000 57,000
Depreciation of
property, equipment,
furniture and
fixtures............. 292,000 290,000 1,141,000 999,000 648,000
Amortization of
goodwill and deferred
charges.............. 305,000 258,000 901,000 726,000 528,000
(Gain) loss on sale of
property, equipment,
furniture and
fixtures............. -- -- 10,000 (82,000) --
Cumulative effect of
accounting changes,
net.................. -- (78,000) (78,000) -- --
Deferred tax (benefit)
expense.............. (20,000) (36,000) (228,000) 82,000 43,000
Changes in assets and
liabilities--
Client accounts
receivable.......... 759,000 (315,000) (2,951,000) 1,109,000 (1,596,000)
Unbilled revenue..... 501,000 (953,000) (401,000) (662,000) 230,000
Due from affiliated
companies........... -- (10,000) 303,000 (303,000) 627,000
Inventories of
supplies............ (131,000) (11,000) 78,000 (67,000) (49,000)
Prepayments and other
current assets...... (104,000) 52,000 (122,000) (13,000) (37,000)
Accounts payable and
accrued liabilities. 1,261,000 (312,000) 1,138,000 1,974,000 3,708,000
Billings in excess of
contract costs...... (1,040,000) (118,000) 1,119,000 1,177,000 (116,000)
Due to affiliated
companies........... 253,000 (100,000) (352,000) 255,000 138,000
Income taxes payable. (59,000) 88,000 (766,000) 269,000 559,000
Non-current
receivables......... (474,000) 231,000 1,057,000 (427,000) 434,000
---------- ---------- ---------- ---------- ----------
Net cash provided by
(used in) operating
activities......... 1,876,000 (657,000) 2,791,000 6,608,000 5,877,000
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Capital expenditures.. (338,000) (307,000) (1,435,000) (1,245,000) (1,841,000)
Increase in deferred
charges.............. (656,000) (582,000) (2,282,000) (1,587,000) (875,000)
Proceeds from the sale
of property,
equipment, furniture
and fixtures......... -- 4,000 -- 4,000 40,000
Proceeds from sale of
assets of USG (Note
2)................... -- -- 500,000 -- --
---------- ---------- ---------- ---------- ----------
Net cash used in
investing
activities......... (994,000) (885,000) (3,217,000) (2,828,000) (2,676,000)
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Increase in revolving
debt................. 2,400,000 300,000 2,800,000 2,400,000 3,500,000
Reductions in
revolving debt....... (2,500,000) -- (3,500,000) (4,200,000) (6,125,000)
Principal repayments
on external debt..... -- -- -- (178,000) (69,000)
Formation of PSG
Canada, Inc. (Note
1)................... -- -- -- (148,000) --
Net payment of long-
term obligation...... -- -- -- (228,000) --
---------- ---------- ---------- ---------- ----------
Net cash provided by
(used in) financing
activities......... (100,000) 300,000 (700,000) (2,354,000) (2,694,000)
---------- ---------- ---------- ---------- ----------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS........... 782,000 (1,242,000) (1,126,000) 1,426,000 507,000
CASH AND CASH
EQUIVALENTS, beginning
of the period......... 1,014,000 2,140,000 2,140,000 714,000 207,000
---------- ---------- ---------- ---------- ----------
CASH AND CASH
EQUIVALENTS, end of
the period............ $1,796,000 $ 898,000 $1,014,000 $2,140,000 $ 714,000
========== ========== ========== ========== ==========
SUPPLEMENTAL
INFORMATION:
Interest paid......... $ 185,000 $ -- $ 517,000 $ 584,000 $ 20,000
========== ========== ========== ========== ==========
Income taxes paid..... $ 355,000 $ 146,000 $2,348,000 $ 588,000 $ 102,000
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-6
<PAGE>
PROFESSIONAL SERVICES GROUP, INC.
AND ITS CANADIAN AFFILIATE--PSG CANADA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(INCLUDING UNAUDITED INFORMATION REGARDING THE PERIODS ENDED MARCH 31, 1994 AND
1993)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Professional Services Group, Inc. (PSG), a Minnesota corporation, became a
wholly-owned subsidiary of Anjou International Company (Anjou or the Parent
Company), which is ultimately owned by Compagnie Generale des Eaux (CGE), a
publicly traded French company, in 1981. PSG has a Canadian affiliate with the
registered name of 2815869 Canada, Inc. (PSG Canada, Inc.), which was formed in
April 1992 to conduct business similar to that of PSG in Canada. PSG Canada,
Inc., is also a wholly-owned subsidiary of Anjou. The combined amounts of both
PSG and PSG Canada, Inc., are referred to as the Company in the information
provided below. Both PSG and PSG Canada, Inc., operate municipal and private
wastewater and water treatment facilities under long-term contracts and provide
consulting services on a project or short-term basis to their clients.
As of March 31, 1994 and December 31, 1993, PSG had 51 and 47 contracts,
respectively, with terms ranging from a month-to-month basis to contracts
lasting several years, and PSG Canada, Inc., had one contract at both dates
that expires on June 30, 1997.
Principles of Consolidation
Except as discussed below, the combined financial statements include the
consolidated accounts of PSG and its wholly-owned subsidiary, Utility Services
Group (USG), as well as the accounts of PSG Canada, Inc. All intercompany
transactions and balances have been eliminated. In May 1993, PSG sold
substantially all of the net assets of USG having a recorded book value of
approximately $700,000, for $500,000 in cash and a note receivable of $200,000.
The accounts of PSG Canada, Inc., have been translated into U.S. dollars
using average exchange rates for revenues and expenses and the actual rate in
effect at each balance sheet date for assets and liabilities. Transaction gains
and losses are reflected in other expense and were not significant. The
functional currency of PSG Canada, Inc., is the Canadian dollar, and the
cumulative effect of Canadian currency translation is included as a separate
component of stockholder's equity.
Revenue and Cost Recognition
Contract revenue is recognized on a percentage-of-completion basis by
relating the direct cost of the work performed to date to the most recent
estimate of the total contract costs, and the expected overall contract margin
percentage is then used to recognize contract margin applicable to the direct
cost of revenues. Losses on contracts are recognized in their entirety when a
loss becomes evident. Unbilled revenue represents the excess of contract
revenues recognized over billings to date. Billings in excess of contract costs
represent the excess of billings to date over contract costs incurred and
accrued profits.
Inventories of Supplies
Inventories of supplies are priced at the lower of cost or estimated market.
Cost is determined primarily using the specific-cost method.
F-7
<PAGE>
PROFESSIONAL SERVICES GROUP, INC.
AND ITS CANADIAN AFFILIATE--PSG CANADA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING UNAUDITED INFORMATION REGARDING THE PERIODS ENDED MARCH 31, 1994 AND
1993)
Non-Current Receivables
Non-current receivables consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ----------------
1994 1993 1992
----------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Amounts to be realized under contracts....... $ 5,502 $ 4,844 $ 5,742
Receivables from others...................... 250 296 315
Note receivable from Hydrologic, Inc.,
received in connection with the sale of the
net assets of USG........................... 117 142 --
Employee notes and advances.................. 175 169 143
------- ------- -------
6,044 5,451 6,200
Portion classified as current receivables.... (1,466) (1,322) (1,216)
------- ------- -------
$ 4,578 $ 4,129 $ 4,984
======= ======= =======
</TABLE>
In July 1988, PSG executed a 10-year contract with a client which provided
for payments to PSG in contract years two through 10. In year one of the
contract, PSG recognized revenue relating to this contract, and this amount is
being realized over the nine-year billing period. PSG also has agreed to delay
billings on another contract. Under the terms of this contract, the client has
agreed to repay PSG for the delayed billings together with a handling charge
and interest.
In the first quarter of 1994, PSG agreed to delay billings on an additional
new contract; accordingly, amounts to be realized under contracts increased by
$905,000 (unaudited) at March 31, 1994.
Property, Equipment, Furniture and Fixtures
Property, equipment, furniture and fixtures consisted of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
ESTIMATED MARCH 31, ----------------
LIVES 1994 1993 1992
------------ ----------- ------- -------
(IN YEARS) (UNAUDITED)
<S> <C> <C> <C> <C>
Land.............................. -- $ 122 $ 122 $ --
Service equipment................. 3-10 3,603 3,590 3,458
Office equipment.................. 3-5 1,968 1,824 1,250
Furniture and fixtures............ 3-7 922 782 641
Vehicles.......................... 3-5 419 403 262
Leasehold improvements............ Lease period 174 164 161
------- ------- -------
7,208 6,885 5,772
Accumulated depreciation.......... (4,009) (3,723) (2,817)
------- ------- -------
$ 3,199 $ 3,162 $ 2,955
======= ======= =======
</TABLE>
For financial reporting purposes, the Company depreciates equipment,
furniture and fixtures over their estimated useful lives using the straight-
line method.
F-8
<PAGE>
PROFESSIONAL SERVICES GROUP, INC.
AND ITS CANADIAN AFFILIATE--PSG CANADA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING UNAUDITED INFORMATION REGARDING THE PERIODS ENDED MARCH 31, 1994 AND
1993)
Deferred Charges
Deferred charges represent certain direct expenses incurred in successfully
marketing and arranging new contracts and costs incurred in order to take over
the related new operations. Deferred charges are amortized over the terms of
the specific new contract using the straight-line method.
Goodwill
The excess of the consideration paid over the fair values of tangible net
assets at the date of acquisition of acquired operations (goodwill) is being
amortized by charges to income on a straight-line basis over a period of 20
years.
Supplemental Cash Flow Information
For purposes of the combined statements of cash flows, the Company considers
all investments purchased with a maturity of three months or less to be cash
equivalents.
2. LONG-TERM REVOLVING DEBT
The Company has a revolving credit arrangement with Anjou which provides for
unsecured borrowings under a revolving open account. At March 31, 1994 and
December 31, 1993 and 1992, the Company's debt payable to Anjou was $8,372,000
(unaudited), $8,472,000 and $9,172,000, respectively, which accrues interest at
the prime interest rate. The Company has reported this debt as non-current in
the accompanying combined balance sheets because there are no formal repayment
terms and PSG does not expect Anjou to demand any repayment during 1994;
however, PSG may reduce the balance outstanding if funds are available.
3. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consisted of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, --------------
1994 1993 1992
----------- ------- ------
(UNAUDITED)
<S> <C> <C> <C>
Accounts payable--trade.......................... $ 1,726 $ 902 $1,544
Accrued liabilities--
Due to the Parent Company for Pension
obligations..................................... 2,610 2,350 1,567
Insurance accruals, including provisions for
self-insurance (Note 6)........................ 1,565 1,304 1,254
Salaries and benefits........................... 2,934 3,151 2,579
Estimated contract expenses, including utility
expenses....................................... 3,252 2,963 2,350
------- ------- ------
$12,087 $10,670 $9,294
======= ======= ======
</TABLE>
4. TRANSACTIONS WITH AFFILIATED COMPANIES
Interest expense related to PSG's line of credit with Anjou of $138,000
(unaudited), $141,000 (unaudited), $516,000 and $538,000, respectively, is
reflected in the combined statements of income for the three months ended March
31, 1994 and 1993 and for the years ended December 31, 1993 and 1992.
F-9
<PAGE>
PROFESSIONAL SERVICES GROUP, INC.
AND ITS CANADIAN AFFILIATE--PSG CANADA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING UNAUDITED INFORMATION REGARDING THE PERIODS ENDED MARCH 31, 1994 AND
1993)
The non-contributory defined benefit pension program of Anjou covers a
substantial number of the employees of PSG. Pension benefits are based
primarily on years of service and compensation levels prior to retirement. The
cost of pension benefits under such retirement program is determined by an
independent actuarial firm. Contributions to this program are made in
accordance with the regulations of the Employee Retirement Income Security Act
of 1974. Expenses of $282,000 (unaudited), $209,000 (unaudited), $630,000,
$656,000 and $845,000, respectively, for the three months ended March 31, 1994
and 1993 and for the years ended December 31, 1991, 1992 and 1993, are included
in the accompanying combined statements of income. This expense is based upon
an allocation made by management. Separate actuarial valuations of PSG's
position in this program are not available.
PSG Canada, Inc., has a defined contribution pension plan which covers all of
its employees after six months of service. This plan provides for a mandatory
employee contribution of 4 percent of compensation which is matched by a 2
percent employer contribution. The employee becomes fully vested in the
employer contribution after two years of service. PSG Canada, Inc. had pension
expenses of $13,000 in 1992 and $10,000 in 1993.
From time to time, the Company has paid amounts on behalf of its affiliated
companies, which are later reimbursed by the affiliate. At December 31, 1992,
$303,000 of such amount had not been reimbursed to the Company by its
affiliates.
The Company is often required to procure bid, performance, material and labor
bonds from surety companies, particularly for clients in the public sector.
Anjou has been required to indemnify surety companies providing bid and
performance bonds for any payments the sureties are required to make under the
Company's bonds.
The Company is charged a management fee by Anjou for managerial assistance.
For the three months ended March 31, 1994 and 1993 and for the years ended
December 31, 1993, 1992 and 1991 this management fee was $116,250 (unaudited),
$106,250 (unaudited), $425,000, $390,000, and $375,000, respectively.
5. SIGNIFICANT CLIENTS
The majority of the Company's revenues are derived from contracts with
municipalities. During 1993, 1992 and 1991, the Company had one customer which
accounted for 12 percent, two customers which accounted for 25 percent, and one
customer which accounted for 19 percent, respectively, of total combined
revenues. No other client represented 10 percent or more of the Company's
combined revenues during the three years ended December 31, 1993.
6. COMMITMENTS AND CONTINGENCIES
The Company believes that it presently maintains adequate insurance coverage
for all of its present operational activities, except that, like other
companies in its industry, the Company has been limited in obtaining additional
environmental liability insurance due to drastic increases in the cost of such
coverage caused by aggressive federal enforcement of federal environmental
regulations and legal decisions adverse to insurance carriers involving
pollution damage. A successful claim or claims in an amount in excess of the
Company's insurance coverage or for which there is no coverage could have a
material adverse effect on it; however, management believes that insurance for
Company operations and other exposures is adequate to cover any reasonable
contingency.
F-10
<PAGE>
PROFESSIONAL SERVICES GROUP, INC.
AND ITS CANADIAN AFFILIATE--PSG CANADA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING UNAUDITED INFORMATION REGARDING THE PERIODS ENDED MARCH 31, 1994 AND
1993)
The Company has a policy to self-insure with regard to $250,000 of liability
related to each claim occurrence plus a portion of legal fees that may be
incurred and has established certain self-insurance reserves to provide for the
estimated losses not covered by its insurance coverages. The Company is
involved in claims and litigation arising from its operations. In the opinion
of management, claims and lawsuits are adequately covered by insurance or will
not otherwise have a material effect on the Company's financial position or
results of operations.
The Company's Houston office space is leased under an agreement which expires
in May 1998 and requires monthly payments of approximately $13,000. The Company
also leases automobiles and equipment under agreements which expire at varying
times through 2001. Total rental expense charged to operations for the years
ended December 31, 1993, 1992 and 1991 was $1,040,000, $944,000 and $660,000
respectively.
Estimated future minimum payments under noncancelable operating leases were
as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1994 1993
----------- ------------
(UNAUDITED)
<S> <C> <C>
Year ending December 31--
1994............................................. $ 625 $ 833
1995............................................. 695 695
1996............................................. 568 568
1997............................................. 317 317
1998............................................. 55 55
Thereafter....................................... 6 6
------ ------
$2,266 $2,474
====== ======
</TABLE>
7. INCOME TAXES
The Company has an informal tax-sharing arrangement with Anjou, and its
taxable results are included in the consolidated federal income tax return of
Anjou's U.S. parent. For financial reporting purposes, the Company recognizes
income tax expense as if it was filing a separate tax return and the U.S.
income taxes provided are paid to the parent. Income before income taxes
includes amounts applicable to Canada of $195,000 (unaudited), $133,000
(unaudited) and $624,000, $142,000 and $0, for the three months ended March 31,
1994 and 1993 and for the years ended December 31, 1993, 1992 and 1991,
respectively. The Canadian company provides income taxes based on the tax
regulations of Canada and pays such taxes directly to the appropriate Canadian
taxing authorities. The remaining income before income taxes relates to the
Company's domestic operations.
F-11
<PAGE>
PROFESSIONAL SERVICES GROUP, INC.
AND ITS CANADIAN AFFILIATE--PSG CANADA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING UNAUDITED INFORMATION REGARDING THE PERIODS ENDED MARCH 31, 1994 AND
1993)
The Company's combined provision for income taxes consisted of the following
(in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
---------------- --------------------------
1994 1993 1993 1992 1991
------- ------- --------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Provision for income taxes--
Current--
U.S. Federal................ $ 162 $ 166 $ 1,008 $ 643 $ 521
State....................... 40 36 223 157 127
Canadian.................... 74 60 272 57 --
------- ------- --------- ------- -------
Total current.............. 276 262 1,503 857 648
------- ------- --------- ------- -------
Deferred--
U.S. Federal................ (17) (46) (187) 82 43
State....................... (3) (11) (41) -- --
------- ------- --------- ------- -------
Total deferred............. (20) (57) (228) 82 43
------- ------- --------- ------- -------
Total provision............ $ 256 $ 205 $ 1,275 $ 939 $ 691
======= ======= ========= ======= =======
</TABLE>
Effective January 1, 1993, PSG adopted Statement of Financial Accounting
Standards No. 109 (SFAS 109), "Accounting for Income Taxes." The adoption of
SFAS 109 changed PSG's method of accounting for income taxes to the asset and
liability approach which requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of existing temporary
differences between the financial reporting and tax reporting bases of assets
and liabilities based on enacted tax rates. The cumulative effect of the
adoption of SFAS 109 increased 1993 net income by $105,000, and this amount is
reported within the caption "cumulative effect of accounting changes, net" in
the 1993 combined statement of income. Also See Note 8.
Deferred taxes resulted from the following temporary differences at March 31,
1994 and December 31, 1993 (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1994 1993
----------- ------------
(UNAUDITED)
<S> <C> <C>
Deferred tax assets related to--
Accrued expenses................................. $ 258 $ 293
Reserve for bad debts............................ 112 103
Deferred contract start-up costs................. 70 70
Other............................................ -- 5
----- -----
Gross deferred tax assets...................... 440 471
----- -----
Deferred tax liabilities related to--
Depreciation of equipment, furniture and
fixtures........................................ (150) (201)
----- -----
Gross deferred tax liabilities................. (150) (201)
Net deferred tax assets........................ $ 290 $ 270
===== =====
Current portion of deferred tax assets............. $ 406 $ 401
Non-current deferred tax liabilities............... (116) (131)
----- -----
Net deferred tax assets........................ $ 290 $ 270
===== =====
</TABLE>
F-12
<PAGE>
PROFESSIONAL SERVICES GROUP, INC.
AND ITS CANADIAN AFFILIATE--PSG CANADA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING UNAUDITED INFORMATION REGARDING THE PERIODS ENDED MARCH 31, 1994 AND
1993)
In 1991 and 1992, the Company accounted for income taxes in accordance with
Accounting Principles Board Opinion No. 11. The deferred tax provisions for the
years ended December 31, 1992 and 1991, are principally attributable to timing
differences related to depreciation expense offset by various timing
differences relating to doubtful accounts and expense accruals.
A reconciliation between the provision for income taxes and income taxes
computed by applying the U.S. statutory tax rate follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
--------------- -------------------------
1994 1993 1993 1992 1991
------- ------- --------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Provision at U.S. statutory
rates........................... $ 194 $ 156 $ 1,029 $ 717 $ 474
Effect of--
Canadian taxes in excess of
U.S. Statutory Rates.......... 11 8 59 8 --
Provision for state income
taxes......................... 37 25 145 104 81
Tax effect of goodwill
amortization, other
nondeductible expenses and
other......................... 14 16 42 110 136
------- ------- --------- ------- -------
Provision for income taxes....... $ 256 $ 205 $ 1,275 $ 939 $ 691
======= ======= ========= ======= =======
</TABLE>
8. ACCOUNTING CHANGE FOR POSTEMPLOYMENT BENEFITS
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits," which resulted in the recognition of a cumulative expense of
$27,000, net of $18,000 tax benefit, for its estimated obligations for
postemployment benefits at that date.
9. ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS
BEGINNING CHARGED TO BALANCE AT
OF PERIOD EXPENSE WRITE-OFFS END OF PERIOD
---------- ---------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts--
Three months ended March
31, 1994 (unaudited)...... $246 $ 18 $-- $264
Year ended December 31,
1993...................... 204 200 158 246
Year ended December 31,
1992...................... 137 402 335 204
Year ended December 31,
1991...................... 154 57 74 137
</TABLE>
10. SUBSEQUENT EVENT
On March 18, 1994, the Company's ultimate parent (Compagnie Generale des
Eaux) announced that it had reached an agreement with Air & Water Technologies
Corporation (AWT) which provides that, after approval by the stockholders of
AWT and certain other regulatory approvals, the Company would become an
operation of AWT.
F-13
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
To Anjou International Company:
We have audited, in accordance with generally accepted auditing standards,
the combined financial statements of Professional Services Group, Inc., and its
subsidiary and 2815869 Canada, Inc. (hereinafter referred to as PSG Canada,
Inc.), as of December 31, 1993 and 1992, and for the three years in the period
ended December 31, 1993, and have issued our report thereon dated March 28,
1994. Our audits were made for the purpose of forming an opinion on those
statements taken as a whole. Schedules V and VI are the responsibility of the
Companies' management and are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not part of the basic
combined financial statements. These schedules have been subjected to the
auditing procedures applied in the audits of the basic combined financial
statements and, in our opinion, fairly state in all material respects the
financial data required to be set forth therein in relation to the basic
combined financial statements taken as a whole.
Arthur Andersen & Co.
Houston, Texas
March 28, 1994
F-14
<PAGE>
PROFESSIONAL SERVICES GROUP, INC.
AND ITS CANADIAN AFFILIATE--PSG CANADA, INC.
SCHEDULE V--COMBINED PROPERTY, EQUIPMENT, FURNITURE AND FIXTURES
FOR THE YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993
AND THE THREE MONTHS ENDED MARCH 31, 1994
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING RETIREMENTS END
OF PERIOD ADDITIONS OR SALES OF PERIOD
---------- --------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Year ended December 31, 1991--
Leasehold improvements.......... $ 98 $ 150 $-- $ 248
Equipment....................... 2,728 1,574 192 4,110
Furniture and fixtures.......... 247 117 -- 364
------ ------ ---- ------
$3,073 $1,841 $192 $4,722
====== ====== ==== ======
Year ended December 31, 1992--
Leasehold improvements.......... $ 248 $ 6 $ 93 $ 161
Equipment....................... 4,110 978 118 4,970
Furniture and fixtures.......... 364 278 1 641
------ ------ ---- ------
$4,722 $1,262 $212 $5,772
====== ====== ==== ======
Year ended December 31, 1993--
Land............................ $ -- $ 122 $-- $ 122
Leasehold improvements.......... 161 7 4 164
Equipment....................... 4,970 1,154 307 5,817
Furniture and fixtures.......... 641 152 11 782
------ ------ ---- ------
$5,772 $1,435 $322 $6,885
====== ====== ==== ======
Three months ended March 31, 1994
(unaudited)
Land............................ $ 122 $ -- $-- $ 122
Leasehold improvements.......... 164 10 -- 174
Equipment....................... 5,817 188 15 5,990
Furniture and fixtures.......... 782 140 -- 922
------ ------ ---- ------
$6,885 $ 338 $ 15 $7,208
====== ====== ==== ======
</TABLE>
F-15
<PAGE>
PROFESSIONAL SERVICES GROUP, INC.
AND ITS CANADIAN AFFILIATE--PSG CANADA, INC.
SCHEDULE VI--COMBINED ACCUMULATED DEPRECIATION OF PROPERTY, EQUIPMENT,
FURNITURE AND FIXTURES
FOR THE YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993
AND THE THREE MONTHS ENDED MARCH 31, 1994
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING RETIREMENTS END
OF PERIOD ADDITIONS(1) OR SALES OF PERIOD
---------- ------------ ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Year ended December 31, 1991--
Leasehold improvements....... $ 19 $ 22 $-- $ 41
Equipment.................... 1,105 573 35 1,643
Furniture and fixtures....... 154 53 -- 207
------ ------ ---- ------
$1,278 $ 648 $ 35 $1,891
====== ====== ==== ======
Year ended December 31, 1992--
Leasehold improvements....... $ 41 $ 23 $ 10 $ 54
Equipment.................... 1,643 909 63 2,489
Furniture and fixtures....... 207 67 -- 274
------ ------ ---- ------
$1,891 $ 999 $ 73 $2,817
====== ====== ==== ======
Year ended December 31, 1993--
Leasehold improvements....... $ 54 $ 11 $ 2 $ 63
Equipment.................... 2,489 1,000 226 3,263
Furniture and Fixtures....... 274 130 7 397
------ ------ ---- ------
$2,817 $1,141 $235 $3,723
====== ====== ==== ======
Three months ended March 31,
1994 (unaudited)
Leasehold improvements....... $ 63 $ 2 $-- $ 65
Equipment.................... 3,263 255 6 3,512
Furniture and fixtures....... 397 35 -- 432
------ ------ ---- ------
$3,723 $ 292 $ 6 $4,009
====== ====== ==== ======
</TABLE>
- - --------
(1) See Note 1 of notes to combined financial statements for discussion of
depreciation and lives.
F-16
<PAGE>
ANNEX I
INVESTMENT AGREEMENT
DATED AS OF
MARCH 30, 1994
AMONG
AIR & WATER TECHNOLOGIES CORPORATION,
COMPAGNIE GENERALE DES EAUX
AND
ANJOU INTERNATIONAL COMPANY
<PAGE>
TABLE OF CONTENTS
ARTICLE 1
DEFINITIONS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
1.1 Definitions........................................................ I-1
ARTICLE 2
PURCHASE AND SALE; MERGER
2.1 Purchase and Sale.................................................. I-4
2.2 The Merger......................................................... I-4
2.3 Closing............................................................ I-4
2.4 Closing Balance Sheet.............................................. I-5
2.5 Adjustment of Purchase Price....................................... I-6
2.6 Legending of Securities............................................ I-6
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF ANJOU AND CGE
3.1 Corporate Existence and Power...................................... I-6
3.2 Corporate Authorization............................................ I-7
3.3 Governmental Authorization......................................... I-7
3.4 Non-Contravention.................................................. I-7
3.5 Capitalization..................................................... I-7
3.6 Ownership of Shares................................................ I-7
3.7 Subsidiaries....................................................... I-7
3.8 Financial Statements............................................... I-7
3.9 AWT Proxy Materials................................................ I-8
3.10 Absence of Certain Changes......................................... I-8
3.11 No Undisclosed Material Liabilities................................ I-8
3.12 Intercompany Accounts.............................................. I-9
3.13 Material Contracts................................................. I-9
3.14 Litigation......................................................... I-9
3.15 Compliance with Laws and Court Orders; No Defaults................. I-9
3.16 Insurance Coverage................................................. I-10
3.17 Finders' Fees; Certain Payments.................................... I-10
3.18 Employee Benefit Plans............................................. I-10
3.19 Taxes.............................................................. I-11
3.20 Environmental Matters.............................................. I-11
3.21 Properties......................................................... I-12
3.22 Receivables........................................................ I-12
3.23 Purchase for Investment............................................ I-12
3.24 Other Information.................................................. I-12
</TABLE>
i
<PAGE>
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF AWT
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
4.1 Corporate Existence and Power...................................... I-12
4.2 Corporate Authorization............................................ I-12
4.3 Governmental Authorization......................................... I-13
4.4 Non-Contravention.................................................. I-13
4.5 Capitalization..................................................... I-13
4.6 SEC Filings........................................................ I-13
4.7 Financial Statements............................................... I-13
4.8 Absence of Certain Changes......................................... I-14
4.9 No Undisclosed Material Liabilities................................ I-14
4.10 AWT Proxy Materials................................................ I-14
4.11 Compliance with Contracts.......................................... I-15
4.12 Litigation......................................................... I-15
4.13 Compliance with Laws and Court Orders; No Defaults................. I-15
4.14 Insurance Coverage................................................. I-15
4.15 Finders' Fees...................................................... I-15
4.16 Employee Benefit Plans............................................. I-15
4.17 Taxes.............................................................. I-16
4.18 Purchase for Investment............................................ I-17
4.19 Other Information.................................................. I-17
ARTICLE 5
COVENANTS OF CGE AND ANJOU
5.1 Conduct of the PSG Group........................................... I-17
5.2 Access to Information.............................................. I-18
5.3 Notices of Certain Events.......................................... I-18
5.4 Resignations....................................................... I-18
5.5 Voting of Shares; Acquisitions of Shares........................... I-18
5.6 Joint Efforts...................................................... I-18
5.7 Other Agreements................................................... I-18
ARTICLE 6
COVENANTS OF AWT
6.1 Conduct of Business................................................ I-19
6.2 Access to Information.............................................. I-19
6.3 Notices of Certain Events.......................................... I-19
6.4 Stockholder Meeting; Proxy Materials............................... I-20
6.5 No-Shop............................................................ I-20
6.6 Access to Books and Records........................................ I-20
6.7 Registration Rights................................................ I-20
ARTICLE 7
COVENANTS OF AWT, ANJOU AND CGE
7.1 Intercompany Accounts; Bonding and Insurance....................... I-20
7.2 Board Representation; Management................................... I-21
7.3 Affiliate Transactions............................................. I-21
7.4 Filings; Consents; Best Efforts.................................... I-22
</TABLE>
ii
<PAGE>
ARTICLE 8
TAX MATTERS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
8.1 Tax Covenants...................................................... I-22
8.2 Transfer Taxes..................................................... I-23
8.3 Termination of Existing Tax Sharing Arrangements................... I-23
8.4 Tax Sharing........................................................ I-23
8.5 Cooperation on Tax Matters......................................... I-23
8.6 Indemnification by Anjou........................................... I-24
8.7 Refunds............................................................ I-25
8.8 Survival........................................................... I-25
ARTICLE 9
EMPLOYEE BENEFITS
9.1 Pension Plan....................................................... I-25
9.2 Other Employee Plans............................................... I-26
9.3 Third Party Beneficiaries.......................................... I-26
ARTICLE 10
CONDITIONS TO CLOSING
10.1 Conditions to Obligations of AWT, CGE and Anjou.................... I-26
10.2 Conditions to Obligation of AWT.................................... I-27
10.3 Conditions to Obligation of CGE and Anjou.......................... I-27
ARTICLE 11
TERMINATION
11.1 Grounds for Termination............................................ I-28
11.2 Effect of Termination.............................................. I-28
ARTICLE 12
MISCELLANEOUS
12.1 Notices............................................................ I-28
12.2 Amendments and Waivers............................................. I-29
12.3 Expenses........................................................... I-29
12.4 Successors and Assigns............................................. I-29
12.5 Governing Law...................................................... I-29
12.6 Counterparts; Third Party Beneficiaries............................ I-29
12.7 No Survival........................................................ I-29
12.8 Public Announcements............................................... I-29
12.9 Entire Agreement; Exhibits......................................... I-30
12.10 Headings........................................................... I-30
12.11 Specific Performance............................................... I-30
</TABLE>
iii
<PAGE>
INVESTMENT AGREEMENT
AGREEMENT dated as of March 30, 1994 among Air & Water Technologies
Corporation, a Delaware corporation ("AWT"), Compagnie Generale des Eaux, a
French corporation ("CGE") and its indirectly wholly-owned subsidiary, Anjou
International Company, a Delaware corporation ("ANJOU").
The parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. (a) The following terms, as used herein, have the following
meanings:
"AFFILIATE" means, with respect to any Person, any other Person directly or
indirectly controlling, controlled by, or under common control with such
Person; provided that for purposes of this Agreement (i) PSG and PSG Canada
shall not be considered an Affiliate of CGE or Anjou, (ii) CGE and AWT (and
their respective Subsidiaries) shall not be considered Affiliates of one
another and (iii) any joint-venture or partnership by any party hereto with any
other Person shall be deemed not to be an Affiliate of any party hereto.
"ASSOCIATE" means, when used to indicate a relationship with a Person, a
corporation or other entity of which such Person is, directly or indirectly,
the beneficial owner of 15% or more of its total voting power.
"AWT BENEFIT ARRANGEMENT" means any employment, severance or similar contract
or arrangement (whether or not written) or any plan, policy, fund, program or
contract or arrangement (whether or not written) providing for compensation,
bonus, profit-sharing, stock option, or other stock related rights or other
forms of incentive or deferred compensation, vacation benefits, insurance
coverage (including any self-insured arrangements), health or medical benefits,
disability benefits, worker's compensation, supplemental unemployment benefits,
severance benefits and post-employment or retirement benefits (including
compensation, pension, health, medical or life insurance or other benefits)
that (i) is not an AWT Employee Plan, (ii) is entered into, maintained,
administered or contributed to, as the case may be, by AWT, any of its
Affiliates or Subsidiaries and (iii) covers any employee or former employee of
AWT or any Subsidiary of AWT employed in the United States.
"AWT EMPLOYEE PLAN" means any "EMPLOYEE BENEFIT PLAN", as defined in Section
3(3) of ERISA, that (i) is subject to any provision of ERISA, (ii) is
maintained, administered or contributed to by AWT or any of its Affiliates or
Subsidiaries and (iii) covers any employee or former employee of AWT or any
Subsidiary of AWT.
"AWT INTERNATIONAL PLAN" means any employment, severance or similar contract
or arrangement (whether of not written) or any plan, policy, fund, program or
arrangement or contract providing for compensation, bonus, profit-sharing,
stock option, or other stock related rights or other forms of incentive or
deferred compensation, vacation benefits, insurance coverage (including any
self-insured arrangements), health or medical benefits, disability benefits,
worker's compensation, supplemental unemployment benefits, severance benefits
and post-employment or retirement benefits (including compensation, pension,
health, medical or life insurance or other benefits) that (i) is not an AWT
Employee Plan or an AWT Benefit Arrangement, (ii) is entered into, maintained,
administered or contributed to by AWT or any of its Affiliates and (iii) covers
any employee or former employee of AWT or any Subsidiary of AWT.
"AWT PROXY MATERIALS" means each document filed by AWT with the Commission in
connection with the meeting of the stockholders of AWT described in Section 6.4
including, without limitation, the proxy statement of AWT and any amendment or
supplement thereto.
I-1
<PAGE>
"BALANCE SHEET" means the balance sheet of the PSG Group as of December 31,
1993.
"BASKET" means the amount at any time equal to (a) $250,000 plus the reserves
for Taxes, if any, provided for on the books and records of PSG and PSG Canada,
minus (b) any reductions (in the aggregate) made pursuant to Section 8.6(d)
hereof.
"CLASS A COMMON STOCK" means the Class A Common Stock of AWT, par value $.001
per share.
"CLOSING DATE" means the date of the Closing.
"CODE" means the United States Internal Revenue Code of 1986, as amended.
"COMMISSION" means the United States Securities and Exchange Commission.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute thereto, and the rules and regulations
promulgated thereunder.
"ERISA AFFILIATE" of any entity means any other entity which, together with
such entity, would be treated as a single employer under Section 414 of the
Code.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
"LIEN" means, with respect to any property or asset, any mortgage, lien,
pledge, charge, security interest, encumbrance or other adverse claim of any
kind in respect of such property or asset. For the purposes of this Agreement,
a Person shall be deemed to own subject to a Lien any property or asset which
it has acquired or holds subject to the interest of a vendor or lessor under
any conditional sale agreement, capital lease or other title retention
agreement relating to such property or asset.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on the condition
(financial or otherwise), business, assets or results of operations of AWT or
the PSG Group, as the case may be, and their respective Subsidiaries, taken as
a whole; provided that any continuation of any existing unfavorable business or
financial trend without a material worsening thereof shall be deemed not to
give rise to any Material Adverse Effect.
"MULTIEMPLOYER PLAN" means each PSG Group Employee Plan or each AWT Employee
Plan, as the case may be, that is a multiemployer plan, as defined in Section
3(37) of ERISA.
"1934 ACT" means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PENSION PLAN" means each "DEFINED BENEFIT PLAN" within the meaning of
Section 3(35) of ERISA other than any such plan which is a Multiemployer Plan.
"PERSON" means an individual, corporation, partnership, limited liability
company, association, trust or other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"PSG COMMON STOCK" means the Common Stock, par value $1.00 per share, of PSG.
"PSG" means PSC Professional Services Group, Inc., a Minnesota corporation
and a wholly-owned subsidiary of Anjou.
"PSG GROUP BENEFIT ARRANGEMENT" means any employment, severance or similar
contract or arrangement (whether or not written) or any plan, policy, fund,
program or contract or arrangement (whether
I-2
<PAGE>
or not written) providing for compensation, bonus, profit-sharing, stock
option, or other stock related rights or other forms of incentive or deferred
compensation, vacation benefits, insurance coverage (including any self-insured
arrangements), health or medical benefits, disability benefits, worker's
compensation, supplemental unemployment benefits, severance benefits and post-
employment or retirement benefits (including compensation, pension, health,
medical or life insurance or other benefits) that (i) is not a PSG Group
Employee Plan, (ii) is entered into, maintained, administered or contributed
to, as the case may be, by CGE, the PSG Group or any of their respective
Affiliates and (iii) covers any employee or former employee of the PSG Group or
any Subsidiary of the PSG Group employed in the United States.
"PSG CANADA" means 2815869 Canada, Inc., a corporation organized under the
Canada Business Corporations Act and a wholly-owned subsidiary of Anjou.
"PSG GROUP EMPLOYEE PLAN" means any "EMPLOYEE BENEFIT PLAN", as defined in
Section 3(3) of ERISA, that (i) is subject to any provision of ERISA, (ii) is
maintained, administered or contributed to by CGE, the PSG Group or any of its
Affiliates and (iii) covers any employee or former employee of the PSG Group or
any Subsidiary of the PSG Group.
"PSG GROUP" means, collectively, PSG and PSG Canada.
"PSG GROUP INTERNATIONAL PLAN" means any employment, severance or similar
contract or arrangement (whether of not written) or any plan, policy, fund,
program or arrangement or contract providing for compensation, bonus, profit-
sharing, stock option, or other stock related rights or other forms of
incentive or deferred compensation, vacation benefits, insurance coverage
(including any self-insured arrangements), health or medical benefits,
disability benefits, worker's compensation, supplemental unemployment benefits,
severance benefits and post-employment or retirement benefits (including
compensation, pension, health, medical or life insurance or other benefits)
that (i) is not a PSG Group Employee Plan or a PSG Group Benefit Arrangement,
(ii) is entered into, maintained, administered or contributed to by Anjou, the
PSG Group or any of their respective Affiliates and (iii) covers any employee
or former employee of the PSG Group or any Subsidiary of the PSG Group.
"PSG PENSION PLAN" means the Anjou Pension Plan.
"SERIES A PREFERRED" means the Series A Convertible Exchangeable Preferred
Stock of AWT, par value $.01 per share, having the designations, rights and
preferences substantially in the form of Exhibit A hereto.
"SHARES" means shares of Class A Common Stock, par value $.001, of AWT.
"SUBSIDIARY" means any entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are at the time
directly or indirectly owned by PSG or AWT, as the case may be.
"TAX" (and, with correlative meaning, "Taxes" and "Taxable") means (i) any
net income, alternative or add-on minimum tax, gross income, gross receipts,
sales, use, ad valorem, value added, transfer, franchise, profits, license,
withholding on amounts paid to or by any Person, payroll, employment, excise,
severance, stamp, occupation, premium, property, environmental or windfall
profit tax, custom, duty or other tax, governmental fee or other like
assessment or charge of any kind whatsoever, together with any interest or any
penalty, addition to tax or additional amount imposed by any governmental
authority (a "Taxing authority") responsible for the imposition of any such tax
(domestic or foreign), (ii) liability of any Person for the payment of any
amounts of the type described in (i) as a result of being a member of any
affiliated, consolidated, combined or unitary group or being a party to any
agreement or arrangement whereby liability of a Person for payments of such
amounts was determined or taken into account with reference to the liability of
any other Person for any period, and (iii) liability of any Person for the
payment of any amounts of the type described in (i) as a result of any express
or implied obligation to indemnify any other Person.
I-3
<PAGE>
"TAX ASSET" means any net operating loss, net capital loss, investment tax
credit, foreign tax credit, charitable deduction or any other credit or tax
attribute which could reduce Taxes (including, without limitation, deductions
and credits related to alternative minimum Taxes).
(b) Each of the following terms is defined in the Section set forth opposite
such term:
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
AWT Securities................................... 4.5
Base Stockholder's Equity........................ 2.5
Board............................................ 6.5
Closing.......................................... 2.3
Closing Balance Sheet............................ 2.4
Closing Stockholder's Equity..................... 2.4
Company 10-K..................................... 4.6
Company 10-Q..................................... 4.6
Exon-Florio...................................... 3.3
Final Stockholder's Equity....................... 2.5
Independent Director............................. 7.2
PSG Securities................................... 3.5
Takeover proposal................................ 6.5
Utilities........................................ 3.7
</TABLE>
ARTICLE 2
PURCHASE AND SALE; MERGER
2.1 Purchase and Sale. Upon the terms and subject to the conditions of this
Agreement:
(a) AWT agrees to sell and CGE agrees to purchase for cash 1,200,000
shares of Series A Preferred for an aggregate purchase price of
$60,000,000; and
(b) Anjou agrees to exchange (the "EXCHANGE") all of the outstanding
capital stock of PSG Canada for, and AWT agrees to issue, 650,000 shares of
Class A Common Stock.
The foregoing consideration shall be paid or exchanged in accordance with
Section 2.3. The Exchange consideration received by Anjou shall be adjusted as
provided in Section 2.5.
2.2 The Merger. (a) At Closing, AWT and Anjou shall cause a newly formed
Minnesota subsidiary (the "MERGER SUBSIDIARY") to be merged (the "MERGER") with
and into PSG in accordance with the terms and provisions of a Plan of Merger,
substantially in the form of Exhibit B hereto, whereupon the separate existence
of Merger Subsidiary shall cease, and PSG shall be the surviving corporation.
(b) As provided for in the Plan of Merger, all PSG Common Stock outstanding
immediately prior to the effective time of the Merger shall, except as
otherwise provided therein, be converted into the right to receive in the
aggregate 5,850,000 shares of Class A Common Stock.
(c) The merger consideration received by Anjou shall be adjusted as provided
in Section 2.5.
2.3 Closing. The closing (the "CLOSING") of the transactions contemplated
hereby shall take place at the offices of Davis Polk & Wardwell, 450 Lexington
Avenue, New York, New York as soon as practicable, but in no event later than
10 business days, after satisfaction of the conditions set forth in Article 10,
or at such other time or place as AWT and CGE may agree. At the Closing:
(a) AWT shall deliver to (i) Anjou one or more certificates for the Class
A Common Stock received in connection with the Exchange and the Merger,
registered in the name of Anjou, and (ii) CGE one or
I-4
<PAGE>
more certificates for the Series A Preferred, registered in the name of CGE
(or such other Person as CGE may designate to AWT no later than two
business days prior to the Closing).
(b) CGE shall deliver to AWT $60,000,000 in immediately available funds
by wire transfer to an account of AWT designated by AWT, by notice to CGE,
no later than two business days prior to the Closing).
(c) Anjou shall deliver to AWT all outstanding capital stock of PSG
Canada along with duly endorsed stock powers in the name of AWT.
2.4 Closing Balance Sheet. (a) As promptly as practicable, but no later than
60 days, after the Closing Date, Anjou will cause to be prepared and delivered
to AWT, at Anjou's expense, the Closing Balance Sheet, together with an
unqualified report of Arthur Andersen & Co., Houston, Texas office, thereon,
and a certificate based on such Closing Balance Sheet setting forth Anjou's
calculation of Closing Stockholder's Equity. The Closing Balance Sheet
("CLOSING BALANCE SHEET") shall (x) fairly present the financial position of
the PSG Group as at the close of business on the Closing Date in accordance
with generally accepted accounting principles applied on a basis consistent
with those used in the preparation of the Balance Sheet, (y) include line items
substantially consistent with those in the Balance Sheet, and (z) be prepared
in accordance with accounting policies and practices consistent with those used
in the preparation of the Balance Sheet. "CLOSING STOCKHOLDER'S EQUITY" means
the stockholder's equity of the PSG Group as shown on the Closing Balance Sheet
(which shall exclude all intercompany accounts, which shall be settled or
capitalized pursuant to Section 7.1), with the following adjustments: less all
cash and cash equivalents and all assets that in accordance with generally
accepted accounting principles would be classified as intangible assets,
including but not limited to goodwill, patents, trademarks and unamortized debt
discount.
(b) If AWT disagrees with Anjou's calculation of Closing Stockholder's Equity
delivered pursuant to Section 2.4(a) and the amount of any such disagreement is
in excess of $250,000, AWT may, within 30 days after delivery of the documents
referred to in Section 2.4(a), deliver a notice to Anjou disagreeing with such
calculation and setting forth AWT's calculation of such amount. Any such notice
of disagreement shall specify those items or amounts as to which AWT disagrees,
and AWT shall be deemed to have agreed with all other items and amounts
contained in the Closing Balance Sheet and the calculation of Closing
Stockholder's Equity delivered pursuant to Section 2.4(a).
(c) If a notice of disagreement shall be delivered pursuant to Section
2.4(b), Anjou and AWT shall, during the 10 days following such delivery, use
their best efforts to reach agreement on the disputed items or amounts in order
to determine, as may be required, the amount of Closing Stockholder's Equity,
which amount shall not be more than the amount thereof shown in Anjou's
calculations delivered pursuant to Section 2.4(b) nor less than the amount
thereof shown in AWT's calculation delivered pursuant to Section 2.4(b). If,
during such period, Anjou and AWT are unable to reach such agreement, they
shall promptly thereafter cause independent accountants of nationally
recognized standing reasonably satisfactory to AWT and Anjou (who shall not
have any material relationship with AWT, Anjou or CGE), promptly to review this
Agreement and the disputed items or amounts for the purpose of calculating
Closing Stockholder's Equity. In making such calculation, such independent
accountants shall consider only those items or amounts in the Closing Balance
Sheet or Anjou's calculation of Closing Stockholder's Equity as to which AWT
has disagreed. Such independent accountants shall deliver to Anjou and AWT, as
promptly as practicable, a report setting forth such calculation. Such report
shall be final and binding upon Anjou and AWT. The cost of such review and
report shall be borne equally by the parties.
(d) Anjou and AWT agree that they will, and agree to cause their respective
independent accountants and the PSG Group to, cooperate and assist in the
preparation of the Closing Balance Sheet and the calculation of Closing
Stockholder's Equity and in the conduct of the audits and reviews referred to
in this Section, including without limitation, the making available to the
extent necessary of books, records, work papers and personnel.
I-5
<PAGE>
2.5 Adjustment of Purchase Price. (a) If Base Stockholder's Equity exceeds
Final Stockholder's Equity, Anjou shall pay to AWT, as an adjustment to the
consideration received in the Exchange and the Merger, in the manner and with
interest as provided in Section 2.5(b), the amount of such excess. If Final
Stockholder's Equity exceeds Base Stockholder's Equity, AWT shall pay to Anjou,
in the manner and with interest as provided in Section 2.5(b), the amount of
such excess. "BASE STOCKHOLDER'S EQUITY" calculated on the same basis as the
Closing Stockholder's Equity is $12,741,000. "FINAL STOCKHOLDER'S EQUITY" means
the Closing Stockholder's Equity (i) as shown in Anjou's calculation delivered
pursuant to Section 2.4(a), if no notice of disagreement with respect thereto
is duly delivered pursuant to Section 2.4(b); or (ii) if such a notice of
disagreement is delivered, (A) as agreed by AWT and CGE pursuant to Section
2.4(c) or (B) in the absence of such agreement, as shown in the independent
accountants' calculation delivered pursuant to Section 2.4(c); provided that,
in no event shall Final Stockholder's Equity be more than Anjou's calculation
of Closing Stockholder's Equity delivered pursuant to Section 2.4(a) or less
than AWT's calculation of Closing Stockholder's Equity delivered pursuant to
Section 2.4(b).
(b) Any payment pursuant to Section 2.5(a) shall be made at a mutually
convenient time and place within 10 days after the Final Stockholder's Equity
has been determined by delivery (i) in the case of AWT, of shares of Class A
Common Stock registered in the name of Anjou or (ii) in the case of Anjou, of a
certified or official bank check payable in immediately available funds to AWT
or by causing such payments to be credited to such account of AWT as may be
designated by AWT. The amount of any payment of cash or Class A Common Stock,
as the case may be, to be made pursuant to this Section shall bear interest
from and including the Closing Date to but excluding the date of payment at a
rate per annum equal to the Prime Rate in effect from time to time during the
period from the Closing Date to the date of payment. The amount of such
interest shall be payable in cash or shares of Class A Common Stock, as
applicable, at the same time as the payment to which it relates and shall be
calculated daily on the basis of a year of 365 days and the actual number of
days elapsed. The price per share of any Class A Common Stock delivered by AWT
pursuant to this Section 2.5 shall be $10. Notwithstanding anything to the
contrary in this Section 2.5, in no event shall AWT be required to pay an
adjustment with respect to an increase in the stockholder's equity of PSG
Canada to the extent such adjustment exceeds 324,000 shares of Class A Common
Stock.
2.6 Legending of Securities. All securities to be issued to Anjou or CGE by
AWT hereunder shall bear the following legend:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OF THE UNITED STATES AND THE
SECURITIES REGULATORY AUTHORITIES OF APPLICABLE STATES OR UNLESS AN
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE."
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF ANJOU AND CGE
CGE and Anjou jointly and severally represent and warrant to AWT as of the
date hereof and as of the Closing Date that:
3.1 Corporate Existence and Power. Each of CGE, Anjou, PSG and PSG Canada is
a corporation duly incorporated, validly existing and in good standing under
the laws of its jurisdiction of incorporation and has all corporate powers and
all governmental licenses, authorizations, permits, consents and approvals
required to carry on its business as now conducted, except for those licenses,
authorizations, permits, consents and approvals the absence of which would not,
individually or in the aggregate, have a Material Adverse Effect. Each of PSG
and PSG Canada is duly qualified to do business as a foreign corporation and is
in good standing in each jurisdiction where such qualification is necessary,
except for those jurisdictions where failure to be so qualified would not,
individually or in the aggregate, have a Material Adverse Effect. Anjou has
I-6
<PAGE>
heretofore delivered to AWT true and complete copies of the articles of
incorporation and bylaws of each of PSG and PSG Canada as currently in effect.
3.2 Corporate Authorization. The execution, delivery and performance by Anjou
and CGE of this Agreement are within their respective corporate powers and have
been duly authorized by all necessary corporate action on the part of each of
Anjou and CGE. This Agreement constitutes a valid and binding agreement of each
of Anjou and CGE enforceable against it in accordance with its terms.
3.3 Governmental Authorization. The execution, delivery and performance by
each of CGE and Anjou of this Agreement require no action by or in respect of,
or filing with, any governmental body, agency, or official other than (i)
compliance with any applicable requirements of the HSR Act; (ii) compliance
with the provisions of the Omnibus Trade and Competitiveness Act of 1988, as
amended ("EXON-FLORIO"); (iii) any filings to be made in Minnesota or Delaware,
as the case may be, in connection with the Merger and the Certificate of
Designations of the Series A Preferred; and (iv) any such action or filing as
to which the failure to make or obtain would not, individually or in the
aggregate, have a Material Adverse Effect.
3.4 Non-Contravention. The execution, delivery and performance by CGE and
Anjou of this Agreement do not and will not (i) violate the charter or bylaws
of Anjou, PSG or PSG Canada or the constituent documents of CGE, (ii) assuming
compliance with the matters referred to in Section 3.3, violate any applicable
law, rule, regulation, judgment, injunction, order or decree or (iii) require
any consent or other action by any Person under, constitute a default under, or
give rise to any right of termination, cancellation or acceleration of any
right or obligation of the PSG Group or to a loss of any benefit to which the
PSG Group is entitled under, any agreement or other instrument binding upon the
PSG Group or any license, franchise, permit or other similar authorization held
by the PSG Group, except in the case of clauses (ii) and (iii) to the extent
that any such violation, failure to obtain any such consent or other action,
default, right, loss would not, individually or in the aggregate, have a
Material Adverse Effect.
3.5 Capitalization. (a) The authorized capital stock of PSG consists of 2,000
shares of Common Stock, par value $1.00 per share. As of the date hereof, there
were outstanding 1,250 shares of Common Stock of PSG. The authorized capital
stock of PSG Canada consists of unlimited shares of Common Stock, par value
Canadian $1.00 per share. As of the date hereof, there were outstanding 190,000
shares of Common Stock of PSG Canada.
(b) All outstanding shares of capital stock of the PSG Group have been duly
authorized and validly issued and are fully paid and non-assessable. Except as
set forth in this Section 3.5, there are no outstanding (i) shares of capital
stock or voting securities of the PSG Group, (ii) securities of the PSG Group
convertible into or exchangeable for shares of capital stock or voting
securities of the PSG Group or (iii) options or other rights to acquire from
the PSG Group, or other obligation of the PSG Group to issue, any capital
stock, voting securities or securities convertible into or exchangeable for
capital stock or voting securities of the PSG Group (the items in clauses (i),
(ii) and (iii) being referred to collectively as the "PSG SECURITIES"). There
are no outstanding obligations of the PSG Group to repurchase, redeem or
otherwise acquire any PSG Securities.
3.6 Ownership of Shares. Except as disclosed in Schedule 3.6, Anjou is the
registered and beneficial owner of all outstanding shares of capital stock of
the PSG Group, free and clear of any Lien and any other limitation or
restriction (including any restriction on the right to vote, sell or otherwise
dispose of such capital stock).
3.7 Subsidiaries. None of PSG and PSG Canada has any Subsidiaries, except for
Utilities Services Group, Inc., a Texas corporation ("UTILITIES"), which has no
assets and is inactive.
3.8 Financial Statements. The audited balance sheets of the PSG Group as of
December 31, 1992 and December 31, 1993 and the related statements of income
and cash flows for each of the years ended
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December 31, 1992 and December 31, 1993, present fairly, in all material
respects, the financial position of the PSG Group as of the dates thereof and
its results of operations and changes in cash flows for the periods then ended
in conformity with generally accepted accounting principles applied on a
consistent basis (except as may be indicated in the notes thereto).
3.9 AWT Proxy Materials. The information with respect to CGE, Anjou or the
PSG Group and their subsidiaries that has been furnished to AWT in writing
specifically for use in any AWT Proxy Materials, each time any AWT Proxy
Materials are distributed to stockholders of AWT or any other solicitation of
stockholders of AWT is made by or on behalf of AWT or any Affiliate of AWT, and
at the time the stockholders of AWT vote on the issuance of AWT Securities
pursuant to this Agreement will not include any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which such
statements were made, not misleading or necessary to correct any statement in
any earlier communication with respect to the solicitation of a proxy for the
same meeting or subject matter which has become false or misleading.
3.10 Absence of Certain Changes. Except as set forth on Schedule 3.10, since
December 31, 1993, the business of the PSG Group has been conducted in the
ordinary course consistent with past practices and there has not been:
(i) any event, occurrence, development or state of circumstances or facts
which has had or would reasonably be expected to have a Material Adverse
Effect;
(ii) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the PSG Group,
or any repurchase, redemption or other acquisition by the PSG Group of any
outstanding shares of capital stock or other securities of, or other
ownership interests in, the PSG Group;
(iii) any amendment of any material term of any outstanding security of
the PSG Group;
(iv) any incurrence, assumption or guarantee by the PSG Group of any
indebtedness for borrowed money, except in the ordinary course of business
consistent with past practices;
(v) any sale, transfer or other disposition of a material amount of the
assets of the PSG Group;
(vi) any creation or assumption by the PSG Group of any Lien on any
material asset other than in the ordinary course of business consistent
with past practices;
(vii) any damage, destruction or other casualty loss (whether or not
covered by insurance) affecting the business or assets of PSG which,
individually or in the aggregate, has had or would reasonably be expected
to have a Material Adverse Effect;
(viii) any change in any method of accounting or application thereof by
the PSG Group;
(ix) except as previously disclosed to AWT, any (A) written employment,
deferred compensation, severance, retirement or other similar agreement
entered into with any director, officer or employee of the PSG Group (or
any amendment to any such existing agreement), (B) grant of any severance
or termination pay to any director, officer or employee of the PSG Group,
or (C) change in compensation or other benefits payable to any director,
officer or employee of the PSG Group pursuant to any severance or
retirement plans or policies thereof, other than in the ordinary course of
business consistent with past practices; or
(x) any labor dispute, other than routine individual grievances, or any
activity or proceeding by a labor union or representative thereof to
organize any employees of the PSG Group, which employees were not subject
to a collective bargaining agreement at December 31, 1993, or any lockouts,
strikes, slowdowns, work stoppages or threats thereof by or with respect to
any employees of the PSG Group.
3.11 No Undisclosed Material Liabilities. There are no liabilities of the PSG
Group of any kind whatsoever, whether accrued, contingent, absolute or
otherwise, and there is no existing condition, situation or set of
circumstances which would result in such a liability, other than:
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(a) liabilities provided for in the Balance Sheet or disclosed in the
notes thereto;
(b) liabilities disclosed on Schedule 11; and
(c) other undisclosed liabilities which, individually or in the
aggregate, would not reasonably be expected to result in a Material Adverse
Effect.
3.12 Intercompany Accounts. Schedule 3.12 contains a complete list of all
intercompany balances as of December 31, 1993 between CGE, Anjou and their
Affiliates, on the one hand, and the PSG Group, on the other hand. Since
December 31, 1993 there has not been any accrual of liability by the PSG Group
to CGE or Anjou or any of their respective Affiliates or other transaction
between the PSG Group and CGE or Anjou and any of their respective Affiliates,
except in the ordinary course of business of the PSG Group consistent with past
practices.
3.13 Material Contracts. (a) Except as disclosed in Schedule 3.13, and except
for any agreements that are terminable on not more than 90 days notice and
without the payment of any penalty by, or any other material consequence to,
the PSG Group, the PSG Group is not a party to or bound by:
(i) any sales, distribution or other similar agreement providing for the
sale by the PSG Group of materials, supplies, goods, services, equipment or
other assets that provides for either (A) annual payments to the PSG Group
of $2,000,000 or more or (B) aggregate payments to the PSG Group of
$2,000,000 or more;
(ii) any partnership, joint venture or other similar agreement or
arrangement;
(iii) any agreement relating to indebtedness for borrowed money or the
deferred purchase price of property (in either case, whether incurred,
assumed, guaranteed or secured by any asset); or
(iv) any agreement that limits the freedom of the PSG Group to compete in
any line of business or with any Person or in any geographic area or which
would so limit the freedom of the PSG Group after the Closing Date.
(b) Each agreement, commitment, arrangement or plan disclosed in any Schedule
to this Agreement or required to be disclosed pursuant to this Section is a
valid and binding agreement of the PSG Group and is in full force and effect,
and the PSG Group is not nor, to the knowledge of CGE or Anjou, is any other
party thereto in default or breach in any material respect under the terms of
any such agreement, contract, plan, lease, arrangement or commitment.
3.14 Litigation. Except as set forth on Schedule 3.14, there is no action,
suit, investigation or proceeding pending against, or to the knowledge of CGE
or Anjou threatened against or affecting, CGE, Anjou or the PSG Group or any of
their respective properties before any court or arbitrator or any governmental
body, agency or official (i) which would reasonably be expected to have a
Material Adverse Effect or (ii) which in any manner challenges or seeks to
prevent, enjoin, alter or materially delay the transactions contemplated by
this Agreement.
3.15 Compliance with Laws and Court Orders; No Defaults. (a) The PSG Group is
not in violation of any applicable law, rule, regulation, judgement,
injunction, order or decree except for violations that have not had and would
not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect.
(b) The PSG Group is not in default under, and no condition exists that with
notice or lapse of time or both would constitute a default under, any agreement
or other instrument binding upon the PSG Group or any license, franchise,
permit or similar authorization held by the PSG Group, which defaults or
potential defaults, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect.
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3.16 Insurance Coverage. PSG has furnished to AWT a list of, and true and
complete copies of, all insurance policies and fidelity bonds relating to the
assets, business, operations, employees, officers or directors of the PSG
Group. There is no claim by the PSG Group pending under any of such policies or
bonds as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds or in respect of which such underwriters
have reserved their rights, except for such claims which, individually or in
the aggregate, would not reasonably be expected to have a Material Adverse
Effect. All premiums payable under all such policies and bonds have been paid
timely and the PSG Group has otherwise complied fully with the terms and
conditions of all such policies and bonds. Such policies of insurance and bonds
(or other policies and bonds providing substantially similar insurance
coverage) have been in effect since January 1, 1994 and remain in full force
and effect. Such policies and bonds are of the type and in amounts customarily
carried by Persons conducting businesses similar to those of the PSG Group. The
PSG Group shall after the Closing continue to have coverage under such policies
and bonds with respect to events occurring prior to the Closing.
3.17 Finders' Fees; Certain Payments. (a) Except for Lazard Freres & Co.
whose fees will be paid by CGE, there is no investment banker, broker, finder
or other intermediary which has been retained by or is authorized to act on
behalf of CGE, Anjou or the PSG Group who might be entitled to any fee or
commission in connection with the transactions contemplated by this Agreement.
(b) All payments by or for the benefit of the PSG Group to agents,
consultants and others have been in payment of bona fide fees and commissions.
3.18 Employee Benefit Plans. (a) Schedule 3.18 identifies each PSG Group
Employee Plan. Anjou has furnished or made available to AWT copies of the PSG
Group Employee Plans (and, if applicable, related trust agreements) and all
amendments thereto and written interpretations thereof together with (i) the
most recent annual report prepared in connection with any PSG Group Employee
Plan (Form 5500 including, if applicable, Schedule B thereto) and (ii) if
applicable, the most recent actuarial valuation report prepared in connection
with any PSG Group Employee Plan.
(b) Neither Anjou nor any of its ERISA Affiliates has incurred, or reasonably
expects to incur prior to the Closing Date, any liability under Title IV of
ERISA arising in connection with the termination of, or complete or partial
withdrawal from, any plan covered or previously covered by Title IV of ERISA
that could become a liability of AWT or any of its ERISA Affiliates after the
Closing Date. To the best knowledge of Anjou, no condition exists that (i)
could constitute grounds for termination by the PBGC of any PSG Group Employee
Plan that is subject to Title IV of ERISA that is maintained solely by Anjou or
any of its ERISA Affiliates or (ii) presents a material risk of complete or
partial withdrawal from any Multiemployer Plan under Title IV of ERISA other
than a complete or partial withdrawal that would not have a Material Adverse
Effect.
(c) Each PSG Group Employee Plan (other than a Multiemployer Plan) that is
intended to be qualified under Section 401(a) of the Code has been determined
by the Internal Revenue Service to be so qualified or can become so qualified
within the remedial amendment period of Section 401(b) of the Code and to the
best knowledge of Anjou, no event has occurred since the date of such
determination that would adversely affect such qualification or affect the
ability to become so qualified within the remedial amendment period of Section
401(b) of the Code; each trust created under any such Plan has been determined
by the Internal Revenue Service to be exempt from tax under Section 501(a) of
the Code or can be so determined within the aforesaid remedial amendment period
and, to the best knowledge of Anjou, no event has occurred since the date of
such determination that would adversely affect such exemption or affect the
ability to be determined to be exempt within the aforesaid remedial amendment
period. Anjou has furnished or made available to AWT the most recent
determination letter of the Internal Revenue Service relating to each such PSG
Group
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Employee Plan. To the best knowledge of Anjou, each PSG Group Employee Plan
(other than a Multiemployer Plan) has been maintained in substantial compliance
with its terms and substantially with the requirements prescribed by any and
all applicable statutes, orders, rules and regulations, including but not
limited to ERISA and the Code, except for any instance of non-compliance that
would not have a Material Adverse Effect.
(d) Schedule 3.18 identifies each PSG Group Benefit Arrangement. Anjou has
furnished or made available to AWT copies or descriptions of each PSG Group
Benefit Arrangement. To the best knowledge of Anjou, each PSG Group Benefit
Arrangement has been maintained in substantial compliance with its terms and
with the requirements prescribed by any and all applicable statutes, orders,
rules and regulations, except for any instance of non-compliance that would not
have a Material Adverse Effect.
(e) Schedule 3.18 identifies each PSG Group International Plan. Anjou has
furnished to AWT copies of each PSG Group International Plan. To the best
knowledge of Anjou, each PSG Group International Plan has been maintained in
substantial compliance with its terms and with the requirements prescribed by
any and all applicable statutes, orders, rules and regulations (including any
special provisions relating to qualified plans where such Plan was intended to
so qualify) and has been maintained in good standing with applicable regulatory
authorities, except for any instance of non-compliance or failure to be so
maintained that would not, in either case, have a Material Adverse Effect.
(f) All representations and warranties contained in the foregoing subsections
of this Section 3.18 are subject to such limitations and exceptions as are
specifically noted in Schedule 3.18.
3.19 Taxes. Except as set forth on the Balance Sheet (including the notes
thereto) and except for Taxes, the liability for which would not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect,
(i) all material Tax returns, statements, reports and forms required to be
filed with any Taxing authority by or on behalf of PSG (collectively, the
"Returns"), have been or will be filed when due in accordance with all
applicable laws except where failure to so file would not subject PSG to
liabilities or penalties; (ii) as of the time of filing, the Returns correctly
reflected in all material respects (and, as to any Returns not filed as of the
date hereof, will correctly reflect) the facts regarding the income, business,
assets, operations, activities and status of PSG; (iii) PSG has timely paid,
withheld or made provision for all Taxes shown as due and payable on the
Returns that have been filed; (iv) the charges, accruals and reserves for Taxes
with respect to PSG for any Tax period (or portion thereof) ending on or before
the Closing Date (excluding any provision for deferred income taxes) reflected
on the books of PSG are adequate to cover such Taxes; (v) PSG is not delinquent
in the payment of any material Tax and has not requested any extension of time
within which to file or send any Return, which Return has not since been filed
or sent; (vi) neither PSG (nor any member of any affiliated or combined group
of which PSG is or has been a member) has granted any extension or waiver of
the limitation period applicable to any Returns; (vii) there is no claim,
audit, action, suit, proceeding or investigation now pending or threatened
against or with respect to PSG of which PSG or Anjou is aware in respect of any
material Tax or assessment; and (viii) there are no material liens for Taxes
upon the assets of PSG except liens for current Taxes not yet due.
3.20 Environmental Matters. To the best of CGE's and Anjou's knowledge there
are no liabilities of the PSG Group which (a) arise under or relate to matters
covered by Environmental Laws, (b) are attributable to actions occurring or
conditions existing on or prior to the Closing Date and (c) would reasonably be
expected to have a Material Adverse Effect.
"ENVIRONMENTAL LAWS" means any and all federal, state and local statutes,
laws, regulations, rules, judgments and orders relating to the environment, to
emissions, discharges or releases of pollutants, contaminants, hazardous
substances or hazardous or toxic wastes into the environment or to the
handling, use, storage, transportation or disposal thereof.
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3.21 Properties. (a) The PSG Group has good title to, or in the case of
leased property has valid leasehold interests in, all property and assets
(whether real or personal, tangible or intangible) reflected on the Balance
Sheet or acquired after December 31, 1993, except for property and assets sold
since December 31, 1993 in the ordinary course of business consistent with past
practices.
(b) The plants, buildings, structures and equipment owned or leased by the
PSG Group (i) have no material defects, are in good operating condition and
repair and have been reasonably maintained consistent with standards generally
followed in the industry (giving due account to the age and length of use of
same, ordinary wear and tear excepted) and (ii) comply in all material respects
with applicable zoning and other applicable land-use regulations.
3.22 Receivables. All accounts receivable of the PSG Group are fully
collectible in the aggregate amount thereof, subject to normal and customary
trade discounts, less any reserves for doubtful accounts recorded on the
Balance Sheet and subsequent to December 31, 1993 in the ordinary course of
business consistent with past practices.
3.23 Purchase for Investment. Each of CGE and Anjou is acquiring the Series A
Preferred and the Shares, respectively, for investment for its own account and
not with a view to, or for sale in connection with, any distribution any such
shares. Each of CGE and Anjou (either alone or together with its advisors) has
sufficient knowledge and experience in financial and business matters so as to
be capable of evaluating the merits and risks of its investments in AWT and is
capable of bearing the economic risks of such investment.
3.24 Other Information. None of the documents or information delivered to AWT
by any of CGE, Anjou or PSG in connection with its due diligence investigation
of the PSG Group contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained
therein, in the light of the circumstances under which such statements were
made, not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF AWT
AWT represents and warrants to each of CGE and Anjou as of the date hereof
and as of the Closing Date that:
4.1 Corporate Existence and Power. AWT is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware
and has all corporate powers and all governmental licenses, authorizations,
permits, consents and approvals required to carry on its business as now
conducted, except for those licenses, authorizations, permits, consents and
approvals the absence of which would not, individually or in the aggregate,
have a Material Adverse Effect.
4.2 Corporate Authorization. (a) The execution, delivery and performance by
AWT of this Agreement are within the corporate powers of AWT and, except for
any required approval by AWT's stockholders, have been duly authorized by all
necessary corporate action on the part of AWT. This Agreement constitutes a
valid and binding agreement of AWT enforceable against it in accordance with
its terms.
(b) The Shares and the Series A Preferred, when issued and delivered to and
paid for by Anjou and CGE, as the case may be, pursuant to this Agreement, will
be validly issued, fully paid and non-assessable, and such Shares and Series A
Preferred will be free of pre-emptive or similar rights. The Shares reserved
for issuance upon conversion of the Series A Preferred have been duly
authorized by AWT and reserved for issuance upon such conversion and, when
issued upon such conversion in accordance with the terms of the
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Certificate of Designations for the Series A Preferred, will have been validly
issued, fully paid and non-assessable, and such Shares will be free of pre-
emptive or similar rights.
4.3 Governmental Authorization. The execution, delivery and performance by
AWT of this Agreement require no action by or in respect of, or filing with,
any governmental body, agency or official other than (i) compliance with any
applicable requirements of the HSR Act; (ii) compliance with any applicable
requirements of the 1934 Act; (iii) compliance with the rules and regulations
of the American Stock Exchange; (iv) any filings to be made in Minnesota or
Delaware, as the case may be, in connection with the Merger and the Certificate
of Designations of the Series A Preferred; and (v) any such action or filing as
to which the failure to make or obtain would not, individually or in the
aggregate, have a Material Adverse Effect.
4.4 Non-Contravention. The execution, delivery and performance by AWT of this
Agreement do not and will not (i) violate the certificate of incorporation or
bylaws of AWT or (ii) assuming compliance with the matters referred to in
Section 4.3, violate any applicable law, rule, regulation, judgment,
injunction, order or decree except, in the case of clause (ii), to the extent
that any such violation would not, individually or in the aggregate, have a
Material Adverse Effect.
4.5 Capitalization. (a) The authorized capital stock of AWT consists of
100,000,000 shares of Common Stock, par value $0.001 per share and 2,500,000
shares of preferred stock, par value $0.01 per share. As of the date hereof,
there were outstanding (i) 25,313,281 shares of Common Stock, (ii) no shares of
preferred stock, (iii) $115,000,000 aggregate principal amount of 8%
Convertible Subordinated Debentures, convertible into shares of Class A Common
Stock at a conversion price of $30.00 per share and (iv) employee stock options
to purchase an aggregate of 2,197,025 Shares (of which options to purchase an
aggregate of 891,580 Shares were exercisable).
(b) All outstanding Shares have been duly authorized and validly issued and
are fully paid and non-assessable. Except as set forth in this Section 4.5,
there are no outstanding (i) shares of capital stock or voting securities of
AWT, (ii) securities of AWT convertible into or exchangeable for shares of
capital stock or voting securities of AWT or (iii) options or other rights to
acquire from AWT, or other obligation of AWT to issue, any capital stock,
voting securities or securities convertible into or exchangeable for capital
stock or voting securities of AWT (the items in clauses (i), (ii) and (iii)
being referred to collectively as the "AWT SECURITIES"). There are no
outstanding obligations of PSG to repurchase, redeem or otherwise acquire any
AWT Securities.
4.6 SEC Filings. (a) AWT has delivered to CGE the annual report on Form 10-K
for its fiscal year ended October 31, 1993 (the "COMPANY 10-K") and the
quarterly report on Form 10-Q for its quarter ended January 31, 1994 (the
"COMPANY 10-Q").
(b) As of its respective filing date, the Company 10-K and the Company 10-Q
did not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading.
4.7 Financial Statements. (a) The audited consolidated financial statements
for the fiscal years ended October 31, 1992 and October 31, 1993 of AWT
included in the Company 10-K and (b) the unaudited consolidated financial
statements for the quarter ended January 31, 1994 of AWT included in the
Company 10-Q as filed with the Commission fairly present, in conformity with
generally accepted accounting principles applied on a consistent basis (except
as may be indicated in the notes thereto and except for normal year-end
adjustments), the consolidated financial position of the Company and its
consolidated subsidiaries as of the dates thereof and their consolidated
results of operations and statement of cash flows for the periods then ended.
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4.8 Absence of Certain Changes. Except as set forth on Schedule 4.8, since
January 31, 1994, the business of AWT has been conducted in the ordinary course
consistent with past practices and there has not been:
(i) any event, occurrence, development or state of circumstances or facts
which has had or would reasonably be expected to have a Material Adverse
Effect;
(ii) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of AWT, or any
repurchase, redemption or other acquisition by AWT of any outstanding
shares of capital stock or other securities of, or other ownership
interests in, AWT;
(iii) any amendment of any material term of any outstanding security of
AWT;
(iv) any incurrence, assumption or guarantee by AWT of any indebtedness
for borrowed money, except in the ordinary course of business consistent
with past practices;
(v) any creation or assumption by AWT of any Lien on any material asset
other than in the ordinary course of business consistent with past
practices;
(vi) any damage, destruction or other casualty loss (whether or not
covered by insurance) affecting the business or assets of AWT which,
individually or in the aggregate, has had or would reasonably be expected
to have a Material Adverse Effect;
(vii) any change in any method of accounting or accounting practice by
AWT;
(viii) any (A) employment, deferred compensation, severance, retirement
or other similar agreement entered into with any director, officer or
employee of AWT (or any amendment to any such existing agreement), (B)
grant of any severance or termination pay to any director, officer or
employee of AWT, or (C) change in compensation or other benefits payable to
any director, officer or employee of AWT pursuant to any severance or
retirement plans or policies thereof, other than in the ordinary course of
business consistent with past practices; or
(ix) any labor dispute, other than routine individual grievances, or any
activity or proceeding by a labor union or representative thereof to
organize any employees of AWT, which employees were not subject to a
collective bargaining agreement at January 31, 1994, or any lockouts,
strikes, slowdowns, work stoppages or threats thereof by or with respect to
any employees of AWT.
4.9 No Undisclosed Material Liabilities. Other than liabilities disclosed, or
provided for, in the Company 10-Q or otherwise disclosed to CGE in writing, (i)
there exist no liabilities of AWT or its consolidated Subsidiaries of any kind
whatsoever, whether accrued, contingent, absolute or otherwise and (ii) there
is no existing condition, situation or set of circumstances which would result
in such a liability, except in the case of each of clauses (i) and (ii) for
liabilities that, individually or in the aggregate, have not had and would not
reasonably be expected to have a Material Adverse Effect.
4.10 AWT Proxy Materials. (a) The AWT Proxy Materials will, when filed,
comply as to form in all material respects with the applicable requirements of
the 1934 Act.
(b) Each time any AWT Proxy Materials are distributed to stockholders of AWT
or any other solicitation of stockholders of AWT is made by or on behalf of AWT
or any Affiliate of AWT, and at the time the stockholders of AWT vote on the
issuance of AWT Securities pursuant to this Agreement, the AWT Proxy Materials
(as supplemented and amended, if applicable) will not include an untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in the light of the circumstances
under which the statements were made, not misleading, or necessary to correct
any statement in any earlier communication with respect to the solicitation of
a proxy for the same meeting or subject matter which has become false or
misleading. The representations and warranties contained in this Section 4.10
will not apply to statements or omissions included in the AWT Proxy Materials
based upon information furnished to AWT in writing by CGE, Anjou or PSG
specifically for use therein.
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4.11 Compliance with Contracts. Neither AWT nor any of its Subsidiaries is in
default under, and no condition exists that with notice or lapse of time or
both would constitute a default under, (i) any mortgage, loan agreement,
indenture or evidence of indebtedness for borrowed money to which AWT or any of
its Subsidiaries is a party or by which AWT or any of its Subsidiaries or any
material amount of their assets is bound or (ii) any judgment, order or
injunction of any court, arbitrator or governmental body, agency, official or
authority which defaults or potential defaults under either clauses (i) or
(ii), individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect.
4.12 Litigation. Except as disclosed in Schedule 4.12, there is no action,
suit, investigation or proceeding pending against, or to the knowledge of AWT
threatened against or affecting, AWT before any court or arbitrator or any
governmental body, agency or official (i) which would reasonably be expected to
have a Material Adverse Effect or (ii) which in any manner challenges or seeks
to prevent, enjoin, alter or materially delay the transactions contemplated by
this Agreement.
4.13 Compliance with Laws and Court Orders; No Defaults. (a) AWT is not in
violation of any applicable law, rule, regulation, judgement, injunction, order
or decree except for violations that have not had and would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.
(b) AWT is not in default under, and no condition exists that with notice or
lapse of time or both would
constitute a default under, any agreement or other instrument binding upon AWT
or any license, franchise, permit or similar authorization held by AWT, which
defaults or potential defaults, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect.
4.14 Insurance Coverage. AWT has furnished to Anjou a list of, and true and
complete copies of, all insurance policies and fidelity bonds relating to the
assets, business, operations, employees, officers or directors of AWT. There is
no claim by AWT pending under any of such policies or bonds as to which
coverage has been questioned, denied or disputed by the underwriters of such
policies or bonds or in respect of which such underwriters have reserved their
rights, except for such claims which, individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect. All premiums
payable under all such policies and bonds have been paid timely and AWT has
otherwise complied fully with the terms and conditions of all such policies and
bonds. Such policies of insurance and bonds (or other policies and bonds
providing substantially similar insurance coverage) have been in effect since
November 1, 1993 and remain in full force and effect. Such policies and bonds
are of the type and in amounts customarily carried by Persons conducting
businesses similar to those of AWT. Except as disclosed in Schedule 4.14, AWT
shall after the Closing continue to have coverage under such policies and bonds
with respect to events occurring prior to the Closing.
4.15 Finders' Fees. Except for Allen & Company Incorporated, whose fees will
be paid by AWT, there is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on behalf of
AWT who might be entitled to any fee or commission from either CGE or Anjou or
any of its Affiliates upon consummation of the transactions contemplated by
this Agreement.
4.16 Employee Benefit Plans. (a) Schedule 4.16 identifies each AWT Employee
Plan. AWT has furnished or made available to CGE copies of the AWT Employee
Plans (and, if applicable, related trust agreements) and all amendments thereto
and written interpretations thereof together with (i) the most recent annual
report prepared in connection with any AWT Employee Plan (Form 5500 including,
if applicable, Schedule B thereto) and (ii) if applicable, the most recent
actuarial valuation report prepared in connection with any AWT Employee Plan.
(b) Neither AWT nor any of its ERISA Affiliates has incurred, or reasonably
expects to incur prior to the Closing Date, any liability under Title IV of
ERISA arising in connection with the termination of, or complete or partial
withdrawal from, any plan covered or previously covered by Title IV of ERISA
that could
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become a liability of CGE or any of its ERISA Affiliates after the Closing
Date. To the best knowledge of AWT, no condition exists that (i) could
constitute grounds for termination by the PBGC of any AWT Employee Plan that is
subject to Title IV of ERISA that is maintained solely by AWT or any of its
ERISA Affiliates (ii) or presents a material risk of complete or partial
withdrawal from any Multiemployer Plan under Title IV of ERISA other than a
complete or partial withdrawal that would not have a Material Adverse Effect.
(c) Each AWT Employee Plan (other than a Multiemployer Plan) that is intended
to be qualified under Section 401(a) of the Code has been determined by the
Internal Revenue Service to be so qualified or can become so qualified within
the remedial amendment period of Section 401(b) of the Code and, to the best
knowledge of AWT, no event has occurred since the date of such determination
that would adversely affect such qualification or affect the ability to become
so qualified within the remedial amendment period of Section 401(b) of the
Code; each trust created under any such Plan has been determined by the
Internal Revenue Service to be exempt from tax under Section 501(a) of the Code
or can be so determined within the aforesaid remedial amendment period and, to
the best knowledge of AWT, no event has occurred since the date of such
determination that would adversely affect such exemption or affect the ability
to be determined to be exempt within the aforesaid remedial amendment period.
AWT has furnished or made available to CGE the most recent determination letter
of the Internal Revenue Service relating to each such AWT Employee Plan. To the
best knowledge of AWT, each AWT Employee Plan (other than a Multiemployer Plan)
has been maintained in substantial compliance with its terms and substantially
with the requirements prescribed by any and all applicable statutes, orders,
rules and regulations, including but not limited to ERISA and the Code, except
for any instance of non-compliance that would not have a Material Adverse
Effect.
(d) Schedule 4.16 identifies each AWT Benefit Arrangement. AWT has furnished
or made available to CGE copies or descriptions of each AWT Benefit
Arrangement. To the best knowledge of AWT, each AWT Benefit Arrangement has
been maintained in substantial compliance with its terms and with the
requirements prescribed by any and all applicable statutes, orders, rules and
regulations, except for any instance of non-compliance that would not have a
Material Adverse Effect.
(e) Schedule 4.16 identifies each AWT International Plan. AWT has furnished
to CGE copies of each AWT International Plan. To the best knowledge of AWT,
each AWT International Plan has been maintained in substantial compliance with
its terms and with the requirements prescribed by any and all applicable
statutes, orders, rules and regulations (including any special provisions
relating to qualified plans where such Plan was intended to so qualify) and has
been maintained in good standing with applicable regulatory authorities, except
for any instance of non-compliance or failure to be so maintained that would
not, in either case, have a Material Adverse Effect.
(f) All representations and warranties contained in the foregoing subsections
of this Section 4.16 are subject to such limitations and exceptions as are
specificallly noted in Schedule 4.16.
4.17 Taxes. Except as disclosed in the financial statements included in the
Company 10-K or the Company 10-Q (including the notes thereto) or on Schedule
4.17 and except for Taxes, the liability for which would not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect, (i)
all material Tax returns, statements, reports and forms required to be filed
with any Taxing authority by or on behalf of AWT or any of its Subsidiaries
(collectively, the "Returns"), have been or will be filed when due in
accordance with all applicable laws except where failure to so file would not
subject AWT or any AWT Subsidiary to liabilities or penalties; (ii) as of the
time of filing, the Returns correctly reflected in all material respects (and,
as to any Returns not filed as of the date hereof, will correctly reflect) the
facts regarding the income, business, assets, operations, activities and status
of AWT and each AWT Subsidiary; (iii) AWT and each of its Subsidiaries has
timely paid, withheld or made provision for all Taxes shown as due and payable
on the Returns that have been filed; (iv) the charges, accruals and reserves
for Taxes with respect to AWT and its Subsidiaries for any Tax period (or
portion thereof) ending on or before the Closing Date (excluding
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any provision for deferred income taxes) reflected on the books of AWT and its
Subsidiaries are adequate to cover such Taxes; (v) neither AWT nor any of its
Subsidiaries is delinquent in the payment of any material Tax and has not
requested any extension of time within which to file or send any Return, which
Return has not since been filed or sent; (vi) neither AWT nor any of its
Subsidiaries (or any member of any affiliated or combined group of which AWT or
any AWT Subsidiary is or has been a member) has granted any extension or waiver
of the limitation period applicable to any Returns; (vii) there is no claim,
audit, action, suit, proceeding or investigation now pending or threatened
against or with respect to AWT or any of its Subsidiaries of which AWT is aware
in respect of any material Tax or assessment; and (viii) there are no material
liens for Taxes upon the assets of AWT or its Subsidiaries except liens for
current Taxes not yet due.
4.18 Purchase for Investment. AWT is acquiring all of the outstanding shares
of capital stock of the PSG Group for investment for its own account and not
with a view to, or for sale in connection with, any distribution any shares of
capital stock of PSG. AWT (either alone or together with its advisors) has
sufficient knowledge and experience in financial and business matters so as to
be capable of evaluating the merits and risks of its investments in PSG and is
capable of bearing the economic risks of such investment.
4.19 Other Information. None of the documents or information delivered to CGE
or Anjou by AWT in connection with their due diligence investigation of AWT
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained therein, in the light
of the circumstances under which such statements were made, not misleading.
ARTICLE 5
COVENANTS OF CGE AND ANJOU
CGE and Anjou agree that:
5.1 Conduct of the PSG Group. From the date hereof until the Closing Date,
except as provided in Section 8.4 with respect to payments to Anjou in respect
of Taxes of the PSG Group, CGE and Anjou shall cause the PSG Group to conduct
its business in the ordinary course consistent with past practice and to use
its best efforts to preserve intact its business organizations and
relationships with third parties and to keep available the services of its
present officers and employees. Without limiting the generality of the
foregoing, from the date hereof until the Closing Date, CGE and Anjou will not
permit the PSG Group to:
(i) adopt or propose any change in its articles of incorporation or
bylaws;
(ii) merge or consolidate with any other Person or acquire a material
amount of assets of any other Person;
(iii) except as previously disclosed to AWT, modify or enter into any
employee benefit arrangements or any agreements with employees or grant any
severance or termination compensation rights to employees;
(iv) sell, lease, license or otherwise dispose of any material assets or
property except (A) pursuant to existing contracts or commitments and (B)
in the ordinary course consistent with past practice; or
(v) agree or commit to do any of the foregoing.
CGE and Anjou will not, and will not permit PSG to (A) take or agree or commit
to take any action that would make any representation and warranty of CGE and
Anjou hereunder inaccurate in any material respect at, or as of any time prior
to, the Closing Date or (B) omit or agree or commit to omit to take any action
necessary to prevent any such representation or warranty from being inaccurate
in any material respect at any such time.
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5.2 Access to Information. From the date hereof until the Closing Date, CGE
and Anjou will (i) give, and will cause PSG to give, AWT, its counsel,
financial advisors, auditors and other authorized representatives full access
to the offices, properties, books and records of the PSG Group and to the books
and records of Anjou relating to the PSG Group, (ii) furnish, and will cause
the PSG Group to furnish, to AWT, its counsel, financial advisors, auditors and
other authorized representatives such financial and operating data and other
information relating to the PSG Group as such Persons may reasonably request
and (iii) instruct the employees, counsel and financial advisors of CGE, Anjou
or the PSG Group to cooperate with AWT in its investigation of the PSG Group.
5.3 Notices of Certain Events. CGE and Anjou shall promptly notify AWT of:
(i) any notice or other communication from any Person alleging that the
consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement;
(ii) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement; and
(iii) any actions, suits, claims, investigations or proceedings commenced
or, to its knowledge threatened against, relating to or involving or
otherwise affecting CGE, Anjou or PSG that, if pending on the date of this
Agreement, would have been required to have been disclosed pursuant to
Section 3.14 or that relate to the consummation of the transactions
contemplated by this Agreement.
5.4 Resignations. Anjou will deliver to AWT the resignations of all directors
of PSG who will not be officers, directors or employees of AWT or any of its
Affiliates after the Closing Date from their positions with PSG at or prior to
the Closing Date.
5.5 Voting of Shares; Acquisitions of Shares. (a) CGE will vote, or cause to
be voted, all Shares of AWT that CGE beneficially owns to approve the issuance
of AWT Securities pursuant to this Agreement at any meeting of the stockholders
of AWT, and at any adjournment thereof, at which the issuance of AWT Securities
pursuant to this Agreement is submitted for the consideration and vote of the
stockholders of AWT.
(b) Prior to Closing, CGE will give AWT two days' prior written notice of any
acquisition of more than 1% of the outstanding Shares. After Closing, CGE will
give AWT one days' prior written notice of any sale of Shares or Series A
Preferred held by CGE or its Affiliates if to the knowledge of CGE such sale
would result in any Person beneficially owning more than 15% of the outstanding
Shares.
5.6 Joint Efforts. CGE agrees on behalf of itself and its Affiliates that,
after Closing, for so long as CGE and its Affiliates are the largest
stockholder of AWT, AWT shall be CGE's exclusive vehicle in the United States,
its possessions and its territories for its water and waste water management
and air pollution activities. After Closing, CGE shall, and shall cause its
Affiliates to, assist AWT in developing its water and waste water management
and air pollution activities in both Canada and Mexico, subject to existing
contractual agreements and taking into account the respective interests of AWT
on the one hand and CGE and its Affiliates, on the other. CGE shall, and shall
cause its Affiliates to, offer AWT an active participation in any new water
management investments by CGE or any of its Affiliates in the United States
which are too capital intensive for AWT to undertake on a stand-alone basis. In
addition, CGE and its Affiliates, on the one hand, and AWT on the other, will
establish a privileged commercial relationship for the development of air
pollution activities in Europe.
5.7 Other Agreements. In the event that CGE materially breaches any of its
obligations or representations contained herein (including, but not limited to,
its obligation under the last sentence of Section 6.1) or with respect to its
financial undertakings contained in the certain letter dated March 18, 1994 to
AWT, CGE agrees that the provisions of Article VI of the Stock Purchase
Agreement dated May 13, 1990 been CGE and AWT shall be reinstated for an
additional three-year period from the date hereof.
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ARTICLE 6
COVENANTS OF AWT
AWT agrees that:
6.1 Conduct of Business. From the date hereof until the Closing Date, AWT and
its Subsidiaries shall conduct their businesses in the ordinary course
consistent with past practice and shall use their best efforts to preserve
intact their business organizations and relationships with third parties and to
keep available the services of its present officers and employees. Without
limiting the generality of the foregoing, from the date hereof until the
Closing Date, AWT will not:
(i) adopt or propose any change in its certificate of incorporation or
bylaws, except as contemplated hereby;
(ii) adopt any stockholders rights plan (or any arrangement which is
designed to disadvantage CGE on the basis of the size of its
shareholdings);
(iii) make any material change in its capital structure or issue any
capital stock except pursuant to any outstanding securities or options;
(iv) merge or consolidate with any other Person or acquire a material
amount of assets of any other Person, except as contemplated hereby;
(v) sell, lease, license or otherwise dispose of any material assets or
property except (A) pursuant to existing contracts or commitments and (B)
in the ordinary course consistent with past practice; or
(vi) agree or commit to do any of the foregoing.
AWT will not, and will not permit any of its Subsidiaries to (a) take or agree
or commit to take any action that would make any representation and warranty of
AWT hereunder inaccurate in any material respect at, or as of any time prior
to, the Closing Date or (b) omit or agree or commit to omit to take any action
necessary to prevent any such representation or warranty from being inaccurate
in any material respect at any such time. The foregoing restrictions shall
terminate in the event that (i) CGE materially breaches any of its obligations
or representations contained herein or in its financial undertakings to AWT as
set forth in that certain letter dated March 18, 1994 or (ii) CGE commences a
tender offer for or acquires more than 1% of the outstanding shares of Class A
Common Stock (except as contemplated hereby) or commences any solicitation of
proxies from AWT's stockholders not approved by AWT's Board of Directors.
6.2 Access to Information. From the date hereof until the Closing Date, AWT
will (i) give CGE, its counsel, financial advisors, auditors and other
authorized representatives full access to the offices, properties, books and
records of AWT, (ii) furnish to CGE, its counsel, financial advisors, auditors
and other authorized representatives such financial and operating data and
other information relating to AWT as such Persons may reasonably request and
(iii) instruct the employees, counsel and financial advisors of AWT to
cooperate with CGE in its investigation of AWT.
6.3 Notices of Certain Events. AWT shall promptly notify CGE of:
(i) any notice or other communication from any Person alleging that the
consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement;
(ii) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement; and
(iii) any actions, suits, claims, investigations or proceedings commenced
or, to its knowledge threatened against, relating to or involving or
otherwise affecting AWT that, if pending on the date of this Agreement,
would have been required to have been disclosed pursuant to Section 3.14 or
that relate to the consummation of the transactions contemplated by this
Agreement.
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6.4 Stockholder Meeting; Proxy Materials. AWT shall cause a meeting of its
stockholders to be duly called and held as soon as reasonably practicable for
the purpose of approving the issuance of AWT Securities pursuant to this
Agreement. The board of directors of AWT shall, subject to their fiduciary
duties under applicable law as advised by counsel, recommend to AWT's
stockholders approval of the issuance of AWT Securities pursuant to this
Agreement. In connection with such meeting, AWT (i) will promptly prepare and
file with the SEC, will use its best efforts to have cleared by the SEC and
will thereafter mail to its stockholders as promptly as practicable a proxy
statement and all other AWT Proxy Materials for such meeting as may be required
under applicable law, (ii) will use its best efforts to obtain the necessary
approval by its stockholders of the issuance of AWT Securities pursuant to this
Agreement and (iii) will otherwise comply with all legal requirements
applicable to such meeting.
6.5 No-Shop. AWT shall not nor shall AWT permit any of its Subsidiaries or
any of its or their respective officers, directors, employees, agents or
advisers to initiate, solicit or encourage, or take any other action to
facilitate (including by way of furnishing nonpublic information, except to the
extent determined in good faith by the Board of Directors of AWT (the "BOARD")
based on the advice of counsel to be legally required for the discharge by the
Board of its fiduciary duties), any inquiries or the making of any proposal
which constitutes, or may reasonably be expected to lead to, any takeover
proposal (as defined below) or, except to the extent determined in good faith
by the Board based on the advice of counsel to be legally required for the
discharge by the Board of its fiduciary duties, agree to or endorse any
takeover proposal, or participate in any discussions or negotiations, or
provide third-parties with any nonpublic information, relating to any such
inquiry or proposal. AWT shall promptly inform CGE orally and in writing of any
such inquiry or proposal. As used herein, "TAKEOVER PROPOSAL" shall mean any
tender or exchange offer, proposal for a merger, consolidation or other
business combination involving AWT or any of its subsidiaries (other than that
involving solely an acquisition of a business or assets by AWT or any of its
subsidiaries) or any proposal or offer to acquire in any manner a significant
(i.e., more than 10% of the then outstanding shares of AWT) equity interest in,
or a significant (i.e., more than 10% of the consolidated total assets of AWT)
portion of the assets of (including the stock or assets of subsidiaries), AWT,
but excluding the transactions contemplated hereby.
6.6 Access to Books and Records. AWT agrees that, after Closing and for so
long as CGE beneficially owns directly or indirectly at least 26% of the
outstanding Shares on a fully diluted basis, it will have access on reasonable
terms to the books, records and employees of AWT and its subsidiaries and to
the provision by AWT of all information reasonably requested by such party,
subject to confidentiality obligations that at the time may be owed by AWT to
third parties, to appropriate confidentiality arrangements and requirements of
law.
6.7 Registration Rights. AWT agrees that CGE and Anjou shall have the
registration rights set forth in Exhibit C.
ARTICLE 7
COVENANTS OF AWT, ANJOU AND CGE
AWT, CGE and Anjou agree that:
7.1 Intercompany Accounts; Bonding and Insurance. (a) All intercompany
accounts between the CGE, Anjou or their Affiliates, on the one hand, and PSG,
on the other hand, as of the Closing shall be settled (irrespective of the
terms of payment of such intercompany accounts) in the manner provided in this
Section. At least five business days prior to the Closing, Anjou shall prepare
and deliver to AWT a statement setting out in reasonable detail the calculation
of all such intercompany account balances based upon the latest available
financial information as of such date and, to the extent requested by AWT,
provide AWT with supporting documentation to verify the underlying intercompany
charges and transactions. All such intercompany account balances shall be paid
in full in cash prior to the Closing; provided (i) that all amounts
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for money borrowed or owed by the PSG Group to Anjou and its Affiliates as of
December 31, 1993 ($8,513,000) shall be capitalized; (ii) the accrued pension
liability of the PSG Group owed to Anjou and its Affiliates as of December 31,
1993 ($2,200,000) shall be capitalized; (iii) all accrued liabilities owed by
the PSG Group to Anjou and its Affiliates in respect of projected self-
insurance claims arising or accruing prior to Closing shall remain outstanding
and Anjou shall invoice the PSG Group from time to time after Closing in
respect of any losses or changes incurred by the PSG Group in respect of such
self-insurance.
(b) The increase in intercompany balances owed by PSG to Anjou and its
Affiliates from December 31, 1993 through Closing shall remain outstanding as
of Closing. Such amount shall remain outstanding as indebtedness owing to Anjou
and its Affiliates and shall be evidenced by a promissory note of PSG which
shall provide for interest at a rate per annum equal to the Prime Rate
announced from time to time by Citibank, N.A. Interest and principal shall be
repaid one year after the Closing Date. Prepayment without premium of principal
(plus interest accrued through the date of prepayment) may be made at any time
by PSG. Any increase in intercompany balances owed by PSG Canada to Anjou and
its Affiliates from December 31, 1993 through Closing shall be capitalized on
the Closing Balance Sheet.
(c) As of Closing, the PSG Group shall no longer be provided insurance and
self-insurance coverage under any insurance policies or self-insurance programs
of Anjou and its Affiliates. Effective as of Closing, AWT will cause
outstanding surety bonds issued for the benefit of the PSG Group under any of
Anjou's surety agreements to be replaced by surety bonds issued under AWT's
surety agreements.
7.2 Board Representation; Management. (a) AWT agrees that CGE shall have the
right to cause AWT to include, as nominees for AWT's Board of Directors
recommended by the Board, a number of Directors (rounded down to the next whole
number if the fraction referred to below is less than one-half or, if
otherwise, rounded up to the next whole number) that is equal to the product of
the total number of Directors on the Board times a fraction the numerator of
which is the aggregate number of Shares owned by CGE and its affiliates
(assuming conversion of the Series A Preferred (or other securities convertible
into or exercisable or exchangeable for Shares) held by CGE or its Affiliates)
and the denominator of which is the total number of Shares outstanding
(assuming conversion of the Series A Preferred (or other securities convertible
into or exercisable or exchangeable for Shares) held by CGE and its affiliates.
AWT further agrees that CGE shall have the right to the same proportionate
representation on all Committees of the Board (other than any Special Committee
of independent directors formed to consider or approve any matters referred to
in Section 7.3) as CGE is entitled to the Board hereunder.
(b) Immediately after Closing, AWT shall cause the Board of Directors to
consist of 11 Directors, with five directors designated by CGE (who may be
Independent Directors (as defined below)), five Directors consisting of Messrs.
Beck, Costle, Dowd, Morris and Senior and an additional Independent Director
satisfactory to CGE. AWT and CGE agree that the Board shall have at least three
Independent Directors at any time. For purposes of this Agreement, an
"INDEPENDENT DIRECTOR" means any Director who is not an employee, agent or
representative of AWT, CGE or any of their respective Affiliates or Associates
and may include any person acting as outside counsel or financial advisor for
either AWT or CGE or any of their respective Affiliates or Associates. All
Independent Directors shall be satisfactory to CGE. AWT further agrees that the
Chairman of the Board of AWT shall be designated by CGE.
(c) AWT agrees that immediately after Closing, CGE shall have the right to
designate the Chief Executive Officer and the Chief Financial Officer of AWT
(and the Bylaws of AWT shall be amended to so reflect). CGE agrees that current
AWT management will participate in the transition as mutually agreed by AWT and
CGE. It is CGE's current intention to work with as many members of current
management as possible. Mr. Beck shall continue as Chairman and Chief Executive
Officer until Closing. CGE agrees to cause all agreements of AWT with its
employees to be honored.
7.3 Affiliate Transactions. CGE agrees on behalf of itself and its Affiliates
that any transactions (or series of related transactions in a chain) between
AWT and any of its Affiliates and CGE or any of its Affiliates
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or Associates shall be on an arms length basis. Any such transaction (or such
series of transactions) having an aggregate value in excess of $1,000,000 and
any settlement of the existing litigation between AWT and PRASA must be
approved by a majority of the Independent Directors or a Special Committee
thereof, acting in a separate meeting or by unanimous written consent. CGE,
Anjou and AWT further agree that after Closing, all actions by AWT with respect
to any claims by AWT against CGE or its Affiliates under this Agreement
(including, without limitation, any adjustment of the purchase price pursuant
to Section 2.4) shall be taken only by majority approval of such Independent
Directors or Special Committee, so acting in a meeting or by written consent.
7.4 Filings; Consents; Best Efforts. (a) Each of CGE, Anjou and AWT agrees to
cooperate with each other in good faith and to use its reasonable best efforts
in making all required governmental filings and obtaining at the earliest
practicable date all necessary approvals and consents from governmental
entities and third parties.
(b) Each of the parties hereto agrees to use its reasonable best efforts to
consummate the transactions contemplated hereby and to fulfill the conditions
set forth herein.
ARTICLE 8
TAX MATTERS
8.1 Tax Covenants. (a) Anjou and CGE jointly and severally covenant that
Anjou will not cause or permit PSG, Utilities or PSG Canada (i) to take any
action with respect to Taxes on the Closing Date other than as provided herein
or in the ordinary course of business, (ii) to make any election or deemed
election under Section 338 of the Code, or (iii) to make or change any Tax
election, amend any Tax Return or take any tax position on any Tax Return, take
any action, omit to take any action or enter into any transaction that results
in any increased Tax liability or reduction of any Tax Asset of PSG, Utilities
or PSG Canada. Anjou agrees that AWT and its Affiliates are to have no
liability for any Tax resulting from any action referred to in the preceding
sentence of Anjou or CGE, and agrees to indemnify and hold harmless AWT and its
Affiliates against any such Tax; provided, however that the indemnity in this
Section 8.1(a) shall not apply to Taxes of PSG, Utilities or PSG Canada that
relate to a pre-Closing Tax period.
(b) AWT covenants that it will not cause or permit PSG, Utilities or PSG
Canada or any Affiliate of AWT (i) to take any action on the Closing Date other
than in the ordinary course of business, including but not limited to the
distribution of any dividend or the effectuation of any redemption that could
give rise to any tax liability of Anjou or any Affiliate thereof, (ii) to make
any election or deemed election under Section 338 of the Code, or (iii) to make
or change any tax election, amend any tax Return or take any tax position on
any tax Return, take any action, omit to take any action or enter into any
transaction that results in any increased tax liability or reduction of any Tax
Asset of Anjou in respect of any pre-Closing Tax period. AWT represents that it
has no present plan or intention and covenants that during the two year period
following the Closing Date it will not cause or permit (i) the issuance of any
stock of PSG, Utilities or PSG Canada, (ii) the liquidation, merger or
consolidation with any other person, distribution or disposition of assets
(other than in the ordinary course of business) of PSG, Utilities or PSG
Canada, (iii) the sale, distribution, transfer, exchange or other disposition
of the stock of PSG, Utilities or PSG Canada, (iv) the discontinuance of the
active conduct of the trade or business of PSG or PSG Canada or (v) to the best
of its knowledge, pay any consideration to Anjou or CGE with respect to this
transaction except as provided for in this Agreement. AWT further covenants
that it will not take, cause or permit any action that jeopardizes the tax-free
status of the Merger or the Exchange. AWT agrees that Anjou and its Affiliates
are to have no liability for any Tax resulting from any action or breach of
representation, referred to in the preceding three sentences, of PSG,
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Utilities or PSG Canada, AWT or any Affiliate of AWT, and agrees to indemnify
and hold harmless Anjou and its Affiliates against any such Tax.
Notwithstanding the foregoing, AWT may take action inconsistent with the
covenants contained in the second sentence of this Section 8.1(b) if, on the
basis of valid representations, it obtains an opinion (reasonably satisfactory
to Anjou) from nationally recognized tax counsel to the effect that the
likelihood that such action will cause Anjou to recognize taxable income by
virtue of the Exchange or Merger is remote, provided, however, that any action
taken pursuant to the procedures provided in this sentence shall not relieve
AWT of its indemnity obligations under this Section 8.1(b).
(c) For any Taxable period of PSG, Utilities or PSG Canada that includes (but
does not end on) the Closing Date, AWT shall prepare, or cause to be prepared,
all Returns required to be filed by the PSG, Utilities or PSG Canada. Any such
Return shall be prepared in a manner consistent with past practice and without
a change of any election or any accounting method and shall be submitted by AWT
to Anjou (together with schedules, statements and, to the extent requested by
Anjou, supporting documentation) at least 60 days prior to the due date
(including extensions) of such Return. Anjou shall have the right at its own
expense to review all work papers and procedures used to prepare any such
Return. If Anjou, within 30 business days after delivery of any such Return,
notifies AWT in writing that it objects to any items in such Return, the
disputed items shall be resolved (within a reasonable time, taking into account
the deadline for filing such Return) by a nationally recognized independent
accounting firm chosen and mutually acceptable to both AWT and Anjou. Upon
resolution of all such items, the relevant Return shall be adjusted to reflect
such resolution and shall be binding upon the parties without further
adjustment. The costs, fees and expenses of such accounting firm shall be borne
equally by AWT and Anjou. If AWT fails to agree to the selection of an
accounting firm within 10 days, Anjou shall have the right to adjust the
relevant Return in the manner it deems appropriate and the Return as so
adjusted shall be binding upon the parties without further adjustment.
8.2 Transfer Taxes. All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Investment Agreement (including any
New York State Gains Tax, New York City Transfer Tax and any similar tax
imposed in other states or subdivisions) shall be borne and paid by the party
on which imposed, provided, however, that such Taxes and fees that are joint
obligations shall be borne and paid equally by Anjou and AWT. AWT will file all
necessary Tax returns and other documentation with respect to all such Taxes
and fees, and, if required by applicable law, CGE, Anjou, PSG, Utilities and
PSG Canada will, and will cause their respective Affiliates to, join in the
execution of any such Tax Returns and other documentation.
8.3 Termination of Existing Tax Sharing Arrangements. Any and all existing
Tax sharing arrangements between PSG, Utilities or PSG Canada and Anjou and any
Affiliate of Anjou shall be terminated as of the Closing Date. After such date
neither PSG, Utilities, PSG Canada, Anjou nor any Affiliate of Anjou shall have
any further rights or liabilities thereunder (with respect to PSG, Utilities
and PSG Canada). This Agreement shall be the sole Tax sharing agreement
relating to PSG, Utilities and PSG Canada for all pre-Closing Tax periods.
8.4 Tax Sharing. Immediately preceding the Closing, PSG and Utilities shall
pay Anjou an amount equal to the Taxes of PSG and Utilities, as applicable
(calculated in good faith in accordance with prior practice) with respect to
all pre-Closing Tax periods for which no Return has yet been filed, except to
the extent such amount is accounted for under Section 7.1 hereof.
8.5 Cooperation on Tax Matters. (a) Anjou and AWT agree to furnish or cause
to be furnished to each other, upon request, as promptly as practicable, such
information (including access to books and records) and assistance relating to
PSG, Utilities and PSG Canada as is reasonably necessary for the filing of any
Return, for the preparation for any audit, and for the prosecution or defense
of any claim, suit or proceeding relating to any proposed adjustment. Anjou and
AWT agree to retain or cause to be retained all books and records pertinent to
PSG's Taxes, Utilities' Taxes or PSG Canada's Taxes and until the applicable
period for assessment under applicable law (giving effect to any and all
extensions or waivers) has expired,
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and to abide by or cause the abidance with all record retention agreements
entered into with any Taxing authority. AWT and Anjou agree to give each other
reasonable notice prior to transferring, discarding or destroying any such
books and records relating to Tax matters and, if such other party so requests,
it shall be allowed to take possession of such books and records. Anjou and AWT
shall cooperate with each other in the conduct of any audit or other
proceedings involving PSG, Utilities and PSG Canada for any Tax purposes and
each shall execute and deliver such powers of attorney and other documents as
are necessary to carry out the intent of this subsection.
8.6 Indemnification by Anjou. (a) Anjou hereby indemnifies AWT against and
agrees to hold it harmless from any (i) Tax of PSG, Utilities or PSG Canada and
(ii) liabilities, costs, expenses (including, without limitation, reasonable
expenses of investigation and attorneys' fees and expenses), arising out of or
incident to the imposition, assessment or assertion of any Tax (including Taxes
reflected on PSG, Utilities or PSG Canada Tax Returns filed after the Closing),
including those incurred in the contest in good faith in appropriate
proceedings relating to the imposition, assessment or assertion of any Tax, in
each case with respect to any pre-Closing Tax period and in each case incurred
or suffered by AWT, any of its Affiliates or, effective upon the Closing, PSG,
Utilities or PSG Canada (the sum of (i) and (ii) being referred to as a
"Loss"); provided, however, that Anjou shall have no liability for the payment
of any loss attributable to or resulting from any action described in Section
8.1(b) hereof, provided, further, that Anjou shall have no obligation to make
any payment pursuant to this Section 8.6(a) if at the time the Loss is incurred
or suffered by PSG, Utilities or PSG Canada, as the case may be, AWT no longer
owns directly or indirectly PSG, Utilities or PSG Canada (or its successor), as
the case may be; and provided, further, that Anjou shall have no obligation to
make any payment to AWT pursuant to this Section 8.6(a) until the amount of all
claims arising pursuant hereto in the aggregate (minus any Tax Benefit (as
defined in Section 8.6(b) below) attributable thereto) exceeds the Basket, in
which case AWT shall be entitled to indemnity for the full amount of all claims
in excess of the Basket.
(b) If Anjou's indemnification obligation under this Section 8.6 arises in
respect of an adjustment which makes allowable to AWT, any of its Affiliates
or, effective upon the Closing, PSG, Utilities or PSG Canada any deduction,
amortization, exclusion from income or other allowance (a "Tax Benefit") which
would not, but for such adjustment, be allowable, then any payment by Anjou to
AWT shall be an amount equal to (x) the amount otherwise due but for this
subsection (b), minus (y) the present value of the Tax Benefit (using a
discount rate equal to 5 percent per annum) from the earliest time such Tax
Benefit could be allowable multiplied (i) by the maximum federal or state, as
the case may be, corporate tax rate in effect at the time Anjou's
indemnification obligation arises or (ii) in the case of a credit, by 100
percent. The reduction provided for in clause (y) of this Section shall in no
event reduce below zero Anjou's indemnification obligation under this Section
8.6.
(c) If as a result of an adjustment Anjou makes a payment to any Taxing
authority in respect of a Tax of PSG or Utilities with respect to any pre-
Closing Tax period, then AWT shall promptly pay to Anjou an amount equal to
such payment made by Anjou, provided, however, that any such payment by AWT
shall not exceed an amount equal to (x) the positive balance, if any, in the
Basket plus (y) the Tax Benefit, if any, attributable to the adjustment giving
rise to such payment.
(d) The Basket shall be reduced by (i) the amount of any claim of AWT under
Section 8.6(a) hereof that is not paid in whole or part by Anjou solely by
reason of there being a positive balance in the Basket, minus any Tax Benefit
attributable thereto and (ii) the amount of any payment of AWT to Anjou under
Section 8.6(c) hereof, minus any Tax Benefit attributable thereto.
(e) Any payment by Anjou pursuant to this Section 8.6 shall be made not later
than 30 days after receipt by Anjou of written notice from AWT stating that any
Loss has been paid by AWT, any of its Affiliates or, effective upon the
Closing, PSG, Utilities or PSG Canada and the amount thereof and of the
indemnity payment requested.
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(f) If any claim or demand for Taxes in respect of which indemnity may be
sought pursuant to this Section 8.6 is asserted in writing against AWT, any of
its Affiliates or, effective upon the Closing, PSG, Utilities or PSG Canada,
AWT shall notify Anjou of such claim or demand within 30 days of receipt
thereof, or such earlier time that would allow Anjou to timely respond to such
claim or demand, and shall give Anjou such information with respect thereto as
Anjou may reasonably request. The failure of AWT to promptly notify Anjou
pursuant to the preceding sentence shall not relieve Anjou of its obligation to
indemnify AWT under this Section 8.6, unless such failure prejudices Anjou's
contest rights with respect to the indemnified item. Anjou may discharge, at
any time, its indemnification obligation under this Section 8.6 by paying to
AWT the amount of the applicable Loss, calculated on the date of such payment.
Anjou may, at its own expense, participate in and, upon notice to AWT, assume
the defense of any such claim, suit, action, litigation or proceeding
(including any Tax audit). If Anjou assumes such defense, AWT shall have the
right (but not the duty) to participate in the defense thereof and to employ
counsel, at its own expense, separate from the counsel employed by Anjou.
Whether or not Anjou chooses to defend or prosecute any claim, all of the
parties hereto shall cooperate in the defense or prosecution thereof.
(g) Anjou shall not be liable under this Section 8.6 for (i) any Tax the
payment of which was made without its prior written consent (other than
pursuant to a final determination of a contest conducted in accordance with the
provisions of this Section 8) or (ii) any settlements effected without the
consent of Anjou, or resulting from any claim, suit, action, litigation or
proceeding in which Anjou was not permitted an opportunity to participate.
8.7 Refunds. AWT shall promptly pay or shall cause prompt payment to be made
to Anjou of all refunds of Taxes and interest thereon received by AWT, any
Affiliate of AWT, PSG, Utilities, or PSG Canada attributable to Taxes paid by
Anjou, PSG, Utilities or PSG Canada (or any predecessor or Affiliate of Anjou)
with respect to any pre-Closing Tax period. Anjou represents that there are
currently no material refunds reflected on the December 31, 1993 balance sheet
of the PSG Group either as receivables or as a reduction or adjustment to the
reserves account.
8.8 Survival. Notwithstanding anything in this Agreement to the contrary, the
provisions of this Section 8 shall survive for the full period of all statutes
of limitations (giving effect to any waiver, mitigation or extension thereof
plus 30 days).
ARTICLE 9
EMPLOYEE BENEFITS
9.1 Pension Plan. (a) On the Closing Date or as soon as practicable
thereafter, Anjou shall cause the Trustee of the PSG Pension Plan to segregate,
in accordance with the spin-off provisions set forth under Section 414(l) of
the Code and in accordance with the provisions set forth below, the assets
allocable to accrued benefits of active, retired and former employees of PSG or
any of its Subsidiaries as of the Closing Date (the "Transferred Employees")
and shall make any and all filings and submissions to the appropriate
governmental agencies arising in connection with such segregation of assets and
all necessary amendments to the PSG Pension Plan and related trust agreement to
provide for the segregation of assets and the transfer of assets as described
below.
(b) The amount of such assets (the "Transfer Amount") shall be equal to the
aggregate present value of accrued benefits of Transferred Employees under the
PSG Pension Plan (including special early retirement benefits and death benefit
coverage both before and after expected retirement ages) determined as of the
Closing Date using the actuarial assumptions used in funding such Plan
contained in the Foster Higgins
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Anjou Pension Plan Actuarial Funding Report, Plan Year Beginning January 1,
1993, dated February, 1994. At AWT's request, Anjou shall provide to an actuary
designated by AWT all information necessary to verify and agree with the
calculation of the Transfer Amount.
(c) As soon as practicable after the Closing Date, AWT shall establish or
designate one or more defined benefit pension plans for the benefit of the
Transferred Employees (the "Successor Pension Plan"), shall take all necessary
action to qualify the Successor Pension Plan under the applicable provisions of
the Code and shall make any and all filings and submissions to the appropriate
governmental agencies required to be made by it in connection with the transfer
of assets described below. As soon as practicable following the earlier of the
receipt of a favorable determination letter from the Internal Revenue Service
regarding the qualified status of the Successor Pension Plan (as amended to the
date of transfer) or the issuance of indemnities satisfactory to Anjou and AWT,
Anjou shall cause the trustee of the PSG Pension Plan to transfer the Transfer
Amount for such Plan, increased or decreased by the earnings or losses
attributable to the investment of such assets at the rate earned on thirty-day
Treasury Notes determined as of the first business day of each month during the
period from the Closing Date to the date of transfer described herein and
reduced by any required benefit payments made to or in respect of any
Transferred Employee covered by the PSG Pension Plan who retired or otherwise
terminated service after the Closing Date and prior to the date of transfer
described herein, to the appropriate trustee designated by AWT under the trust
agreement forming a part of the Successor Pension Plan for the PSG Pension
Plan.
(d) In consideration for the transfer of assets described herein, the
applicable Successor Pension Plan shall, effective as of the date of transfer
described herein, assume all of the obligations of the PSG Pension Plan in
respect of benefits accrued by Transferred Employees under the PSG Pension Plan
(exclusive of benefits paid prior to the date of transfer described herein) on
or prior to the Closing Date. Neither AWT nor PSG nor any of its Subsidiaries
(nor any Pension Plan maintained by any of them) shall assume any other
obligations or liabilities arising under or attributable to the PSG Pension
Plan.
9.2 Other Employee Plans. Anjou shall retain all obligations and liabilities
under the PSG Group Employee Plans, PSG Group Benefit Arrangements and PSG
Group International Plans in respect of any employee or former employee or any
independent contractor (including any beneficiary or dependent thereof) who is
not a Transferred Employee.
9.3 Third Party Beneficiaries. No provision of this Article 9 shall create
any third party beneficiary rights in any employee or former employee of the
PSG Group (including any beneficiary or dependent thereof) in respect of
continued employment or resumed employment and no provision of this Article 9
shall create any rights in any such persons in respect of any benefits that may
be provided, directly or indirectly, under any employee benefit plan or
arrangement.
ARTICLE 10
CONDITIONS TO CLOSING
10.1 Conditions to Obligations of AWT, CGE and Anjou. The obligations of AWT,
CGE and Anjou to consummate the Closing are subject to the satisfaction of the
following conditions:
(i) Any applicable waiting period under the HSR Act relating to the
transactions contemplated hereby shall have expired or been terminated.
(ii) No provision of any applicable law or regulation and no judgment,
injunction, order or decree shall prohibit the consummation of the Closing.
(iii) All actions by or in respect of or filings with any governmental
body, agency, official or authority required to permit the consummation of
the Closing under the provisions of Exon-Florio shall have been taken, made
or obtained.
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(iv) The issuance of AWT Securities pursuant to this Agreement shall have
been approved by the stockholders of AWT in accordance with applicable
rules and regulations of the American Stock Exchange.
10.2 Conditions to Obligation of AWT. The obligation of AWT to consummate the
Closing is subject to the satisfaction of the following further conditions:
(i) (A) Each of CGE and Anjou shall have performed in all material
respects all of its obligations hereunder required to be performed by it on
or prior to the Closing Date, (B) the representations and warranties of CGE
and Anjou contained in this Agreement and in any certificate or other
writing delivered by CGE or Anjou pursuant hereto shall be true in all
material respects at and as of the Closing Date, as if made at and as of
such date, and (C) AWT shall have received a certificate signed by the
President or Vice President, or the equivalent, of each of CGE and Anjou to
the foregoing effect.
(ii) AWT shall have received an opinion of Davis Polk & Wardwell, special
counsel to CGE and Anjou, dated the Closing Date, in form and substance
reasonably satisfactory to AWT. In rendering such opinion, such counsel may
rely upon certificates of public officers and, as to matters of fact, upon
certificates of officers of CGE or Anjou, copies of which certificates
shall be contemporaneously delivered to AWT.
(iii) AWT shall have received an opinion of Bernard Portnoi, Conseil
Juridique of CGE, dated the Closing Date, in form and substance reasonably
satisfactory to AWT. In rendering such opinion, such counsel may rely upon
certificates of public officers and, and as to matters of fact, upon
certificates of officers of CGE, copies of which certificates shall be
contemporaneously delivered to AWT.
(iv) AWT shall have received a written opinion of Allen & Company
Incorporated, AWT's financial advisors, to the effect that the transactions
contemplated by this Agreement are fair, from a financial point of view, to
the stockholders of AWT (other than CGE).
(v) AWT shall have received all documents it may reasonably request
relating to the existence of each of CGE, Anjou or PSG and their respective
authority for this Agreement, all in form and substance reasonably
satisfactory to AWT.
10.3 Conditions to Obligation of CGE and Anjou. The obligation of CGE and
Anjou to consummate the Closing is subject to the satisfaction of the following
further conditions:
(i) (A) AWT shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the
Closing Date, (B) the representations and warranties of AWT contained in
this Agreement and in any certificate or other writing delivered by AWT
pursuant hereto shall be true in all material respects at and as of the
Closing Date, as if made at and as of such date, and (C) CGE and Anjou
shall have received a certificate signed by the Chief Executive Officer,
President or any Senior Vice President of AWT to the foregoing effect.
(ii) Anjou and CGE shall have received an opinion of Mintz, Levin, Cohn,
Ferris, Glovsky and Popeo, special counsel to AWT, in form and substance
reasonably satisfactory to CGE. In rendering such opinion, such counsel may
rely upon certificates of public officers and, as to matters of fact, upon
certificates of officers of AWT, copies of which certificates shall be
contemporaneously delivered to CGE and Anjou.
(iii) CGE and Anjou shall have received all documents it may reasonably
request relating to the existence of AWT and the authority of AWT for this
Agreement, all in form and substance reasonably satisfactory to CGE and
Anjou.
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ARTICLE 11
TERMINATION
11.1 Grounds for Termination. This Agreement may be terminated at any time
prior to the Closing:
(i) by mutual written agreement of CGE, Anjou and AWT;
(ii) by either CGE or AWT if the Closing shall not have been consummated
on or before September 1, 1994;
(iii) by either CGE or AWT if there shall be any law or regulation that
makes consummation of the transactions contemplated hereby illegal or
otherwise prohibited or if consummation of the transactions contemplated
hereby would violate any nonappealable final order, decree or judgment of
any court or governmental body having competent jurisdiction; or
(iv) by CGE if AWT has caused to be duly called and held a meeting of its
stockholders as required by Section 6.4 and at such meeting the requisite
number of votes were not obtained to approve the issuance of AWT Securities
pursuant to this Agreement under applicable law.
The party desiring to terminate this Agreement shall give notice of such
termination to each other party.
11.2 Effect of Termination. If this Agreement is terminated as permitted by
Section 11.1, termination shall be without liability of any party (or any
stockholder, director, officer, employee, agent, consultant or representative
of such party) to the other parties to this Agreement; provided that if such
termination shall result from the willful failure of any party to fulfill a
condition to the performance of the obligations of any other party or to
perform a covenant of this Agreement or from a willful breach by any party to
this Agreement, such party shall be fully liable for any and all damage, loss
or expense incurred or suffered by the other party or parties as a result of
such failure or breach. The provisions of Sections 5.7, 12.3 and 12.9 shall
survive any termination hereof pursuant to Section 11.1.
ARTICLE 12
MISCELLANEOUS
12.1 Notices. All notices, requests and other communications to any party
hereunder shall be in writing (including facsimile transmission) and shall be
given,
if to AWT, to:
Air & Water Technologies Corporation
US Highway 22 West and Station Road
Branchburg, New Jersey 08876
Attention: General Counsel
Fax: (908) 685-4029
with a copy to:
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo
One Financial Center
Boston, Massachusetts 02111
Attention: Richard R. Kelly, Esq.
Fax: (617) 542-2241
if to CGE or Anjou, to:
Compagnie Generale des Eaux
52, rue d'Anjou
75384 Paris Cedex 08
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France
Attention: Directeur General
Fax: 011-331-4924-6666
Anjou International Management Services, Inc.
800 Third Avenue, 38th Floor
New York, New York 10022
Attention: President
Fax: (212) 753-9301
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: John A. Bick, Esq.
Fax: (212) 450-4800
All such notices, requests and other communications shall be deemed received
on the date of receipt by the recipient thereof if received prior to 5 p.m. in
the place of receipt and such day is a business day in the place of receipt.
Otherwise, any such notice, request or communication shall be deemed not to
have been received until the next succeeding business day in the place of
receipt.
12.2 Amendments and Waivers. (a) Any provision of this Agreement may be
amended or waived prior to the Closing Date if, but only if, such amendment or
waiver is in writing and is signed, in the case of an amendment, by each party
to this Agreement, or in the case of a waiver, by the party against whom the
waiver is to be effective.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
12.3 Expenses. All costs and expenses incurred in connection with this
Agreement shall be paid by the party incurring such cost or expense.
12.4 Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of each other party hereto, except that CGE may assign its
right to purchase the Series A Preferred to Anjou or any of its Subsidiaries.
12.5 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF DELAWARE, WITHOUT REGARD TO THE
CONFLICTS OF LAW RULES OF SUCH STATE.
12.6 Counterparts; Third Party Beneficiaries. This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
No provision of this Agreement is intended to confer upon any Person other than
the parties hereto any rights or remedies hereunder.
12.7 No Survival. Except for Sections 3.6 and 4.2 which shall survive for a
period of one year after closing, the representations and warranties of the
parties hereto contained in this Agreement or in any certificate or other
writing delivered pursuant hereto or in connection herewith shall not survive
the Closing.
12.8 Public Announcements. AWT and CGE shall agree on the form and content of
any public announcements which shall be made concerning this Agreement or the
transactions contemplated hereby and neither AWT nor CGE shall make any such
public announcement without the consent of the other, except
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with respect to any public announcement or other public disclosure, to the
extent either party determines, in good faith and with the advice of counsel,
such announcement or disclosure is required by law or the rules or regulations
of any exchange on which such party's securities are listed or to avoid undue
risk that the transactions contemplated hereby will be enjoined or that such
party, its officers, directors or representatives will be liable for damages as
a result thereof.
12.9 Entire Agreement; Exhibits. This Agreement constitutes the entire
agreement among the parties with respect to the subject matter of this
Agreement and supersedes all prior agreements and understandings, both oral and
written, among the parties with respect to the subject matter of this
Agreement, except for the letter dated March 18, 1994 from CGE to AWT with
respect to certain financial undertakings and the Confidentiality Agreement
dated October 22, 1992 between CGE and AWT, to which Anjou hereby subscribes
and agrees to be bound. No representation, inducement, promise, understanding,
condition or warranty not set forth herein has been made or relied upon by any
party hereto. Neither this Agreement nor any provision hereof is intended to
confer upon any Person other than the parties hereto any rights or remedies
hereunder. All exhibits hereto constitute part of this Agreement and are
expressly incorporated herein.
12.10 Headings. The headings and the table of contents appearing in this
Agreement are inserted only as a matter of convenience and for reference and in
no way define, limit or describe the scope and intent of this Agreement or any
of the provisions hereof.
12.11 Specific Performance. Each of the parties hereto agrees that any breach
by it of any provision of this Agreement would irreparably injure the other
parties and that money damages would be an inadequate remedy therefor.
Accordingly, each of the parties hereto agrees that the other parties shall be
entitled to one or more injunctions enjoining any such breach or requiring
specific performance of this Agreement and consents to the entry thereof, this
being in addition to any other remedy to which the non-breaching party is
entitled at law or in equity.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.
AIR & WATER TECHNOLOGIES CORPORATION
/s/ Eckardt C. Beck
By:---------------------------------------
Eckardt C. Beck
Chairman and Chief Executive Officer
COMPAGNIE GENERALE DES EAUX
/s/ Jacques-Henri David
By:---------------------------------------
Jacques-Henri David
Directeur General
ANJOU INTERNATIONAL COMPANY
/s/ Claudio Elia
By:---------------------------------------
Claudio Elia
President
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EXHIBIT A
AIR & WATER TECHNOLOGIES CORPORATION
CERTIFICATE OF DESIGNATION
5 1/2% SERIES A CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
($0.01 par value)
We, the undersigned, and of Air & Water Technologies
Corporation, a Delaware corporation (hereinafter called the "Corporation"),
pursuant to the provisions of Sections 103 and 151 of the General Corporation
Law of the State of Delaware do hereby make this Certificate of Designation
under the corporate seal of the Corporation and do hereby state and certify
that pursuant to the authority expressly vested in the Board of Directors of
the Corporation by the Certificate of Incorporation, the Board of Directors
duly adopted the following resolutions:
RESOLVED, that, pursuant to Article Fourth of the Certificate of
Incorporation (which authorizes 2,500,000 shares of Preferred Stock, $0.01 par
value, none of which are presently issued and outstanding), the Board of
Directors hereby fixes the voting powers, designation and preferences and
relative participating, optional and other special rights, and qualifications,
limitations and restrictions of a class of Preferred Stock.
RESOLVED, that each share of the Convertible Exchangeable Preferred Stock
shall rank equally in all respects and shall be subject to the following
provisions:
(1) Number and Designation. 1,200,000 shares of the Preferred Stock of the
Corporation shall be designated as 5 1/2% Series A Convertible Exchangeable
Preferred Stock (the "Series A Preferred Stock").
(2) Rank. The Series A Preferred Stock shall, with respect to dividend
rights and rights on liquidation, winding up and dissolution, rank prior to all
classes or series of equity securities of the Corporation, including the Common
Stock (as defined below).
(3) Dividends. (a) Except as otherwise provided in paragraph (8) below, the
holders of the shares of Series A Preferred Stock shall be entitled to receive,
when, as and if declared by the Board of Directors, out of funds legally
available for the payment of dividends, cumulative dividends, at the annual
rate of $2.75 per share, payable in cash quarterly in arrears in equal amounts
on March 31, June 30, September 30 and December 31 of each year, commencing
June 30, 1994, unless such day is not a business day, in which event on the
next succeeding business day (each of such dates being a "Dividend Payment
Date"), in preference to dividends on the Common Stock. Such dividends shall be
paid to the holders of record at the opening of business on the record date for
on such Dividend Payment Date.
(b) Dividends shall accrue from the date of original issue of the Series A
Preferred Stock (the "Series A Initial Issuance Date"). Dividends, other than
for a full quarterly period, shall accrue on the basis of a year of 365 days
and the actual number of days elapsed (including the first day but excluding
the last day of such period). Quarterly dividends which are not paid in full in
cash will cumulate without interest until such accumulated quarterly dividends
shall have been declared and paid in cash by the Board of Directors of the
Corporation. Any such declaration may be for a portion, or all, of the then
accumulated dividends. Any accumulated dividends which are not paid will
continue to cumulate in the manner described above.
(c)(i) The holders of the shares of the Series A Preferred Stock shall be
entitled to receive in preference to and in priority over dividends upon any of
the Common Stock all accrued dividends provided for in this paragraph (3).
(ii) The Corporation shall not declare, pay or set apart for payment any
dividend on any of the Common Stock or make any distribution in respect
thereof, either directly or indirectly, and whether in cash,
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<PAGE>
obligations or shares of the Corporation or other property (all such dividends
and distributions hereinafter referred to as a "Common Stock Distribution"),
unless the holders of the shares of Series A Preferred Stock shall have
received all accrued dividends which such holders are entitled to receive
pursuant to paragraph (3) through and including the immediately preceding
Dividend Payment Date or, if such Common Stock Distribution is made on a
Dividend Payment Date, through and including such Dividend Payment Date. In no
event may the Corporation retire, redeem, purchase or otherwise acquire for
value (including acquiring, directly or indirectly, any equity interest in any
Person which owns, legally or beneficially, any Common Stock) any of the Common
Stock or make any payment on account of or set apart for payment money for a
sinking or other similar fund for the purchase, redemption or other retirement
of, any of the Common Stock, or permit any corporation or other entity directly
or indirectly controlled by the Corporation to purchase or redeem any of the
Common Stock unless, prior to or contemporaneously with such retirement,
redemption, purchase or acquisition, the holders of the shares of Series A
Preferred Stock shall have received all accrued dividends which such holders
are entitled to receive pursuant to paragraph (3) through and including the
immediately preceding Dividend Payment Date or, if such retirement, redemption,
purchase or acquisition is made on a Dividend Payment Date, through and
including such Dividend Payment Date.
(d) Subject to the foregoing provisions of this paragraph (3), paragraph (8)
and applicable law, the Board of Directors may declare and the Corporation may
pay or set apart for payment dividends on any of the Common Stock, may make any
payment on account of or set apart for payment money for a sinking fund or
other similar fund for the purchase, redemption or other retirement of, any of
the Common Stock, and may make any distribution in respect thereof, either
directly or indirectly, and whether in cash, obligations or shares of the
Corporation or other property, and may purchase or otherwise redeem any of the
Common Stock and the holders of the shares of the Series A Preferred Stock
shall not be entitled to share therein.
(e) All dividends paid with respect to shares of the Series A Preferred Stock
pursuant to the foregoing provisions of this paragraph (3) shall be paid pro
rata on each outstanding share of Series A Preferred Stock.
(f) Each fractional share of Series A Preferred Stock outstanding shall be
entitled to a ratably proportionate amount of all dividends accruing with
respect to each outstanding share of Series A Preferred Stock pursuant to this
paragraph (3), and all such dividends with respect to such outstanding
fractional shares shall be fully cumulative and shall accrue (whether or not
declared) without interest, and shall be payable in the same manner and at such
times as provided for in the foregoing provisions of this paragraph (3) with
respect to dividends on each outstanding share of Series A Preferred Stock.
(4) Liquidation Preference. (a) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation, the
holders of the shares of Series A Preferred Stock then outstanding shall be
entitled to be paid out of the assets of the Corporation available for
distribution to its stockholders an amount in cash equal to $50 for each share
outstanding, plus an amount in cash equal to all accrued but unpaid dividends
thereon to the date fixed for liquidation, dissolution or winding up (including
pro rata dividends for the period from the last Dividend Payment Date to the
date fixed for liquidation, dissolution or winding up), whether or not declared
to the date of such payment, before any payment shall be made or any assets
distributed to the holders of any of the Common Stock. If the assets of the
Corporation, or the proceeds thereof, are not sufficient to pay in full the
liquidation payments payable on each outstanding share of Series A Preferred
Stock, then each such share shall share ratably in such distribution of assets,
or the proceeds thereof, in accordance with the amount which would be payable
on such distribution if the amount to which each outstanding share of Series A
Preferred Stock is entitled was paid in full. Except as provided in the
preceding sentences, the holders of the shares of Series A Preferred Stock
shall not be entitled to any distribution in the event of liquidation,
dissolution or winding up of the affairs of the Corporation.
(b) For the purposes of this paragraph (4), neither the voluntary sale,
lease, or other transfer of all or substantially all the property or assets of
the Corporation nor the consolidation or merger of the Corporation with or into
one or more other Persons shall be deemed to be a liquidation, dissolution or
winding up of the Corporation.
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<PAGE>
(c) The liquidation payment with respect to each outstanding fractional
share of Series A Preferred Stock shall be equal to a ratably proportionate
amount of the liquidation payment with respect to each outstanding share of
Series A Preferred Stock.
(5) Redemption. Shares of Series A Preferred Stock shall be redeemable by
the Corporation as provided below (with all references in this paragraph (5)
to a redemption price per share to be adjusted proportionally in respect of
fractional shares).
(a) The shares of Series A Preferred Stock shall not be redeemable prior to
the Initial Redemption Date. The "Initial Redemption Date" shall be June 30,
1997.
(b) At the option of the Corporation, shares of Series A Preferred Stock may
be redeemed at any time or from time to time (subject to the provisions set
forth below and paragraph (8)) on or after the Initial Redemption Date, in
whole or in part, at the price (the "Redemption Price"), payable in cash,
equal to the percentage set forth below of the liquidation preference per
share for redemptions during the 12-month periods beginning on the Initial
Redemption Date or the annual anniversaries thereof indicated below, plus, in
each case, an amount equal to accrued and unpaid dividends thereon (whether or
not declared and whether or not there are funds of the Corporation legally
available for the payment of dividends), to the date fixed for redemption:
<TABLE>
<CAPTION>
12-MONTH PERIOD BEGINNING ON PERCENTAGE
---------------------------- ----------
<S> <C>
Initial Redemption Date........................................ 103.85%
First Anniversary thereof...................................... 103.30%
Second Anniversary thereof..................................... 102.75%
Third Anniversary thereof...................................... 102.20%
Fourth Anniversary thereof..................................... 101.65%
Fifth Anniversary thereof...................................... 101.10%
Sixth Anniversary thereof...................................... 100.55%
Seventh Anniversary thereof and thereafter..................... 100.00%
</TABLE>
Notwithstanding the foregoing, the Corporation may elect to redeem shares of
Series A Preferred Stock at any time on or after the Initial Redemption Date
and prior to the fourth anniversary of the Initial Redemption Date only if for
at least 20 Trading Days during the period consisting of the 30 consecutive
Trading Days ending on the date notice of such redemption is given, including
the last Trading Day of such period, the Closing Price per share of Common
Stock exceeds $18.75, as adjusted pursuant to paragraph (8)(h) (the
"Redemption Threshold").
(c) In the event that fewer than all of the shares of Series A Preferred
Stock are to be redeemed pursuant to this paragraph (5), the Corporation shall
call for redemption shares of Series A Preferred Stock pro rata among the
holders, based on the number of shares of Series A Preferred Stock held by
each holder, except that the Corporation may redeem all of the shares of
Series A Preferred Stock held by any holders of fewer than 100 shares of
Series A Preferred Stock (or all the shares of Series A Preferred Stock held
by holders who would hold less than 100 shares of Series A Preferred Stock as
a result of such redemption). Any redemption for which shares are called for
redemption on a pro rata basis (whether or not some of the shares so called
are subsequently converted pursuant to paragraph (8)) shall comply with this
paragraph (5)(c).
(d) In accordance with paragraph (7) hereof, the Corporation shall mail to
the record holders of Series A Preferred Stock written notice of its intention
to redeem shares of Series A Preferred Stock held by such holders.
(6) Exchange. Subject to paragraph (8) below, commencing June 30, 1997, the
Series A Preferred Stock shall be exchangeable, in whole and not in part, at
the sole option of the Corporation, at any time, for the Corporation's 5 1/2%
Convertible Subordinated Notes, a form of which is attached hereto as
Attachment A
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<PAGE>
(the "Exchange Notes"). The holders of the outstanding shares or fractional
shares of Series A Preferred Stock will be entitled to receive in exchange for
each share of Series A Preferred Stock to be exchanged by it Exchange Notes in
a principal amount of $50 plus, with respect to each outstanding fractional
share, a ratably proportionate amount thereof. An amount equal to all accrued
but unpaid dividends on each such share to the date which coincides with the
date of exchange shall be paid on such date (including pro rata dividends for
the period from the last Dividend Payment Date to the date of exchange). At the
time of any exchange hereunder, the rights of the holders of the shares of
Series A Preferred Stock as stockholders of the Corporation shall cease, and
the persons entitled to receive the Exchange Notes issuable upon exchange shall
be treated for all purposes as the registered holders of such Exchange Notes as
of the date which coincides with the date of exchange. In accordance with
paragraph (7) hereof, the Corporation shall mail to the record holders of
Series A Preferred Stock written notice of its intention to exchange shares of
Series A Preferred Stock held by such holders. The Corporation will cause the
Exchange Notes to be dated the date which coincides with the date of exchange
thereof.
(7) Procedure for Redemption or Exchange. (a) In the event the Corporation
shall redeem or exchange shares of Series A Preferred Stock, notice of such
redemption or exchange shall be given by first class mail, postage prepaid,
mailed not less than 30 days nor more than 60 days prior to the redemption or
exchange date, to the holders of record of the shares to be redeemed or
exchanged at such holder's address as the same appears on the stock register of
the Corporation. Each such notice shall state: (i) the redemption or exchange
date; (ii) the redemption price or exchange rate; (iii) the place or places
where certificates for such shares are to be surrendered for payment of the
redemption price or exchange for the Exchange Notes; (iv) that dividends on the
shares to be redeemed or exchanged will cease to accrue on such redemption date
or the date of exchange; and (v) the number of shares to be redeemed or
exchanged.
(b) Notice having been mailed as aforesaid, from and after the redemption
date or as of the exchange date (unless, in the case of a redemption, default
shall be made by the Corporation in providing money for the payment of the
redemption price or a Notice of Intention to Convert or Notice of Election to
Convert has been delivered to the Corporation pursuant to paragraph (8)),
dividends on the shares of Series A Preferred Stock shall cease to accrue, and
such shares shall no longer be deemed to be outstanding and shall be cancelled
and shall not be available for reissue or redesignation, and all rights of the
holders thereof as stockholders of the Corporation (except the right to receive
from the Corporation the redemption price or the Exchange Notes and any other
amounts payable pursuant to paragraph (5) or paragraph (6)) shall cease. Upon
surrender in accordance with said notice of the certificates for any shares so
redeemed or exchanged (properly endorsed or assigned for transfer, if the Board
of Directors of the Corporation shall so require and the notice shall so
state), such shares shall be redeemed or exchanged by the Corporation at the
redemption price or exchange rate aforesaid.
(c) The Corporation shall pay any and all issuance and delivery taxes that
may be payable in respect of the issuance or delivery of Exchange Notes in
exchange for shares of Series A Preferred Stock. The Corporation shall not,
however, be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of Exchange Notes in a name
other than that in which the shares of Series A Preferred Stock so exchanged
were registered, and no such issuance or delivery shall be made unless and
until the person requesting such issuance has paid to the Corporation the
amount of any such tax or has established to the satisfaction of the
Corporation that such tax has been paid.
(8) Conversion. (a) Subject to the provisions of this paragraph (8), the
holders of the shares of Series A Preferred Stock shall have the right, at any
time, from time to time, at such holder's option, to convert any or all
outstanding shares (and fractional shares) of Series A Preferred Stock, in
whole or in part, into fully paid and non-assessable shares of Common Stock.
The number of shares of Common Stock deliverable upon conversion of a share of
Series A Preferred Stock, adjusted as hereinafter provided, is referred to
herein as the "Conversion Ratio." The Conversion Ratio as of the Series A
Initial Issuance Date shall be 4.0, subject to adjustment from time to time
pursuant to paragraph (8)(g) hereof. Notwithstanding any call for redemption
pursuant to paragraph (5) or exchange pursuant to paragraph (6), the right to
convert shares so
I-A-4
<PAGE>
called for redemption or exchange shall terminate at the close of business on
the date immediately preceding the date fixed for such redemption or exchange,
as the case may be, unless the Corporation shall default in making payment of
the amount payable upon such redemption or in making the exchange and payment
of any amount payable upon such exchange.
(b)(i) In order to exercise the conversion privilege, the holder of the
shares of Series A Preferred Stock to be converted shall surrender the
certificate representing such shares at the office of the Corporation, with the
Notice of Election to Convert completed and signed. Unless the shares issuable
on conversion are to be issued in the same name as the name in which such
shares of Series A Preferred Stock are registered, each share surrendered for
conversion shall be accompanied by instruments of transfer, in form
satisfactory to the Corporation, duly executed by the holder or the holder's
duly authorized attorney and an amount sufficient to pay any transfer or
similar tax.
(ii) As promptly as practicable after the surrender by the holder of the
certificates for shares of Series A Preferred Stock as aforesaid, the
Corporation shall issue and shall deliver to such holder, or on the holder's
written order to the holder's transferee, a certificate or certificates for the
whole number of shares of Common Stock issuable upon the conversion of such
shares in accordance with the provisions of this paragraph (8).
(iii) Each conversion shall be deemed to have been effected immediately prior
to the close of business on the date on which the certificates for shares of
Series A Preferred Stock shall have been surrendered and such notice received
by the Corporation as aforesaid, and the person in whose name or names any
certificate or certificates for shares of Common Stock shall be issuable upon
such conversion shall be deemed to have become the holder of record of the
shares of Common Stock represented thereby at such time on such date and such
conversion shall be into a number of shares of Common Stock equal to the
product of the number of shares of Series A Preferred Stock surrendered times
the Conversion Ratio in effect at such time on such date. All shares of Common
Stock delivered upon conversion of the Series A Preferred Stock will upon
delivery be duly and validly issued and fully paid and non-assessable, free of
all liens and charges and not subject to any preemptive rights. Upon the
surrender of certificates representing shares of Series A Preferred Stock, such
shares shall no longer be deemed to be outstanding and all rights of a holder
with respect to such shares surrendered for conversion shall immediately
terminate except the right to receive the Common Stock and other amounts
payable pursuant to this paragraph (8).
(c)(i) Upon delivery to the Corporation by a holder of shares of Series A
Preferred Stock of a Notice of Election to Convert or a Notice of Intention to
Convert, the right of the Corporation to redeem such shares of Series A
Preferred Stock shall terminate, regardless of whether a notice of redemption
has been mailed as aforesaid.
(ii) From the date of delivery by a holder of shares of Series A Preferred
Stock of such Notice of Election to Convert or such Notice of Intention to
Convert, in lieu of dividends on such Series A Preferred Stock pursuant to
paragraph (3), such Series A Preferred Stock shall participate equally and
ratably with the holders of shares of Common Stock in all dividends paid on the
Common Stock as if such shares of Series A Preferred Stock had been converted
to shares of Common Stock at the time of such delivery.
(iii) If a Notice of Intention to Convert or a Notice of Election to Convert
is delivered by a holder of shares of Series A Preferred Stock to the
Corporation before the delivery by the Corporation to such holder of a notice
of redemption, such holder shall be entitled to receive all accrued dividends
which such holder is entitled to receive pursuant to paragraph (3). In
addition, such holder at the opening of business on a Dividend Payment Date
shall be entitled to receive the dividend payable on such shares on such
Dividend Payment Date notwithstanding the Corporation's default in payment of
the dividend due on such Dividend Payment Date. Such dividends shall be in
preference to and in priority over any dividends on the Common Stock.
I-A-5
<PAGE>
(iv) If, after receipt by a holder of shares of Series A Preferred Stock of a
notice of redemption pursuant to paragraph (5), such holder delivers to the
Corporation a Notice of Intention to Convert or a Notice of Election to
Convert, such Series A Preferred Stock shall cease to accrue dividends pursuant
to paragraph (3) but such shares shall continue to be entitled to receive all
accrued dividends which such holder is entitled to receive pursuant to
paragraph (3) through the date of delivery of such Notice of Intention to
Convert or such Notice of Election to Convert (including pro rata dividends for
the period from the last Dividend Payment Date to the date of delivery of the
Notice of Intention to Convert or the Notice of Election to Convert, as the
case may be) in preference to and in priority over any dividends on the Common
Stock. Such accrued dividends shall be payable to such holder when, as and if
declared by the Board of Directors, out of funds legally available for the
payment of dividends, as provided in paragraph (3) above.
(v) Except as provided above and in paragraph (8)(g), the Corporation shall
make no payment or adjustment for accrued and unpaid dividends on shares of
Series A Preferred Stock, whether or not in arrears, on conversion of such
shares or for dividends in cash on the shares of Common Stock issued upon such
conversion.
(d)(i) The Corporation covenants that it will at all times reserve and keep
available, free from preemptive rights, such number of its authorized but
unissued shares of Common Stock as shall be required for the purpose of
effecting conversions of the Series A Preferred Stock and Exchange Notes.
(ii) Prior to the delivery of any securities which the Corporation shall be
obligated to deliver upon conversion of the Series A Preferred Stock, the
Corporation shall comply with all applicable federal and state laws and
regulations which require action to be taken by the Corporation.
(e) The Corporation will pay any and all documentary stamp or similar issue
or transfer taxes payable in respect of the issue or delivery of shares of
Common Stock on conversion of the Series A Preferred Stock pursuant hereto;
provided, that the Corporation shall not be required to pay any tax which may
be payable in respect of any transfer involved in the issue or delivery of
shares of Common Stock in a name other than that of the holder of the Series A
Preferred Stock to be converted and no such issue or delivery shall be made
unless and until the person requesting such issue or delivery has paid to the
Corporation the amount of any such tax or has established, to the satisfaction
of the Corporation, that such tax has been paid.
(f) In connection with the conversion of any shares of Series A Preferred
Stock, no fractions of shares of Common Stock shall be issued, but in lieu
thereof the Corporation shall pay a cash adjustment in respect of such
fractional interest in an amount equal to such fractional interest multiplied
by the Daily Price per share of Common Stock on the Trading Day on which such
shares of Series A Preferred Stock are deemed to have been converted. If more
than one share of Series A Preferred Stock shall be surrendered for conversion
by the same holder (or Affiliate of such holder) at the same time, the number
of full shares of Common Stock issuable on conversion thereof shall be computed
on the basis of the total number of shares of Series A Preferred Stock so
surrendered.
(g)(i) In case the Corporation shall at any time after the Series A Initial
Issuance Date (I) declare a dividend or make a distribution on Common Stock
payable in Common Stock, (II) subdivide or split the outstanding Common Stock,
(III) combine or reclassify the outstanding Common Stock into a smaller number
of shares, (IV) issue any shares of its capital stock in a reclassification of
Common Stock (including any such reclassification in connection with a
consolidation or merger in which the Corporation is the continuing
corporation), or (V) consolidate with, or merge with or into, any other Person,
the Conversion Ratio in effect at the time of the record date for such dividend
or distribution or of the effective date of such subdivision, split,
combination, consolidation, merger or reclassification shall be proportionately
adjusted so that the conversion of the Series A Preferred Stock after such time
shall entitle the holder to receive the aggregate number of shares of Common
Stock or other securities of the Corporation (or shares of any security into
which such shares of Common Stock have been combined, consolidated, merged or
reclassified pursuant to clause (III), (IV) or (V) above) which, if this Series
A Preferred Stock had been converted immediately
I-A-6
<PAGE>
prior to such time, such holder would have owned upon such conversion and been
entitled to receive by virtue of such dividend, distribution, subdivision,
split, combination, consolidation, merger or reclassification, assuming such
holder of Common Stock of the Corporation (x) is not a Person with which the
Corporation consolidated or into which the Corporation merged or which merged
into the Corporation or to which such recapitalization, sale or transfer was
made, as the case may be ("constituent Person"), or an affiliate of a
constituent Person and (y) failed to exercise any rights of election as to the
kind or amount of securities, cash and other property receivable upon such
reclassification, change, consolidation, merger, recapitalization, sale or
transfer (provided, that if the kind or amount of securities, cash and other
property receivable upon such reclassification, change, consolidation, merger,
recapitalization, sale or transfer is not the same for each share of Common
Stock of the Corporation held immediately prior to such reclassification,
change, consolidation, merger, recapitalization, sale or transfer by other than
a constituent Person or an affiliate thereof and in respect of which such
rights of election shall not have been exercised ("non-electing share"), then
for the purpose of this subparagraph (g) the kind and amount of securities,
cash and other property receivable upon such reclassification, change,
consolidation, merger, recapitalization, sale or transfer by each non-electing
share shall be deemed to be the kind and amount so receivable per share by a
plurality of the non-electing shares). Such adjustment shall be made
successively whenever any event listed above shall occur.
(ii) In case the Corporation shall issue or sell any Common Stock (other than
Common Stock issued (I) upon conversion of the Series A Preferred Stock, the
Exchange Notes or the 8% Convertible Subordinated Debentures due May 15, 2015,
(II) pursuant to the Corporation's Stock Option Plans or pursuant to any other
Common Stock related employee compensation plan of the Corporation approved by
the Corporation's Board of Directors or (III) upon exercise or conversion of
any security the issuance of which caused an adjustment under paragraphs
(g)(iii) or (g)(iv) hereof) without consideration or for a consideration per
share less than the then Conversion Price Per Common Share (as defined in
paragraph (g)(vi)), the Conversion Ratio to be in effect after such issuance or
sale shall be determined by multiplying the Conversion Ratio in effect
immediately prior to such issuance or sale by a fraction, (A) the numerator of
which shall be the product of the aggregate number of shares of Common Stock
outstanding immediately after such issuance or sale and the Current Valuation
Per Common Share (as defined in paragraph (g)(vi)) immediately prior to such
issuance or sale and (B) the denominator of which shall be the sum of (x) the
number of shares of Common Stock outstanding immediately prior to the time of
such issuance or sale multiplied by the Current Valuation Per Common Share
immediately prior to such issuance or sale and (y) the aggregate consideration,
if any, to be received by the Corporation upon such issuance or sale. In case
any portion of the consideration to be received by the Corporation shall be in
a form other than cash, the fair market value of such noncash consideration
shall be utilized in the foregoing computation. Such fair market value shall be
determined by the Board of Directors of the Corporation; provided that if the
holders of 25% of the Series A Preferred Stock shall object to any such
determination, the Board of Directors shall retain an independent appraiser
reasonably satisfactory to such holders to determine such fair market value.
The holders shall be notified promptly of any consideration other than cash to
be received by the Corporation and furnished with a description of the
consideration and the fair market value thereof, as determined by the Board of
Directors.
(iii) In case the Corporation shall fix a record date for the issuance of
rights, options or warrants to the holders of its Common Stock or other
securities entitling such holders to subscribe for or purchase shares of Common
Stock (or securities convertible into shares of Common Stock) at a price per
share of Common Stock (or having a conversion price per share of Common Stock,
if a security convertible into shares of Common Stock) less than the then
Conversion Price Per Common Share on such record date, the maximum number of
shares of Common Stock issuable upon exercise of such rights, options or
warrants (or conversion of such convertible securities) shall be deemed to have
been issued and outstanding as of such record date and the Conversion Ratio
shall be adjusted pursuant to paragraph (g)(ii) hereof, as though such maximum
number of shares of Common Stock had been so issued for an aggregate
consideration payable by the holders of such rights, options, warrants or
convertible securities prior to their receipt of such shares of Common Stock.
In case any portion of such consideration shall be in a form other than cash,
the fair market value of such noncash consideration shall be determined as set
forth in paragraph (g)(ii) hereof. Such adjustment shall
I-A-7
<PAGE>
be made successively whenever such record date is fixed; and in the event that
such rights, options or warrants are not so issued or expire unexercised, or in
the event of a change in the number of shares of Common Stock to which the
holders of such rights, options or warrants are entitled (other than pursuant
to adjustment provisions therein comparable to those contained in this
paragraph (g)), the Conversion Ratio shall again be adjusted to be the
Conversion Ratio which would then be in effect if such record date had not been
fixed, in the former event, or the Conversion Ratio which would then be in
effect if such holder had initially been entitled to such changed number of
shares of Common Stock, in the latter event.
(iv) In case the Corporation shall issue rights, options (other than options
issued pursuant to a plan described in clause II of paragraph (g)(ii)) or
warrants entitling the holders thereof to subscribe for or purchase Common
Stock (or securities convertible into shares of Common Stock) or shall issue
convertible securities, and the price per share of Common Stock of such rights,
options, warrants or convertible securities (including, in the case of rights,
options or warrants, the price at which they may be exercised) is less than the
then Conversion Price Per Common Share, the maximum number of shares of Common
Stock issuable upon exercise of such rights, options or warrants or upon
conversion of such convertible securities shall be deemed to have been issued
and outstanding as of the date of such sale or issuance, and the Conversion
Ratio shall be adjusted pursuant to paragraph (g)(ii) hereof as though such
maximum number of shares of Common Stock had been so issued for an aggregate
consideration equal to the aggregate consideration paid for such rights,
options, warrants or convertible securities and the aggregate consideration
payable by the holders of such rights, options, warrants or convertible
securities prior to their receipt of such shares of Common Stock. In case any
portion of such consideration shall be in a form other than cash, the fair
market value of such noncash consideration shall be determined as set forth in
paragraph (g)(ii) hereof. Such adjustment shall be made successively whenever
such rights, options, warrants or convertible securities are issued; and in the
event that such rights, options or warrants expire unexercised, or in the event
of a change in the number of shares of Common Stock to which the holders of
such rights, options, warrants or convertible securities are entitled (other
than pursuant to adjustment provisions therein comparable to those contained in
this paragraph (g)), the Conversion Ratio shall again be adjusted to be the
Conversion Ratio which would then be in effect if such rights, options,
warrants or convertible securities had not been issued, in the former event, or
the Conversion Ratio which would then be in effect if such holders had
initially been entitled to such changed number of shares of Common Stock, in
the latter event. No adjustment of the Conversion Ratio shall be made pursuant
to this paragraph (g)(iv) to the extent that the Conversion Ratio shall have
been adjusted pursuant to paragraph (g)(iii) upon the setting of any record
date relating to such rights, options, warrants or convertible securities and
such adjustment fully reflects the number of shares of Common Stock to which
the holders of such rights, options, warrants or convertible securities are
entitled and the price payable therefor.
(v) In case the Corporation shall fix a record date for the making of a
distribution to holders of Common Stock (including any such distribution made
in connection with a consolidation or merger in which the Corporation is the
continuing corporation) of evidences of indebtedness, assets or other property
(other than dividends payable in Common Stock or rights, options or warrants
referred to in, and for which an adjustment is made pursuant to, paragraph
(g)(iii) hereof), the Conversion Ratio to be in effect after such record date
shall be determined by multiplying the Conversion Ratio in effect immediately
prior to such record date by a fraction, (A) the numerator of which shall be
the Current Valuation Per Common Share on such record date, and (B) the
denominator of which shall be the Current Valuation Per Common Share on such
record date, less the fair market value (determined as set forth in paragraph
(g)(ii) hereof) of the portion of the assets, other property or evidence of
indebtedness so to be distributed which is applicable to one share of Common
Stock. Such adjustments shall be made successively whenever such a record date
is fixed; and in the event that such distribution is not so made, the
Conversion Ratio shall again be adjusted to be the Conversion Ratio which would
then be in effect if such record date had not been fixed.
(vi) For the purpose of any computation under paragraph (f) or paragraphs
(g)(ii), (iii), (iv) or (v) hereof, on any determination date, (I) the "Current
Valuation Per Common Share" shall be the greater of the Current
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<PAGE>
Market Price Per Common Share and the Conversion Price Per Common Share (each
as defined below), (II) the "Current Market Price Per Common Share" shall be
deemed to be the average (weighted by daily trading volume) of the Daily Prices
(as defined below) per share of the applicable class of Common Stock for the 20
consecutive trading days immediately prior to such date, (III) the "Conversion
Price Per Common Share" shall be deemed to be the amount in dollars which is
equal to $50 divided by the Conversion Ratio immediately prior to such
adjustment, and (IV) "Daily Price" means (1) if the shares of such class of
Common Stock then are listed and traded on the American Stock Exchange, Inc.
("AMEX"), the closing price on such day as reported on the AMEX Composite
Transactions Tape; (2) if the shares of such class of Common Stock then are not
listed and traded on the AMEX, the closing price on such day as reported by the
principal national securities exchange on which the shares are listed and
traded; (3) if the shares of such class of Common Stock then are not listed and
traded on any such securities exchange, the last reported sale price on such
day on the National Market of the National Association of Securities Dealers,
Inc. Automated Quotation System ("NASDAQ"); or (4) if the shares of such class
of Common Stock then are not traded on the NASDAQ National Market, the average
of the highest reported bid and lowest reported asked price on such day as
reported by NASDAQ. For purposes of any computation under this paragraph (g),
the number of shares of Common Stock outstanding at any given time shall not
include shares owned or held by or for the account of the Corporation.
(vii) No adjustment to the Conversion Ratio pursuant to paragraphs (g)(ii),
(iii), (iv) and (v) above shall be required unless such adjustment would
require an increase or decrease of at least 1% in the Conversion Ratio;
provided however, that any adjustments which by reason of this paragraph
(g)(vii) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this paragraph (g)
shall be made to the nearest four decimal points.
(viii) In the event that, at any time as a result of the provisions of this
paragraph (g), the holder of this Series A Preferred Stock upon subsequent
conversion shall become entitled to receive any shares of capital stock of the
Corporation other than Common Stock, the number of such other shares so
receivable upon conversion of this Series A Preferred Stock shall thereafter be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions contained herein.
(h) Whenever an adjustment is made to the Conversion Ratio pursuant to
paragraph (8)(g), the Redemption Threshold shall be adjusted by multiplying the
Redemption Threshold by the Conversion Ratio in effect immediately prior to
such adjustment and dividing such product by the Conversion Ratio in effect
immediately after such adjustment. All adjustments pursuant to this paragraph
(8) shall be notified to the holders of this Series A Preferred Stock and such
notice shall be accompanied by a Schedule of Computations of the adjustments.
(9) Voting Rights. (a) Except as otherwise provided by applicable law, the
holders of the shares of Series A Preferred Stock (i) shall be entitled to vote
with the holders of the Common Stock on all matters submitted for a vote of
holders of Common Stock, (ii) shall be entitled to a number of votes equal to
the number of votes to which the shares of Common Stock issuable upon
conversion of such shares of Series A Preferred Stock would have been entitled
if such shares of Common Stock had been outstanding at the time of the
applicable vote and related record date and (iii) shall be entitled to notice
of any stockholders' meeting in accordance with the certificate of
incorporation and by-laws of the Corporation.
(b) So long as any shares of Series A Preferred Stock are outstanding, the
Corporation shall not, without the written consent or affirmative vote at a
meeting called for that purpose of the holders of a majority of the shares of
Series A Preferred Stock then outstanding, amend, alter or repeal, whether by
merger, consolidation, combination, reclassification or otherwise, the
Certificate of Incorporation or By-laws of the Corporation or of any provision
thereof (including the adoption of a new provision thereof (including the
adoption of a new provision thereof) which would result in an alteration or
circumvention of the voting powers, designation and preferences and relative
participating, optional and other special rights, and qualifications,
limitations
I-A-9
<PAGE>
and restrictions of the Series A Preferred Stock; provided, however that any
such amendment or alteration that changes the dividend payable on, or the
liquidation preference or the par value of, the Series A Preferred Stock shall
require the affirmative vote at a meeting of holders of Series A Preferred
Stock duly called for such purpose, or the written consent, of the holder of
each share of Series A Preferred Stock.
(c) The consent or votes required in paragraph (b) above shall be in addition
to any approval of stockholders of the Corporation which may be required by law
or pursuant to any provision of the Corporation's Certificate of Incorporation
or By-Laws, which approval shall be obtained by vote of the stockholders of the
Corporation in the manner provided in paragraph (a) above.
(10) Issuance and Amendment. (a) The Corporation will not issue more than
1,200,000 shares of Series A Preferred Stock and the number of shares
designated as shares of Series A Preferred Stock may not be increased or
decreased without the consent of the holders of a majority of the shares of
Series A Preferred Stock outstanding.
(b) Shares of Series A Preferred Stock which have been issued and reacquired
in any manner, including shares purchased, redeemed, converted or exchanged,
shall (upon compliance with any applicable provisions of the laws of the State
of Delaware) be cancelled and shall not be available for reissue or
redesignation.
(c) Upon any such reacquisition by the Corporation, a certificate identifying
the shares reacquired, stating that reissuance of such shares is prohibited and
reciting the retirement of such shares shall be executed, acknowledged and
filed in accordance with provisions of the laws of the State of Delaware.
(11) Definitions. The following terms, as used herein, have the following
meanings:
"By-Laws", with respect to a corporation, shall mean the by-laws, articles of
association, or similar corporate organizational document.
"Certicate of Incorporation", with respect to a corporation, shall mean the
charter, certificate of incorporation, or similar corporate organizational
document.
"Common Stock" shall mean the Class A Common Stock, par value $0.001 per
share, of the Corporation.
"Common Stock Distribution" shall have the meaning set forth in paragraph
(3)(d)(ii).
"Series A Preferred Stock" shall have the meaning set forth in paragraph (1).
"Dividend Payment Date" shall have the meaning set forth in paragraph (3)(a).
"Exchange Notes" shall have the meaning set forth in paragraph (6)
"Notice of Election to Convert" shall mean the Notice of Election to Convert
on the back of each certificate representing an outstanding share of Series A
Preferred Stock.
"Notice of Intention to Convert" shall mean a notice stating that the holder
of the shares of Series A Preferred Stock intends to convert such shares
pursuant to paragraph (8) upon receipt of the Required Approvals.
["STOCK OPTION PLANS" SHALL MEAN THE STOCK OPTION AND RESTRICTED STOCK AWARD
PLAN AND THE EMPLOYEE STOCK PURCHASE PLAN OF THE CORPORATION.]
"outstanding", when used with reference to shares of stock, shall mean issued
shares, excluding shares held by the Corporation or a subsidiary.
"Person" shall mean any corporation, partnership, trust, organization,
association, group (within the meaning of Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended), other entity or individual.
"Required Approvals" shall mean any approvals or consents (including
regulatory approvals) or the expiration of any waiting periods required for
conversion of the outstanding shares of Series A Preferred Stock.
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"Trading Day" shall mean a day on which the principal national securities
exchange on which the shares of Common Stock are listed or admitted to trading
is open for the transaction of business or, if the shares of Common Stock are
not listed or admitted to trading on any national securities exchange, a day on
which NASDAQ or other similar system as may be then in use is open for the
reporting of bid and asked prices in the over-the-counter market, or, if bid
and asked prices for the shares of Common Stock are not so reported by any such
system, a Business Day.
(12) General Provisions. (a) The headings of the paragraphs, subparagraphs,
clauses and subclauses of this Certificate of Designation are for convenience
of reference only and shall not define, limit or affect any of the provisions
hereof.
(b) The holder of Series A Preferred Stock or Exchange Notes, by acceptance
thereof, acknowledges and agrees that payments of dividends, interest, premium
and principal on, and exchange, redemption and repurchase of, such securities
by the Corporation are subject to restrictions contained in certain credit and
financing agreements on the Corporation.
IN WITNESS WHEREOF, Air & Water Technologies Corporation has caused this
Certificate of Designation to be signed and attested by the undersigned this
day of , 1994.
AIR & WATER TECHNOLOGIES CORPORATION
By__________________________________
Name:
Title:
By__________________________________
Name:
Title:
ATTEST:
_________________________________
Name:
Title:
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<PAGE>
Attachment A
to
Certificate of
Designation
AIR & WATER TECHNOLOGIES CORPORATION
5 1/2% CONVERTIBLE SUBORDINATED NOTES
FOR VALUE RECEIVED, Air & Water Technologies Corporation, a Delaware
corporation (the "Company"), hereby promises to pay to or
registered assigns, the principal amount of ($ ), on the
Maturity Date pursuant to Section 2.01 and promises to pay interest on the
unpaid principal amount of this Note on the dates and at the rate provided for
in Section 2.02.
This Note is one of the series designated 5 1/2% Convertible Subordinated
Notes, limited in aggregate principal amount to $60,000,000 (the "Notes").
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. The following terms, as used herein, have the
following meanings:
"Affiliate" of any Person means any other Person (other than, in the case of
the Company, a Subsidiary and, in the case of a Subsidiary, the Company)
directly or indirectly controlling, controlled by or under common control with
such Person. As used in this definition of "Affiliate", the term "control"
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether through
ownership of voting securities, by contract or otherwise.
"Business Day" means any day except a Saturday, Sunday or other day on which
commercial banks in New York City are authorized by law to close.
"By-Laws", with respect to a corporation, shall mean the by-laws, articles of
association, or similar corporate organizational document.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) the obligations of such Person as
lessee under which, in conformity with generally accepted accounting
principles, are required to be capitalized on the balance sheet of that Person.
"Capitalized Lease Obligation" means, as applied to any Person, the
obligation of such Person under any Capitalized Lease to the extent required to
be capitalized in accordance with generally accepted accounting principles.
"Certificate of Incorporation", with respect to a corporation, shall mean the
charter, certificate of incorporation, or similar corporate organizational
document.
"Common Stock" shall mean the Class A Common Stock, par value $0.001 per
share, of the Company.
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all obligations of such Person to pay the deferred purchase price of
property or services, except trade accounts payable arising in the ordinary
course of business, (iv) all obligations of such Person to purchase securities
(or other property) for its own account which arise out of or in connection
with the sale of the same or substantially similar securities or properties,
(v) all obligations of such Person in respect of letters of credit or bankers'
acceptances or other similar instruments (or reimbursement obligations with
respect thereto), (vi) all obligations of such Person as lessee under
Capitalized Leases, (vii) all Debt of others Guaranteed by such Person, (viii)
all Debt of others secured by a Lien on any asset of such Person, whether or
not such Debt is assumed by such Person and (ix) all renewals, extensions,
refundings, deferrals, amendments or modifications of Debt described in clauses
(i), (ii), (iii), (iv), (v), (vii) and (viii) and all renewals and extensions
of Capital Leases described in clauses (vi), (vii) and (viii).
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"Default" means any condition or event which constitutes an Event of Default
or which with the giving of notice or lapse of time or both would, unless cured
or waived, become an Event of Default.
"Event of Default" has the meaning set forth in Article VII.
"Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person directly or indirectly guaranteeing any Debt of any other Person
and, without limiting the generality of the foregoing, any obligation, direct
or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Debt (whether
arising by virtue of partnership arrangements, by agreement to keep-well, to
purchase assets, goods, securities or services, to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for the
purpose of assuring in any other manner the obligee of such Debt of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part), provided that the term Guarantee shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Interest Payment Date" means the last Business Day of each March, June,
September and December.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset. For the
purposes of this Agreement, the Company or any Subsidiary shall be deemed to
own subject to a Lien any asset which it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement,
Capitalized Lease or other title retention agreement relating to such asset.
"Maturity Date" means the earlier of (i) the tenth anniversary of the date of
issue of this Note and (ii) any date fixed for redemption in accordance with
Article V.
"Noteholder" means each Person which is a holder of any of the Notes, and
their respective successors.
"Notice of Election to Convert" shall mean the Notice of Election to Convert
set forth in Schedule A to this Note.
"Notice of Intention to Convert" shall mean a notice stating that the
Noteholder intends to convert this Note pursuant to Article IV upon receipt of
the Required Approvals.
"outstanding", when used with reference to shares of stock, shall mean issued
shares, excluding shares held by the Company or a Subsidiary.
"Person" shall mean any corporation, partnership, trust, organization,
association, group (within the meaning of Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended), other entity or individual.
"Required Approvals" shall mean any approvals or consents (including
regulatory approvals) or the expiration of any waiting periods required for
conversion of this Note.
"Series A Preferred Stock" shall mean the 5 1/2% Series A Convertible
Exchangeable Preferred Stock of the Company.
["STOCK OPTION PLANS" SHALL MEAN THE STOCK OPTION AND RESTRICTED STOCK AWARD
PLAN AND THE EMPLOYEE STOCK PURCHASE PLAN OF THE CORPORATION.]
"Subsidiary" means any corporation or other entity of which securities or
other ownership interests having ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions are at the
time directly or indirectly owned by the Company.
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<PAGE>
"Trading Day" shall mean a day on which the principal national securities
exchange on which the shares of Common Stock are listed or admitted to trading
is open for the transaction of business or, if the shares of Common Stock are
not listed or admitted to trading on any national securities exchange, a day on
which NASDAQ or other similar system as may be then in use is open for the
reporting of bid and asked prices in the over-the-counter market, or, if bid
and asked prices for the shares of Common Stock are not so reported by any such
system, a Business Day.
ARTICLE II
PAYMENT OF PRINCIPAL AND INTEREST
SECTION 2.01. Mandatory Redemption. On the Maturity Date (the "Principal
Repayment Date") the principal amount of this Note together with all accrued
and unpaid interest to the Maturity Date shall be due and payable, and the
Company shall repay such amount on the Maturity Date to the Noteholder.
SECTION 2.02. Interest Rate. (a) Except as provided in Article IV, this Note
shall bear interest on the outstanding principal amount thereof, for each day
from the date of this Note until it becomes due, at a rate per annum equal to 5
1/2%. Such interest shall be payable in four equal quarterly payments in
arrears on each Interest Payment Date and on the Maturity Date.
(b) Any overdue principal of or interest on the Loan shall bear interest,
payable on demand, for each day from and including the date payment thereof was
due to but excluding the date of actual payment, at a rate per annum equal to 6
1/2%.
SECTION 2.03. Computation of Interest. Interest, other than interest for a
quarterly period, shall be computed on the basis of a year of 365 days and paid
for the actual number of days elapsed (including the first day but excluding
the last day).
ARTICLE III
SUBORDINATION
SECTION 3.01. Definitions. The following term, as used in this Article, shall
have the following meaning:
"Superior Indebtedness" means all Debt of the Company (including, without
limitation, any interest which accrues after the commencement of any case,
proceeding or other action relating to the bankruptcy, insolvency or
reorganization of the Company) other than the Notes.
SECTION 3.02. Subordination to Superior Indebtedness. The Company and the
Noteholders agree for the benefit of the holders of the Superior Indebtedness
that the Notes shall, in the manner hereinafter set forth, be subordinate and
junior in right of payment to all Superior Indebtedness of the Company.
SECTION 3.03. Limitations on Payments and Acceleration. (a) Upon the maturity
of all or any part of the Superior Indebtedness by lapse of time, acceleration
or otherwise, such Superior Indebtedness shall first be paid in full, or such
payment shall be duly provided for in cash or in a manner satisfactory to the
holders of the Superior Indebtedness, before any payment by the Company is made
on account of the principal of or interest on the Notes or to acquire the
Notes.
(b) In the event and during the continuation of any default in the payment of
any principal of or interest on any Superior Indebtedness when due and payable
(each a "Payment Default"), whether at maturity, upon any redemption, by
declaration or otherwise, no payment shall be made by the Company on or with
respect to the principal of, or interest on, the Notes or to acquire the Notes
unless and until such Payment Default shall have been remedied. In any such
event, no holder of the Notes shall accept or receive any payment of or on
account of the Notes, notwithstanding the terms of the Notes.
I-A-a-3
<PAGE>
(c) In the event that any event or condition shall occur and be continuing
which would permit, or which with notice or lapse of time or both would permit,
the holder or holders of any Superior Indebtedness (or a trustee acting on
behalf of the holders thereof) to declare such Superior Indebtedness due and
payable prior to the date on which it would otherwise have become due and
payable (each such event or condition being referred to in this Note as a "Non-
Payment Default"), no payment shall be made by the Company on or with respect
to the principal of, or interest on, the Notes or to acquire the Notes during
any period commencing on the date written notice of such Non-Payment Default (a
"Blockage Notice") shall have been given to the Company and the holders of the
Notes by the holders of a majority in principal amount of the Superior
Indebtedness then outstanding with respect to which such Non-Payment Default
shall have occurred (or their authorized agent) and ending on the earliest to
occur of the date (the "Blockage Expiration Date") (i) 180 days after the date
of the Blockage Notice, (ii) such Non-Payment Default shall have been remedied
or effectively waived or shall have ceased to exist and (iii) the Superior
Indebtedness in respect of which such Non-Payment Default shall have occurred
shall have been paid in full, provided that the foregoing provisions do not
limit the number of Blockage Notices which may be given during any 360-day
period, provided further that the number of days on which payment on the Notes
may be prohibited under this subdivision (c) during any 360-day period shall
not exceed 180 days. At the Blockage Expiration Date, the Company shall,
subject to Section 3.03(b), promptly pay the holder or holders of the Notes all
sums not paid as a result of this Section 3.03(c). In any such event, no holder
of the Notes shall accept or receive during any such period any payment of or
an account of the Notes, notwithstanding the terms of the Notes.
SECTION 3.04. Note Subordinated to Prior Payment of all Superior Indebtedness
on Dissolution, Liquidation or Reorganization of Company. In the event of any
insolvency or bankruptcy proceedings, and any receivership, liquidation,
reorganization or other similar proceedings in connection therewith, relative
to the Company or to its creditors, in their capacity as creditors of the
Company, or to substantially all of its property, and in the event of any
proceedings for voluntary liquidation, dissolution or other winding up of the
Company, whether or not involving insolvency or bankruptcy, then
(a) the holders of all Superior Indebtedness shall first be entitled to
receive payment in full of the principal thereof, interest and all other
amounts payable thereon (accruing before and after the commencement of the
proceedings) before any holder of the Notes is entitled to receive any
payment on account of the principal of or interest on the Notes; and
(b) any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities to which any holder of
the Notes would be entitled, but for the provisions of this Article III,
shall be paid or distributed by the liquidating trustee or agent or other
person making such payment or distribution, whether a trustee in
bankruptcy, a receiver or liquidating trustee or other trustee or agent,
directly to the holders of the Superior Indebtedness or any other
representative on behalf of the holders of Superior Indebtedness, to the
extent necessary to make payment in full of all principal, interest and all
other amounts payable on all Superior Indebtedness remaining unpaid, after
giving effect to any concurrent payment or distribution to the holders of
the Superior Indebtedness.
SECTION 3.05. Rights of Holders of Superior Indebtedness;
Subrogation. (a) Should any payment or distribution or security or the
proceeds of any thereof be collected or received by any holder of the Notes in
respect of the Notes, and such collection or receipt is prohibited hereunder
prior to the payment in full of the Superior Indebtedness, such holder will
forthwith deliver the same to the holders of the Superior Indebtedness for the
equal and ratable benefit of the holders of the Superior Indebtedness in
precisely the form received (except for the endorsement or the assignment of or
by such holder where necessary) for application to payment of all Superior
Indebtedness in full, after giving effect to any concurrent payment or
distribution to the holders of Superior Indebtedness and, until so delivered,
the same shall be held in trust by such holder as the property of the holders
of the Superior Indebtedness.
(b) All payments and distributions received by the holders of the Superior
Indebtedness in respect of the Notes, to the extent received in or converted
into cash, may be applied by the holders of the Superior
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<PAGE>
Indebtedness first to the payment of any and all reasonable out-of-pocket
expenses (including attorney's fees and legal expenses) paid or incurred by the
holders of the Superior Indebtedness or such representative in enforcing the
provisions hereof or in endeavoring to collect or realize upon the Notes or any
security therefor, and any balance thereof shall, solely as between any holder
of the Notes, on the one hand, and the holders of the Superior Indebtedness, on
the other hand, be applied by the holders of the Superior Indebtedness in such
order of application as the holders of the Superior Indebtedness may from time
to time select, toward the payment of the Superior Indebtedness remaining
unpaid.
(c) No holder of the Notes shall be subrogated to the rights of the holders
of the Superior Indebtedness to receive payments or distributions of assets of
the Company until all amounts payable with respect to the Superior Indebtedness
shall be paid in full; and, for the purposes of such subrogation, no payments
or distributions to the holders of the Superior Indebtedness of any cash,
property or securities to which any holder of the Notes would be entitled
except for these provisions shall, as between the Company, its creditors other
than the holders of the Superior Indebtedness, and such holders of the Notes,
be deemed to be a payment by the Company to or on account of the Superior
Indebtedness.
(d) Subject to the payment in full of all Superior Indebtedness, the holders
of the Notes shall be subrogated (equally and ratably with the holders of all
subordinated indebtedness of the Company which, by its terms, is not superior
in right of payment to the Notes, and ranks on a parity with the Notes) to the
rights of the holders of Superior Indebtedness to receive payments or
distributions of cash, property or securities of the Company applicable to the
Superior Indebtedness until all amounts owing on the Notes shall be paid in
full. For purposes of such subrogation, no payments or distributions to the
holders of the Notes of cash, property, securities or other assets by virtue of
the subrogation herein provided which otherwise would have been made to the
holders of the Superior Indebtedness shall, as between the Company, its
creditors other than the holders of Superior Indebtedness and the holders of
the Notes, be deemed to be a payment to or on account of the Notes. The holders
of the Notes agree that, in the event that all or any part of any payment made
on account of the Superior Indebtedness is recovered from the holders of
Superior Indebtedness as a preference, fraudulent transfer or similar payment
under any bankruptcy, insolvency or similar law, any payment or distribution
received by the holders of the Notes on account of the Notes at any time after
the date of the payment so recovered, whether pursuant to the right of
subrogation provided for in this Section 3.05 or otherwise, shall be deemed to
have been received by such holders of the Notes in trust as the property of the
holders of the Superior Indebtedness and such holders shall forthwith deliver
the same to the holders of the Superior Indebtedness for the equal and ratable
benefit of the holders of the Superior Indebtedness for application to payment
of all Superior Indebtedness until paid in full.
SECTION 3.06. Renewals, Extensions and Increases of Superior Indebtedness.
Each holder of the Notes by his acceptance thereof thereby waives any and all
notice of renewal, extension, accrual or (consistent with the definition of
Superior Indebtedness) increase in the amount of any of the Superior
Indebtedness, present or future, and agrees and consents that without notice to
or assent by any holder or holders of the Notes:
(i) the obligation and liabilities of the Company or any other party or
parties for or upon the Superior Indebtedness (or any promissory note,
security document or guaranty evidencing or securing the same) may, from
time to time, in whole or in part, be renewed, extended, increased
(consistent with the definition of Superior Indebtedness), modified,
amended, accelerated, compromised, supplemented, terminated, sold,
exchanged, waived or released;
(ii) the holders of the Superior Indebtedness or any other representative
acting on behalf of the holders of the Superior Indebtedness and the
holders of the Superior Indebtedness may exercise or refrain from
exercising any right, remedy or power granted by or in connection with any
agreements relating to the Superior Indebtedness; and
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<PAGE>
(iii) any balance or balances of funds with any holders of the Superior
Indebtedness at any time standing to the credit of the Company may, from
time to time, in whole or in part, be surrendered or released;
all as the holders of the Superior Indebtedness or any other representative or
representatives acting on behalf of the holders of the Superior Indebtedness
and the holders of the Superior Indebtedness may deem advisable and all without
impairing, abridging, diminishing, releasing or affecting the subordination of
the Notes to the Superior Indebtedness provided for herein.
SECTION 3.07. Obligation of Company Unconditional. Nothing contained in this
Article III or in the Notes is intended to or shall impair, as between the
Company, its creditors other than the holders of the Superior Indebtedness, and
the holders of the Notes, the obligation of the Company, which is absolute and
unconditional, to pay to the holders of the Notes the principal of, and
interest on the Notes, as and when the same shall become due and payable, by
lapse of time, acceleration or otherwise, in accordance with their terms, or is
intended to or shall affect the relative rights of the holders of the Notes and
other creditors of the Company other than the holders of the Superior
Indebtedness, nor shall anything herein or therein prevent the holder of the
Notes (i) from taking all appropriate actions to preserve their rights under
the Notes not inconsistent with the rights of the holders of the Superior
Indebtedness under this Article III, or (ii) from exercising all remedies,
including without limitation equitable remedies, otherwise permitted by
applicable law upon default under the Notes, subject to the rights, if any,
under this Article III of the holders of the Superior Indebtedness in respect
of cash, property or securities of the Company otherwise payable or delivered
to such holders upon the exercise of any such remedy. The provisions of this
Article III are and are intended solely for the purpose of defining the
relative rights of holders of the Notes, on the one hand, and the holders of
the Superior Indebtedness, on the other hand.
SECTION 3.08. Miscellaneous. (a) Each holder of the Notes by its acceptance
thereof thereby acknowledges and agrees that the holders of the Superior
Indebtedness have relied upon and will continue to rely upon the subordination
provided for in this Article III in entering into the agreements relating to
Superior Indebtedness and in extending credit to the Company pursuant thereto.
(b) No present or future holder of Superior Indebtedness shall be prejudiced
in his right to enforce the subordination contained herein in accordance with
the terms hereof by any act or failure to act on the part of the Company or any
holder of the Notes. The subordination provisions contained in this Article III
are for the benefit of the holders of the Superior Indebtedness from time to
time and, so long as Superior Indebtedness is outstanding under any agreement,
may not be rescinded, cancelled or modified in any way without the prior
written consent thereto of holders of at least 75% in aggregate principal
amount of the Superior Indebtedness at the time outstanding.
(c) The subordination provisions contained in this Article III shall be
binding upon any holder of the Notes and upon the heirs, legal representatives,
successors and assigns of any holder of the Notes; and, to the extent that any
holder of the Notes is either a partnership or a corporation, all references
herein to any holder of the Notes shall be deemed to include any successor or
successors, whether immediate or remote, to such partnership or corporation.
ARTICLE IV
CONVERSION
SECTION 4.01. Conversion. (a) Subject to the provisions of this Article IV,
the Noteholder shall have the right, at any time, at such Noteholder's option,
to convert any or all of the principal amount of this Note, in whole or in
part, into fully paid and non-assessable shares of Common Stock. The number of
shares of Common Stock deliverable upon conversion of each $50 of principal
amount of this Note, adjusted as hereinafter provided, is referred to herein as
the "Conversion Ratio." The Conversion Ratio as of the date of
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issue of this Note shall be the Conversion Ratio under the Series A Preferred
Stock immediately prior to the exchange of such Series A Preferred Stock for
this Note, subject to adjustment from time to time pursuant to Section 4.07
hereof. Notwithstanding any call for redemption pursuant to Article V, the
right to convert shares so called for redemption shall terminate at the close
of business on the date immediately preceding the date fixed for such
redemption or exchange, as the case may be, unless the Company shall default in
making payment of the amount payable upon such redemption or in making the
exchange and payment of any amount payable upon such exchange.
SECTION 4.02. Exercise Procedure. (a) In order to exercise the conversion
privilege, the Noteholder shall surrender this Note at the office of the
Company, with the Notice of Election to Convert completed and signed. Unless
the shares issuable on conversion are to be issued in the same name as the name
in which this Note is registered, each share surrendered for conversion shall
be accompanied by instruments of transfer, in form satisfactory to the Company,
duly executed by the Noteholder or the Noteholder's duly authorized attorney
and an amount sufficient to pay any transfer or similar tax.
(b) As promptly as practicable after the surrender by the Noteholder as
aforesaid, the Company shall issue and shall deliver to such Noteholder, or on
the Noteholder's written order to the Noteholder's transferee, a certificate or
certificates for the whole number of shares of Common Stock issuable upon the
conversion of such shares in accordance with the provisions of this Article IV.
(c) Each conversion shall be deemed to have been effected immediately prior
to the close of business on the date on which this Note shall have been
surrendered and such notice received by the Company as aforesaid, and the
person in whose name or names any certificate or certificates for shares of
Common Stock shall be issuable upon such conversion shall be deemed to have
become the holder of record of the shares of Common Stock represented thereby
at such time on such date and such conversion shall be into a number of shares
of Common Stock equal to the product of (A) the principal amount of this Note
surrendered for conversion divided by 50 and (B) the Conversion Ratio in effect
at such time on such date. All shares of Common Stock delivered upon conversion
of this Note will upon delivery be duly and validly issued and fully paid and
non-assessable, free of all liens and charges and not subject to any preemptive
rights. Upon the surrender of this Note, the principal amount of this Note
surrendered for conversion shall no longer be deemed to be outstanding and all
rights of a Noteholder with respect to the principal amount of this Note
surrendered for conversion shall immediately terminate except the right to
receive the Common Stock and other amounts, including any accrued and unpaid
interest on this Note, payable pursuant to this Article IV.
SECTION 4.03. Effect of Election. (a) Upon delivery to the Company by the
Noteholder of a Notice of Election to Convert or a Notice of Intention to
Convert, the right of the Company to redeem the principal amount of this Note
which is to be converted shall terminate, regardless of whether a notice of
redemption has been mailed.
(b) Interest on the outstanding principal amount of this Note delivered for
conversion shall cease to accrue on the date of delivery by the Noteholder of
such Notice of Election to Convert or Notice of Intention to Convert. Any such
accrued and unpaid interest shall be payable by the Company to the Noteholder
on the next succeeding Interest Payment Date. [From and after the date of such
delivery, this Note shall participate equally and ratably with the holders of
shares of Common Stock in all dividends paid on the Common Stock as if this
Note had been converted to shares of Common Stock at the time of such
delivery.]/1/
(c) Except as provided above and in Section 4.07, the Company shall make no
adjustment for accrued and unpaid interest on this Note, on conversion of this
Note or for dividends in cash on the shares of Common Stock issued upon such
conversion.
SECTION 4.04. Issuance of Shares. (a) The Company covenants that it shall at
all times reserve and keep available, free from preemptive rights, such number
of its authorized but unissued shares of Common Stock as shall be required for
the purpose of effecting conversions of the Notes.
- - --------
/1/ This provision should also be included in the Company's charter.
I-A-a-7
<PAGE>
(b) Prior to the delivery of any securities which the Company shall be
obligated to deliver upon conversion of the Notes, the Company shall comply
with all applicable federal and state laws and regulations which require action
to be taken by the Company.
SECTION 4.05. Taxes on Conversion. The Company will pay any and all
documentary stamp or similar issue or transfer taxes payable in respect of the
issue or delivery of shares of Common Stock on conversion of any part of the
principal amount of this Note pursuant hereto; provided, that the Company shall
not be required to pay any tax which may be payable in respect of any transfer
involved in the issue or delivery of shares of Common Stock in a name other
than that of the Noteholder to be converted and no such issue or delivery shall
be made unless and until the person requesting such issue or delivery has paid
to the Company the amount of any such tax or has established, to the
satisfaction of the Company, that such tax has been paid.
SECTION 4.06. No Fractions of Common Stock to be Issued. In connection with
the conversion of the principal amount of this Note, no fractions of shares of
Common Stock shall be issued, but in lieu thereof the Company shall pay a cash
adjustment in respect of such fractional interest in an amount equal to such
fractional interest multiplied by the Daily Price (as defined in Section
4.07(f)) per share of Common Stock on the Trading Day on which this Note is
deemed to have been converted. If more than one Note is surrendered for
conversion by the same Noteholder (or Affiliate of such Noteholder) at the same
time, the number of full shares of Common Stock issuable on conversion of the
principal amount thereof surrendered for conversion shall be computed on the
basis of the total principal amounts of the Notes so surrendered.
Section 4.07. Anti-dilution. (a) In case the Company shall at any time after
the date of initial issue of this Note (I) declare a dividend or make a
distribution on Common Stock payable in Common Stock, (II) subdivide or split
the outstanding Common Stock, (III) combine or reclassify the outstanding
Common Stock into a smaller number of shares, (IV) issue any shares of its
capital stock in a reclassification of Common Stock (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing corporation), or (V) consolidate with, or merge with
or into, any other Person, the Conversion Ratio in effect at the time of the
record date for such dividend or distribution or of the effective date of such
subdivision, split, combination, consolidation, merger or reclassification
shall be proportionately adjusted so that the conversion of this Note after
such time shall entitle the Noteholder to receive the aggregate number of
shares of Common Stock or other securities of the Company (or shares of any
security into which such shares of Common Stock have been combined,
consolidated, merged or reclassified pursuant to clause (III), (IV) or (V)
above) which, if this Note had been converted immediately prior to such time,
such Noteholder would have owned upon such conversion and been entitled to
receive by virtue of such dividend, distribution, subdivision, split,
combination, consolidation, merger or reclassification, assuming such holder of
Common Stock of the Company (x) is not a Person with which the Company
consolidated or into which the Company merged or which merged into the Company
or to which such recapitalization, sale or transfer was made, as the case may
be ("constituent Person"), or an affiliate of a constituent Person and (y)
failed to exercise any rights of election as to the kind or amount of
securities, cash and other property receivable upon such reclassification,
change, consolidation, merger, recapitalization, sale or transfer (provided,
that if the kind or amount of securities, cash and other property receivable
upon such reclassification, change, consolidation, merger, recapitalization,
sale or transfer is not the same for each share of Common Stock of the Company
held immediately prior to such reclassification, change, consolidation, merger,
recapitalization, sale or transfer by other than a constituent Person or an
affiliate thereof and in respect of which such rights of election shall not
have been exercised ("non-electing share"), then for the purpose of this
Section 4.07 the kind and amount of securities, cash and other property
receivable upon such reclassification, change, consolidation, merger,
recapitalization, sale or transfer by each non-electing share
shall be deemed to be the kind and amount so receivable per share by a
plurality of the non-electing shares). Such adjustment shall be made
successively whenever any event listed above shall occur.
(b) In case the Company shall issue or sell any Common Stock (other than
Common Stock issued (I) upon conversion of the Series A Preferred Stock, the
Notes or the 8% Convertible Subordinated Debentures
I-A-a-8
<PAGE>
due May 15, 2015, (II) pursuant to the Company's Stock Option Plans or pursuant
to any other Common Stock related employee compensation plan of the Company
approved by the Company's Board of Directors or (III) upon exercise or
conversion of any security the issuance of which caused an adjustment under
Sections 4.07(c) or (d) hereof) without consideration or for a consideration
per share less than the then Conversion Price Per Common Share (as defined in
Section 4.07(f)), the Conversion Ratio to be in effect after
such issuance or sale shall be determined by multiplying the Conversion Ratio
in effect immediately prior to such issuance or sale by a fraction, (A) the
numerator of which shall be the product of the aggregate number of shares of
Common Stock outstanding immediately after such issuance or sale and the
Current Valuation Per Common Share (as defined in Section 4.07(f)) immediately
prior to such issuance or sale and (B) the denominator of which shall be the
sum of (x) the number of shares of Common Stock outstanding immediately prior
to the time of such issuance or sale multiplied by the Current Valuation Per
Common Share immediately prior to such issuance or sale and (y) the aggregate
consideration, if any, to be received by the Company upon such issuance or
sale. In case any portion of the consideration to be received by the Company
shall be in a form other than cash, the fair market value of such noncash
consideration shall be utilized in the foregoing computation. Such fair market
value shall be determined by the Board of Directors of the Company; provided
that if the Noteholders of 25% or more of the aggregate principal amount of the
Notes shall object to any such determination, the Board of Directors shall
retain an independent appraiser reasonably satisfactory to such Noteholders to
determine such fair market value. The Noteholders shall be notified promptly of
any consideration other than cash to be received by the Company and furnished
with a description of the consideration and the fair market value thereof, as
determined by the Board of Directors.
(c) In case the Company shall fix a record date for the issuance of rights,
options or warrants to the holders of its Common Stock or other securities
entitling such holders to subscribe for or purchase shares of Common Stock (or
securities convertible into shares of Common Stock) at a price per share of
Common Stock (or having a conversion price per share of Common Stock, if a
security convertible into shares of Common Stock) less than the then Conversion
Price Per Common Share on such record date, the maximum number of shares of
Common Stock issuable upon exercise of such rights, options or warrants (or
conversion of such convertible securities) shall be deemed to have been issued
and outstanding as of such record date and the Conversion Ratio shall be
adjusted pursuant to Section 4.07(b) hereof, as though such maximum number of
shares of Common Stock had been so issued for an aggregate consideration
payable by the holders of such rights, options, warrants or convertible
securities prior to their receipt of such shares of Common Stock. In case any
portion of such consideration shall be in a form other than cash, the fair
market value of such noncash consideration shall be determined as set forth in
Section 4.07(b) hereof. Such adjustment shall be made successively whenever
such record date is fixed; and in the event that such rights, options or
warrants are not so issued or expire unexercised, or in the event of a change
in the number of shares of Common Stock to which the holders of such rights,
options or warrants are entitled (other than pursuant to adjustment provisions
therein comparable to those contained in this Section 4.07), the Conversion
Ratio shall again be adjusted to be the Conversion Ratio which would then be in
effect if such record date had not been fixed, in the former event, or the
Conversion Ratio which would then be in effect if such holder had initially
been entitled to such changed number of shares of Common Stock, in the latter
event.
(d) In case the Company shall issue rights, options (other than options
issued pursuant to a plan described in clause II of Section 4.07(b)) or
warrants entitling the holders thereof to subscribe for or purchase Common
Stock (or securities convertible into shares of Common Stock) or shall issue
convertible securities, and the price per share of Common Stock of such rights,
options, warrants or convertible securities (including, in the case of rights,
options or warrants, the price at which they may be exercised) is less than the
then Conversion Price Per Common Share, the maximum number of shares of Common
Stock issuable upon exercise of such rights, options or warrants or upon
conversion of such convertible securities shall be deemed to have been issued
and outstanding as of the date of such sale or issuance, and the Conversion
Ratio shall be adjusted pursuant to Section 4.07(b) hereof as though such
maximum number of shares of Common Stock had been so issued for an aggregate
consideration equal to the aggregate consideration paid for such rights,
options, warrants or convertible securities and the aggregate consideration
payable by the holders of such
I-A-a-9
<PAGE>
rights, options, warrants or convertible securities prior to their receipt of
such shares of Common Stock. In case any portion of such consideration shall be
in a form other than cash, the fair market value of such noncash consideration
shall be determined as set forth in Section 4.07(b) hereof. Such adjustment
shall be made successively whenever such rights, options, warrants or
convertible securities are issued; and in the event that such rights, options
or warrants expire unexercised, or in the event of a change in the number of
shares of Common Stock to which the holders of such rights, options, warrants
or convertible securities are entitled (other than pursuant to adjustment
provisions therein comparable to those contained in this Section 4.07), the
Conversion Ratio shall again be adjusted to be the Conversion Ratio which would
then be in effect if such rights, options, warrants or convertible securities
had not been issued, in the former event, or the Conversion Ratio which would
then be in effect if such holders had initially been entitled to such changed
number of shares of Common Stock, in the latter event. No adjustment of the
Conversion Ratio shall be made pursuant to this Section 4.07(d) to the extent
that the Conversion Ratio shall have been adjusted pursuant to Section 4.07(c)
upon the setting of any record date relating to such rights, options, warrants
or convertible securities and such adjustment fully reflects the number of
shares of Common Stock to which the holders of such rights, options, warrants
or convertible securities are entitled and the price payable therefor.
(e) In case the Company shall fix a record date for the making of a
distribution to holders of Common Stock (including any such distribution made
in connection with a consolidation or merger in which the Company is the
continuing corporation) of evidences of indebtedness, assets or other property
(other than dividends payable in Common Stock or rights, options or warrants
referred to in, and for which an adjustment is made pursuant to, Section
4.07(c) hereof), the Conversion Ratio to be in effect after such record date
shall be determined by multiplying the Conversion Ratio in effect immediately
prior to such record date by a fraction, (A) the numerator of which shall be
the Current Valuation Per Common Share on such record date, and (B) the
denominator of which shall be the Current Valuation Per Common Share on such
record date, less the fair market value (determined as set forth in Section
4.07(b) hereof) of the portion of the assets, other property or evidence of
indebtedness so to be distributed which is applicable to one share of Common
Stock. Such adjustments shall be made successively whenever such a record date
is fixed; and in the event that such distribution is not so made, the
Conversion Ratio shall again be adjusted to be the Conversion Ratio which would
then be in effect if such record date had not been fixed.
(f) For the purpose of any computation under Section 4.06 or Sections
4.07(b), (c), (d) or (e) hereof, on any determination date, (I) the "Current
Valuation Per Common Share" shall be the greater of the Current Market Price
Per Common Share and the Conversion Price Per Common Share (each as defined
below), (II) the "Current Market Price Per Common Share" shall be deemed to be
the average (weighted by daily trading volume) of the Daily Prices (as defined
below) per share of the applicable class of Common Stock for the 20 consecutive
trading days immediately prior to such date, (III) the "Conversion Price Per
Common Share" shall be deemed to be the amount in dollars which is equal to $50
divided by the Conversion Ratio immediately prior to such adjustment, and (IV)
"Daily Price" means (1) if the shares of such class of Common Stock then are
listed and traded on the American Stock Exchange, Inc. ("AMEX"), the closing
price on such day as reported on the AMEX Composite Transactions Tape; (2) if
the shares of such class of Common Stock then are not listed and traded on the
AMEX, the closing price on such day as reported by the principal national
securities exchange on which the shares are listed and traded; (3) if the
shares of such class of Common Stock then are not listed and traded on any such
securities exchange, the last reported sale price on such day on the National
Market of the National Association of Securities Dealers, Inc. Automated
Quotation System ("NASDAQ"); or (4) if the shares of such class of Common Stock
then are not traded on the NASDAQ National Market, the average of the highest
reported bid and lowest reported asked price on such day as reported by NASDAQ.
For purposes of any computation under this Section 4.07, the number of shares
of Common Stock outstanding at any given time shall not include shares owned or
held by or for the account of the Company.
(g) No adjustment to the Conversion Ratio pursuant to Sections 4.07(b), (c),
(d) and (e) above shall be required unless such adjustment would require an
increase or decrease of at least 1% in the Conversion Ratio; provided however,
that any adjustments which by reason of this Section 4.07(g) are not required
to be made
I-A-a-10
<PAGE>
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this Section 4.07 shall be made to the nearest four
decimal points.
(h) In the event that, at any time as a result of the provisions of this
Section 4.07, the Noteholder of this Note upon subsequent conversion shall
become entitled to receive any shares of capital stock of the Company other
than Common Stock, the number of such other shares so receivable upon
conversion of this Note shall thereafter be subject to adjustment from time to
time in a manner and on terms as nearly equivalent as practicable to the
provisions contained herein.
Section 4.08. Adjustment of Redemption Threshold. Whenever an adjustment is
made to the Conversion Ratio pursuant to Section 4.07, the Redemption Threshold
(as defined in Section 5.01(b) shall be adjusted by multiplying the Redemption
Threshold by the Conversion Ratio in effect immediately prior to such
adjustment and dividing such product by the Conversion Ratio in effect
immediately after such adjustment. All adjustments pursuant to Sections 4.07
and 4.08 shall be notified to the Noteholders and such notice shall be
accompanied by a Schedule of Computations of the adjustments.
ARTICLE V
REDEMPTION
SECTION 5.01. Redemption. The Notes shall be redeemable by the Corporation as
provided below.
(a) The Notes shall not be redeemable prior to the Initial Redemption Date.
The "Initial Redemption Date" shall be June 30, 1997.
(b) At the option of the Corporation, the Notes may be redeemed at any time
or from time to time (subject to the provisions set forth below and in Article
IV) on or after the Initial Redemption Date, in whole or in part, at the price
(the "Redemption Price"), payable in cash, equal to the percentage set forth
below of the principal amount of the Notes for redemptions during the 12-month
periods beginning on the Initial Redemption Date or the annual anniversaries
thereof indicated below, plus, in each case, an amount equal to accrued and
unpaid interest thereon, to the date fixed for redemption:
<TABLE>
<CAPTION>
12-MONTH PERIOD BEGINNING ON PERCENTAGE
---------------------------- ----------
<S> <C>
Initial Redemption Date........................................ 103.85%
First Anniversary thereof...................................... 103.30%
Second Anniversary thereof..................................... 102.75%
Third Anniversary thereof...................................... 102.20%
Fourth Anniversary thereof..................................... 101.65%
Fifth Anniversary thereof...................................... 101.10%
Sixth Anniversary thereof...................................... 100.55%
Seventh Anniversary thereof and thereafter..................... 100.00%
</TABLE>
Notwithstanding the foregoing, the Corporation may elect to redeem the Notes
at any time on or after the Initial Redemption Date and prior to the fourth
anniversary of the Initial Redemption Date only if for at least 20 Trading Days
during the period consisting of the 30 consecutive Trading Days ending on the
date notice of such redemption is given, including the last Trading Day of such
period, the Closing Price per share of Common Stock exceeds $18.75, as adjusted
pursuant to Section 4.08 (the "Redemption Threshold").
(c) In the event that less than all of the principal amount of the Notes is
to be redeemed pursuant to this Article V, the Corporation shall call for
redemption the Notes pro rata among the holders, based on the
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<PAGE>
principal amount of Notes held by each holder. Any redemption for which the
principal amount of Notes is
called for redemption on a pro rata basis (whether or not some of the principal
amount of Notes so called are subsequently converted pursuant to Article IV)
shall comply with this Section 5.01(c).
SECTION 5.02. Procedure for Redemption. (a) In the event the Company shall
redeem the Notes, notice of such redemption shall be given by first class mail,
postage prepaid, mailed not less than 30 days nor more than 60 days prior to
the redemption date, to the Noteholders of record at such Noteholders'
addresses as the same appears on the books of the Company. Each such notice
shall state: (i) the redemption date; (ii) the redemption price; (iii) the
place or places where the Notes is to be surrendered for payment of the
redemption price; (iv) that interest on the Notes will cease to accrue on such
redemption date, and (v) the principal amount of the Notes to be redeemed.
(b) Notice having been mailed as aforesaid, from and after the redemption
date (unless default shall be made by the Company in providing money for the
payment of the redemption price or a Notice of Intention to Convert or Notice
of Election to Convert has been delivered to the Company pursuant to Article
IV), interest on the principal amount of the Notes called for redemption shall
cease to accrue, and such principal amount of the Notes called for redemption
shall no longer be deemed to be outstanding and shall be cancelled and shall
not be available for reissue, and all rights of the Noteholders as creditors of
the Company (except the right to receive from the Company the redemption price
and any other amounts payable pursuant to Section 5.01) in respect of such
principal amount of the Notes called for redemption shall cease. Upon surrender
in accordance with said notice of the Notes representing the principal amount
of the Notes called for redemption (properly endorsed or assigned for transfer,
if the Board of Directors of the Company shall so require and the notice shall
so state), the principal amount of the Notes so called for redemption shall be
redeemed by the Company at the redemption price aforesaid.
ARTICLE VI
VOTING RIGHTS
Section 6.01. General. Except as otherwise provided by applicable law, the
Noteholders of the Notes (i) shall be entitled to vote with the holders of the
Common Stock on all matters submitted for a vote of holders of Common Stock,
(ii) shall be entitled to a number of votes equal to the number of votes to
which the shares of Common Stock issuable upon conversion of the Notes would
have been entitled if such shares of Common Stock had been outstanding at the
time of the applicable vote and related record date and (iii) shall be entitled
to notice of any stockholders' meeting in accordance with the Certificate of
Incorporation and By-Laws of the Company.
Section 6.02. No Changes to Voting Rights. So long as any of the principal
amount of the Notes is outstanding, the Company shall not, without the written
consent or affirmative vote of Noteholders which in the aggregate own more than
50% of the aggregate principal amount of the Notes then outstanding, at a
meeting called for that purpose of the Noteholders, amend, alter or repeal,
whether by merger, consolidation, combination, reclassification or otherwise,
the Certificate of Incorporation or By-laws of the Company or of any provision
thereof (including the adoption of a new provision thereof) which would result
in an alteration or circumvention of the voting powers or other rights of the
Notes; provided, however that any such amendment or alteration that changes the
interest payable on, or the principal amount of, the Notes shall require the
affirmative vote at a meeting of holders of the Notes duly called for such
purpose, or the written consent, of the holders of 100% of the aggregate
principal amount of the Notes then outstanding.
Section 6.03. Stockholder Approval Required. The consent or votes required in
Section 6.02 above shall be in addition to any approval of stockholders of the
Company which may be required by law or pursuant to any provision of the
Company's Certificate of Incorporation or By-Laws, which approval shall be
obtained by vote of the stockholders of the Company in the manner provided in
Section 6.01 above.
I-A-a-12
<PAGE>
ARTICLE VII
DEFAULTS
If one or more of the following events ("Events of Default") shall have
occurred and be continuing:
(a) the Company shall fail to pay when due any principal of the Notes, or
shall fail to pay within fifteen days of the due date thereof any interest
or other amount payable hereunder;
(b) the Company shall fail to observe or perform any covenant or
agreement contained in the Notes (other than those covered by clause (a)
above) for 30 days after written notice thereof has been given to the
Company by the Noteholder;
(c) the Company (i) shall commence a voluntary case or other proceeding
seeking liquidation, reorganization or other relief with respect to itself
or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
conservator, liquidator, custodian or other similar official of it or any
substantial part of its property, or (ii) shall consent to any such relief
or to the appointment of or taking possession by any such official in an
involuntary case or other proceeding commenced against it, or (iii) shall
make a general assignment for the benefit of creditors, or (iv) shall fail
generally to pay its debts as they become due, or (v) shall take any
corporate action to authorize any of the foregoing;
(d) an involuntary case or other proceeding shall be commenced against
the Company seeking liquidation, reorganization or other relief with
respect to it or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, conservator, liquidator, custodian or other similar
official of it or any substantial part of its property, and such
involuntary case or other proceeding shall remain undismissed and unstayed
for a period of 90 days; or an order for relief shall be entered against
the Company under the Federal bankruptcy laws as now or hereafter in
effect;
(e) a judgment or order for the payment of money in excess of $5,000,000
shall be rendered against the Company or any Subsidiary and such judgment
or order shall continue unsatisfied and unstayed for a period of 30 days;
then, and in every such event, unless such Event of Default is no longer
continuing, the Noteholder may by notice to the Company accelerate the maturity
of the Notes by declaring the Notes (together with accrued interest thereon) to
be, and the Notes shall thereupon become, immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Company; provided that in the case of any of the Events of
Default specified in subsection (c) or (d) above with respect to the Company,
without any notice to the Company or any other act by the Noteholder, the Notes
(together with accrued interest thereon) shall become immediately due and
payable without presentment, demand, protest or other notice of any kind, all
of which are hereby waived by the Company.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Notices. All notices, requests and other communications to any
party hereunder shall be in writing (including bank wire, telex, facsimile
transmission or similar writing) and shall be given to such party, at its
address, telex number or facsimile number set forth on the signature pages
hereof or such other address, telex number or facsimile as such party may
hereafter specify for the purpose of notice to the other party. Each such
notice, request or other communication shall be effective (i) if given by
telex, when such
I-A-a-13
<PAGE>
telex is transmitted to the telex number specified in this Section and the
appropriate answerback is received, (ii) if given by facsimile, when such
facsimile is transmitted to the facsimile number specified in this Section and
the appropriate confirmation is received, or (iii) if given by any other means,
when delivered at the address specified in this Section.
SECTION 8.02. No Waivers. No failure or delay by the Noteholder in exercising
any right, power or privilege hereunder or under any Note shall operate as a
waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided shall be cumulative and not
exclusive of any rights or remedies provided by law.
SECTION 8.03. Amendments, Waivers and Issuance. (a) Any provision of the
Notes may be amended or waived if, but only if, such amendment or waiver is in
writing and is signed by the Company and Noteholders which in the aggregate own
more than 50% of the aggregate principal amount of the Notes.
(b) The Company will not issue more than $60,000,000 aggregate principal
amount of the Notes without the consent of Noteholders which in the aggregate
own more than 50% of the aggregate principal amount of the Notes.
SECTION 8.04. Governing Law. The Notes shall be governed by and construed in
accordance with the laws of the State of New York.
AIR & WATER TECHNOLOGIES
CORPORATION
By
-----------------------------------
Name:
Title:
I-A-a-14
<PAGE>
[SUBJECT TO REVIEW BY MINNESOTA COUNSEL]
EXHIBIT B
PLAN OF MERGER
DATED AS OF
, 1994
AMONG
AIR & WATER TECHNOLOGIES CORPORATION
PSC PROFESSIONAL SERVICES GROUP, INC.
AND
[NAME OF MERGER SUBSIDIARY]
I-B-1
<PAGE>
PLAN OF MERGER
Agreement dated as of , 1994 among PSC Professional Services
Group, Inc., a Minnesota corporation ("PSG"), Air & Water Technologies
Corporation, a Delaware corporation ("AWT"), and [name of acquisition
subsidiary], a Minnesota corporation and a wholly owned subsidiary of Buyer
("Merger Subsidiary").
The parties hereto agree as follows:
ARTICLE 1
THE MERGER
1.1 The Merger. (a) At the effective time of the merger (the "Merger"),
Merger Subsidiary shall be merged with and into PSG in accordance with the
Section 302A.611 of the Minnesota Business Corporation Act, whereupon the
separate existence of Merger Subsidiary shall cease, and PSG shall be the
surviving corporation (the "Surviving Corporation").
(b) Concurrently with the closing of the transactions contemplated by the
Investment Agreement dated March , 1994 among AWT, Compagnie Generale des
Eaux and Anjou International Company, PSG and Merger Subsidiary will file
articles of merger with the Secretary of State of the State of Minnesota and
make all other filings or recordings required by Minnesota Law in connection
with the Merger. The Merger shall become effective at such time as the articles
of merger is duly filed with the Secretary of State of the State of Minnesota
or at such later time as is specified in the certificate of merger (the
"Effective Time").
(c) From and after the Effective Time, the Surviving Corporation shall
possess all the rights, privileges, powers and franchises and be subject to all
of the restrictions, disabilities and duties of PSG and Merger Subsidiary, all
as provided under Minnesota Law.
1.2 Conversion of Shares. At the Effective Time:
(a) each share of common stock, par value $ , of PSG (the "PSG Common
Stock") held by PSG as treasury stock shall be cancelled, and no payment
shall be made with respect thereto;
(b) each share of common stock of Merger Subsidiary outstanding
immediately prior to the Effective Time shall be converted into and become
one share of common stock of the Surviving Corporation with the same
rights, powers and privileges as the shares so converted and shall
constitute the only outstanding shares of capital stock of the Surviving
Corporation; and
(c) all outstanding PSG Common Stock outstanding immediately prior to the
Effective Time shall, except as otherwise provided in Section 1.2(a) be
converted into the right to receive in the aggregate 5,850,000 shares of
Class A Common Stock, par value $.001 of AWT.
ARTICLE 2
THE SURVIVING CORPORATION
2.1 Articles of Incorporation. The articles of incorporation of Merger
Subsidiary in effect at the Effective Time shall be the articles of
incorporation of the Surviving Corporation until amended in accordance with
applicable law, except that the name of the Surviving Corporation shall be
changed to "Professional Services Group, Inc."
2.2 Bylaws. The bylaws of PSG in effect at the Effective Time shall be the
bylaws of the Surviving Corporation until amended in accordance with applicable
law.
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2.3 Directors and Officers. From and after the Effective Time, until
successors are duly elected or appointed and qualified in accordance with
applicable law, (i) the directors of Merger Subsidiary at the Effective Time
shall be the directors of the Surviving Corporation, and (ii) the officers of
PSG at the Effective Time shall be the officers of the Surviving Corporation.
ARTICLE 3
MISCELLANEOUS
3.1 Governing Law. This Agreement shall be construed in accordance with and
governed by the law of the State of Minnesota.
3.2 Counterparts; Effectiveness. This Agreement may be signed in any number
of counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument. This Agreement
shall become effective when each party hereto shall have received counterparts
hereof signed by all of the other parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.
AIR & WATER TECHNOLOGIES CORPORATION
By__________________________________
Title:
PSC PROFESSIONAL SERVICES GROUP, INC.
By__________________________________
Title:
[MERGER SUBSIDIARY]
By__________________________________
Title:
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EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions. Terms defined in the Investment Agreement (the
"AGREEMENT") dated as of March 30, 1994 among Air & Water Technologies
Corporation, a Delaware corporation (the "COMPANY"), Compagnie Generale des
Eaux, a French corporation ("CGE"), Anjou International Company, a Delaware
corporation ("ANJOU", and together with CGE, the "SHAREHOLDER") are used herein
as therein defined. In addition, the following terms, as used herein, have the
following meanings:
"DEMAND REGISTRATION" means a Demand Registration as defined in Section 2.1.
"PIGGYBACK REGISTRATION" means a Piggyback Registration as defined in Section
2.2.
"REGISTRABLE SECURITIES" means shares of Common Stock, Series A Preferred or
the Company's 5 1/2% Convertible Subordinated Notes, owned from time to time by
the Shareholder and its Affiliates, and any other securities issued by the
Company in exchange for or upon conversion of any such securities.
"UNDERWRITER" means a securities dealer who purchases any Registrable
Securities as principal and not as part of such dealer's market-making
activities.
"1933 ACT" means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
ARTICLE II
REGISTRATION RIGHTS
SECTION 2.1. Demand Registration. (a) Shareholder may make up to four written
requests for registration under the 1933 Act of all or part of its Registrable
Securities (a "DEMAND REGISTRATION"); provided that the Company shall not be
obligated (i) to effect more than one Demand Registration in any 6-month
period, (ii) to effect a Demand Registration for less than five percent of the
outstanding Shares, (iii) to effect a Demand Registration within 6 months of
Shareholder selling any Registrable Securities pursuant to a Piggyback
Registration under Section 2.2 or (iv) subject to Section 2.2, to effect a
Demand Registration if the Company shall have filed or announced its intention
to file a registration statement of an offering of Shares for its own account
and shall be taking steps in pursuance thereof or if the Company shall have
completed such a registered offering within the immediately preceding 90 days.
Such request will specify the number of shares of Registrable Securities
proposed to be sold and will also specify the intended method of disposition
thereof. A registration will not count as a Demand Registration until it has
become effective.
(b) If Shareholder so elects, the offering of such Registrable Securities
pursuant to such Demand Registration shall be in the form of an underwritten
offering. Shareholder shall select the book-running and other managing
Underwriters in connection with such offering and any additional investment
bankers and managers to be used in connection with the offering.
SECTION 2.2. Piggyback Registration. If the Company proposes to file a
registration statement under the 1933 Act with respect to an offering of Common
Stock (i) for the Company's own account (other than a registration statement on
Form S-4 or S-8 or relating solely to securities issued pursuant to any present
or future restricted stock, stock option, stock purchase or dividend
reinvestment plan or other similar type of plan of the Company which provides
for the issuance of equity securities or options or rights to purchase equity
securities of the Company (or any substitute form that may be adopted by the
Commission)), or (ii) for the account of any of its holders of Common Stock,
then the Company shall give written notice of such proposed filing to
Shareholder as soon as practicable (but in no event less than 20 days before
the anticipated
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filing date), and such notice shall offer, subject to the terms and conditions
hereof, Shareholder the opportunity to register such Registrable Securities as
Shareholder may request on the same terms and conditions as the Company's or
such holders' shares (a "PIGGYBACK REGISTRATION").
SECTION 2.3. Reduction of Offering. Notwithstanding anything contained
herein, if the managing Underwriter or Underwriters of an offering described in
Section 2.1 or 2.2 shall advise the Company that (i) the size of the offering
that Shareholder, the Company and any other Persons intend to make or (ii) the
kind of securities that Shareholder, the Company and such other Persons intend
to include in such offering are such that the success of the offering would be
materially and adversely affected, then (A) if the size of the offering is the
basis of such Underwriter's advice, the amount of Registrable Securities to be
offered for the account of Shareholder shall be reduced to the extent necessary
to reduce the total amount of securities to be included in such offering to the
amount recommended by such managing Underwriter or Underwriters; provided that
(x) in the case of a Demand Registration, the amount of Registrable Securities
to be offered for the account of the Shareholder shall be reduced only after
the amount of securities to be offered for the account of the Company and such
other Persons has been reduced to zero, and (y) in the case of a Piggyback
Registration, if securities are being offered for the account of Persons other
than the Company, then the proportion by which the amount of such Registrable
Securities intended to be offered for the account of Shareholder is reduced
shall not exceed the proportion by which the amount of such securities intended
to be offered for the account of such other Persons is reduced; and (B) if the
combination of securities to be offered is the basis of such Underwriter's
advice, (x) the Registrable Securities to be included in such offering shall be
reduced as described in clause (A) above (subject to the proviso in clause
(A)), or (y) in the case of a Piggyback Registration, if the actions described
in sub-clause (x) of this clause (B) would, in the judgment of the managing
Underwriter, be insufficient to eliminate the adverse effect that inclusion of
the Registrable Securities requested to be included would have on such
offering, such Registrable Securities will be excluded from such offering.
ARTICLE III
REGISTRATION PROCEDURES
SECTION 3.1. Filings; Information. Whenever Shareholder requests that any
Registrable Securities be registered pursuant to Section 2.1 hereof, the
Company will use its best efforts to effect the registration of such
Registrable Securities as quickly as practicable, and in connection with any
such request:
(a) The Company will as expeditiously as possible prepare and file with
the Commission a registration statement on any form for which the Company
then qualifies and which counsel for the Company shall deem appropriate and
available for the sale of the Registrable Securities to be registered
thereunder in accordance with the intended method of distribution thereof,
and use best efforts to cause such filed registration statement to become
and remain effective for a period of not less than 90 days; provided that
if the Company shall furnish to Shareholder a certificate signed by its
Chairman, Chief Executive Officer or Chief Financial Officer stating that
in his or her good faith judgment it would be detrimental or otherwise
disadvantageous to the Company or its shareholders for such a registration
statement to be filed, or, in the case of an effective registration
statement, for sales to be effected thereunder, the Company shall have a
period of not more than 90 days within which to file such registration
statement measured from the date of receipt of the request in accordance
with Section 2.1 or, in the case of an effective registration statement,
the Company shall be entitled to require Shareholder to refrain from
selling Registrable Securities under such registration statement for a
period of up to 90 days. If the Company furnishes a notice under this
paragraph at a time when a registration statement filed pursuant to this
Agreement is effective, the Company shall extend the period during which
such registration statement shall be maintained effective as provided in
this Section 3.1(a) hereof by the number of days during the period from and
including the date of the giving of notice under this paragraph to the date
when sales under the registration statement may recommence.
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(b) The Company will, if requested, prior to filing such registration
statement or any amendment or supplement thereto, furnish to Shareholder
and each managing Underwriter, if any, copies thereof, and thereafter
furnish to Shareholder and each such Underwriter, if any, such number of
copies of such registration statement, each amendment and supplement
thereto (in each case including all exhibits thereto and documents
incorporated by reference therein) and the prospectus included in such
registration statement (including each preliminary prospectus) as
Shareholder or such Underwriter may reasonably request in order to
facilitate the sale of the Registrable Securities.
(c) After the filing of the registration statement, the Company will
promptly notify Shareholder of any stop order issued or, to the knowledge
of the Company, threatened to be issued by the Commission and take all
necessary actions required to prevent the entry of such stop order or to
remove it if entered.
(d) The Company will use its reasonable best efforts qualify the
Registrable Securities for offer and sale under such other securities or
blue sky laws of such jurisdictions in the United States as Shareholder
reasonably (in light of Shareholder's intended plan of distribution)
requests; provided that the Company will not be required to (i) qualify
generally to do business in any jurisdiction where it would not otherwise
be required to qualify but for this paragraph (d), (ii) subject itself to
taxation in any such jurisdiction or (iii) generally consent to service of
process in any such jurisdiction.
(e) The Company shall, as promptly as practicable, notify Shareholder, at
any time when a prospectus relating to the sale of the Registrable
Securities is required by law to be delivered in connection with sales by
an Underwriter or dealer, of the occurrence of an event requiring the
preparation of a supplement or amendment to such registration statement or
prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such registration statement or prospectus will not
contain an untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and as promptly as practicable make available to
Shareholder and to the Underwriters any such supplement or amendment.
Shareholder agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind described in the preceding sentence,
Shareholder will forthwith discontinue the offer and sale of Registrable
Securities pursuant to the registration statement covering such Registrable
Securities until receipt of the copies of such supplemented or amended
prospectus and, if so directed by the Company, Shareholder will deliver to
the Company all copies, other than permanent file copies then in
Shareholder's possession, of the most recent prospectus covering such
Registrable Securities at the time of receipt of such notice. In the event
the Company shall give such notice, the Company shall extend the period
during which such registration statement shall be maintained effective as
provided in Section 3.1(a) hereof by the number of days during the period
from and including the date of the giving of such notice to the date when
the Company shall make available to Shareholder such supplemented or
amended prospectus.
(f) The Company will enter into customary agreements (including an
underwriting agreement in customary form and satisfactory in form and
substance to the Company in its reasonable judgment) and take such other
actions as are reasonably required in order to expedite or facilitate the
sale of such Registrable Securities.
(g) The Company will furnish to Shareholder and to each managing
Underwriter, if any, a signed counterpart, addressed to Shareholder and
each Underwriter, of (i) an opinion or opinions of counsel to the Company
and (ii) a comfort letter or comfort letters from the Company's independent
public accountants, each in customary form and covering such matters of the
type customarily covered by opinions or comfort letters delivered to such
parties.
(h) The Company will make generally available to its securityholders, as
soon as reasonably practicable, an earnings statement covering a period of
12 months, beginning within three months after the effective date of the
registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the 1933 Act and the rules and regulations
of the Commission thereunder.
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(i) The Company will use its best efforts to cause all such Registrable
Securities to be listed on each securities exchange on which similar
securities issued by the Company are then listed.
The Company may require Shareholder promptly to furnish in writing to the
Company such information regarding Shareholder, the plan of distribution of the
Registrable Securities and other information as the Company may from time to
time reasonably request or as may be legally required in connection with such
registration.
SECTION 3.2. Registration Expenses. In connection with any Demand
Registration or Piggyback Registration, the Company shall pay the following
expenses incurred in connection with such registration (the "REGISTRATION
EXPENSES"): (i) all filing fees with the Commission and the National
Association of Securities Dealers, (ii) fees and expenses of compliance with
securities or blue sky laws (including reasonable fees and disbursements of
counsel in connection with blue sky qualifications of the Registrable
Securities), (iii) printing expenses, (iv) the fees and expenses incurred in
connection with the listing of the Registrable Securities, (v) fees and
expenses of counsel and independent certified public accountants for the
Company (including the expenses of any comfort letters pursuant to Section
3.1(g) hereof) and (vi) the reasonable fees and expenses of any additional
experts retained by the Company in connection with such registration. The
Shareholder shall pay any underwriting fees, discounts or commissions
attributable to the sale of Registrable Securities of the Shareholder and any
out-of-pocket expenses of Shareholder, including Shareholder's counsel's fees
and expenses. The Company shall pay internal Company expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties).
ARTICLE IV
INDEMNIFICATION AND CONTRIBUTION
SECTION 4.1. Indemnification by the Company. The Company agrees to indemnify
and hold harmless Shareholder, its officers and directors, and each Person, if
any, who controls Shareholder within the meaning of either Section 15 of the
1933 Act or Section 20 of the 1934 Act from and against any and all losses,
claims, damages and liabilities caused by any untrue statement or alleged
untrue statement of a material fact contained in any registration statement or
prospectus relating to the Registrable Securities (as amended or supplemented
if the Company shall have furnished any amendments or supplements thereto) or
any preliminary prospectus (including documents incorporated by reference
therein), or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages or
liabilities are caused by any such untrue statement or omission or alleged
untrue statement or omission based upon information furnished in writing to the
Company by or on behalf of Shareholder expressly for use therein; provided that
the foregoing indemnity agreement with respect to any preliminary prospectus
shall not inure to the benefit of Shareholder if a copy of the then current
prospectus was not provided to purchaser at or prior to the time of such
purchase and such current prospectus would have cured the defect giving rise to
such loss, claim, damage or liability or for any sales occurring after the
Company has informed Shareholder under Section 3.1(e) and prior to the delivery
by the Company of any supplement or amendment to such prospectus. The Company
also agrees to indemnify any Underwriters of the Registrable Securities, their
officers and directors and each person who controls such underwriters on
substantially the same basis as that of the indemnification of Shareholder
provided in this Section 4.1.
SECTION 4.2. Indemnification by Shareholder. Shareholder agrees to indemnify
and hold harmless the Company, its officers and directors, and each Person, if
any, who controls the Company within the meaning of either Section 15 of the
Securities Act or Section 20 of the 1934 Act to the same extent as the
foregoing indemnity from the Company to Shareholder, but only with reference to
information furnished in writing by or on behalf of Shareholder expressly for
use in any registration statement or prospectus relating to the Registrable
Securities, or any amendment or supplement thereto, or any preliminary
prospectus.
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Shareholder also agrees to indemnify and hold harmless Underwriters of the
Registrable Securities, their officers and directors and each person who
controls such Underwriters on substantially the same basis as that of the
indemnification of the Company provided in this Section 4.2.
SECTION 4.3. Conduct of Indemnification Proceedings. In case any proceeding
(including any governmental investigation) shall be instituted involving any
Person in respect of which indemnity may be sought pursuant to Section 4.1 or
4.2, such Person (the "INDEMNIFIED PARTY") shall promptly notify the Person
against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in writing
and the Indemnifying Party, upon the request of the Indemnified Party, shall
retain counsel reasonably satisfactory to such Indemnified Party to represent
such Indemnified Party and any others the Indemnifying Party may designate in
such proceeding and shall pay the fees and disbursements of such counsel
related to such proceeding. In any such proceeding, any Indemnified Party shall
have the right to retain its own counsel, but the fees and expenses of such
counsel shall be at the expense of such Indemnified Party unless (i) the
Indemnifying Party and the Indemnified Party shall have mutually agreed to the
retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the Indemnified Party and the
Indemnifying Party and representation of both parties by the same counsel
would, in the opinion of counsel reasonably acceptable to the Indemnifying
Party, be inappropriate due to actual or potential differing interests between
them. It is understood that the Indemnifying Party shall not, in connection
with any proceeding or related proceedings in the same jurisdiction, be liable
for the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) at any time for all such Indemnified Parties,
and that all such fees and expenses shall be reimbursed as they are incurred.
In the case of any such separate firm for the Indemnified Parties, such firm
shall be designated in writing by the Indemnified Parties. The Indemnifying
Party shall not be liable for any settlement of any proceeding effected without
its written consent, but if settled with such consent, or if there be a final
judgment for the plaintiff, the Indemnifying Party shall indemnify and hold
harmless such Indemnified Parties from and against any loss or liability (to
the extent stated above) by reason of such settlement or judgment.
SECTION 4.4. Contribution. If the indemnification provided for in this
Article IV is unavailable to the Indemnified Parties in respect of any losses,
claims, damages or liabilities referred to herein, then each such Indemnifying
Party, in lieu of indemnifying such Indemnified Party, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such losses,
claims, damages or liabilities (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company, Shareholder and the
Underwriters from the offering of the securities, or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) but also the relative fault of the Company, Shareholder and
the Underwriters in connection with the statements or omissions which resulted
in such losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. The relative benefits received by the Company,
Shareholder and the Underwriters shall be deemed to be in the same proportion
as the total proceeds from the offering (net of underwriting discounts and
commissions but before deducting expenses) received by each of the Company and
Shareholder and the total underwriting discounts and commissions received by
the Underwriters, in each case as set forth in the table on the cover page of
the prospectus, bear to the aggregate public offering price of the securities.
The relative fault of the Company, Shareholder and the Underwriters shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by such party and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The Company and Shareholder agree that it would not be just and equitable if
contribution pursuant to this Section 4.4 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an Indemnified Party as a result of
the losses, claims, damages or liabilities referred to in the immediately
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preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such
Indemnified Party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 4.4, no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the Securities underwritten by it and distributed to the
public were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission, and Shareholder shall
not be required to contribute any amount in excess of the amount by which the
net proceeds of the offering (before deducting expenses) received by
Shareholder exceeds the amount of any damages which Shareholder has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
ARTICLE V
MISCELLANEOUS
SECTION 5.1. Participation in Underwritten Registrations. No Person may
participate in any underwritten registered offering contemplated hereunder
unless such Person (a) agrees to sell its securities on the basis provided in
any underwriting arrangements and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements and these Registration Rights.
SECTION 5.2. Rule 144. The Company covenants that it will use best efforts to
file any reports required to be filed by it under the 1933 Act and the 1934 Act
and that it will take such further action as Shareholder may reasonably
request, all to the extent required from time to time to enable Shareholder to
sell Registrable Securities without registration under the 1933 Act within the
limitation of the exemptions provided by Rule 144 under the 1933 Act, as such
Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission. Upon the request of Shareholder, the
Company will deliver to Shareholder a written statement as to whether it has
complied with such requirements.
SECTION 5.3. Holdback Agreements. (a) Shareholder agrees not to offer, sell,
contract to sell or otherwise dispose of any Registrable Securities, or any
securities convertible into or exchangeable or exercisable for such securities,
during the 14 days prior to, and during the 90 day period beginning on, the
effective date of any registration statement registering the Registrable
Securities other than the Registrable Securities to be sold pursuant to such
registration statement.
(b) The Company agrees not to offer, sell, contract to sell or otherwise
dispose of any securities similar to the Registrable Securities to be sold
pursuant hereto, or any securities convertible into or exchangeable or
exercisable for such securities, during the 14 days prior to, and during the 90
day period beginning on, the effective date of any registration statement
registering the Registrable Securities other than any shares of Common Stock
sold upon the exercise of an option or warrant or the conversion of a security
outstanding at such date or pursuant to any Company Stock Plan or issued by the
Company as consideration for an acquisition.
SECTION 5.4. Restricted Sales. Nothing in this Agreement shall be construed
to permit any sales or other disposition of Registrable Securities, the sale or
disposition of which is prohibited under the terms of the Investment Agreement.
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[LETTERHEAD OF ALLEN & COMPANY INCORPORATED APPEARS HERE]
ANNEX II
FAIRNESS OPINION
May 24, 1994
Board of Directors
Air & Water Technologies Corporation
U.S. Highway 22 West and Station Road
Branchburg, NJ 08876
Dear Members of the Board:
Air & Water Technologies Corporation ("AWT" or the "Company"), Compagnie
Generale des Eaux, a French Corporation and principal stockholder of AWT
("CGE") and Anjou International Company, a Delaware corporation and wholly-
owned subsidiary of CGE ("Anjou") have entered into an Investment Agreement
dated as of March 30, 1994 (the "Investment Agreement") relating to certain
transactions described herein. You have requested our opinion as to the
fairness, from a financial point of view, of the transactions contemplated in
connection with the Investment Agreement, and certain related agreements, to
the existing holders of the Company's outstanding shares of Class A Common
Stock, par value $.001 per share ("Class A Common Stock"), other than CGE.
Pursuant to the Investment Agreement, and subject to the conditions thereof,
it is contemplated, among other things, that (1) AWT will issue to CGE
1,200,000 shares of AWT's newly designated 5 1/2% Series A Convertible
Exchangeable Preferred Stock (the "Series A Preferred"), for cash consideration
of $60,000,000, convertible into 4,800,000 shares of Class A Common Stock, and
(2) AWT will acquire from Anjou, by merger and exchange of shares,
respectively, PSG Professional Services Group, Inc., a Minnesota corporation,
and 2815869 Canada, Inc., a Canadian corporation, each a wholly-owned
subsidiary of Anjou (such subsidiaries being collectively referred to herein as
the "PSG Group"), for an aggregate purchase price of 6,500,000 shares of Class
A Common Stock. We understand that the consideration to be received by Anjou in
connection with the Company's acquisition of the PSG Group will be subject to
adjustment pursuant to the Investment Agreement based on the adjusted
stockholder's equity of the PSG Group on the date of the closing of the
transactions contemplated thereby. We also understand that on and after the
date of such closing, CGE will have the right to cause AWT to include as
nominees for AWT's Board of Directors designees of CGE in a number sufficient
to provide CGE percentage representation on the AWT Board approximately equal
to its fully diluted percentage share ownership, as more specifically set forth
in the Investment Agreement, and that the Company's Bylaws will be amended to
provide that CGE shall have the right to designate the Chief Executive Officer
and the Chief Financial Officer of AWT. In addition, pursuant to a Registration
Rights Agreement to be entered into between AWT, CGE and Anjou pursuant to the
Investment Agreement (the "Registration Rights Agreement"), CGE and Anjou will
be granted registration rights respecting AWT securities held by them.
The Investment Agreement also provides that, for so long as CGE (with its
affiliates) is the largest shareholder of the Company, AWT will be CGE's
exclusive vehicle in the United States for its water and waste water management
and air pollution activities and, as more specifically set forth in the
Investment Agreement, will coordinate with AWT in the development of other
commercial activities in the United States and elsewhere.
Pursuant to a letter agreement dated March 18, 1994 between AWT and CGE
respecting the transactions described above (the "Letter Agreement"), CGE
purchased from AWT 500,000 shares of Class A Common Stock for an aggregate
purchase price of $5,000,000. In connection with the Letter Agreement, CGE has
also delivered to AWT a letter dated March 18, 1994 (the "Credit Letter"),
committing to (1) provide any assistance and support necessary for a bank or
other financial institution to provide bridge
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financing, if necessary, to AWT for up to $125,000,000 on a senior basis and,
upon the consummation of the transactions contemplated by the Investment
Agreement, to provide $125,000,000 of permanent bank debt financing on an
unsecured basis to repay AWT's current debt to Prudential Insurance Company of
America (the "Prudential Note"), which replacement financing will not contain a
negative pledge restriction on AWT's assets and permit working capital
borrowing and (2) after the consummation of the transactions contemplated under
the Investment Agreement, to provide certain credit support for AWT projects
from time to time, all on terms as more specifically set forth in the credit
Letter.
The transactions contemplated in connection with the Investment Agreement,
the Letter Agreement and the Credit Letter, and the other agreements entered
into pursuant thereto, are herein sometimes collectively referred to as the
"Transactions".
Allen & Company Incorporated has from time to time acted as financial advisor
to AWT and has acted as its financial advisor in connection with the
Transactions and will receive a fee for such services upon the consummation of
Transactions pursuant to our engagement agreement with AWT dated November 15,
1993 (the "Engagement Agreement"). In addition, as you know, our firm and
certain of its officers and directors are stockholders of AWT and Enrique F.
Senior, a Managing Director of our firm, is a member of AWT's Board of
Directors and its Executive Committee.
In arriving at our opinion expressed in this letter, we have, among other
things:
(i) reviewed the terms and conditions of the Investment Agreement and the
agreements and instruments to be entered into pursuant thereto and the
terms and provisions of the Letter Agreement and the Credit Letter;
(ii) reviewed the terms and provisions of the form of Certificate of
Designation of the Series A Preferred (the "Certificate of Designation"),
included as Exhibit A to the Investment Agreement, and the form of 5 1/2%
Convertible Subordinated Notes of the Company, included on Attachment A to
the Certificate of Designation, for which the Series A Preferred will be
exchangeable;
(iii) reviewed the Proxy Statement dated May 24, 1994 relating to the
Annual Meeting of Shareholders to be held on June 14, 1994 and regarding,
among other things, the approval of the Transactions;
(iv) analyzed certain historical business and financial information
relating to AWT, including the Annual Reports to Stockholders and Annual
Reports on Form 10-K of AWT for each of its fiscal years ended October 31,
1989 through 1993, AWT's Quarterly Report on Form 10-Q for its quarter
ended January 31, 1994 and certain internal business and financial
information prepared by management of AWT;
(v) analyzed historical business and financial information provided to us
by the PSG Group, including audited financial statement of the PSG Group
for each of its fiscal years ended December 31, 1991 through 1993 and
certain internal business and financial information prepared by management
of the PSG Group;
(vi) reviewed certain financial forecasts and other data provided to us
by AWT and the PSG Group relating to future prospects for their respective
businesses;
(vii) conducted discussions with members of the senior management of AWT
and the PSG Group with respect to the business and prospects of AWT and the
PSG Group, the strategic advantages and operational efficiencies that could
result from a merger of AWT and the PSG Group, as well as management's
assessment of the prospects for the environmental industry in general,
including a continuing trend toward consolidation in the industry and the
capital intensive nature of operations therein;
(viii) reviewed public information with respect to certain other
companies in lines of business we believe to be comparable to the business
of AWT and the PSG Group;
[ALLEN & COMPANY
INCORPORATED
APPEARS HERE]
II-2
<PAGE>
(ix) reviewed the historical and current market prices and trading
volumes of the Class A Common Stock and market data for the publicly traded
securities of other companies we believe to be comparable to AWT and the
PSG Group;
(x) considered the views of AWT's management concerning the strategic
implications and marketing and operational benefits which might result from
the Company's acquisition of the PSG Group;
(xi) considered the terms of selected financings generally comparable to
CGE's investment in the Series A Preferred and to the financial support
committed to be provided under the Credit Letter, as well as recent trends
in the pricing and terms of preferred stock and debt financings since the
date of the announcement of the Transactions;
(xii) considered the current financial condition of the Company,
including its current need for capital, alternatives for raising capital
and the relative costs of such alternatives, the terms of its present
credit facilities, including the Prudential Note, and the substantial
resources required to continue the growth of the Company's business under
present economic and market conditions;
(xiii) reviewed publicly available information regarding the business and
financial conditions of CGE and its holdings in North America and
considered the strategic advantages to the Company which AWT's management
believes may be realized from an alliance with CGE in the United States and
elsewhere; and
(xiv) conducted such other financial studies, analyses and investigations
as we deemed appropriate.
In addition to the specific information summarized above, our opinion
expressed herein reflects our general familiarity with AWT as well as
information regarding the current prospects for AWT, and financing alternatives
available to it, which information we acquired during the course of our
association with the Company, and, in particular, our recent engagement under
the Engagement Agreement. Our opinion does not, however, constitute a
recommendation of the Transactions over any other alternative transactions
which may be available to the Company.
We have assumed and relied upon the accuracy and completeness of the
financial and other information provided by AWT and the PSG Group to us and the
representations contained in the investment Agreement, and we have not
undertaken any independent verification of such information or any independent
valuation or appraisal of any of the assets of AWT or the PSG Group. With
respect to the financial forecasts referred to above, we have assumed that they
have been reasonably prepared on a basis reflecting the best currently
available judgments of the management of AWT and the PSG Group as to the future
financial performance of AWT and the PSG Group, respectively. Further, our
opinions are based on economic, monetary and market conditions existing on this
date.
Our engagement and the opinions expressed herein are solely for the benefit
of AWT's Board of Directors and are not on behalf of, and are not intended to
confer rights or remedies upon, the PSG Group, Anjou or CGE, any stockholders
of AWT or any other person other than AWT's Board of Directors. Furthermore,
the opinion rendered herein does not constitute a recommendation by our firm
that any stockholder of the Company vote to approve the Transactions.
Based on the subject to the foregoing and such other factors as we deemed
relevant, including our assessment of economic, monetary and market conditions
existing on the date of this letter, we are of the opinion that, as of this
date, the Transactions are fair, from a financial point of view, to the current
holders of AWT's Class A Common Stock, other than CGE.
Very truly yours,
Allen & Company Incorporated
/s/ Enrique F. Senior
By: _________________________________
[ALLEN & COMPANY
INCORPORATED
APPEARS HERE]
II-3
<PAGE>
AIR & WATER TECHNOLOGIES CORPORATION
THIS PROXY IS BEING SOLICITED BY AIR & WATER TECHNOLOGIES CORPORATION'S
BOARD OF DIRECTORS
The undersigned, revoking any previous proxies relating to these shares,
hereby acknowledges receipt of the Notice and Proxy Statement dated May 24,
1994 in connection with the Annual Meeting to be held at 2:00 p.m. on Tuesday,
June 14, 1994 at the Fiddler's Elbow Country Club, located at Rattlesnake
Bridge Road, Far Hills, New Jersey and hereby appoints William R. Lewis and
Douglas A. Satzger, and each of them (with full power to act alone), the
attorneys and proxies of the undersigned, with power of substitution in each,
to vote all shares of the Class A Common Stock of AIR & WATER TECHNOLOGIES
CORPORATION (the "Company") registered in the name provided herein which the
undersigned is entitled to vote at the 1994 Annual Meeting of Shareholders, and
at any adjournments thereof, with all the powers the undersigned would have if
personally present. Without limiting the general authorization hereby given,
said proxies are, and each of them is, instructed to vote or act as follows on
the proposals set forth in said Proxy.
IN THEIR DISCRETION THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENTS THEREOF.
ELECTION OF DIRECTORS
Eckardt C. Beck, Douglas M. Costle, Jacques-Henri David, Nicholas DeBenedictis,
Jean-Dominique Deschamps, Richard M. Dowd, Claudio Elia, Carol Lynn Green,
William Kriegel, John W. Morris and Enrique F. Senior (of if any nominee is not
available for election, such substitute as the Board of Directors may
designate)
SEE REVERSE SIDE FOR ALL THREE PROPOSALS. IF YOU WISH TO VOTE IN ACCORDANCE
WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS, JUST SIGN ON THE REVERSE SIDE.
YOU NEED NOT MARK ANY BOXES.
P R O X Y
SEE REVERSE SIDE
<PAGE>
[ X ] PLEASE MARK
VOTES AS IN THIS 6631
EXAMPLE.
THIS PROXY WHEN EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN. IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2 AND 3.
FOR AGAINST ABSTAIN
1. Proposal to
approve cer- [ ] [ ] [ ]
tain issuances
of Company
securities pursuant to an Investment Agreement
among the Company, Compagnie Gererale des Eaux
("CGE"), a French corporation, and Anjou
International Company, a Delaware corporation
and wholly-owned subsidiary of CGE.
FOR WITHHELD
2. Election of
Directors [ ] [ ]
For, except vote withheld from the following nominee(s):
- - ----------------------------------------------------
FOR AGAINST ABSTAIN
3. Proposal to ratify the
appointment of Arthur [ ] [ ] [ ]
Andersen & Co. as the
Company's
independent public accountants for the fiscal year ending
October 31, 1994.
SIGNATURE(S) DATE
-------------------------------------- -------------------
Please sign exactly as name(s) appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such.
