SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended October 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number: 033-17921
AIR & WATER TECHNOLOGIES CORPORATION
(Exact Name of Registrant as Specified in its Charter)
13-3418759
Delaware (State or Other
(Other Jurisdiction of I.R.S. Employer
Incorporation or Organization) I.R.S. Employer
Identification Number)
P.O. Box 1500
Somerville, New Jersey
(Address of Principal 08876
Executive Offices) (Zip Code)
(908) 685-4600
(Registrant's Telephone
Number, Including
Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
Class A Common Stock, on which registered
$.001 par value American Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was $105,796,078 on December 31, 1996.
The number of outstanding shares of the Registrant's Class A Common stock, par
value $.001 per share, was 32,019,254 on December 31, 1996.
The Exhibit Index to this Annual Report on Form 10-K is located at Page
73 herein.
ITEM 1. BUSINESS
BACKGROUND
Air and Water Technologies Corporation ("AWT" or the
"Company"), through its subsidiaries, provides a comprehensive range of
services and technologies directed principally at providing complete services
for the operation, maintenance and management of water and wastewater
treatment systems; engineering, design and construction of water and
wastewater facilities; the remediation of hazardous waste; and services and
technologies for controlling air pollution. AWT believes it provides a
complement of products and services that satisfy the environmental and
essential services needs of its targeted client base. AWT markets its
products and services through three renowned trade names: Professional
Services Group ("PSG") for the operation, maintenance and management of water
and wastewater treatment systems; Metcalf & Eddy for water, wastewater-related
and hazardous waste products and engineering services; and Research-Cottrell
for air pollution control related products and services. PSG provides its
clients with complete services for the operation, maintenance and management
of treatment systems in various water and wastewater and sludge and biosolid
waste management markets. Metcalf & Eddy provides engineering studies and
design, project management, regulatory assistance, and site evaluation for
clients with needs in the areas of water treatment and conservation, hazardous
waste site remediation, solid waste management and wastewater treatment and
disposal. Research-Cottrell designs and develops products and technologies
targeted at specific client needs such as pollution control equipment and
emissions monitoring systems. AWT provides its full complement of products
and services to predominantly four major customer sectors consisting of the
electric generating industry; the solid waste incineration industry;
governmental entities, including municipalities and state and federal
agencies; and specific industrial categories, such as petroleum refining,
pulp and paper, pharmaceutical, chemical, primary and secondary metals,
food processing, printing and furniture manufacture.
PSG provides its clients with complete services for the
operation, maintenance and management of treatment systems 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 PSG of complete responsibility for
operating complex treatment systems. PSG provides operation, maintenance and
management ("OM&M") services for water supply and wastewater treatment
systems, primarily for cities, municipalities and other local governmental
entities. PSG also serves the industrial market and federal and state
governments by providing OM&M services for wastewater treatment systems and
groundwater remediation treatment systems. PSG has significant experience
dealing with the planning and implementation of large biosolids management
programs. Compared to other OM&M firms, PSG is among the leaders in large,
complex biosolids plant operation and management experience. Methods used
include landfilling, land application, composting and incineration. PSG also
has significant experience in operating and managing composting facilities.
Metcalf & Eddy's services are directed principally at the
protection and effective management of water resources, both surface and
groundwater as well as the management of its clients' hazardous wastes. These
activities include providing services for the management or reduction of
pollutants entering the water resource from a variety of natural causes as
well as waste disposal practices such as wastewater treatment, solid waste
landfilling, industrial wastewater pretreatment and disposal of hazardous
waste. These services include management, treatment and distribution of water
from surface and groundwater sources; collection, treatment and disposal of
wastewater and its associated by-products such as sludge; pretreatment of
industrial wastewater prior to discharge into a municipal system or on-site
treatment and disposal; remediation of hazardous waste sites involving
contaminated soils and groundwater; renovation of groundwater and soil
contaminated through improper waste disposal practices; monitoring and closure
of sanitary landfills with disposal of associated leachate; and management and
transportation of hazardous waste.
Research-Cottrell's air pollution control related technologies
and services are directed principally at cost-effectively reducing air
pollution, treating thermal discharges, dispersing airborne contaminants,
continuously monitoring emissions and providing expertise in regulatory and
engineering services for a wide range of industrial processing plants and
power generation facilities in the United States and internationally.
Research-Cottrell's services include identifying and analyzing air pollution
control problems and recommending effective and cost-efficient control
options; designing and engineering treatment facilities and equipment;
procuring, fabricating, erecting, constructing, and installing air pollution
control equipment; and providing overall project management. In addition,
Research-Cottrell provides high quality replacement parts and expert
maintenance and repair services for its own base of installed equipment as
well as equipment provided by others on a routine outage and emergency
response basis. Research-Cottrell's wide range of air pollution control
technologies includes: electrostatic precipitators; fabric filters, dust
collectors, and mechanical collectors; regenerative thermal oxidizers; VOC
concentration systems; concrete chimneys and steel stacks; mechanical draft
cooling towers; scrubbers; heat exchangers and fired heaters; and continuous
emissions monitoring systems. These technologies are provided separately or
can be combined into an integrated pollution control system.
OPERATION, MAINTENANCE AND MANAGEMENT OF TREATMENT SYSTEMS--PROFESSIONAL
SERVICES GROUP
Prior to its acquisition by AWT from Compagnie Generale des
Eaux, a French corporation and AWT's largest shareholder ("CGE") on June 14,
1994 pursuant to the Investment Agreement dated as of March 30, 1994 (the
"Investment Agreement") among AWT, CGE and Anjou International Company, a
Delaware corporation and a wholly-owned subsidiary of CGE ("Anjou"), PSG had
been a wholly-owned subsidiary of Anjou. Since 1978, PSG has been operating,
maintaining and managing water and wastewater treatment systems, sludge and
biosolid waste disposal programs and public works projects, and providing
operations assistance primarily to municipal entities but also to industrial
companies. In the following description, references to PSG are intended to
include, where appropriate, the operation, maintenance and management services
of Metcalf & Eddy Services, Inc, an AWT subsidiary involved in the
substantially identical business as PSG that has been integrated with PSG
subsequent to June 14, 1994.
Operation and Maintenance Services
PSG provides its clients with complete services for the
operation, maintenance and management of treatment systems 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 PSG of complete responsibility for
operating complex treatment systems. PSG does not, however, own any treatment
facilities except for a municipal sludge composting facility in Baltimore,
Maryland and two wastewater treatment plants in Auburn, Alabama. PSG believes
that it is the leader in providing operation, maintenance and management
service for water and wastewater treatment systems, and sludge and biosolid
waste management services, particularly in the area of large municipal waste
treatment systems. PSG operates in 35 states, Canada and Puerto Rico and it
provides services to 370 facilities at over 115 locations. PSG on a daily
basis treats approximately 430 million gallons of water and 560 million
gallons of wastewater. PSG's services reach over 7.5 million people per day.
Water Supply and Wastewater Treatment Services
PSG provides operation, maintenance and management services for
water supply and wastewater treatment systems, primarily for cities,
municipalities and other local governmental entities. PSG also serves the
industrial market and federal and state governments by providing OM&M services
for wastewater treatment systems and groundwater remediation treatment
systems. Typically, under each of PSG's contracts, the client owns the water
supply or wastewater treatment facilities and subcontracts to PSG, for a fixed
annual fee, the provision of staff, supervision and management for the
operation, maintenance and management of the facilities. In addition, as
contract operator, PSG 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 PSG operates
include Newark, NJ; Brockton, MA; and Alamogordo, NM. PSG's wastewater
treatment facility contracts include New Orleans, LA; Oklahoma City, OK;
Cranston, RI; West Haven, CT; and Kenner, LA. In addition, PSG operates and
manages the water and wastewater systems for the Commonwealth of Puerto Rico.
PSG's Puerto Rico contract is one of the largest OM&M contracts in the world.
The facilities managed by PSG in Puerto Rico include 69 wastewater plants
(capacity 304 mgd), 128 water treatment plants (capacity 318 mgd), and related
collection and distribution systems and pumping stations.
Sludge and Biosolid Waste Management Services
PSG has significant experience dealing with the planning and
implementation of large biosolids management programs. Compared to other OM&M
firms, PSG is among the leaders in large, complex biosolids plant operation
and management experience. Methods used by PSG include landfilling, land
application, composting and incineration. PSG also has significant experience
in operating and managing composting facilities.
Public Works
PSG 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. 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 cost and reduced administrative burdens for a municipality's personnel.
Examples of such contracts include Moore, OK; Mustang, OK; and Pikeville, KY.
Composting
PSG has 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. In
Baltimore, Maryland, PSG currently operates one of the largest facilities that
transforms municipal wastewater sludge into a usable compost product. Other
examples include Schenectady, NY, Bristol, TN and Hickory, NC. PSG's
management believes that composting is a viable market and has positioned PSG
to increase its business in this market segment.
WATER AND WASTEWATER TREATMENT/HAZARDOUS WASTE REMEDIATION--METCALF & EDDY
Metcalf & Eddy provides a comprehensive range of environmental
treatment services to governmental, commercial and industrial clients directed
principally at the protection of the integrity of our nation's water and land
resources. Metcalf & Eddy's experience has been directed at managing,
protecting and enhancing surface and groundwater supplies through the rational
utilization and treatment of water supplies and through the effective
management of all related waste disposal practices. Metcalf & Eddy provides a
range of services from treatment process design to operation and ownership of
facilities, as well as on-site and off-site remediation of environmental
contamination. Metcalf & Eddy's services involve the collection, treatment and
distribution of drinking water, the collection, treatment and disposal of
wastewater and wastewater by-products such as sludge, the treatment and
disposal of hazardous and toxic wastes, and the management of non-hazardous
solid wastes. In addition to providing individual service components, Metcalf
& Eddy offers its clients total project delivery, which includes design,
installation, construction and operation of treatment facilities.
Services and Technologies
To address water pollution problems, Metcalf & Eddy provides a
full spectrum of services focusing on design, construction, management and
operation of complex biological, chemical and physical treatment technologies,
as well as waste minimization and alternative disposal techniques; analyzes
and assesses complex aquatic and other environments; and prepares
specifications and designs for treatment systems. Metcalf & Eddy prepares
permit and license applications, manages construction and field installation
of treatment facilities, and provides startup, corrective action and
rehabilitation services for those facilities. Metcalf & Eddy also develops
operations and maintenance manuals for facilities and develops scheduling and
maintenance procedures to ensure their efficient operation.
Water Supply and Wastewater Treatment Services
Since 1907, Metcalf & Eddy has conducted extensive hydrologic
and geologic evaluations of hundreds of surface and groundwater supplies for
governmental and industrial clients in the United States and abroad. Metcalf
& Eddy has expertise in analyzing the nature of water resource problems, both
in terms of available capacities and the quality of the sources, and in
developing and evaluating different types of cost-effective treatment
technologies. Metcalf & Eddy's experience includes the design of over 50
water treatment facilities, using technologies ranging from simple extraction
and distribution of water to more complex technologies such as ozonation,
carbon adsorption, air stripping, desalinization and diatomaceous earth
filtration. Metcalf & Eddy has also evaluated and investigated over 250 dams,
conducted groundwater contamination studies at over 300 sites and conducted
computerized analyses on over 100 water distribution systems.
In the wastewater treatment market, Metcalf & Eddy has
conducted evaluations of a broad range of effluents discharged from various
municipalities and industries, including the petrochemical, petroleum,
chemical, pulp and paper, electroplating, textile, ferrous and non-ferrous
industries. Metcalf & Eddy has also conducted numerous studies of controlled
and uncontrolled discharges entering on-site and off-site treatment
facilities, lagoons and other bodies of water. Metcalf & Eddy has developed
and applied various biological, chemical and physical treatment technologies,
including activated sludge, trickling filters, nitrification/denitrification,
phosphorus removal and land application, to resolve wastewater treatment
problems. Metcalf & Eddy has designed over 200 wastewater treatment plants,
including some of the largest facilities in the United States, utilizing these
technologies.
Since August 1988, Metcalf & Eddy has been serving as lead
design engineer for the Massachusetts Water Resources Authority on the Boston
Harbor clean-up project. Under this contract, Metcalf & Eddy has primary
responsibility for directing the design of the entire primary and secondary
treatment facilities, including an inter-island tunnel and a 9.5 mile outfall
tunnel/diffuser system. This work includes development of the conceptual
design for the entire wastewater treatment system, preparation of a Project
Design Manual, including standard specifications, development of the
Authority's CADD system, and management of all project design engineers
providing final design services. As lead engineer, Metcalf & Eddy has also
conducted a number of special investigations, including an air quality/odor
control pilot study, a hydroelectric feasibility study, a stacked clarifier
hydraulic model, a disinfection study, various hydraulic models of the
outfall/diffuser system, and a project-wide geotechnical exploration program.
During the construction phase, lead engineer services include coordinating
interaction among all construction packages, plantwide technical submittal
review and instrumentation and control systems. Metcalf & Eddy is also
providing, as a project design engineer, the final design services and
engineering services during construction for the entire primary treatment
portion of the wastewater plant.
Under a separate contract, Metcalf & Eddy is also performing a
master plan and combined sewer overflow ("CSO") facilities plan for the
Massachusetts Water Resources Authority. Like many other cities, Boston is
faced with optimizing the use of its combined sewers. In one of the largest
CSO studies undertaken, Metcalf & Eddy is providing a comprehensive
investigation of the Authority's collection systems. The project includes
water quality monitoring, strategic system planning, monitoring CSO's and
interceptors, and developing CSO management solutions. The Metcalf & Eddy
authored plan was awarded the 1995 American Academy of Engineers (AAEE) grand
prize.
Metcalf & Eddy is routinely asked to provide hands-on
assistance to numerous water and wastewater treatment facilities in such
operational areas as maintaining and servicing equipment, mechanical and
instrumentation process control, troubleshooting, training of staff, and
facility rehabilitation and upgrading.
Hazardous Waste Management and Remediation Services
Metcalf & Eddy provides a full range of services for the
identification, characterization, evaluation, design and implementation of
cleanup measures for soils and groundwater contaminated with hazardous, toxic
and radiological waste. Diagnostic services include geophysical surveys,
surface and subsurface sampling, hydrogeological investigations, analytical
laboratory services and underground storage tank testing. To evaluate and
design remedial measures, Metcalf & Eddy performs feasibility studies, public
health and ecological risk assessments, pilot and bench scale treatability
studies and groundwater modeling. Metcalf & Eddy applies a broad range of
proven and innovative technologies for soil and groundwater cleanup, including
soil venting, bioremediation, incineration, air stripping, heavy metals
precipitation, soil washing and thermal desorption, activated carbon
adsorption, UV-oxidation and ion exchange.
Metcalf & Eddy has been awarded several contracts with the
Department of Defense for investigation and remediation of site contamination
problems at military installations under the Base Realignment and Closure
(BRAC) program, at active installations and formerly-used defense sites under
the Defense Environmental Restoration Program, and at Superfund sites
administered by the Army Corps of Engineers for the US Environmental
Protection Agency ("EPA"). Turnkey design, construct and operate contracts
are currently held with the Army Corps of Engineers for groundwater cleanup
projects in New Jersey and Utah, respectively. Additional contracts are held
for operation of groundwater treatment plants at several military
installations. Contracts covering a wide range of hazardous, toxic, and
radiological investigation and design services are or were recently held with
the Army Corps of Engineers in New England, Savannah, Georgia, Louisville,
Kentucky and Fort Worth, Texas, with the Army Environmental Center for Total
Environmental Program Support nationwide, and with the Air Force Material
Command at Wright Patterson and Kelly Air Force Bases. Metcalf & Eddy is
performing nationwide contaminated soil and tank removal assignments under
contract to the Air Force Center for Environmental Excellence at Brooks Air
Force Base, nationwide remediation of petroleum oils and lubricants under
subcontract with the Naval Energy and Environmental Support Activity at Port
Hueneme, California, and has been selected for environmental compliance
services by both the Naval Facilities Engineering Command's Southern and
Western Divisions and by the Air Force Mobility Command for a major nationwide
subcontract role. Metcalf & Eddy is also a contractor to the Department of
Energy through subcontracts with the Department's Management and Operating
contractors at the Savannah River Site, South Carolina, Rocky Flats, Colorado
and Oak Ridge, Tennessee.
In recent years, M&E has focused on the in-field remediation
portion of the hazardous waste market. To meet client needs for expedited and
cost-effective cleanup, Metcalf & Eddy has brought several new technologies to
the marketplace, providing its clients with engineered solutions tailored to
their site needs. Technologies introduced by M&E include HYDRO-SEP(SM) soil
washing system, GEMEP(SM) mercury removal system, ORG-X(SM) solvent extraction
technology, and NoVOCs(SM) in-well vapor stripping system. Metcalf & Eddy has
taken an active role in the brownfields redevelopment market, partnering with
The Galbreath Company, a nationwide real estate management and development
firm. The M&E/Galbreath alliance is a result of the firms' collaboration at
the Coit Road brownfields site in Cleveland, Ohio.
Metcalf & Eddy is an emergency response contractor for the
Commonwealth of Massachusetts, a remedial investigation and feasibility study
contractor for the states of Massachusetts and Connecticut, and a contractor
to the EPA for a full spectrum of services from investigation to design and
implementation of remedial measures in the six New England states, and for
technical enforcement support in fifteen Midwestern states. In fiscal 1995,
Metcalf & Eddy was selected by the EPA for a Response Action Contract (RAC)
covering New England. The maximum value of this contract is approximately
$400 million over a ten-year contract term.
In fiscal 1996, M&E was awarded a $60 million, five-year
contract to provide remediation, pollution prevention, and BRAC services at
McClellan Air Force Base in Sacramento, California.
Sludge Management Services
Because of Metcalf & Eddy's experience with treatment
technologies used for water supply and wastewater disposal, numerous municipal
and industrial clients have engaged Metcalf & Eddy to assist in the management
and disposal of the sludge generated as a by-product of the treatment process.
For these clients, Metcalf & Eddy develops programs to minimize the generation
of sludge, to alter it to more environmentally acceptable forms, and to
develop and evaluate alternative processing and disposal technologies such as
thickening, anaerobic digestion, conditioning, dewatering, incineration,
composting and land farming. Metcalf & Eddy has assessed sludge handling and
disposal alternatives, designed and assisted in the implementation of
treatment technologies and operated sludge management facilities. Working
with its clients, Metcalf & Eddy has analyzed and designed innovative
technologies and treatment alternatives for over 45 sludge management projects
and facilities with over 3 billion gallons per day of treatment capacity.
M&E has designed and is providing construction support services
for the San Diego Municipal Biosolids Center (MBC). When completed, the MBC,
which represents San Diego's largest-ever infrastructure program, will be one
of the largest, most innovative sludge processing systems in the U.S.
Solid Waste Management Services
Metcalf & Eddy has assisted numerous clients in the evaluation
of solid waste management needs including quantification of amounts and type,
development of waste minimization programs and assessment of needed disposal
capacity. Metcalf & Eddy is experienced in planning and implementing
alternative technologies and facilities for solid waste management which
include landfills, incinerators, resource recovery plants and recycling.
Metcalf & Eddy's services for solid waste management facilities include
facility planning, siting and permitting, design, construction management,
operations and maintenance assistance, closure and post-closure programs for
landfills and the collection and treatment of leachate from landfills.
Metcalf & Eddy is also experienced in the installation of monitoring wells and
related sampling and testing procedures for groundwater protection in or about
landfills.
Metcalf & Eddy has been responsible for the final design of
nine waste-to-energy facilities, including a major solid waste resource
recovery facility located in Chicago, Illinois, and has assisted various
communities in activities associated with resource recovery implementation,
including evaluating and monitoring air emission control equipment programs.
In addition, Metcalf & Eddy has designed landfills and ashfills in accordance
with regulatory requirements.
Program Management Services
Metcalf & Eddy has developed extensive program management
capabilities through its experience in the program planning and development,
scheduling, financial planning, contract administration, procurement,
construction management, control and coordination of large and complex
projects. These capabilities enable Metcalf & Eddy to effectively manage its
own projects as well as to provide program management services to large
environmental development and capital expenditure programs of others.
Metcalf & Eddy provides program management services for major
national defense programs, which have enabled Metcalf & Eddy to develop
further its program management expertise and resources. For example, under
contract to the United States Air Force Logistics Command for the Peace Shield
project, Metcalf & Eddy has entered into a joint venture with CRSS Inc. to
provide program management services to deliver ground based facilities to
support a new air defense system that the United States Air Force is
delivering to the Royal Saudi Arabian Air Force. Metcalf & Eddy is primarily
responsible for applying its geotechnical, hydrological and construction
management skills to site and build structures, roads, water and sewage
systems and other infrastructure necessary to support the complex defense
system. These facilities include underground command and control centers,
long range radar sites, a central command center, a central maintenance
facility and communications sites. These Peace Shield facilities are located
throughout the Kingdom of Saudi Arabia and the joint venture is managing their
design, procurement of major pieces of equipment, construction and certain
start-up activities. This project began in 1984 and the major facilities are
substantially complete.
Design/Build and Design/Build/Operate Services
To expedite project delivery and reduce overall program costs,
Metcalf & Eddy offers design/build and, in conjunction with its sister
company, PSG, design/build/operate service packages. The design/build market
has grown tenfold in the last decade and, because of its many advantages, is
expected to be the dominant project delivery method by the year 2000. Metcalf
& Eddy was awarded several design/build and design/build/operate contracts in
fiscal 1996, including a new wastewater treatment plant in Junction City,
Kansas and a water treatment plant upgrade in Danbury, Connecticut.
International Business
Metcalf & Eddy has provided environmental and engineering
services to clients in more than 80 nations, spanning all seven continents.
Presently, M&E International is providing design, program and construction
management services on several large projects in Egypt, Thailand, Latin
American, and Eastern Europe. M&E also is providing institutional development
and strengthening services to the Alexandria General Organization for Sanitary
Drainage in Alexandria, Egypt. In fiscal 1996, M&E International was awarded
contracts in Gaza, Bosnia, and Thailand.
AIR POLLUTION CONTROL - RESEARCH-COTTRELL
Research-Cottrell's air pollution control-related technologies
and services are directed principally at cost-effectively reducing air
pollution, treating thermal discharges, dispersing airborne contaminants,
continuously monitoring emissions, and providing expertise in regulatory and
engineering services for industrial process plants and power generation
facilities throughout the United States and internationally (including Canada,
Mexico, Europe, the Middle East, and Asia). Research-Cottrell's services
include identifying and analyzing air pollution control problems and
recommending effective and cost-efficient control options; designing and
engineering treatment facilities and equipment; procuring, fabricating,
erecting, constructing, and installing air pollution control and related
equipment; and providing overall project management. In addition,
Research-Cottrell supplies high quality replacement parts and expert
maintenance and repair services for its own base of installed equipment as
well as competitor equipment on a routine outage and emergency response basis.
Research-Cottrell markets its air pollution control
technologies through some of the oldest and most respected names in the air
pollution control industry: RESEARCH-COTTRELL air pollution control systems,
including electrostatic precipitators, fabric filters, DOUBLE-LOOP flue gas
desulfurization systems (FGD scrubbers), and R-C/TELLER dry emissions control
systems; CUSTODIS concrete chimneys and steel stacks; CUSTODIS-ECODYNE cooling
towers; FLEX-KLEEN fabric and cartridge dust collectors; KVB continuous
emissions monitoring systems; and REECO RE-THERM[Registered] and
UNITHERM[Registered] regenerative thermal oxidizers, FluiSorb(TM)
adsorber/desorber concentrator systems, and Rotary Bed Protectors for
particulate control. Research-Cottrell is licensed to market a number of
technologies to its industrial process and utility clients, including the
Alcoa A-398 fluoride recovery process; NOxOUT[Registered], Thermal
DeNOx[Registered], and SONOX[Registered], products used to reduce NO(x) and
SO(2) emissions from boiler exhaust systems; KVB/MIP Laser Opacity Monitor;
EPRICON, a flue gas conditioning system used to improve particulate collection
efficiency of electrostatic precipitators; and COHPAC (Compact Hybrid
Particulate Collector), a retrofit technology used to increase collection
efficiency from utility and industrial exhaust streams by adding a fabric
filter downstream of an energized electrostatic precipitator ("ESP") or within
an existing ESP casing.
Research-Cottrell estimates that it has installed or
constructed over 5,200 electrostatic precipitators, over 100,000 Flex-Kleen
dust collectors, 10 flue gas desulfurization (FGD) scrubber systems, over
10,000 Custodis concrete and brick chimneys and steel stacks, over 240 REECO
RE-THERM regenerative thermal oxidizers, over 7,000 Custodis-Ecodyne cooling
towers, over 1,150 KVB continuous emissions monitoring systems, and over 1,750
Thermal Transfer Corp. recuperators and fired heaters. Research-Cottrell
believes its installed base of chimneys, electrostatic precipitators, cooling
towers, RTOs, fabric filter/baghouse systems, and continuous emissions
monitoring systems provides a ready market for its aftermarket parts,
maintenance, and repair services.
Demand for Research-Cottrell's air pollution control
technologies and services arises principally from the expansion and
modification of existing industrial/manufacturing plants and power generation
facilities, or the construction of new facilities. These sources, pulp & paper
plants, primary and secondary metals refining mills, waste incineration
facilities, cement plants, fossil-fueled electric generating plants, and
pharmaceutical and petrochemical facilities, among others, are required to
comply with existing environmental legislation and regulations. The ability to
recover valuable industrial products can also increase demand for
Research-Cottrell products, its Flex-Kleen fabric filter systems, for example.
In addition, as pollution control systems or major components age or are
rendered too small as plant capacity expands, they often require rebuilding,
upgrading, and replacement, and Research-Cottrell is highly adept at providing
proven aftermarket strategies to meet these needs. As legislation and
regulations grow more strict, particularly the 1990 amendments to the Clean
Air Act, and associated regulations, many older facilities require significant
retrofitting (upgrading control equipment through new or improved components)
in order to comply with new or more strictly enforced emissions control
standards.
Emission Control Technologies and Services
Research-Cottrell's air emissions control technologies reduce
particulate, sulfur oxides, nitrogen oxides, volatile organic compounds, and
toxic compounds. Research-Cottrell also provides technologies for the
treatment of thermal discharges resulting from the operation of electric
generating facilities and industrial boilers.
Particulate Emission Control Technologies. Research-Cottrell
has been an innovator in the control of particulate emissions since Frederick
Cottrell invented and commercialized the electrostatic precipitator in 1907.
An ESP removes particulate matter from the exhaust passing through it, using
electrodynamic forces. Current precipitator technologies offered by
Research-Cottrell address both traditional particulate control objectives as
measured by weight, and the newer objectives measured by removal efficiencies
of particulate matter below ten microns in diameter. Research-Cottrell has
designed and installed over 5,200 ESPs, which it believes is the largest
installed base of ESPs in the United States.
Research-Cottrell offers a wide range of fabric filter systems
to control and recover particulate in a variety of power generation and
industrial process applications. Research-Cottrell and Flex-Kleen are primary
suppliers of fabric filter systems, mechanical collectors, and similarly
engineered products and systems for the recovery of valuable product material
and the removal of particulate for power generation, chemical and
pharmaceutical manufacturing, food processing, and consumer products
companies. Research-Cottrell believes it is the market leader in both the
number and diversity of fabric filters installed for industrial applications.
Research-Cottrell's COHPAC and EPRICON retrofit technologies allow utility and
industrial clients to increase particulate control efficiencies for existing
equipment.
Sulfur Oxides Emissions Control Technologies. Both sulfur
oxide and nitrogen oxide compounds contribute to "acid rain". In addition,
nitrogen oxides contribute to smog formation. Industrial and utility fuel
combustion remains a principal source of these emissions. Research-Cottrell
has designed and installed flue gas desulfurization (FGD) systems, such as its
DOUBLE-LOOP scrubbers, to control sulfur oxide emissions at 15 coal burning
plants generating an aggregate of over 7,000 megawatts of electricity. The
Double-Loop system is capable of removing 95% of the sulfur oxide emissions
generated by high sulfur coal. The Double-Loop design allows conversion of the
scrubber waste stream to gypsum that can be used to manufacture wallboard.
In February, 1990, Research-Cottrell entered into an agreement
(the "Cooperation Agreement") with NOELL GmbH and KRC Umwelttechnik GmbH
("NOELL-KRC") to cooperate on an exclusive basis in the marketing and sale of
Research-Cottrell's proprietary wet flue gas desulfurization systems in the
United States, Canada, and elsewhere in the world (with the exception of
certain central European countries). NOELL-KRC is an environmental engineering
and construction company headquartered in Wurzburg, Germany. NOELL-KRC is
owned by the Salzgitter Group, a leading European conglomerate.
Under the Cooperation Agreement, Research-Cottrell has licensed
NOELL-KRC to make, use, sell, and practice Research-Cottrell's technology,
subject to payment to Research-Cottrell of certain license fees, commissions,
and royalties. In addition, NOELL-KRC has agreed to make available all of its
improvements to Research-Cottrell's underlying technology, including NOELL-KRC
flue gas desulfurization patents, trade secrets, and know-how.
Research-Cottrell retains exclusive rights to other technologies that often
accompany the installation of wet flue gas desulfurization systems.
Under the Cooperation Agreement, Research-Cottrell is
responsible for marketing efforts in the United States and Canada. NOELL-KRC
is obligated to responsively bid on all projects identified by
Research-Cottrell and provide bonding or other financial requirements
stipulated in such bids. NOELL-KRC is exclusively responsible for project
execution. On a case-by-case basis, Research-Cottrell and NOELL-KRC will agree
upon participation by Research-Cottrell in project management, construction,
start-up, and other phases of project execution. The Cooperation Agreement has
an initial term of ten years, subject to renewal for additional one year
periods as mutually agreed by the parties.
Nitrogen Oxide Emissions Control Technologies. Due to the
requirements of Title I of the Clean Air Act Amendments of 1990, there is a
growing demand for efficient, low-cost nitrogen oxide (NOx) control
technologies. Research-Cottrell believes this market will continue to grow
through the end of the century and that the majority of these technology
purchases will be made by electric utilities, followed by oil and
petrochemical industries, the pulp & paper industries, and other industrial
customers that operate large boilers or furnaces.
For moderate levels of NOx reduction, Research-Cottrell offers
Selective Non-Catalytic Reduction (SNCR) technologies under the trademarks
NOxOUT[Registered] and Thermal DeNOx[Registered]. NOxOUT is licensed from
Nalco Fuel Tech and Thermal DeNOx[Registered] is licensed from Exxon Research
and Engineering. The SNCR technology is a low capital cost method that uses
urea (NOxOUT[Registered]) or ammonia (Thermal DeNOx[Registered]) as a chemical
reagent to reduce NOx. Research-Cottrell is licensed to implement
SONOX[Registered], a technology which provides simultaneous reductions of NOx
and SO2. SONOX[Registered] is licensed from Ontario Hydro International.
Selective Catalytic Reduction (SCR) technology, also offered by
Research-Cottrell, is a somewhat more expensive technology that can be used
alone or in conjunction with an SNCR technology to achieve very high
reductions of NOx emissions.
Research-Cottrell offers complete evaluation, design,
engineering, equipment, and start-up capabilities associated with the
implementation of these NOx-control technologies. With this range of
capabilities and its large utility and industrial customer base,
Research-Cottrell believes it is well-positioned for growth in this market.
Toxic Compounds Control Technologies. The primary sources of
potential toxic air emissions are fossil-fueled power generation plants,
industrial facilities, and waste-to-energy facilities. In 1987,
Research-Cottrell acquired Teller Environmental Systems, Inc., and gained
exclusive rights to market the patented Teller dry emissions control system in
the United States. The Teller system is a leading technology in the acid gas
abatement market for the control of hydrochloric acid, toxic compounds, heavy
metals, and particulate emissions from waste-to-energy facilities, metals
refineries, and pulp & paper mills. The Teller technology is widely used in
Japan, and there are several commercial resource recovery facilities using the
Teller technology in the United States.
In 1990, Research-Cottrell acquired substantially all of the
assets of Regenerative Environmental Equipment Co, Inc. ("REECO"). REECO is
primarily engaged in the design, manufacture, and installation of its
RE-THERM[Registered] regenerative thermal oxidizer systems, which serve as
industrial air pollution control and energy recovery systems. REECO also
offers an adsorber/desorber concentrator system marketed under the name
FluiSorb(TM).
REECO is a market leader in technologies for controlling
emissions of volatile organic compounds (VOCs). VOCs contribute to smog
formation and comprise about half of the 189 compounds listed as hazardous in
the Clean Air Act amendments of 1990. Control of VOCs and air toxics is a
major objective of the amended Clean Air Act.
REECO introduced a newly designed RE-THERM product (the VF3),
and has taken a leadership position in the wood products market. REECO's
development and successful introduction of a new product--the Rotary Bed
Protector (RBP), a particulate control device used upstream of VOC control
equipment in particulate-laden exhaust streams--played a major role in its
ability to compete favorably in the wood products market.
Cooling Towers. Cooling towers are used for compliance with
water-side environmental regulations, while enhancing the thermal efficiency
of power generation and industrial processes. Mechanical draft cooling towers,
typically constructed of wood, are used in most industrial and small power
generation applications. Research-Cottrell and its Custodis-Ecodyne subsidiary
have designed and installed over 7,000 large mechanical and natural draft
cooling towers. Natural draft (hyperbolic concrete design) cooling towers are
used almost exclusively by nuclear- and fossil fuel-powered electricity
generating plants. Research-Cottrell and Custodis-Ecodyne have constructed 66
of the 110 natural draft cooling towers in the United States.
Custodis-Ecodyne's primary focus today is providing aftermarket services,
including repairs, thermal upgrades, maintenance, and replacement parts to the
many cooling towers supplied by Custodis-Ecodyne as well as for those designed
and built by other suppliers. The company also continues to design and build
new cooling towers for a variety of power generation and process applications.
Chimneys and Stacks. Tall industrial chimneys and stacks
properly disperse air emissions from power generation and industrial process
plants. Research-Cottrell's Custodis subsidiary designs and constructs turnkey
industrial chimneys and steel stacks to disperse such gases. Custodis has
installed over 10,000 chimneys and stacks worldwide, of which many are still
in use in a variety of power generating, co-generation, pulp & paper,
petroleum, and other industrial applications. Research-Cottrell believes it
has the largest installed base of chimneys in the United States. A recognized
leader in the design, engineering, and erection of new concrete chimneys and
steel stacks, Custodis is also the major provider of repair, maintenance,
upgrade, and demolition services for its own chimneys as well as those
designed and erected by competitors. Custodis also provides construction
services for repair and installation of uptake equipment in support of its
customers and sister companies. The company provides its maintenance and
repair services through strategically located regional offices throughout
North America.
Monitoring Technologies. Research-Cottrell's KVB subsidiary
designs, engineers, installs, and services continuous emissions monitoring
systems for utility and industrial process clients, including resource recovery
facilities, petrochemical plants, and cogeneration facilities. KVB has
furnished over 1,150 monitoring systems to measure air emissions.
Parts, Maintenance, and Repair Services. Each of the
Research-Cottrell operating groups has developed a robust aftermarket
business. The companies provide expert inspections, emergency repairs,
preventive maintenance, routine service, upgrades, rebuilds, equipment
modernization and expansions, replacement parts, and demolition services. The
Research-Cottrell companies provide these services for its own installed base
of equipment as well as for equipment designed and installed by other air
pollution control equipment vendors. In most cases, these services are
available 24 hours per day, 365 days per year to support its customers.
BUSINESS SEGMENTS AND FOREIGN OPERATIONS
Financial information concerning the Company's operations by
industry segment and the Company's foreign and domestic operations is set
forth in Note 13 to the Company's Consolidated Financial Statements captioned
"Business Segments." See ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
MARKETS AND CUSTOMERS
AWT markets its services and technologies to governmental and
industrial customers throughout the United States, the Caribbean, Canada and
the Pacific Rim. AWT also services customers in Europe, the Middle East,
Central and South America and the Far East. A majority of AWT's sales are
technical in nature and involve senior technical and management professionals,
supported by AWT's marketing groups. AWT uses a coordinated system of in-house
sales representatives and marketing managers, organized primarily by business
segments and markets served. In fiscal 1996, sales to governmental customers
approximated 97%, 81% and 1% of AWT's PSG, Metcalf & Eddy and
Research-Cottrell segment sales, respectively.
Contracts with federal, state, municipal and other governmental
agencies generally may be terminated at any time at the option of the
customer. In fiscal 1996, sales associated with PSG's contract with the Puerto
Rico Aqueduct and Sewer Authority ("PRASA") accounted for 15% of AWT's sales
for such period and sales to the Federal government approximated 11% of the
Company's consolidated sales for such period. AWT benefits substantially from
its long-term relationships with many of its clients which result in a
significant amount of repeat business.
AWT 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 Company.
BACKLOG
As of October 31, 1996, total backlog for AWT was approximately
$1.1 billion as compared to approximately $1.2 billion as of October 31, 1995.
AWT estimates that approximately $400 million of the backlog represents work
which will be completed in the next 12 months. The total backlog at October
31, 1996 represents work for which AWT 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 and includes approximately $375 million
from PSG's contract with PRASA. 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 AWT's long-term contracts contain escalation provisions
designed to protect AWT against increases in material and unit labor costs.
AWT's total backlog as of October 31, 1996 and 1995 includes approximately 87%
and 89%, respectively, of work to be performed for federal, state and
municipal governmental agencies.
COMPETITION
AWT faces substantial competition in each market in which it
operates. AWT competes primarily on its engineering, scientific and
technological expertise. To the extent that non-proprietary or conventional
technologies are used, AWT also relies upon its experience and trade names as
a basis for competition. Such trade names include: "Professional Services
Group" and "Metcalf & Eddy" in the water and wastewater treatment and sludge
management markets and "Metcalf & Eddy" in the hazardous waste remediation
market;"Research-Cottrell" and "Flex-Kleen" in the air pollution control
equipment market; "Custodis" and "Ecodyne" in the chimney and cooling tower
markets, respectively; "KVB/Analect" in the market for continuous emission
monitors and "REECO" in the market for controlling emissions of volatile
organic compounds. Many companies, some of which have greater resources than
AWT, participate in AWT's markets and no assurance can be given that such
other companies will not enter its markets.
Almost all contracts for AWT's air pollution control services
and technologies are obtained through competitive bidding. Electric utilities
and industrial customers typically purchase these services and technologies
after a thorough evaluation of price, service, experience and quality.
Although price is an important factor, it is not necessarily the determining
factor, because contracts are often awarded in part on the basis of the
efficiency or reliability of products.
Customers for Professional Services Group's and Metcalf &
Eddy's water and wastewater services are primarily governmental entities and
typically award contracts on the basis of technical qualifications and price.
For Metcalf & Eddy's design services contracts, the majority of which are
cost-plus-fixed-fee arrangements, technical qualifications are the primary
factor followed by price competitiveness. In the hazardous waste clean-up
market, Metcalf & Eddy competes with many local, regional and national firms
on the basis of experience, reputation and price. For PSG's treatment system
OM&M contracts, technical qualification is required; however, price is
generally a key determining factor. Treatment system OM&M agreements are
generally for three to five-year periods, with various renewal options up to
five years in duration, and contain certain escalators for inflation.
REGULATION
Over the past twenty-five years, significant environmental laws
at the federal, state and local level have been enacted in response to public
concern over the environment. Those laws and their implementation through
regulation affect numerous industrial and governmental actions and form a key
market driver for AWT's products and services.
The Clean Air Act (CAA), and the federal and state regulations
that implement it, play an important role in the size and timing of the
investments industrial process and power generation facilities make in the
Company's air pollution control technologies. In 1990, Congress substantially
amended the CAA, incorporating control standards that would affect thousands
of industrial sources that were little touched by the original 1970 CAA. The
four primary titles of the amended CAA are:
bullet Title I - covering emission sources in areas of the U.S.
designated as being in "non-attainment" (i.e. do not meet
specific federal ambient air quality standards);
bullet Title III - covering sources that emit compounds listed as
"hazardous air pollutants";
bullet Title IV - covering almost all coal-fired electric
generating plants, whose emissions contribute to acid rain;
and,
bullet Title V - requiring thousands of sources to obtain
federally-enforceable permits in order to continue to
operate.
Extensive public attention was given to the CAA's Title IV
impact on electric utilities regarding the installation of scrubber systems
and other air pollution control technologies to meet new emissions standards,
as well as continuous emissions monitoring systems (CEMS) to verify compliance
with these standards. EPA established a 10-year implementation schedule, which
included the following milestone dates for compliance: 1993 (installation of
CEMS), 1995 (Phase I utilities reductions), and 2000 (Phase II utilities
reductions). Title IV will continue to play a role in the Company's business
opportunities regarding new air pollution control equipment, and upgrades and
repairs to existing control and CEM systems.
Title III provisions for controlling Hazardous Air Pollutants
(HAPs) also received considerable attention. Title III lists 189 chemical
compounds as "hazardous"; all "major" sources that emit these chemicals in
amounts from 10 tons per year (tpy) of any one pollutant, or 25 tpy of any
combination of these pollutants, must obtain operating permits, even if these
sources are not subject--by virtue of their size or location--to other CAA
provisions. The CAA requires EPA to regulate all such sources according to
their industrial category or process(es), under a statutory schedule that
mandates promulgation of HAPs emission standards, defined as Maximum
Achievable Control Technology (MACT), for all 189 HAPs in all industrial
source categories by the year 2000. Promulgation of these regulations has
moved slower than originally expected. However, each MACT regulation
designates several control technologies, many of which are offered by AWT.
Title I provisions set deadlines for areas of the country
classified as "non-attainment" (i.e. not achieving federal health-related
standards for ambient air for specified pollutants). The U.S. is divided into
Air Quality Control Regions (AQCRs) that are generally coterminous with
Consolidated Metropolitan Statistical Areas in populated areas of the country.
Under the CAA, most states have prepared and are implementing State
Implementation Plans (SIPs) that mandate source emissions limitations or other
control techniques to ensure attainment of the relevant health standards by
statutory dates. Sources emitting as little as 5 tpy of regulated pollutants
may be required to adopt control techniques. The SIPs provide a method for
states to achieve compliance schedules for the AQCR. The SIP programs will in
turn require facilities to install air pollution control equipment to achieve
attainment. In areas of the country where ambient air quality meets health
standards, statutory provisions for Prevention of Significant Deterioration
could require new, expanded, or modified facilities to install Best Available
Control Technology (BACT). In addition, new or modified sources in certain
industrial categories nationwide must comply with New Source Performance
Standards, which the EPA is required to update periodically.
Title V provides the vehicle for the EPA--or the States to
which the EPA has delegated the authority--to stipulate enforceable permit
conditions under which each affected source must conduct its operations. These
operating permits generally establish facility-wide emission limits for
affected sources and extensive record-keeping and reporting requirements. As
new federally-mandated control requirements are promulgated, these operating
permits must be periodically revised to incorporate the new regulations.
More than 34,000 "major" sources or facilities in the U.S. are
estimated to require operating permits incorporating requirements of one or
more CAA titles. With the EPA's streamlined Title V program, affected sources
have been provided additional flexibility in their approach to Clean Air Act
compliance.
AWT clients affected by the CAA include industries in segments
such as: electric generating, petroleum, petrochemical and chemical,
pharmaceutical, pulp & paper, cement and rock products, food processing,
primary and secondary ferrous and nonferrous metals, coating and printing,
waste-to-energy and incineration, and private and governmental facilities such
as wastewater treatment plants. For these and other clients, AWT provides
consulting services (for designing compliance strategies and obtaining
permits); on-line pollution control and monitoring equipment; as well as
parts, rebuilds/upgrades, and service and maintenance for its own equipment
and that of other suppliers.
The Safe Drinking Water Act of 1974 directs the EPA to set
drinking water standards for the estimated 57,561 community water supply
systems in the United States. In 1996, Congress reauthorized the act through
the Safe Drinking Water Act Amendments of 1996. These amendments will bring
substantial changes to the regulation and financing of water systems. The
changes focus on four elements:
bullet regulatory improvements, including standards based on better
science, risk assessment, and prioritization of efforts;
bullet new, stronger programs to prevent contamination of drinking
water sources;
bullet expanded information for water system consumers, including
specific "right-to-know" provisions; and
bullet new funding for states and community water systems through a
drinking water state revolving fund program.
The new regulatory framework provides a more manageable
program for community water systems to monitor and treat drinking water
supplies than the previous law. Communities therefore will not be as delayed
by uncertainty and will be able to design and install the technologies and
systems needed to achieve regulatory compliance.
The amendments maintain the current process and set a schedule
for implementation of two far-reaching proposals the EPA made in 1994. The
first proposal, the disinfectants and disinfection byproducts rule (D/DBP),
establishes disinfectant level goals for chlorination and maximum contaminant
level goals for potentially harmful disinfection byproducts, notably
trihalomethanes. The second proposal, the enhanced surface water treatment
rule (ESWTR), focuses on treatment requirements for waterborne disease-causing
organisms (pathogens). Final adoption of these rules under the new schedule
will affect the majority of AWT's municipal clients, who will need to study,
design, build, and operate more sophisticated facilities.
Congress established for the first time a major federal
financial assistance program for community water systems, the drinking water
state revolving fund program. The amendments authorize nearly $9.6 billion
through 2003 to be allotted based on need to states to create low interest
loan funds for installing and upgrading drinking water treatment facilities.
Many of AWT's municipal water clients will be in a position to use these funds
for needed capital improvements.
The Federal Water Pollution Control Act of 1972 (the "Clean
Water Act") established a system of standards, permits and enforcement
procedures for the discharge of pollutants from industrial and municipal
wastewater sources. The law set treatment standards for industries and
wastewater treatment plants and provided federal grants to assist
municipalities in complying with the new standards. According to the EPA's
survey of wastewater and sewage treatment needs, as much as $137 billion will
be needed for construction and upgrade of wastewater treatment facilities by
the year 2012. The EPA and/or delegated state agencies are placing some of
these non-complying communities under enforcement schedules. In cases of
non-compliance, the EPA may petition for court-ordered compliance and
penalties. In 1987, the law was amended to phase out federal grants by 1991
and replace them with state revolving funds, with a commitment to provide
federal money through 1994. It is presently expected that federal funding
will continue to be appropriated for state revolving funds.
Key areas for which regulations have been issued included
industrial wastewater pretreatment, surface water toxics control and sewage
sludge disposal. The Clean Water Act requires pretreatment of industrial
wastewater before discharge into municipal systems and gives the EPA the
authority to set pretreatment limits for direct and indirect industrial
discharges. These rules issued by the EPA will increase the need for facility
upgrading and control of industrial discharges. The revised regulations
tighten prohibitions against discharge of toxic wastes, and subject
industries, which discharge into public sewers, to stringent controls,
inspections, monitoring and testing requirements. The surface water toxics
program requires states to identify waters adversely affected by toxics and
propose control strategies. Also under the Clean Water Act, the EPA
published, in February 1993 and amended in February 1994, a rule setting
standards for the use and disposal of sludge when it is applied to land to
condition the soil, is disposed on land by placing it in surface disposal
sites or is incinerated. Final Stormwater regulations were issued in November
1990 and establish management requirements for municipalities serving
populations over 100,000 and industries within specified categories.
In 1994, the EPA signed a final regulation that outlines the
national Combined Sewer Overflow (CSO) policy. CSO systems are a combination
of rain and sanitary sewage in sewer systems. CSOs contain pollutants that
are present in the domestic and industrial wastewaters, as well as those in
the urban stormwater runoff that enters the combined sewer system. The CSO
plan impacts 1,100 municipalities, mainly in the Northeast and Midwest. The
EPA estimates the cost associated with improving and upgrading these
sewer-stormwater systems at $41 billion over the next 15 year period.
The Resource Conservation and Recovery Act of 1976 ("RCRA")
provides a comprehensive scheme for the regulation of generators and
transporters of hazardous waste as well as persons engaged in the treatment,
storage and disposal of hazardous waste. The intent of RCRA is to control
hazardous wastes from the time they are generated by industry until they are
disposed of properly. In addition, RCRA governs the disposal of solid wastes.
Under applicable RCRA regulations, generators who generate more
than a certain amount of hazardous waste per month are required to package and
label shipments of hazardous waste in accordance with detailed regulations and
to prepare a manifest identifying the material and stating its destination
before shipment off-site. Every facility that treats, stores or disposes of
hazardous waste must obtain a RCRA permit from the EPA, or a state agency
which has been authorized by the EPA to administer its state program, and must
comply with certain operating, financial responsibility and closure
requirements. RCRA also provides for corrective actions to remediate
contamination resulting from the disposal of hazardous waste.
Regulations issued pursuant to RCRA significantly affect the
need for environmental treatment and services in the following areas:
municipal solid waste disposal, land disposal of hazardous waste, remediation
of environmental contamination, and management of underground storage tanks.
Regulations establishing land disposal restrictions for hazardous wastes are
being published in serial form.
In December, 1995 the EPA proposed a new system for exempting
high-volume, low-risk wastes from RCRA hazardous waste management rules.
This new rule, part of the Hazardous Waste Identification Rule, would
establish a risk-based "floor" for these wastes, encouraging the use of
innovative waste treatment technologies. The EPA is also promoting a program
that encourages RCRA corrective action facilities to meet performance
standards through self-implementing programs. AWT expects that both of these
programs will hasten the pace of cleanups and encourage the use of on-site
engineered systems, benefitting the Company.
The Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("Superfund") established the Superfund program to
clean up hazardous waste sites and provides for penalties for
noncompliance. Superfund has been interpreted to impose strict, joint and
several liability on owners and operators of facilities, transporters, and
persons who arrange for the disposal or treatment of hazardous substances
for the costs of removal and remediation, other necessary response costs
and damages for injury to natural resources. Where potentially responsible
parties cannot be identified, are without resources or are unresponsive,
federal funds may be used. In addition, the Superfund Amendments and
Reauthorization Act of 1986 established more stringent cleanup standards
and accelerated mandatory schedules to ensure rapid and permanent solutions
in cleaning up sites. Superfund was slated for reauthorization , and
possible substantial revision, in 1994, 1995 and again in 1996. It will be
reconsidered in 1997, although it is unclear whether reauthorization will
occur due to the very controversial issues surrounding retroactive liability
and natural resource damage evaluation.
Brownfields Initiative. The exodus of U.S. industry from our
inner-city or other industrial locations during the past thirty years has left
behind thousands of former manufacturing and commercial sites, many of which
have been abandoned because of contamination and associated liability to
owners and/or operators. These sites, known as "brownfields", number more
than 500,000 nationwide.
In 1995, the Clinton Administration introduced the Brownfields
Initiative, which was designed to encourage inner-city economic development
and property reuse by resolving the cleanup and liability issues associated
with contaminated industrial properties. To date, the EPA and state agencies
in 35 states have initiated targeted efforts under this Initiative. These
efforts have included funding for pilot programs, legislation geared at
limiting owner and lender liability, and relaxed cleanup standards that
balance potential environmental and public health risk with future site use.
Brownfields continue to be a high priority for the Administration and this
initiative is being expanded in scope and funding. AWT is well-positioned to
serve the market, which includes current property owners and potential buyers,
through its management and cleanup capabilities and its long-term
relationships with both governmental and industrial clients.
In addition to federal environmental regulations, most states
and many local authorities have enacted laws regulating activities affecting
the environment. Many of these state and local laws have imposed similar
stricter standards and regulations than their federal counterparts, and as a
result are also an important market driver for AWT's products and services.
BONDING
AWT is often required to procure bid and performance bonds from
surety companies, particularly for clients in the public sector. A bid bond
guarantees that AWT will enter into the contract under consideration at the
price bid and a performance bond guarantees performance of the contract. AWT
is required to indemnify surety companies providing bid and performance bonds
for any payments the sureties are required to make under the bonds.
AWT and its subsidiaries obtain bid and performance bonds
pursuant to a Master Surety Agreement with United States Fidelity and Guaranty
Company, Fidelity and Guaranty Insurance Underwriters, Inc., Fidelity and
Guaranty Insurance Company and USF&G Insurance Company of Mississippi
(collectively, "USF&G"). AWT also has outstanding bid and performance bonds
pursuant to agreements with Reliance Insurance Company, United Pacific
Insurance Company and Planet Insurance Company of Federal Way, Washington,
although no bonds have been obtained under this agreement since June 27, 1995,
and AWT anticipates that all of its foreseeable future bonding requirements
will be provided by USF&G. In addition, AWT's credit facility (see Note 7 to
the Company's Consolidated Financial Statements captioned "Financing
Arrangements") with the First National Bank of Chicago and Societe Generale,
New York Branch, as arranging agents, provides for issuance of letters of
credit for purposes which include direct or indirect fulfillment of bid and
performance bond requirements by AWT and its subsidiaries. AWT has never
forfeited a bid or a performance bond and no project sponsor has ever called
and drawn upon a bond issued in support of AWT's contract obligations.
INSURANCE
AWT currently maintains various types of insurance, including
workers' compensation, general and professional liability and property
coverages. AWT believes that it presently maintains adequate insurance
coverages for all of its present operational activities. It has been both an
AWT policy and a requirement of many of its clients that AWT maintain certain
types and limits of insurance coverage for the services and products it
offers, provided that such types and limits can be obtained on commercially
reasonable terms. In addition to existing coverages, AWT has been successful
in obtaining commercially reasonable coverage for certain pollution risks,
though coverage has been on a claims made rather than occurrence basis due to
the professional nature of some of AWT's exposures. Claims made policies
provide coverage to AWT only for claims reported during the policy period.
AWT's general liability and other insurance policies have historically
contained absolute pollution exclusions, brought about in large measure
because of the insurance industry's adverse claims experience with
environmental exposures. Accordingly, there can be no assurance that
environmental exposures that may be incurred by AWT and its subsidiaries will
continue to be covered by insurance, or that the limits currently provided or
that may be obtained in the future will be sufficient to cover such exposures.
A successful claim or claims in an amount in excess of AWT's insurance
coverage or for which there is no coverage could have a material adverse
effect on AWT.
EMPLOYEES
At October 31, 1996, AWT had approximately 3,200 full-time
employees, of which approximately 1,500 are employed in Professional Services
Group, 1,100 are employed in Metcalf & Eddy and 600 are employed in
Research-Cottrell.
ITEM 2. PROPERTIES
AWT believes that its facilities are suitable and adequate for
its current and foreseeable operational and administrative needs. The
principal physical properties of AWT are as follows:
<TABLE>
<CAPTION>
Approximate Approximate
Square Footage Square Footage Lease
Location Function Owned Leased Expiration
- ---------------- ------------------------ -------------- -------------- ----------
<S> <C> <C> <C> <C>
Branchburg, NJ Corporate Office/Metcalf & 89,466 -- --
Eddy Office and Research- on 46 acres
Cottrell Office
Wakefield, MA Metcalf & Eddy Office -- 139,687 2005
Palo Alto, CA Metcalf & Eddy Office -- 17,672 2005
Miramar, FL Metcalf & Eddy Office -- 13,936 2005
Itasca, IL Metcalf & Eddy/Research -- 57,056 1997
Cottrell Office
Houston, TX Metcalf & Eddy Office -- 22,706 2003
Honolulu, HI PSG Corporate Office -- 15,833 2000
Santa Barbara, CA Metcalf & Eddy Office -- 4,328 1997
New York,NY Metcalf & Eddy Office -- 10,413 2004
Columbus,OH Metcalf & Eddy Office -- 22,515 2004
Irvine,CA KVB Office & Manufacturing -- 80,561 1999
Atlanta,GA Metcalf & Eddy Office -- 11,051 2004
San Diego,CA Metcalf & Eddy Office -- 12,978 2002
</TABLE>
In addition, AWT leases or owns space at approximately 58 other
domestic locations and nine locations in Canada, Europe and the Middle East.
AWT has no current plans or requirements for additional space. Also, AWT
operates and provides services from approximately 100 treatment facilities,
two of which it owns. Since June 14, 1994, AWT has been reducing its real
estate holdings and associated costs through a program of selling surplus
owned real estate, subleasing surplus rented space and renegotiation of all of
its principal leases.
ITEM 3. LEGAL PROCEEDINGS
In connection with a broad investigation by the U.S.
Department of Justice into alleged illegal payments by various persons to
members of the Houston City Council, the Company's subsidiary, PSG,
received a federal grand jury subpoena on May 31, 1996 requesting documents
regarding certain PSG consultants and representatives that had been
retained by PSG to assist it in advising the City of Houston regarding the
benefits that could result from the privatization of Houston's water and
wastewater system. PSG has cooperated and continues to cooperate with the
Justice Department which has informed the Company that it is reviewing
transactions among PSG and its consultants. The Company promptly initiated
its own independent investigation into these matters and placed PSG's chief
executive officer, Michael M. Stump, on administrative leave of absence
with pay. Mr. Stump, who has denied any wrongdoing, resigned from PSG on
December 4, 1996. In the course of its ongoing investigation, the Company
became aware of questionable financial transactions with third parties and
payments to certain PSG consultants and other individuals, the nature of
which requires further investigation. The Company has brought these
matters to the attention of the Department of Justice and continues to
cooperate fully with its investigation.
No charges of wrongdoing have been brought against PSG or any
PSG executive or employee by any grand jury or other government authority.
However, since the government's investigation is still underway and is
conducted largely in secret, no assurance can be given as to whether the
government authorities will ultimately determine to bring charges or assert
claims resulting from this investigation that could implicate or reflect
adversely upon or otherwise have a material adverse effect on the financial
position or results of operations of PSG or the Company taken as a whole.
AWT and its subsidiaries are parties to various other legal
actions arising in the normal course of their businesses, some of which
involve claims for substantial sums. AWT believes that the disposition of such
various actions, individually or in the aggregate, will not have a material
adverse effect on the consolidated financial position or results of operations
of AWT taken as a whole.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
Part II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
AWT's Class A Common stock began trading publicly on August 10,
1989 at an initial public offering price of $17.00 per share and is traded on
the American Stock Exchange under the symbol AWT. On December 31, 1996, there
were 586 holders of record of AWT's Class A Common Stock.
The following table sets forth, for the fiscal periods shown,
the high and low sales price for AWT's Class A Common Stock as reported on the
American Stock Exchange.
High Low
------ -------
Fiscal 1995
First Quarter $6.875 $5.875
Second Quarter $5.625 $4.3125
Third Quarter $6.625 $4.125
Fourth Quarter $6.375 $5.00
Fiscal 1996
First Quarter $8.125 $4.00
Second Quarter $7.00 $5.25
Third Quarter $6.75 $4.969
Fourth Quarter $9.50 $5.50
On December 31, 1996, the closing price per share on the
American Stock Exchange for AWT's Class A Common Stock was $5.75.
AWT did not declare any cash dividends on its Class A Common
stock during fiscal 1995 and fiscal 1996. Pursuant to the credit facility
with The First National Bank of Chicago and Societe Generale, New York Branch,
as arranging agents, AWT is prohibited from declaring or paying cash dividends
on its Class A Common stock or other restricted payments, as defined (See Note
7 to the Company's Consolidated Financial Statements captioned "Financing
Arrangements"). AWT currently intends to retain its earnings to finance the
growth and development of its business and to repay outstanding indebtedness
and does not anticipate paying cash dividends on its Class A Common stock in
the foreseeable future.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected historical financial data
for AWT. The 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.
AIR & WATER TECHNOLOGIES CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except share data)
<TABLE>
<CAPTION>
Fiscal Years Ended October 31,
--------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Sales $ 701,099 $ 618,868 $ 522,573 $ 575,949 $ 609,404
Cost of sales 567,758 480,555 437,997 444,879 486,249
Selling, general and administrative expenses 95,592 103,125 104,178 87,529 93,908
Depreciation and amortization 20,015 18,348 17,702 13,374 15,469
Unusual charges -- -- 145,200 -- 7,000
----------- ----------- ----------- ----------- -----------
Operating income (loss) from continuing
operations 17,734 16,840 (182,504) 30,167 6,778
Interest income 1,049 1,201 1,283 797 1,276
Interest expense (22,808) (24,379) (24,386) (23,706) (21,361)
Other expense, net (1,661) (434) (4,580) (2,386) (1,370)
----------- ----------- ----------- ----------- -----------
Income (loss) from continuing operations
before income taxes, minority interest and
extraordinary item (5,686) (6,772) (210,187) 4,872 (14,677)
Income taxes (418) 1,115 998 68 817
Minority interest -- 98 (194) 21 265
----------- ----------- ----------- ----------- -----------
Income (loss) from continuing operations
before extraordinary item (5,268) (7,985) (210,991) 4,783 (15,759)
Discontinued operations -- -- (42,787) (10,338) 5,723
Extraordinary item -- -- (8,000) -- --
----------- ----------- ----------- ----------- -----------
Net loss (5,268) (7,985) (261,778) (5,555) (10,036)
=========== =========== =========== =========== ===========
Earnings (loss) per common share (After
Preferred Stock Dividend)
Continuing operations before extraordinary
item (0.27) (0.35) (7.68) 0.20 (0.63)
Discontinued operations -- -- (1.55) (0.42) 0.23
Extraordinary item -- -- (0.29) -- --
----------- ----------- ----------- ----------- -----------
Loss per common share $ (0.27) $ (0.35) $ (9.52) $ (0.22) $ (0.40)
=========== =========== =========== =========== ===========
Weighted average shares outstanding 32,018 32,018 27,632 24,815 24,812
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
October 31,
--------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (deficit) $7,556 $(12,568) $(51,206) $101,371 $113,338
Total assets 538,270 547,917 602,938 594,028 601,752
Goodwill 265,860 276,549 283,638 235,329 240,617
Total long-term debt 306,542 289,120 245,984 221,463 221,048
Stockholders' equity 54,241 63,089 74,381 210,314 216,447
</TABLE>
See Notes 3, 4 and 5 of the Notes to Consolidated Financial Statements of the
Company.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BACKGROUND
AWT was organized by an investment group including Odyssey
Partners, L.P., Allen & Company Incorporated ("Allen & Company") and
affiliates of First Chicago Corporation to make a cash tender offer to
purchase all of the outstanding shares of capital stock of Research-Cottrell,
Inc. and its various subsidiaries, including Metcalf & Eddy, Inc. The
Research-Cottrell acquisition was completed on July 13, 1987 ("the
Acquisition"). As a result of the Acquisition, AWT incurred approximately
$250,000,000 in debt and recorded approximately $200,000,000 in goodwill.
AWT's results of operations since the Acquisition have been adversely
affected by the interest expense related to the Acquisition debt, which was
refinanced in 1990, and the amortization of goodwill. See Financial
Condition and the notes to the accompanying AWT Consolidated Financial
Statements.
RESULTS OF OPERATIONS
AWT operates principally in three segments: Professional
Services Group focused on the operation of water and wastewater treatment
facilities; Metcalf & Eddy focused on engineering consulting in the areas of
water/wastewater and hazardous waste remediation; and Research-Cottrell
focused on designing, supplying and servicing air pollution treatment and
control equipment. The "other" segment primarily represents the Company's
activities related to a hazardous waste transfer station which was sold on
October 27, 1995.
DEMAND FOR THE COMPANY'S SERVICES AND TECHNOLOGIES
Demand for the Company's services and technologies arises
principally from four sources:
- need for governmental agencies to reduce costs through productivity
improvements and improve the quality of services;
- upgrade of existing facilities and the need for new capacity at
electric generating facilities, water and wastewater treatment facilities and
various industrial pollution sources, such as waste incineration and
industrial process plants, which must comply with existing environmental
legislation and regulations;
- regulations mandating new or increased levels of air and water
pollution control, water supply and solid waste management as well as
remediation of contaminated sites; and
- need for maintenance, repair, rebuilding and upgrading of existing
pollution control equipment and facilities.
Summarized below is certain financial information relating to
the business segments of the Company.
<TABLE>
<CAPTION>
Fiscal Years Ended October 31,
(in thousands)
Sales: 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Professional Services Group $270,640 $179,713 $83,678
Metcalf & Eddy 215,358 216,852 219,106
Research-Cottrell 219,008 220,207 213,172
Other and eliminations (3,907) 2,096 6,617
-------- -------- --------
$701,099 $618,868 $522,573
-------- -------- --------
Cost of Sales:
Professional Services Group $242,225 $151,893 $72,318
Metcalf & Eddy 155,806 158,068 167,510
Research-Cottrell 173,634 171,059 194,211
Other and eliminations (3,907) (465) 3,958
-------- -------- --------
$567,758 $480,555 $437,997
-------- -------- --------
Selling, General and Administrative Expenses:
Professional Services Group $ 13,657 $12,542 $ 7,934
Metcalf & Eddy 39,939 42,057 43,663
Research-Cottrell 33,996 37,148 40,084
Other -- 2,524 2,938
Corporate (unallocated) 8,000 8,854 9,559
-------- -------- ---------
$ 95,592 $103,125 $ 104,178
-------- -------- ----------
Depreciation and Amortization:
Professional Services Group $ 7,335 $ 5,679 $ 2,061
Metcalf & Eddy 6,223 5,691 5,780
Research-Cottrell 6,032 6,069 7,733
Other -- 307 526
Corporate (unallocated) 425 602 1,602
-------- -------- ---------
$ 20,015 $ 18,348 $ 17,702
-------- -------- ---------
Unusual Charges:
Professional Services Group $ -- $ -- $ 5,300
Metcalf & Eddy -- -- 38,700
Research-Cottrell -- -- 81,800
Other -- -- 4,200
Corporate (unallocated) -- -- 15,200
-------- -------- ---------
$ -- $ -- $ 145,200
-------- -------- ---------
Operating Income (Loss):
Professional Services Group $ 7,423 $ 9,599 $ (3,935)
Metcalf & Eddy 13,390 11,036 (36,547)
Research-Cottrell 5,346 5,931 (110,656)
Other -- (270) (5,005)
Corporate (unallocated) (8,425) (9,456) (26,361)
-------- -------- ---------
$ 17,734 $ 16,840 $(182,504)
======== ======== =========
</TABLE>
DEPENDENCE ON KEY PROJECTS/GOVERNMENT CONTRACTS
In any given period, a substantial percentage of the Company's
sales is dependent upon several large projects. To the extent that these
projects are canceled or substantially delayed and not replaced, it could have
a material adverse impact on the Company's sales and earnings.
Approximately 62% of the Company's 1996 gross revenues were
derived from contracts with federal, state, municipal and other governmental
agencies. The termination of any of the Company's significant contracts with
such governmental agencies, or the failure to obtain either extensions or
renewals of certain existing contracts or additional contracts with such
governmental agencies, could have a material adverse effect on the Company's
earnings and business.
FISCAL YEAR ENDED OCTOBER 31, 1996 COMPARED TO FISCAL YEAR ENDED OCTOBER 31,
1995
Overview
As discussed in more detail with the comparison of each
segment's results, the Company's net loss decreased from $8.0 million during
the year ended October 31, 1995 to $5.3 million during the year ended October
31, 1996. The results for the year reflect decreases in operating margins
(primarily in PSG and Research-Cottrell) due to the highly competitive
marketplace and increases in selling and marketing expenses (primarily PSG)
which have been partially offset by overhead reductions within Metcalf & Eddy,
Research-Cottrell and Corporate. Sales increased from $618.9 million to
$701.1 million primarily due to increased service revenues associated with
PSG's contract with PRASA. At October 31, 1996, the Company's backlog was
approximately $1.1 billion and consisted of PSG (75%), Metcalf & Eddy (19%)
and Research-Cottrell (6%).
Comparable operating results in the next fiscal year are
contingent upon the level and timing of additional contracts in each segment,
the achievement of the expected sales level increases, cost control, the
execution of expected new projects and those projects in the backlog within
the most recent cost estimates as well as the favorable resolution of claims
arising in the ordinary course of business.
Professional Services Group
Operating income was $7.4 million for the year ended October
31, 1996 and reflects a $2.2 million decrease from the comparable prior period
due to additional selling, general and administrative expenses as well as
depreciation and amortization related to growth initiatives which were
partially off-set by higher gross margins. The increase in PSG's sales is a
result of the PRASA contract which began September 1, 1995 and has not had a
proportional impact on operating income. Although negotiations are
progressing slower than previously expected, PSG continues to pursue new
business opportunities and currently has several proposals pending or under
negotiation which if obtained, would significantly increase future sales.
Metcalf & Eddy
Although sales have remained comparable to the prior year,
Metcalf & Eddy's operating income increased by $2.4 million during the year
ended October 31, 1996. The higher operating income was attributable
primarily to personnel, facilities and insurance cost reductions which
resulted in a decrease in selling, general and administrative expenses of $2.1
million. In addition, estimated favorable pricing adjustments partially
offset the impact of unfavorable sales mix to more design-build and
construction type projects.
Research-Cottrell
Operating income decreased by $.6 million during the year ended
October 31, 1996 from the comparable prior period. The changes in operating
income reflects the decreases in margin rates in most business units caused by
price pressures from highly competitive markets, unfavorable product line mix
and project execution. Partially off-setting the reduced margins are lower
selling, general and administrative expenses of $3.2 million during the year
ended October 31, 1996 (primarily at its APCD and KVB operations).
International sales volume has continued to increase by $10.7 million due to
improved market penetration during the aforementioned period, however the
higher sales related to international activities were more than off-set by
lower sales volume in KVB of $11.0 million during the year ended October 31,
1996. KVB's lower volume, compared with the prior period, is due to the
fulfillment of orders for equipment required by utility customers to comply
with the Clean Air Act Amendments of 1990.
Corporate and Other
The corporate (unallocated) selling, general and administrative
expenses decreased by $.9 million during the year ended October 31, 1996 due
to cost reduction efforts, including personnel related costs and professional
fees. The results for the year compared to the prior year were also favorably
impacted by slightly lower financing costs and the favorable resolution of
several pending tax issues.
FISCAL YEAR ENDED OCTOBER 31, 1995 COMPARED TO FISCAL YEAR ENDED OCTOBER 31,
1994
Overview
As discussed in more detail with the comparison of each
segment's results, the net loss was reduced by $253.8 million to $8.0 million
during the year ended October 31, 1995. Excluding the $196.0 million impact
of unusual charges, losses from discontinued operations and the extraordinary
loss, the $57.8 million improvement of results reflects primarily a $54.1
million increase in operating income. This was achieved through better
project execution resulting in higher gross margins on stable sales levels
within the Metcalf & Eddy and Research-Cottrell segments. In addition, the
June 1994 acquisition of PSG, CGE's water/wastewater management subsidiary,
and new contract awards resulted in a $96.0 million sales increase generating
higher operating income in the PSG segment. Various cost reduction efforts
also improved results which are reflected in a $1.0 million reduction in
selling, general and administrative expenses despite the effects of the PSG
acquisition and providing for improved employee fringe benefits including
retirement and incentive plans. Backlog levels also increased to over $1.2
billion due to the $450 million five-year contract with PRASA to operate,
maintain and manage Puerto Rico's water and wastewater treatment facilities.
Professional Services Group
Excluding the impact of the $5.3 million prior period unusual
charges and the $1.5 million proforma operating income impact assuming the
June 1994 PSG acquisition occurred on November 1, 1993, operating income
increased during the year ended October 31, 1995 by $6.7 million. The
increase in operating income during the year was primarily due to new business
development which resulted in additional service contracts and cost reductions
attained in connection with the consolidation of the Metcalf & Eddy Services
and Professional Services Group operations.
Sales increased by $96.0 million during the year ended October
31, 1995. The increase during the year is attributable to the proforma sales
impact of the PSG acquisition ($55.6 million) and new business development
which resulted in additional service contract revenues ($40.4 million),
including revenues of $15.7 million related to the new PRASA contract.
On September 1, 1995, PSG initiated operations under its
five-year contract with PRASA to operate, maintain and manage Puerto Rico's
water and wastewater treatment facilities. This contract is expected to
generate annual revenues in excess of $90 million and its profitability
thereunder is contingent upon achieving certain incentive revenues and
operating efficiencies in which a significant amount is expected to be
realized during the later years of the contract. PRASA has the right to
cancel the contract after three years.
Metcalf & Eddy
Excluding the impact of the $38.7 million prior period unusual
charges, operating income increased by $8.9 million during the year ended
October 31, 1995. The improved performance resulted from higher margin sales
related to work executed directly by Metcalf & Eddy excluding its
sub-contractors and other favorable mix impacts as well as improved execution
on several projects as a result of obtaining contractual amendments and lower
than previously anticipated direct project costs. Selling, general and
administrative expenses decreased by $1.6 million primarily due to various
cost reductions including facility, insurance and administrative overhead
related costs partially off-set by increased bid and proposal and other
related selling costs as well as higher employee fringe benefits.
Sales decreased by $2.3 million during the year ended October
31, 1995 primarily due to changes in pass-through sales volume, including
its Peace Shield project, representing direct project costs passed through
to the client. The higher margin sales related to work executed directly
by Metcalf & Eddy excluding its sub-contractors increased by $9.1 million
during the year.
Research-Cottrell
Excluding the impact of the $81.8 million prior period unusual
charges, operating income increased by $34.8 million during the year ended
October 31, 1995. The increase resulted from higher gross margins of $30.2
million primarily due to better execution resulting in the avoidance of
additional costs required in the prior year to complete particulate and acid
gas control systems, chimneys and emissions monitoring systems ($21.5 million)
as well as higher gross margins within the international and cooling tower
operations primarily due to higher sales volumes and to a lesser extent
improved execution ($7.5 million). Also impacting the favorable results were
lower selling, general and administrative expenses ($2.9 million) due to cost
reductions in substantially all product lines primarily within the particulate
and acid gas control equipment, emissions monitoring systems and cooling tower
product lines which were partially off-set with higher international selling
activities.
Sales increased by $7.0 million during the year ended October
31, 1995. The increase resulted from higher international sales of
particulate and acid gas control systems due to better geographical market
penetration in Europe and the Far East ($21.0 million) and higher sales from
the cooling tower operations driven by higher orders ($9.4 million). Also
contributing to the increase were higher sales of VOC control systems due to
higher demands driven by the requirements under the 1990 Clean Air Act
Amendments ($12.3 million). Partially offsetting these increases were lower
sales of emission monitors ($19.1 million) and chimney products and services
($12.3 million) primarily due to the timing of the demand requirements under
the 1990 Clean Air Act Amendments.
In light of improvements in its current market climate and
anticipated financial performance, management has decided to retain the
Company's cooling tower, heat transfer and certain service operations. The
Company had previously contemplated selling these businesses and had recorded
a charge for the difference between their net carrying value and management's
estimate of the anticipated net sales proceeds. The Company is making
progress in resolving software issues related to its emissions monitoring
systems previously shipped to certain utilities. The software issues have
created problems in collecting receivables due to claims and back-charges from
certain utilities. Also, the Company will continue to incur additional
software, warranty and project close-out costs in resolving this situation.
Management believes that the previously provided reserves for the contemplated
divestitures and emissions monitoring operations are adequate in the
aggregate, therefore these issues have not had a significant effect on the
Company's consolidated financial position or results of its operations, taken
as a whole as of October 31, 1995 and for the year then ended.
Corporate and Other
The corporate (unallocated) selling, general and administrative
expenses and depreciation and amortization decreased by $1.7 million during
the year ended October 31, 1995 due to cost reduction efforts, including
reductions in unallocated promotional and facility related costs. The Company
sold its hazardous waste transfer station operations during October 1995 and
as a result a $1.4 million gain was recognized and included in other expense,
net.
Additional charges reflected in the prior year include unusual
charges of $19.4 million, losses from the discontinued asbestos abatement
operations ($38.2 million) and PAMCO operations ($4.6 million) and an $8.0
million extraordinary loss on the early retirement of the 11.18% Senior Notes
with the Prudential Insurance Company of America.
Financial Condition
Cash provided by operations for the year ended October 31, 1996
amounted to $.9 million and was unfavorably impacted by the cash outlays of
$13.1 million for the previously established unusual charge reserves. The
Company also utilized $18.1 million of cash for capital expenditures,
investments in environmental treatment facilities and other investment
activities including start up costs during the period. These cash requirements
were funded principally through borrowings under the Company's credit
facilities discussed below and proceeds from the prior year sale of its
hazardous waste transfer station operations and one of its emissions
monitoring operations. As a result of the above, net financial debt (debt
less cash) increased by $16.0 million during the year ended October 31, 1996.
During August, 1996 the Company entered into a seven year $60
million unsecured revolving credit facility with Anjou International Company
("Anjou Credit Facility"), an affiliated company. The borrowings under the
facility bear interest at LIBOR plus .6%. In conjunction with this new
financing the Company reduced its more expensive $130 million Senior Secured
Credit Facility ("Bank Credit Facility") to $50 million. As of October 31,
1996, the Company's outstanding borrowings under the Anjou Credit Facility
totaled $60 million.
The Bank Credit Facility is primarily designed to finance
working capital requirements and provide for the issuance of letters of
credit, both subject to limitations and secured by a first security
interest in substantially all of the assets of the Company. Of the total
commitment, borrowings are limited to the sum of a percentage of certain
eligible receivables, inventories, net property, plant and equipment and
costs and estimated earnings in excess of billings, and bear interest at
LIBOR (5.4% at October 31, 1996), as defined, plus .725% or at a defined
bank rate approximating prime (8.25% at October 31, 1996). The Bank Credit
Facility also allows for certain additional borrowings, including, among
other things, project financing and foreign borrowing facilities, subject
to limitations and contains certain financial and other restrictive
covenants , including, among other things, the maintenance of certain
financial ratios, and restrictions on the incurrence of additional
indebtedness, acquisitions, the sale of assets, the payment of dividends
and the repurchase of subordinated debt. In addition, the related
agreement requires CGE to maintain its support of the Company, including, a
minimum 40% ownership interest in the Company and its right to designate
its proportionate share of the Company's Board of Directors as well as the
Chief Executive Officer and Chief Financial Officer. The Company
compensates CGE for its support in an amount equal to .95% per annum of the
outstanding commitment of its credit facilities ($1.2 million and $.8
million for the years ended October 31, 1996 and 1995). Under the Bank
Credit Facility at October 31, 1996, the Company had no outstanding
borrowings (capacity of $22.2 million) and outstanding letters of credit of
$27.8 million.
The businesses of the Company have not historically required
significant ongoing capital expenditures. For the year ended October 31, 1996,
1995 and 1994 total capital expenditures were $7.5 million, $7.9 million and
$5.5 million, respectively. At October 31, 1996, the Company had no material
outstanding purchase commitments for capital expenditures. The company has
obtained waivers relating to violations of certain financial covenants under
the Bank Credit Facility and other contractual agreements (see Note 8). As of
January 28, 1997, the Company has borrowed an additional $16 million during
fiscal 1997 under its credit facilities. Management believes that it will be
able to manage its near-term cash requirements through its remaining Bank
Credit Facility capacity ($10 million), current cash balances and working
capital reductions.
Statement Regarding Forward Looking Disclosures
Statements contained in this report, including Management's
Discussion and Analysis, are forward looking statements that involve a number
of risks and uncertainties which may cause the Company's actual operating
results to differ materially from the projected amounts. Among the factors
that could cause actual results to differ materially are risk factors listed
from time to time in the Company's SEC reports including:
- the Company's highly competitive marketplace,
- changes in as well as enforcement levels of federal, state and local
environmental legislation and regulations that change demand for a significant
portion of the Company's services,
- the ability to obtain new contracts (some of which are significant)
from existing and new clients,
- the execution of the expected new projects and those projects in
backlog within the most recent cost estimates and
- the favorable resolution of existing claims arising in the ordinary
course of business.
INFLATION
The Company believes that inflation and changing prices have
not had, and are not expected in the near term to have, a material adverse
effect on its results of operations. Significant portions of the Company's
sales and the related costs result from contracts that provide for escalation
recovery on labor and material costs. Many other contracts are "cost-plus"
government contracts. Both types of contracts reduce the Company's exposure
to the adverse effects of inflation.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Air & Water Technologies Corporation: Page
- ------------------------------------- ----
<S> <C>
Independent Auditor's Report............................................................................... 28
Reports of Independent Public Accountants.................................................................. 29
Consolidated Balance Sheets as of October 31, 1996 and 1995................................................ 30
Consolidated Statements of Operations for the Years Ended October 31, 1996, 1995 and 1994.................. 31
Consolidated Statements of Stockholders' Equity for the Years Ended October 31, 1996, 1995
and 1994.................................................................................................. 32
Consolidated Statements of Cash Flows for the Years Ended October 31, 1996, 1995 and 1994.................. 33
Notes to Consolidated Financial Statements................................................................. 35
</TABLE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors of Air & Water Technologies
Corporation:
We have audited the accompanying consolidated balance sheet of Air & Water
Technologies Corporation and its Subsidiaries as of October 31, 1996, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Air & Water Technologies
Corporation and its Subsidiaries as of October 31, 1996, and the results of
their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
McGladrey & Pullen, LLP
New York, New York
January 8, 1997, except for the first paragraph of Note 8
as to which the date is January 24, 1997
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Air & Water Technologies Corporation:
We have audited the accompanying consolidated balance sheet of
Air & Water Technologies Corporation (a Delaware corporation) and subsidiaries
as of October 31, 1995 and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the two years in the period
ended October 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our 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 financial statements referred to above
present fairly, in all material respects, the financial position of Air &
Water Technologies Corporation and subsidiaries as of October 31, 1995 and the
results of their operations and their cash flows for each of the two years in
the period ended October 31, 1995, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Roseland, New Jersey
December 8, 1995
<TABLE>
AIR & WATER TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEETS
As of October 31, 1996 and 1995
(in thousands, except share data)
<CAPTION>
ASSETS 1996 1995
- ------ ---- ----
<S> <C> <C>
Current Assets:
Cash and cash equivalents, including restricted cash of $849 and $1,664
in 1996 and 1995, respectively................................................... $ 12,667 $ 11,168
Accounts receivable, less allowance for doubtful accounts of $5,000 and
$8,300 in 1996 and 1995, respectively............................................ 100,933 102,360
Costs and estimated earnings in excess of billings on uncompleted contracts........ 48,097 44,730
Inventories........................................................................ 11,319 13,047
Prepaid expenses and other current assets.......................................... 12,027 11,835
-------- --------
Total current assets............................................................... 185,043 183,140
Property, plant and equipment, net................................................. 35,432 37,498
Investments in Environmental Treatment Facilities.................................. 22,062 22,545
Goodwill, net...................................................................... 265,860 276,549
Other assets....................................................................... 29,873 28,185
-------- --------
Total assets..................................................................... $538,270 $547,917
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current installments of long-term debt............................................. $378 $366
Accounts payable................................................................... 73,951 65,425
Accrued expenses................................................................... 76,656 101,278
Billings in excess of costs and estimated earnings on uncompleted contracts........ 23,995 25,862
Income taxes payable............................................................... 2,507 2,777
-------- --------
Total current liabilities.......................................................... 177,487 195,708
-------- --------
LONG-TERM DEBT 306,542 289,120
COMMITMENTS AND CONTINGENCIES (Note 15)
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01, authorized 2,500,000 shares; issued
1,200,000 shares; liquidation value $60,000...................................... 12 12
Common stock, par value $.001, authorized 100,000,000 shares; issued
32,109,156 and 32,107,906 shares in 1996 and 1995, respectively.................. 32 32
Additional paid-in capital......................................................... 427,036 427,028
Accumulated deficit................................................................ (372,433) (363,865)
Common stock in treasury, at cost.................................................. (108) (108)
Cumulative currency translation adjustment......................................... (298) (10)
-------- --------
Total stockholders' equity....................................................... 54,241 63,089
-------- --------
Total liabilities and stockholders' equity..................................... $538,270 $547,917
======== ========
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
</TABLE>
<TABLE>
AIR & WATER TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended October 31, 1996, 1995 and 1994
(in thousands, except share data)
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
SALES $701,099 $618,868 $522,573
COST OF SALES 567,758 480,555 437,997
-------- -------- ---------
Gross margin 133,341 138,313 84,576
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 95,592 103,125 104,178
DEPRECIATION AND AMORTIZATION 20,015 18,348 17,702
UNUSUAL CHARGES -- -- 145,200
-------- -------- ---------
Operating income (loss) from continuing
operations 17,734 16,840 (182,504)
INTEREST INCOME 1,049 1,201 1,283
INTEREST EXPENSE (22,808) (24,379) (24,386)
OTHER EXPENSE, net (1,661) (434) (4,580)
-------- -------- ---------
Loss from continuing operations before income
taxes, minority interest and extraordinary
item (5,686) (6,772) (210,187)
INCOME TAXES (418) 1,115 998
MINORITY INTEREST -- 98 (194)
Loss from continuing operations before
extraordinary item (5,268) (7,985) (210,991)
-------- -------- ---------
LOSS FROM DISCONTINUED OPERATIONS -- -- (42,787)
EXTRAORDINARY ITEM -- -- (8,000)
-------- -------- ---------
Net loss $ (5,268) $ (7,985) $(261,778)
======== ======== =========
LOSS PER COMMON SHARE (After Preferred Stock
Dividend):
Continuing operations before extraordinary item (0.27) (0.35) (7.68)
Discontinued operations -- -- (1.55)
Extraordinary item -- -- (0.29)
-------- -------- ---------
Net loss $ (0.27) $ (0.35) $ (9.52)
======== ======== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
<TABLE>
AIR & WATER TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
For the years ended October 31, 1996, 1995 and 1994
(in thousands, except share data)
<CAPTION>
Additional
Preferred Stock Common Stock Paid-In Accumulated
Class A Class A Capital Deficit
----------------- -------------------- --------- -----------
Shares Amount Shares Amount
------ ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance, October 31, 1993 -- $ -- 24,908,183 $ 25 $ 301,048 $ (89,557)
Net loss -- -- -- -- -- (261,778)
Issuance of Common Stock -- -- 7,201,500 7 69,933 --
Issuance of Series A
Preferred Stock 1,200,000 12 -- -- 55,513 --
Cash dividends, Series A
Preferred Stock -- -- -- -- -- (1,245)
Grant, forfeiture and
amortization of
restricted stock -- -- (1,777) -- 534 --
Currency translation
adjustment -- -- -- -- -- --
--------- ---- ---------- ---- --------- ----------
Balance, October 31, 1994 1,200,000 12 32,107,906 32 427,028 (352,580)
Net loss -- -- -- -- -- (7,985)
Cash dividends, Series A
Preferred Stock -- -- -- -- -- (3,300)
Currency translation
adjustment -- -- -- -- -- --
--------- ---- ---------- ---- --------- ----------
Balance, October 31, 1995 1,200,000 12 32,107,906 32 427,028 (363,865)
Net loss -- -- -- -- -- (5,268)
Cash dividends, Series A
Preferred Stock -- -- -- -- -- (3,300)
Exercise of stock options -- -- 1,250 -- 8 --
Currency translation
adjustment -- -- -- -- -- --
--------- ---- ---------- ---- --------- ----------
Balance, October 31, 1996 1,200,000 $ 12 32,109,156 $ 32 $ 427,036 $ (372,433)
========= ==== ========== ==== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
Cumulative
Currency
Class A Common Translation
Treasury Stock Adjustment
----------------- -----------
Shares Amount Total
------ ------ -----
<S> <C> <C> <C> <C>
Balance, October 31, 1993 (89,902) $ (108) $ (1,094) $ 210,314
Net loss -- -- -- (261,778)
Issuance of Common Stock -- -- -- 69,940
Issuance of Series A
Preferred Stock -- -- -- 55,525
Cash dividends, Series A
Preferred Stock -- -- -- (1,245)
Grant, forfeiture and
amortization of
restricted stock -- -- -- 534
Currency translation
adjustment -- -- 1,091 1,091
------- ------ ------ --------
Balance, October 31, 1994 (89,902) (108) (3) 74,381
Net loss -- -- -- (7,985)
Cash dividends, Series A
Preferred Stock -- -- -- (3,300)
Currency translation
adjustment -- -- (7) (7)
------- ------ ------ --------
Balance, October 31, 1995 (89,902) (108) (10) 63,089
Net loss -- -- -- (5,268)
Cash dividends, Series A
Preferred Stock -- -- -- (3,300)
Exercise of stock options -- -- -- 8
Currency translation
adjustment -- -- (288) (288)
------- ------ ------ --------
Balance, October 31, 1996 (89,902) $ (108) $ (298) $ 54,241
======= ====== ====== ========
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
</TABLE>
<TABLE>
AIR & WATER TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended October 31, 1996, 1995 and 1994
(in thousands)
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(5,268) $(7,985) $(261,778)
Adjustments to reconcile net loss to net cash provided by (used
for) continuing operations
Discontinued operations -- -- 42,787
Depreciation and amortization 20,015 18,348 17,702
Other (185) (717) 849
Extraordinary item -- -- 8,000
Changes in assets and liabilities, net of effects from
acquisitions and divestitures - (Increase) decrease
in assets
Accounts receivable (2,491) (7,361) (1,307)
Costs and estimated earnings in excess of billings on
uncompleted contracts (2,101) 10,356 22,230
Inventories 193 780 2,271
Prepaid expenses and other current assets (667) (1,381) 10,934
Other assets (1,077) 14,594 6,196
Increase (decrease) in liabilities
Accounts payable 9,013 17,411 (5,712)
Accrued expenses (15,553) (27,408) 64,716
Billings in excess of costs and estimated earnings on
uncompleted contracts (650) (6,295) 5,152
Income taxes (281) 1,062 (2,962)
------- ------- -------
Other liabilities -- -- 42,700
Net cash provided by (used for) continuing operations 948 11,404 (48,222)
Net cash provided by (used for) discontinued operations (60) 1,579 (17,294)
------- ------- -------
Net cash provided by (used for) operating activities 888 12,983 (65,516)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of businesses 6,186 12,962 --
Capital expenditures (7,458) (7,895) (5,523)
Investment in environmental treatment facilities 530 798 (1,020)
Software development -- -- (2,659)
Start up costs and other, net (11,146) (6,577) (243)
------- ------- -------
Net cash used for investing activities (11,888) (712) (9,445)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuances of common and preferred stock 8 -- 63,194
Proceeds from issuance of notes payable and long-term debt -- -- 125,000
Payments of notes payable and long-term debt (366) (654) (110,605)
Net borrowings under credit facilities 17,800 14,500 970
Accounts receivable repurchased -- (20,000) --
Cash dividends paid on preferred stock (3,300) (3,300) (970)
Other, net (1,643) (2,670) 769
------- ------- -------
Net cash provided by (used for) financing activities 12,499 (12,124) 78,358
------- ------- -------
Net increase (decrease) in cash and cash equivalents 1,499 147 3,397
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 11,168 11,021 7,624
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR $12,667 $11,168 $11,021
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest $22,417 $24,879 $23,853
Cash paid for income taxes $1,292 $604 $976
======= ======= =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
AIR & WATER TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of
Air & Water Technologies Corporation ("AWT" or the "Company") and all
majority-owned subsidiaries. All significant intercompany transactions have
been eliminated. Investments in joint ventures, which are 50% or less owned,
are accounted for using the equity method, while the Company's share of joint
venture results of operations are included pro rata in "sales", "cost of
sales" and "selling, general and administrative expenses" in the accompanying
consolidated statements of operations.
Use of accounting estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash equivalents
Cash equivalents consist of investments in short-term highly
liquid securities having an original maturity of three months or less and
primarily include investments in bank time deposits.
Revenue recognition
The Company follows the practice of accruing income from
long-term contracts using the percentage-of-completion method. Under this
method, the Company primarily recognizes as profit that proportion of the
total anticipated profit which the cost of work completed bears to the
estimated total cost of the work covered by the contract, including estimated
warranty and performance guarantee costs. As contracts extend over one or
more years, revisions of cost and profit estimates are made periodically and
are reflected in the accounting period in which they are determined. If the
estimate of total costs on a contract indicates a loss, the total anticipated
loss is recognized immediately. Estimated warranty and performance guarantee
costs on completed contracts are included in accrued expenses and amounted to
$4,300,000 and $11,400,000 at October 31, 1996 and 1995.
The asset, "Costs and estimated earnings in excess of billings
on uncompleted contracts," represents contract costs incurred plus earned
margin in excess of amounts billed and includes unbilled retentions which
result from performance of work on contracts in progress in advance of
billings pursuant to certain contract terms. Approximately $45,100,000 of
costs and estimated earnings in excess of billings on uncompleted contracts is
expected to be collected in fiscal year 1997. The liability, "Billings in
excess of costs and estimated earnings on uncompleted contracts," represents
billings in excess of contract costs incurred plus earned margin.
Inventories
Inventories are stated principally at the lower of weighted
average cost or market. Inventories at October 31 consist of the following (in
thousands):
1996 1995
---- ----
Raw materials $ 5,207 $4,270
Work in process 869 449
Components and parts 5,243 8,328
------- -------
$11,319 $13,047
======= =======
Property, plant and equipment
Property, plant and equipment is stated at cost. Depreciation
and amortization of property, plant and equipment is primarily computed on the
straight-line method over the estimated useful lives of the assets. The
estimated useful lives are generally 20 to 30 years for buildings and
improvements and 3 to 12 years for machinery, equipment and fixtures. Repair
and maintenance costs are expensed as incurred; major renewals and betterments
are capitalized. Property, plant and equipment at October 31 consist of the
following (in thousands):
1996 1995
---- ----
Land and land improvements $ 4,836 $ 5,080
Buildings and improvements 15,423 17,099
Machinery, equipment and fixtures 45,098 49,789
------- -------
65,357 71,968
Less accumulated depreciation and (29,925) (34,470)
amortization ------- -------
$35,432 $37,498
Goodwill and long-lived assets
Goodwill is being amortized over 40 years under the
straight-line method. The Company continually evaluates whether events and
circumstances have occurred that indicate the remaining estimated useful life
of goodwill and other long-lived assets may warrant revision or the remaining
balance of goodwill and other long-lived assets may not be recoverable. When
factors indicate that goodwill and other long-lived assets should be evaluated
for possible impairment, the Company uses an estimate of the related business
segment's undiscounted operating income over the remaining life of the assets
in measuring whether the assets are impaired. The realizability of goodwill
and other long-lived assets associated with a business segment might be
significantly impacted if that business were to be divested. Goodwill
amortization was $8,266,000, $8,233,000 and $7,738,000 for the years ended
October 31, 1996, 1995 and 1994. Accumulated amortization of goodwill was
$60,578,000 and $52,881,000 at October 31, 1996 and 1995.
Deferred costs
Certain direct costs which are incurred for new projects,
primarily related to the start up of the operations, maintenance and
management of treatment facilities within the PSG operating segment are
deferred and amortized over the terms of the specific new contract using the
straight-line method. These unamortized deferred charges are included in
other assets and amounted to $13,767,000 and $7,494,000 at October 31, 1996
and 1995. Deferred debt issuance costs are amortized over the life of the
related debt utilizing the effective interest method. The unamortized costs
were included in other assets and amounted to $3,147,000 and $3,334,000 at
October 31, 1996 and 1995.
Earnings (loss) per share
The earnings (loss) per share was computed by dividing the net
income (loss) after preferred stock dividends by the weighted average number
of common shares outstanding each period. The weighted average number of
shares outstanding were 32,018,000 in 1996 and 1995 and 27,632,000 in 1994.
Common stock equivalents (stock options) and the Company's 8% Convertible
Notes have not been included in the earnings (loss) per share calculation
since the effect is antidilutive.
Income taxes
Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary differences and
operating loss and tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their
tax bases. Deferred tax assets are reduced by a valuation allowance when, in
the opinion of management, it is more likely than not that some portion or all
of the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on
the date of enactment.
Reclassifications
Certain reclassifications have been made to the 1995 and 1994
consolidated financial statements to conform to the 1996 presentation.
(2) CGE TRANSACTION
On June 14, 1994, the stockholders of the Company approved the
issuance of Company securities pursuant to an investment agreement dated as of
March 30, 1994 (the "Investment Agreement"), among AWT, Compagnie Generale des
Eaux, a French corporation and AWT'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, AWT (i) issued 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) issued to Anjou an aggregate of 6,701,500 shares of
Class A Common Stock in connection with the acquisition from Anjou of
Professional Services Group, Inc., a Minnesota corporation, and 2815869
Canada, Inc., a Canadian corporation (hereinafter collectively "Professional
Services Group" or "PSG"). As a result, CGE increased its ownership interest
in AWT to approximately 48% of the total voting power of the Company's voting
securities. In addition, AWT benefitted from certain financial undertakings
from CGE, including a $125,000,000 loan from CGE and became CGE's exclusive
vehicle in the United States, its possessions and its territories for CGE's
water and wastewater management and air pollution activities. CGE also has
representation on AWT's Board of Directors and has designated AWT's Chief
Executive Officer and Chief Financial Officer.
In connection with the Investment Agreement, the Company
incurred fees and expenses of approximately $9,800,000, including $7,750,000
payable to Allen & Company (a related party) for financial advisory services.
The estimated fees and expenses have been allocated to the PSG acquisition
($4,875,000), preferred stock issuance ($4,475,000), common stock issuance
($400,000) and a term loan from CGE ($50,000).
(3) UNUSUAL CHARGES
During 1994, the Company recorded unusual charges of
approximately $145,200,000. These charges related to various cost reduction
programs, new management's de-emphasis of certain product lines which provided
the opportunity for a sharper focus on the Company's three core competency
areas; engineering consulting, contract operations and air pollution control
and to costs directly attributable to the transactions contemplated by the
Investment Agreement (as discussed more fully in Note 2).
Included in the unusual charges are (a) a $42,500,000 valuation
charge which primarily relates to certain businesses that were initially
believed to no longer meet strategic objectives and were anticipated to be
divested. These businesses primarily consisted of the Company's cooling tower
product line, and certain manufacturing and service operations and properties
which diverted management attention from the Company's core products and
services provided by Research-Cottrell, Metcalf & Eddy and PSG; (b) various
termination benefits of $10,200,000 of which $4,600,000 relates to the
Company's former Chairman under the terms of an employment contract which were
triggered by the CGE Transaction and include a $2,300,000 loan forgiveness,
certain tax payments and other payments; (c) approximately $8,000,000 of costs
associated with the termination of certain leases and the closing of certain
facilities; (d) approximately $11,200,000 related to the PRASA litigation
which reflects revised estimates of the expenses required to pursue, through
trial, the Company's belief that substantially all of the billings questioned
by PRASA represent appropriate charges and revised estimates of collectibility
given the complexity of the litigation and the continuing deferral of a trial
date (see Note 15); (e) approximately $18,500,000 of estimated costs to settle
pending litigation primarily within the Metcalf & Eddy segment; (f)
approximately $9,700,000 primarily to write-off substantially all of the
Company's capitalized software costs reflecting a shift in focus to a standard
industrial continuous emission monitor; (g) approximately $37,400,000 of costs
and asset write-downs associated primarily with warranty and other claims in
the Company's electrostatic precipitator and continuous emission monitor
product lines; (h) approximately $7,700,000 for other items primarily
representing revised estimates for potential insurance claims.
During 1995, in light of improvements in its current market
climate and anticipated financial performance, management decided to retain
the Company's cooling tower, heat transfer and certain service operations.
The Company had previously contemplated selling these businesses and had
recorded a charge for the difference between their net carrying value and
management's estimate of the anticipated net sales proceeds during fiscal
1994. The Company also had significant software issues related to its
emissions monitoring systems previously shipped to certain utilities which
had created problems in collecting receivables due to claims and back-
charges and resulted in the incurrence of additional software, warranty and
project close-out costs in resolving this situation. The previously
provided reserves for the Company's contemplated divestitures and emissions
monitoring operations were adequate in the aggregate, therefore these
issues have not had a significant effect on the Company's consolidated
financial position or results of its operations, taken as a whole as of
October 31, 1996 and 1995 and for the years then ended.
During 1996, the reserves to be utilized in future periods
decreased to $18,100,000 as a result of asset write-offs of $13,100,000 and
cash outlays of $13,100,000 and are included in the allowance for doubtful
accounts ($2,700,000), inventory ($200,000) and accrued expenses ($15,200,000)
at October 31, 1996. These related reserves are included in the allowance for
doubtful accounts ($5,900,000), costs and estimated earnings in excess of
billings on uncompleted contracts ($3,400,000), inventory ($600,000) and
accrued expenses ($34,400,000) at October 31, 1995.
(4) ACQUISITIONS
In connection with the transactions contemplated by the
Investment Agreement, the Company on June 14, 1994 acquired CGE's PSG
water/wastewater management subsidiary. The acquisition was accounted for
under the purchase method and, accordingly, the operating results of PSG
have been included in the consolidated operating results since the date of
acquisition. The purchase price of $70,215,000 is based upon 6,701,500
shares of common stock issued in exchange for PSG valued at the quoted
market price at the date of issuance ($65,340,000) plus $4,875,000 of
direct acquisition costs. The purchase price was assigned to tangible
assets of $26,072,000 and liabilities of $13,607,000 acquired at an
estimate of their fair value. The excess of purchase price over PSG's
tangible net assets acquired of $57,750,000 has been recorded as goodwill
and is being amortized over 40 years.
The following summary, prepared on a pro forma basis, combines
the consolidated results of operations as if PSG had been acquired as of the
beginning of the period presented, after including the impact of certain
adjustments such as: amortization of goodwill and the related income tax
effects (in thousands, except per share data):
Year Ended
October 31, 1994
----------------
(unaudited)
Sales $578,178
Loss from continuing operations (209,146)
Net loss (260,737)
Loss per share:
Continuing operations (6.53)
Net loss $(8.14)
The pro forma results are not necessarily indicative of what
actually would have occurred if the acquisition had been in effect for the
period presented. In addition, they are not intended to be a projection of
future results and do not reflect any synergy that might be achieved from
combined operations.
(5) DISCONTINUED OPERATIONS
Asbestos Abatement
The Company on May 13, 1994 announced that it had decided to
liquidate its asbestos abatement business. The remaining net assets from this
business were $1,669,000 and $1,609,000 as of October 31, 1996 and 1995.
Sales applicable to this business were $1,658,000 and $48,696,000 for the
periods ended October 31, 1995 and 1994. Other selected financial data from
this business are as follows (in thousands) :
1995 1994
---- ----
Operating loss $ -- $(15,988)
Loss on disposition -- (22,241)
-------- --------
Total loss -- (38,229)
Depreciation and amortization -- 716
Changes in working capital 2,416 15,627
Goodwill write-off -- 4,425
Capital expenditures -- --
Payment of long-term debt (38) (367)
Other, net -- 368
--------- --------
Net cash flow $2,378 $(17,460)
========= ========
Pamco
On November 18, 1994, the Company sold substantially all of the
net assets of its natural gas compressor and power generation systems
operations ("Pamco") for cash of $12,962,000. Sales applicable to this
business were $1,364,000 and $40,025,000 for the periods ended October 31,
1995 and 1994. Other selected financial data from this business are as
follows (in thousands):
1995 1994
---- ----
Operating loss $ -- $(1,758)
Loss on disposition -- (2,800)
------- -------
Total loss -- (4,558)
Depreciation and amortization -- 430
Changes in working capital (799) 4,881
Capital expenditures -- (209)
Payment of long-term debt -- (369)
Other, net -- (9)
------- -------
Net cash flow $ (799) $ 166
======= =======
(6) INVESTMENTS IN ENVIRONMENTAL TREATMENT FACILITIES
The Company designed and constructed environmental treatment
facilities for certain governmental entities (the "entities"). The cost of
these facilities was primarily funded through the issuance of tax-exempt
Industrial Revenue Bonds by the entities, the proceeds of which were loaned to
the Company. The entities have entered into long-term service agreements with
the Company which transfers to them substantially all risks of ownership and
which will generate sufficient revenues to service the debt and return the
Company's investment. Accordingly, these transactions have been accounted for
as sales-type leases. Consistent with the definition of a legal right of
offset (the related agreements provide for a net settlement of the obligations
between the parties, and the revenues referred to above are legally assigned
to payment of debt service), neither the facilities nor the associated debt
(approximately $29,925,000 and $31,185,000 at October 31, 1996 and 1995) are
reflected in the accompanying consolidated balance sheets. These agreements
provide for various performance guarantees by the Company. Management
believes that the Company will continue to maintain the stipulated performance
guarantees.
The net investment in these sales-type leases consists of the
following at October 31 (in millions):
1996 1995
---- ----
Future minimum lease payments $ 38.1 $ 39.5
Expected residual value (unguaranteed) 9.3 9.3
Unearned income (5.5) (5.6)
------- -------
Net investment in leases 41.9 43.2
Offset-nonrecourse debt of $29.9
million and $31.2 million,
respectively, in 1996 and 1995, net
of available funds in hands of
trustee (25.6) (26.8)
------- -------
Net investment in leases 16.3 16.4
Facility enhancements, net of
depreciation 5.7 6.1
Investments in environmental $22.0 $22.5
======= =======
At October 31, 1996, minimum lease payments to be received, net
of executory costs for each of the five succeeding fiscal years, are
$1,941,000, $1,961,000, $2,069,000, $2,216,000 and $2,306,000.
(7) FINANCING ARRANGEMENTS
During August 1996, the Company entered into a seven year $60
million unsecured revolving credit facility with Anjou ("Anjou Credit
Facility"). The borrowings under the facility bear interest at LIBOR plus .6%
(6% at October 31, 1996). In conjunction with this new financing the Company
reduced its more expensive $130 million Senior Secured Credit Facility ("Bank
Credit Facility") to $50 million. As of October 31, 1996, the Company's
outstanding borrowings under the Anjou Credit Facility totaled $60 million.
On March 10, 1995, the Company entered into the three-year Bank
Credit Facility with First Chicago and Societe Generale acting as co-agents
for a syndicate which includes seven additional banks. The Bank Credit
Facility replaced at a reduced cost the previous $70 million credit agreement
and the $20 million Accounts Receivable Purchase Agreement (which was fully
utilized at October 31, 1994). It is primarily designed to finance working
capital requirements and allow for the issuance of letters of credit, both
subject to limitations and secured by a first security interest in
substantially all of the assets of the Company. Of the total commitment under
the terms of the Bank Credit Facility, borrowings are limited to the sum of a
percentage of certain eligible receivables, inventories, net property, plant
and equipment and costs and estimated earnings in excess of billings, and bear
interest at LIBOR (5.4% at October 31, 1996), as defined, plus .725% or at a
defined bank rate approximating prime (8.25% at October 31, 1996). The Bank
Credit Facility also allows for certain additional borrowings, including,
among other things, project financing and foreign borrowing facilities,
subject to limitations. The Bank Credit Facility contains certain financial
and other restrictive covenants , including, among other things, the
maintenance of certain financial ratios, and restrictions on the incurrence
of additional indebtedness, acquisitions, the sale of assets, the payment
of dividends and the repurchase of subordinated debt. In addition, the
agreement requires CGE to maintain its support of the Company, including, a
minimum 40% ownership interest in the Company and its right to designate
its proportionate share of the Company's Board of Directors as well as the
Chief Executive Officer and Chief Financial Officer. The Company
compensates CGE for its support in an amount equal to .95% per annum of the
outstanding commitment of its credit facilities ($1.2 million and $.8
million for the years ended October 31, 1996 and 1995). Under the Bank
Credit Facility at October 31, 1996, the Company had no outstanding
borrowings (capacity of $22.2 million) and outstanding letters of credit of
$27.8 million. The gross amount of proceeds from and repayments of working
capital borrowings under these credit facilities consists of the following
(in thousands):
1996 1995 1994
-------- -------- --------
Borrowings $728,900 $509,000 $213,535
Repayments (711,100) (494,500) (212,565)
-------- -------- --------
Net $ 17,800 $ 14,500 $ 970
======== ======== ========
(8)LONG-TERM DEBT
The Company's long-term debt consists of the following at
October 31 (in thousands):
1996 1995
-------- --------
Term loan from CGE $125,000 $125,000
Convertible Subordinated Debentures due May 15,
2015 115,000 115,000
Anjou Credit Facility 60,000 --
Bank Credit Facility -- 43,500
Note due July 1, 2007 at 8.5% 3,200 3,300
Real estate mortgage loans at 8.75% 2,420 2,670
Other 1,300 16
-------- --------
306,920 289,486
Less current installments of long-term debt (378) (366)
-------- --------
Long-term debt $306,542 $289,120
======== ========
The $125,000,000 term loan from CGE is an unsecured facility
bearing interest at a rate based upon one, two, three or six-month LIBOR, as
selected by AWT, plus 125 basis points (6.88% at October 31, 1996), as
defined, and has a final maturity of June 15, 2001. The term loan contains
certain financial and other restrictive covenants with respect to the Company
relating to, among other things, the maintenance of certain financial ratios,
and restrictions on 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. Interest expense related to this term loan was
$8,884,000, $9,142,000 and $2,887,000 during the years ended October 31, 1996,
1995 and 1994. The Company has obtained waivers relating to violations of
certain financial covenants under the CGE term loan, Bank Credit Facility and
the bonding agreement with "Reliance" (see Note 15) through November 1, 1997.
On June 14, 1994 the Company utilized a portion of the proceeds
from the $125,000,000 CGE term loan to retire its 11.18% Senior Notes with The
Prudential Insurance Company of America. The difference between the
redemption price of $107,500,000 in cash plus unamortized debt issuance costs
of $500,000 and the $100,000,000 carrying value of the debt has been recorded
as an extraordinary loss.
During 1990, the Company completed the public offering of
$115,000,000 of 8% Convertible Subordinated Debentures. Interest on the
debentures is payable semiannually. The debentures are redeemable in whole or
in part at the option of the Company at any time on or after May 15, 1993, at
a redemption price of 104.8% of the principal amount in 1994 reducing to 100%
of the principal amount in 2000, together with accrued interest to the
redemption date. The debentures require equal annual sinking fund payments
beginning May 15, 2000, which are calculated to retire 75% of the debentures
prior to maturity. The debentures are convertible into shares of Class A
Common Stock at a conversion price of $30.00 per share.
At October 31, 1996, the aggregate maturities of long-term debt
for each of the five succeeding fiscal years and thereafter are approximately
$.4 million, $1.7 million, $.4 million, $6.2 million, $131.3 million and
$166.9 million.
(9) COMMON AND PREFERRED STOCK
The Company has authorized 2,500,000 shares of Preferred Stock
which the Board of Directors may allocate to any class or series of preferred
stock and determine the relative rights and preferences for each class or
series designated.
As discussed in Note 2, the Company issued 1,200,000 shares of
its 5.5% Series A Convertible Exchangeable Preferred Stock for $60,000,000.
At the option of the Company, this Preferred Stock is exchangeable for the
Company's 5.5% Convertible Subordinated Notes with a maturity of 10 years from
the date of issuance of such notes at $50 per share. Such notes and Preferred
Stock are convertible at $12.50 per share into shares of Class A Common Stock,
subject to adjustments as defined.
Each holder of outstanding shares of Common Stock at the date
of the Company's initial public stock offering in August 1989 is subject to an
Amended and Restated Stockholder Agreement dated June 13, 1989 (the
"Stockholder Agreement"), by and among the Company and such stockholders.
This agreement grants certain demand registration rights to Institutional
Investors (as defined) and certain piggy-back registration rights to all
stockholders with respect to the Common Stock. Unless terminated earlier by
the written consent of at least 70% of the stockholders, the Stockholder
Agreement expires on July 13, 1997.
(10) STOCK OPTION AND PURCHASE PLANS
Under the Company's employee stock purchase plan (the "Stock
Purchase Plan"), officers and other key employees may be granted the right to
purchase up to 1,000,000 shares of the Company's Class A Common Stock. The
Compensation Committee of the Board of Directors determines the purchase price
of shares issuable under the Stock Purchase Plan. At October 31, 1996 and
1995, approximately 232,000 shares of Class A Common Stock were available for
grant under the Stock Purchase Plan.
The Company established a stock incentive plan (the "Plan") in
1996 under which stock options and awards may be granted to purchase shares of
Common Stock of the Company. The Plan authorizes the granting of stock
options and restricted stock awards for up to an aggregate of 1,000,000 shares
of Class A Common Stock of the Company plus shares remaining available for
award under the prior plan established in 1989. In addition, the Company
instituted a fresh start option program, under which employees could
relinquish their rights under outstanding options (at exercise prices ranging
from $11.75 to $29.43) and receive a new option at $8.00 per share as adjusted
using a Black-Scholes pricing model. Under this program, options to purchase
996,737 shares were forfeited and options to purchase 447,291 shares were
granted. The following is a summary of certain information pertaining to
options under the Plan, all of which were granted at the fair market value.
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Outstanding
Beginning of year 1,985,120 2,291,347 2,350,152
Granted 999,177 129,200 560,200
Exercised (1,250) -- --
Forfeited (1,271,716) (435,427) (619,005)
---------- ---------- ----------
Outstanding
End of year 1,711,331 1,985,120 2,291,347
At October 31
Exercisable 887,952 1,375,493 1,816,847
Options and restricted stock
available for grant 2,039,164 766,625 470,034
Option price range per share
Outstanding $ 4.25 to $ 4.31 to $ 7.38 to
$ 28.57 $ 31.43 $ 31.43
Exercised $ 6.00 $ -- $ --
In December 1991, the Company granted 78,070 restricted shares
to its employees in accordance with the terms of the Plan described above at
the then prevailing market price of the Company's Common Stock of $18.50. The
aggregate fair market value of the shares granted was recorded as unearned
compensation expense and amortized over the restricted period. The
unamortized unearned compensation value is shown as a reduction of
shareholders' equity and $534,000 was amortized to expense during the year
ended October 31, 1994.
(11) BENEFIT PLANS
The Company has various retiree benefit plans, the most
significant of which are as follows:
The Company maintains savings and retirement plans in which the
Company matches a fixed percentage of each employees contribution up to a
maximum of 4% of such employees compensation. One plan also provides for
annual discretionary Company contributions which are fixed by the Board of
Directors based on the performance of the applicable employee group for
certain eligible employees within the Metcalf & Eddy and Research-Cottrell
segments. The expense applicable to these plans were approximately $3,200,000,
$2,900,000 and $1,400,000 for the years ended October 31, 1996, 1995 and 1994.
The Company maintains defined benefit plans which cover certain
active and retired employees including, substantially all of its eligible
employees within the PSG operating segment. The pension costs related to these
plans were determined by actuarial valuations and assumptions (including
discount rates at 7.5%) and approximated $1,300,000, $1,000,000 and $300,000
for the years ended October 31, 1996, 1995 and 1994. The accrued pension
liabilities were approximately $3,700,000, $3,300,000 and $1,500,000 at
October 31, 1996, 1995 and 1994. During the year ended October 31, 1995, the
accrued pension cost related to the PSG defined benefit plan was increased by
$1,016,000 with a corresponding increase to goodwill due to the difference
between the accrued benefit obligation which was funded by Anjou and the
$2,276,000 projected benefit obligation.
In addition to the above plans, the Company makes contributions
to union sponsored plans in accordance with negotiated labor contracts.
Information on the actuarial present value of accumulated plan benefits and
net assets available for benefits related to these plans is not available.
Contributions to all such plans were approximately $1,000,000, $1,100,000 and
$1,600,000 for the years ended October 31, 1996, 1995 and 1994.
Certain employees within the Research Cottrell segment retiring
from the Company between the ages of 55 and 62 who have rendered the requisite
number of years of service (generally 25 years) are entitled to
post-retirement health care coverage. These benefits are subject to
deductibles, co-payment provisions and other limitations. The Company
reserves the right to change or terminate the benefits at any time. During
1994, the Company adopted the Financial Accounting Standards Board
pronouncement on accounting for post-retirement benefits. The Company is
amortizing the catch-up effect over participants' future service periods and
as a result the new prescribed accounting for post-retirement benefits has not
had a significant effect on the Company's reported consolidated financial
position and results of operations. The total cost of these post-retirement
benefits charged to the results of operations approximated $300,000 for each
of the three years in the period ended October 31, 1996.
(12) INVESTMENTS IN JOINT VENTURES
The Company, in the normal conduct of its subsidiaries'
business, has entered into certain partnership arrangements, referred to as
"joint ventures," for engineering and program management projects. A separate
joint venture is established with respect to each such project. The joint
venture arrangements generally commit each venturer to supply a predetermined
proportion of the engineering labor and capital, and provide each venturer a
predetermined proportion of income or loss. Each joint venture is terminated
upon the completion of the underlying project.
The Company's investment in joint ventures (included in other
assets) includes capital contributed to the joint ventures and the Company's
share of undistributed earnings and amounted to $5,050,000 and $2,260,000 at
October 31, 1996 and 1995. In addition, the Company had receivables from the
joint ventures totaling $3,848,000 and $2,540,000 at October 31, 1996 and
1995, related to current services provided by the Company to the joint
ventures. The Company's share of its joint venture income amounted to
$1,407,000, $3,167,000 and $2,452,000 during the years ended October 31, 1996,
1995 and 1994. The data presented above primarily represent Metcalf & Eddy's
investment in a 43%-owned joint venture with CRSS Inc., providing services to
the U.S. Air Force in Saudi Arabia, which is essentially completed.
(13) BUSINESS SEGMENTS
Professional Services Group provides complete services for the
operations, maintenance and management of treatment facilities in the various
water and wastewater, and sludge and biosolids waste management markets.
Sales are primarily to municipal government agencies, including sales under
its contract with the Puerto Rico Aqueduct and Sewer Authority representing
39% and 12% of total sales in 1996 and 1995.
Metcalf & Eddy provides a comprehensive range of water related
services, including treatment process design and on-site and off-site
remediation of environmental contamination. Sales to federal, state and
municipal governmental agencies approximated 80% of Metcalf & Eddy's sales for
each of the three years ended October 31, 1996.
Research-Cottrell services include the initial analysis of
air/thermal pollution problems, consultation, design and installation of the
appropriate treatment technologies including electrostatic precipitators,
fabric filters, chimneys, cooling towers, dry emission control systems,
continuous emission monitors and thermal oxidizers. Additionally, this
segment provides parts, repairs, service and maintenance for its and others
installed equipment base. Sales are primarily to electric utilities and
industrial entities within the petrochemical, pharmaceutical, pulp and paper
and steel industries.
The Company's other activities were primarily related to its
hazardous waste transfer station which was sold on October 27, 1995.
Sales to the federal government represented approximately 11%,
11% and 15% of consolidated sales in the years ended October 31, 1996, 1995
and 1994. Sales between segments are included within the segment recording
the sales transaction and eliminated for consolidation purposes. Unallocated
corporate expenses includes administrative costs not allocable to a specific
segment. Identifiable assets are those assets used by each segment in its
operation. Corporate assets primarily include cash, fixed assets, net assets
from discontinued operations and deferred debt issuance costs. Sales and
identifiable assets of foreign operations as of and for the years ended
October 31, 1996, 1995 and 1994 were less than 10% of the consolidated assets
and sales.
Information by business segment is as follows (in thousands):
</TABLE>
<TABLE>
<CAPTION>
Metcalf & Unallocated
PSG Eddy Research-Cottrell Other Corporate Eliminations Consolidated
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
For the year ended October 31,
1996:
Sales $270,640 $215,358 $219,008 $ -- $ -- $(3,907) $701,099
Costs and expenses 255,882 195,745 207,630 -- 8,000 (3,907) 663,350
Depreciation and amortization 7,335 6,223 6,032 -- 425 -- 20,015
- ---------------------------------------------------------------------------------------------------------------------------------
Operating income (loss) 7,423 13,390 5,346 -- (8,425) -- 17,734
=================================================================================================================================
Identifiable assets as of October
31, 1996 $157,566 $188,403 $172,556 $154 $19,591 $ -- $538,270
=================================================================================================================================
Depreciation $1,703 $3,083 $2,132 $ -- $406 $ -- $7,324
=================================================================================================================================
Capital expenditures $2,520 $3,604 $1,177 $ -- $157 $ -- $7,458
=================================================================================================================================
For the year ended October 31,
1995:
Sales $179,713 $216,852 $220,207 $6,133 -- $(4,037) $618,868
Costs and expenses 164,435 200,125 208,207 6,096 8,854 (4,037) 583,680
Depreciation and amortization 5,679 5,691 6,069 307 602 -- 18,348
- ---------------------------------------------------------------------------------------------------------------------------------
Operating income (loss) 9,599 11,036 5,931 (270) (9,456) -- 16,840
=================================================================================================================================
Identifiable assets as of October
31, 1995 $148,402 $181,590 $192,034 $3,037 $22,854 $ -- $547,917
=================================================================================================================================
Depreciation $1,660 $2,747 $1,806 $241 $584 $ -- $7,038
=================================================================================================================================
Capital expenditures $2,135 $2,818 $2,493 $ -- $449 $ -- $7,895
=================================================================================================================================
For the year ended October 31,
1994:
Sales $83,678 $219,106 $213,172 $6,617 $ -- $ -- $522,573
Costs and expenses 80,252 211,173 234,295 6,896 9,559 -- 542,175
Depreciation and amortization 2,061 5,780 7,733 526 1,602 -- 17,702
Unusual items 5,300 38,700 81,800 4,200 15,200 -- 145,200
- ---------------------------------------------------------------------------------------------------------------------------------
Operating income (loss) (3,935) (36,547) (110,656) (5,005) (26,361) -- (182,504)
Identifiable assets as of October
31, 1994 $133,885 $205,589 $217,460 $6,769 $39,235 $ -- $602,938
=================================================================================================================================
Depreciation $580 $2,188 $1,795 $526 $1,122 $ -- $6,211
=================================================================================================================================
Capital expenditures $1,095 $2,069 $1,026 $293 $1,040 $ -- $5,523
=================================================================================================================================
</TABLE>
(14)INCOME TAXES
At October 31, 1996, the Company has a net deferred tax asset
of $115,400,000 which has been fully reserved by a valuation allowance. The
deferred tax asset is comprised of the tax effects of net operating losses
($105,100,000), receivable reserves ($1,800,000), inventory reserves
($900,000), other assets ($2,400,000) and accruals not yet deductible
($11,800,000). A deferred tax liability of $6,600,000 is comprised of fixed
assets depreciation. At October 31, 1996, the Company had tax loss
carryforwards of approximately $300,000,000. Such carryforwards expire
through 2011.
Income (loss) from continuing operations before income taxes,
minority interest and extraordinary item for the years ended October 31 was
(in thousands):
1996 1995 1994
- ------------------------------------------------------------------
United States $ (4,289) $ (9,154) $ (206,191)
Foreign (1,397) 2,382 (3,996)
- ------------------------------------------------------------------
$ (5,686) $ (6,772) $ (210,187)
==========================================
Provision (benefit) for income taxes for the years ended
October 31 includes the following (in thousands):
1996 1995 1994
- --------------------------------------------------------------
US Federal:
Currently payable $ -- $ -- $ --
Deferred -- -- --
Foreign (662) 543 (274)
State 244 572 1,272
- --------------------------------------------------------------
$ (418) $ 1,115 $ 998
================================
The difference between the income tax provision (benefit)
computed by applying the statutory federal income tax rate to pretax income
(loss) and the actual tax provision (benefit) is as follows (in thousands):
1996 1995 1994
- -----------------------------------------------------------------------------
Statutory provision (benefit) $ (1,990) $ (2,370) $ (73,565)
State income taxes 159 372 827
Goodwill and other 3,768 2,882 2,708
Impact of net operating loss (2,182) 522 69,903
Impact of foreign operations (173) (291) 1,125
- -----------------------------------------------------------------------------
$ (418) $ 1,115 $ 998
======================================
(15)COMMITMENTS AND CONTINGENCIES
In connection with a broad investigation by the U.S. Department
of Justice into alleged illegal payments by various persons to members of the
Houston City Council, the Company's subsidiary, PSG, received a federal grand
jury subpoena on May 31, 1996 requesting documents regarding certain PSG
consultants and representatives that had been retained by PSG to assist it in
advising the City of Houston regarding the benefits that could result from the
privatization of Houston's water and wastewater system. PSG has cooperated and
continues to cooperate with the Justice Department which has informed the
Company that it is reviewing transactions among PSG and its consultants. The
Company promptly initiated its own independent investigation into these
matters and placed PSG's chief executive officer, Michael M. Stump, on
administrative leave of absence with pay. Mr. Stump, who has denied any
wrongdoing, resigned from PSG on December 4, 1996. In the course of its
ongoing investigation, the Company became aware of questionable financial
transactions with third parties and payments to certain PSG consultants and
other individuals, the nature of which requires further investigation. The
Company has brought these matters to the attention of the Department of
Justice and continues to cooperate fully with its investigation.
No charges of wrongdoing have been brought against PSG or any
PSG executive or employee by any grand jury or other government authority.
However, since the government's investigation is still underway and is
conducted largely in secret, no assurance can be given as to whether the
government authorities will ultimately determine to bring charges or assert
claims resulting from this investigation that could implicate or reflect
adversely upon or otherwise have a material adverse effect on the financial
position or results of operations of PSG or the Company taken as a whole.
The Company and its subsidiaries are parties to various other
legal actions arising in the normal course of their businesses, some of which
involve claims for substantial sums. The Company believes that the
disposition of such actions, individually or in the aggregate, will not have a
material adverse effect on the consolidated financial position or results of
operations of the Company taken as a whole.
The Company and its subsidiaries are obligated under various
leases for office and manufacturing facilities and certain machinery,
equipment and fixtures. Lease terms range from under one year to ten years.
Certain leases have renewal or escalation clauses or both. Certain equipment
leases have purchase options. During December 1996, the Company exercised a
cancellation clause for one of its leased facilities. This transaction
required an immediate cash payment of approximately $2.2 million and will be
reflected in the operating results during the three month period ended January
31, 1997. Total rent expense in the periods ended October 31, 1996, 1995 and
1994, was $26.5 million, $21.2 million and $21.2 million, respectively. At
October 31, 1996, minimum rental commitments under all noncancellable leases
for the five succeeding fiscal years, and thereafter, are $12.6 million, $10.0
million, $8.6 million, $6.8 million, $5.7 million and $17.8 million. These
minimal rental commitments are net of non-cancellable sub-leases of
approximately $1.0 million for each of the five succeeding fiscal years.
AWT currently maintains various types of insurance, including
workers' compensation, general and professional liability and property
coverages. AWT believes that it presently maintains adequate insurance
coverages for all of its present operational activities. It has been both an
AWT policy and a requirement of many of its clients that AWT maintain certain
types and limits of insurance coverage for the services and products it
offers, provided that such types and limits can be obtained on commercially
reasonable terms. In addition to existing coverages, AWT has been successful
in obtaining commercially reasonable coverage for certain pollution risks,
though coverage has been on a claims made rather than occurrence basis due to
the professional nature of some of AWT's exposures. Claims made policies
provide coverage to AWT only for claims reported during the policy period.
AWT's general liability and other insurance policies have historically
contained absolute pollution exclusions, brought about in large measure
because of the insurance industry's adverse claims experience with
environmental exposures. Accordingly, there can be no assurance that
environmental exposures that may be incurred by AWT and its subsidiaries will
continue to be covered by insurance, or that the limits currently provided or
that may be obtained in the future will be sufficient to cover such exposures.
A successful claim or claims in an amount in excess of AWT's insurance
coverage or for which there is no coverage could have a material adverse
effect on AWT.
In connection with the sale of two manufacturing facilities in
prior years, the Company remains contingently liable as guarantor under
$3,195,000 of Industrial Revenue Bond financing.
Until June 27, 1995, AWT and its subsidiaries obtained bid and
performance bonds pursuant to agreements with Reliance Insurance Company and
certain of its affiliates (collectively, "Reliance"). Subsequently, AWT and
its subsidiaries entered into an agreement with United States Fidelity and
Guaranty Company and certain of its affiliates (collectively, "USF&G")
pursuant to which USF&G also agreed to issue bid and performance bonds on
behalf of AWT and its subsidiaries.
On May 26, 1995, Metcalf & Eddy settled litigation with the
Puerto Rico Aqueduct and Sewer Authority (PRASA) that was initiated in
September 1990. Pursuant to the terms of the settlement, Metcalf & Eddy was
to receive aggregate payments of $17.5 million, plus interest. Metcalf & Eddy
received payment of $4.5 million on June 26, 1995, at which time a Stipulation
of Dismissal with Prejudice was filed with the United States District Court
for the District of Puerto Rico formally terminating the lawsuit. Metcalf &
Eddy also received two $6.5 million negotiable promissory notes bearing
interest at market rates and maturing in May 1998 and August 2000,
respectively. On September 1, 1995, Metcalf & Eddy sold the two notes and
received net proceeds of $12.8 million of cash, after applicable fees and
expenses.
On August 20, 1990, the Board of Directors of the Company made
a one-year, interest-free, unsecured loan of $2,300,000 to its then Chief
Executive Officer of the Company, so that he could satisfy certain personal
financial obligations without having to sell a substantial portion of his
equity investment in the Company. During 1991, the terms and conditions of
this loan were amended, among other things, to extend the term of the loan.
Interest has been imputed on the loan at approximately 8%. Subsequent to the
termination of such officer's employment with the Company as of June 14, 1994
as a result of the transactions contemplated by the Investment Agreement, the
Company and such officer entered into an agreement dated November 21, 1994
(the "Termination Agreement") relating to all aspects of their relationship
following such termination of employment (see Note 3).
(16) QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1996 and 1995 are as
follows (in thousands, except per share data):
<TABLE>
<CAPTION>
1996 By Quarter
First Second Third Fourth Year*
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $ 159,206 $ 167,491 $ 177,164 $ 197,238 $ 701,099
- -------------------------------------------------------------------------------------------------------------------------
Gross profit 30,782 33,991 34,114 34,454 133,341
- -------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (2,945) $ (1,305) $ (458) $ (560) $ (5,268)
=========================================================================================================================
Earnings (loss) per common share
after Preferred Stock Dividend:
- --------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (0.12) $ (0.07) $ (0.04) $ (0.04) $ (0.27)
==========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
1995 By Quarter
First Second Third Fourth Year*
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $ 148,451 $ 155,832 $ 146,174 $ 168,411 $ 618,868
- --------------------------------------------------------------------------------------------------------------------------
Gross profit 29,107 33,103 36,932 39,171 138,313
- --------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (7,393) $ (3,581) $ 105 $ 2,884 $ (7,985)
==========================================================================================================================
Earnings (loss) per common share
after Preferred Stock Dividend:
- --------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (0.26) $ (0.14) $ (0.02) $ 0.06 $ (0.35)
==========================================================================================================================
</TABLE>
*Earnings (loss) per share for the full year is not necessarily the sum of the
four quarters due to different average shares outstanding for each discrete
period.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
Not applicable.
Part III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF AWT; COMPLIANCE WITH SECTION
16(a) OF THE EXCHANGE ACT
Set forth below are the names, ages and principal occupations
of the directors and executive officers of AWT:
<TABLE>
<CAPTION>
Name Age Position
- --------------------------------- --- ----------------------------------------------------
<S> <C> <C>
Robert B. Sheh................... 57 Chairman of the Board of Directors, President and
Chief Executive Officer
Alain Brunais................... 48 Vice President, Chief Financial Officer and Director
Christian Mavet.................. 44 Vice President, Organization and Corporate
Development
Douglas A. Satzger............... 45 Senior Vice President, General Counsel and
Secretary
Robert S. Volland................ 55 Vice President and Chief Administrative Officer
Joseph R. Vidal.................. 49 Treasurer
Donald A. Deieso................. 47 President and Chief Executive Officer, Metcalf &
Eddy,Inc.
George C. Mammola................ 57 President and Chief Executive Officer, Research-Cottrell, Inc.
Patrick L. McMahon............... 48 President and Chief Executive Officer, Professional
Services Group, Inc.
Nicholas DeBenedictis............ 51 Director
Carol Lynn Green................. 50 Director
William Kriegel.................. 51 Director
John W. Morris................... 75 Director
</TABLE>
Mr. Sheh was elected Chairman of the Board, President and Chief
Executive Officer of AWT in November 1996. Prior to joining AWT, Mr. Sheh
served from 1992 to July 1996 as Chief Executive Officer and President of
International Technology Corporation, a publicly-traded engineering services
firm. From 1971-1992, Mr. Sheh served as a senior executive in various
capacities with The Parsons Corporation, a leading engineering and
construction firm, including as President of Ralph M. Parsons Company from
1989-1992. Mr. Sheh has been designated by CGE as Chief Executive Officer and
a director of AWT under the Investment Agreement.
Mr. Brunais was elected Vice President and Chief Financial
Officer of AWT in September 1994 and a director in November 1996. Prior to
joining AWT, Mr. Brunais was responsible since 1990 for foreign investment,
primarily in the United Kingdom under the direction of the Finance Director of
CGE. From 1983 to 1989 he was responsible for corporate development for
Ciments Francais in the U.S. and Canada. Prior thereto, Mr. Brunais organized
a sales and services network for Aerospatiale General Aviation line of aircraft
in Europe, Africa and North America. Mr. Brunais has been designated by CGE
as Chief Financial Officer and a director of AWT under the Investment
Agreement.
Mr. Mavet was elected Vice President, Organization and
Corporate Development in November 1994 with responsibility for overseeing the
restructuring and reorganization of AWT. In this capacity, he serves as
senior managerial liaison with CGE and coordinates and plans the exchanges
between both entities and sees that they are made through the right channels.
He serves as the secretary of the Municipal Committee, created to enhance the
synergies between CGE, Metcalf & Eddy and PSG. Prior to joining AWT, Mr.
Mavet served in management positions in the French government Ministry of
Finance where he was Commercial Counselor, responsible for promoting French
business in the northeast U.S. for the French Trade Office in New York.
Mr. Satzger joined AWT in June 1991 as Deputy General Counsel.
He was elected Senior Vice President, General Counsel and Secretary in July
1993. Prior to joining AWT, Mr. Satzger was a partner in the law firm
Richards & O'Neil, New York, New York, from April 1985 to June 1991.
Mr. Volland was elected Vice President and Chief Administrative
Officer of AWT in June 1994 with oversight responsibility for real estate,
facilities management, procurement, and insurance and management information
systems. Mr. Volland has over 25 years of experience in finance,
administration, asset management, cost control and organizational
efficiencies. From 1973 to 1986, Mr. Volland served as Vice President and
Treasurer for Commercial Credit Company. From 1986 to 1993 he served as Vice
President and Treasurer, and Vice President, Corporate Assets, for Primerica
Corp. Prior thereto, he was Senior Vice President of Real Estate for Paine
Webber.
Mr. Vidal was elected Treasurer of AWT in January 1995. Prior
to joining AWT, Mr. Vidal had broad experience in both international and
domestic treasury operations, most recently with American Cyanamid Company
from 1982 to 1995 and prior thereto with Bristol-Myers Squibb. Mr. Vidal has
also had experience as a controller and auditor and began his professional
career with the accounting firm of Arthur Andersen LLP.
Mr. Deieso has served as President and Chief Executive Officer
of Metcalf & Eddy, Inc. since October 1993. Prior to joining Metcalf & Eddy,
Inc., he served as President and Chief Executive Officer of Research-Cottrell
from 1989 to 1993. Previously, he served the New Jersey Department of
Environmental Protection as both Assistant Commissioner of Environmental
Management and Control and Director of the Division of Environmental Quality
from 1985 to 1989. Prior thereto, he served as Chief Chemical Engineer and
Manager of Environmental Engineering for Consolidated Edison Company of New
York. Prior thereto, he served as director of the U.S. EPA Region II
Superfund program.
Mr. Mammola has been the President and Chief Executive Officer
of Research-Cottrell since December 1994. From 1992 to 1994, he served in
various senior management positions for Research-Cottrell. From 1989 to 1992
he served as Executive Vice President and General Manager of REECO. Prior to
joining REECO, Mr. Mammola served as Executive Vice President of PPS Inc., an
industrial distributor of fluid and air handling systems. Prior to this, he
served in various positions for Interpace Corporation, a manufacturer and
provider of products and services domestically and internationally to the
water and wastewater and utility industries.
Mr. McMahon joined PSG in May 1995 as Senior Vice President and
Chief Operating Officer. He served as President and CEO on an interim basis
from August 1996 to December 1996, whereupon he was named President and CEO by
AWT. During the nine month period immediately prior to joining PSG, Mr.
McMahon served as Vice President of National Accounts at International
Technology Corporation. Before joining PSG, Mr. McMahon spent 23 years in a
number of management positions at Brown & Root, Inc., where his
responsibilities included strategic planning, international business
development and operations.
Mr. DeBenedictis was elected as a director of AWT on June 14,
1994. Mr. DeBenedictis has been Chairman of Philadelphia Suburban Corporation
("PSC") (the parent company of Philadelphia Suburban Water Company, one of
America's leading investor-owned water 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 subsidiary, 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 President 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 Development (1981 to 1983) for
the Commonwealth of Pennsylvania. He serves on the Board of Directors of the
PNC East Bank Advisory Board, the Provident National Life Insurance Company,
the P.H. Glatfelter Company, the Greater Philadelphia Chamber of Commerce, the
Philadelphia Convention and Visitors Bureau, the Pennsylvania Environmental
Council, and the Board of Drexel University.
Ms. Green was elected as a director of AWT on June 14, 1994.
Ms. Green is a Partner in the Washington, DC law office of Bryan Cave LLP
where she has practiced environmental law 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. At the
Justice Department, Ms. Green was liaison with the EPA on Clean Water Act
enforcement and worked with the EPA in developing the First Superfund
settlement policy and designing some of the early Superfund generator
settlements. She currently serves on the National Environmental Policy
Institute's panel to reinvent the EPA's enforcement and compliance programs.
Mr. Kriegel was elected as a director of AWT on June 14, 1994.
Mr. Kriegel is Chairman of the Board, President, Chief Executive Officer and
a Director of Sithe Energies, Inc. and all of its subsidiaries since 1981.
Prior to coming to the United States in 1984, Mr. Kriegel co-founded an
unaffiliated French energy company that within three years of its formation 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 historical properties in France.
Mr. Kriegel has been designated by CGE as a Director of AWT under the
Investment Agreement.
General John W. Morris became a director of AWT in June 1992.
From 1988 to October 1992, General Morris served as a director of Metcalf &
Eddy Companies Inc. General Morris has been President of JW Morris Ltd., an
engineering consulting firm, for more than five years. In addition, he
presently serves as President of the National Waterways Foundation, Chairman
of the Water Resources Congress and Chairman of the Environmental Effects
Committee of the U.S. Committee on Large Dams. From 1986 to 1987 he served
as President and Chairman of the Engineering Group of Planning Research
Corporations. General Morris served as the Chief of Engineers, U.S. Army
Corps of Engineers, from 1976 to 1980.
* * * *
Directors are elected annually and executive officers hold
office for such terms as may be determined by the Board of Directors. The
Board of Directors of AWT has an Executive Committee, an Audit Committee and a
Compensation and Stock Option Committee.
DIRECTORS' COMPENSATION
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 $7,500 per annum for service on each Committee
thereof. In addition, directors are reimbursed for out-of-pocket expenses of
attending Board and Committee meetings.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Based solely upon a review of Forms 3 and 4 and amendments
thereto furnished to AWT under Rule 16a-3(d) of the Exchange Act during the
fiscal year ended October 31, 1996 and Form 5 and amendments thereto furnished
to AWT with respect to the fiscal year ended October 31, 1996, the Company has
not identified any persons as having filed a late report under Section 16(a)
of the Securities Exchange Act of 1934.
ITEM 11. EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY COMPENSATION TABLE
The following table shows, for the fiscal years ended October
31, 1996, 1995 and 1994, the cash compensation paid by AWT, as well as certain
other compensation paid or accrued for those years, to each of the five most
highly compensated executive officers of AWT in all capacities in which they
served.
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards
------------------------ -----------------------------
Restricted Securities All Other
Stock Underlying Compensation
Name and Principal Position Year Salary ($) Bonus ($) Award(s) ($) Options (#) ($)
- ------------------------------ ---- ---------- --------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Claudio Elia 1996 157,606 300,000 0 60,000(1) 0
Chairman of the Board and
Chief
Executive Officer
1995 275,000 300,000 0 0 1,500(2)
1994 99,429(3) 0 2,500(4) 100,000(5) 0
Alain Houdaille (6) 1996 106,121 195,000 0 0 45,840 (7)
President and
Chief Executive Officer
Alain Brunais 1996 207,450 75,000 0 18,000(1) 77,000(8)
Vice President, Chief Financial
Officer and Director
1995 203,674 85,000 0 0 74,000(9)
1994 39,168 17,000 0 50,000(10) 40,000(11)
Donald A. Deieso 1996 213,896 85,000 0 46,500(1) 35,250(12)
President and Chief Executive
Officer, Metcalf & Eddy, Inc.
1995 210,000 170,000 0 0 23,500(13))
1994 195,023 0 0 0 0
George C. Mammola 1996 213,996 55,000 0 35,500(1) 15,750(14)
President and Chief Executive
Officer, Research-Cottrell, Inc.
1995 210,000 110,000 0 0 8,868(15)
1994 184,080 0 0 0 693(16)
Michael M. Stump 1996 234,060 0 0 20,000(1) 22,579(17)
President and Chief Executive
Officer, Professional Services
Group
1995 220,000 180,000 0 0 13,600(18)
1994 65,824(19) 110,000 0 40,000(5) 0
Patrick L. McMahon 1996 170,019 75,000 0 12,000(1) 2,200(20)
President and Chief Executive
Officer, Professional Services
Group
1995 66,003(21) 60,000 0 10,000(22) 1,100(23)
<FN>
- ------------
(1) Mr. Elia was granted 60,000 options exercisable at $6.563 per share
pursuant to AWT's Long Term Incentive Plan. Mr. Brunais was granted 18,000
options exercisable at $6.563 per share pursuant to AWT's Long Term Incentive
Plan. Mr. Deieso was granted 20,129 options exercisable at $6.563 per share
pursuant to AWT's Long Term Incentive Plan and 26,371 options exercisable at
$8.00 per share pursuant to AWT's "Fresh Start" program. Mr. Mammola was
granted 20,157 options exercisable at $6.563 per share pursuant to AWT's Long
Term Incentive Plan and 15,343 options exercisable at $8.00 per share pursuant
to AWT's "Fresh Start" program. Mr. Stump was granted 20,000 options
exercisable at $6.563 per share pursuant to AWT's Long Term Incentive Plan.
Mr. McMahon was granted 12,000 options at $6.563 per share pursuant to AWT's
Long Term Incentive Plan.
(2) "All Other Compensation" for Mr. Elia for fiscal year 1995 consists of
$1,500 contributed to AWT's Savings and Retirement Plan on behalf of Mr. Elia.
(3) Represents amounts paid to Mr. Elia during fiscal year 1994 since joining
AWT on June 14, 1994. Mr. Elia was paid a base salary of $275,000.
(4) As of October 31, 1995, Mr. Elia held 2,500 shares of restricted Class A
Common Stock, vesting over a four-year period, with an aggregate value of
$12,500. 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.
(5) In August 1994, Mr. Elia was granted options to purchase 100,000 shares of
Class A Common Stock and Mr. Stump was granted options to purchase 40,000
shares of Class A Common Stock. The options vest over four years, 25% of the
options vesting on each anniversary of the issuance date.
(6) Mr. Houdaille served as President and Chief Executive Officer
of the Company from May 1996 to November 1996.
(7) "All Other Compensation" for Mr. Houdaille for fiscal year 1996 consists
of $45,840 of housing expenses paid on behalf of Mr. Houidaille.
(8) "All Other Compensation" for Mr. Brunais for fiscal year 1996 consists of
approximately $71,000 paid as a housing allowance or behalf of Mr. Brunais
and approximately $6,000 paid as an automobile allowance
(9) "All other compensation" for Mr. Brunais for fiscal year 1995 consists
of approximately $71,000 paid as a housing allowance on behalf of Mr.
Brunais and approximately $3,000 paid as an automobile allowance.
(10) Mr. Brunais was granted 50,000 options exercisable at $8.00 per share
pursuant to AWT's Long Term Incentive Plan.
(11) "All other compensation" for Mr. Brunais for fiscal year 1994 consists
of $40,000 paid as a housing allowance on behalf of Mr. Brunais.
(12) "All Other Compensation" for Mr. Deieso for fiscal year 1996 consists of
approximately $12,000 paid as an automobile allowance, $3,750 contributed to
AWT's Savings and Retirement Plan on behalf of Mr. Deieso, and $19,500
credited to AWT's Supplemental Pension Plan on behalf of Mr. Deieso.
(13) "All Other Compensation" for Mr. Deieso for fiscal year 1995 consists of
$3,750 contributed to AWT's Savings and Retirement Plan on behalf of Mr.
Deieso, $12,750 credited to AWT's Supplemental Pension Plan on behalf of Mr.
Deieso, and $7,000 paid to Mr. Deieso as an automobile allowance.
(14) "All Other Compensation" for Mr. Mammola for fiscal year 1996 consists of
approximately $12,000 paid as an automobile allowance and $3,750 contributed
to AWT's Savings and Retirement Plan on behalf of Mr. Mammola.
(15) "All Other Compensation" for Mr. Mammola for fiscal year 1995 consists of
$4,055 contributed to AWT's Savings and Retirement Plan on behalf of Mr.
Mammola and $4,813 paid to Mr. Mammola as an automobile allowance.
(16) "All Other Compensation" for Mr. Mammola for fiscal year 1994 consists of
$693 contributed to AWT's Savings and Retirement Plan on behalf of Mr.
Mammola.
(17) "All Other Compensation" for Mr. Stump for fiscal year 1996 consists of
$9,065 paid to PSG's Pension Plan on behalf of Mr. Stump, $9,100 of life
insurance paid on behalf of Mr. Stump, $4,164 paid as an automobile allowance,
and $250 of country club subscriptions paid on behalf of Mr. Stump.
(18) "All Other Compensation" for Mr. Stump for fiscal year 1995 consists of
$3,000 contributed to Mr. Stump's 401(k) plan as a matching contribution,
$6,000 contributed to PSG's Pension Plan on behalf of Mr. Stump, $4,236 paid
to Mr. Stump as an automobile allowance, $232 of country club subscriptions
paid on behalf of Mr. Stump, and $132 of other compensation paid to or on
behalf of Mr. Stump.
(19) Represents amounts paid to Mr. Stump during fiscal year 1994 since
joining the Company on June 14, 1994. Mr. Stump was paid a base salary of
$177,171 per annum for fiscal year 1994.
(20) "All Other Compensation" for Mr. McMahon during fiscal year 1996
consists of approximately $2,200 resulting from an automobile leased for
Mr. McMahon by PSG.
(21) Represents amounts paid to Mr. McMahon during fiscal year 1995 since
joining PSG in May 1995. Mr. McMahon was paid a base salary of $170,000.
(22) Mr. McMahon was granted 10,000 options exercisable at $5.75 per share in
June 1995.
(23) "All Other Compensation" for Mr. McMahon during fiscal year 1995
consists of approximately $1,100 resulting from an automobile leased for
Mr. McMahon by PSG.
</TABLE>
EMPLOYMENT CONTRACTS
On December 4, 1996, Mr. Stump resigned as President and Chief
Executive Officer of PSG. PSG and Mr. Stump have entered into an agreement
dated December 16, 1996 (the "Separation Agreement") relating to their
relationship following the termination of his employment, which supersedes all
rights and obligations (other than obligations imposed upon Mr. Stump
pertaining to confidentiality, non-compete, and intellectual property)
outstanding pursuant to the Employment Agreement with Mr. Stump. Under the
terms of the Separation Agreement: (a) Mr. Stump agreed not to compete with
PSG and Metcalf & Eddy during the period beginning on December 4, 1996 and
ending on December 31, 1997; (b) Mr. Stump released the Company, all of its
affiliated entities (including PSG, Metcalf & Eddy, and Research-Cottrell),
and others (collectively the "Releasees") from any and all claims which he has
or had against each or any of the Releasees regarding all events that have
occurred through and including December 16, 1996; (c) PSG agreed to pay Mr.
Stump $269,175.20 prior to January 4, 1997; (d) PSG agreed to pay $9,381.25 to
Mr. Stump's lawyers; (e) all stock options held by Mr. Stump at the time of
the termination of his employment were canceled; (f) PSG agreed to forgive a
loan to Mr. Stump in the amount of $90,375.19 (including accrued interest) and
an advance of $20,000.00; (g) Mr. Stump agreed to cooperate fully with the
Company and PSG with respect to any civil litigation, civil investigation, or
civil governmental proceeding now pending or hereafter instituted; and (h) Mr.
Stump agreed to indemnify and hold each and all of the Releasees harmless from
and against any and all claims arising out of any breach of the Separation
Agreement by Mr. Stump.
On November 7, 1996 the Company entered into an employment
agreement (the "Employment Agreement") with Robert B. Sheh, pursuant to which
Mr. Sheh serves as Chief Executive Officer and President of the Company. The
Employment Agreement provides for an annual base salary of $400,000, with such
increases as determined by the Board of Directors of the Company from time to
time in its sole discretion. In addition, the Employment Agreement provides
that Mr. Sheh will be eligible to receive a supplemental bonus of up to 60% of
Mr. Sheh's base salary in each fiscal year, which bonus shall be determined by
the Board of Directors of the Company in its sole discretion. Mr. Sheh was
awarded 50,000 fully vested options upon commencement of employment, with
50,000 options to be awarded each year at the beginning of the second, third,
fourth and fifth fiscal year (if Mr. Sheh is still employed by the Company
under the terms of the Employment Agreement). If Mr. Sheh's employment is
terminated by the Company for cause, the Company shall pay to Mr. Sheh only
his base salary through the date of termination. If Mr. Sheh's employment
shall terminate upon death or Disability (as defined), the Company shall pay
Mr. Sheh his Contract Payments (as defined) for a period of twelve months. If
the Company terminates Mr. Sheh's employment without cause, the Company shall
pay Mr. Sheh the Contract Payments for a period of two years. If Mr. Sheh
terminates his employment with the Company for any reason (other than a Change
of Control, as defined), Mr. Sheh shall receive only his base salary through
the date of termination. If Mr. Sheh's employment is terminated by a Change
of Control, Mr. Sheh shall receive the Contract Payments for a period of two
years.
Options
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 constituted a "change-in-control" for purposes of such
plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
On and prior to August 12, 1996, the Compensation and Stock
Option Committee (the "Compensation Committee") of the Board of Directors
consisted of Messrs. Deschamps, Senior, Morris and Ms. Green. Mr. Senior
resigned from the Board of Directors of AWT on August 12, 1996. Mr. Deschamps
resigned from the Board of Directors of AWT on January 21, 1997. Since
January 21, 1997, the Compensation Committee consists of Mr. Morris and Ms.
Green. Mr. Deschamps is Adjunct Director General of CGE. Mr. Senior is a
Managing Director of Allen & Company, which has performed investment banking
and other services for the Company from time to time including serving as
financial advisor to the Company in connection with the transactions
contemplated by the Investment Agreement. Ms. Green is a partner at the law
firm of Bryan Cave LLP, which has performed various legal services for the
Company from time to time.
SUPPLEMENTAL PENSION PLAN
The following table shows the estimated annual benefits payable
upon retirement to participants in AWT's Supplemental Pension Plan.
Estimated Annual Retirement Benefits
Years of Service
Bonus
Remuneration 15 20 25 30 35
- ------------- ------ ------ ------ ------- -------
$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
At the present time, Donald A. Deieso, who is named in the
Summary Compensation Table, is the only participant 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. Mr. Deieso, who is named
in the Summary Compensation Table, has been credited with 7 years of service.
The benefit amounts set forth in the Table above are not subject to reduction
for social security benefits or for other offsets.
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, 1996.
No options were exercised during fiscal 1996 by any of the named executive
officers.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at FY-End In-the-Money Options at FY-End(1)
Exercisable Unexercisable Exercisable Unexercisable
Name (#) (#) (#) (#)
- --------------------------- ------------ -------------- ----------- -------------
<S> <C> <C> <C> <C>
Claudio Elia(3) 83,000 77,000 0(2) 0(2)
Alain Brunais(4) 34,900 33,100 0(2) 0(2)
Donald A. Deieso(5) 24,256 22,244 0(2) 0(2)
George C. Mammola(6) 18,758 16,742 0(2) 0(2)
Michael M. Stump(7) 31,000 29,000 0(2) 0(2)
Patrick L. McMahon(8) 9,100 12,900 0(2) 0(2)
</TABLE>
- ------------
(1) The value of unexercised in-the-money options at fiscal year end assumes a
fair market value for the Class A Common Stock of $6.375, the closing sale
price per share of the Class A Common as reported on the American Stock
Exchange Composite Tape for October 31, 1996.
(2) The exercisable and unexercisable options held by Messrs. Elia, Brunais,
Deieso, Mammola, Stump and McMahon were not in-the-money as of October 31,
1996.
(3) The exercise price of the options held by Mr. Elia is (i) $6.563 per share
in the case of his option to purchase 60,000 shares granted in March 1996 or
(ii) $8.00 pershare in the case of his option to purchase 100,000 shares
granted in August 1994.
(4) The exercise price of the options held by Mr. Brunais is (i) $6.563 per
share in the case of his option to purchase 18,000 shares granted in March
1996 or (ii) $8.00 per share in the case of his option to purchase 50,000
shares granted in August 1994.
(5) The exercise price of the options held by Mr. Deieso is (i) $6.563 per
share in the case of his option to purchase 20,129 shares granted in March
1996 or (ii) $8.00 per share in the case of his option to purchase 26,371
shares granted in January 1996.
(6) The exercise price of the options held by Mr. Mammola is (i) $6.563 per
share in the case of his option to purchase 20,157 shares granted in March
1996 or (ii) $8.00 per share in the case of his option to purchase 15,343
shares granted in January 1996.
(7) The exercise price of the options held by Mr. Stump is (i) $6.563 per
share in the case of his option to purchase 20,000 shares granted in March
1996 or (ii) $8.00 per share in the case of his option to purchase 40,000
shares granted in August 1994.
(8) The exercise price of the options held by Mr. McMahon is (i) $6.563 per
share in the case of his option to purchase 12,000 shares granted in March
1996 or (ii) $5.75 per share in the case of his option to purchase 10,000
shares granted in August 1994.
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEE OF THE BOARD OF DIRECTORS
Decisions on compensation of the Company's executives generally
are made by the four-member Compensation and Stock Option Committee of the
Board of Directors (the "Compensation Committee" or "Committee"). Prior to
August 12, 1996, the Compensation and Stock Option Committee (the "Compensation
Committee") of the Board of Directors consisted of Messrs. Deschamps, Senior,
Morris and Ms. Green. Mr. Senior resigned from the Board of Directors of AWT
on August 12, 1996. Mr. Deschamps resigned from the Board of Directors of AWT
on January 21, 1997. Since January 21, 1997, the Compensation Committee
consists of Mr. Morris and Ms. Green. The Compensation Committee, as
constituted prior to August 12, 1996, among other things, approved (i) Mr.
Elia's salary and bonus for fiscal 1996 and (ii) approved the salary and
bonuses of Messrs. Brunais, Deieso, Mammola and Stump.
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.
Historically, the Company has sought to combine salaries with stock option
awards, restricted stock awards and, when appropriate, 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. Under this structure,
long-term incentives are based upon the value of the Company's Class A Common
Stock in order to more closely align executives' interests with those of
shareholders. 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.
Beginning with fiscal 1995, the Company, with the guidance and
approval of the Compensation Committee, developed and implemented a revised,
variable management incentive compensation strategy that is designed to
recognize both short-term and longer term performance, attract and retain the
high quality executive and management talent that is necessary to continue the
Company's positive trends and to remain competitive. In developing this
incentive compensation strategy, which is comprised of an Annual Management
Bonus Plan and a Long Term Incentive Plan, emphasis was placed on improving
shareholder value. The strategy was developed based upon the recommendations
of a leading executive compensation consulting firm.
The Annual Management Bonus Plan is designed to reward business
unit management teams for achieving or exceeding their specific fiscal year
operating objectives and has relatively broad management participation.
Annual management bonus potential for AWT's executives is determined based
upon the overall consolidated results of the Company. A portion of the annual
bonus is discretionary and is awarded based upon the quality of the individual
participant's performance.
A small number of the most senior executives are also
participants in the Long Term Incentive Plan. This Plan, which has a portion
of its potential value directly linked to AWT stock price performance, is
based upon the Company achieving its longer term objectives. The Long Term
Incentive Plan features a series of overlapping three-year performance
periods, commencing with 1995 through 1997. The first potential payment to
eligible executives under the terms of the Long Term Incentive Plan will not
be made until after 1997.
Discussion of 1996 Compensation for the Chairman and Executive Officer
Mr. Elia died in April of 1996 while serving as Chairman of the
Board of Directors and Chief Executive Officer of the Company. The
Compensation Committee, in determining Mr. Elia's 1996 bonus, carefully
reviewed Mr. Elia's service to the Company.
In November 1996, the Company elected Robert B. Sheh as
Chairman of the Board of Directors, President and Chief Executive Officer.
The employment agreement with Mr. Sheh was approved by the Compensation
Committee.
COMPENSATION AND STOCK OPTION COMMITTEE
John W. Morris
Carol Lynn Green
[The remainder of this page left blank intentionally.]
STOCK PERFORMANCE GRAPH
AIR & WATER TECHNOLOGIES CORPORATION
Notwithstanding anything to the contrary set forth in any of
the Company's previous filings under the Securities Act of 1993, as amended,
or the Securities Exchange Act of 1934, as amended, that might incorporate
future filings, including this Report on Form 10-K, 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
Oct. 91 Oct. 92 Oct. 93 Oct. 94 Oct. 95 Oct. 96
- ----------------------------------------------------------------------
AWT 100 60 65 33 23 28
S&P 100 110 126 132 166 206
Fidelity 100 96 103 95 112 131
The above chart shows a comparison of the cumulative total
return for the period from November 1, 1991 through October 31, 1996, 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 above is not necessarily indicative of
future performance.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a)The following table sets forth information as of December
31, 1996 (unless otherwise noted in the notes following the table), as to the
beneficial ownership of AWT's capital stock by (i) each person owning
beneficially more than five percent of the outstanding shares of its Class A
Common Stock, (ii) each director of AWT and (iii) all officers and directors
of AWT as a group. The persons named in the table have sole voting and
dispositive power with respect to all shares of Class A Common Stock unless
otherwise noted in the notes following the table.
<TABLE>
<CAPTION>
Number of
Shares of Percent of
Class A Class A
Common Common
Name of Person or Group Stock Stock
- ------------------------------ ------------------ -----------
<S> <C> <C>
Nicholas DeBenedictis 0 *
Carol L. Green 0 *
William Kriegel 0 *
John W. Morris 3,079 *
Robert B. Sheh 50,000 (1) *
Alain Brunais 36,900 (2) *
Donald A. Deieso 24,758 (3) *
George C. Mammola 18,759 (4) *
Michael M. Stump 11,000 (5) *
Patrick L. McMahon 7,000 (6) *
Compagnie Generale des Eaux 18,408,975 (7) 49.9
52 Rue d'Anjou
75384 Paris Cedex 08
France
State of Wisconsin Investment Board 3,107,775 9.7
P.O. Box 7842
Madison, Wisconsin 53207
The Capital Group, Inc. 2,536,700 7.9
333 South Hope Street
Los Angeles, California 90071
Qualivest 2,704,706 8.45
111 S.W. Fifth St. 1500
Portland, Oregon 97204
All directors and officers as a group (14 persons) 18,625,035(8) 50.7
<FN>
- -----------
*Less than 1% ownership
(1) Represents 50,000 shares which may be acquired within 60 days of the date
of the table.
(2) Includes 34,900 shares which may be acquired within 60 days of the date of
the table.
(3) Includes 24,258 shares which may be acquired within 60 days of the date of
the table.
(4) Represents 18,759 shares which may be acquired within 60 days of the date
of the table.
(5) Includes 10,000 shares which may be acquired within 60 days of the date of
the table.
(6) Represents 7,000 shares which may be acquired within 60 days of the date
of the table.
(7) Includes 4,800,000 shares of Class A Common Stock underlying the 1,200,000
shares of the Preferred Stock beneficially owned by CGE. CGE owns all of the
outstanding shares of the Preferred Stock.
(8) Includes 205,081 shares which may be acquired within 60 days of the date
of the table.
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On June 14, 1994, the stockholders of AWT approved the issuance
of Company securities pursuant to an Investment Agreement dated as of March
30, 1994 (the "Investment Agreement"), among AWT, CGE, and Anjou pursuant to
which, among other things, AWT (i) issued 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) issued
to Anjou an aggregate of 6,701,500 shares of Class A Common Stock in
connection with the acquisition from Anjou of PSG and PSG Canada. As a
result, CGE increased its ownership interest in AWT to approximately 48% of
the total voting power of the Company's voting securities. In addition, AWT
benefitted from certain financial undertakings from CGE, including a
$125,000,000 loan from CGE and became CGE's exclusive vehicle in the United
States, its possessions and its territories for CGE's water and wastewater
management and air pollution activities. CGE also has representation on AWT's
Board of Directors and the right to designate AWT's Chief Executive Officer
and Chief Financial Officer all as further described below. In August 1996,
the Company entered into a seven year, $60 million unsecured revolving credit
facility with Anjou.
CERTAIN COVENANTS OF THE COMPANY
Representation on the Board of Directors; Management
Under the terms of the Investment Agreement, 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. "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 must be satisfactory to CGE.
AWT has also agreed in the Investment Agreement that CGE shall
have the right to designate the Chief Executive Officer and the Chief
Financial Officer of the Company.
At the Annual Meeting held on April 29, 1996, shareholders of
the Company elected four directors who were designated by CGE (Messrs.
Deschamps, Houdaille, Messier and Kriegel). Also in accordance with the terms
of the Investment Agreement, the Board of Directors appointed as designees of
CGE Mr. Alain Houdaille as Chief Executive Officer and Mr. Alain Brunais as
Chief Financial Officer.
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
all registration expenses on behalf of CGE and Anjou, including certain
related fees and expenses, other than underwriting fees and discounts.
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.
CERTAIN COVENANTS OF CGE
Exclusivity
CGE has agreed in the Investment Agreement 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 also agreed to assist the Company in developing its water and
waste water management and air pollution activities in both Canada and Mexico,
subject to certain limitations, and CGE and the Company agreed to establish a
privileged commercial relationship for the development of air pollution
activities in Europe.
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 must be approved by a majority of the
Independent Directors or a special committee thereof. The Company, CGE and
Anjou have further agreed that all claims by the Company against CGE or its
Affiliates under the Investment Agreement may be taken only by majority
approval of such Independent Directors on Special Committee.
Sales of Shares
CGE has also agreed to give the Company one day's prior written
notice of any sale of Company securities by CGE 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.
Letter Agreement
Pursuant to a letter agreement dated March 18, 1994 between the
Company and CGE, CGE purchased 500,000 shares of the Company's Class A Common
Stock at $10 a share for a total purchase price of $5,000,000. CGE also
agreed in the letter agreement that, subject to approval by CGE, CGE would
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, which CGE acknowledged could reach or exceed the level of
letters of credit carried by the Company at March 18, 1994.
ISSUANCE OF SERIES A PREFERRED STOCK
General
Pursuant to the terms of the Investment Agreement, AWT issued
to CGE, 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 at the option of the Company 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 are 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 fully
quarterly period 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 cumulate
without interest until declared and paid by the Board of Directors. Holders
of the Series A Preferred Stock 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.
The Company paid approximately $3,300,000 to CGE as dividends on the Series A
Preferred Stock during fiscal 1996.
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 will 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 Company with or
into another person, will 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.
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
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 is 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 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 with respect to dividend rights
and rights on liquidation, winding up and dissolution, ranks 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 and the Class A Common Stock held
by CGE are each a "restricted security" 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, are subject to the timing, volume and other limitations of
Rule 144. Under the Investment Agreement, CGE has certain registration rights
with respect to such shares. See "-Certain Covenants of the
Company-Registration Rights" above.
CGE CREDIT AGREEMENT
In connection with the Investment Agreement, the Company and
CGE entered into a Credit Agreement dated as of June 14, 1994 pursuant to
which the Company received a $125,000,000 term loan from CGE. The term loan
is an unsecured facility bearing interest at a rate based upon one, two, three
or six-month LIBOR, as selected by AWT, plus 125 basis points and has a final
maturity of June 15, 2001. The term loan contains certain financial and other
restrictive covenants with respect to the Company relating to, among other
things, the maintenance of certain financial ratios, and restrictions on 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.
On June 14, 1994, the Company utilized a substantial portion of the proceeds
from the term loan to retire its 11.18% Senior Notes with The Prudential
Insurance Company of America. The Company paid approximately $8.5 million to
CGE as interest on the term loan during fiscal 1996.
In August 1996, the Company entered into a $60 million
unsecured revolving credit facility with Anjou ("Anjou Credit Facility"). The
facility matures in August 2003. The borrowings under the facility bear
interest at LIBOR plus .6% (6% at October 31, 1996). In conjunction with this
new financing the Company reduced its more expensive $130 million Senior
Secured Credit Facility ("Bank Credit Facility") to $50 million. As of
October 31, 1996, the Company's outstanding borrowings under the Anjou Credit
Facility totaled $60 million. The Company paid $584,246.90 to Anjou as
interest on this loan during fiscal 1996.
OTHER RELATED TRANSACTIONS
Mr. Senior, a Director of the Company from October 1987 to
August 1996, is a Managing Director of Allen & Company, which has performed
investment banking and other services for the Company from time to time.
Allen & Company served as a financial advisor to the Company in connection
with the transactions contemplated by the Investment Agreement. Pursuant to
this work, the Company agreed to pay certain fees to Allen & Company,
including a final payment of $2.5 million in fiscal 1996. Ms. Green, a
Director of the Company since June 1994, is a partner at the law firm of Bryan
Cave. Bryan Cave has performed various legal services for the Company from
time to time.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORT ON FORM 8-K
a(1). Financial Statements and Supplementary Data.
See, "Index to Financial Statements" included in Part II, Item 8 of
this Annual Report on Form 10-K.
a(2). Financial Statement Schedule.
See, "Index to Financial Statements" included in Part II, Item 8 of
this Annual Report on Form 10-K.
a(3). Exhibits:
<TABLE>
<CAPTION>
Exhibit No. Description Location
- -------------- ------------------------------------------------------- --------
<S> <C> <C>
3.01 Restated Certificate of Incorporation of the Registrant (1)
dated July 10, 1987
3.01(a) Certificate of Amendment to Certificate of Incorporation (2)
of the Registrant dated October 27, 1987
3.01(b) Certificate of Amendment to Certificate of Incorporation (2)
of the Registrant filed June 21, 1989
3.01(c) Certificate of Amendment to Restated Certificate of (2)
Incorporation of the Registrant filed July 5, 1989
3.01(d) Certificate of Designation of 5 1/2% Series A Convertible (11)
Exchangeable Preferred Stock filed June 14, 1994
3.02 By-Laws of the Registrant, as amended (1)
10.01 Form of Supplemental Pension Agreement of
Research-Cottrell (1)(Ex.10.20)
10.02 1988 Long-Term Incentive Compensation Plan of (10)
Metcalf & Eddy, effective as of September 30, 1988, as
amended September 7, 1989 and March 19, 1990
10.02(a) 1989 Long-Term Compensation Plan of the Registrant, (2)
effective as of July 31, 1989
10.03 Research-Cottrell Environmental Engineering Profit (3)(Ex.10.27)
Sharing Plan, as amended
10.04 Research-Cottrell Thrift Plan (3)(Ex.10.29)
10.05 Senior Guaranteed Credit Agreement, dated as of (7)
March 10, 1995, by and among the Registrant, the
Persons listed on Annex B thereto as Borrowers and
Guarantors, the Banks listed on the signature pages
thereof, the First National Bank of Chicago as
Arranging Agents, the First National Bank of Chicago
as Administrative Agent, and Societe Generale, New
York Branch, as Collateral Agent and Issuing Bank
10.06 Agreement, dated March 13, 1989, between Research-Cottrell (4)(Ex.10.31)
and certain of its air subsidiaries and Reliance
Insurance Company, United Pacific Insurance and Planet
Insurance Company of Federal Way Washington
10.07 Agreement, dated March 13, 1989, between Research-Cottrell (4)(Ex.10.31(A))
and certain of its water subsidiaries and
Reliance Insurance Company, United Pacific Insurance
and Planet Insurance Company of Federal Way
Washington
10.08 Letter Agreement dated March 18, 1994 between the (11)
Registrant and Compagnie Generale des Eaux
10.09 Investment Agreement, dated as of March 30, 1994, (10)
among the Registrant, Compagnie Generale des Eaux
and Anjou International Company
10.10 Credit Agreement, dated as of June 14, 1994, between (11)
the Registrant and Compagnie Generale des Eaux
10.11 Amended and Restated Subordination Agreement dated (12)
as of March 10, 1995, as amended and restated as of
November 1995, among Compagnie Generale des Eaux,
the Registrant, the First National Bank of Chicago and
United States Fidelity and Insurance Company, Fidelity
and Guaranty Insurance Company and Fidelity and
Guaranty Insurance Underwriters, Inc. and any affiliate
of the foregoing
10.12 Employment Agreement dated as of October 15, 1995 (12)
between Michael M. Stump and Professional Services
Group, Inc.
10.13 Master Surety Agreement made October 31, 1995 by the (12)
Registrant, Research-Cottrell, Inc., Metcalf & Eddy,
Inc., and Professional Services Group, Inc., for the
continuing benefit of United States Fidelity and
Guaranty Company, Fidelity and Guaranty Insurance
Underwriters, Inc. and Fidelity and Guaranty Insurance
Company and USF&G Insurance Company of
Mississippi.
10.14 Revolving Credit Agreement dated as of August 2, 1996 Filed herewith
between the Registrant and Anjou International
Company
10.15 Employment Agreement dated as of November 7, 1996 Filed herewith
between Robert B. Sheh and the Registrant
10.16 Separation Agreement dated as of December 16, 1996 Filed herewith
between Michael M. Stump and Professional Services
Group, Inc.
11 Statement Re computation of per share earnings Filed herewith
21 List of Subsidiaries of the Registrant Filed herewith
23 Consent of Independent Public Accountants Filed herewith
27 Financial Data Schedule Filed herewith
<FN>
- -------------
(1) Incorporated by reference to the similarly numbered exhibit (unless
otherwise indicated) to the Registrant's Registration Statement on Form S-1
(No. 33-17833), as amended, which became effective on April 12, 1988.
(2) Incorporated by reference to the similarly numbered exhibit (unless
otherwise indicated) to the Registrant's Registration Statement on Form S-1
(No. 33-29568), as amended, which became effective on August 10, 1989.
(3) Incorporated by reference to the similarly numbered exhibit (unless
otherwise indicated) to Metcalf & Eddy's Registration Statement on Form S-1
(No. 33-24315), as amended, which became effective on October 18, 1988.
(4) Incorporated by reference to the similarly numbered exhibit (unless
otherwise indicated) to Metcalf & Eddy's Registration Statement on Form S-1
(No. 33-28846), as amended, which became effective on June 29, 1989.
(5) Incorporated by reference to the similarly numbered exhibit (unless
otherwise indicated) to the Registrant's Registration Statement on Form S-1
(No. 33-33088), as amended, which became effective on May 15, 1990.
(6) Incorporated by reference to the similarly numbered exhibit (unless
otherwise indicated) to the Registrant's Registration Statement on Form S-1
(No. 33-35421), as amended, which became effective on July 5, 1990.
(7) Incorporated by reference to Exhibit 1 to the Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended April 30, 1995, as filed
with the Securities and Exchange Commission on June 14, 1995.
(8) Incorporated by reference to the similarly numbered exhibit (unless
otherwise indicated) to the Registrant's Annual Report on Form 10-K for the
fiscal year ended October 31, 1992, as filed with the Securities and
Exchange Commission on January 29, 1993.
(9) Incorporated by reference to the similarly numbered exhibit (unless
otherwise indicated) to the Registrant's Annual Report on Form 10-K for the
fiscal year ended October 31, 1993, as filed with the Securities and
Exchange Commission on January 31, 1994.
(10) Incorporated by reference to Annex I to the Registrant's Proxy Statement
on Schedule 14A dated May 24, 1994, in connection with its Annual
Meeting of Stockholders held on June 14, 1994.
(11) Incorporated by reference to the similarly numbered exhibit (unless
otherwise indicated) to the Registrant's Annual Report on Form 10-K for
the fiscal year ended October 21, 1994, as filed with the Securities and
Exchange Commission on January 30, 1995.
(12) Incorporated by reference to the similarly numbered exhibit (unless
otherwise indicated) to the Registrant's Annual Report on Form 10-K for
the fiscal year ended October 31, 1995, as filed with the Securities and
Exchange Commission on January 3, 1996.
</TABLE>
(b) Reports on Form 8-K.
Not Applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Air & Water Technologies Corporation has duly
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
AIR & WATER TECHNOLOGIES
CORPORATION
Dated: January 29, 1997 By: /s/ Robert B. Sheh
-------------------------------------------
Robert B. Sheh
Chairman of the Board of Directors,
President and Chief Executive
Officer(Principal Executive Officer)
Dated: January 29, 1997 By: /s/ Alain Brunais
-------------------------------------------
Alain Brunais
Vice President, Chief Financial Officer
and Director (Principal Accounting
Officer) (Principal Financial Officer)
Dated: January 29, 1997 By: /s/ Nicholas DeBenedictis
-------------------------------------------
Nicholas DeBenedictis
Director
Dated: January 29, 1997 By: /s/ William Kriegel
-------------------------------------------
William Kriegel
Director
Dated: January 29, 1997 By: /s/ Carol Lynn Green
-------------------------------------------
Carol Lynn Green
Director
Dated: January 29, 1997 By: /s/ John. W. Morris
-------------------------------------------
John W. Morris
Director
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description Page
- ------------------- ---------------------------------------------------- ---------------
<S> <C> <C>
10.14 Revolving Credit Agreement dated as of August 2, Filed herewith
1996 between the Registrant and Anjou International
Company
10.15 Employment Agreement dated as of November 7, 1996 Filed herewith
between Robert B. Sheh and the Registrant
10.16 Separation Agreement dated as of December 16, 1996 Filed herewith
between Michael M. Stump and Professional Services
Group, Inc.
11 Statement Re computation of per share earnings Filed herewith
21 List of Subsidiaries of the Registrant Filed herewith
23 Consents of Independent Public Accountants Filed herewith
27 Financial Data Schedule Filed herewith
</TABLE>
Exhibit 10.14
REVOLVING CREDIT AGREEMENT
REVOLVING CREDIT AGREEMENT dated as of August 2, 1996 between AIR &
WATER TECHNOLOGIES CORPORATION, a corporation organized under the laws of
Delaware, together with any of its subsidiaries (collectively, the
"Borrower"), and ANJOU INTERNATIONAL COMPANY, a corporation organized under
the laws of Delaware (together with its successors and assigns, the "Lender").
R E C I T A L
The Borrower has requested the Lender to extend credit to the Borrower
from time to time in an aggregate principal amount not exceeding $60,000,000
for general corporate purposes, and the Lender is willing to make such credit
available to the Borrower, upon the terms and subject to the conditions set
forth in this Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNT TERMS
Section 1.01 - Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"Agreement" means this Revolving Credit Agreement, as amended,
supplemented or otherwise modified from time to time.
"Bankruptcy Code" means Title 11 of the United States Code entitled
"Bankruptcy", as amended from time to time.
"Business Day" means a day of the year other than a Saturday or Sunday
on which banks in New York City are not required or authorized by law to close.
"CGE" means Compagnie Generale des Eaux, a corporation organized under
the laws of the Republic of France.
"Closing Date" means the date upon which the conditions precedent to
the Initial Loans herewith set forth in Section 5.01 have been satisfied.
"Commitment" shall have the meaning attributed to it in Section 2.01
of this Agreement.
"Dollar" and the sign $ shall mean lawful money of the United States
of America.
"Event of Default" has the meaning set forth in Section 8.01.
"Federal Funds Rate" means the rate for overnight Federal Funds, as
published by the Federal Reserve Bank of New York.
"Final Maturity Date" shall be August 2, 2003.
"GAAP" means generally accepted accounting principles in the United
States of America, consistently applied.
"Governmental Approvals" means any authorization consent, order,
approval license, lease, ruling, permit, tariff, rate, certification,
validation, exemption, filing or registration by or with, or notice to, any
Governmental authority.
"Governmental Authority" means any federal, state, municipal or other
governmental department, commission, boards, bureau, agency, court, tribunal
or other instrumentality, domestic or foreign, and any arbitrator.
"Indebtedness" 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 as lessee
which are capitalized in accordance with generally accepted accounting
principles, (v) all non-contingent obligations of such Person to reimburse any
bank or other Person in respect of amounts paid under a letter of credit or
similar instrument, (vi) all Indebtedness secured by a Lien on any asset of
such Person, whether or not such Indebtedness is otherwise an obligation of
such Person, and (vii) all Indebtedness of others Guaranteed by such Person.
"Interest Period" means with respect to any Loan a period of either
one, two, three, six or nine months, as the Borrower may elect, and if the
Borrower fails to make an election, a period of three months; provided,
however, that (i) any Interest Period which would otherwise end on a day which
is not a Business Day shall be extended to the next succeeding business Day
unless such succeeding Business Day falls in another calendar month, in which
case such Interest Period shall end on the next preceding Business Day, (ii)
any Interest Period which would otherwise end on a day for which there is no
numerically corresponding day in the relevant calendar month shall end on the
last day of such calendar month and (iii) any Interest Period which would
otherwise end after the Final Maturity Date shall end on the Final Maturity
Date.
"Interest Rate" applicable to any Interest Period, means the interbank
offered rate quoted by the Reference Bank to prime banks in the London
interbank Eurodollar market for deposits in Eurodollars in immediately
available funds at 11:00 a.m. (London time) two Business Days before the first
day of such Interest Period in an amount equal to the amount of the Loan to
which such Interest Period is to apply and for a period of time comparable to
such Interest Period.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kid, or any other type of
preferential arrangement that has the practical effect of creating a security
interest in respect of such asset. For the purposes of this Agreement, the
Borrower 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, capital, lease or other title retention
agreement relating to such asset.
"Loan" means each borrowing under this Agreement (collectively, the
"Loans").
"Loan Documents" means this Agreement, the Note and all other
agreements, instruments, certificates and documents executed and delivered
pursuant to or in connection therewith.
"Material Adverse Change" means, with respect to any Person, a
material adverse change in the consolidated business operations, assets,
liabilities, condition (financial or otherwise) or prospects, of such Person,
taken as a whole.
"Note" has the meaning specified in Section 2.04(a).
"Person" means an individual, partnership, corporation (including a
business trust), limited liability company, joint stock company, trust,
unincorporated association, joint venture or other entity, or a government or
any political subdivision or agency thereof.
"Prime Rate" means the rate of interest announced by the Reference
Bank from time to time as its Prime Rate. The Prime Rate is a reference rate
and does not necessarily represent the lowest or best rate actually charged by
the Reference Bank to any customer. The Reference Bank may make commercial or
other loans at rates of interest at, above or below the Prime Rate. In the
event that for any reason the Federal Funds Rate is greater than the Prime
Rate for any day, then the Prime Rate for such day shall be equal to the
Federal Funds Rate for such day plus one and one-half percent (1-1/2%).
"Reference Bank" means the New York Branch of Societe Generale.
"Subsidiary" of any Person means a corporation or other entity of
which a majority of the outstanding shares of stock of each class having
ordinary voting power is owned by such Person, by one or more Subsidiaries of
such Person, or by such Person and one or more of its Subsidiaries.
SECTION 1.02 - Computation of Time Periods. In this Agreement in the
computation of periods of time from a specified date to a later specified
date, the word "from" means "from and including" and words "to" and "until"
each means "to but excluding".
SECTION 1.03 - Accounting Terms. All accounting terms not
specifically defined here shall be construed in accordance with GAAP
consistent with those applied in the preparation of the financial statements
referred to in Sections 5.01 and 7.02.
ARTICLE II
COMMITMENT; AMOUNT AND TERMS OF THE LOANS
SECTION 2.01 - Commitment The Lender agrees on the terms of this
Agreement, to make Loans to the Borrower during the period from and
including the Closing Date to and including the Final Maturity Date in an
aggregate principal amount up to but not exceeding Sixty Million Dollars
($60,000,000) at any one time outstanding (the "Commitment"). Subject to
the terms of this Agreement, prior to the Final Maturity Date, the Borrower
may borrow, repay and reborrow the amount of the Commitment.
SECTION 2.02 - Procedure for Loans. The Borrower shall give the Lender
notice in writing or by telephone to be confirmed promptly thereafter in
writing, no later than 11:00 a.m. (New York City time) three Business Days
prior to the day of a proposed Loan specifying (i) the Borrower; (ii) the
requested date of such Loan; (iii) the Interest Period for the Loan; and (iv)
the amount of such Loan. Subject to the terms and conditions of this
Agreement, the amount of any Loan shall be made available to the Borrower by
wiring the same to any account of the Borrower maintained at such bank in the
United States as specified in the relevant notice of borrowing.
SECTION 2.03 - Change in Commitment.
(a) The amount of the Commitment shall be automatically reduced to
zero at the close of business on the Final Maturity Date.
(b) The Borrower shall have the right at any time or from time to time
upon at least three Business Days prior written notice to the Lender (i) so
long as no Loans are outstanding, to terminate the Commitment and (ii) to
reduce the aggregate unused amount of the Commitment.
(c) The Commitment shall terminate on the Final Maturity Date unless
sooner terminated by the Lender by giving 13 months written notice to the
Borrower, or by the Borrower giving 60 days written notice to the Lender.
SECTION 2.04 - Note.
(a) The Loans made by the Lender to the Borrower shall be evidenced by
a single promissory note of the Borrower substantially in the form of Exhibit
A hereto (as the same may be amended, supplemented or modified from time to
time, the "Note"), dated the date hereof, payable to the Lender in United
States dollars in a principal amount equal to the amount of the Commitment as
originally in effect and otherwise duly completed.
(b) The date, amount, interest rate and duration of each Interest
Period (if applicable) of each Loan made by the Lender to the Borrower and
each payment made on account of the principal thereof, shall be recorded by
the Lender on its books and prior to any transfer of the Note, endorsed by the
Lender on the schedule attached to the Note or any continuation thereof,
provided that the failure of the Lender to make any such recordation or
endorsement shall not affect the obligations of the Borrower to make a payment
when due of any amount owing under the Note.
SECTION 2.05 - Repayment of Loans. The Borrower hereby promises to
pay to the Lender the principal of, and any accrued and unpaid interest on,
the Loans outstanding at the close of business on the Final Maturity Date in
United States dollars.
SECTION 2.06 - Optional Prepayments and Failure to Borrow. The
Borrower shall have the right to prepay the unpaid principal and accrued
interest of any outstanding Loan on the last day of an Interest Period for
such Loan, provided that the Borrower shall give the Lender at least three
Business Days prior written notice of such prepayment. In the event that the
Borrower makes any repayment or prepayment in respect of any Loan other than
on the last day of an Interest Period relative to the amount being so repaid
or prepaid.or the Borrower fails to borrow after a notice of borrowing has
been given pursuant to Section 2.02 hereof, the Borrower shall forthwith on
demand from the Lender pay to the Lender such additional amount as shall be
necessary to compensate the Lender for any loss or expense reasonably
sustained or incurred by reason of the liquidation or reemployment of deposits
or other funds accrued or to be acquired by the Lender in order to fund such
Loan then being repaid or prepaid.
ARTICLE III
INTEREST AND OVERDUE INTEREST
SECTION 3.01 - Interest. The Borrower hereby promises to pay to the
Lender interest on the unpaid principal amount of each Loan made by the Lender
for the period from and including the date of such Loan to and excluding the
date such Loan shall be paid in full for each Interest Period relating thereto
at a rate per annum equal to the Interest Rate applicable thereto, plus sixth
tenths of one percent (0.6%). Interest shall be payable on the last day of
each Interest Period; provided that if any Interest Period exceeds three
months, interest shall be payable at the end of each three-month period during
such Interest Period and on the last day of such Interest Period.
SECTION 3.02 - Overdue Interest. Any amount of principal (whether at
stated maturity, by acceleration or otherwise) and interest which is not paid
when due shall bear interest, from the date on which such amount is due until
such amount is paid in full, payable on demand, at a rate per annum equal at
all times to one and one-half percent (1.5%) per annum above the Prime Rate.
ARTICLE IV
METHOD OF PAYMENT AND COMPUTATIONS
SECTION 4.02 - Method of Payments and Computations.
(a) The Borrower shall make each payment hereunder and under the Note
not later than 11:00 a.m. (New York City time) on the day when due to the
Lender in United States dollars in immediately available funds without
set-off, deduction or counterclaim.
(b) All computations of interest and of overdue interest shall be made
by the Lender on the basis of a year of 365 days, for the actual number of
days (including the first day but excluding the last day) elapsed in the
period for which such interest is payable. Each determination by the Lender
of an interest rate hereunder shall be conclusive and binding for all
purposes, absent manifest error.
(c) Whenever any payment hereunder or under the Note shall be stated
to be due on a day other than a Business Day, such payment shall be made on
the next succeeding Business Day, and interest for such Interest Period shall
be payable to and excluding such next succeeding Business Day; provided that
if such extension would cause payment of interest or principal of the Loan to
be made in the next following calendar month, such payment shall be made on
the next preceding Business Day.
ARTICLE V
CONDITIONS OF LENDING
SECTION 5.01 - Condition Precedent to the Initial Loan. The
Obligation of the Lender to make the initial Loan hereunder is subject to the
satisfaction of the following conditions precedent:
(a) Loan Documents. The Lender shall have received the Loan Documents
in form and substance satisfactory to the Lender, duly executed by the parties
thereto.
(b) Proceedings. The Lender shall have received a copy of the
resolutions of the Board of Directors of the Borrower approving the Loan
Documents to be executed by it and of all documents evidencing other necessary
corporate action, if any, with respect to the Loan Documents to be executed by
it, certified by the Secretary or similar officer of the Borrower and in form
and substance satisfactory to the Lender.
(c) Officers' Certificates. The Lender shall have received a
certificate of the Secretary or similar officer of the Borrower certifying the
names and true signatures of the officers of the Borrower authorized to sign
the Loan Documents and the other documents to be delivered by the Borrower
hereunder and to give notice of borrowings hereunder.
(d) Officers' Certificate. The Lender shall have received a
certificate from one of either the Chief Financial Officer, the General
Counsel or the Treasurer of the Borrower certifying that (i) the conditions
set forth in subsections (a) and (b) of Section 5.02 of this Agreement are
satisfied on the Closing Date and that no Material Adverse Change has occurred
in the Borrower's condition (financial or otherwise) after October 31, 1995,
except as set forth in the Borrower's Quarterly Report on Form 10-Q for the
quarters ended January 31, 1996 and April 30, 1996, in each case as filed with
the Securities and Exchange Commission and (ii) that the proceeds of such
Loans have been or are to be used by the Borrower for the purpose specified in
the recital of this Agreement.
(e) Other Documents. The Lender shall have received all such other
statements, certificates, documents and other information with respect to the
matters contemplated by this Agreement and the other Loan Documents as the
Lender reasonably may request.
SECTION 5.02 - Conditions Precedent to all Loans. The Obligation of
the Lender to make all Loans shall be subject to the satisfaction of the
following conditions precedent on the date of the making of each such Loan,
both before and after giving effect thereto and to the application of the
proceeds therefrom:
(a) Accuracy of Representations and Warranties. The representations
and warranties contained in Article VI of this Agreement and in each other
Loan Document are true and correct on and as of the date of the Loan as though
made on and as of such date.
(b) No Default. No event has occurred and is continuing, or would
result for the making of the Loan or the applications of the proceeds thereof,
which constitutes a Default.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lender as follows:
SECTION 6.01 - Existence; Compliance with Law. The Borrower (i) is a
corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation, (ii) has the power and authority to
own its property and assets and to transact the business in which it is
engaged, (iii) has duly qualified and is authorized to do business and is in
good standing as a foreign corporation in every jurisdiction in which the
failure to so qualify could result in a Material Adverse Change with respect
to the Borrower or affects the ability of the Borrower to perform its
obligations under any Loan Document, and (iv) is in full compliance with its
Certificate of Incorporation (or equivalent document) and By-Laws, all
contractual obligations and all laws, except to the extent that the failure to
comply therewith would not result in a Material Adverse Change with respect to
the Borrower or affects the ability of the Borrower to perform its obligations
under any Loan Document.
SECTION 6.02 - Power; Authority; No Violation. The execution,
delivery and performance by the Borrower of the Loan Documents and the
consummation of the transactions contemplated hereby or thereby are within the
Borrower's corporate powers, have been duly authorized by all necessary
corporate action and will not contravene (i) the Certificate of Incorporation
(or equivalent document) and By-Laws of the Borrower or (ii) any law,
regulation, judgment, injunction, order, decree, or other instrument or any
contractual obligation binding on or affecting the Borrower, and do not and
will not conflict with or be inconsistent with or result in any breach of any
of the terms, covenants, conditions or provisions of, or constitute a default
under, or result in the creation or imposition of (or the obligation to create
or impose) any Lien upon any of the property or assets of the Borrower, except
for any conflict, misunderstanding, breach, default or other consequence which
would not result in a Material Adverse Change with respect to the Borrower.
SECTION 6.03 - Binding Effect. The Borrower has duly executed and
delivered each Loan Document. Each Loan Document constitutes the legal, valid
and binding obligation of the Borrower thereto, enforceable against the
Borrower in accordance with its terms.
ARTICLE VII
COVENANTS
SECTION 7.01 - Certain Affirmative Covenants. So long as the
Commitment hereunder is outstanding or the Note shall remain unpaid, the
Borrower will:
(a) Corporate Existence, Etc. Preserve and maintain, and cause each
of its material Subsidiaries to preserve and maintain, its corporate
existence, and consents, franchises and obtain and maintain in full force and
effect all Government Approvals that are required at any time in connection
with the conduct of its business and the performance of this Agreement or the
Note;
(b) Compliance with Laws. Comply, and cause each of its Subsidiaries
to comply, in all material respects, with all applicable laws, except such
non-compliance as could not, individually and in the aggregate, result in a
Material Adverse Change with respect to the Borrower or affect the ability of
the Borrower to perform its obligations under any Loan Document;
(c) Payment of Taxes and Claims, Etc. Pay, and cause each of its
Subsidiaries to pay when due and payable, all tax assessments and governmental
charges imposed upon it or upon its property unless, in each case, the
validity or amount thereof is being contested in good faith by appropriate
proceedings and the Borrower has maintained adequate reserves with respect
thereto;
(d) Keeping of Books. Keep, and cause each of its Subsidiaries to
keep, proper books of record and account containing complete and accurate
entries of all financial and business transactions of the Borrower and each
Subsidiary;
(e) Insurance. Maintain or cause to be maintained with financially
sound and reputable insurers, insurance with respect to its properties and
business, and the properties and business of its Subsidiaries, against loss
or damage to the kinds customarily insured against by reputable companies
in the same or similar businesses, such insurance to be of such types and
in such amounts (with such deductible amounts) as is customary for such
companies under similar circumstances;
(f) Pari-Passu Status. Ensure that all of the Borrower's obligations
under this Agreement and the Note rank at least pari-passu in right of payment
and security with all of the Borrower's other unsecured obligations for
borrowed money.
SECTION 7.02 - Reporting Covenants. So long as, the Commitment
hereunder remains outstanding or the Note shall remain unpaid, the Borrower
will furnish to the Lender:
(a) Annual Financial Statements. As soon as available and in any
event within ninety (90) days after the end of each fiscal year of the
Borrower, a consolidated balance sheet of the Borrower and its Subsidiaries as
at the end of such year and the related statements of income and retained
earnings and of cash flows of the Borrower and its Subsidiaries for such
fiscal year, setting forth in each case in comparative form the figures for
the previous fiscal year, all in reasonable detail and accompanied by a report
thereon of independent public accountants reasonably acceptable to the Lender,
which report shall be unqualified as to scope of audit and shall state that
such financial statements present fairly the financial condition as at the end
of such fiscal year, and the results of operations and of cash flows for such
fiscal year, of the Borrower and its Subsidiaries in accordance with GAAP;
(b) Quarterly Financial Statements. As soon as available and in any
event within sixty (60) days after the end of each of the first three fiscal
quarters of each fiscal year of the Borrower, a consolidated balance sheet of
the Borrower and its Subsidiaries as at the end of such quarter and the
related statements of income, retained earnings, financial position and cash
flows of the Borrower and its Subsidiaries for such fiscal quarter, setting
forth in each case in comparative form the figures of the previous fiscal
year, all in reasonable detail and in accordance with GAAP (subject to normal,
year-end audit adjustments); (each submission of the financial information
required by subsections (a) and (b) of this Section 7.02 shall constitute a
representation and warranty by the Borrower as of the date of such submission
of financial information, that such financial information is complete and
correct and fairly presents the financial condition of the Borrower and its
Subsidiaries as of the date thereof and as at the end of the fiscal period
reported on therein);
(c) Notice of Event of Default. Promptly and in any event within two
Business Days after the occurrence of an Event of Default, a certificate of
the chief financial officer of the Borrower specifying the nature thereof and
the Borrower's proposed response thereto;
(d) Litigation. Promptly after (i) the occurrence thereof, notice of
the institution of or any material adverse development in any action, suit or
proceeding or any governmental investigation or any arbitration, before any
Governmental Authority against the Borrower, any Subsidiary thereof or any
material property of any thereof, in each case which involves uninsured
claimed damages in excess of $1,000,000 or (ii) actual knowledge thereof,
notice of the threat of any such action, suit, proceeding, investigation or
arbitration; and
(e) Other Information. With reasonable promptness, such other
information about the Borrower or its subsidiaries as the Lender may
reasonably request from time to time.
ARTICLE VIII
TAXES
SECTION 8.01 - Taxes
(a) Under current law, the Borrower is not required to deduct or
withhold any taxes from payments required hereunder or under the Note. If the
Borrower shall be required by law to deduct any taxes from or in respect of
any sum payable hereunder or under the Note to the Lender (other than income
or franchise taxes imposed on Lender by the jurisdiction under the laws of
which the Lender is organized or resident), (i) the sum payable shall be
increased as may be necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this
Section), the Lender receives an amount equal to the sum it would have
received had no such deductions been made, (ii) the Borrower shall make such
deductions and (iii) the Borrower shall pay the full amount deducted to the
relevant taxation authority or other authority in accordance with applicable
law.
(b) If the Borrower fails to withhold, the Borrower will indemnify the
Lender for the full amount of such withholding taxes paid by the Lender in
lieu thereof and any liability (including penalties, interest and expenses)
arising therefrom or with respect thereto.
(c) If Lender realizes a tax benefit or credit as a result of the
withholding or indemnification payment it shall pay to Borrower amount equal
to the net after tax value of the tax benefit or tax credit.
(d) Within 60 days after the date of any payment of such taxes or, in
the case of any taxes referred to in clause (a) of this Section, when such
receipt is available, the Borrower will furnish to the Lender, at its Address
For Notices the original or a certified copy of a receipt evidencing payment
thereof.
(e) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained
in this Section shall survive the payment in full of principal and interest
and other amounts due hereunder and under the Note.
ARTICLE IX
EVENTS OF DEFAULT
SECTION 9.01 - Events. The following specified events shall
constitute events of default (each an "Event of Default") under this
Agreement:
(a) Payments of Principal. The Borrower shall fail to pay when due
(including, without limitation, by mandatory prepayment) any principal of the
Note; or
(b) Payments of Interest. The Borrower shall fail to pay when due
(including, without limitation, by mandatory prepayment) any interest on the
Note or any other amount due under this Agreement (other than principal
payments) within the later of (i) five (5) days after the date when due or
(ii) three (3) days after notice by the Lender to the Borrower of the
occurrence thereof; or
(c) Covenants. The Borrower shall fail to observe or perform any
other material covenant or agreement contained in any Loan Document, and, if
capable of being remedied, such failure shall remain unremedied for thirty
(30) days after written notice thereof shall have been given to the Borrower
by the Lender; or
(d) Representations. Any representation, warranty or statement made
or deemed to be made by the Borrower under or in connection with any Loan
Document shall have been incorrect in any material respect when made or deemed
to be made; or
(e) Non-Payments of Other Indebtedness. The Borrower shall fail to
make any payment of principal of or premium or interest on any of its
outstanding Indebtedness in excess of $2,500,000 aggregate principal amount
(other than under the Note or any Indebtedness under this Agreement) when due
(whether at stated maturity, by acceleration, by required prepayment, on
demand or otherwise) after giving effect to any applicable grace period,
unless such obligation is being contested in good faith pursuant to
appropriate proceedings; or
(f) Defaults Under Other Agreements. The Borrower shall fail to
observe or perform any covenant or agreement contained in any agreement or
instrument relating to any of its Indebtedness in excess of $5,000,000
aggregate principal amount (other than under the Note or any indebtedness
under this Agreement) after giving effect to any applicable grace period, or
any other event shall occur if the effect of such failure or other event is to
accelerate, or to permit the holder of such Indebtedness or any other Person
acting on such holders behalf to accelerate (with notice and/or upon the lapse
of time), the maturity of such Indebtedness; or any such indebtedness shall be
required to be prepaid (other than by a regularly scheduled required
prepayment) in whole or in part prior to its stated maturity unless such
default is being contested in good faith pursuant to appropriate proceedings;
or
(g) Bankruptcy.
(i) The Borrower or any Subsidiary 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, liquidator, custodian or other similar official of it or
any substantial part of its property, or 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 shall make a
general assignment for the benefit of creditors, or shall fail generally to
pay its debts as they become due, or shall take any corporate action to
authorize any of the foregoing; or
(ii) An involuntary case or other proceeding shall be commenced
against the Borrower or any Subsidiary 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, 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 60 days; or
an order for relief shall be entered against the Borrower or any Subsidiary
under the federal bankruptcy laws as now or hereafter in effect; or
(h) Dissolution. Any order, judgment or decree shall be entered
against the Borrower or any Material Subsidiary decreeing its involuntary
dissolution or split up and such order shall remain undischarged and unstayed
for a period in excess of thirty (30) days; or the Borrower or any Subsidiary
shall, except as permitted by this Agreement, otherwise dissolve or cease to
exist; or
(i) Ownership. If CGE shall cease to be the largest shareholder of
the Borrower or shall cease to own or control at least 40% of the voting power
of the shares of the Borrower's outstanding common stock at any time.
SECTION 9.02 - Remedies. Upon the occurrence of any Event of Default
and at any time thereafter, if such Event of Default shall then be continuing,
the Lender may by notice to the Borrower, take any or all of the following
actions: (i) declare the Commitment terminated, whereupon the Commitment
shall terminate immediately; or (ii) declare the principal of and any accrued
interest on the Loans, and all other obligations owing hereunder, to be,
whereupon the same shall become, forthwith due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrower; provided, that, if any Event of Default
specified in Section 9.01 (f) shall occur, the result which would occur upon
the giving of Notice by the Lender to the Borrower, as specified in clauses
(i) and (ii) above, shall occur automatically without the giving of any such
notice.
ARTICLE X
MISCELLANEOUS
SECTION 10.01 - Amendments, Etc. No amendment or waiver of any
provision of this Agreement or any other Loan Document, or consent to any
departure by the Borrower therefrom, shall in any event be effective unless
the same shall be in writing and signed by the Lender, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
SECTION 10.02 - Notices, Etc. All notices, demands or other
communications pursuant thereto shall be in writing. All notices shall be
sent by certified mail (return receipt requested) or by telex or telecopy
(each of which shall constitute a writing). All notices shall be deemed to
have been given or made when received at, in the case of notice by mail, or
when sent to, in the case of notice by telex or telecopy, the respective
address of the addressee set forth on the signature pages hereof, as they may
be changed from time to time by notice by one party to the other parties.
SECTION 10.03 - No Waiver; Remedies Cumulative. No failure on the
part of the Lender to exercise, and no delay in exercising, any right
hereunder or under the Note shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
SECTION 10.04 - Costs, Expenses. Borrower and Lender agree to use
their best efforts to keep the costs and expenses (including, without
limitation, counsel fees, disbursements and expenses) in connection with the
preparation of this Agreement as reasonable as possible, it being the
intention of both parties to minimize the costs associated with the
transactions contemplated hereunder. The Borrower agrees to pay on demand all
reasonable costs and expenses (including, without limitation, reasonable
counsel fees, disbursements and expenses), in connection with (i) the
preparation of this Agreement and the other Loan Documents but in no event an
amount in excess of $1,000, (ii) any waiver or consent hereunder or thereunder
or any amendment hereof or thereof or any Event of Default or alleged Event of
Default based upon an amount to be negotiated by Lender and Borrower in good
faith, and (iii) the enforcement (whether through negotiations, legal or
bankruptcy proceedings or otherwise) of this Agreement, and the other Loan
Documents to be delivered hereunder.
SECTION 10.05 - Right of Set Off. Upon the occurrence and during the
continuance of any Event of Default, the Lender is hereby authorized at any
time and from time to time, to the fullest extent permitted by law, to set off
and apply any and all deposits (general or special, time or demand, provision
or final) at any time held and other indebtedness at any time owing to the
Lender to or for the credit or the account of the Borrower against any and all
of the obligations of the Borrower now or hereafter existing under this
Agreement or such other Loan Documents, irrespective of whether or not the
Lender shall have made any demand under this Agreement or such other Loan
Documents, and although such obligations may be unmatured. The Lender agrees
promptly to notify the Borrower after any such set-off and application made
by the Lender, provided that the failure to give such notice shall not affect
the validity of such set-off and application. The rights of the Lender under
this Section are in addition to other rights and remedies (including without
limitation, other rights of set-off) which the Lender may have.
SECTION 10.06 - Binding Effect. This Agreement shall become effective
when it shall have been executed and delivered by the Borrower and the Lender
and thereafter shall be binding upon and inure to the benefit of the Borrower
and the Lender and their respective successors and assigns, except that the
Borrower shall not have the right to assign its rights hereunder or any
interest herein without the prior written consent of the Lender.
SECTION 10.07 - Governing Law. This Agreement and the rights and
obligations of the parties hereunder and under the Note shall be construed in
accordance with and be governed by the law of the State of New York (without
giving effect to the conflict of law principles thereof).
SECTION 10.08 - Submission to Jurisdiction.
(a) Any legal action or proceeding with respect to this Agreement or
the Note or any document related thereto may be brought in the courts of the
State of New York or of the United States of America for the Southern District
of New York, and, by execution and delivery of this Agreement, the Borrower
hereby accepts for itself and in respect of its property, generally and
unconditionally, the jurisdiction of the aforesaid courts. The Borrower
consents that personal jurisdiction may be obtained over it by mailing a
summons by registered mail or certified mail, return receipt requested, within
or without such court's jurisdiction, or by personal service, provided a
reasonable time for appearance is allowed. The Borrower hereby irrevocably
waives any objection, including, without limitation, any objection to the
laying of venue based on the grounds of forum non conveniens, which it may now
or hereafter have to the bringing of any such action or proceeding in such
jurisdictions.
(b) Nothing herein shall affect the right of the Lender, any bank or
any holder of a Note to serve process in any manner other than as set forth in
Section 9.08(a), as permitted by law or to commence legal proceedings or
otherwise proceed against the Borrower in any other jurisdiction.
SECTION 10.09 - Waiver of Jury Trial. The Borrower and the Lender
expressly waive any right to trial by jury of any action, claim, demand, or
proceeding arising under or with respect to this Agreement, or in any way
connected with, related to, or incidental to the dealings between them with
respect to this Agreement, or the transactions related thereto, in each case
whether now existing or hereafter arising, and whether sounding in contract,
tort or otherwise.
SECTION 10.10 - Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall be ineffective only in
such jurisdiction to the extent of such prohibition or unenforceability
without invalidating the remaining provisions of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this agreement
to be executed by their respective officers thereunto duly authorized, as
of the date first above written.
AIR & WATER TECHNOLOGIES
Address for Notices: CORPORATION
Air & Water Technologies Corporation
U.S. Highway 22 West and Station Road
Branchburg, NJ 08876
By:_____________________________
Name:
Attention:Chief Financial Officer Title:
Telecopier:(908) 685-4094
Address for Notices: ANJOU INTERNATIONAL COMPANY
Anjou International Company
1105 North Market Street
Suite 1300 By:_____________________________
P.O. Box 8985 Name:
Wilmington, Delaware 19899 Title:
Attention:Chief Financial Officer
JT-Credit.Agr
August 1, 1996
Exhibit 10.15
EMPLOYMENT AGREEMENT
AGREEMENT, dated November 7, 1996, by and between Robert B. Sheh ("Executive")
and Air & Water Technologies Corporation, a Delaware corporation (the
"Company").
WHEREAS, the Company desires to employ Executive and to enter into an
agreement embodying the terms of such employment (the "Agreement"); and
WHEREAS, Executive desires to accept such employment and enter into such an
Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
herein contained, the parties hereby agree as follows:
1. Position.
(a) Executive shall serve as the Chief Executive Officer and President
of the Company and have the general powers and duties of
supervision and management usually vested in the office of
Chief Executive Officer of the Company. In such position,
Executive shall have such duties and authority as shall be
determined from time to time by the Board of Directors of the
Company (the "Board") in its sole discretion. The Company will
use its best efforts to cause Executive to be nominated to the
Board and to serve as Chairman of the Board. If elected,
Executive agrees to serve on the Board and its committees and
as Chairman without additional compensation. In the
performance of his duties, Executive shall comply with the
policies and procedures of the Company (presently in effect or
as may be reasonably modified or established hereafter) and be
subject to the direction of the Board.
(b) During the term of his employment hereunder, Executive will devote
all of his business time and best efforts to the performance of
his duties hereunder and will not engage in any other business,
profession or occupation for compensation or otherwise which would
conflict with the rendition of such services, either directly or
indirectly, without the prior written consent of the Board.
Notwithstanding any provision of this Agreement to the contrary,
any breach of the provisions of this Section 1(b) shall permit the
Company to terminate the employment of Executive for Cause. The
Company acknowledges that Executive has advised it that he is
receiving and will continue to receive certain unspecified
compensation from his former employer, International Technology
("IT") Corporation, pursuant to a severance arrangement and that
nothing in that severance arrangement precludes Executive from
being employed by the Company. Executive acknowledges and agrees
that in the event IT Corporation ceases to make payments to
Executive under of said severance arrangement or other agreement
because of Executive's employment with the Company, the Company
has no obligation to make him whole or otherwise pay him the
monies and other benefits IT Corporation promised or otherwise may
owe him. The Company acknowledges that Executive presently sits
on the Board of Trustees of the Harvey Mudd College, the Board of
Advisors at the Berkeley School of Chemical Engineering, the
Rensselaer Polytechnic Institute Board of Advisors at the School of
Civil Engineering, and the Board of Trustees of the Hugh O'Brian
Youth Foundation.
(c) To the best of Executive's knowledge, Executive represents and
warrants that he is not a party to any agreement, contract, or
understanding, whether of employment or otherwise, which would in
any way restrict or prohibit him from undertaking or performing his
employment and other obligations in accordance with the terms and
conditions of this Agreement. Executive further agrees to
indemnify and hold harmless the Company and its past and present
officers, directors, employees, agents, owners, stockholders,
represen-tatives, and attorneys from and against and in respect
of any and all claims alleging that (a) Executive is so restricted
or prohibited or (b) the Company has committed a wrongful act in
negotiating with, and employing the services of, Executive.
2. Term of Employment.
The term of Executive's employment under this Agreement shall commence
on the date hereof and shall continue thereafter unless and until
terminated as provided in Section 9 of this Agreement (the "Employment
Term").
3. Compensation.
The Company shall pay Executive an annual gross base salary (the "Base
Salary") at the annual initial rate of Four Hundred Thousand Dollars
($400,000), payable in bi-weekly installments in accordance with the
Company's usual payment practices. The Executive shall be entitled to
such increases in his Base Salary as may be determined from time to time
in the sole discretion of the Board. At such times and in such manner
as is acceptable to the Company, Executive may elect to defer receipt of
up to fifteen percent (15%) of his Base Salary to future fiscal years.
The parties agree to execute such additional documents as may be
necessary to implement this deferral arrangement in accordance with the
U.S. Internal Revenue Code and regulations promulgated thereunder.
4. Bonus and Stock Options
(a) With respect to each fiscal year during the Employment Term,
Executive shall be eligible to receive, in addition to his Base
Salary, a bonus for services rendered during such fiscal year,
which Bonus shall be determined by the Board in its sole
discretion. In each fiscal year, Executive may be paid a bonus of
up to sixty percent (60%) of Executive's Base Salary in such
fiscal year, which bonus shall be paid in cash. However, for his
first fiscal year of service during the Employment Term, Executive
shall be paid a bonus of not less than twenty-five percent (25%)
of his Base Salary for such fiscal year, which bonus will be paid
in cash. At such times and in such manner as is acceptable to the
Company, Executive may elect to defer receipt of all or part of
his bonus, if any, in a particular fiscal year to future fiscal
years. The parties agree to execute such additional documents as
may be necessary to implement this deferral arrangement in
accordance with the U.S. Internal Revenue Code and regulations
promulgated thereunder.
(b)(i) Upon commencing employment with the Company, and subject
to the approval of the Compensation and Stock Option
Committee of the Board ("Committee"), Executive will be
awarded options to purchase fifty thousand (50,000)
shares of the Company's Class A Common Stock ("Common
Stock"), which options will be fully vested upon award by
the Committee and will have an exercise price based on
the per share fair market value of the Common Stock on
the date the Committee approves the award. At the
beginning of the second, third, fourth, and fifth fiscal
years of the Employment Term, if Executive is still
employed by the Company under the terms of this
Agreement, and subject to the approval of the Committee
in each such fiscal year, Executive will be awarded in
each such fiscal year options to purchase fifty thousand
(50,000) shares of Common Stock, which options will vest
in accordance with the following schedule as long as
Executive is still employed by the Company on the vesting
date:
(A) twenty-five percent (25%) one (1) year after the
date of the award by the Committee;
(B) twenty-five percent (25%) two (2) years after the
date of the award by the Committee;
(C) twenty-five percent (25%) three (3) years after the
date of the award by the Committee; and
(D) twenty-five percent (25%) four (4) years after the
date of the award by the Committee,
and which options will have an exercise price based on
the per share fair market value of the Common Stock on
the date in the fiscal year in which the Committee
approves the award. With respect to the stock options to
be awarded at the beginning of the second, third, fourth,
and fifth fiscal years of the Employment Term, and
subject to the approval of the Committee, the quantity of
stock options to be awarded and their exercise prices
will be adjusted in the event of and to reflect the
impact of any major recapitalization of the Company.
(ii) Nothing in Section 4(b)(i) precludes the Committee, in
its sole discretion, from awarding Executive stock
options in addition to those stock options enumerated in
Section 4(b)(i).
(iii) All stock options awarded to Executive under Section
4(b)(i) and (ii) are subject to the terms of the
Company's stock option plan pursuant to which the stock
options are awarded.
5. Relocation Expenses
Upon presentation by Executive of documentation supporting such
expenses, the Company agrees to reimburse Executive or pay on his behalf
up to the total gross amount of One Hundred Thousand Dollars
($100,000.00) to defray the actual reasonable costs of Executive's
moving expenses to relocate his residence from California to the greater
New York metropolitan area ("NY area"). Such moving expenses shall
include temporary living costs in the NY area, costs associated with the
purchase of a new home in the NY area, and costs associated with the
sale of Executive's present home in California. Executive will be
reimbursed by the Company for any taxes payable by him on the monies
paid to him or on his behalf pursuant to this Section 5 but only to the
extent that the sum of the monies paid to him or on his behalf for
moving expenses and the tax reimbursement does not exceed the aforesaid
total gross amount of $100,000.
6. Vacation
Executive shall be entitled to four (4) weeks vacation in each calendar
year, which amount will be prorated in those calendar years in which he
is employed by the Company for only part of the calendar year.
7. Employee Benefits.
Executive shall be provided employee benefits (including fringe
benefits, pension and profit sharing plan participation and life,
health, accident and disability insurance) (collectively "Employee
Benefits") on the same basis as those benefits are generally made
available to senior executives of the Company. In addition, to the
extent not otherwise provided for in this Agreement, Executive shall be
entitled to participate in all plans providing benefits to the senior
executives including incentive compensation, stock option, stock
appreciation, stock bonus and other compensable plans extended by the
Company from time to time to senior corporate officers.
8. Business Expenses and Perquisites
(a) Reasonable travel, entertainment and other business expenses
incurred by Executive in the performance of his duties hereunder
shall be reimbursed by the Company in accordance with Company
policies.
(b) The Company shall provide to Executive during the term of this
Agreement the use of an automobile for which the Company shall
assume the cost of insurance, taxes, maintenance and business
related operating expenses upon presentation by Executive of
documentation supporting such expenses. Executive shall bear the
costs of personal use of the vehicle and such use shall be
governed by the U.S. Tax Code provisions regulating business and
personal use of a Company car.
9. Termination of Employment
(a) For Cause by the Company. Executive's employment hereunder may be
terminated by the Company for "Cause" at any time during the
Employment Term. For purposes of this Agreement, "Cause" shall
mean (i) Executive's willful and continued failure substantially
to perform his duties hereunder (other than as a result of total or
partial incapacity due to physical or mental illness), (ii)
dishonesty or breach of trust in the performance of Executive's
duties hereunder which is materially injurious to the financial
condition or business reputation of the Company or any of its
subsidiaries or affiliates, (iii) any act or omission on
Executive's part constituting a felony under the laws of the United
States or any state thereof that has an adverse impact on
Executive's character, suitability, or fitness to remain as the
Chief Executive Officer of the Company, or (iv) any other willful
act or omission which is materially injurious to the financial
condition or business reputation of the Company or any of its
subsidiaries or affiliates. For purposes of this Section 9(a), no
act or failure to act on the part of Executive shall be deemed
"willful" unless done, or omitted to be done, by Executive not in
good faith and without reasonable belief that the act or omission
of Executive was in, or not opposed to, the best interest of the
Company. If Executive is terminated by the Company for Cause, he
shall be entitled only to receive his Base Salary through the date
of termination. All other benefits due Executive following
Executive's termination of employment pursuant to this Section 9(a)
shall be determined in accordance with the plans, policies and
practices of the Company.
(b) Disability or Death. Executive's employment hereunder shall
terminate upon his death and if Executive becomes physically or
mentally incapacitated and is therefore unable for a period of two
(2) consecutive months or for an aggregate of three (3) months in
any twelve (12) consecutive month period to perform his duties
(such incapacity is hereinafter referred to as "Disability"). Any
question as to the existence of the Disability of Executive as to
which Executive and the Company cannot agree shall be determined
in writing by a qualified independent physician mutually
acceptable to Executive and the Company. If Executive and the
Company cannot agree as to a qualified independent physician, each
shall appoint such a physician and those two physicians shall
select a third who shall make such determination in writing. The
determination of Disability made in writing to the Company and
Executive shall be final and conclusive for all purposes of the
Agreement. Upon termination of Executive's employment hereunder
for either Disability or death, Executive or his estate (as the
case may be) shall continue to receive the payment to which
Executive is entitled pursuant to Section 3 hereof (hereinafter
the "Contract Payments") for a period of twelve (12) months from
the date of termination for either Disability or death. All other
benefits due Executive following Executive's termination for
either Disability or death shall be determined in accordance with
the plans, policies and practices of the Company.
(c) Without Cause by the Company. Executive's employment hereunder
may be terminated by the Company without Cause (other than by
reason of Disability or death) at any time during the Employment
Term. If Executive is terminated by the Company without Cause
(other than by reason of Disability or death), Executive shall
continue to receive the Contract Payments for a period of two (2)
years from the date of Executive's termination pursuant to this
Section 9(c). All other benefits due Executive following
Executive's termination of employment by the Company without Cause
(other than by reason of Disability or death) shall be determined
in accordance with the plans, policies and practices of the
Company, except that Executive shall not be entitled to any
separation or severance pay under any such plans, policies and
practices.
(d) Termination by Executive.
(i) If Executive terminates his employment with the Company for
any reason (other than the reason set forth in Section
9(d)(ii)), Executive shall be entitled to the same payment
he would have received if his employment had been terminated
by the Company for Cause.
(ii) If, within thirty (30) days after a "Change of Control",
Executive terminates his employment with the Company because
of the "Change of Control", Executive shall be entitled to
the same payments he would have received if his employment
had been terminated by the Company without Cause. For
purposes of this Agreement, "Change of Control" shall mean
that (A) Compagnie Generale des Eaux ("CGE") ceases to own
at least thirty percent (30%) of the voting power of the
Company's then outstanding securities entitled generally to
vote for the election of the members of the Board of
Directors of the Company or (B) another company or
partnership (other than CGE or one of CGE's affiliated
companies) becomes the largest holder of the voting power of
the Company's then outstanding securities entitled generally
to vote for the election of the members of the Board of
Directors of the Company. In determining whether CGE ceases
to own at least thirty percent (30%) of the voting power or
whether another company or partnership has become the
largest holder of the voting power, the voting power
ownership interests of CGE's affiliated companies (including
subsidiaries (whether wholly or partially owned or whether
directly or indirectly owned), partnerships, and joint
ventures) in the Company shall be aggregated with CGE's
direct voting power ownership interest in the Company.
(e) Notice of Termination. Any purported termination of employment by
the Company or by Executive shall be communicated by written
Notice of Termination to the other party hereto in accordance with
Section 14(g) hereof. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of employment under the provision
so indicated. Executive shall give the Company at least fifteen
(15) days advance written notice of his intention to terminate his
employment (under Section 9(d)) and no such termination shall be
effective unless that notice has been given. In the event
Executive gives notice of his intention to terminate his
employment, the Company is entitled to accelerate his termination
to an earlier date and such termination shall still be deemed a
termination by Executive governed by Section 9(d).
(f) During the period of continued payment provided in Section 9(b)
and (c) hereof, Executive will be available, without additional
compensation and consistent with other responsibilities that he
may then have as an officer or employee of another company, to
answer questions and provide advice to the Company. Executive
shall not be required to mitigate the amount of any Contract
Payment provided for in Section 9(b) and (c) by seeking other
employment or otherwise, and no such employment, if obtained, or
compensation payable in connection therewith, shall reduce any
amounts to which Executive is entitled under Section 9(b) and (c).
10. Non-Competition.
(a) Executive acknowledges and recognizes the highly competitive
nature of the businesses of the Company and its subsidiaries and
affiliates and accordingly agrees that for a two (2) year period
following the termination of his employment under this Agreement
Executive will not, anywhere in the United States of America,
directly or indirectly own, manage, become an employee or officer
of, operate, join, control, participate in, invest in (except for
passive investments of not more than one percent (1%) of the
outstanding shares of, or any other equity interest in, any
company or entity listed or traded on a national securities
exchange or in an over-the-counter securities market), consult
with, or otherwise be connected in any manner with, whether as an
investor or otherwise, any "Pollution Control Companies". For
purposes of this Section 10, "Pollution Control Companies" means
and includes (i) any firm, company, or person which derives
twenty-five percent (25%) or more of its gross revenues before
taxes from the business of consultant engineers for the water
and/or wastewater treatment industry (private or public sector),
(ii) any firm, company, or person which is engaged in the business
of contract operation of water and/or wastewater systems, and/or
(iii) any investor-owned water utility.
Notwithstanding the foregoing, in the event of termination of this
Agreement without cause by the Company pursuant to Section 9(c)
hereof, "Pollution Control Companies" shall mean and include (i)
the following companies and their respective subsidiaries and
affiliates: Montgomery Watson, CH2M Hill, Camp Dresser McKee,
Black & Veatch, Malcolm Pirnie, and Hazen & Sawyer, (ii) any firm,
company, or person which is engaged in the business of contract
operation of water and/or wastewater systems, and/or (iii) any
investor-owned water utility.
Notwithstanding any provision of this Agreement to the contrary,
from and after any breach by Executive of the provisions of this
Section 10(a), the Company shall cease to have any obligations to
make payments to Executive under this Agreement.
(b) Executive will not directly or indirectly induce any employee of
the Company or any of its subsidiaries or affiliates to engage in
any activity in which Executive is prohibited from engaging by
Section 10(a) above or to terminate his employment with the
Company or any of its subsidiaries or affiliates, and will not
directly or indirectly employ or offer employment to any person who
was employed by the Company or any of its subsidiaries or
affiliates unless such person shall have ceased to be employed by
the Company or any of its subsidiaries or affiliates for a period
of at least twelve (12) months.
(c) It is expressly understood and agreed that although Executive and
the Company consider the restrictions contained in this Section 10
to be reasonable, if a final judicial determination is made by a
court of competent jurisdiction that the time or territory or any
other restriction contained in this Agreement is an unenforceable
restriction against Executive, the provisions of this Agreement
shall not be rendered void but shall be deemed amended to apply as
to such maximum time and territory and to such maximum extent as
such court may judicially determine or indicate to be enforceable.
Alternatively, if any court of competent jurisdiction finds that
any restriction contained in this Agreement is unenforceable, and
such restriction cannot be amended so as to make it enforceable,
such finding shall not affect the enforceability of any of the
other restrictions contained herein.
11. Confidentiality.
Executive will not at any time (whether during or after his employment
with the Company) disclose or use for his own benefit or purposes or the
benefit or purposes of any other person, firm, partnership, joint
venture, association, corporation, or other business organization,
entity or enterprise, other than the Company and any of its subsidiaries
or affiliates, any trade secrets, information, data, or other
confidential information relating to customers, development programs,
costs, marketing, trading, investment, sales activities, promotion,
credit and financial data, manufacturing processes, financing methods,
plans, or the business and affairs of the Company generally, or of any
subsidiary or affiliate of the Company, provided, that the foregoing
shall not apply to information which is not unique to the Company, or
which is generally known to the industry or the public other than as a
result of Executive's breach of this covenant. Executive agrees that
upon termination of his employment with the Company for any reason, he
will return to the Company immediately all memoranda, books, papers,
plans, information, letters and other data, and all copies thereof or
therefrom, in any way relating to the business of the Company and its
subsidiaries and affiliates, except that he may retain personal notes,
notebooks and diaries. Executive further agrees that he will not retain
or use for his account at any time any trade name, trademark or other
proprietary business designation used or owned in connection with the
business of the Company or its subsidiaries and affiliates.
12. Specific Performance. Executive acknowledges and agrees that the
Company's remedies at law for a breach or threatened breach of any of
the provisions of Section 1(b), Section 10 or Section 11 would be
inadequate and, in recognition of this fact, Executive agrees that, in
the event of such a breach or threatened breach, in addition to any
remedies at law, the Company, without posting any bond, shall be
entitled to obtain equitable relief in the form of specific performance,
temporary restraining order, temporary or permanent injunction or any
other equitable remedy which may then be available.
13. Arbitration
(a) Except as provided in Section 13(b) immediately below, any and all
claims arising out of or relating to (i) this Agreement, (ii) any
breach of any provision of this Agreement, (iii) Executive's
employment at any time with the Company, and/or (iv) the
termination of Executive's employment with the Company shall be
settled by arbitration. Such arbitration proceeding shall be
conducted pursuant to the Employment Dispute Resolution Rules of
the American Arbitration Association ("AAA") then in effect, by a
single arbitrator and shall be held in Somerset County, New
Jersey. The cost of the arbitration proceeding and the reasonable
costs and attorneys' fees of the prevailing party shall be paid by
the non-prevailing party, with the dollar amount of these costs
and fees to be fixed by the arbitrator. The judgment upon the
award rendered by the arbitrator may be entered in any court
having competent jurisdiction thereof.
(b) Nothing in Section 13(a) immediately above shall be construed or
interpreted to preclude the Company from filing suit in a court of
competent jurisdiction in order to enforce its rights and remedies
under Sections 1(b), 10, 11 and/or 12 of this Agreement. In any
such suit, the court is empowered to and shall resolve any dispute
as to whether the claims asserted by the Company are within the
scope of Sections 1(b), 10, 11 and/or 12 of this Agreement, and
the court shall not refer such dispute to arbitration under
Section 13(a) immediately above.
(c) With respect to the claims of Executive that are within the scope
of Section 13(a) above, if Executive has the same, similar, or
related claims against any of the Company's employee benefit
plans, trusts, committees, or boards or against any past or
present officers, directors, employees, agents, owners,
stockholders, trustees, fiduciaries, administrators, sponsors,
representatives, or attorneys of the Company, its subsidiaries, or
its affiliates or the Company's employee benefit plans, trusts,
committees, or boards (collectively referred to as the "Other
Defendants"), and if Executive seeks to litigate such claims
against the Other Defendants in a civil action or any other
proceeding (including before an administrative agency), Executive
agrees that any or all of said Other Defendants may compel
Executive to arbitrate his claims against them pursuant to the
terms of this Section 13.
(d) The arbitrator selected by the parties pursuant to the AAA rules
shall have expertise in private industry employee relations and
shall hear and determine the case promptly. The burden of
persuasion shall at all times be upon the party seeking relief.
14. Miscellaneous.
(a) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New Jersey.
(b) Entire Agreement/Amendments. This Agreement contains the entire
understanding of the parties with respect to the employment of
Executive by the Company and fully supersedes any and all prior
restrictions, agreements, statements, representations, promises,
inducements, warranties, covenants or understandings, written or
oral, between Executive and the Company with respect to the
subject matter herein. There are no restrictions, agreements,
statements, representations, promises, inducements, warranties,
covenants or undertakings between the parties with respect to the
subject matter herein other than those expressly set forth herein.
This Agreement may not be altered, modified, or amended except by
written instrument signed by the parties hereto.
(c) No Waiver. The failure of a party to insist upon strict adherence
to any term of this Agreement on any occasion shall not be
considered a waiver of such party's rights or deprive such party
of the right thereafter to insist upon strict adherence to that
term or any other term of this Agreement.
(d) Severability. In the event that any one or more of the provisions
of this Agreement shall be or become invalid, illegal or
unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions of this Agreement shall
not be affected thereby.
(e) Assignment. This Agreement shall not be assignable by Executive
and shall be assignable by the Company only with the consent of
Executive.
(f) Successors, Binding Agreement. This Agreement shall inure to the
benefit of and be binding upon personal or legal representatives,
executors, administrators, successors, heirs, distributees,
devisees and legatees of the parties hereto. This Agreement shall
also inure to the benefit of the Other Defendants and their
respective heirs, executors, administrators, successors, assigns,
and legal representatives.
(g) Notice. For the purpose of this Agreement notices and all other
communications provided for in the Agreement shall be in writing
and shall be deemed to have been duly given when telecopied,
delivered, or mailed by United States registered mail, return
receipt requested, postage prepaid addressed to the respective
addresses set forth on the execution page of this Agreement,
provided that all notices to the Company shall be directed to the
attention of the Board with a copy to the Secretary of the
Company, or to such other address as either party may have
furnished to the other in writing in accordance herewith except
that notice of change of address shall be effective only upon
receipt. Notice by telecopier will be effective only if and when
receipt is confirmed by the sender by telephoning and speaking
directly with the intended recipient or, in the absence of the
intended recipient, in the case of the Company, the regular
secretary of the intended recipient, and in the case of Executive,
a member of his family at his residence.
(h) Withholding Taxes. The Company may withhold from any amounts
payable under this Agreement such Federal, state and local taxes
as may be required to be withheld pursuant to any applicable law
or regulation.
(i) Counterparts. This Agreement may be signed in counterparts, each
of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
(j) Headings. The section headings contained in this Agreement are
for reference purposes only and shall not affect in any way the
meaning or interpretations of this Agreement.
IN WITNESS WHEREOF, the parties hereto set their hands as of the day and year
first above written.
AIR & WATER TECHNOLOGIES CORPORATION
P.O. Box 1500
Somerville, New Jersey 08876
By _________________________________
ROBERT B. SHEH
1400 Pasco del Mar
Palos Verdes Estates, California 90274
_______________________________________
Exhibit 10.16
SEPARATION AGREEMENT
THIS SEPARATION AGREEMENT ("Agreement") is made and entered
into as of this day of December, 1996, by and between MICHAEL M.
STUMP ("Stump") and PROFESSIONAL SERVICES GROUP, INC. ("Company").
W I T N E S S E T H:
WHEREAS, Stump's employment with the Company terminated
effective December 4, 1996; and
WHEREAS, the Company and Stump desire to enter into an agreement
relating to all aspects of their relationship following such termination of
employment, which agreement will be entered into in consideration of the
cancellation of and in full settlement of all rights and obligations
outstanding pursuant to the Employment Agreement (defined below);
NOW, THEREFORE, in consideration of the foregoing, and the
mutual covenants, understandings, and agreements hereinafter contained, the
parties do hereby mutually covenant and agree as follows:
1. Definitions. As used in this Agreement:
(a) "Claim" or "Claims" means and includes one or more charges,
complaints, claims, grievances, liabilities, obligations,
promises, covenants, agreements, controversies, damages,
injuries, actions, causes of action, suits, rights, demands,
deficiencies, levies, assessments, attachments, executions,
judgments, recoveries, awards, costs, losses, debts,
reckonings, bonds, bills, specialties, contracts, variances,
trespasses, and expenses (including attorneys' fees and
costs actually incurred) of any kind or nature whatsoever,
whether known or unknown, suspected or unsuspected,
contingent or not contingent, liquidated or unliquidated.
(b) "Companies" means and includes (i) Air & Water Technologies
Corporation ("AWT") and all of its affiliated Entities,
including, but not limited to, (i) parent and subsidiary
companies (whether wholly or partially owned or whether
directly or indirectly owned), partnerships, and joint
ventures, and (ii) Compagnie Generale des Eaux, Anjou
International Company, Anjou International Management
Services, Inc., Metcalf & Eddy, Inc., Professional Services
Group, Inc., and Research-Cottrell, Inc.; and (ii) each and
every employee welfare or pension benefit plan, trust,
committee, or board of each of the Companies.
(c) "Confidential Information" means and includes, without
limitation, business and proprietary information and
technology, trade secrets, patented processes, proprietary
research and development projects and data, proprietary
product development and design, proprietary methods of doing
business, and proprietary technical information of the
Companies; financial information not previously reported in
public releases or filings; proprietaty information
regarding costs, profits, markets, sales, products, market
studies and forecasts, pricing policies and data, sales
plans, key personnel, other business affairs and methods,
customers and customer prospects, business plans, competitive
analyses, and prospects and opportunities with Entities with
whom the Companies have established or have taken steps to
establish a business relationship (such as possible
expansions or contractions of business operations) which
have been discussed or considered by the Companies'
management; the substance of agreements with customers and
others, marketing and dealership agreements, and proprietary
servicing and training programs and arrangements; customer
or client lists; master files; supplier or vendor lists; and
information concerning operational strengths or weaknesses
of the Companies' operating units, all to the extent not
previously revealed to the public or to the trade by the
Companies' management.
(d) "Employment Agreement" means the agreement between Stump and
the Company dated October 15, 1995, and any amendments or
modifications thereto.
(e) "Entity" or "Entities" means and includes one or more
organizations of any kind or nature whatsoever, including,
without limitation, municipalities, other governmental
bodies or agencies, corporations, companies, partnerships,
joint ventures, sole proprietorships, and divisions.
(f) "Releasees" means and includes (i) the Companies and each
and all of the Companies' respective past and present
owners, stockholders, agents, independent contractors,
servants, directors, officers, partners, associates,
employees, supervisors, trustees, fiduciaries,
administrators, representatives, and attorneys; (ii) all
of the predecessors, successors, and assigns of the
Entities and persons identified in (i) immediately above;
and (iii) all persons acting by, through, under, or in
concert with any of the Entities and persons identified
in (i) and (ii) immediately above.
2. No Admission. This Agreement and compliance with this Agreement
shall not be construed as an admission by the Company or any of
the other Releasees or by Stump of any liability whatsoever, or
as an admission by the Company or any of the other Releasees or
by Stump of any violation, past or present, of the rights of
the other party or any other person or Entity, or any
violation, past or present, of any order, law, statute,
regulation, duty, or contract whatsoever. Nothing in this
Agreement shall be construed as a limitation on Stump's ability
to defend himself with respect to Claims asserted against him
by governmental agencies.
3. Resignation. Stump's last day of employment with any of the
Companies, whether as an employee, officer, and/or director, is
effective as of December 4, 1996 ("Termination Date"). Stump
hereby resigns, effective the Termination Date, as an employee,
officer, director, trustee, or otherwise of any of the Companies.
Stump agrees to provide AWT with a letter of resignation from all
positions he holds with any of the Companies, whether as an
employee, officer, director, trustee, or otherwise, in the form
annexed to this Agreement as Attachment 1, which letter shall bear
the Termination Date.
4. Confidentiality Agreement. Stump agrees that he will keep the
fact, terms, and amount of this Agreement completely confidential
and that he will not hereafter disclose any information concerning
this Agreement to anyone other than an immediate family member,
legal counsel, or financial advisor who agrees to be bound by
these confidentiality obligations; provided that, Stump may
make such disclosures as are required by legal process,
provided further that the Company and AWT shall be given
reasonable prior notice by Stump of, and opportunity to
contest, such process; and further provided that, Stump may
disclose, when seeking employment, to prospective or new
employers any limitations placed on his employment by this
Agreement.
5. Confidentiality and Noncompetition.
(a) Stump acknowledges that the various items comprising
Confidential Information are valuable, special, and unique
assets of the various Companies, access to and knowledge of
which by Stump have been gained by virtue of his positions
and involvement with the Companies. Stump further
acknowledges and represents that he has returned to the
Company all originals and copies of all documents,
memoranda, notes, records, reports, and other property of
the Companies that he possessed or had under his control and
that he will not use for his own benefit or gain, and agrees
to return to the Company if in his possession or under his
control, any Confidential Information of the Companies
obtained by him incident to his employment with any of the
Companies. Stump shall not directly or indirectly,
intentionally or negligently disclose to or permit to be
known by any person or Entity (other than a person or Entity
designated in writing by the Chief Executive Officer of AWT
or the General Counsel of AWT) any Confidential Information
acquired by him during the course of or in connection with
his employment by any of the Companies relating to (i) the
Companies, (ii) the officers, directors, employees, or
agents of the Companies, (iii) any client or customer of the
Companies, or (iv) any Entity owned or controlled, directly
or indirectly, by any of the foregoing, or in which any of
the foregoing has a beneficial interest.
(b) During the period running from the Termination Date through
December 31, 1997, Stump will not call on or solicit, either
directly or indirectly, any person or Entity who or which at
the Termination Date was, or within one (1) year prior
thereto had been, a client of Professional Services Group,
Inc. ("PSG") and/or any of the companies within the Metcalf
& Eddy operating group with respect to any material
activity, service, or business of the type conducted,
performed, or engaged in (or about to be conducted,
performed, or engaged in at such Termination Date) by PSG or
any of the companies within the Metcalf & Eddy operating
group.
(c) During the period running from the Termination Date through
December 31, 1997, Stump will not directly or indirectly (i)
induce any employees of any of the Companies to engage in any
activity in which Stump is prohibited from engaging by this
Agreement or to terminate their employment with any of the
Companies or (ii) employ or offer employment to any person
who was employed by any of the Companies unless such person
shall have ceased to be employed by the Companies for a
period of at least twelve (12) months.
(d) During the period running from the Termination Date through
December 31, 1997, Stump will not, without the prior written
consent of the Board of Directors of AWT, directly or
indirectly, own, manage, operate, join, control, finance, or
participate in the ownership, management, operation,
control, or financing of, or be connected as an officer,
director, employee, partner, principal, agent,
representative, consultant, or otherwise with, any person or
Entity engaged in any service or business competitive with
the services provided (or planned to be provided) and
business conducted by PSG and/or any of the companies within
the Metcalf & Eddy operating group during the period he was
employed by any of the Companies, in any geographical areas
where any of the Companies offer (or planned to offer) such
services or conduct such business during the period he was
employed by any of the Companies; provided, however, that
this provision shall not be construed to prohibit the
ownership by Stump of not more than one percent (1%) of the
capital stock of any corporation which is engaged in the
foregoing business having a class of securities registered
pursuant to the Securities Exchange Act of 1934; provided
further, that this provision is limited to persons or
Entities (including governmental bodies, such as
municipalities, and investor-owned utilities) providing to
other persons (including residents of governmental bodies)
or Entities one or more of the services and businesses
provided by PSG or any of the companies within the Metcalf &
Eddy operating group.
(e) It is expressly understood and agreed that although Stump and
the Company consider the restrictions contained in this
Agreement, including this Paragraph 5, to be reasonable, if a
final judicial determination is made by a court of competent
jurisdiction that the time or territory or any other
restriction contained in this Agreement is an unenforceable
restriction against Stump, the provisions of this Agreement
shall not be rendered void but shall be deemed amended to
apply as to such maximum time and territory and to such
other maximum extent as such court may judicially determine
or indicate to be enforceable. Alternatively, if any court
of competent jurisdiction finds that any restriction
contained in this Agreement is unenforceable, and such
restriction cannot be amended so as to make it
enforceable, such finding shall not affect the
enforceability of any of the other restrictions contained
in this Agreement.
(f) Stump acknowledges that the restrictions contained in this
Agreement, including this Paragraph 5, are reasonable and
necessary to protect the legitimate interests of the
Companies, that the Company would not have entered into this
Agreement (or the Employment Agreement) in the absence of
such restrictions, that the Companies' remedies at law for a
breach or threatened breach of any of the provisions of this
Paragraph 5 would be inadequate, and that any violation or
threatened violation of any of the provisions of this
Paragraph 5 will result in irreparable injury to the
Companies. Stump agrees that in the event of any breach or
threatened breach of any provision of this Paragraph 5, an
action may be commenced by one or more of the Companies for
any such temporary restraining order, preliminary and
permanent injunctive relief, specific performance, and/or
any other legal or equitable relief in any state or federal
court of competent jurisdiction in Texas, New Jersey, or in
the state in which the breach or threatened breach arises.
Stump hereby agrees that effective service of process may be
made upon him by mail at his present residence address,
heretofore furnished by Stump to the Company, or any
substituted address furnished to the Company by Stump. In
any action for injunctive relief, Stump shall not be
entitled to interpose a defense that the Companies have an
adequate remedy in a court of law. Stump agrees that the
Companies may recover by appropriate action the amount of
the actual damages caused the Companies by any failure,
refusal, or neglect of Stump to perform his agreements,
representations, and warranties contained in this Agreement.
The remedies provided in this Agreement shall be deemed
cumulative and the exercise of one shall not preclude the
exercise of any other remedy at law or in equity for the
same event or any other event. Stump further agrees that
the Companies shall be entitled to reimbursement for
expenses incurred by it in enforcing its rights hereunder,
including, without limitation, reasonable attorneys' fees
and expenses.
6. General Release and Representations. As a material inducement to
the Company to enter into this Agreement and in consideration for
the payments and other benefits provided by the Company to Stump
as set forth in this Agreement, Stump represents, warrants, and
agrees that:
(a) He, on his own behalf and on behalf of his heirs, executors,
administrators, representatives, successors, and assigns,
hereby irrevocably and unconditionally releases, acquits,
waives, and forever discharges the Companies and the other
Releasees from any and all Claims which Stump now has, owns,
or holds, or claims to have, own, or hold, or which Stump at
any time heretofore had, owned, or held, or claimed to have,
own, or hold against each or any of the Companies or the
other Releasees regarding events that have occurred from the
beginning of the world to and including the day of the date
of this Agreement, including, without limitation, any and all
Claims related or in any manner incidental to Stump's
employment relationship with any of the Companies or the
termination or severance of the employment relationship
between Stump and the Companies.
(b) He has neither filed nor authorized the filing on his behalf
of any Claims against any of the Companies or any of the
other Releasees with any state, federal, or local agency or
court or in any other forum or tribunal with respect to
anything that has happened up through the date of this
Agreement and that he will not do so at any time hereafter
with respect to anything that has happened up through the
date of this Agreement.
(c) He has not transferred to any person or Entity any of the
Claims released in or by this Agreement.
(d) He has no right of reemployment with any of the Companies
and that each of the Companies has the right to reject
without cause any application for employment with the
Companies submitted by him and to rescind without cause any
offer of employment made to him by the Companies.
(e) He hereby waives, foregoes, and renounces any and all Claims
he has or may have to advancement of legal fees and expenses,
including attorneys' fees, and/or indemnification under the
terms of any statute, contract, or agreement or under the
By-laws, Charter, or Articles of Incorporation of any of the
Companies.
7. Certain Payments or Waivers.
(a) In consideration of Stump's agreements, covenants,
warranties, and representations in this Agreement,
particularly Paragraphs 5 and 6 hereof, the Company agrees
to pay Stump (i) the aggregate gross amount of Nineteen
Thousand One Hundred Seventy-Five Dollars and Twenty Cents
($19,175.20) on or before December 31, 1996 and (ii) the
aggregate gross amount of Two Hundred Fifty Thousand Dollars
($250,000.00) after December 31, 1996 but prior to January
4, 1997, which payments shall be subject to all applicable
withholding taxes and Social Security.
(b) In consideration of the Company's agreements and covenants in
this Agreement, Stump waives, foregoes, and renounces any and
all Claims he has or may have to any payments from the
Company or any of the other Releasees with respect to any
accrued, but unused, vacation.
(c) Stump agrees that the Company and the other Releasees shall
have no further obligation to make any payments in respect of
any country club memberships or any other memberships or
associations for, on behalf of, or in connection with Stump.
(d) Within ten (10) days after this Agreement is executed, the
Company will pay Nine Thousand Three Hundred Eighty-One
Dollars and Twenty-Five Cents ($9,381.25) to Foreman,
DeGeurin, Gerger & Nugent ("FDG&N") in full satisfaction of
any and all monies that any of the Companies may owe FDG&N
or any other law firm for services rendered by or expenses
incurred by FDG&N or any other law firm on behalf of Stump.
8. COBRA. Stump shall have the right to elect to continue his health
insurance coverage, if any, as provided by and in accordance with
the Consolidated Omnibus Budget Reconciliation Act of 1985
("COBRA").
9. Stock Options. Stump agrees that all options held by him at the
Termination Date to purchase stock in any of the Companies shall be
cancelled and void.
10. Certain Indebtedness. In regards to a loan, with accrued
interest, in the aggregate amount of Ninety Thousand Three Hundred
Seventy-Five Dollars and Nineteen Cents ($90,375.19) from the
Company to Stump, and Twenty Thousand Dollars ($20,000.00) in
advances to Stump, the Company agrees that Stump no longer owes
the full One Hundred Ten Thousand Three Hundred Seventy-Five
Dollars and Nineteen Cents ($110,375.19) of such indebtedness.
Stump understands that the Company will withhold applicable taxes
with respect to this Paragraph 10 against the amounts to be paid
to him under Paragraph 7 of this Agreement.
11. Certain Property.
(a) Stump agrees to purchase from the Company the following
assets, which the parties have agreed have the following fair
market value ("FMV"):
(i) Fax machine. FMV equals One Hundred Fifty Dollars
($150.00).
(ii) Hand-held calculator. FMV equal to Fifty Dollars
($50.00).
(iii) Mobile telephone. FMV equal to Fifty Dollars ($50.00).
Any taxes or transfer fees arising in connection with the
sale of the foregoing assets to Stump shall be Stump's sole
obligation to pay. However, if in order to complete the
transfer of these assets to Stump the Company must prepay
any such taxes or transfer fees or withhold in respect of
such taxes or transfer fees, then the Company may set off
the amounts it has paid for such taxes and transfer fees
against any monies it owes Stump. The Two Hundred Fifty
Dollars ($250.00) will be deducted from the monies due Stump
under Paragraph 7(a) of this Agreement.
(b) Stump agrees to return to the Company the following assets at
the time the Agreement is executed:
(i) The Company vehicle he was using at the time of his
resignation.
(ii) The Company's computer he was using at the time of his
resignation.
12. Cooperation.
(a) Stump agrees, without additional compensation except as set
forth in Paragraph 12(b) of this Agreement, to cooperate
fully with the Company and AWT and their counsel with
respect to any civil litigation, civil investigation, or
civil governmental proceeding now pending or hereafter
instituted arising out of or in connection with any
transaction or other matter in which Stump was involved in
any way while employed by any of the Companies or with
respect to which Stump has information. Such cooperation
shall include appearing from time to time at the offices of
counsel, the Company, or AWT for conferences and interviews
and responding fully to all questions the Company, AWT, or
counsel may ask and in general providing them the full
benefit of Stump's knowledge with respect to any such
matter. If so requested on behalf of the Company or AWT,
Stump will also appear as a witness in such matter.
(b) The Company or AWT, as the case may be, will reimburse Stump
for any reasonable and necessary out-of-pocket expenses that
the Company or AWT specifically and in advance authorizes in
writing Stump to incur in carrying out his obligations under
Paragraph 12 of this Agreement. Any appearances at the
offices of the Company, AWT, or their counsel shall be
scheduled to mutual convenience, reasonable regard being
given to the Company's, AWT's, and their counsel's
requirements and Stump's own commitments. If at the
Company's or AWT's request Stump attends conferences or
interviews under Paragraph 12(a) of this Agreement, he shall
be paid a fee, in the amount of One Hundred Fifty Dollars
($150.00) per hour, for the time he spends in attending such
conferences or interviews; provided, however, that Stump will
not be paid such fee for the first fifty (50) hours he
spends in attending such conferences or interviews during
the period running from the date of this Agreement through
December 31, 1997. The Company's or AWT's obligations to
make any payment to Stump under Paragraph 12 of this
Agreement is subject to Stump having provided reasonable
substantiation thereof, such as expense receipts and a daily
itemization of hours spent and with whom. At all times
prior to the third anniversary of the date of this
Agreement, Stump will generally keep the Company and AWT
informed of his whereabouts so that he can be reached within
a reasonable time.
13. No Reliance. The parties hereto represent and acknowledge that, in
executing this Agreement, they do not rely and have not relied upon
any representation or statement, written or oral, made by any of
the parties or by any of the parties' agents, attorneys, or
representatives with regard to the subject matter, basis, or
effect of this Agreement or otherwise, other than those
specifically stated in this written Agreement.
14. Assignment. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective heirs,
administrators, representatives, executors, Companies, successors,
and assigns. This Agreement shall also inure to the benefit of
all the Releasees and their respective heirs, administrators,
representatives, executors, Companies, successors, and assigns.
This Agreement shall not be assignable by Stump.
15. No Waiver.
(a) Any waiver by either party of a breach of any provision of
this Agreement shall not operate as or be construed as a
waiver of any subsequent breach hereof, or as a waiver of a
breach of any other provision.
(b) No remedy conferred upon the Companies or the other
Releasees by this Agreement is intended to be exclusive of
any other remedy given hereunder or now or hereafter
existing at law or in equity. No delay or omission by any
of the Companies or the other Releasees in exercising any
right, remedy, or power hereunder or existing at law or in
equity shall be construed as a waiver thereof. Any such
right, remedy, or power may be exercised by the Companies or
the other Releasees from time to time and as often as may be
deemed expedient or necessary by the Companies or the other
Releasees in their sole discretion.
16. Validity. Should any part, term, or provision of this Agreement be
declared or be determined by any court of competent jurisdiction
to be illegal, invalid, or unenforceable, the legality, validity,
and enforceability of the remaining parts, terms, or provisions
shall not be affected thereby, and said legal, unenforceable, or
invalid part, term, or provision shall be deemed not to be a part
of this Agreement.
17. Entire Agreement; Amendment. This Agreement constitutes the
complete agreement and understanding between the parties with
respect to the termination of Stump's employment and the benefits
he is entitled to receive from any of the Companies or the other
Releasees, and no statement, representation, warranty, or covenant
has been made by either party with respect thereto except as
expressly set forth herein. This Agreement fully supersedes any
and all agreements or understandings, written or oral, between
Stump and any of the Companies or the other Releasees pertaining
to the subject matter hereof. In particular, and without
limitation, this Agreement fully supersedes the Employment
Agreement (except for Paragraphs 8 to 12, inclusive, thereof) and
the parties acknowledge and agree that the Employment Agreement
(except for Paragraphs 8 to 12, inclusive, thereof) is hereby
without any further force or effect. Stump acknowledges that he
has been paid in full all wages, bonuses, accrued vacation,
severance pay, and all other forms of compensations and benefits
owned him by any of the Companies. This Agreement shall not be
altered, modified, amended, or terminated except by written
instrument signed by both of the parties hereto.
18. No Disparagement; Communication.
(a) Stump agrees that he shall neither make disparaging
statements or representations, or otherwise communicate
disparagingly, directly or indirectly, in writing, orally,
or otherwise, about any of the Companies or the other
Releasees, nor take any action which may, directly or
indirectly, disparage or be damaging to any of the
Companies or the other Releasees, their businesses, or their
reputations.
(b) From and after the date of this Agreement, Stump shall only
communicate directly with AWT's General Counsel (presently
Douglas A. Satzger, Esq.) regarding any matters relating to
any of the Companies and shall otherwise not contact or
attempt to contact any of the Companies, their officers,
directors, shareholders, employees, independent contractors,
or agents regarding any matters relating to any of the
Companies, unless such person first contacts Stump.
19. Indemnity. As a further material inducement to the Company to
enter into this Agreement, Stump hereby agrees to indemnify and
hold each and all of the Companies and the other Releasees
harmless from and against any and all Claims including, without
limitation, attorneys' fees, incurred by the Companies and the
other Releasees or any of them arising out of any breach by Stump
of any of the representations, warranties, or other provisions of
this Agreement.
20. Withholding. The Company shall be entitled to withhold from any
amounts payable, whether actually or constructively, to Stump under
this Agreement such federal, state, and local taxes, Social
Security, and such other withholdings as may be required to be
withheld pursuant to any applicable laws or regulations.
21. Interpretation; Choice of Law. This Agreement shall be
interpreted in accordance with the plain meaning of its terms and
not strictly for or against any of the parties hereto. This
Agreement and all provisions hereof shall be governed by and
construed under the laws of the State of New Jersey, without
regard to the choice of law rules thereof.
22. Specific Performance. It is further understood and agreed that if
at any time a violation of any term of this Agreement is asserted
by any party hereto, that party shall have the right to seek
specific performance of that term and/or any other necessary and
proper relief, including, but not limited to, damages, from a
court of competent jurisdiction. Except as provided in Paragraph
5 of this Agreement, any such action or any other action by Stump
against any of the Companies or the other Releasees shall be
commenced in the State Courts of New Jersey or the Federal
District Court for the District of New Jersey. The parties hereto
hereby consent to the jurisdiction and venue of said courts.
Stump hereby agrees that effective service of process may be made
upon him by mail at his present residence address, heretofore
furnished by Stump to the Company, or any substituted address
furnished to the Company by Stump. The prevailing party in such
court action shall be entitled to recover its reasonable costs and
attorneys' fees.
23. Notices. All notices required to be transmitted by this Agreement
shall be in writing and shall be personally delivered or mailed
(by registered or certified mail, return receipt requested,
postage prepaid) to the address of the party to whom intended as
specified below or to such different address as one party shall
have notified the other party in like fashion:
(a) If to the Company, at:
Professional Services Group, Inc.
14950 Heathrow Forest Parkway
Suite 200
Houston, Texas USA 77032-3842
Attention: President
- and -
Air & Water Technologies Corporation
P.O. Box 1500
Somerville, New Jersey USA 08876
Attention: Chief Executive Officer
with a copy to: General Counsel
(b) If to Stump, at:
Mr. Michael M. Stump
Route 1, Box 2296
New Caney, Texas USA 77357
Any such notices shall be effective upon receipt, if personally
delivered, or five (5) business days after mailing, if mailed.
Unless otherwise expressly provided, all references in this
Agreement to "days" mean "calendar days".
24. Counterparts. This Agreement may be signed in counterparts, each
of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
25. Acknowledgement. Stump acknowledges that he has carefully read
this Agreement, fully understands and accepts all of its
provisions, and signs it voluntarily of his own free will. Stump
further acknowledges that he has been provided a full opportunity
to review and reflect on the terms of this Agreement and to seek
the advice of legal counsel of his choice.
IN WITNESS WHEREOF, the parties have hereunto affixed their
signatures as of the date first above written.
PROFESSIONAL SERVICES GROUP, INC.
By: ________________________________
Title: ________________________________
Witness: ________________________________
_________________________________________
MICHAEL M. STUMP
Witness: ________________________________
ATTACHMENT 1
Michael M. Stump
Route 1, Box 2296
New Caney, Texas USA 77357
Date: December 4, 1996
Douglas A. Satzger, Esq.
Senior Vice President, General
Counsel and Secretary
Air & Water Technologies Corporation
P.O. Box 1500
Somerville, NJ 08876
Dear Mr. Satzger:
I hereby resign, effective today, from all positions I hold,
whether as an employee, officer, director, trustee, or otherwise, with Air &
Water Technologies Corporation or with any and all direct and indirect
subsidiaries and affiliates of Air & Water Technologies Corporation,
including, but not necessarily limited to, Professional Services Group, Inc.
Very truly yours,
Michael M. Stump
Exhibit 11
AIR & WATER TECHNOLOGIES CORPORATION
COMPUTATION OF PER SHARE EARNINGS
(in thousands except per share amounts)
<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Primary Earnings (Loss) Per Share:
1. Income (loss) from continuing operations $ (5,268) $ (7,985) $ (210,991)
2. Less preferred dividends (3,300) (3,300) (1,245)
3. Loss from continuing operations applicable
to common shareholders (8,568) (11,285) (212,236)
4. Loss from discounted operations -- -- (42,787)
5. Extraordinary item -- -- (8,000)
6. Net loss applicable to common shareholders (8,568) (11,285) (264,023)
7. Weighted average shares outstanding 32,018 32,018 27,632
8. Loss per share from continuing operations (3/7) $ (0.27) $ (0.35) $ (7.68)
9. Loss per share from discounted operations (4/7) -- -- (1.55)
10. Loss per share on extraordinary item (5/7) -- -- (0.29)
11. Net loss per share $ (0.27) $ (0.35) $ (9.52)
Fully Diluted Earnings (Loss) Per Share:
12. Line 3, above $ (8,568) $ (11,285) $ (212,236)
13. Add back preferred dividends 3,300 3,300 1,245
14. Add back interest, in assumed conversion of the
Company's 8% Convertible Debentures 9,200 9,200 9,200
15. Income (loss) from continuing operations 3,932 1,215 (201,791)
16. Loss from discounted operations -- -- (42,787)
17. Extraordinary item -- -- (8,000)
18. Net income (loss) $ 3,932 $ 1,215 $ (252,578)
19. Weighted average shares outstanding (Line 7) 32,018 32,018 27,632
20. Add additional shares issuable upon assumed
conversion of preferred shares from date of issuance 4,800 4,800 1,802
21. Add additional shares issuable upon assumed conversion
of the Company's 8% Convertible Debentures 3,833 3,833 3,833
22. Adjusted weighted average shares outstanding 40,651 40,651 33,267
23. Earnings (loss) per share from continuing operations
(15/22) $ 0.10 $ 0.03 $ (6.07)
24. Loss per share from discounted operations (16/22) -- -- (1.29)
25. Loss per share from extraordinary item (17/22) -- -- (0.23)
26. Net income (loss) per share (12/15)* $ 0.10 $ 0.03 $ (7.59)
<FN>
- ----------------------------------------------------------------------------------------------------------------------------
*Fully diluted earnings (loss) per share are not presented as the assumed
conversion of the Company's 8% Convertible Debentures is anti-dilutive.
</TABLE>
SUBSIDIARIES OF
AIR & WATER TECHNOLOGIES CORPORATION
Company State of Incorporation
------- ----------------------
AWT Air & Water Technologies Canada, Limited Canada
AWT Capital, Inc. Delaware
Chesapeake Sunrise Marketing Corporation Delaware
Custodis-Cottrell, Inc. New Jersey
Custodis-Cottrell Canada, Inc. Canada
Cottrell Environmental Sciences, Inc. New Jersey
Custodis-Cottrell International, Inc. Delaware
Custodis-Ecodyne, Inc. Delaware
EnviroSolutions, LLC Texas
Falcon Associates, Inc. Pennsylvania
Flex-Kleen Corp. Delaware
Lerman Design Corp. New Jersey
M&E Auburn, Inc. Delaware
M&E II, Inc. Delaware
M&E Pacific, Inc. Delaware
MEPAC Services, Inc. Delaware
Merscot Inc. Delaware
Merscot II, Inc. Delaware
Metcalf & Eddy, Inc. Delaware
Metcalf & Eddy of Canada Ltd. Canada
Metcalf & Eddy de Puerto Rico, Inc. Delaware
Metcalf & Eddy International, Inc. Delaware
Metcalf & Eddy Management, P.C.
Metcalf & Eddy of Massachusetts, Inc. Delaware
Metcalf & Eddy of Michigan, Inc. Michigan
Metcalf & Eddy of New York, Inc. New York
Metcalf & Eddy of Ohio, Inc. Ohio
Metcalf & Eddy Services, Inc. Delaware
Metcalf & Eddy Technologies, Inc. Delaware
PIECO, Inc. Florida
Power Application & Mfg. Co. Delaware
PQ Energy, Inc. Louisiana
Production Rentals, Inc. Louisiana
Professional Services Group, Inc. Minnesota
PSG of Puerto Rico Inc. Puerto Rico
Regenerative Environmental Equipment Co., Inc. New Jersey
Rental Tools, Inc. Louisiana
Research-Cottrell, Inc. New Jersey
Research-Cottrell (Belgium), S.A. Belgium
Research-Cottrell (Canada) Ltd. Canada
Research-Cottrell Centrozap GmbH Poland
Research-Cottrell (Deutschland) GmbH Germany
Research-Cottrell Energy Companies, Inc. Delaware
Research-Cottrell Intermediate Holding Corporation Delaware
Research-Cottrell International, Inc. New Jersey
Research-Cottrell Japan Ltd. Japan
Research-Cottrell France S.A. France
Research-Cottrell Technologies, Inc. California
Research-Cottrell UK Limited Great Britain
Thermal Transfer Corporation Pennsylvania
Utility Services Group Inc.
2815869 Canada, Inc. Canada
Vee-Six, Inc. Delaware
Arthur Andersen LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Air & Water Technologies Corporation:
As independent public accountants, we hereby consent to the incorporation
of our report included in this Form 10-K into the Company's previously
filed Registration Statement File No. 33-36327.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
January 23, 1997
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Air &
Water Technologies Corporation's previously filed Registration Statement on
Form S-8 (No. 33-36327) of our report, dated January 8, 1997 except for the
first paragraph of Note 8 as to which the date is January 24, 1997, which
appears on page 27 of this annual report on Form 10-K.
McGLADREY & PULLEN, LLP
New York, New York
January 29, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of operations and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<CASH> 12,667
<SECURITIES> 0
<RECEIVABLES> 105,933
<ALLOWANCES> 5,000
<INVENTORY> 11,319
<CURRENT-ASSETS> 185,043
<PP&E> 65,357
<DEPRECIATION> 29,925
<TOTAL-ASSETS> 538,270
<CURRENT-LIABILITIES> 177,487
<BONDS> 306,542
0
12
<COMMON> 32
<OTHER-SE> 54,603
<TOTAL-LIABILITY-AND-EQUITY> 538,270
<SALES> 701,099
<TOTAL-REVENUES> 701,099
<CGS> 567,758
<TOTAL-COSTS> 567,758
<OTHER-EXPENSES> 20,015
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,808
<INCOME-PRETAX> (5,686)
<INCOME-TAX> (418)
<INCOME-CONTINUING> (5,268)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,268)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> .10
</TABLE>
