<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14D-1
TENDER OFFER STATEMENT
Pursuant to Section 14(d)(1) of the Securities Exchange Act of 1934
and
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 17)
Aqua Alliance Inc.
(Name of Subject Company)
Vivendi
Aqua Acquisition Corporation
(Bidders)
----------------
Class A Common Stock, par value $.001 per share
and
Warrants to Purchase Class A Common Stock, par value $.001 per share
(Title of Class of Securities)
----------------
038367108
038367116
(CUSIP Numbers of Class of Securities)
----------------
Michel Avenas
Aqua Acquisition Corporation
c/o Vivendi North America Management Services, Inc.
800 Third Avenue
38th Floor
New York, NY 10022
Telephone: (212) 753-2000
(Name, Address and Telephone Number of Person authorized to
Receive Notices and Communications on Behalf of Bidders)
Copy to:
Martha E. McGarry, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Telephone: (212) 735-3000
CALCULATION OF FILING FEE
<TABLE>
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<CAPTION>
Transaction Amount of
Valuation* Filing Fee**
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<S> <C>
$97,091,876 $19,418
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</TABLE>
* Estimated for purposes of calculating the amount of the filing fee only.
This amount assumes the purchase of 32,935,254 shares of Class A Common
Stock, par value $.001 per share (the "Shares"), of Aqua Alliance Inc. (the
"Company"), a Delaware corporation, at a price of $2.90 per Share net to the
seller in cash, without interest thereon and 3,949,099 warrants to purchase
the Shares issued pursuant to the Company Rights Offering dated January 26,
1998 (the "Warrants"), at the purchase price of $0.40 per Warrant. Such
number of Shares represents the 31,551,754 Shares outstanding as of July 9,
1999, not owned by Vivendi, a societe anonyme organized under the laws of
the Republic of France and its wholly owned affiliates, and assumes the
issuance prior to the consummation of the Offer of 1,383,500 Shares upon the
exercise of outstanding options. Such number of Warrants represents the
3,949,099 Warrants outstanding as of July 9, 1999.
** The amount of the filing fee calculated in accordance with Regulation
240.0-11 of the Securities Exchange Act of 1934, as amended, equals 1/50th
of one percent of the value of the transaction.
[ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
Amount Previously Paid: Not applicable. Form or Registration No.: Not
Filing Party: Not applicable. applicable.
Date Filed: Not applicable.
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<PAGE>
14D-1 and 13D
CUSIP Nos. 038367108/ Page 2 of [ ]
038367116 Pages
1Name of Reporting Person I.R.S. Identification No. of
Above Person (Entities Only)
Aqua Acquisition Corporation
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2Check the Appropriate Box if a Member of a Group (a) [X]
(b) [_]
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3
SEC Use Only
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4
Sources of Funds AF
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5Check Box if Disclosure of Legal Proceedings is Required Pursuant to [_]
Item 2(d) or 2(e)
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6
Citizenship or Place of Organization
Delaware
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7
Aggregate Amount Beneficially Owned by Each Reporting
Person
0 shares of Class A Common Stock
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8
Check Box if the Aggregate Amount in Row (7) Excludes [_]
Certain Shares
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9Percent of Class Represented by Amount in Row (7)
0%
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10
Type of Reporting Person
CO
2
<PAGE>
14D-1 and 13D
CUSIP Nos. 038367108/ Page 3 of [ ]
038367116 Pages
1Name of Reporting Person I.R.S. Identification No. of
Above Person (Entities Only)
Vivendi (formerly named Compagnie Generale des Eaux)
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2Check the Appropriate Box if a Member of a Group
(a) [X]
(b) [_]
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3
SEC Use Only
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4
Sources of Funds WC;OO
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5Check Box if Disclosure of Legal Proceedings is Required Pursuant to [_]
Item 2(d) or 2(e)
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6
Citizenship or Place of Organization
Republic of France
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7
Aggregate Amount Beneficially Owned by Each Reporting
Person
153,714,675 shares of Class A Common Stock*
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8
Check Box if the Aggregate Amount in Row (7) Excludes [_]
Certain Shares
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9Percent of Class Represented by Amount in Row (7)
83%
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10Type of Reporting Person
CO
* All such Shares are owned directly and indirectly by Vivendi through its
wholly owned subsidiary, Vivendi North America Operations, Inc., which owns
153,714,675 shares of Class A Common Stock.
3
<PAGE>
TENDER OFFER
This Tender Offer Statement on Schedule 14D-1 (this "Statement") relates to
the offer by Aqua Acquisition Corporation (the "Purchaser"), a Delaware
corporation and an indirect wholly owned subsidiary of Vivendi ("Parent"), a
societe anonyme organized under the laws of the Republic of France, to
purchase all of the outstanding shares of Class A Common Stock, par value
$.001 per share (the "Shares"), of Aqua Alliance Inc. (the "Company"), a
Delaware corporation, at a purchase price of $2.90 per Share, net to the
seller in cash, without interest, and all outstanding Warrants to purchase the
Shares issued pursuant to the Company Rights Offering dated January 26, 1998
(the "Warrants"), at the purchase price of $0.40 per Warrant, upon the terms
and subject to the conditions set forth in the Offer to Purchase dated July
16, 1999 (the "Offer to Purchase"), a copy of which is attached hereto as
Exhibit (a)(1), and in the related Letter of Transmittal, a copy of which is
attached hereto as Exhibit (a)(2) (which together constitute the "Offer").
This Statement also constitutes a Statement on Schedule 13D with respect to
the beneficial ownership of each of the Purchaser and Parent with respect to
the Shares. The item numbers and responses thereto are in accordance with the
requirements of Schedule 14D-1.
Item 1. Security and Subject Company.
(a) The name of the subject company is Aqua Alliance Inc. The address of its
principal executive offices is 30 Harvard Mill Square, Wakefield,
Massachusetts 01880.
(b) The information set forth in the "INTRODUCTION," "SPECIAL FACTORS--
Purpose and Structure of the Offer and the Merger; Plans for the Company after
the Offer and the Merger," "--Rights of Stockholders in the Offer and the
Merger" and "THE TENDER OFFER--Section 1. Terms of the Offer" of the Offer to
Purchase is incorporated herein by reference.
(c) The information set forth in "THE TENDER OFFER--Section 5. Price Range
of the Shares and Warrants; Dividends" of the Offer to Purchase is
incorporated herein by reference.
Item 2. Identity and Background.
(a)-(d), (g) This Statement is being filed by the Purchaser and Parent. The
information set forth in the "INTRODUCTION" and "THE TENDER OFFER--Section 8.
Certain Information Concerning Parent and the Purchaser" of the Offer to
Purchase is incorporated herein by reference. The name, business address,
present principal occupation or employment, material occupations, positions,
offices or employments for the past five years and citizenship of each
director and executive officer of Parent and the Purchaser and the name,
principal business and address of any corporation or other organization in
which such occupations, positions, offices and employments are or were carried
on are set forth in Schedule I of the Offer to Purchase and incorporated
herein by reference.
(e)-(f) During the last five years neither the Purchaser nor Parent nor, to
the best knowledge of the Purchaser and Parent, any of the persons listed in
Schedule I of the Offer to Purchase have been convicted in a criminal
proceeding (excluding traffic violations or similar misdemeanors) or were a
party to a civil proceeding of a judicial or administrative body of competent
jurisdiction as a result of which any such person was or is subject to a
judgment, decree or final order enjoining future violations of, or prohibiting
activities subject to, federal or state securities laws or finding any
violation of such laws.
Item 3. Past Contacts, Transactions or Negotiations with the Subject Company.
(a)(1) Other than the transactions described in Item 3(b) below, neither the
Purchaser nor Parent nor, to the best knowledge of the Purchaser and Parent,
any of the persons listed in Schedule I of the Offer to Purchase have entered
into any transaction with the Company, or any of the Company's affiliates
which are corporations, since the commencement of the Company's third full
fiscal year preceding the date of this Statement, the
4
<PAGE>
aggregate amount of which was equal to or greater than one percent of the
consolidated revenues of the Company for (i) the fiscal year in which such
transaction occurred or (ii) the portion of the current fiscal year which has
occurred if the transaction occurred in such year.
(a)(2) Other than the transactions described in Item 3(b) below, neither the
Purchaser nor Parent nor, to the best knowledge of Purchaser and Parent, any
of the persons listed in Schedule I of the Offer to Purchase have entered into
any transaction since the commencement of the Company's third full fiscal year
preceding the date of this Statement, with the executive officers, directors
or affiliates of the Company which are not corporations, in which the
aggregate amount involved in such transaction or in a series of similar
transactions, including all periodic installments in the case of any lease or
other agreement providing for periodic payments or installments, exceeded
$40,000.
(b) The information set forth in the "INTRODUCTION," "SPECIAL FACTORS--
Purpose and Structure of the Offer and the Merger; Plans for the Company after
the Offer and the Merger," "THE TENDER OFFER--Section 7. Certain Information
Concerning the Company" and "--Section 8. Certain Information Concerning
Parent and the Purchaser" of the Offer to Purchase is incorporated herein by
reference.
Item 4. Source and Amount of Funds or Other Consideration.
(a)-(b) The information set forth in "SPECIAL FACTORS--Financing of the
Offer and the Merger" and "THE TENDER OFFER--Section 9. Source and Amount of
Funds" of the Offer to Purchase is incorporated herein by reference.
(c) Not applicable.
Item 5. Purpose of the Tender Offer and Plans or Proposals of the Bidder.
(a)-(e) The information set forth in the "INTRODUCTION," "SPECIAL FACTORS--
Purpose and Structure of the Offer and the Merger; Plans for the Company after
the Offer and the Merger" and "--The Merger Agreement" of the Offer to
Purchase is incorporated herein by reference.
(f)-(g) The information set forth in "THE TENDER OFFER--Section 6. Possible
Effects of the Offer on the Market for the Shares and Warrants; AMEX Listing;
Exchange Act Registration; Margin Regulations" of the Offer to Purchase is
incorporated herein by reference.
Item 6. Interest in Securities of the Subject Company.
(a)-(b) The information set forth in "INTRODUCTION," "SPECIAL FACTORS--
Beneficial Ownership of the Shares and Warrants," "THE TENDER OFFER--Section
8. Certain Information Concerning Parent and the Purchaser" and Schedule I of
the Offer to Purchase is incorporated herein by reference.
Item 7. Contracts, Arrangements, Understandings or Relationships with Respect
to the Subject Company's Securities.
The information set forth in the "INTRODUCTION," "SPECIAL FACTORS--Purpose
and Structure of the Offer and the Merger; Plans for the Company after the
Offer and the Merger," "--Related Party Transactions," "THE TENDER OFFER--
Section 1. Terms of the Offer," "--Section 8. Certain Information Concerning
Parent and the Purchaser," "--Section 9. Source and Amount of Funds" and "--
Section 12. Certain Fees and Expenses" of the Offer to Purchase is
incorporated herein by reference.
Item 8. Persons Retained, Employed or to be Compensated.
The information set forth in "THE TENDER OFFER--Section 13. Certain Fees and
Expenses" and "SPECIAL FACTORS--Analysis of Investment Banker to Parent" of
the Offer to Purchase is incorporated herein by reference.
5
<PAGE>
Item 9. Financial Statements of Certain Bidders.
The information set forth in "THE TENDER OFFER--Section 8. Certain
Information Concerning Parent and the Purchaser" of the Offer to Purchase is
incorporated herein by reference.
Item 10. Additional Information.
(a) Except as disclosed in Items 3 and 7 above, there are no present or
proposed material contracts, arrangements, understandings or relationships
between Purchaser or Parent, or to the best knowledge of Purchaser and Parent,
any of the persons listed in Schedule I of the Offer to Purchase, and the
Company, or any of its executive officers, directors, controlling persons or
subsidiaries.
(b)-(c) The information set forth in the "INTRODUCTION," "SPECIAL FACTORS--
Purpose and Structure of the Offer and the Merger; Plans for the Company after
the Offer and the Merger," "THE TENDER OFFER--Section 10. Certain Conditions
of the Offer" and "--Section 11. Certain Legal Matters; Required Regulatory
Approvals" of the Offer to Purchase is incorporated herein by reference.
(d) The information set forth in "THE TENDER OFFER--Section 6. Possible
Effects of the Offer on the Market for the Shares and Warrants; AMEX Listing;
Exchange Act Registration; Margin Regulations" and "--Section 11. Certain
Legal Matters; Required Regulatory Approvals" of the Offer to Purchase is
incorporated herein by reference.
(e) The information set forth in "THE TENDER OFFER--Section 12. Certain
Legal Matters; Required Regulatory Approvals" of the Offer to Purchase is
incorporated herein by reference.
(f) The information set forth in the Offer to Purchase and the Letter of
Transmittal, copies of which are attached hereto as Exhibits (a)(1) and
(a)(2), respectively, to the extent not otherwise incorporated herein by
reference, is incorporated herein by reference.
Item 11. Materials to be Filed as Exhibits.
<TABLE>
<C> <S>
(a)(1) Offer to Purchase dated July 16, 1999.
(a)(2) Letter of Transmittal.
(a)(3) Notice of Guaranteed Delivery.
(a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and
Other Nominees.
(a)(5) Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
(a)(6) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
(a)(7) Press Release of Company dated July 12, 1999.
(b) Not applicable.
(c) (1) Agreement and Plan of Merger, dated as of July 9, 1999, by and among
the Company, the Purchaser and Parent.
(c)(2) Recapitalization Agreement, dated as of September 24, 1997, among the
Company, Parent and Vivendi North America Company ("VNAC") and
Amendment No. 1 to the Recapitalization Agreement, dated as of January
26, 1998, among the Company, Parent and VNAC.
(c)(3) Investment Agreement, dated as of March 30, 1994, among the Company,
Parent and VNAC and Amendment No. 1 to the Investment Agreement, dated
as of March 31, 1999, among the Company, Parent and VNAC.
(c)(4) Amendment dated as of July 15, 1999, by and among the Company, the
Purchaser and Parent to the Agreement and Plan of Merger, dated as of
July 9, 1999 by and among the Company, the Purchaser and Parent.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
</TABLE>
6
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
Date: July 16, 1999
Aqua Acquisition Corporation
/s/ Michel Avenas
By: _________________________________
Name:Michel Avenas
Title:President
Vivendi
/s/ Daniel Caille
By: _________________________________
Name:Daniel Caille
Title:Directeur
7
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Item No. Description
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<C> <S>
(a)(1) Offer to Purchase dated July 16, 1999.
(a)(2) Letter of Transmittal.
(a)(3) Notice of Guaranteed Delivery.
(a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and
Other Nominees.
(a)(5) Letter to Clients for use by Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees.
(a)(6) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
(a)(7) Press Release of Company dated July 12, 1999.
(b) Inapplicable.
(c)(1) Agreement and Plan of Merger, dated as of July 9, 1999, by and among
the Company, the Purchaser and Parent.
(c)(2) Recapitalization Agreement, dated as of September 24, 1997, among the
Company, Parent and Vivendi North America Company ("VNAC") and
Amendment No. 1 to the Recapitalization Agreement, dated as of
January 26, 1998, among the Company, Parent and VNAC.
(c)(3) Investment Agreement, dated as of March 30, 1994, among the Company,
Parent and VNAC and Amendment No. 1 to the Investment Agreement,
dated as of March 31, 1999, among the Company, Parent and VNAC.
(c)(4) Amendment dated as of July 15, 1999, by and among the Company, the
Purchaser and Parent to the Agreement and Plan of Merger, dated as of
July 9, 1999 by and among the Company, the Purchaser and Parent.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
</TABLE>
<PAGE>
EXHIBIT (a)(1)
<PAGE>
OFFER TO PURCHASE FOR CASH
ANY AND ALL OUTSTANDING SHARES OF COMMON STOCK AND
ANY AND ALL OUTSTANDING WARRANTS TO PURCHASE COMMON STOCK
OF
AQUA ALLIANCE INC.
BY
AQUA ACQUISITION CORPORATION
AN INDIRECT WHOLLY OWNED SUBSIDIARY
OF
VIVENDI
AT
$2.90 NET PER SHARE OF COMMON STOCK AND
$0.40 NET PER WARRANT
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK
CITY TIME, ON THURSDAY, AUGUST 12, 1999, UNLESS THE OFFER IS EXTENDED.
THE BOARD OF DIRECTORS OF AQUA ALLIANCE INC. (THE "COMPANY"), ACTING ON THE
UNANIMOUS RECOMMENDATION OF A SPECIAL COMMITTEE THEREOF, HAS DETERMINED THAT
THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING EACH
OF THE OFFER AND THE MERGER (AS SUCH TERMS ARE DEFINED HEREIN) ARE FAIR TO AND
IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND WARRANTHOLDERS,
HAS APPROVED THE MERGER AGREEMENT, THE OFFER AND THE MERGER AND DECLARED THE
MERGER AGREEMENT ADVISABLE AND RESOLVED TO RECOMMEND THAT STOCKHOLDERS AND
WARRANTHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES AND WARRANTS PURSUANT
TO THE OFFER.
----------------
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (i) THERE HAVING BEEN
VALIDLY TENDERED AND NOT PROPERLY WITHDRAWN PRIOR TO THE EXPIRATION OF THE
OFFER AT LEAST THAT NUMBER OF SHARES OF CLASS A COMMON STOCK, PAR VALUE $.001
PER SHARE, OF THE COMPANY (THE "SHARES") AND WARRANTS TO PURCHASE SHARES
("WARRANTS") THAT WOULD, WHEN AGGREGATED WITH THE SHARES AND WARRANTS OWNED
DIRECTLY OR INDIRECTLY BY VIVENDI, REPRESENT AT LEAST 90% OF ALL SHARES THEN
OUTSTANDING (ASSUMING EXERCISE OF ALL SUCH WARRANTS (THE "MINIMUM CONDITION"))
AND (ii) THERE NOT BEING ANY STATUTE, RULE OR REGULATION OR ANY DECREE, ORDER
OR INJUNCTION PROMULGATED, ENACTED, ENTERED OR ENFORCED BY ANY UNITED STATES
FEDERAL OR STATE GOVERNMENT, OR OTHER GOVERNMENTAL ENTITY WHICH WOULD PROHIBIT
OR RESTRICT CONSUMMATION OF THE OFFER OR THE MERGER. THE OFFER IS ALSO SUBJECT
TO CERTAIN OTHER CONDITIONS. SEE "THE TENDER OFFER--SECTION 10. CERTAIN
CONDITIONS OF THE OFFER."
----------------
<PAGE>
IMPORTANT
Any stockholder desiring to tender all or any portion of such stockholder's
Shares and any holder of Warrants ("Warrantholder") desiring to tender all or
any portion of such Warrantholder's Warrants either should (i) complete and
sign the Letter of Transmittal (or a facsimile thereof) in accordance with the
instructions in the Letter of Transmittal, and mail or deliver it together
with the certificate(s) representing validly tendered Shares or Warrants and
any other required documents to the Depositary (as defined herein) or tender
such Shares or Warrants pursuant to the procedures for book-entry transfer set
forth in "THE TENDER OFFER--Section 3. Procedures for Accepting the Offer and
Tendering the Shares and Warrants" or (ii) request such stockholder's and/or
Warrantholder's broker, dealer, commercial bank, trust company or other
nominee to effect such transaction. A stockholder whose Shares or a
Warrantholder whose Warrants are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee must contact such broker,
dealer, commercial bank, trust company or other nominee if such person desires
to tender such Shares or Warrants.
A stockholder who desires to tender the Shares and whose certificates
representing such Shares are not immediately available or who cannot comply
with the procedures for book-entry transfer on a timely basis, may tender such
Shares by following the procedures for guaranteed delivery set forth in "THE
TENDER OFFER--Section 3. Procedures for Accepting the Offer and Tendering the
Shares and Warrants."
A Warrantholder who desires to tender Warrants and whose certificates
representing such Warrants are not immediately available or who cannot comply
with the procedures for book-entry transfer on a timely basis, may tender such
Warrants by following the procedures for guaranteed delivery set forth in "THE
TENDER OFFER--Section 3. Procedures for Accepting the Offer and Tendering the
Shares and Warrants."
Questions and requests for assistance may be directed to the Information
Agent (as defined herein) at its address and telephone number set forth on the
back cover of this Offer to Purchase. Additional copies of this Offer to
Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery and
other related materials may be obtained from the Information Agent or from
brokers, dealers, commercial banks, trust companies and other nominees.
----------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR
MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
----------------
The Dealer Manager for the Offer is:
Lazard Freres & Co. llc
30 Rockefeller Plaza
New York, New York 10020
(212) 632-6717
July 16, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
INTRODUCTION............................................................. 1
SPECIAL FACTORS.......................................................... 3
Background of the Offer and the Merger; Contacts with the Company...... 3
Recommendation of the Special Committee and the Company Board; Fairness
of the Offer and the Merger........................................... 8
Opinion of Beacon...................................................... 9
Company Financial Projections.......................................... 15
Position of Parent and the Purchaser Regarding Fairness of the Offer
and the Merger........................................................ 16
Analysis of Investment Banker to Parent................................ 17
Forward Looking Statements............................................. 19
Purpose and Structure of the Offer and the Merger; Plans for the
Company After the Offer and the Merger................................ 20
Rights of Stockholders in the Offer and the Merger..................... 23
The Merger Agreement................................................... 24
Interests of Certain Persons in the Offer and the Merger............... 27
Beneficial Ownership of the Shares and Warrants........................ 29
Related Party Transactions............................................. 30
Financing of the Offer and the Merger.................................. 31
Certain U.S. Federal Income Tax Consequences........................... 32
THE TENDER OFFER......................................................... 33
1.Terms of the Offer.................................................. 33
2.Acceptance for Payment and Payment.................................. 34
3.Procedures for Accepting the Offer and Tendering the Shares and
Warrants............................................................ 35
4.Withdrawal Rights................................................... 38
5.Price Range of the Shares and Warrants; Dividends................... 39
6. Possible Effects of the Offer on the Market for the Shares and
Warrants; AMEX Listing; Exchange Act Registration; Margin
Regulations........................................................ 40
7.Certain Information Concerning the Company.......................... 42
8.Certain Information Concerning Parent and the Purchaser............. 45
9.Source and Amount of Funds.......................................... 46
10.Certain Conditions of the Offer..................................... 46
11.Certain Legal Matters; Required Regulatory Approvals................ 47
12.Certain Fees and Expenses........................................... 51
13.Miscellaneous....................................................... 51
SCHEDULE I Directors and Executive Officers of Parent, the Purchaser and
the Company............................................................. I-1
SCHEDULE II Opinion of The Beacon Group Capital Services, LLC........... II-1
SCHEDULE III Section 262 of the Delaware General Corporation Law......... III-1
SCHEDULE IV Audited Financial Statements for the Company for the Years
Ended October 31, 1997 and October 31, 1998................. IV-1
SCHEDULE V Unaudited Financial Statements for the Company for the Six-
Month Periods
Ended April 30, 1998 and April 30, 1999..................... V-1
</TABLE>
<PAGE>
To All Holders of Shares of Common Stock and
Holders of Warrants to Purchase Shares of Common Stock of Aqua Alliance Inc.:
INTRODUCTION
Aqua Acquisition Corporation (the "Purchaser"), a Delaware corporation and
an indirect wholly owned subsidiary of Vivendi ("Parent"), a societe anonyme
organized under the laws of the Republic of France, hereby offers to purchase
(i) all outstanding shares of Class A Common Stock, par value $.001 per share
(the "Shares") of Aqua Alliance Inc. (the "Company"), a Delaware corporation,
at a purchase price of $2.90 per Share (the "Share Offer Price") and (ii) all
outstanding Warrants to purchase the Shares issued pursuant to the Company
Rights Offering dated January 26, 1998 ("Warrants"), at the purchase price of
$0.40 per Warrant (the "Warrant Offer Price"), in each case, net to the seller
in cash, without interest thereon, upon the terms and subject to the
conditions set forth in this Offer to Purchase and in the related Letter of
Transmittal (which together constitute the "Offer").
Parent currently beneficially owns 153,714,675 Shares, constituting
approximately 83% of the issued and outstanding Shares at July 9, 1999. Parent
currently does not directly or beneficially own any Warrants. Nominees of
Parent currently constitute a majority of the members of the Board of
Directors of the Company (the "Company Board"). Following consummation of the
Offer, the Purchaser will merge with and into the Company (the "Merger") with
the Company continuing as the surviving corporation (the "Surviving
Corporation"). As the holder of more than 51% of the Shares, Parent currently
possesses sufficient voting power to cause the Company to consummate the
Merger without the vote of any other stockholder of the Company. Such
ownership, however, does not compel any stockholder or Warrantholder to accept
the Offer or tender their Shares or Warrants. Subject to dissenters' rights,
Shares not tendered in the Offer shall be cancelled in the Merger and
converted into the right to receive an amount (the "Merger Consideration")
equal to the Share Offer Price. Warrants not tendered in the Offer shall, as a
result of the Merger, become exercisable in exchange for the Merger
Consideration upon payment of the exercise price of such Warrants. As soon as
practicable after completion of the Merger, the Surviving Corporation will
enter into a Supplemental Warrant Agreement pursuant to which it will assume
the obligation to pay the Merger Consideration upon the exercise of Warrants.
The purpose of the Offer is to enable Parent to own the entire equity
interest in the Company. Parent desires to acquire the minority equity
interest at this time to integrate certain of the Company's operations into
one or more of Parent's existing water businesses. See "SPECIAL FACTORS--
Background of the Offer and the Merger; Contacts with the Company."
The Company Board, by unanimous vote of all directors present and voting,
based upon, among other things, the unanimous recommendation and approval of a
committee of the Company Board comprised of independent directors (the
"Special Committee") has determined that the Merger Agreement (as defined
below) and the transactions contemplated thereby, including each of the Offer
and the Merger, are fair to and in the best interests of, the Company and its
stockholders and Warrantholders, approved the Merger Agreement, the Offer and
the Merger, declared the Merger Agreement to be advisable and resolved to
recommend that stockholders and Warrantholders accept the Offer and tender
their Shares and Warrants pursuant to the Offer.
The Company has advised Parent that The Beacon Group Capital Services, LLC
("Beacon") has delivered to the Special Committee its written opinion, dated
July 9, 1999, attached hereto as Schedule II, to the effect that, as of such
date, the consideration to be received by the holders of the Shares, other
than Parent and its affiliates (the "Public Stockholders"), pursuant to the
Offer and the Merger is fair to such stockholders from a financial point of
view. The Company has filed with the United States Securities and Exchange
Commission (the "Commission") a Solicitation/Recommendation Statement on
Schedule 14D-9 (the "Schedule 14D-9"), which is being mailed to stockholders
and Warrantholders herewith.
THE OFFER IS SUBJECT TO THE SATISFACTION OF CERTAIN CONDITIONS. SEE "THE
TENDER OFFER--SECTION 10. CERTAIN CONDITIONS OF THE OFFER," WHICH SETS FORTH
IN FULL THE CONDITIONS OF THE OFFER.
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The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of July 9, 1999 (the "Merger Agreement"), among Parent, the Purchaser and
the Company. The Merger Agreement provides that, among other things, as soon
as practicable after the purchase of the Shares and Warrants pursuant to the
Offer and the satisfaction of the other conditions set forth in the Merger
Agreement, in accordance with the relevant provisions of the General
Corporation Law of the State of Delaware, as amended (the "DGCL"), the
Purchaser will be merged with and into the Company. Following consummation of
the Merger, the Company will continue as the Surviving Corporation and will be
an indirect wholly owned subsidiary of Parent. At the effective time of the
Merger (the "Effective Time"), each Share issued and outstanding immediately
prior to the Effective Time held by the Public Stockholders will be cancelled
and, subject to appraisal rights under the DGCL, converted automatically into
the right to receive the Merger Consideration, without interest. The Merger
Agreement is more fully described in "SPECIAL FACTORS--The Merger Agreement."
Stockholders who hold their Shares at the time of the Merger and who fully
comply with the statutory dissenters' procedures set forth in the DGCL, the
relevant portions of which are attached to this Offer to Purchase as Schedule
III, will be entitled to dissent from the Merger and have the fair value of
their Shares (which may be more than, equal to, or less than the Merger
Consideration) judicially determined and paid to them in cash pursuant to the
procedures prescribed by the DGCL. No dissenters' rights are available to
stockholders in connection with the Offer and no dissenters' rights are
available to Warrantholders in the Offer or the Merger. See "SPECIAL FACTORS--
Rights of Stockholders in the Offer and the Merger."
If the Purchaser owns at least 90% of the outstanding Shares following
consummation of the Offer (assuming the transfer of the Shares currently owned
directly or indirectly by Parent to the Purchaser and exercise of all Warrants
acquired in the Offer), the Purchaser would have the ability to consummate the
Merger without a meeting or vote of the stockholders of the Company, pursuant
to the "short form" merger provisions of Section 253 of the DGCL (a "Short-
Form Merger"). In such circumstances, the Purchaser currently intends to so
effectuate the Merger as soon as practicable. See "SPECIAL FACTORS--Purpose
and Structure of the Offer and the Merger; Plans for the Company After the
Offer and the Merger."
If Parent and the Purchaser own less than 90% of the outstanding Shares
(assuming exercise of all Warrants acquired in the Offer) following the
consummation of the Offer, the consummation of the Merger would require the
approval of and the adoption of the Merger Agreement by the holders of at
least 51% of the outstanding Shares. Parent currently has sufficient voting
power to approve and adopt the Merger Agreement without the vote of any other
stockholder. If Parent and the Purchaser own less than 90% of the outstanding
Shares (assuming exercise of all Warrants acquired in the Offer) following
consummation of the Offer, the Merger Agreement provides that the Purchaser
and the Company promptly use their best efforts to take such steps as are
necessary to cause the Merger to be effective, which will, if the Shares and
Warrants remain registered under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), require filing with the Commission certain
disclosure materials prior to the adoption of the Merger by the Company's
stockholders.
Tendering stockholders and Warrantholders will not be obligated to pay
brokerage fees or commissions or, except as set forth in Instruction 6 of the
Letter of Transmittal, stock transfer taxes on the purchase of the Shares or
Warrants by the Purchaser pursuant to the Offer. The Purchaser will pay all
charges and expenses of ChaseMellon Shareholder Services, L.L.C., as
Depositary (the "Depositary"), and Innisfree M&A Incorporated, as Information
Agent (the "Information Agent"), incurred in connection with the Offer. See
"THE TENDER OFFER--Section 12. Certain Fees and Expenses."
The Company has informed the Purchaser that, as of July 9, 1999, there were
185,226,429 Shares issued and outstanding, 2,000,000 Shares reserved for
issuance upon the exercise of outstanding stock options ("Options") granted
under the Company's stock option or similar plans or agreements and 3,949,099
Shares reserved for issuance upon the exercise of Warrants.
Based on the foregoing, and assuming no additional Shares or Warrants (or
warrants, options or rights exercisable for, or securities convertible into,
Shares) have been issued (other than the Shares issued pursuant to
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such Options and Warrants referred to above), if the Purchaser were to acquire
approximately 14,270,261 Shares and/or Warrants pursuant to the Offer
(assuming the exercise prior to the consummation of the Offer of all Options
the exercise prices of which are less than $2.90), the Purchaser and Parent
would be able to effect the Short-Form Merger.
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION THAT SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS
MADE WITH RESPECT TO THE OFFER.
SPECIAL FACTORS
Background of the Offer and the Merger; Contacts with the Company
Parent's Relationship with the Company
On May 13, 1990, Parent, at that time called Compagnie Generale Des Eaux,
purchased 3,584,875 Shares for $100 million.
On March 18, 1994, Parent purchased an additional 500,000 Shares for an
aggregate purchase price of $5 million.
On March 30, 1994, (i) the Company sold 1,200,000 shares of 5 1/2% Series A
Convertible Exchangeable Preferred Stock, par value $.01 per share (the
"Series A Preferred Stock"), to Parent for $60 million and (ii) Anjou
International Company (now, Vivendi North America Company, a Delaware
corporation ("VNAC")), and an indirect wholly owned subsidiary of Parent, (A)
exchanged the outstanding common stock of 2815869 Canada, Inc. (commonly
referred to as PSG Canada) held by VNAC, for 650,000 Shares and (B) acquired
in a merger all of the outstanding common stock of Professional Services
Group, Inc. (the parent of PSG Canada) in exchange for 5,850,000 Shares.
Pursuant to a March 30, 1994 Investment Agreement (the "Investment
Agreement") among the Company, Parent and VNAC, as subsequently amended by the
Recapitalization Agreement dated as of September 24, 1997 (the
"Recapitalization Agreement"), Parent received the right (i) to designate at
least that number of members of the Company Board that is proportionate to the
aggregate voting control represented by the Shares beneficially owned by
Parent, (ii) to designate the Chairman of the Company Board and (iii) to
appoint the Chief Executive Officer and Chief Financial Officer. The
Recapitalization Agreement also provided that so long as Parent (together with
its affiliates) was the largest stockholder of the Company, the Company would
be Parent's exclusive vehicle in the United States, its possessions and its
territories for Parent's water management and wastewater management and air
pollution activities; provided, that, the foregoing would not apply to any
acquisition or investment by Parent (or any of its affiliates) of a privately
owned, publicly traded or publicly owned company in the water utility sector
whose primary business is the production, distribution and/or sale of potable,
fire, bulk, draining or irrigation water ("Water Business"), nor to Parent's
present or future investment in Philadelphia Suburban Corporation; and
provided, further, that the foregoing shall have no application to Kruger,
Inc., a distributor of water treatment plant parts and components and an
indirect subsidiary of Omnium Traitement et de Valorisation, a wholly owned
subsidiary of Parent. The Recapitalization Agreement also provided that, in
the event Parent or any of its affiliates acquires control of a Water Business
which is also engaged in wastewater activities similar to those conducted by
the Company as of the date of the Investment Agreement, then Parent or such
affiliate shall use reasonable efforts to cause, subject to the fiduciary
duties of the board of directors of such Water Business and other applicable
regulatory standards, that Water Business to offer to the Company (i) the
opportunity to obtain operating and maintenance contracts with the wastewater
management business of such Water Business and (ii) the opportunity to obtain
new engineering contracts with such Water Business, in such case, on terms
which are commercially reasonable in the judgment of such Water Business.
In addition to its direct ownership interest, the Company has benefitted
from certain financial undertakings by Parent, including a $125 million term
loan from Parent and a $60 million credit facility with VNAC, both of
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which were repaid in March 1998 with a portion of the gross proceeds from the
Rights Offering (as defined below). The Company compensates Parent for its
support of the Company's credit facilities, in an amount equal to 0.95% per
annum of the outstanding commitment of its credit facilities, and for other
services, including $2.0 million for financial advisor and legal fees and
expenses related to the transactions described in the Recapitalization
Agreement. Total fees to Parent and its subsidiaries were approximately $6.0
million, $2.3 million and $2.1 million for the three years ended October 31,
1998, 1997 and 1996, respectively. At October 31, 1998 and 1997, the Company
had accounts payable and accrued expenses to Parent and its subsidiaries of
approximately $8,338,000 and $3,483,000, respectively.
Recapitalization
Exchange
On January 28, 1998, pursuant to the terms of the Recapitalization
Agreement, the Company exchanged (the "Exchange") the outstanding 1,200,000
shares of Series A Preferred Stock held by Parent and/or its subsidiaries
(representing all of the issued and outstanding shares of Series A Preferred
Stock) for 34,285,714 Shares. Immediately following the Exchange, Parent
beneficially owned in the aggregate approximately 72.2% of the outstanding
Shares and had voting control of the Company.
Rights Offering
On January 26, 1998, the Company Board declared a dividend (the "Rights
Offering"), to holders of record of Shares as of the close of business on
January 29, 1998, of 120,000,000 transferable subscription rights (the
"Rights") which allowed Rights holders to subscribe for and purchase Shares
and also allowed subscribers (other than Parent and VNAC) in the Rights
Offering to receive Warrants. The Warrants were issued pursuant to the Warrant
Agreement, dated March 9, 1998 between the Company and First Chicago Trust
Company of New York as Warrant Agent (the "Warrant Agreement").
The Rights Offering expired on March 4, 1998. In the Rights Offering,
98,160,427 Rights were exercised to purchase 99,840,089 Shares of which
1,679,662 Shares were purchased pursuant to an over-subscription privilege. In
accordance with the terms of the Recapitalization Agreement, Parent and VNAC
each exercised its basic subscription privilege in full for an aggregate basic
subscription of 86,682,816 Shares, and Parent subscribed for and purchased
19,031,470 additional Shares available as a result of unexercised Rights in
the Rights Offering, for a total aggregate subscription of $185 million.
In addition, 3,949,099 Warrants were issued to subscribers (other than
Parent and VNAC) in the Rights Offering. In accordance with the terms of the
Rights Offering, neither Parent nor VNAC received any Warrants. On March 12,
1998, the Company was notified that the Warrants had been approved for listing
on the AMEX. The Warrants currently trade on the AMEX under the symbol
"AAI.WS."
The Company received gross proceeds of approximately $208 million from the
Rights Offering, including approximately $23 million of publicly raised
proceeds. The Company used a portion of the gross proceeds from the Rights
Offering to repay a $125 million unsecured term loan from Parent and
borrowings under a $60 million credit facility with VNAC. The remaining $23
million of proceeds, representing all of the publicly raised proceeds, were
retained for general corporate purposes, including a reduction in borrowings
under the senior secured bank credit facility, dated as of March 10, 1995,
with Societe Generale and payment of fees of approximately $5.8 million
related to the consummation of the transactions described in the
Recapitalization Agreement.
Following the Rights Offering, Parent beneficially owned an aggregate of
153,609,975 Shares, representing approximately 83% of the issued and
outstanding Shares.
As of December 31, 1998, the Shares owned directly and indirectly by Parent
and by VNAC (approximately 83% of the outstanding shares of such stock at that
date), were transferred to another indirect wholly owned subsidiary of Parent,
Vivendi North America Operations, Inc. ("VNAO").
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On March 22, 1999, Parent announced that it had entered into a definitive
agreement to acquire all of the outstanding stock of United States Filter
Corporation ("U.S. Filter"). Certain of the business operations of U.S. Filter
are similar to certain of the business operations of the Company. The week
following such announcement, the Company Board adopted a resolution
authorizing the creation of a Special Committee comprised of "independent
directors" Martha O. Hesse and John W. Morris.
Although the Investment Agreement originally provided that there would be a
minimum of three "independent directors" on the Company Board, since April 25,
1997, Parent, VNAC and the Company have informally waived such provision and
there have been two members of the Company Board who qualified as "independent
directors." The Investment Agreement was formally amended by Parent, VNAC and
the Company as of March 31, 1999 to provide that there be a minimum of two
"independent directors" on the Company Board.
Going Private
On April 1, 1999, Parent's representative, Michael Avenas, President of the
Purchaser, delivered a written proposal to the Special Committee. The letter
proposed that Parent acquire all of the Shares Parent did not already own at a
price of $2.00 per Share in cash (the "Proposal"). The Proposal did not
specify a structure for such acquisition nor did it detail Parent's plans for
the Company following such acquisition.
On April 12, 1999, the Special Committee retained the law firm of Kaye,
Scholer, Fierman, Hays & Handler, LLP ("Kaye, Scholer") as special counsel to
represent the Special Committee. Members of the Special Committee met with
representatives of Kaye, Scholer, who briefed the Special Committee on the
process and discussed the fiduciary duties of the members of the Special
Committee under applicable state law.
In early April, the Special Committee met with representatives from several
investment banking firms to discuss their credentials and suitability to act
as financial advisor to the Special Committee. Following those meetings, the
Special Committee determined to retain Beacon as financial advisor to the
Special Committee based on Beacon's reputation, expertise in the industry,
advisory experience in similar transactions and the conclusion that Beacon
would not have a conflict with Parent, the Company or any of their respective
affiliates in connection with this assignment. At a meeting on April 12, 1999,
the Special Committee by written agreement, as amended on June 8, 1999 with
respect to final resolutions on fees, formally engaged Beacon. See "SPECIAL
FACTORS--Opinion of Beacon." At such meeting, the Special Committee also
discussed certain provisions of the Investment Agreement and the
Recapitalization Agreement relating to the conduct of the waste water business
by both the Company and Parent. The Special Committee also noted the need for
Special Committee approvals in connection with certain business combinations,
including any short form merger between Parent and the Company. The Special
Committee determined, with advice of counsel, that the Special Committee would
best discharge its fiduciary duties by undertaking a full and thorough
assessment of the value of the Company. The Special Committee determined that
such an assessment would require, among other factors, an analysis of the
value to Parent of terminating the Recapitalization Agreement.
On April 26, 1999, the Special Committee met via telephonic conference, with
representatives of Beacon and Kaye, Scholer in attendance. A representative of
Beacon stated a desire to have Skadden, Arps, Slate, Meagher & Flom LLP
("Skadden, Arps"), counsel to Parent, provide further details relating to the
Proposal. A representative of Kaye, Scholer said he would contact Skadden,
Arps to request further details relating to the Proposal. Noting that although
Beacon was still in the preliminary stages of its investigation, the
representative of Beacon indicated that, to date, Beacon's initial due
diligence investigation of the Company's operations had not revealed any
information that would suggest a price substantially higher than the proposed
$2.00.
A representative of Beacon then gave a detailed report of Beacon's due
diligence investigation and financial analysis to date. He noted that Beacon
had reviewed ten years of publicly reported data for the Company which
indicated a steady decline in the financial results of the Company's
operations during this period. He noted that the thrust of Beacon's inquiries
were two-fold, specifically: (i) whether any turnaround was not reflected in
such
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financial data; and (ii) whether there was any value that was not included in
the financial compilations. In order to address such inquires, he noted that
Beacon had looked at the Company's last three fiscal years and the budget for
1999 as a base. He noted that Beacon would need to analyze: (a) the impact of
a number of special non-recurring charges; (b) the agreement with Puerto Rico,
the Company's largest contract (including, without limitation, an analysis of
collective bargaining issues); (c) the business and assets of Metcalf & Eddy,
Inc. ("M&E"), a subsidiary of the Company (including the rationality of the
business, the competitors thereof and its break-up value); (d) the potential
negative impact on the Company's ability to attract business in the wake of
Parent's acquisition of U.S. Filter; (e) the financial impact of the DOJ
Investigation (as defined and described in "THE TENDER OFFER--Section 11.
Certain Legal Matters; Required Regulatory Approvals"); and (f) the trend in
the industry towards long-term operations and maintenance contracts and the
importance in the industry of procuring significant high profile contracts
(such as the Atlanta contract). The Beacon representative then noted that
Beacon preliminarily had concluded that the recent restructuring of the
Company's operations had not added significantly to the overall value of the
business to date and believed that no extraordinary undisclosed values other
than the Company's net operating losses ("NOLs") existed. The Special
Committee raised a number of questions as to whether there had been some
improvement in the prospects of the Company which the financial data did not
properly reflect and what other factors, if any, might contribute to the
overall value of the Company. The Beacon representative indicated that Beacon
had not completed its analysis and would be better able to address the
remaining value questions after completing more of its analysis.
On May 11, 1999, the Special Committee met with its financial and legal
advisors present. A representative of Beacon addressed the questions which had
been raised at the previous meeting regarding the correlation between the
Company's financial results and its overall value. He indicated that Beacon
viewed the Company as one in transition. He reported that Beacon had concluded
that the steady decline in the results of the Company's operations might be
reversible. The Special Committee discussed what factors might be most useful
in valuing the Company in light of the Company's losses during the last ten
years. The Special Committee then discussed several factors, including the
Company's prospects for the generation of future value and the possibility
that the Company may have had greater value to Parent than it might to other
parties. The Special Committee also discussed, among other things, the
possibility of value to Parent of terminating the Recapitalization Agreement.
The Special Committee then authorized Beacon to conduct exploratory
discussion of the value of the Company with Parent and Lazard Freres & Co. LLC
("Lazard Freres") in order possibly to increase the value to be realized by
stockholders and Warrantholders pursuant to the Proposal.
On May 20, 1999, counsel and financial advisors of the Special Committee met
with representatives of Parent, Skadden, Arps and Lazard Freres. The parties
held a lengthy discussion of what each believed to be the most important
factors contributing to the Company's value and the methodologies which should
be relied upon to calculate that value. Representatives of Parent and Lazard
Freres indicated their view that the price of $2.00 per Share was well above
the range of possible values they had calculated for the Company. Beacon
requested that representatives of the Parent provide it with additional
information on the price to be paid for the Warrants, the ability of the
Company to retain the full and immediate availability of its NOLs following
the completion of a "going private" transaction (the "Transaction"), the
Company's plans, if any, for integrating its operations with U.S. Filter and
its views of certain provisions in the Investment Agreement.
On June 3, 1999, representatives of Beacon and Kaye, Scholer met again with
representatives of Parent, Lazard Freres and Skadden, Arps. The purpose of the
meeting was to respond to those areas of inquiry which had been raised by the
representatives of the Special Committee at their last meeting. It was
discussed that Parent intended the Transaction to take the form of a tender
offer followed by a back-end merger. Representatives of Parent acknowledged
that this would require the approval of the Special Committee under the
relevant provision of the Recapitalization Agreement. Representatives of
Parent then explained that it had not yet proposed to the Special Committee a
purchase price for the Warrants, as any such price would be dependent upon the
final agreed-upon price of the Shares. Representatives of Parent then
presented Parent's concerns regarding restrictions upon the immediate and full
availability of the Company's net operating losses ("NOLs") following the
Transaction. Beacon asked certain questions following this presentation and a
discussion among the parties ensued. Following this, representatives of Parent
discussed the status of future plans for the Company
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following the Transaction. It was explained that Parent had asked its wholly
owned subsidiary, Vivendi North America Management Services, Inc., to examine
various options regarding the future of the Company's consulting and
engineering subsidiary, M&E, following a successful Transaction including the
disposition of part or all of the stock or assets of that company. It was
further explained that no decisions as to the treatment of M&E had been made
at that time and that any such decision would be subject to the approval of
the Company Board. As to the future plans for the Company and, more
specifically, its operations and maintenance subsidiary, Professional Services
Group, Inc. ("PSG"), representatives of Parent explained that, while working
groups had been created to examine the synergies between, and opportunities
for combinations of certain operations of, the Company and/or PSG, on the one
hand, and U.S. Filter and/or its subsidiary United States Filter Operating
Services, Inc., on the other, no decisions had been made at that time as to
how, when or whether to combine those legal entities or their operations.
Beacon asked certain questions regarding this presentation and a discussion
among the parties ensued. Finally, a discussion ensued wherein representatives
of each party discussed the history and their interpretations of various
sections of the Investment Agreement. At the outset, representatives of Parent
indicated that, due to the terms of the Warrant Agreement, a proposal
concerning Warrants would be made depending upon what, if any, agreement was
reached on the price of the Shares.
On June 9, 1999, representatives of Beacon, Kaye, Scholer, Lazard Freres and
Parent met again to discuss their developing perspectives on the valuation of
the Shares. In particular, the investment bankers discussed comparable
companies, comparable transactions, discounted cash flow methodology and
percentage premiums paid comparisons. Generally, the bankers agreed on the
principal aspects of such methodologies. However, a divergence of views
developed over the relevance and significance of the potential for synergies
with affiliates of the Company following the Transaction, the relevance and
significance of certain provisions of the Investment Agreement and the
potential for utilization of the Company's NOLs following the Transaction.
Beacon and Lazard Freres subsequently held a number of telephone discussions
in an effort to clarify and understand further the respective positions of
Parent and the Special Committee concerning the Proposal.
In late June, Michel Avenas called Ms. Hesse to discuss the possibility that
Parent would revise the Proposal to raise the price to be paid for the Shares.
After lengthy negotiations on the telephone, Mr. Avenas suggested a price of
$2.90 per Share and $0.40 per Warrant (representing the difference between the
$2.90 per share price and the $2.50 exercise price per Warrant). Ms. Hesse
responded that she could not speak for the Special Committee, or its financial
advisors or counsel, and suggested that Parent submit such revised Proposal as
a formal offer to the Special Committee.
In anticipation of delivering a revised offer to the Special Committee, on
July 6, 1999, Parent delivered to Kaye, Scholer a draft Merger Agreement which
provided for a tender offer followed by a back-end merger. Kaye, Scholer
proposed a number of changes to this draft document which Kaye, Scholer
negotiated with Skadden, Arps.
On July 9, 1999, Parent delivered to the Special Committee through Kaye,
Scholer, a revised written offer to acquire all of the outstanding Shares
Parent did not already own at a price of $2.90 per Share and all of the
outstanding Warrants at a price of $.40 per Warrant. This written offer was
accompanied by, and made subject to the terms of, the proposed Merger
Agreement as revised in the negotiations between Kaye, Scholer and Skadden,
Arps on July 8, 1999.
The Special Committee met on July 9, 1999 to review the offer and the terms
of the proposed Merger Agreement with Beacon and Kaye, Scholer. Subject to
Parent's agreement to certain additional changes in the Merger Agreement, the
Special Committee unanimously determined that the Merger Agreement and the
transactions contemplated thereby are fair to, and in the best interests of,
the Public Stockholders and the Warrantholders and resolved to recommend to
the Company Board the adoption and approval of the Merger Agreement and the
transactions contemplated thereby, including the Offer and the Merger.
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The Company Board then met to consider the recommendation of the Special
Committee. After reviewing Parent's offer and the Merger Agreement, receiving
the principal portions of the presentation made by Beacon to the Special
Committee, and receiving the recommendation of the Special Committee, the
members of the Company Board participating in the meeting unanimously approved
and adopted the Merger Agreement and the transactions contemplated thereby,
including the Offer and the Merger, determined that the Offer and the Merger
are fair to, and in the best interests of, the Public Stockholders, the
Warrantholders and the Company, declared the Merger Agreement advisable and
resolved to recommend that the Public Stockholders tender their Shares and
Warrantholders tender their Warrants in the Offer.
For the next several hours, Kaye, Scholer and Skadden, Arps finalized the
Merger Agreement in accordance with the resolutions of the Special Committee
and of the Company Board and late in the day, the Merger Agreement was
executed by Parent, the Purchaser and the Company.
On July 15, 1999, Parent, the Purchaser and the Company executed an
amendment to the Merger Agreement (the "Merger Agreement Amendment") to effect
certain technical changes to the Merger Agreement. The Merger Agreement
Amendment is attached hereto as exhibit (c)(4) and is hereby incorporated
herein by reference.
Recommendation of the Special Committee and the Company Board; Fairness of the
Offer and the Merger
The Special Committee
Prior to making its determination that the Merger Agreement, and the
transactions contemplated thereby, including the Offer and the Merger, are
fair to and in the best interests of the Public Stockholders and the
Warrantholders, the Special Committee received presentations from, and
reviewed the terms of the Offer and the Merger with Kaye, Scholer and Beacon.
The Special Committee, in determining whether to recommend approval of the
Merger Agreement and the transactions contemplated thereby, including the
Offer and the Merger to the Company Board, considered a number of factors,
including, but not limited to, the following:
(i) The Special Committee's review, with the assistance of Beacon, of the
Company's business, its current financial condition and results of
operations and its future prospects, and the current and anticipated
developments in the Company's industry.
(ii) The presentations by Beacon and its oral opinion (which opinion was
subsequently confirmed in writing) that the consideration to be
received by the Public Stockholders pursuant to the Offer is fair to
such stockholders from a financial point of view.
(iii) The relationship between the consideration to be received by the
Public Stockholders and the Warrantholders as a result of the Offer
and/or the Merger and historical market prices and recent trading
activity of the Shares and the Warrants, respectively, including the
fact that (A) the $2.90 per share price being offered to the Public
Stockholders represents a premium of more than 25.4% over the closing
price per share, as reported on the AMEX, of the Shares on the last
trading day prior to the public announcement of the Offer and the
Merger and (B) the $.40 per Warrant being offered to the
Warrantholders (representing the difference between the $2.90 per
share price and the $2.50 exercise price of each Warrant which is the
same net value Warrantholders would realize as a consequence of the
Merger pursuant to the terms of the Warrant Agreement) represents a
premium of 60% over the exercise price of each Warrant.
(iv) The fact that the Warrant Agreement provides that in a merger, the
Warrants shall be exercisable for the consideration which a Warrant
holder would have received if such holder had exercised the Warrant
immediately before the effective date of such transaction.
(v) The recognition that, following consummation of the Offer and the
Merger, the Public Stockholders and the Warrantholders will no longer
be able to participate in any increases or decreases in the value of
the Company's business and properties. The Special Committee concluded,
however, that this
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consideration did not justify foregoing the opportunity for Public
Stockholders and the Warrantholders to receive an immediate and
substantial cash purchase price for their Shares.
(vi) The fact that the terms of the Offer and the Merger were determined by
the Company through arms-length negotiations with representatives of
Parent.
(vii) The fact that the consideration to be paid to the Public Stockholders
and the Warrantholders in the Offer and/or the Merger is all cash.
The Special Committee considered each of the factors listed above during the
course of its deliberations prior to recommending that the Company Board
approve and adopt the Merger Agreement and the transactions contemplated
thereby, including the Offer and the Merger. In light of its knowledge of the
business and operations of the Company and its business judgment, the Special
Committee believed that each of these factors supported its conclusions. In
view of the wide variety of factors considered, the Special Committee did not
find it practicable to, and did not, quantify, or otherwise attempt to assign
relative weights to, the specific factors considered in making its
determination, although the Special Committee did place special emphasis on
the opinion and analysis of Beacon and the size of the premium over (i) the
recent market price of the Shares and (ii) the exercise price of the Warrants.
In light of the amount of time that was expected to be devoted by the
Special Committee in connection with its consideration of the Proposal, the
Merger Agreement, the Offer and the Merger, it was proposed, and approved by
the Company Board, that the Special Committee members each receive
compensation of $100,000 in addition to their regular compensation as members
of the Company Board. The Special Committee and the
Company Board are indemnified under the Company's charter documents and the
applicable sections of the DGCL with respect to their actions in connection
with the Offer and the Merger. In addition, pursuant to Indemnification
Agreements, dated as of April 16, 1999, between the Company and each of Ms.
Hesse and Mr. Morris, the Company has agreed to indemnify Ms. Hesse and Mr.
Morris as permitted by Delaware law with respect to their serving as directors
and as members of the Special Committee.
The Company Board
All of the directors of the Company other than Ms. Hesse and Mr. Morris may
be considered to have an interest in the Offer and the Merger. Accordingly,
the Company Board based its determination that the terms of the Offer are fair
to the Public Stockholders and the Warrantholders primarily upon the
conclusion of the Special Committee described below, the Beacon Opinion (as
defined below) and the other factors described above under "The Special
Committee."
The Beacon Council
Ms. Hesse is a member of The Beacon Council, a group of business
professionals and political leaders that provides advice and counsel to Beacon
from time to time on a wide range of financial and strategic issues relating
to investments and investment opportunities. Ms. Hesse has not received and
will not receive remuneration from Beacon in connection with the Offer or the
Merger or any other aspect of the contemplated transaction. Prior to November
2, 1998, for her services as a member of The Beacon Council, Ms. Hesse was
paid retainer compensation by Beacon at the rate of $50,000 per year. That
retainer compensation terminated as a result of a policy decision by Beacon to
limit retainer compensation paid to members of The Beacon Council.
Opinion of Beacon
Beacon has acted as financial advisor to the Special Committee in connection
with the Offer. Beacon was selected by the Special Committee because of its
expertise and the reputation of its senior professionals in the areas of
mergers and acquisitions, "going private" transactions, special committee
procedures and Beacon's commitment of senior personnel to work on the
engagement. As part of its investment banking business, Beacon
9
<PAGE>
is continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, financings, private placements,
principal investments and valuations for estate, corporate or other purposes.
On July 9, 1999, Beacon delivered to the Special Committee an oral and
written opinion that, as of that date and based upon and subject to the
matters set forth therein, the $2.90 per Share to be received by the Public
Stockholders in connection with the Offer was fair from a financial point of
view to the Public Stockholders.
The full text of the Beacon opinion, which sets forth the procedures
followed, the assumptions made, matters considered and limitations on the
review undertaken by Beacon, is attached hereto as Schedule II and
incorporated herein by reference. Public Stockholders are urged to read the
Beacon opinion in its entirety. The Beacon opinion is directed to the Special
Committee, relates only to the fairness of the Offer from a financial point of
view to the Public Stockholders, does not address any other aspect of the
Offer and does not constitute an opinion or a recommendation as to whether any
holder of Shares should accept the Offer or how such holder should vote with
respect to the Merger, if any vote is required. The summary of the Beacon
opinion is qualified in its entirety by reference to the full text thereof.
In arriving at its opinion, Beacon informed itself of aspects of the
Company's business, operations, financial condition, prospects and management
which it deemed appropriate and material. Beacon reviewed, among other things,
the Offer; the Prospectus issued by the Company in connection with the initial
public offering of its common stock in 1989; Annual Reports to stockholders
and Annual Reports on Form 10-K of the Company for each of the ten years ended
October 31, 1998; certain interim reports to stockholders and Quarterly
Reports on Form 10-Q of the Company; certain other communications from the
Company to its stockholders; the Investment
Agreement and the Recapitalization Agreement; and certain internal financial
analyses and projections for the Company prepared by its management, including
those relating to the Company's September 1997 recapitalization (the
"Recapitalization") and the reorganization of the Company in 1998 following
the Recapitalization. Beacon also held discussions with members of senior
management of the Company and Parent regarding the past and current business,
operations and financial condition and future prospects of the Company and
discussed with those individuals the relationship of the Company and Parent,
as well as inter-company transactions between the Company and Parent,
including certain transactions relating to the Recapitalization. In addition,
Beacon reviewed the reported price and trading activity for the Shares;
compared certain financial and stock market information for the Company with
similar information concerning certain other companies the securities of which
are publicly traded and which Beacon deemed to be comparable to the Company in
material respects; reviewed the financial terms of certain recent business
combinations in industries and markets Beacon deemed relevant; reviewed
premiums paid in selected recent "going private" transactions; reviewed the
potential for utilizing the Company's net operating tax loss carry-forwards
(the "NOLs") subsequent to completion of the purchase of Shares contemplated
by the Offer; and performed such other studies and analyses that Beacon
considered appropriate. Beacon also participated on the Special Committee's
behalf in the negotiations between the Special Committee and its
representatives and Parent and its representatives concerning the terms of the
Offer and took into consideration (i) that these negotiations resulted in an
increase in the Offer price from $2.00 to $2.90 per Share and (ii) that it was
the judgment of the Special Committee that $2.90 per Share was the highest
price that could be obtained from Parent. Since Parent did not indicate that
the Company was for sale or might be sold, Beacon, with the approval of the
Special Committee, did not contact third parties to ascertain their interest
in an acquisition of the Company.
In preparing its opinion, Beacon performed a variety of financial and
comparative analyses. The summary of Beacon's analyses set forth below does
not purport to be a complete description of the analyses underlying the Beacon
opinion. The preparation of a fairness opinion is a complex analytic process
involving various determinations as to the most appropriate and relevant
methods of financial analysis and the application of those methods to the
particular circumstances. Therefore, such an opinion is not readily
susceptible to partial analysis or summary description. In arriving at its
opinion, Beacon made qualitative judgments as to the significance and
10
<PAGE>
relevance of each analysis. Beacon believes that its analyses must be
considered as a whole and that selecting portions of its analyses, without
considering all of its analyses, could create a misleading or incomplete view
of the processes underlying the analyses and the Beacon opinion. In performing
its analyses, Beacon made numerous assumptions with respect to the Company and
its performance, performance of other companies in the Company's industry,
general business, economic, market and financial conditions and other matters,
many of which are beyond the control of the Company. No company, transaction,
or business used in the analyses as a comparison is identical to the Company,
nor is an evaluation of the results of the analyses entirely mathematical.
Rather, the analyses involve complex considerations and judgments concerning
financial and operating characteristics and other factors that could affect
the acquisition, public trading or other values of the companies, business
segments or transactions being analyzed. The estimates contained in the
analyses and the ranges resulting from any particular analysis are not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than those suggested
by the analyses. In addition, analyses relating to the value of businesses or
securities do not purport to be appraisals or to reflect the prices at which
businesses or securities actually may be sold. Accordingly, the analyses and
estimates are inherently subject to substantial uncertainty.
For purposes of its opinion, Beacon assumed and relied without independent
verification on the accuracy and completeness of the financial and other
information reviewed by it, including the Projections furnished to Beacon by
the Company. Beacon assumed, with the Special Committee's consent, that the
Projections had been reasonably prepared on a basis which reflects the best
current estimates and judgments of the Company's management as to the future
operating and financial performance of the Company. The fiscal 1999 forecast
financial results in the Projections utilized by Beacon were: (i) for sales,
$464.2 million, and (ii) for EBITDA (earnings before interest, taxes,
depreciation and amortization), $(1.6) million. The fiscal 2000 forecast
financial results in the Projections utilized by Beacon were: (i) for sales,
$491.0 million, and (ii) for EBITDA, $15.4
million. The fiscal 2001 forecast financial results in the Projections
utilized by Beacon were: (i) for sales, $562.2 million, and (ii) for EBITDA,
$26.3 million. Beacon did not make an independent evaluation or appraisal of
the assets and liabilities of the Company or of any of its subsidiaries and
was not furnished with any such evaluation or appraisal. Beacon did not
address the advisability of the Company entering into the Merger or express an
opinion as to the consequences to the Company of determining not to proceed
with the Merger. The Beacon opinion is necessarily based on economic, market,
financial and other conditions as they existed on, and could be evaluated as
of, the date of the Beacon opinion.
With the advice and assistance of Kaye, Scholer, Beacon also considered as
elements of potential value: (i) certain restrictions relating to the
protection of the Company's business contained in the Investment Agreement, as
amended by the Recapitalization Agreement; (ii) the potential financial
implications of certain claims against and investigations of the Company; and
(iii) the potential for synergies in combining the Company with U.S. Filter
Corp., a recently acquired subsidiary of Parent. Beacon recognized that the
Offer price reflects consideration of these elements by Parent even though
Beacon did not include them in its analyses concerning the fairness of the
Offer from a financial point of view.
In connection with delivering its opinion, Beacon made a written and oral
presentation with respect to its analyses to the Special Committee and,
subsequently to the Board of Directors. In its presentation, Beacon noted the
positive impact of the reorganization of the Company following the
Recapitalization on the Company's reported operating results for the six
months ended April 30, 1999 and its future prospects. In this regard, Beacon
concluded that those operating results and improved future prospects, coupled
with the views expressed to Beacon by the Company's senior management
concerning their expectations for the Company's operating results for the last
half of fiscal 1999 and fiscal 2000, supported the likelihood that the
Company's operating results for the last half of fiscal 1999, together with
its actual operating results for the six months ended April 30, 1999, would
enable the Company to achieve operating results for the fiscal years ending
October 31, 1999 and October 31, 2000 that would be consistent with the
Projections.
The following is a summary of the analyses performed by Beacon in connection
with the preparation of the Beacon opinion.
11
<PAGE>
Comparative Stock Price Performance Analysis. Beacon reviewed the per share
daily closing prices of the Company's common stock over the period since its
public offering in 1989 through June 29, 1999 compared with the performance of
the Standard & Poor's Index as well as indices comprised of stocks of publicly
traded operations and maintenance ("O&M") companies and publicly traded
consulting and engineering ("C&E") companies deemed by Beacon to be reasonably
comparable to the Company in material respects. The O&M companies reviewed by
Beacon were American Water Works, Co., Anglian Water, Severn Trent PLC,
Randers Killam Group Inc., The IT Group, Inc., Tetra Tech Inc. and United
Water Resources (collectively, the "O&M Comparable Companies"). The C&E
companies reviewed by Beacon were URS Corporation, Harding Lawson Associates,
Randers Killam Group, Inc., Roy F. Weston, Inc., The IT Group, Inc. and Tetra
Tech, Inc. (collectively, the "C&E Comparable Companies"). Beacon noted that
since its initial public offering the Company's common stock has under-
performed the Standard & Poor's Index and the indices based on the O&M
Comparable Companies and the C&E Comparable Companies.
Comparable Companies Analysis. To provide contextual data and comparative
market information, Beacon analyzed the operating performance of the Company
relative to the O&M Comparable Companies and the C&E Comparable Companies.
For the O&M Comparable Companies, Beacon compared, among other things,
adjusted market values (equity market value, plus total debt, preferred stock
and minority interests, less cash) as multiples of their latest twelve months
reported sales and EBITDA, adjusted to exclude certain non-recurring items.
Beacon determined that the ranges between the relevant mean and median
multiples for the O&M Comparable Companies were: (i) with respect to latest
available twelve months ("LTM") sales, 0.90x to 0.91x, and (ii) with respect
to fiscal 2000 forecast EBITDA 8.9x to 9.1x. Fiscal 2000 forecast EBITDA was
selected as a criterion because current LTM
EBITDA and fiscal 1999 forecast EBITDA were both negative amounts. Beacon then
calculated imputed enterprise and equity values of the Company by applying LTM
sales and EBITDA multiples derived from its analysis of the O&M Comparable
Companies to the Company's LTM sales through April 30, 1999 and fiscal 2000
forecast EBITDA, in the case of sales, pro forma for the exclusion of the
results of Research-Cottrell ("R&C"), a business sold by the Company in 1998.
The values derived from this analysis, plus the present value of the NOLs
described below and the 36.7% Assumed Acquisition Premium also described
below, resulted in the following ranges of implied equity value per Share: (i)
with respect to LTM sales, $3.00 to $3.14, and (ii) with respect to fiscal
2000 forecast EBITDA, $1.00 to $1.12.
For the C&E Comparable Companies, Beacon compared, among other things,
adjusted market values (equity market value, plus total debt, preferred stock
and minority interests, less cash) as multiples of their LTM sales and EBITDA,
adjusted to exclude certain non-recurring items. Beacon determined that the
ranges between the relevant mean and median multiples for the C&E Comparable
Companies were: (i) with respect to LTM sales, 0.62x to 0.64x, and (ii) with
respect to fiscal 2000 forecast EBITDA, 8.1x to 9.0x. Beacon then calculated
imputed enterprise and equity values of the Company by applying LTM sales and
EBITDA multiples derived from its analysis of the C&E Comparable Companies to
the Company's LTM Sales through April 30, 1999 (pro forma for the exclusion of
the results of R&C) and fiscal 2000 forecast EBITDA. The values derived from
this analysis, plus the present value of the NOLs and the Assumed Acquisition
Premium, resulted in the following ranges of implied equity value per Share:
(i) with respect to LTM sales, $2.08 to $2.24, and (ii) with respect to fiscal
2000 forecast EBITDA, $0.92 to $1.12.
Beacon noted that the implied equity valuations per Share were more than the
Offer price when Beacon's O&M Comparable Companies analysis was applied and
less than the Offer price when Beacon's C&E Comparable Companies analysis was
applied to LTM sales, except in the case of four O&M Comparable Companies that
were excluded because Beacon determined that their businesses were not
sufficiently comparable to the Company's businesses. In Beacon's view, the
higher implied equity valuations per Share based on sales of the O&M
Comparable Companies were not of material analytical significance, and the
results of the Comparable Companies Analysis support its conclusion that the
Offer was fair from a financial point of view to the Public Stockholders.
12
<PAGE>
Comparable Transactions Analysis. In conducting its analysis of the Company,
Beacon used publicly available information to analyze, among other things, the
implied transaction multiples paid in selected merger and acquisition
transactions involving companies in the O&M and C&E industries. In reviewing
and presenting this data, Beacon noted that the merger and acquisition
transaction environment varies over time because of macroeconomic factors,
including interest rates and equity market fluctuations, and microeconomic
factors, including industry results and growth expectations, that no
transaction reviewed was identical to the Offer and that, accordingly, an
assessment of the results of the Comparable Transaction Analysis necessarily
involves considerations and judgments concerning differences in financial and
operating characteristics of the Company and other factors that would affect
the acquisition value of the companies to which it is being compared.
For O&M companies, these transactions included the acquisition of Philip
Utilities Management Corp. (Philips Services Corp.) by Azurix Corp., the
acquisition of U.S. Filter Corp. by Parent and the acquisition of PSG, Inc.
(Anjou Intl. Co.) by Air & Water Technologies Corp. (collectively, the "O&M
Comparable Transactions").
For C&E companies, these transactions included the acquisition of Dames &
Moore Group by URS Corporation, the acquisition of Environment & Facilities
Management Group (ICF Kaiser International, Inc.) by The IT Group, Inc., the
acquisition of Roche Limited, Consulting Group by The IT Group, Inc., the
acquisition of Fluor Daniel GTI, Inc. by The IT Group, Inc., the acquisition
of Radian International LLC by Dames & Moore Group, the acquisition of OHM
Corporation by the IT Group, Inc., the acquisition of ABB Environmental
Services, Inc. by the Harding Lawson Association Group, Inc., the acquisition
of NUS Environmental (Brown & Root, Inc.) by Tetra Tech, Inc., the acquisition
of Woodward-Clyde Group, Inc. by URS Corporation, the acquisition of The
Killam Group, Inc. (Thermo TerraTech Inc.) by The Randers Group, Inc., the
acquisition of
Greiner Engineering, Inc. by URS Corporation, the acquisition of KCM, Inc. by
Tetra Tech, Inc. and the acquisition of Metcalf & Eddy by Air & Water
Technologies (collectively, the "C&E Comparable Transactions").
Beacon reviewed transaction values for O&M Comparable Transactions in terms
of multiples of sales and EBITDA, adjusted to exclude certain non-recurring
items, applicable to each acquired company or business for the latest
available twelve-month period immediately preceding the announcement of the
acquisition of such company or business. Beacon determined that the mean and
median multiples for the acquired companies and businesses were: (i) with
respect to sales, 1.26x to 1.35x, and (ii) with respect to EBITDA, 13.8x to
15.8x. Beacon then calculated imputed enterprise and equity values of the
Company by applying the multiples derived from this analysis of the O&M
Comparable Transactions to the Company's LTM sales (pro forma for the
exclusion of the results of R&C) through April 30, 1999 and fiscal 2000
forecast EBITDA . The values derived from this analysis, plus the present
value of the NOLs described below, resulted in ranges of implied equity value
per Share of: (i) with respect to LTM sales, $3.21 to $3.52, and (ii) with
respect to fiscal 2000 forecast EBITDA, $1.28 to $1.55.
Beacon also reviewed transaction values for C&E Comparable Transactions in
terms of multiples of sales and EBITDA, adjusted to exclude certain non-
recurring items, applicable to each acquired company or business for the
latest available twelve-month period immediately preceding the announcement of
the acquisition of such company or business. Beacon determined that the mean
and median multiples for the acquired companies and businesses were: (i) with
respect to sales, 0.56x to 0.57x, and (ii) with respect to EBITDA, 8.3x to
9.4x. Beacon then calculated imputed enterprise and equity values of the
Company by applying the multiples derived from its analysis of the C&E
Comparable Transactions to the Company's LTM sales (pro forma for the
exclusion of the results of R&C) through April 30, 1999 and fiscal 2000
forecast EBITDA . The values derived from this analysis, plus the present
value of the NOLs described below, resulted in ranges of implied equity value
per Share of: (i) with respect to LTM sales, $1.51 to $1.62, and (ii) with
respect to fiscal 2000 forecast EBITDA, $0.82 to $1.01.
Beacon noted that the implied equity valuations per Share were less than the
Offer price when Beacon's O&M Comparable Transactions and C&E Comparable
Transactions Analysis was applied, except in the case of two C&E transactions
that were excluded because Beacon determined that their businesses or the
transactions
13
<PAGE>
were not reasonably comparable to the Company or the Offer. In Beacon's view,
the results of the Comparable Transactions Analysis support its conclusion
that the Offer price was fair from a financial point of view to the Public
Stockholders.
Discounted Cash Flow Analysis. Beacon performed a discounted cash flow
analysis for fiscal years 1999 through 2001 for the Company to estimate the
present value of the stand-alone, unlevered free cash flows of the Company
based upon the Projections. For purposes of this analysis, unlevered free cash
flows were defined as after-tax operating earnings, plus depreciation and
amortization and other non-cash items, less projected capital expenditures and
investment in working capital. To derive a terminal value, Beacon applied a
range of EBITDA multiples of 7.0x to 10.0x, representing the mid-range of LTM
EBITDA multiples for Comparable Companies, to the projected EBITDA of the
Company in fiscal year 2001. The unlevered free cash flows and terminal values
were then discounted to the present using a range of discount rates of 10.0%
to 14.0%, representing an estimated range of the weighted average cost of
capital of the Company. From the derived present value of the unlevered free
cash flows, Beacon then subtracted the value of the Company's net debt
(defined as estimated total debt less cash at April 30, 1999) to obtain the
implied equity value. The values derived from this analysis, plus the present
value of the NOLs described below and the Assumed Acquisition Premium,
resulted in an implied equity value range of $1.22 to $2.00 per Share. In
Beacon's view, the results of the Discounted Cash Flow Analysis support its
conclusion that the Offer price was fair from a financial point of view to the
Public Stockholders.
Inherent in any discounted cash flow valuation is the use of a number of
assumptions and judgments, including the accuracy of projections, and the
subjective determination of an appropriate terminal value and discount rate to
apply to the projected cash flows of the entity under examination. Variations
in any of these assumptions or judgments could significantly alter the results
of a discounted cash flow analysis.
Stock Trading Premium Analysis. Using publicly available information, Beacon
reviewed the acquisition premiums paid in recent public "going private"
transactions ranging in total equity value between $50 million and $1.0
billion in which the acquiror had previously owned a 50% or greater stake in
the target company. The premiums paid were measured based on the offer price
compared with the closing prices of the target companies one day, one week and
one month prior to announcement. Beacon calculated the implied equity per
Share value for the Company, ranging from $2.45 to $2.55, by applying the
premiums derived in the analysis to the respective closing stock price of the
Company's common stock one day, one week and one month prior to March 19,
1999. This group consisted of 24 transactions, for which the mean and median
premiums paid in the transactions compared to one day, one week and one month
prior to the announcement of the transactions were 26.6% and 23.5%; 36.7% and
29.1%; and 36.9% and 35.2%, respectively, which compares to a premium of
approximately 101.4% to be paid in connection with the Offer relative to the
price of the Company's common Stock on March 19, 1999, the business day prior
to the announcement of Parent's acquisition of U.S. Filter Corp.
As set forth above, in connection with its Comparable Companies, Comparable
Transactions and Discounted Cash Flow analyses, Beacon used the mean
acquisition premiums paid in transactions compared to the price one week prior
to the announcement, i.e., 36.7%, (the "Assumed Acquisition Premium").
Beacon noted that in the all cases the Offer price was greater than the
implied equity valuations per Share based on the Stock Trading Premium
Analysis. In Beacon's view, the results of the Stock Trading Premium Analyses
supports its conclusion that the Offer price was fair from a financial point
of view to the Public Stockholders. Furthermore, in Beacon's judgment, the
Stock Trading Premium Analysis shows that the Offer price could cover values
associated with the NOLs described below and other potential elements of value
considered by the Special Committee.
Net Operating Loss Carryforwards ("NOLs"). With respect to the Company's
NOLs of approximately $357.2 million as of fiscal year end 1998, Beacon, with
the advice of Kaye, Scholer and relying on Parent's representation that it
would not be able to utilize the NOLs over less than three years, determined
the present value of the NOLs by applying tax rates ranging from 35% to 37.5%
to the aggregate amount of the NOLs and
14
<PAGE>
discounting that amount to the present at a discount rate of 8% to 14%. This
analysis generated ranges of present value of the NOLs per Share of $0.52 to
$0.62. As previously stated, the per Share values of the NOLs have been added
to the implied valuations derived from the Comparable Companies, Comparable
Transactions and Discounted Cash Flow analyses performed by Beacon.
Miscellaneous. At the request of the Special Committee, the Company engaged
Beacon as the Special Committee's sole and exclusive financial advisor for
purposes of considering and acting upon the proposed Transaction under a
letter agreement dated April 12, 1999 (the "April 12 Agreement"). Pursuant to
Paragraph 3 of the April 12 Agreement, as compensation for Beacon's services,
the Company agreed to pay Beacon:
(a)a non-refundable retainer of $500,000;
(b) compensation in the amount of $500,000 upon Beacon's rendering of an
initial opinion to the Special Committee concerning the fairness, from
a financial point of view, of the consideration to be received by the
Public Shareholders, other than Parent, in connection with a
Transaction; and
(c) additional compensation in amounts mutually agreed to by the Special
Committee and Beacon if Beacon has been requested by the Special
Committee (i) to negotiate for or provide advice to the Special
Committee for the purpose of obtaining a price in excess of $2.00 per
share or the initial offer price per Warrant with respect to a
Transaction for the Public Stockholders or Warrantholders of the
Company other than Parent, or (ii) to provide an opinion or opinions in
addition to the above referenced initial opinion concerning the
fairness, from a financial point of view, of revised terms of a
Transaction.
On June 8, 1999, the members of the Special Committee executed a letter
agreement with Beacon which confirmed the understanding and agreement between
the Special Committee and Beacon with regard to additional compensation under
paragraph 3(c)(i) of the April 12 Agreement.
Company Financial Projections
The Company does not, as a matter of course, make public forecasts or
projections as to future sales, earnings or other income statement data, cash
flows or balance sheet and financial position information. However, in the
course of the discussions between the Company management and Beacon, Beacon
has received and examined certain analyses prepared by the Company which
include projections of future financial results for the years ending October
31, 1999, 2000 and 2001 (the "Projections"). Such information has been set
forth below for the limited purpose of giving the Company's stockholders and
Warrantholders access to financial projections by the Company's management
that were available for review by Beacon in connection with the Offer.
<TABLE>
<CAPTION>
Year Ending October
31,
-----------------------
1999 2000 2001
------ ------ ------
(Estimate)
(in millions)
<S> <C> <C> <C>
Sales.................................................. $464.2 $491.0 $562.2
% Growth............................................. 4% 6% 7%
Gross Margin........................................... $ 61.2 $ 66.9 $ 76.3
% Margin............................................. 13% 14% 14%
SG&A................................................... $ 62.8 $ 51.6 $ 50.0
% of Sales........................................... 14% 10% 10%
EBITDA................................................. $ (1.6) $ 15.4 $ 26.3
% Margin............................................. (0%) 3% 5%
</TABLE>
THE COMPANY HAS ADVISED PARENT AND THE PURCHASER THAT IT DOES NOT, AS A
MATTER OF COURSE, DISCLOSE PROJECTIONS AS TO FUTURE REVENUES, EARNINGS OR
OTHER INCOME STATEMENT DATA AND THE PROJECTIONS WERE NOT PREPARED WITH A VIEW
TO PUBLIC DISCLOSURE. IN ADDITION, THE PROJECTIONS WERE NOT PREPARED IN
ACCORDANCE
15
<PAGE>
WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES, OR WITH A VIEW TO COMPLIANCE
WITH THE PUBLISHED GUIDELINES OF THE COMMISSION OR THE AMERICAN INSTITUTE OF
CERTIFIED PUBLIC ACCOUNTANTS REGARDING PROJECTIONS, WHICH WOULD REQUIRE A MORE
COMPLETE PRESENTATION OF THE DATA THAN AS SHOWN ABOVE. THE PROJECTIONS HAVE
NOT BEEN EXAMINED, REVIEWED OR COMPILED BY THE COMPANY'S INDEPENDENT AUDITORS,
AND ACCORDINGLY THEY HAVE NOT EXPRESSED AN OPINION OR ANY OTHER ASSURANCE ON
SUCH PROJECTIONS. THE FORECASTED INFORMATION IS INCLUDED HEREIN SOLELY BECAUSE
SUCH INFORMATION WAS FURNISHED TO BEACON PRIOR TO THE OFFER. ACCORDINGLY, THE
INCLUSION OF THE PROJECTIONS IN THIS OFFER SHOULD NOT BE REGARDED AS AN
INDICATION THAT PARENT OR THE PURCHASER OR THE COMPANY OR THEIR RESPECTIVE
FINANCIAL ADVISORS OR THEIR RESPECTIVE OFFICERS AND DIRECTORS CONSIDER SUCH
INFORMATION TO BE ACCURATE OR RELIABLE, AND NONE OF SUCH PERSONS ASSUMES ANY
RESPONSIBILITY FOR THE ACCURACY THEREOF. IN ADDITION, BECAUSE THE ESTIMATES
AND ASSUMPTIONS UNDERLYING THE PROJECTIONS ARE INHERENTLY SUBJECT TO
SIGNIFICANT ECONOMIC AND COMPETITIVE UNCERTAINTIES AND CONTINGENCIES, WHICH
ARE DIFFICULT OR IMPOSSIBLE TO PREDICT ACCURATELY AND ARE BEYOND THE CONTROL
OF THE COMPANY, PARENT AND THE PURCHASER, THERE CAN BE NO ASSURANCE THAT
RESULTS SET FORTH IN THE ABOVE PROJECTIONS WILL BE REALIZED AND IT IS EXPECTED
THAT THERE WILL BE DIFFERENCES BETWEEN ACTUAL AND PROJECTED RESULTS, AND
ACTUAL RESULTS MAY BE MATERIALLY HIGHER OR LOWER THAN THOSE SET FORTH ABOVE.
Position of Parent and the Purchaser Regarding Fairness of the Offer and the
Merger
Because Parent currently owns a majority of the Shares, Parent and the
Purchaser are deemed "affiliates" of the Company under Rule 12b-2 of the
Exchange Act. Accordingly, in compliance with Rule 13e-3 under the Exchange
Act, the Purchaser and Parent have considered the fairness of the Offer to the
stockholders and Warrantholders of the Company other than Parent, and in
connection with the Offer, have filed with the Commission a Rule 13e-3
Transaction Statement on Schedule 13E-3 (the "Schedule 13E-3").
The Purchaser and Parent believe the Offer and the Merger to be fair to the
Company's stockholders and Warrantholders other than Parent. Although Lazard
Freres did not deliver and was not requested to deliver an opinion as to the
fairness of the transaction, in making their determination, the Purchaser and
Parent have considered the analysis of Lazard Freres as set forth below (see
"SPECIAL FACTORS--Analysis of Investment Banker to Parent"), in addition to
the following factors:
(i) The Share Offer Price represents a 25.4% premium over the closing
price for the Shares on July 9, 1999, the last full trading day prior to
announcement of the Offer.
(ii) The Warrant Offer Price represents a 60% premium over the closing
price for the Warrants on June 16, 1999, the last full trading day prior to
announcement of the Offer.
(iii) The Share Offer Price and Warrant Offer Price represent Share
values that are above the ranges of implied value derived from the analyses
performed by Lazard Freres and described below.
(iv) The Offer is an all cash offer for all publicly held Shares and
Warrants which the holders thereof can accept or reject voluntarily, and is
not subject to a financing condition.
(v) The Offer provides stockholders who are considering selling their
Shares and Warrantholders who are considering selling their Warrants with
the opportunity to sell all of their Shares or Warrants, as the case may
be, at the Share Offer Price or the Warrant Offer Price, as the case may
be, without incurring the transaction costs typically associated with
market sales.
(vi) The Warrant Offer Price was determined by subtracting the exercise
price of each Warrant as set forth in the Warrant Agreement from the Share
Offer Price. This means that Warrantholders have the ability
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to realize the same value in the Offer that they would otherwise realize in
the Merger pursuant to the Warrant Agreement, but without having to pay the
exercise price of each Warrant and without having to wait for the Merger to
become effective.
(vii) The terms of the Merger Agreement were determined through arm's-
length negotiations between the Special Committee and its legal and
financial advisors, on the one hand, and representatives of Parent, on the
other, and provide for the Offer in order to allow Public Stockholders and
Warrantholders to receive payment for their Shares on an accelerated basis.
(viii) Parent has sufficient stock ownership to control a disposition of
the Company and informed the Special Committee that it would not be
interested in a third-party sale of the Company; the Special Committee was
not authorized to, and did not, solicit third-party indications of interest
for the acquisition of the Company, nor were any offers from third parties
received.
(ix) The ability of Public Stockholders who object to the Merger to
obtain "fair value" for their Shares if they exercise and perfect their
appraisal rights under the DGCL.
Parent and the Purchaser did not find it practicable, and did not, assign
specific relative weights to the foregoing factors in reaching their opinion
as to the fairness of the Offer.
Analysis of Investment Banker to Parent
Lazard Freres, as part of its on going investment banking relationship with
Parent, provided Parent with certain evaluation analyses of the Company in
connection with a possible proposal by Parent to acquire the Shares. Parent
did not request that Lazard Freres provide any opinion as to the fairness of
the Offer to Parent or its stockholders, the Company or the holders of the
Shares or perform any independent examination or investigation of the
Company's business or assets and Lazard Freres did not do so. Lazard Freres'
analyses do not constitute a recommendation to the holders of the Shares as to
whether such persons should or should not tender the Shares pursuant to the
Offer. The Company had no role in Parent's selection of Lazard Freres or in
formulating any of the terms under which Lazard Freres was to prepare its
analyses.
Parent selected Lazard Freres as its investment banker because Lazard Freres
is an internationally recognized investment banking firm that has frequently
represented Parent and its businesses. Lazard Freres was not retained as an
advisor or agent to the stockholders of Parent or any other person. As part of
its investment banking business, Lazard Freres is regularly engaged in the
valuation of businesses and securities in connection with mergers,
acquisitions, underwritings, sales and distributions of listed and unlisted
securities, private placements and valuations for corporate and other
purposes. Parent did not impose any restrictions or limitations upon Lazard
Freres with respect to the investigations made or the procedures followed by
Lazard Freres in preparing the Lazard Freres analyses.
In preparing its analyses, Lazard Freres reviewed financial and other
information that was publicly available or furnished to Lazard Freres by
members of Parent's management who monitor the operations of the Company,
including information provided during discussions with Parent's management.
Included in the information provided by Parent and the Company were certain
financial projections of the Company prepared by the management of the
Company. In addition, Lazard Freres compared certain financial and securities
data of the Company with publicly available information concerning various
other companies whose securities are traded in public markets, reviewed the
historical stock prices and trading volumes of the Shares, reviewed prices and
premiums paid in certain other business combinations and conducted such other
financial studies, analyses and investigations as Lazard Freres deemed
appropriate for purposes of preparing the Lazard Freres analyses.
In preparing its analyses, Lazard Freres relied upon and assumed the
accuracy and completeness of all of the financial and other information that
was available to it from public sources, that was provided to it by Parent or
Parent's representatives, or that was otherwise reviewed by Lazard Freres.
Lazard Freres did not assume responsibility for making any independent
evaluation of the assets or liabilities of the Company, or for making any
independent verification of the information reviewed by Lazard Freres. The
Lazard Freres analyses were necessarily based on economic, market, financial
and other conditions as they existed on, and on the information made available
to Lazard Freres as of, the date of the Lazard Freres analyses.
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Fairness of Share Offer Price
By June 9, 1999, Lazard Freres had met several times with representatives of
Parent in order to assist Parent's management in its consideration of the
Offer, discussed its analyses and the consideration to be offered to the
holders of the Shares pursuant to the Offer. In conjunction with this, Lazard
Freres distributed to representatives of Parent copies of its written
materials. In discussing its analyses with representatives of Parent, Lazard
Freres addressed certain financial and comparative analyses contained in its
written materials and other matters it deemed relevant. Among various analyses
that Lazard Freres presented to the Parent Board were the following:
COMPARABLE COMPANY ANALYSIS. Lazard Freres analyzed publicly available
selected historical and projected operating information, stock market data and
financial ratios for seven public environmental services companies ("ES
Companies"). The ES Companies were Dames & Moore Group, Inc., (at its
unaffected, pre-transaction announcement price) Harding Lawson Associates
Group, Inc., The IT Group, Inc., Weston (Roy F.), Inc., Tetra Tech, Inc., TRC
Companies, Inc. and URS Corp. Lazard Freres analyzed the Enterprise Value (as
defined) of each of the ES Companies (using the stock prices as of June 4,
1999) measured as a multiple of selected financial data. Enterprise Value is
defined as equity value plus total debt plus the liquidation value of the
preferred stock, if any, plus the value of minority interests, if any, minus
cash and short-term investments. In examining the ES Companies, Lazard Freres
compared the Enterprise Value of the companies to each company's respective
projected 1999 and last twelve months ("LTM") Revenues, earnings before
interest, taxes, depreciation and amortization ("EBITDA") and earnings before
interest and taxes ("EBIT"). Lazard Freres' analysis of the ES Companies
yielded the following medians: a LTM and Projected 1999 revenue multiple of
0.52x and 0.76x, respectively. Based on the Comparable Company analysis,
Lazard Freres valued the Company at 0.50x-0.70x LTM Revenues. This equated to
an Enterprise Value range of $224 million to $314 million or $0.66 to $1.15
per Share. Lazard Freres noted that EBITDA and EBIT did not yield any
meaningful results given the Company's operating losses.
COMPARABLE MERGER AND ACQUISITION ANALYSIS. Lazard Freres reviewed publicly
available information for a number of selected mergers and acquisitions
transactions in the environmental services industry. The acquisitions
(acquiror/acquired company) included: (i) IT Group/EMCON; (ii) URS
Corporation/Dames & Moore Group; (iii) Jacobs Engineering Group Inc./Sverdrup
Corporation; (iv) IT Group/Fluor Daniel GTI, Inc.; (v) International
Technology Corp./OHM Corp.; (vi) Philip Environmental Inc./Allwaste, Inc.;
(vii) United States Filter Corp./Davis Water & Waste Industries Inc.; (viii)
Flour Daniel, Inc./Groundwater Technology, Inc.; (ix) OHM Corp./Rust
International (WMX Technologies); and (x) Heidemij N.V./Geraghty & Miller,
Inc.
In examining these acquisitions, Lazard Freres analyzed the transaction
value of the acquired company (defined as "Enterprise Value") implied by each
of these transactions measured as a multiple of LTM Revenues, EBITDA and EBIT.
Lazard Freres' analysis of transaction value as a multiple of LTM Revenues
yielded a median of 0.54x. Lazard Freres' analysis of transaction value as a
multiple of LTM EBITDA yielded a median of 9.0x. Lazard Freres' analysis of
transaction value as a multiple of LTM EBIT yielded a median of 14.9x. Based
on the Comparable Merger and Acquisitions Analysis, Lazard Freres valued the
Company at 0.60x-0.80x LTM Revenues. This equated to an Enterprise Value range
of $269 million to $358 million or $0.91 to $1.39 per Share. EBITDA and EBIT
multiples did not yield any meaningful results given the Company's operating
losses.
DISCOUNTED CASH FLOW ANALYSIS. Lazard Freres performed a discounted cash
flow ("DCF") analysis of the Company using projections and assumptions, as of
January 31, 1999, provided by the Company. The DCF analyses for the Company
were estimated using discount rates ranging from 10.0% to 12.0% and terminal
EBITDA multiples in 2003 for the Company ranging from 7.0x to 9.0x. This
analysis yielded an Enterprise Value range of $187 million to $255 million or
$0.46 to $0.83 per Share.
PREMIUMS PAID ANALYSIS IN MINORITY BUYOUT TRANSACTIONS. Lazard Freres
determined the implied premium based on the consideration over the closing
prices one day and one month prior to the announcement date of transactions in
which a parent company acquired the publicly-held shares of its subsidiary,
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which subsidiaries are not necessarily comparable to the Company. The average
initial premiums for the selected transactions over the closing prices, one
day prior to the announcement dates, were 13.3% for all cash deals and 12.9%
for all deals. The average initial premiums for the selected transactions over
the closing prices, one month prior to the announcement dates, were 22.5% for
all deals and 22.0% for all cash deals. The average final premiums for the
selected transactions over the closing prices, one month prior to the
announcement dates, were 28.5% for all deals and 28.0% for all cash deals.
Lazard Freres has assumed that the unaffected price of the Company's stock is
$1.44, the closing price on March 19, 1999, as the price increased 39.1% the
next trading day on usually large trading volume. Based on that price, the
offer of $2.90 per share represents a premium of 101.4% to the unaffected
price.
The summary set forth above does not purport to be a complete description of
the work performed by Lazard Freres but describes, in summary form, the
principal elements of the analyses conducted by Lazard Freres and discussed
with Parent on June 9, 1999. The preparation of the analyses made by Lazard
Freres involves various determinations as to the most appropriate and relevant
methods of financial analysis and the application of these methods to the
particular circumstances and, therefore, such a presentation is not readily
susceptible to summary description. Each of the analyses conducted by Lazard
Freres was carried out in order to provide a different perspective on the
valuation of the Company and to add to the total mix of information available.
Lazard Freres did not assign relative weights to any of its analyses in
preparing its presentation. Accordingly, notwithstanding the separate factors
summarized above, Lazard Freres has indicated to Parent that it believes that
its analyses must be viewed in light of each other, that all analyses must be
considered as a whole and that selecting portions of its analyses and the
factors considered by it, without considering all analyses and factors, could
create an incomplete view of the process underlying the Lazard Freres
presentation. The analyses performed by Lazard Freres are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than suggested by such analyses.
In the ordinary course of business, Lazard Freres and its affiliates may own
or actively trade the securities of Parent and the Company for their own
accounts and for the accounts of their customers and, accordingly, may at any
time hold a long or short position in Parent's or the Company's securities.
Lazard Freres, as part of its investment banking services, is regularly
engaged in the valuation of businesses and securities in connection with
mergers, acquisitions, underwritings, sales and distributions of listed and
unlisted securities, private placements and valuations for estate, corporate
and other purposes. Lazard Freres has performed investment banking and other
services for Parent in the past, including advising on the acquisition of U.S.
Filter. Lazard Freres has received usual and customary compensation for its
past services for Parent.
Forward Looking Statements
THE MATTERS DISCUSSED UNDER THE HEADINGS "SPECIAL FACTORS--BACKGROUND OF THE
OFFER AND THE MERGER; CONTACTS WITH THE COMPANY," "--RECOMMENDATION OF THE
SPECIAL COMMITTEE AND THE COMPANY BOARD; FAIRNESS OF THE OFFER AND THE
MERGER," "--ANALYSIS OF INVESTMENT BANKER TO PARENT" AND "THE TENDER OFFER--
SECTION 7. CERTAIN INFORMATION CONCERNING THE COMPANY" CONTAIN FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. STOCKHOLDERS AND
WARRANTHOLDERS ARE CAUTIONED THAT, IN ADDITION TO THE OTHER FACTORS SET FORTH
UNDER THE HEADINGS "SPECIAL FACTORS--BACKGROUND OF THE OFFER AND THE MERGER;
CONTACTS WITH THE COMPANY," "--RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE
COMPANY BOARD; FAIRNESS OF THE OFFER AND THE MERGER," "--OPINION OF BEACON,
"--POSITION OF PARENT AND THE PURCHASER REGARDING FAIRNESS OF THE OFFER AND
THE MERGER," AND "--ANALYSIS OF INVESTMENT BANKER TO PARENT," THE FOLLOWING
FACTORS MAY CAUSE THE COMPANY'S ACTUAL FINANCIAL PERFORMANCE TO DIFFER
MATERIALLY FROM THOSE EXPRESSED IN SUCH FORWARD-LOOKING STATEMENTS:
(i)The Company's highly competitive marketplace.
(ii) 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.
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(iii) Adverse developments in the DOJ Investigation.
(iv) Dependency on key projects, customers and contracts.
(v) The ability to obtain new contracts (some of which are significant)
from existing and new clients.
(vi) The ability of the Company to continue to obtain new bid and
performance bonds.
(vii) The execution of expected new projects and those projects in backlog
within the most recent cost estimates.
(viii) Changes in interest rates causing an increase in the Company's
effective borrowing rate.
(ix) Adverse resolution of litigation matters and existing claims arising
in the ordinary course of business.
(x) The ability of the Company to access capital (through an investment
fund, off-balance sheet vehicle or otherwise) and to effect and finance
future investments.
Purpose and Structure of the Offer and the Merger; Plans for the Company After
the Offer and the Merger
Purpose and Structure of the Offer and the Merger.
The purpose of the Offer and the Merger is to enable Parent to acquire the
entire equity interest in the Company. Parent desires to own the entire equity
interest in the Company at this time to integrate certain of the Company's
operations into one or more of Parent's existing wholly owned water
businesses. Such integration will allow Parent to achieve additional operating
efficiencies and will provide the flexibility to respond quickly to changes in
an increasingly competitive industry. This will be accomplished by Parent,
through the Purchaser, by acquiring the Shares it does not already own in the
Company. Through the Merger, Parent will acquire all the Shares not purchased
pursuant to the Offer. Upon consummation of the Merger, the Company will be an
indirect wholly owned subsidiary of Parent. The acquisition of the Shares not
owned by Parent has been structured as a cash tender offer followed by a cash
merger in order to effect a prompt and orderly transfer of ownership of the
Company from the Public Stockholders with cash for all of their Shares. See
"SPECIAL FACTORS--Purpose and Structure of the Offer and the Merger; Plans for
the Company After the Offer and the Merger."
Under the DGCL, the approval of the Company Board and the affirmative vote
of a majority of the votes cast by all stockholders entitled to vote thereon
are required to approve and adopt the Merger Agreement and the transactions
contemplated thereby. Pursuant to the Recapitalization Agreement, the
"independent directors" must approve a Short-Form merger. The Company Board
(including each of the "independent directors") has approved, adopted and
declared to be advisable the Merger Agreement and the transactions
contemplated thereby. If a Short-Form Merger is effected pursuant to the
relevant provisions of the DGCL, the Merger can be approved through action of
the Company Board without a stockholder vote. If a Short-Form Merger cannot be
effected, the only remaining corporate action of the Company, Parent or the
Purchaser is the approval and adoption of the Merger Agreement and the
transactions contemplated thereby by the affirmative vote of a majority of the
votes cast by all stockholders of the Company entitled to vote thereon. Parent
already has sufficient voting power to cause the approval and adoption of the
Merger Agreement and the transactions contemplated thereby without the
affirmative vote of any other stockholder of the Company. Pursuant to the
Warrant Agreement, at the Effective Time of the Merger, each Warrant would
automatically become exercisable for the Merger Consideration. The Offer is
structured so that no approval of the holders of the Shares held by the Public
Stockholders (other than the tender by Public Stockholders and Warrantholders
of a sufficient number of Shares and Warrants which, when aggregated with the
Shares currently owned directly or indirectly by Parent and the Purchaser, to
constitute 90% of the then outstanding Shares (assuming exercise of all
Warrants acquired in the Offer) (the "Minimum Condition")) is required. The
Purchaser will, subject to the conditions of the Offer, accept for payment the
Shares and Warrants validly tendered in accordance with the Offer and the
Letter of Transmittal.
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Plans for the Company After the Offer and the Merger
Depending upon the number of the Shares and Warrants purchased pursuant to
the Offer and the aggregate market value of any Shares and Warrants not
purchased pursuant to the Offer, the Shares and Warrants may no longer meet
the standards for continued listing on the American Stock Exchange, Inc. (the
"AMEX") and may, upon initiative of the AMEX, be delisted therefrom. The
Company risks having the Shares delisted from the AMEX if (i) the number of
publicly-held Shares falls below 200,000 shares; or (ii) the market value of
the number of publicly-held Shares falls below $1,000,000; or (iii) the number
of stockholders is less than 300; or (iv) stockholders' equity falls below
$2,000,000 if the Company has had losses in 2 of the then most recent 3 years
or below $4,000,000 if the Company has had losses in 3 of the then most recent
4 years. While the AMEX does not have firm quantitative standards for the
continued listing of warrants, published AMEX guidelines provide that Warrants
would be considered for delisting in the event that the public distribution of
Warrants was so reduced by consummation of the Offer as to make AMEX trading
in Warrants impracticable. The AMEX would also consider delisting Warrants,
regardless of the number outstanding following consummation of the Offer, if
the Shares for which the Warrants are exercisable were delisted. In the event
that the Shares and Warrants are no longer listed for quotation on the AMEX,
it is possible that the Shares and Warrants would continue to trade in the
over-the-counter market and that price quotations would be reported by other
sources. The extent of the public market for the Shares and Warrants and the
availability of such quotations would, however, depend on the number of
holders of the Shares and Warrants remaining at such time, the interest in
maintaining a market in the Shares and Warrants on the part of securities
firms, the possible termination of registration of the Shares and Warrants
under the Exchange Act, as described below, and other factors. To the extent
the Shares and Warrants are delisted from the AMEX, the market for the Shares
and Warrants would likely be affected adversely. Further, the Purchaser cannot
predict whether a reduction in the number of the Shares and Warrants that
might otherwise trade publicly, if any, as a result of the Offer, would have
an adverse or beneficial effect on the market price for or marketability of
the Shares and Warrants or whether it would cause future market prices to be
greater or less than the Share Offer Price or the Warrant Offer Price, as the
case may be. See "THE TENDER OFFER--Section 6. Possible Effects of the Offer
on the Market for the Shares and Warrants; AMEX Listing; Exchange Act
Registration; Margin Regulations."
Pursuant to the Merger Agreement, following consummation of the Offer, the
Company and the Purchaser will consummate the Merger. See "SPECIAL FACTORS--
The Merger Agreement." In such event, in accordance with the relevant
provisions of the DGCL, the Purchaser would be merged with and into the
Company. The purpose of the Merger would be to acquire all publicly-held
Shares not validly tendered and purchased pursuant to the Offer or otherwise
directly or indirectly held by the Purchaser or Parent. In the Merger, each
then-outstanding Share (other than the Shares owned by the Company as treasury
stock, the Shares directly or indirectly owned by Parent or the Purchaser, or
the Shares with respect to which appraisal rights are properly exercised under
Delaware law) would be converted into the right to receive the Merger
Consideration. See "SPECIAL FACTORS--Rights of Stockholders in the Offer and
the Merger." Pursuant to the Warrant Agreement, in the Merger, each Warrant
would automatically become exercisable for the Merger Consideration.
Therefore, as a result of the Merger, Warrantholders who did not tender their
Warrants in the Offer would have to pay the exercise price of such Warrants in
exchange for receiving the Merger Consideration.
If the Purchaser owns at least 90% of the outstanding Shares following
consummation of the Offer (assuming the transfer of the Shares currently
directly or indirectly owned by Parent to the Purchaser and exercise of all
Warrants acquired in the Offer), the Purchaser would have the ability to
consummate the Merger without a meeting or vote of the Company Board or of the
stockholders of the Company pursuant to the "short-form" merger provisions of
Section 253 of the DGCL. In such circumstances, the Purchaser currently
intends to so effectuate the Merger as soon as practicable.
If Parent and the Purchaser own less than 90% of the outstanding Shares
(assuming exercise of all Warrants acquired in the Offer) following
consummation of the Offer, the Merger Agreement provides that the Purchaser
and the Company will promptly use their best efforts to take such steps as are
necessary to cause the Merger to
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be effective, which will, if the Shares and Warrants remain registered under
the Exchange Act, require filing with the Commission certain disclosure
materials prior to the adoption of the Merger by the Company's stockholders.
Parent has asked its wholly owned subsidiary, Vivendi North America
Management Services, Inc. to examine various options regarding the future of
the Company's consulting and engineering subsidiary, M&E, following a
successful Transaction, including the disposition of part or all of the stock
or assets of that company. No decisions have been made at this time as to the
treatment of M&E and any such decision would be subject to approval of the
Company Board.
Following consummation of the Merger, the Company will continue as the
Surviving Corporation and will be an indirect wholly owned subsidiary of
Parent. Parent and the Purchaser currently intend to review various possible
business strategies that they might consider following the Offer and the
Merger. Such strategies could include, among other things, changes in the
Company's business, corporate structure or management. See "SPECIAL FACTORS--
Background of the Offer and the Merger; Contacts with the Company."
Except as otherwise described in this Offer to Purchase, Parent and the
Purchaser have no current plans or proposals which relate to or would result
in: (a) an extraordinary corporate transaction, such as a merger,
reorganization or liquidation involving the Company or any of its
subsidiaries; (b) a sale or transfer of a material amount of assets of the
Company or any of its subsidiaries; (c) any change in the present Company
Board or management of the Company, including, but not limited to, any plans
or proposals to change the number or term of directors, to fill any existing
vacancy on the Company Board or to change any material term of the employment
contract of any executive officer; (d) any material change in the present
dividend rate or policy or indebtedness or capitalization of the Company; (e)
any other material change in the Company's corporate structure or business;
(f) a class of securities of the Company to be delisted from the AMEX or cease
to be authorized to be quoted in an inter-dealer quotation system of a
registered national securities association; (g) a class of equity securities
of the Company becoming eligible for termination of registration pursuant to
Section 12(g)(4) of the Exchange Act; or (h) the suspension of the Company's
obligation to file reports pursuant to Section 15(d) of the Exchange Act.
The Merger Agreement provides for the directors of the Purchaser immediately
prior to the Effective Time and for the officers of the Company immediately
prior to the Effective Time, to be the directors and the officers,
respectively, of the Surviving Corporation after the Merger, until their
respective successors are elected or appointed and qualified in accordance
with applicable law.
Notice to Warrantholders. Pursuant to the Warrant Agreement, upon the
consummation of any merger in which the Company is a constituent corporation,
all outstanding Warrants automatically become exercisable for the kind and
amount of consideration which Warrantholders would have received immediately
following the merger if they had exercised their Warrants immediately prior to
such merger. Consequently, as a result of the Merger, each Warrant will
automatically be converted into the right to exercise in exchange for the
Merger Consideration. As required under the Warrant Agreement, Parent and the
Purchaser plan to cause the Surviving Corporation to enter into a Supplemental
Warrant Agreement following the Merger pursuant to which Warrantholders who do
not tender their Warrants in the Offer will have the right to exercise their
Warrants in exchange for the Merger Consideration. As a result, Warrantholders
will have the right to exercise Warrants at the exercise price of $2.50 per
Warrant in exchange for the $2.90 Share Offer Price.
Redemption of the Company's 8% Convertible Subordinated Debentures. Pursuant
to the Merger Agreement, as amended, the Company has agreed to take all steps
necessary to cause the redemption of the Company's 8% Convertible Subordinated
Debentures Due 2015 (the "Debentures") prior to the Effective Time of the
Merger. Such redemption is a condition to consummation of the Merger. Pursuant
to the terms of the indenture governing the Debentures, the Debentures may
currently be redeemed at 100.8% of the principal amount. Such redemption
requires not less than 30 days notice to the holders of the Debentures.
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Rights of Stockholders in the Offer and the Merger
No dissenter or appraisal rights are available to stockholders in connection
with the Offer or to Warrantholders in the Offer or the Merger. If the Merger
is consummated, however, record stockholders of the Company who have not
validly tendered their Shares will have certain rights under the DGCL to an
appraisal of, and to receive payment in cash of the fair value of, their
Shares (the "Appraisal Shares"). Stockholders who perfect appraisal rights by
complying with the procedures set forth in Section 262 of the DGCL ("Section
262"), attached hereto as Schedule III, will have the fair value of their
Appraisal Shares (exclusive of any element of value arising from the
accomplishment or expectation of the Merger) determined by the Delaware Court
of Chancery and will be entitled to receive a cash payment equal to such fair
value from the Surviving Corporation. In addition, such stockholders may be
entitled to receive payment of a fair rate of interest from the date of
consummation of the Merger on the amount determined to be the fair value of
their Appraisal Shares. THE PRESERVATION AND EXERCISE OF APPRAISAL RIGHTS
REQUIRE STRICT ADHERENCE TO THE APPLICABLE PROVISIONS OF THE DGCL.
Under Section 262, if the Merger is submitted to the stockholders of the
Company at a meeting thereof, the Company must, not less than 20 days prior to
the meeting held for the purpose of obtaining stockholder approval of the
Merger, notify each of the Company stockholders entitled to appraisal rights
that such rights are available, and must include in such notice a copy of
Section 262. If the Merger is accomplished pursuant to Section 228 or Section
253 of the DGCL, the Company, either before the effective date of the Merger
or within ten days thereafter, must notify each of the stockholders entitled
to appraisal rights of the effective date of the Merger and that appraisal
rights are available, and must include in such notice a copy of Section 262.
A holder of Appraisal Shares wishing to exercise such holder's appraisal
rights will be required to deliver to the Company before the taking of the
vote on the Merger or within 20 days after the date of mailing the notice
described in the preceding paragraph, as the case may be, a written demand for
appraisal of such holder's Appraisal Shares. A holder of Appraisal Shares
wishing to exercise such holder's appraisal rights must be the record holder
of such Appraisal Shares on the date the written demand for appraisal (as
described below) is made and must continue to hold such Appraisal Shares of
record through the Effective Time. Accordingly, a holder of Appraisal Shares
who is the record holder of Appraisal Shares on the date the written demand
for appraisal is made (if such demand is made prior to the effectiveness of
the Merger), but who thereafter transfers such Appraisal Shares prior to the
consummation of the Merger, will lose any right to appraisal in respect of
such Appraisal Shares. A demand for appraisal must be executed by or on behalf
of the stockholder of record and must reasonably inform the Surviving
Corporation of the identity of the stockholder of record and that such
stockholder intends thereby to demand an appraisal of the Appraisal Shares.
A person having a beneficial interest in Appraisal Shares that are held of
record in the name of another person, such as a broker, fiduciary, depository
or other nominee, will have to act to cause the record holder to follow the
requisite steps properly and in a timely manner to perfect appraisal rights.
If the Appraisal Shares are owned of record by a person other than the
beneficial owner, including a broker, fiduciary (such as trustee, guardian or
custodian), depository or other nominee, the demand will have to be executed
by or for the record holder. If the Appraisal Shares are owned of record by
more than one person, as in joint tenancy or tenancy in common, the demand
will have to be executed by or for all joint owners. An authorized agent,
including agent for two or more joint owners, may execute a demand for
appraisal for a stockholder of record, provided that the agent identified the
record owner and expressly discloses that fact, in making the demand, the
agent is acting as agent for the record owner. If a stockholder owns Appraisal
Shares through a broker who in turn holds the Shares through a central
securities depository nominee such as CEDE & Co., a demand for appraisal of
such Shares will have to be made by or on behalf of the depository nominee and
must identify the depository nominee as record holder.
A record holder, such as a broker, fiduciary, depository or other nominee,
who holds Appraisal Shares as a nominee for others, will be able to exercise
appraisal rights with respect to the Shares held for all or less than all of
the beneficial owners of those Shares as to which such person is the record
owner. In such case, the written
23
<PAGE>
demand must set forth the number of Shares covered by the demand. Where the
number of Shares is not expressly stated, the demand will be presumed to cover
all Shares standing in the name of such record owner.
Within 120 days after the Effective Time, but not thereafter, the Surviving
Corporation or any stockholder who has complied with the statutory
requirements summarized above and who is otherwise entitled to appraisal
rights may file a petition in the Delaware Court of Chancery demanding a
determination of the fair value of the Appraisal Shares. There is no present
intention on the part of the Purchaser to file an appraisal petition and
stockholders who seek to exercise appraisal rights should not assume that the
Purchaser will file such a petition or that the Purchaser will initiate any
negotiations with respect to the fair value of such Shares. Accordingly, it
will be the obligation of the stockholders seeking appraisal rights to
initiate all necessary action to perfect any appraisal rights within the time
prescribed in Section 262. Within 120 days after the effective date of the
Merger, any stockholder who has theretofore complied with the provisions of
Section 262 will be entitled, upon written request, to receive from the
Purchaser a statement setting forth the aggregate number of Shares not voting
in favor of the Merger and with respect to which demands for appraisal were
received by the Purchaser and the number of holder of such Shares. Such
statement must be mailed within 10 days after the written request therefor has
been received by the Purchaser.
If a petition for appraisal is timely filed, after hearing on such petition,
the Delaware Court of Chancery will determine the stockholders entitled to
appraisal rights and will appraise the fair value of their Appraisal Shares,
exclusive of any element of value arising from the accomplishment or
expectation of the Merger, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value.
The costs of the proceeding may be determined by the Delaware Court of
Chancery and taxed upon the parties as the Delaware Court of Chancery deems
equitable in the circumstances. However, costs do not include attorneys' fees
or expert witness fees. Upon application of a stockholder, the Delaware Court
of Chancery may also order all or a portion of the expenses incurred by any
stockholder, including reasonable attorneys' fees and the fees and expenses of
experts, to be charged pro rata against the value of all of the Appraisal
Shares entitled to appraisal.
Any holder of Appraisal Shares who has duly demanded an appraisal in
compliance with Section 262 will not, from and after the Effective Time of the
Merger, be entitled to vote the Appraisal Shares subject to such demand for
any purpose or to receive payment of dividends or other distributions on those
Appraisal Shares (except dividends or other distributions payable to
stockholders of record at a date which is prior to the Effective Time.)
At any time within 60 days after the effective date of the Merger, any
stockholder shall have the right to withdraw its demand for appraisal and to
accept the Merger Consideration. After this period, the stockholder may
withdraw its demand for appraisal only with the consent of the Purchaser. If
any stockholder who properly demands appraisal of such holder's Appraisal
Shares under Section 262 fails to perfect, or effectively withdraws or loses,
such holder's right to appraisal, as provided in the DGCL, the Appraisal
Shares of such stockholder will be converted into the right to receive the
Merger Consideration. A stockholder will fail to perfect, or effectively lose
or withdraw, such stockholder's right to appraisal if, among other things, no
petition for appraisal is filed within 120 days after the consummation of the
Merger, or if the stockholder delivers to the Surviving Corporation a written
withdrawal of such stockholder's demand for appraisal.
The Merger Agreement
The following is a summary of the Merger Agreement, a copy of which is filed
as an Exhibit to the Tender Offer Statement on Schedule 14D-1 (the "Schedule
14D-1") filed by the Purchaser and Parent with the Commission in connection
with the Offer. Such summary is qualified in its entirety by reference to the
Merger Agreement.
The Offer. The Merger Agreement provides for the commencement of the Offer
as promptly as reasonably practicable, but in no event later than five
business days after the initial public announcement of the Purchaser's
intention to commence the Offer. The obligation of the Purchaser to accept for
payment and pay for the Shares
24
<PAGE>
and Warrants tendered pursuant to the Offer is subject to the satisfaction of
certain conditions that are described below under the caption "THE TENDER
OFFER--Section 10. Certain Conditions of the Offer." The Purchaser and Parent
have agreed that, without the prior written consent of the Special Committee,
no change in the Offer may be made which decreases the price per Share or per
Warrant payable in the Offer, which reduces the maximum number of Shares or
Warrants to be purchased in the Offer, which changes the form of consideration
payable in the Offer, which adds to, modifies or supplements the conditions to
the Offer set forth below under the caption "THE TENDER OFFER--Section 10.
Certain Conditions of the Offer" or which extends the expiration date of the
Offer beyond the twentieth business day following commencement thereof;
provided, however, the Purchaser may extend the expiration date of the Offer,
(i) upon the occurrence of any of the events set forth below under the caption
"THE TENDER OFFER--Section 10. Certain Conditions of the Offer " and (ii) to
the extent necessary respond to comments on the Offer Documents (as defined
below) from the Commission. The Purchaser and Parent may also make such other
changes in the terms or conditions of the Offer as are not materially adverse
to the holders of the Shares and Warrants without the prior written consent of
the Special Committee. The term "Offer Documents" means the Schedule 14D-1,
the Rule 13e-3 Transaction Statement on Schedule 13E-3 (the "Schedule 13E-3"),
this Offer to Purchase and the other documents, in each case filed by the
Purchaser and Parent with the Commission in connection with the Offer,
together with all supplements and amendments thereto.
The Merger. The Merger Agreement provides that, upon the terms and subject
to the conditions thereof, and in accordance with the DGCL, at the Effective
Time, the Purchaser shall be merged with and into the Company. As a result of
the Merger, the separate corporate existence of the Purchaser will cease and
the Company shall continue as the Surviving Corporation. Upon consummation of
the Merger, each Share issued and outstanding immediately prior to the
Effective Time held by a stockholder (other than Parent or the Purchaser and
other than any Shares for which the holder thereof is seeking appraisal rights
("Dissenting Shares") shall be canceled and shall be converted automatically
into the right to receive from Surviving Corporation the Merger Consideration
payable, without interest. Each Share held by Parent, the Purchaser or by the
Company in treasury immediately prior to the Effective Time shall be canceled
without any conversion thereof and no payment or distribution shall be made
with respect thereto.
Pursuant to the Merger Agreement, each share of common stock, par value $.01
per share, of the Purchaser issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one validly issued,
fully paid and nonassessable share of common stock, par value $.01 per share,
of the Surviving Corporation.
Directors and Officers, Certificate of Incorporation and By-laws. The Merger
Agreement provides that the directors of the Purchaser immediately prior to
the Effective Time and the officers of the Company immediately prior to the
Effective Time will be the initial directors and officers of the Surviving
Corporation. The Merger Agreement provides that the Certificate of
Incorporation of the Purchaser as in effect immediately prior to the Effective
Time, will be the Certificate of Incorporation of the Surviving Corporation.
The Merger Agreement also provides that the By-laws of the Purchaser, as in
effect immediately prior to the Effective Time, will be the By-laws of the
Surviving Corporation.
Withholding Taxes. The Surviving Corporation or the designated paying agent
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to the Merger Agreement to any holder of the Shares any
amounts that the Surviving Corporation or such paying agent is required to
deduct and withhold with respect to the making of such payment under the
United States Internal Revenue Code of 1986, as amended, the rules and
regulations promulgated thereunder or any provision of state, local or foreign
tax law.
Agreements of Parent, the Purchaser and the Company; Stockholders'
Meeting. Pursuant to the Merger Agreement, the Company shall, if required by
applicable law in order to consummate the Merger, take all necessary action to
duly call, give notice of, convene and hold a special meeting of its
stockholders as soon as practicable following consummation of the Offer for
the purpose of considering and taking action on the Merger
25
<PAGE>
Agreement and the Transactions (as defined in the Merger Agreement) (the
"Stockholders' Meeting"). At the Stockholders' Meeting, Parent and the
Purchaser shall cause all the Shares then owned by them to be voted in favor
of the approval and adoption of the Merger Agreement and the Transactions. In
the event the Stockholders' Meeting is called, the Company shall use its
reasonable best efforts to solicit from stockholders of the Company proxies in
favor of the approval and adoption of the Merger Agreement and to secure the
vote or consent of stockholders required by the DGCL to approve and adopt the
Merger Agreement, unless otherwise required by the applicable fiduciary duties
of the directors of the Company or of the Company's directors constituting the
Special Committee, as determined by such directors in good faith, and after
consultation with independent legal counsel (which may include the Company's
regularly engaged legal counsel).
Proxy Statement. The Merger Agreement provides that Parent, Purchaser and
the Company shall, if required by applicable law, as soon as practicable
following consummation of the Offer, file a proxy statement or information
statement (each, a "Proxy Statement") with respect to the Stockholders'
Meeting with the Commission under the Exchange Act, and use their best efforts
to have the Proxy Statement cleared by the Commission. Parent, the Purchaser
and the Company shall cooperate with each other in the preparation of the
Proxy Statement, and the Company shall notify Parent and the Purchaser of the
receipt of any comments of the Commission with respect to the Proxy Statement
and of any requests by the Commission for any amendment thereof or supplement
thereto or for additional information and shall provide to Parent and the
Purchaser promptly copies of all correspondence between the Company or any
representative of the Company and Commission. The Company shall give Parent
and their counsel the opportunity to review the Proxy Statement prior to its
being filed with the Commission and shall give Parent, the Purchaser and their
counsel the opportunity to review all amendments and supplements to the Proxy
Statements and all responses to requests for additional information from the
Commission and replies to comments from the Commission prior to their being
filed with, or sent to, the Commission. Each of the Company, Parent and the
Purchaser shall use its reasonable efforts after consultation with the other
parties to the Merger Agreement, to respond promptly to all such comments of
and requests by the Commission and to cause the Proxy Statement and all
required amendments thereof and supplements thereto to be mailed to the
holders of the Shares entitled to vote at the Stockholders' Meeting at the
earliest practicable time.
Public Announcements. Pursuant to the Merger Agreement, Parent, the
Purchaser and the Company shall each obtain the prior consent of each other
before issuing any press release or otherwise making any public statements
with respect to the Merger Agreement or any transaction contemplated thereby
and shall not issue any such press release or make any such public statement
without such prior consent, except as may be required by law or any listing
agreement with a national securities exchange to which Parent, the Purchaser
or the Company is a party.
Further Action. The Merger Agreement provides that, subject to its terms and
conditions, each of the parties thereto covenants and agrees to use all
reasonable best efforts to deliver or cause to be delivered such documents and
other papers and to take or cause to be taken such further actions as may be
necessary, proper or advisable under applicable laws to consummate and make
effective the transactions contemplated by the Merger Agreement, including the
Merger.
Redemption of the Company's 8% Convertible Subordinated Debentures. Pursuant
to the Merger Agreement, the Company has agreed to take all steps necessary to
cause the redemption of the Debentures prior to the Effective Time of the
Merger. Such redemption is a condition to consummation of the Merger. See
"Conditions to the Merger" below.
Representations and Warranties. The Merger Agreement contains various
customary representations and warranties of the parties thereto including
representations by the Company, Parent and the Purchaser as to the
enforceability of the Merger Agreement. The Company also has provided, subject
to appropriate materiality standards, representations and warranties as to
absence of certain changes or events concerning the Company's business,
corporate status, capitalization and the accuracy of financial statements and
filings with the Commission.
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<PAGE>
Conditions to the Merger. Under the Merger Agreement, the respective
obligations of each party to effect the Merger are subject to the satisfaction
at or prior to the Effective Time of the following conditions, any or all of
which may be waived, in whole or in part, to the extent permitted by
applicable law: (i) the Merger Agreement and the transactions contemplated
thereby shall have been approved and adopted by the affirmative vote of the
stockholders of the Company to the extent required by the DGCL and the
Certificate of Incorporation and the By-laws of the Company; (ii) the
Debentures shall have been redeemed; and (iii) no foreign, United States or
state governmental authority or other agency or commission or foreign, United
States or state court of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any law, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or
permanent) which is then in effect and has the effect of making the
acquisition of the Shares and/or the Warrants by Purchaser illegal or
otherwise restricting, preventing or prohibiting consummation of the Offer or
the Merger.
Termination; Fees and Expenses. The Merger Agreement may be terminated and
the Merger and the other transactions contemplated thereby may be abandoned at
any time prior to the Effective Time, notwithstanding any requisite approval
and adoption of the Merger Agreement and the transactions contemplated thereby
by the stockholders of the Company: (i) by mutual written consent duly
authorized by the Board of Directors of Parent, the Purchaser and the Company,
if such termination is also approved by the Special Committee; (ii) by either
Parent, the Purchaser or the Company if (a) the Effective Time shall not have
occurred on or before December 31, 1999; provided, however, that such right to
terminate shall not be available to any party whose failure to fulfill any
obligation under the Merger Agreement has been the cause of, or resulted in,
the failure of the Effective Time to occur on or before such date or (b) any
court of competent jurisdiction or other governmental authority shall have
issued an order, decree or ruling or taken any other action restraining,
enjoining or otherwise prohibiting the Merger and such order, decree, ruling
or other action shall have become final and nonappealable; or (iii) by Parent,
if (a) due to an occurrence or circumstance that would result in a failure to
satisfy any condition set forth under the caption "THE TENDER OFFER Section
10.--Certain Conditions of the Offer" below, the Purchaser shall have (1)
failed to commence the Offer within 60 days following the date of the Merger
Agreement, (2) terminated the Offer without having accepted any Shares or
Warrants for payment thereunder, or (3) failed to pay for the Shares and
Warrants validly tendered and not properly withdrawn pursuant to the Offer
within 90 days following the commencement of the Offer, unless such
termination or failure to pay for the Shares and Warrants shall have been
caused by or resulted from the failure of Parent or the Purchaser to perform
in any material respect any covenant or agreement of either of them contained
in the Merger Agreement or the material breach by Parent or the Purchaser of
any representation or warranty of either of them contained in the Merger
Agreement or (b) prior to the purchase of any Shares or Warrants validly
tendered pursuant to the Offer, the Special Committee shall have withdrawn or
modified in a manner that is, in the reasonable judgment of Parent, materially
adverse to Parent or the Purchaser, its approval or recommendation of the
Merger Agreement, the Offer, the Merger or any other transaction contemplated
by the Merger Agreement or shall have recommended another merger,
consolidation or business combination involving, or acquisition of, the
Company or its assets or another tender offer for the Shares or Warrants, or
shall have resolved to do any of the foregoing.
In the event of the termination of the Merger Agreement, the Merger
Agreement shall forthwith become void, except for certain provisions of the
Merger Agreement (including those related to fees and expenses described
below) which survive termination. The Merger Agreement also provides that no
party shall be relieved from liability for any wilful breach thereof.
All fees and expenses incurred in connection with the Merger Agreement and
the transactions contemplated thereby shall be paid by Parent.
Interests of Certain Persons in the Offer and the Merger
General.
In considering the recommendation of the Special Committee and of the
Company Board with respect to the Offer and the Merger and the fairness of the
consideration to be received in the Offer and the Merger, stockholders and
Warrantholders should be aware that members of the Company's management and
the Company Board have the interests and relationships summarized below that
may present them with potential
27
<PAGE>
conflicts of interest in connection with the Offer and the Merger. The Special
Committee and the Company Board recognized such interests and determined that
such interests neither supported nor detracted from the fairness of the Offer
and the Merger to the stockholders and Warrantholders.
Compensation of Members of the Special Committee.
Martha O. Hesse and John J. Morris have each been compensated in the amount
of $100,000 for serving as members of the Special Committee. This compensation
was authorized by the Company Board in order to compensate the members thereof
for the significant additional time commitment that was required of them in
connection with fulfilling their duties and responsibilities as members of the
Special Committee and was paid without regard to whether the Special Committee
approved the Offer and the Merger or whether the Merger was consummated.
Ownership of Shares and Warrants.
As of July 14, 1999, the directors and executive officers of the Company, as
a group, beneficially owned an aggregate of 20,908 Shares (representing less
than 1% of the then outstanding Shares), excluding Shares subject to Options,
and 3,250 Warrants. As of July 14, 1999, the members of the Special Committee,
as a group, beneficially owned an aggregate of 16,908 Shares (representing
less than 1% of the then outstanding Shares), excluding Shares subject to
options and 3,250 Warrants. Except as set forth under "SPECIAL FACTORS--
Beneficial Ownership of the Shares and Warrants," no directors, officers or
members of the Special Committee currently own any Warrants. All such Shares
held by such directors and executive officers and by the members of the
Special Committee will be treated in the Merger in the same manner as Shares
held by the other stockholders. In the aggregate, the directors and executive
officers of the Company will be entitled to receive approximately $60,633 for
their Shares and $1,300 for their Warrants upon consummation of the Offer and
the Merger (based upon the number of Shares owned as of July 14, 1999) and the
members of the Special Committee will be entitled to receive approximately
$49,033 for their Shares and $1,300 for their Warrants upon consummation of
the Offer and the Merger (based upon the number of Shares owned as of July 14,
1999).
Options.
As of July 14, 1999, the directors and executive officers of the Company had
Options to acquire an aggregate of 768,500 Shares at an average exercise price
of $1.914 per Share. The Company Board has caused the acceleration of the
vesting of all outstanding options held by directors and executive officers to
allow such options to be exercised prior to the expiration of the Offer in
exchange for Shares which may then be tendered in the Offer or converted into
the right to receive the Merger Consideration in the Merger. Based upon the
average exercise price of such options and the Share Offer Price, the
directors and executive officers of the Company, as a group, will receive
total consideration of $758,115 (before applicable taxes) net of the total
amount they will have to pay to exercise options.
Director Compensation.
Each member of the Company Board is entitled to receive an annual fee of
$18,000 plus $7,500 per year if such member of the Company Board is also a
member of a Committee of the Company Board other than the Special Committee.
In addition, the directors serving on the Special Committee have received
additional compensation in connection with such service. See "SPECIAL
FACTORS--Interests of Certain Persons in the Offer and the Merger."
Stockholders and Warrantholders also should be aware that Parent and the
Purchaser have certain interests that present actual or potential conflicts of
interest in connection with the Offer and the Merger. As a result of Parent's
current ownership of more than 83% of the Shares and its affiliates' officers,
constituting 5 of the Company's 7 directors, Parent may be deemed to control
the Company.
The Special Committee and the Board were aware of these actual and potential
conflicts of interest and considered them along with the other matters
described under "SPECIAL FACTORS--Recommendation of the Special Committee and
the Company Board; Fairness of the Offer and the Merger."
To the best knowledge of Parent and the Purchaser, all of the executive
officers and directors of the Company currently intend to tender Shares owned
by them pursuant to the Offer.
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<PAGE>
Beneficial Ownership of the Shares and Warrants
Security Ownership of Certain Beneficial Owners.
The following table sets forth certain information, as of July 14, 1999,
regarding the ownership of the Shares and Warrants by each person known by the
Company to be the beneficial owner of more than 5% of the issued and
outstanding Shares and Warrants.
<TABLE>
<CAPTION>
Percentage of Percentage of
Number of Number of Shares Warrants
Name of the Shares the Warrants Beneficially Beneficially
Beneficial Owner Owned(1) Owned Owned(2) Owned
- ---------------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Vivendi 153,714,675 -- 83.0% --
</TABLE>
- --------
(1) All such Shares are owned directly and indirectly by Vivendi through its
wholly owned subsidiary Vivendi North America Operations, Inc., which owns
153,714,675 Shares.
(2) Based upon 185,266,429 Shares outstanding as of July 14, 1999.
Security Ownership of Directors and Executive Officers of the Company.
The following table sets forth, as of July 14, 1999, the aggregate amount
and percentage of the Shares and/or Warrants beneficially owned by each
current executive officer and director of the Company. Any such person whose
name does not appear does not beneficially own any Shares and/or Warrants as
of July 14, 1999. The table also sets forth as of July 14 1999, the aggregate
amount and percentage of the Shares and/or Warrants beneficially owned by all
current directors and executive officers, as a group, of the Company. No
pension, profit-sharing or similar plan of the Company owns any Shares or
Warrants. Except as indicated below, the directors and officers of Parent and
the Purchaser do not own any Shares or Warrants.
<TABLE>
<CAPTION>
Number of the Shares Number of Warrants Percent of Class
Name Beneficially Owned Beneficially Owned Option Shares of Shares
- ---- -------------------- ------------------ ------------- ----------------
<S> <C> <C> <C> <C>
Thierry M. Mallet(1).... 150,000 -- 150,000 *
Alain Brunais(2)........ 169,000 -- 168,000 *
Martha O. Hesse......... 13,058 1,629 3,000(1) *
John W. Morris.......... 14,100 1,621 4,000(2) *
Joseph Bolton........... 53,000(3) -- 50,000 *
Jean-Claude Banon....... 3,500 -- 3,500(4) *
Kevin P. Duffy.......... 27,500 -- 27,500 *
Francis X. Ferrara...... 27,500 -- 27,500 *
Jeffrey M. Fitzgerald... 25,000 -- 25,000 *
Gail M. Fulwider........ 60,000 -- 60,000 *
Neil Lawrence Lane...... 60,000 -- 60,000 *
Michael A. Szornjassy... 75,000 -- 75,000(5) *
Joseph R. Vidal......... 44,100 -- 44,100 *
Jekabs P. Vittands...... 124,519 -- 124,519 *
Robert S. Volland....... 101,000 -- 101,000 *
All directors and
executive officers as a
group (17 persons)..... 947,277 3,250 923,119 *
</TABLE>
- --------
* Less than one percent of the class of securities
(1) Annual grants to Ms. Hesse as a member of the Compensation and Benefits
Committees of the Company Board to be awarded on July 31, 1999.
(2) Includes annual grants to Mr. Morris as a member of the Compensation and
Benefits Committees of the Company Board to be awarded on July 31, 1999,
in the amount of 500 options.
(3) Includes 25,000 restricted Shares granted on September 9, 1998, in lieu of
a sign-on bonus.
(4) Includes annual grants to Mr. Banon as a member of the Compensation and
Benefits Committees of the Company Board to be awarded on July 31, 1999,
in the amount of 500 options.
(5) Includes 25,000 restricted Shares granted on September 9, 1998, in lieu of
a sign-on bonus.
29
<PAGE>
Transactions by Certain Persons in the Shares and Warrants. Since May 18,
1999, 60 days prior to the initial filing of the Schedule 13E-3, through July
16, 1999, none of the Company, Parent or the Purchaser, any majority owned
subsidiary thereof, any director or executive officer thereof and no pension,
profit-sharing or similar plan of the Company, Parent or the Purchaser has
effected any purchases or sales of the Shares and/or Warrants.
Related Party Transactions
As of October 31, 1998, approximately 83% of the Shares was beneficially
owned by Parent, the Company's largest stockholder. As of December 31, 1998,
the Shares that had been owned directly and indirectly by Parent (83% of the
outstanding Shares at that date), were transferred to Parent's wholly owned
subsidiary, Vivendi North America Operations, Inc.
The Company and Parent entered into a number of agreements to define the
ongoing relationship between the two companies. Because of Parent's control
over the Company and its operations, these agreements were not the result of
negotiations between independent parties; however, the Company and Parent
believe that terms of such agreements are as favorable to the Company as could
be obtained from an unaffiliated party. The following is a summary of certain
agreements between the Company and Parent (or their respective subsidiaries):
Investment Agreement.
Pursuant to an Investment Agreement, Parent provided the Company with a $125
million Vivendi Note (described below) and entered into certain agreements and
undertakings with respect to the Company. Among these agreements and
undertakings, Parent agreed that for so long as Parent and its Affiliates are
the largest stockholder of the Company, the Company shall be Parent's
exclusive vehicle in the United States, its possessions and its territories
for its water management and waste water management and air pollution
activities; provided that the foregoing shall not apply to any acquisition or
investment by Parent (or any of its affiliates) of or in a privately-owned,
publicly-traded or publicly-owned company in the Water Business. In addition,
Parent agreed to assist (and cause its affiliates to assist) the Company in
developing its water management and wastewater management and air pollution
activities in both Canada and Mexico, subject to contractual agreements as of
March 30, 1994 and taking into account the respective interests of the
Company, on the one hand, and Parent and its affiliates on the other. Parent
also agreed to offer the Company an active participation in any proposed water
management or wastewater management activities by Parent (or any of its
affiliates) in the United States (which shall be deemed to exclude the Water
Businesses), which investment is too capital intensive for the Company to
undertake on a stand-alone basis. Also, Parent agreed that, in the event
Parent or any of its Affiliates acquires control of a Water Business which is
also engaged in wastewater activities similar to those conducted by the
Company as of the date of the Investment Agreement, then Parent or such
Affiliate shall use reasonable efforts to cause, subject to the fiduciary
duties of the board of directors of such Water Business and other applicable
regulatory standards, that Water Business to offer to the Company (i) the
opportunity to obtain "operating and maintenance" contracts with the
wastewater management business of such Water Business and (ii) the opportunity
to obtain new engineering contracts with such Water Business, in each case, on
terms which are commercially reasonable in the judgment of such Water
Business; provided that the foregoing shall not apply to any existing business
of Consumers Water or Philadelphia Suburban as of the date of the Investment
Agreement. In addition, Parent and its Affiliates, on the one hand, and the
Company on the other, agreed to establish a privileged commercial relationship
for the development of air pollution activities in Europe.
Right to Appoint Directors.
In connection with the above mentioned agreements, Parent received certain
rights with respect to the Company, in particular, representation on the
Company Board proportionate to the aggregate voting control represented by the
Shares and Series A Preferred Stock beneficially owned by Parent (subject to a
minimum of three Independent Directors pursuant to the original agreement
reduced to two independent directors pursuant to a subsequent amendment) and
the right to designate the Chairman of the Company Board, the Company's Chief
Executive Officer and the Company's Chief Financial Officer.
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<PAGE>
Affiliate Transactions.
Parent has agreed on behalf of itself and its affiliates that any
transactions (or series of related transactions in a chain) between the
Company and any of its affiliates and Parent or any of its affiliates will be
on an arm's length basis. Any such transaction (or such series of
transactions) having an aggregate value in excess of $1 million must be
approved by a majority of Independent Directors or a special committee thereof
acting in a separate meeting or by unanimous written consent. The Company,
Parent and VNA have further agreed that all actions by the Company with
respect to any claim by the Company against Parent or its affiliates under the
Investment Agreement will be taken only by majority approval of such
Independent Directors or a special committee thereof, so acting in a separate
meeting or by unanimous written consent.
Sale of the Shares.
Parent has also agreed to give the Company one day's prior written notice of
any sale of the Shares held by Parent or its affiliates if, to the knowledge
of Parent, such sale would result in any person beneficially owning more than
15% of the outstanding Shares.
Registration Rights.
Parent and VNA have the right, pursuant to the Investment Agreement, to
require the Company to register the Shares owned by Parent and its affiliates
for sale to the public, with certain exceptions. Parent and VNA have not
exercised this right.
Access to Books and Records.
The Company has agreed that for so long as Parent beneficially owns directly
or indirectly at least 26% of the outstanding Shares on a fully-diluted basis,
Parent 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 Parent, subject to
confidentiality obligations.
Parent Note and Involvement of Parent in Other Financing Arrangements.
In addition to its direct ownership interest, the Company has benefitted
from certain financial undertakings by Parent, including a $125 million term
loan from Parent and a $60 million credit facility with VNA, both of which
were repaid in March 1998 with a portion of the gross proceeds from the Rights
Offering in connection with the Recapitalization Agreement. The Company
compensates Parent for its support of the Company's credit facilities, in an
amount equal to 0.95% per annum of the outstanding commitment of its credit
facilities, and for other services including $2.0 million for financial
advisor and legal fees and expenses related to the Recapitalization. Total
fees to Parent and its subsidiaries were approximately $6.0 million, $2.3
million and $2.1 million for the three years ended October 31, 1998, 1997 and
1996, respectively. At October 31, 1998 and 1997, the Company had accounts
payable and accrued expenses to Parent and its subsidiaries of approximately
$8,338,000 and $3,483,000, respectively. In addition, the Company has agreed
to function as the agent of Parent's water subsidiary for operations under the
amended and restated contract with the Puerto Rico Aqueduct and Sewer
Authority ("PRASA"); Parent had previously guaranteed performance of PSG
Puerto Rico's original contract with PRASA. VNA also has partially indemnified
certain obligations of the Company relating to the bonding of certain
contracts.
Financing of the Offer and the Merger
The total amount of funds required by the Purchaser to consummate the Offer
and the Merger and to pay related fees and expenses is estimated to be
approximately $103,242,090. Parent will ensure that the Purchaser has
sufficient funds to acquire all the outstanding Shares and Warrants pursuant
to the Offer and the Merger. Parent will provide such funds from its cash flow
and readily available funds.
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Certain United States Federal Income Tax Consequences
The following is a summary of certain United States federal income tax
consequences of the Offer and the Merger to stockholders and Warrantholders of
the Company whose Shares or Warrants are tendered and accepted for payment
pursuant to the Offer, who receive cash in exchange for their Shares pursuant
to the Merger or who receive cash with respect to their Warrants as a
consequence of the Merger and pursuant to the Warrant Agreement or
Supplemental Warrant Agreement, as applicable. The discussion is for general
information only and does not purport to consider all aspects of United States
federal income taxation that might be relevant to stockholders or
Warrantholders of the Company. The discussion is based on current law which is
subject to change, possibly with retroactive effect. The discussion applies
only to stockholders and Warrantholders who hold Shares or Warrants as capital
assets, and may not apply to Shares received pursuant to the exercise of
employee stock options or otherwise as compensation, or to certain types of
stockholders and Warrantholders (such as insurance companies, tax-exempt
organizations, financial institutions and broker-dealers) who may be subject
to special rules. This discussion does not discuss the United States federal
income tax consequences to any stockholder or Warrantholder of the Company
who, for United States federal income tax purposes, is a nonresident alien
individual, foreign corporation, foreign partnership or foreign estate or
trust (as defined under the Code) and does not address any aspect of state,
local, foreign or other tax laws.
BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH STOCKHOLDER AND
WARRANTHOLDER SHOULD CONSULT ITS TAX ADVISOR REGARDING THE APPLICABILITY TO IT
OF THE RULES DISCUSSED BELOW AND THE PARTICULAR TAX EFFECTS TO IT OF THE OFFER
AND THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS.
The receipt of cash for Shares or Warrants in connection with the Offer or
the Merger will be a taxable transaction for United States federal income tax
purposes. In general, a stockholder or Warrantholder who tenders Shares or
Warrants for cash pursuant to the Offer, a stockholder who receives cash in
exchange for its Shares pursuant to the Merger and a Warrantholder who
receives cash in respect of its Warrants as a consequence of the Merger and
pursuant to the Warrant Agreement or Supplemental Warrant Agreement, as
applicable, will recognize gain or loss for United States federal income tax
purposes equal to the difference, if any, between the net amount of cash
received and such stockholder or Warrantholder's adjusted tax basis in such
Shares or Warrants immediately prior to the Merger. Gain or loss recognized
with respect to Shares or Warrants will be long-term capital gain or loss
provided that a stockholder's or Warrantholder's holding period for such
Shares or Warrants is more than 12 months at the time of consummation of the
Offer or the Merger, as the case may be. Capital gain recognized by
individuals (and certain estates and trusts) upon a disposition of a Share or
Warrant that has been held for more than one year generally will be subject to
a maximum United States federal income tax rate of 20% or, in the case of a
Share or Warrant that has been held for one year or less, will be subject to
tax at ordinary income tax rates. Certain limitations apply to the use of
capital losses.
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THE TENDER OFFER
1. Terms of the Offer.
Upon the terms and subject to the conditions of the Offer (including, if the
Offer is extended or amended, the terms and conditions of any such extension
or amendment), the Purchaser will accept for payment and pay for all Shares
and Warrants validly tendered and not properly withdrawn on or prior to the
Expiration Date (as defined below) in accordance with the procedures set forth
in "THE TENDER OFFER--Section 4. Withdrawal Rights," as soon as practicable
after such Expiration Date; provided that, if the Shares and Warrants validly
tendered and not properly withdrawn pursuant to the Offer are not sufficient
to satisfy the Minimum Condition the Purchaser reserves the right, in its sole
discretion, to extend the Offer from time to time for up to 15 business days
in the aggregate, notwithstanding the prior satisfaction of the conditions to
the Offer so long as the Purchaser irrevocably waives the satisfaction of any
of the conditions to the Offer that subsequently may not be satisfied during
any such extension of the Offer. See "THE TENDER OFFER--Section 10. Certain
Conditions of the Offer." The Offer will remain open until 12:00 midnight, New
York City time, on Thursday, August 12, 1999 (the "Expiration Date"), unless
and until the Purchaser, in its sole discretion (but subject to the terms and
conditions of the Merger Agreement), extends the period of time for which the
Offer is open, in which event the term "Expiration Date" will mean the time
and date at which the Offer, as so extended by the Purchaser, will expire.
The Offer is conditioned upon, among other things, the satisfaction of the
Minimum Condition. See "THE TENDER OFFER--Section 10. Certain Conditions of
the Offer." Parent shall be entitled to extend the Offer if, at any Expiration
Date, any condition to the Offer is not satisfied or waived, and Parent agrees
to cause the Purchaser to extend the Offer up to 40 days in the aggregate, in
one or more periods of not more than 10 business days, if, at any Expiration
Date, any condition to the Offer set forth in "THE TENDER OFFER--Section 10.
Certain Conditions of the Offer" is not satisfied or waived; provided,
however, that the Purchaser shall not be required to extend the Offer as
provided in this sentence unless, in Parent's reasonable judgment each such
condition is reasonably capable of being satisfied. During any extension, all
the Shares and Warrants previously validly tendered and not properly withdrawn
will remain subject to the Offer and subject to the right of a tendering
stockholder or Warrantholder to withdraw such stockholder's Shares or such
Warrantholder's Warrants. See "THE TENDER OFFER--Section 4. Withdrawal
Rights." Under no circumstances will interest be paid on the purchase price
for tendered Shares or Warrants, whether or not the Offer is extended.
Subject to the applicable regulations of the Commission, the Purchaser
expressly reserves the right, in its sole discretion (but subject to the terms
and conditions of the Merger Agreement), at any time or from time to time, to
(i) in addition to its termination rights relating to fulfillment of the
Minimum Condition, terminate the Offer if at any time prior to the time of
payment for Shares pursuant to the Offer any of the other conditions referred
to in "THE TENDER OFFER--Section 10. Certain Conditions of the Offer" has not
been satisfied; (ii) waive any condition (including the Minimum Condition); or
(iii) except as discussed below, otherwise amend the Offer in any respect, in
each case, by giving oral or written notice of such termination, waiver or
amendment to the Depositary.
Any such extension, termination or amendment will be followed as promptly as
practicable by public announcement thereof. In the case of an extension, Rule
14e-1(d) under the Exchange Act requires that the announcement be issued no
later than 9:00 a.m., New York City time, on the next business day after the
previously scheduled Expiration Date in accordance with the public
announcement requirements of Rule 14e-1 under the Exchange Act. Subject to
applicable law (including Rules 14d-4(c) and 14d-6(d) under the Exchange Act,
which require that any material change in the information published, sent or
given to stockholders and Warrantholders in connection with the Offer be
promptly disseminated to stockholders and Warrantholders in a manner
reasonably designed to inform stockholders and Warrantholders of such change),
and without limiting the manner in which the Purchaser may choose to make any
public announcement, the Purchaser will not have any obligation to publish,
advertise or otherwise communicate any such public announcement other than by
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making a release to the Dow Jones News Service. The rights reserved by the
Purchaser in the preceding paragraph are in addition to the Purchaser's rights
pursuant to "THE TENDER OFFER--Section 10. Certain Conditions of the Offer."
If the Purchaser makes a material change in the terms of the Offer, or if it
waives a material condition to the Offer, the Purchaser will extend the Offer
and disseminate additional tender offer materials to the extent required by
Rules 14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act. The minimum period
during which an offer must remain open following material changes in the terms
of the Offer, other than a change in price or a change in percentage of
securities sought, will depend upon the facts and circumstances, including the
materiality of the changes. In the Commission's view, an offer should remain
open for a minimum of five business days from the date the material change is
first published, sent or given to stockholders and Warrantholders, and, if
material changes are made with respect to information that approaches the
significance of price and the percentage of securities sought, a minimum of
ten business days may be required to allow for adequate dissemination and
investor response. With respect to a change in price, a minimum ten business
day period from the date of such change is generally required under applicable
Commission rules and regulations to allow for adequate dissemination to
stockholders and Warrantholders.
For purposes of the Offer, a "business day" means any day other than a
Saturday, Sunday or a Federal holiday and consists of the time period from
12:01 a.m. through 12:00 midnight, New York City time.
The Company has provided the Purchaser with the Company's stockholder and
Warrantholder lists and security position listings for the purpose of
disseminating the Offer to holders of Shares and Warrants. This Offer to
Purchase, the related Letter of Transmittal and other relevant materials will
be mailed by the Purchaser, to record holders of the Shares and Warrants and
will be furnished by the Purchaser to brokers, dealers, commercial banks,
trust companies and similar persons whose names, or the names of whose
nominees, appear on the security holder lists or, if applicable, who are
listed as participants in a clearing agency's security position listing, for
subsequent transmittal to beneficial owners of Shares.
2. Acceptance for Payment and Payment.
Upon the terms and subject to the conditions of the Offer (including, if the
Offer is extended or amended, the terms and conditions of the Offer as so
extended or amended), promptly after the Expiration Date the Purchaser will
purchase, by accepting for payment, and will pay for, all the Shares and
Warrants validly tendered and not properly withdrawn (in accordance with "THE
TENDER OFFER--Section 4. Withdrawal Rights") prior to the Expiration Date. In
addition, subject to applicable rules of the Commission, the Purchaser
expressly reserves the right, in its sole discretion, to delay acceptance for
payment of, or payment for, Shares and Warrants in order to comply with
applicable law. See "THE TENDER OFFER--Section 1. Terms of the Offer" and "--
Section 11. Certain Legal Matters; Required Regulatory Approvals."
In all cases, payment for the Shares and Warrants purchased pursuant to the
Offer will be made only after timely receipt by the Depositary of (i)
certificates representing such Shares ("Share Certificates") or Warrants
("Warrant Certificates") or timely confirmation (a "Book-Entry Confirmation")
of the book-entry transfer of such Shares and Warrants into the Depositary's
account at The Depository Trust Company ("DTC") pursuant to the procedures set
forth in "THE TENDER OFFER--Section 3. Procedures for Accepting the Offer and
Tendering the Shares and Warrants;" (ii) the appropriate Letter of Transmittal
(or a facsimile thereof), properly completed and duly executed, with any
required signature guarantees or an Agent's Message (as defined below) in
connection with a book-entry transfer; and (iii) any other documents required
by the Letter of Transmittal.
The term "Agent's Message" means a message transmitted by DTC to, and
received by, the Depositary and forming a part of a Book-Entry Confirmation,
which states that DTC has received an express acknowledgment from the
participant in DTC tendering the Shares and/or Warrants which are the subject
of such Book-Entry Confirmation, that such participant has received and agrees
to be bound by the terms of the Letter of Transmittal and that the Purchaser
may enforce such agreement against such participant.
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For purposes of the Offer, the Purchaser will be deemed to have accepted for
payment, and thereby purchased, all the Shares and Warrants validly tendered
and not properly withdrawn as, if and when the Purchaser gives oral or written
notice to the Depositary of the Purchaser's acceptance of such Shares and
Warrants for payment pursuant to the Offer. In all cases, upon the terms and
subject to the conditions of the Offer, payment for the Shares and Warrants
purchased pursuant to the Offer will be made by deposit of the purchase price
therefor with the Depositary, which will act as agent for tendering
stockholders and Warrantholders for the purpose of receiving payment from the
Purchaser and transmitting payment to validly tendering stockholders and
Warrantholders.
UNDER NO CIRCUMSTANCES WILL INTEREST ON THE PURCHASE PRICE FOR SHARES AND
WARRANTS BE PAID BY THE PURCHASER.
The reservation by the Purchaser of the right to delay the acceptance or
purchase of, or payment for, the Shares and Warrants is subject to the
provisions of Rule 14e-1(c) under the Exchange Act, which requires the
Purchaser to pay the consideration offered or to return the Shares and
Warrants deposited by, or on behalf of, stockholders and Warrantholders,
promptly after the termination or withdrawal of the Offer.
If any validly tendered Shares or Warrants are not purchased pursuant to the
Offer for any reason, or if Share Certificates or Warrant Certificates are
submitted representing more Shares or Warrants than are validly tendered,
Share Certificates or Warrant Certificates representing unpurchased or
untendered Shares and Warrants will be returned, without expense to the
tendering stockholder or Warrantholder (or, in the case of Shares or Warrants
delivered by book-entry transfer into the Depositary's account at DTC pursuant
to the procedures set forth in "THE TENDER OFFER--Section 3. Procedures for
Accepting the Offer and Tendering the Shares and Warrants," such Shares or
Warrants will be credited to an account maintained within DTC), as promptly as
practicable following the expiration, termination or withdrawal of the Offer.
SUBJECT TO THE TERMS OF THE MERGER AGREEMENT, IF, PRIOR TO THE EXPIRATION
DATE, THE PURCHASER SHALL INCREASE THE CONSIDERATION OFFERED TO HOLDERS OF
SHARES OR WARRANTS PURSUANT TO THE OFFER, SUCH INCREASED CONSIDERATION SHALL
BE PAID TO ALL HOLDERS OF SHARES OR WARRANTS THAT ARE PURCHASED PURSUANT TO
THE OFFER, WHETHER OR NOT SUCH SHARES OR WARRANTS WERE VALIDLY TENDERED PRIOR
TO SUCH INCREASE IN CONSIDERATION.
The Purchaser reserves the right to assign to any affiliate, to one or more
of Parent's direct or indirect subsidiaries, the right to purchase all or any
portion of the Shares or Warrants validly tendered pursuant to the Offer.
3. Procedures for Accepting the Offer and Tendering the Shares and Warrants.
Valid Tender. Except as set forth below, in order for the Shares or Warrants
to be validly tendered pursuant to the Offer, a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof), together with any
required signature guarantees or an Agent's Message in connection with a book-
entry delivery of the Shares, and any other documents required by the Letter
of Transmittal, must be received by the Depositary at one of its addresses set
forth on the back cover of this Offer to Purchase on or prior to the
Expiration Date and either (i) Share Certificates representing validly
tendered Shares and Warrant Certificates representing validly tendered
Warrants must be received by the Depositary or validly tendered pursuant to
the procedure for book-entry transfer set forth below, and Book-Entry
Confirmation must be received by the Depositary, in each case on or prior to
the Expiration Date, or (ii) the guaranteed delivery procedures set forth
below must be complied with. No alternate, conditional or contingent tenders
will be accepted.
THE METHOD OF DELIVERY OF SHARE CERTIFICATES, WARRANT CERTIFICATES, THE
LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND
SOLE RISK OF THE TENDERING STOCKHOLDER AND WARRANTHOLDER, AND DELIVERY WILL BE
DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
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DEPOSITARY (INCLUDING, IN THE CASE OF A BOOK-ENTRY TRANSFER, BY BOOK-ENTRY
CONFIRMATION). IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
Book-Entry Transfer. The Depositary will establish accounts with respect to
the Shares or Warrants at DTC for purposes of the Offer. Any financial
institution that is a participant in DTC's systems may make book-entry
delivery of the Shares and Warrants by causing DTC to transfer such Shares or
Warrants into the Depositary's account at DTC in accordance with its
procedures for such transfer. However, although delivery of the Shares or
Warrants may be effected through book-entry transfer into the Depositary's
account at DTC, the Letter of Transmittal (or facsimile thereof), properly
completed and duly executed, with any required signature guarantees, or an
Agent's Message in connection with a book-entry transfer, and any other
required documents must, in any case, be transmitted to and received by the
Depositary at one of its addresses set forth on the back cover of this Offer
to Purchase on or prior to the Expiration Date, or the guaranteed delivery
procedure set forth below must be complied with.
DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE DEPOSITARY.
Signature Guarantees. Signatures on all Letters of Transmittal must be
guaranteed by a firm that is a bank, broker, dealer, credit union, savings
association or other entity which is a member in good standing of the
Securities Transfer Agents Medallion Program or other entity which is an
"eligible guarantor institution," as such term is defined in Rule 17A-15 under
the Exchange Act (an "Eligible Institution"), unless the Shares or Warrants
tendered thereby are validly tendered (i) by a registered holder of Shares or
Warrants who has not completed either the box labeled "Special Payment
Instructions" or the box labeled "Special Delivery Instructions" on the Letter
of Transmittal or (ii) for the account of an Eligible Institution. See
Instruction 1 of the Letter of Transmittal.
If the Share Certificates or Warrant Certificates are registered in the name
of a person other than the signer of the Letter of Transmittal, or if payment
is to be made to, or Share Certificates for unpurchased Shares or Warrant
Certificates for unpurchased Warrants are to be issued or returned to, a
person other than the registered holder, then the tendered certificates must
be endorsed or accompanied by appropriate powers, signed exactly as the name
or names of the registered holder or holders appear on the certificates, with
the signatures on the certificates or powers guaranteed by an Eligible
Institution as provided in the Letter of Transmittal. See Instructions 1 and 5
of the Letter of Transmittal.
If the Share Certificates or Warrant Certificates are forwarded separately
to the Depositary, a properly completed and duly executed Letter of
Transmittal (or facsimile thereof) must accompany each such delivery.
Guaranteed Delivery. If a stockholder or Warrantholder desires to tender
Shares or Warrants pursuant to the Offer and such stockholder's or
Warrantholder's Share Certificates or Warrant Certificates are not immediately
available or time will not permit all required documents to reach the
Depositary on or prior to the Expiration Date or the procedures for book-entry
transfer cannot be completed on a timely basis, such Shares or Warrants may
nevertheless be validly tendered if all of the following guaranteed delivery
procedures are duly complied with:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form made available by the Purchaser, is
received by the Depositary, as provided below, on or prior to the
Expiration Date; and
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(iii) the Share Certificates or Warrant Certificates (or a Book-Entry
Confirmation) representing all validly tendered Shares or Warrants, in
proper form for transfer together with a properly completed and duly
executed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees (or, in the case of a book-entry transfer, an Agent's
Message) and any other documents required by the Letter of Transmittal are
received by the Depositary within three AMEX trading days after the date of
execution of such Notice of Guaranteed Delivery. An "AMEX trading day" is
any day on which the AMEX is open for business.
The Notice of Guaranteed Delivery may be delivered by hand or mail or
transmitted by facsimile transmission to the Depositary, and must include a
guarantee by an Eligible Institution in the form set forth in such Notice of
Guaranteed Delivery and a representation that the stockholder or Warrantholder
on whose behalf the tender is being made is deemed to own the Shares or
Warrants being tendered within the meaning of Rule 14e-4 under the Exchange
Act.
Notwithstanding any other provision hereof, payment for Shares or Warrants
accepted for payment pursuant to the Offer will in all cases be made only
after timely receipt by the Depositary of Share Certificates or Warrant
Certificates for, or, of Book-Entry Confirmation with respect to, such Shares
or Warrants, a properly completed and duly executed Letter of Transmittal (or
facsimile thereof), together with any required signature guarantees (or, in
the case of a book-entry transfer, an Agent's Message) and any other documents
required by the Letter of Transmittal. Accordingly, payment might not be made
to all tendering stockholders and Warrantholders at the same time, and will
depend upon when Share Certificates and Warrant Certificates are received by
the Depositary or Book-Entry Confirmations of such Shares are received into
the Depositary's account at DTC.
Backup Withholding. Under the backup federal income tax withholding laws
applicable to certain stockholders and Warrantholders (other than certain
exempt stockholders and Warrantholders, including, among others, all
corporations and certain foreign individuals), the Depositary may be required
to withhold 31% of the amount of any payments made to such stockholders and
Warrantholders pursuant to the Offer or the Merger. To prevent backup federal
income tax withholding, each such stockholder and Warrantholder must provide
the Depositary with such stockholder's and Warrantholder's correct taxpayer
identification number and certify that each such stockholder and Warrantholder
is not subject to backup federal income tax withholding by completing the
Substitute Form W-9 included in the Letter of Transmittal. See Instruction 9
of the Letter of Transmittal.
Appointment as Proxy. By executing the Letter of Transmittal, a tendering
stockholder irrevocably appoints designees of the Purchaser as such
stockholder's agents, attorneys-in-fact and proxies, with full power of
substitution, in the manner set forth in the Letter of Transmittal, to the
full extent of such stockholder's rights with respect to the Shares or
Warrants validly tendered and not properly withdrawn by such stockholder and
accepted for payment by the Purchaser and with respect to any and all other
Shares or Warrants and other securities or rights issued or issuable in
respect of such Shares or Warrants on or after the date of this Offer to
Purchase. All such powers of attorney and proxies shall be considered
irrevocable and coupled with an interest in the tendered Shares or Warrants.
Such appointment will be effective upon the acceptance for payment of such
Shares or Warrants by the Purchaser in accordance with the terms of the Offer.
Upon such acceptance for payment, all other powers of attorney and proxies
given by such stockholder with respect to such Shares or Warrants and such
other securities or rights prior to such payment will be revoked, without
further action, and no subsequent powers of attorney and proxies may be given
by such stockholder (and, if given, will not be deemed effective). The
designees of the Purchaser will, with respect to the Shares and such other
securities and rights for which such appointment is effective, be empowered to
exercise all voting and other rights of such stockholder as they in their sole
discretion may deem proper at any annual or special meeting of the Company's
stockholders, or any adjournment or postponement thereof, or by consent in
lieu of any such meeting or otherwise. In order for Shares to be deemed
validly tendered, immediately upon the acceptance for payment of such Shares,
the Purchaser or its designee must be able to exercise full voting rights with
respect to such Shares and other securities, including voting at any meeting
of stockholders.
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Determination of Validity. All questions as to the form of documents and the
validity, eligibility (including time of receipt) and acceptance for payment
of any tender of Shares or Warrants will be determined by the Purchaser, in
its sole discretion, whose determination shall be final and binding on all
parties. The Purchaser reserves the absolute right to reject any or all
tenders determined by it not to be in proper form or for which the acceptance
of or payment may, in the opinion of the Purchaser's counsel, be unlawful. The
Purchaser also reserves the absolute right to waive any of the conditions of
the Offer to the extent permitted by applicable law or any defect or
irregularity in any tender of Shares of any particular stockholder or Warrants
of any particular Warrantholder whether or not similar defects or
irregularities are waived in the case of other stockholders or Warrantholders.
A tender of Shares or Warrants pursuant to any of the procedures described
above will constitute the tendering stockholder's or Warrantholder's
acceptance of the terms and conditions of the Offer, as well as the tendering
stockholder's or Warrantholder's representation and warranty to the Purchaser
that (i) such stockholder or Warrantholder has a net long position in the
Shares or Warrants being tendered within the meaning of Rule 14e-4 under the
Exchange Act and (ii) the tender of such Shares and/or Warrants complies with
Rule 14e-4. It is a violation of Rule 14e-4 for a person, directly or
indirectly, to tender Shares or Warrants for such person's own account unless,
at the time of tender, the person so tendering (a) has a net long position
equal to or greater than the amount of (A) Shares or Warrants tendered or (B)
other securities immediately convertible into or exchangeable or exercisable
for the Shares and/or Warrants tendered, and such person will acquire such
Shares and/or Warrants for tender by conversion, exchange or exercise and (b)
will cause such Shares and/or Warrants to be delivered in accordance with the
terms of the Offer. Rule 14e-4 provides a similar restriction applicable to
the tender or guarantee of a tender on behalf of another person.
The Purchaser's interpretation of the terms and conditions of the Offer will
be final and binding. No tender of Shares or Warrants will be deemed to have
been validly made until all defects and irregularities with respect to such
tender have been cured or waived by the Purchaser. None of Parent, the
Purchaser or any of their respective affiliates or assigns, the Depositary,
the Information Agent or any other person or entity, will be under any duty to
give any notification of any defects or irregularities in tenders or incur any
liability for failure to give any such notification.
The Purchaser's acceptance for payment of Shares or Warrants validly
tendered and not properly withdrawn pursuant to any of the procedures
described above will constitute a binding agreement between the tendering
stockholder or Warrantholder and the Purchaser upon the terms and subject to
the conditions of the Offer.
4. Withdrawal Rights.
Except as otherwise provided in this section, tenders of Shares or Warrants
made pursuant to the Offer are irrevocable. Shares or Warrants tendered
pursuant to the Offer may be withdrawn at any time, on or prior to the
Expiration Date, and, unless theretofore accepted for payment as provided
herein, may also be withdrawn at any time after September 9, 1999.
If, for any reason whatsoever, acceptance for payment of any Shares or
Warrants tendered pursuant to the Offer is delayed, or the Purchaser is unable
to accept for payment or pay for Shares or Warrants tendered pursuant to the
Offer, then, without prejudice to the Purchaser's rights set forth herein, the
Depositary may, nevertheless, on behalf of the Purchaser, retain tendered
Shares or Warrants and such Shares or Warrants may not be withdrawn except to
the extent that the tendering stockholder or Warrantholder is entitled to and
duly exercises withdrawal rights as described in this section.
In order for a withdrawal to be effective, a written or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
one of its addresses set forth on the back cover of this Offer to Purchase.
Any such notice of withdrawal must specify the name of the person who tendered
the Shares or Warrants to be withdrawn, the number of Shares or Warrants to be
withdrawn, and for the Shares or Warrants (if Share Certificates or Warrant
Certificates have been tendered) the name of the registered holder of the
Shares as set forth in the Share Certificate or Warrant Certificate, if
different from that of the person who tendered such Shares
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or Warrants. If Share Certificates or Warrant Certificates have been delivered
or otherwise identified to the Depositary, then prior to the physical release
of such certificates, the tendering stockholder or Warrantholder must submit
the serial numbers shown on the particular certificates evidencing the Shares
or Warrants to be withdrawn, and the signature on the notice of withdrawal
must be guaranteed by an Eligible Institution, except in the case of Shares or
Warrants tendered for the account of an Eligible Institution. If Shares or
Warrants have been tendered pursuant to the procedures for book-entry transfer
set forth in "THE TENDER OFFER--Section 3. Procedures for Accepting the Offer
and Tendering the Shares and Warrants," the notice of withdrawal must specify
the name and number of the account at DTC to be credited with the withdrawn
Shares or Warrants, in that case a notice of withdrawal will be effective if
delivered to the Depositary by any method of delivery described in the first
sentence of this paragraph. Withdrawals of the Shares or Warrants may not be
rescinded. Any Shares or Warrants properly withdrawn will be deemed not
validly tendered for purposes of the Offer, but may be tendered at any
subsequent time prior to the Expiration Date by following any of the
procedures described in "THE TENDER OFFER--Section 3. Procedures for Accepting
the Offer and Tendering the Shares and Warrants."
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by the Purchaser, in its sole
discretion, whose determination shall be final and binding. None of Parent,
the Purchaser or any of their respective affiliates or assigns, the
Depositary, the Information Agent or any other person or entity will be under
any duty to give any notification of any defects or irregularities in any
notice of withdrawal or incur any liability for failure to give any such
notification.
5. Price Range of the Shares and Warrants; Dividends.
The Shares are traded on the AMEX under the symbol "AAI." The following
table sets forth, for the periods indicated, the reported high and low sale
prices for the Shares on the AMEX since the first quarter of 1997.
AQUA ALLIANCE INC. SHARE PRICE RANGES
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
Calendar Year 1997
First Quarter.................................................... $7.500 $4.500
Second Quarter................................................... $5.250 $2.250
Third Quarter.................................................... $4.063 $1.250
Fourth Quarter................................................... $2.125 $0.938
Calendar Year 1998
First Quarter.................................................... $2.500 $1.188
Second Quarter................................................... $3.125 $1.625
Third Quarter.................................................... $3.375 $1.625
Fourth Quarter................................................... $2.688 $1.250
Calendar Year 1999
First Quarter.................................................... $2.438 $1.125
Second Quarter................................................... $2.500 $1.000
Third Quarter (through July 14, 1999)............................ $2.875 $1.750
</TABLE>
- --------
Prices are adjusted to reflect any stock splits or stock dividends as of July
14, 1999.
STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE SHARES.
On July 9, 1999, the last full day of trading prior to the press release
announcing the Offer, according to publicly available sources, the reported
closing price on the AMEX for the Shares was $2.312 per Share.
39
<PAGE>
The Company has never declared or paid any cash dividends on the Shares, and
pursuant to the Company's senior secured bank credit facility, the Company is
prohibited from declaring or paying cash dividends on the Shares.
In a completed Rights Offering dated January 26, 1998, the Company issued
the Warrants. The Warrants expire on March 11, 2001, and each Warrant entitles
the holder to acquire one Share at an exercise price of $2.50 per Share,
subject to customary antidilution adjustments. On March 12, 1998, the Warrants
were approved for listing on the AMEX and currently trade on the AMEX under
the symbol "AAI.WS" An aggregate of 3,949,099 Warrants to acquire in the
aggregate 3,949,099 Shares were issued in the Rights Offering. As of July 14,
1999 there were 16 holders of record of the Warrants and there were
outstanding an aggregate of 3,949,099 Warrants to purchase an aggregate of
3,949,099 Shares.
The following table sets forth the high and low sales prices for the
Warrants as reported on the AMEX.
AQUA ALLIANCE INC. WARRANT PRICE RANGES
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
Calendar Year 1998
First Quarter.................................................... $1.375 $0.813
Second Quarter................................................... $1.250 $0.750
Third Quarter.................................................... $1.813 $0.813
Fourth Quarter................................................... $0.875 $0.563
Calendar Year 1999
First Quarter.................................................... $0.875 $0.438
Second Quarter................................................... $0.625 $0.156
Third Quarter (through July 14, 1999)............................ $0.438 $0.375
</TABLE>
WARRANTHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE
WARRANTS.
On June 16, 1999, the last full day of trading prior to the press release
announcing the Offer, according to publicly available sources, the reported
closing price on the AMEX for the Warrants was $0.250 per Warrant.
6. Possible Effects of the Offer on the Market for the Shares and Warrants;
AMEX Listing; Exchange Act Registration; Margin Regulations.
Possible Effects of the Offer on the Market for the Shares and Warrants.
The purchase of Shares and Warrants pursuant to the Offer will reduce the
number of Shares and Warrants that might otherwise be available in the market
and could adversely affect the liquidity and market value of the remaining
Shares and Warrants held by the public. The purchase of Shares and Warrants
pursuant to the Offer can also be expected to reduce the number of holders of
Shares and Warrants. The Purchaser cannot predict whether the reduction in the
number of Shares and Warrants that might otherwise be available in the market
would have an adverse or beneficial effect on the market price for or
marketability of the Shares and Warrants or whether it would cause future
market prices to be greater or less than the Offer price therefor or the
Merger Consideration.
AMEX Listing.
The purchase of Shares and Warrants pursuant to the Offer will reduce the
number of holders of Shares and Warrants and the number of Shares and Warrants
that might otherwise trade publicly and could adversely affect the liquidity
and market value of the remaining Shares and Warrants held by the public.
Depending upon the number of Shares and Warrants purchased pursuant to the
Offer, the Shares and/or the Warrants may no longer meet the standards for
continued listing on the AMEX. According to published guidelines, the AMEX
would give consideration to delisting the Shares if, among other things (i)
the number of
40
<PAGE>
publicly-held Shares falls below 200,000 shares; or (ii) the market value of
the number of publicly-held Shares falls below $1,000,000; or (iii) the number
of stockholders is less than 300; or (iv) stockholders' equity falls below
$2,000,000 if the Company has had losses in 2 of the then most recent 3 years
or below $4,000,000 if the Company has had losses in 3 of the then most recent
4 years. While the AMEX does not have firm quantitative standards for the
continued listing of warrants, published AMEX guidelines provide that the
Warrants would be considered for delisting in the event the public
distribution of the Shares were so reduced by consummation of the Offer as to
make AMEX trading in the Warrants impracticable. The AMEX would also consider
delisting the Warrants, regardless of the number outstanding following
consummation of the Offer, if the Shares into which the Warrants are
convertible were delisted.
In the event the Shares or Warrants are no longer eligible for listing on
the AMEX, quotations might still be available from other sources. The extent
of the public market for the Shares and Warrants and the availability of such
quotations would, however, depend upon the number of holders of such Shares
and Warrants remaining at such time, the interest in maintaining a market in
such Shares and Warrants on the part of securities firms, the possible
termination of registration of such Shares or Warrants under the Exchange Act
as described below and other factors.
Exchange Act Registration.
The Shares and Warrants are currently registered under the Exchange Act. The
purchase of the Shares and/or Warrants pursuant to the Offer may result in the
Shares and/or Warrants becoming eligible for deregistration under the Exchange
Act. Registration of the Shares or the Warrants may be terminated upon
application by the Company to the Commission if the Shares or Warrants are not
listed on a "national securities exchange" and there are fewer than 300 record
holders of the Shares or Warrants. Termination of registration of the Shares
or Warrants under the Exchange Act would substantially reduce the information
required to be furnished by the Company to its stockholders and/or
Warrantholders and the Commission and would make certain provisions of the
Exchange Act, such as the short-swing profit recovery provisions of Section
16(b) and the requirements of furnishing a proxy statement in connection with
stockholders' meetings pursuant to Section 14(a) or 14(c) and the related
requirement of an annual report, no longer applicable to the Company. If the
Shares and Warrants are no longer registered under the Exchange Act, the
requirements of Rule 13e-3 under the Exchange Act with respect to "going
private" transactions would no longer be applicable to the Company.
Furthermore, the ability of "affiliates" of the Company and persons holding
"restricted securities" of the Company to dispose of such securities pursuant
to Rule 144 promulgated under the Securities Act of 1933, as amended, may be
impaired or, with respect to certain persons, eliminated. If registration of
the Shares and Warrants under the Exchange Act were terminated, the Shares and
Warrants would no longer be eligible for stock exchange listing or National
Association of Securities Dealers (NASDAQ) reporting. The Purchaser believes
that the purchase of the Shares and Warrants pursuant to the Offer may result
in the Shares and/or Warrants becoming eligible for deregistration under the
Exchange Act, and it would be the intention of the Purchaser to cause the
Company to make an application for termination of registration of the Shares
and/or Warrants as soon as possible after successful completion of the Offer
if the Shares and/or Warrants are then eligible for such termination.
If registration of the Shares and Warrants is not terminated prior to the
Merger, then the Shares and Warrants will no longer be eligible for listing on
the AMEX and the registration of the Shares and Warrants under the Exchange
Act will be terminated following the consummation of the Merger.
Margin Regulations.
The Shares are currently "margin securities" under the regulations of the
Board of Governors of the Federal Reserve System (the "Federal Reserve
Board"), which have the effect, among other things, of allowing brokers to
extend credit on the collateral of such Shares for the purpose of buying,
carrying or trading in securities ("Purpose Loans"). Depending upon factors
such as the number of record holders of the Shares and the number and market
value of publicly held Shares, following the purchase of the Shares pursuant
to the Offer, the Shares
41
<PAGE>
might no longer constitute "margin securities" for purposes of the Federal
Reserve Board's margin regulations and, therefore, could no longer be used as
collateral for Purpose Loans made by brokers. In addition, if registration of
the Shares under the Exchange Act were terminated, the Shares would no longer
constitute "margin securities."
7. Certain Information Concerning the Company.
Except as otherwise set forth herein, the information concerning the Company
contained in this Offer to Purchase, including financial information, has been
furnished by the Company or has been taken from or based upon publicly
available documents and records on file with the Commission and other public
sources. Neither the Purchaser nor Parent assumes any responsibility for the
accuracy or completeness of the information concerning the Company furnished
by the Company or contained in such documents and records or for any failure
by the Company to disclose events which may have occurred or may affect the
significance or accuracy of any such information but which are unknown to the
Purchaser or Parent.
The Company is a Delaware corporation with its principal executive offices
located at 30 Harvard Mill Square, Wakefield, MA 01880, and its telephone
number is (781) 246-5200.
The Company is an integrated single source provider of services and
solutions for the water and wastewater and hazardous waste remediation
markets. 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; and the remediation of hazardous waste. The Company
believes it provides a complement of products and services that satisfy the
environmental and essential services needs of its targeted client base. The
Company markets its products and services through two widely recognized trade
names: PSG for the operation, maintenance and management of water and
wastewater treatment systems; and M&E for water, wastewater and hazardous
waste engineering and consulting services. PSG provides operation, maintenance
and management services for treatment systems in various water, wastewater,
sludge and biosolids waste management markets. M&E provides its clients with a
broad spectrum of environmental consulting services, including engineering
studies and design, project management, site evaluation, environmental
assessment and master planning. On December 2, 1997, the Company announced its
decision to divest Research-Cottrell. Research-Cottrell designs and develops
products and technologies targeted at specific client needs such as air
pollution control equipment. During the course of fiscal 1998, the Company
divested a major portion of the Research-Cottrell business. On January 19,
1999, the Company completed the divestiture with the sale of Regenerative
Environmental Equipment Company, Inc. The Company provides its full range of
services to predominantly the following customer sectors: 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, and
textile manufacture.
The selected financial information of the Company and its consolidated
subsidiaries set forth below has been excerpted and derived from the Company's
Annual Report on Form 10-K for the fiscal year ended October 31, 1998 (the
"Form 10-K") and the unaudited financial statements contained in the Company's
Quarterly Report on Form 10-Q for the quarter ended April 30, 1999 (the "Form
10-Q"). More comprehensive financial and other information is included in the
Form 10-K and the Form 10-Q (including management's discussion and analysis of
financial condition and results of operations) and in other reports and
documents filed by the Company with the Commission. The financial information
set forth below is qualified in its entirety by reference to such reports and
documents filed with the Commission and the financial statements and related
notes contained therein. These reports and other documents may be examined and
copies thereof may be obtained in the manner set forth below.
42
<PAGE>
AQUA ALLIANCE INC.
SELECTED FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Six Months Ended
Years Ended October 31, April 30,
------------------------ -----------------------
1998 1997 1999 1998
----------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.... $ 22,197 $ 12,089 $ 46,675 $ 22,185
Accounts receivable, less
allowance for doubtful
accounts.................... 77,776 76,681 61,707 69,832
Costs and estimated
earnings in excess of
billings on uncompleted
contracts................. 33,559 33,557 32,054 36,459
Inventories................ 1,470 1,893 1,425 1,791
Prepaid expenses and other
current assets............ 8,521 4,460 9,367 8,351
Net current assets of
discontinued operations... 1,401 -- 868 4,032
----------- ----------- -------- --------
Total current assets..... 144,924 128,680 152,096 142,650
Property, plant and
equipment, net.............. 9,768 13,388 11,501 11,034
Investments in environmental
treatment facilities........ 21,651 21,817 21,039 21,533
Goodwill, net................ 159,198 164,337 156,629 161,766
Other assets................. 20,572 30,391 15,791 29,030
Net non-current assets of
discontinued operations..... 3,239 24,452 184 18,145
----------- ----------- -------- --------
Total assets............. $ 359,352 $ 383,065 $357,240 $384,158
=========== =========== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Current installments of
long-term debt............ $ 443 $ 398 $ 115 $ 411
Accounts payable........... 87,557 80,007 97,088 97,645
Accrued expenses........... 92,135 86,681 95,892 83,133
Billings in excess of costs
and estimated earnings on
uncompleted contracts..... 13,484 15,320 13,478 14,719
Income taxes payable....... 2,325 1,485 2,341 1,601
Net current liabilities of
discontinued operations... 483 591 --
----------- ----------- -------- --------
Total current
liabilities............. 196,427 184,482 208,914 197,509
----------- ----------- -------- --------
Long-term debt............... 119,405 307,845 117,755 119,686
----------- ----------- -------- --------
Commitments and contingencies
(Note 6).................... -- -- -- --
Stockholders' equity:
Preferred stock, par value
$.01, authorized 2,500,000
shares; issued 0 shares
and 1,200,000 shares in
1998 and 1997,
respectively; liquidation
value $0 and $60,000 in
1998 and 1997,
respectively.............. -- 12 -- --
Common stock, par value
$.001, authorized
260,000,000 shares; issued
185,266,429 shares.......... 185 32 185 185
Additional paid-in
capital................... 629,130 427,036 629,130 631,603
Accumulated deficit........ (585,165) (535,214) (598,093) (564,748)
Common stock in treasury,
at cost................... (108) (108) (108) (108)
Cumulative currency
translation adjustment.... (522) (1,020) (543) 31
----------- ----------- -------- --------
Total stockholders'
equity.................. 43,520 (109,262) 30,571 66,963
----------- ----------- -------- --------
Total liabilities and
stockholders' equity.... $ 359,352 $ 383,065 $357,240 $384,158
=========== =========== ======== ========
</TABLE>
43
<PAGE>
AQUA ALLIANCE INC.
SELECTED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Year Ended October Six Months
31, Ended April 30
------------------- ------------------
1998 1997 1999 1998
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Sales................................. $445,119 $ 456,375 $231,186 $222,076
Cost of sales......................... 389,737 385,573 203,008 195,523
-------- --------- -------- --------
Gross margin........................ 55,382 70,802 28,178 26,553
Selling, general and administrative
expenses............................. 61,379 75,755 30,651 31,132
Depreciation and amortization......... 13,110 16,861 5,277 6,064
Impairment Change (recovery).......... (3,000) 5,000 -- --
-------- --------- -------- --------
Operating loss from continuing
operations......................... (16,107) (26,814) (7,750) (10,643)
Interest income..................... 509 359 -- --
Interest expense, net................. (14,899) (24,356) (4,339) (9,730)
Other expenses, net................... (1,273) (502) (388) (824)
-------- --------- -------- --------
Loss from continuing operations
before income taxes and cumulative
effect of change in accounting
principle.......................... (31,770) (51,313) (12,477) (21,197)
Income tax (expense) benefit.......... (1,099) (514) (451) (514)
-------- --------- -------- --------
Loss from continuing operations..... (32,869) (51,827) (12,928) (21,711)
Discontinued operations:
Loss from discontinued segment...... -- (44,854) -- (6,000)
Loss from disposal of discontinued
segment............................ (6,000) (63,900) -- --
Cumulative effect of prior years (to
Oct. 31,1997) of change in the method
of account for start-up costs........ (11,082) -- -- (11,082)
Net loss............................ $(49,951) $(160,581) $(12,928) $(38,793)
Preferred stock dividends............. -- (3,300) -- --
Net loss applicable to common
stockholders....................... (49,951) (163,881) -- --
======== ========= ======== ========
Loss per common share:
Continuing operations............... $ (.24) $ (1.72) $ (.07) $ (.25)
Discontinued operations............. (.05) (3.40) -- (.07)
Cumulative effect on prior years (to
Oct. 31, 1997) of change in the
method of accounting for start-up
costs.............................. (.08) -- -- (.12)
Net loss............................ $ (.37) $ (5.12) $ (.07) $ (.44)
</TABLE>
44
<PAGE>
The Company is subject to the information and reporting requirements of the
Exchange Act and in accordance therewith is required to file periodic reports,
proxy statements and other information with the Commission relating to its
business, financial condition and other matters. Certain information, as of
particular dates, concerning the Company's business, principal physical
properties, capital structure, material pending legal proceedings, operating
results, financial condition, directors and officers (including their
remuneration and the stock options granted to them), the principal holders of
the Company's securities, any material interests of such persons in
transactions with the Company and certain other matters is required to be
disclosed in proxy statements and annual reports distributed to the Company's
stockholders and Warrantholders and filed with the Commission. Such reports,
proxy statements and other information can be inspected and copied at the
public reference facilities maintained by the Commission at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
regional offices at 500 West Madison Street, Chicago, Illinois 60606, and 7
World Trade Center, New York, New York 10048. Copies of such material can also
be obtained at prescribed rates from the Public Reference Section of the
Commission at its principal office at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Such material may be obtained electronically by
visiting the Commission's website on the Internet, at http://www.sec.gov. The
Shares are traded on the American Stock Exchange, Inc., and reports, proxy
statements and other information concerning the Company should also be
available for inspection at 20 Broad Street, New York, New York 10005.
8. Certain Information Concerning Parent and the Purchaser.
Parent is a societe anonyme organized under the laws of the Republic of
France whose principal executive offices are located at 42, Avenue de
Friedland, 75380 Paris Cedex 08 France.
The Purchaser's principal executive offices are located at care of Vivendi-
North America Management Services, Inc. 800 Third Avenue, 38th Floor, New
York, New York 10022. The Purchaser is a newly formed Delaware corporation
organized in connection with the Offer and the Merger and an indirect wholly
owned subsidiary of Parent. The Purchaser has not conducted any business other
than in connection with the Offer and the Merger.
Until immediately prior to the time that the Purchaser will purchase the
Shares and/or Warrants pursuant to the Offer, it is not anticipated that the
Purchaser will have any significant assets or liabilities or engage in
activities other than those incident to its formation and capitalization and
the transactions contemplated by the Offer and the Merger. Because the
Purchaser is newly formed and has minimal assets and capitalization, no
meaningful financial information regarding the Purchaser is available.
The name, business address, citizenship, present principal occupation and
employment history for the past five years of each of the directors and
executive officers of Parent and the Purchaser are set forth in Schedule I.
Except as provided in the Merger Agreement and as otherwise described in
this Offer to Purchase or Schedule I hereto: (i) neither Parent nor the
Purchaser nor, to the knowledge of Parent or the Purchaser, any of the persons
listed in Schedule I hereto or any associate or majority-owned subsidiary of
Parent or the Purchaser or any of the persons so listed, beneficially owns or
has a right to acquire any Shares or any other equity securities of the
Company; (ii) neither Parent nor the Purchaser nor, to the knowledge of Parent
or the Purchaser, any of the persons or entities referred to in clause (i)
above or any of their executive officers, directors or subsidiaries has
effected any transaction in the Shares or any other equity securities of the
Company during the past 60 days; (iii) neither Parent nor the Purchaser nor,
to the knowledge of Parent or the Purchaser, any of the persons listed in
Schedule I hereto, has any contract, arrangement, understanding or
relationship with any other person with respect to any securities of the
Company (including, but not limited to, any contract, arrangement,
understanding or relationship concerning the transfer or the voting of any
such securities, joint ventures, loan or option arrangements, puts or calls,
guaranties of loans, guaranties against loss or the giving or withholding of
proxies, consents or authorizations); (iv) since November 1, 1997, there have
been no transactions which would require reporting under the rules and
regulations of the Commission between Parent or the Purchaser or any of
45
<PAGE>
their respective subsidiaries or, to the knowledge of Parent or the Purchaser,
any of the persons listed in Schedule I hereto, on the one hand, and the
Company or any of its executive officers, directors or affiliates, on the
other hand; and (v) since November 1, 1997, there have been no contacts,
negotiations or transactions between Parent or the Purchaser or any of their
respective subsidiaries or, to the knowledge of Parent or the Purchaser, any
of the persons listed in Schedule I hereto, on the one hand, and the Company
or any of its subsidiaries or affiliates, on the other hand, concerning a
merger, consolidation or acquisition, a tender offer or other acquisition of
securities, an election of directors or a sale or other transfer of a material
amount of assets.
9. Source and Amount of Funds.
Approximately $103,242,090 is required to purchase the Shares and Warrants
pursuant to the Offer and upon conversion of the Shares and Warrants in the
proposed Merger, and to pay fees and expenses related to the Offer and the
proposed Merger.
Parent plans to obtain sufficient funds from available cash on hand
internally generated funds. The funds necessary to purchase the Shares and
Warrants pursuant to the Offer and upon conversion of the Shares and Warrants
in the proposed Merger, and to pay fees and expenses related to the Offer and
the proposed Merger, will be furnished to the Purchaser by Parent and/or one
or more of its subsidiaries as a capital contribution and/or loans.
10. Certain Conditions of the Offer.
Notwithstanding any other term or provision of the Offer, the Purchaser
shall not be required to, subject to any applicable rules and regulations of
the Commission, including Rule 14e-1(c) under the Exchange Act (relating to
the Purchaser's obligation to pay for or return tendered Shares and Warrants
promptly after termination or withdrawal of the Offer), accept for payment,
purchase or pay for any validly tendered Shares and Warrants and may terminate
or amend the Offer and may postpone the acceptance for payment of and payment
for any Shares and Warrants, if (i) the Minimum Condition is not satisfied or
(ii) at any time on or after July 16, 1999, and prior to the acceptance for
payment of any Shares or Warrants, any of the following shall occur or exist
(or shall have been determined by the Company to have occurred or existed)
that, in the Purchaser's judgment in any such case and regardless of the
circumstances giving rise thereto (including an action or omission to act by
the Purchaser), makes it inadvisable or impracticable to proceed with the
Offer or with such acceptance for payment or payment:
(a) there shall have been any action threatened or taken, or approval
withheld, or any statute, rule, or interpretation of the foregoing
regulation or interpretation proposed, sought, promulgated, issued,
enacted, entered, amended, enforced or deemed to be applicable to the
Offer, the Merger, Parent or the Purchaser or any of their subsidiaries, by
any governmental, regulatory or administrative authority or agency or
tribunal, domestic or foreign, which, in the Purchaser's sole judgment,
would directly or indirectly: (i) make the acceptance for payment of, or
payment for, some or all of the Shares or Warrants illegal or otherwise
restrict or prohibit consummation of the Offer or the Merger, or (ii) delay
or restrict, or render the Purchaser or Parent unable, or otherwise impose
limitations on the ability of the Purchaser or Parent to accept for payment
or pay for, or to exercise full rights of ownership with respect to, some
or all of the Shares or Warrants pursuant to the Offer or to consummate the
Merger; or
(b) there shall be threatened, instituted or pending any action or
proceeding by any government or governmental authority or agency, domestic
or foreign, or by any other person, domestic or foreign, before any court
or governmental authority or agency, domestic or foreign, seeking any of
the consequences referred to in clauses (i) and (ii) of paragraph (a)
above, or otherwise challenging any aspect of or seeking to, or which
could, make illegal, delay or otherwise directly or indirectly restrain or
prohibit or make materially more costly (i) the making of the Offer, (ii)
the acceptance for payment of, or payment for, some of or all Shares or
Warrants pursuant to the Offer, (iii) the purchase of Shares or Warrants
pursuant to the Offer, (iv) consummation of the Merger, (v) seeking to
obtain damages in connection with the Offer or the Merger, or (vi) seeking
to restrain or prohibit the consummation of the Offer, the Merger or the
transactions contemplated thereby or which otherwise directly or indirectly
relates to the Offer or the Merger; or
46
<PAGE>
(c) a preliminary or permanent injunction or other order by any Federal
or state court which prevents (i) the acceptance for payment of, or payment
for, some of or all the Shares or Warrants pursuant to the Offer or (ii)
consummation of the Merger shall have been issued and shall remain in
effect; or
(d) the Special Committee or the Company Board of Directors (i) shall
have withdrawn or modified in any manner that is, in the reasonable
judgment of the Purchaser, materially adverse to the Purchaser or Parent
(including by way of any amendment to the Schedule 13E-3 or the Company's
Schedule 14D-9) its recommendation of the Offer or (ii) shall have resolved
to do any of the foregoing; or
(e) any change shall occur or be threatened in the business, condition
(financial or otherwise), income, operations or prospects of the Company
and its subsidiaries, taken as a whole, which is or may be material to the
Company and its subsidiaries taken as a whole; or
(f) there shall have occurred: (i) the declaration of any banking
moratorium or suspension of payments in respect of banks in the United
States, France or the European Union; (ii) any general suspension of
trading in, or limitation on prices for, securities on any United States
national securities exchange or in the over-the-counter market; or the
Paris Bourse; (iii) any material decline in the CAC-40 Index from the close
of business on the last trading day immediately preceding the date of the
Merger Agreement; (iv) the commencement of a war, armed hostilities or any
other national or international crisis directly or indirectly involving the
United States; (v) any limitation (whether or not mandatory) by any
governmental, regulatory or administrative agency or authority on, or any
event which might affect, the extension of credit by banks or other lending
institutions in the United States, France or the European Union; or (vi) in
the case of any of the foregoing existing at the time of the commencement
of the Offer, a material acceleration or worsening thereof; or
(g) all consents and approvals required to be obtained from any Federal,
state domestic or foreign governmental agency, authority or instrumentality
in connection with the Offer shall not have been obtained or the Purchaser
shall have been advised that any such consent or approval will be denied or
substantially delayed, or will not be given other than upon terms or
conditions which would, in the opinion of the Purchaser, make it
impracticable to proceed with the Offer or the Merger; or
(h) Parent, the Purchaser and the Company (with the approval of the
Special Committee) shall have agreed that the Purchaser shall terminate the
Offer or postpone for payment of or the payment for Shares or Warrants
thereunder or that the Merger Agreement shall be terminated.
The foregoing conditions are for the Purchaser's sole benefit and may be
asserted by the Purchaser regardless of the circumstances giving rise to any
such condition (including any action or inaction by the Purchaser) or may be
waived by the Purchaser in whole or in part. The Purchaser's failure at any
time to exercise any of the foregoing rights shall not be deemed a waiver of
any such right, and each such right shall be deemed an ongoing right that may
be asserted at any time and from time to time. In certain circumstances, if
the Purchaser waives any of the foregoing conditions, it may be required to
extend the Expiration Date of the Offer. Any determination by the Purchaser
concerning the events described above and any related judgment or decision by
the Purchaser regarding the inadvisability of proceeding with the purchase of
or payment for any Shares or Warrants tendered will be final and binding on
all parties.
11. Certain Legal Matters; Required Regulatory Approvals.
General.
Except as set forth in this Offer to Purchase, based on its review of
publicly available filings by the Company with the Commission, neither Parent
nor the Purchaser is aware of any licenses or regulatory permits that appear
to be material to the business of the Company and its subsidiaries, taken as a
whole, and that might be adversely affected by the Purchaser's acquisition of
the Shares and Warrants (and the indirect acquisition of the stock of the
Company's subsidiaries) as contemplated herein, or any filings, approvals or
other actions by or with any domestic, foreign or supranational governmental
authority or administrative or regulatory agency that would be required for
the acquisition or ownership of the Shares and Warrants (or the indirect
acquisition of the stock of the Company's subsidiaries) by the Purchaser
pursuant to the Offer as contemplated herein. Should any such
47
<PAGE>
approval or other action be required, it is presently contemplated that such
approval or action would be sought except as described below under "State
Takeover Laws." Should any such approval or other action be required, there
can be no assurance that any such approval or action would be obtained without
substantial conditions or that adverse consequences might not result to the
Company's or its subsidiaries' businesses, or that certain parts of the
Company's, Parent's, the Purchaser's or any of their respective subsidiaries'
businesses might not have to be disposed of or held separate or other
substantial conditions complied with in order to obtain such approval or
action or in the event that such approvals were not obtained or such actions
were not taken. The Purchaser's obligation to purchase and pay for the Shares
and Warrants is subject to certain conditions, including conditions with
respect to litigation and governmental actions. See "THE TENDER OFFER--Section
10. Certain Conditions of the Offer" and "--Section 11. Certain Legal Matters;
Required Regulatory Approvals."
State Takeover Laws.
A number of states (including Delaware where the Company is incorporated)
have adopted takeover laws and regulations which purport, to varying degrees,
to be applicable to attempts to acquire securities of corporations which are
incorporated in such states or which have substantial assets, stockholders,
principal executive offices or principal places of business therein. To the
extent that certain provisions of certain of these state takeover statutes
purport to apply to the Offer or the Merger, the Purchaser believes that such
laws conflict with federal law and constitute an unconstitutional burden on
interstate commerce. In 1982, the Supreme Court of the United States, in Edgar
v. Mite Corp., invalidated on constitutional grounds the Illinois Business
Takeovers Statute, which as a matter of state securities law made takeovers of
corporations meeting certain requirements more difficult. The reasoning in
such decision is likely to apply to certain other state takeover statutes. In
1987, however, in CTS Corp. v. Dynamics Corp. of America, the Supreme Court of
the United States held that the State of Indiana could as a matter of
corporate law and, in particular, those aspects of corporate law concerning
corporate governance, constitutionally disqualify a potential acquiror from
voting on the affairs of a target corporation without the prior approval of
the remaining stockholders, provided that such laws were applicable only under
certain conditions. Subsequently, in TLX Acquisition Corp. v. Telex Corp., a
Federal district court in Oklahoma ruled that the Oklahoma statutes were
unconstitutional insofar as they apply to corporations incorporated outside
Oklahoma in that they would subject such corporations to inconsistent
regulations. Similarly, in Tyson Foods, Inc. v. McReynolds, a Federal district
court in Tennessee ruled that four Tennessee takeover statutes were
unconstitutional as applied to corporations incorporated outside Tennessee.
This decision was affirmed by the United States Court of Appeals for the Sixth
Circuit. In December 1988, a Federal district court in Florida held, in Grand
Metropolitan PLC v. Butterworth, that the provisions of the Florida Affiliated
Transactions Act and Florida Control Share Acquisition Act were
unconstitutional as applied to corporations incorporated outside of Florida.
Section 203 of the DGCL prevents certain "business combinations" with an
"interested stockholder" (generally, any person who owns or has the right to
acquire 15% or more of a corporation's outstanding voting stock) for a period
of three years following the time such person became an interested
stockholder, unless, among other things, prior to the time the interested
stockholder became such, the board of directors of the corporation approved
either the business combination or the transaction in which the interested
stockholder became such. The Board of Directors of the Company has unanimously
approved the Offer for the purposes of Section 203 of DGCL.
The Purchaser has not attempted to comply with any state takeover statutes
in connection with the Offer. The Purchaser reserves the right to challenge
the validity or applicability of any state law allegedly applicable to the
Offer or the Merger, and nothing in this Offer to Purchase nor any action
taken in connection herewith is intended as a waiver of that right. In the
event that it is asserted that one or more takeover statutes apply to the
Offer or the Merger, and it is not determined by an appropriate court that
such statute or statutes do not apply or are invalid as applied to the Offer
or the Merger, as applicable, the Purchaser may be required to file certain
documents with, or receive approvals from, the relevant state authorities, and
the Purchaser might be unable to
48
<PAGE>
accept for payment or purchase Shares validly tendered pursuant to the Offer
or be delayed in continuing or consummating the Offer. In such case, the
Purchaser may not be obligated to accept for purchase, or pay for, any Shares
and Warrants validly tendered and not properly withdrawn. See "THE TENDER
OFFER--Section 10. Certain Conditions of the Offer."
Litigation.
DOJ Investigation. In connection with a broad investigation by the DOJ 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 who 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 (the "DOJ Investigation"). PSG has
cooperated and continues to cooperate with the DOJ 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 then Chief Executive Officer on administrative leave
of absence with pay. The PSG Chief Executive Officer, 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 DOJ 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.
Bremerton Litigation. The City of Bremerton, Washington brought a
contribution and contract action against Metcalf & Eddy Services, Inc. ("M&E
Services"), the operator of a City-owned wastewater treatment plant from 1987
until late 1995. The action arises from two prior lawsuits against the City
for alleged odor nuisances brought by two groups of homeowners neighboring the
plant. In the first homeowners' suit, the City paid $4.3 million in cash and
approximately $5 million for odor control technology to settle the case. M&E
Services understands the odor control measures generally have been successful,
and the odors have been reduced as a result. M&E Services was not a party to
the first homeowners' suit, which has been dismissed with prejudice as to all
parties. In the settlement of the second homeowners' case, the City of
Bremerton paid the homeowners $2.9 million, and M&E Services contributed $0.6
million to the settlement without admitting liability. All claims raised by
the homeowners in the second suit have been resolved. All claims by and
between M&E Services and the City in the second homeowners' suit were
expressly reserved.
At trial, which commenced on March 2, 1998, the City sought to recover the
amounts it expended on the two settlements, damages for M&E Services' alleged
substandard operation of the plant, and attorneys' fees. The damages claimed
exceeded $14 million. On April 22, 1998, the jury returned a verdict against
M&E Services and in favor of the City in the net amount of approximately $0.6
million. After considering various motions by the City challenging the verdict
and its amount, on June 26, 1998, the trial court entered final judgement
against M&E Services and in favor of the City in the net amount of
approximately $0.75 million. Both sides have appealed. The appellate court
could increase or decrease the judgement by $2.0 million or more or remand the
case for a new trial. No assurances can be given that, as a result of further
court proceedings, an adverse judgement would not have a material adverse
effect on the financial position or results of operations of the Company.
Belgium Litigation. On October 14, 1997, Research-Cottrell, Inc. (now known
as AWT Air Company, Inc.) and its subsidiary, Research-Cottrell Belgium, S.A.
(now known as AWT Air Company (Belgium) S.A.) ("AWT Belgium") were named in a
lawsuit by N.V. Seghers Engineering ("Seghers") filed in the Commercial Court
in Mechelen, Belgium. Seghers is AWT Belgium's joint venture partner on two
large pollution control
49
<PAGE>
projects. The suit claims damages of approximately $13 million allegedly
resulting from AWT Belgium's breach of contract and substandard performance.
Damages claimed in the lawsuit consist not only of Seghers' alleged cost to
repair the AWT Belgium equipment, but also lost profits, damages to business
reputation, theft of employees (AWT Belgium hired two former Seghers
employees), increased costs arising out of the failure to gain timely
acceptance of the two plants, excessive payments to AWT Belgium due to alleged
unfair pricing practices by AWT Belgium and other miscellaneous interest
charges and costs. Seghers has also filed a suit in Belgium against AWT
Belgium, Hamon Research-Cottrell (Belgium) S.A., the purchaser of AWT
Belgium's assets, and related entities, claiming that the sale of AWT Belgium
would operate as a fraud and deprive Seghers of its rightful recovery in the
litigation. The cases involve complex technical and legal issues.
Nevertheless, the Company denies liability to Seghers and, based upon the
information currently available, believes Seghers' claimed damages are grossly
inflated. In addition, the Company believes it has counterclaims based upon
Seghers' breaches of contract.
U.S. Attorney's Office Investigation. The United States Attorney's Office
(the "U.S. Attorney's Office") in Boston, Massachusetts is conducting an
investigation of certain entertainment and travel payments allegedly made to
Egyptian officials between 1994 and 1996 by the Company's subsidiary, Metcalf
& Eddy International, Inc. (which was merged into its parent, Metcalf & Eddy,
Inc.), while Metcalf & Eddy International, Inc. was performing services in
Egypt pursuant to contracts with the United Stages Agency for International
Development. M&E has cooperated and continues to cooperate fully with the U.S.
Attorney's Office. No charges of wrongdoing have been brought against M&E or
any M&E executive or employee by any grand jury or other government authority.
To date, the government has advised M&E that it has made no decision as to how
it will proceed.
Other Matters. The Company and its subsidiaries are parties to various other
legal actions and government audits 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 and audits, individually or in
the aggregate, will not have an adverse effect on the consolidated financial
position or results of operations of the Company taken as a whole. Moreover,
as a general matter, providers of services similar to those provided by the
Company may be subject to lawsuits alleging negligence or other similar claims
and environmental liabilities, which may involve claims for substantial
damages. Damages assessed in connection with and the costs of defending any
such actions could be substantial. The Company's management believes that the
levels of insurance coverage are adequate to cover currently estimated
exposures. Although the Company believes that it will be able to obtain
adequate insurance coverage in the future at acceptable costs, there can be no
assurance that the Company will be able to obtain such coverage or will be
able to do so at an acceptable cost or that the Company will not incur
significant liabilities in excess of policy limits.
In April 1999, individual stockholders of the Company, including Mohamed
Yassin, Joseph Leone, Kenneth Steiner, Loic Lamoureux and WME Management
Group, L.P., Ben King and Robert Strougo, filed Complaints in the Court of
Chancery for the State of Delaware against the Company, certain officers and
directors of the Company, Parent and Vivendi North America Company, a wholly
owned subsidiary of Parent, with respect to Parent's announcement on April 1,
1999, of its desire to acquire all of the outstanding Shares it does not
already own at a price of $2.00 per Share (the "Complaints").
The Complaints, all of which are substantively identical, purport to assert
class action claims on behalf of all persons who are stockholders of the
Company (except the defendants and their affiliates). The essence of the
Complaints is that the per Share price of $2.00 contained in the April 1, 1999
announcement is inadequate, and that any agreement between Parent and the
Company to permit the remaining Shares to be acquired at that price would
constitute a breach of the fiduciary duties owed by the defendants to the
minority shareholders.
The Complaints seek injunctive relief, recission, damages, costs (including
attorneys' and experts' fees) and other equitable relief.
On July 9, 1999, the defendants reached an agreement in principle with the
plaintiffs settling the Complaints (the "Settlement") subject to completion of
confirmatory discovery and court approval. The Company believes the Settlement
will not have a material adverse effect on the Company's results of operations
or financial condition.
50
<PAGE>
12. Certain Fees and Expenses
The Purchaser has retained Lazard Freres to act as the Dealer Manager in
connection with the Offer. The Purchaser also has agreed to indemnify Lazard
Freres and certain related persons against certain liability in connection
with the Offer and Lazard Freres' engagement as Dealer Manager in connection
with the Offer, including certain liabilities under the federal securities
laws.
Innisfree M&A Incorporated has been retained by the Purchaser as Information
Agent in connection with the Offer. The Information Agent may contact holders
of the Shares and Warrants by mail, telephone, telex, telegraph and personal
interview and may request brokers, dealers and other nominee stockholders and
Warrantholders to forward material relating to the Offer to beneficial owners
of Shares and Warrants. The Purchaser will pay the Information Agent
reasonable and customary compensation for all such services in addition to
reimbursing the Information Agent for reasonable out-of-pocket expenses in
connection therewith.
In addition, ChaseMellon Shareholder Services, L.L.C. has been retained as
the Depositary. The Purchaser will pay the Depositary reasonable and customary
compensation for its services in connection with the Offer, will reimburse the
Depositary for its reasonable out-of-pocket expenses in connection therewith
and will indemnify the Depositary against certain liabilities and expenses in
connection therewith, including certain liabilities under the federal
securities laws.
Except as set forth above, neither Parent nor the Purchaser will pay any
fees or commissions to any broker, dealer or other person for soliciting
tenders of the Shares and Warrants pursuant to the Offer. Brokers, dealers,
commercial banks and trust companies and other nominees will, upon request, be
reimbursed by Parent or the Purchaser for customary clerical and mailing
expenses incurred by them in forwarding offering materials to their customers.
13. Miscellaneous
The Offer is not being made to (nor will tenders be accepted from or on
behalf of) holders of Shares and Warrants residing in any jurisdiction in
which the making of the Offer or the acceptance thereof would not be in
compliance with the securities, blue sky or other laws of such jurisdiction.
However, the Purchaser may, in its discretion, take such action as it may deem
necessary to make the Offer in any jurisdiction and extend the Offer to
holders of Shares and Warrants in such jurisdiction.
In any jurisdiction where the securities, blue sky or other laws require the
Offer to be made by a licensed broker or dealer, the Offer will be deemed to
be made on behalf of the Purchaser by one or more registered brokers or
dealers that are licensed under the laws of such jurisdiction.
Parent and the Purchaser have filed with the Commission a Schedule 14D-1 and
a Schedule 13E-3, together with exhibits, pursuant to Rule 14d-3 and Rule 13E-
3 of the General Rules and Regulations under the Exchange Act, respectively,
furnishing certain additional information with respect to the Offer, and may
file amendments thereto. Such Schedule 14D-1 and Schedule 13E-3 and any
amendments thereto, including exhibits, may be examined and copies may be
obtained from the office of the Commission in the same manner as described in
"THE TENDER OFFER--Section 7. Certain Information Concerning the Company" with
respect to information concerning the Company, except that copies will not be
available at the regional offices of the Commission.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ON BEHALF OF PARENT OR THE PURCHASER NOT CONTAINED IN THIS
OFFER TO PURCHASE OR IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, ANY
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED.
51
<PAGE>
Neither the delivery of this Offer to Purchase nor any purchase pursuant to
the Offer shall under any circumstances create any implication that there has
been no change in the affairs of Parent, the Purchaser, the Company or any of
their respective subsidiaries since the date as of which information is
furnished or the date of this Offer to Purchase.
Aqua Acquisition Corporation
July 16, 1999
52
<PAGE>
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF PARENT
The name, business address, present principal occupation or employment and
five-year history of each of the directors and executive officers of Parent
are set forth below. Unless otherwise indicated, the business address of each
such director and each such executive officer is care of Vivendi-USA, 800
Third Avenue, 38th Floor, New York, NY 10022. Unless otherwise indicated, all
directors and executive officers listed below are citizens of France.
DIRECTORS
<TABLE>
<CAPTION>
Principal Occupation or Employment; 5-Year
Name and Address Employment History
---------------- ------------------------------------------
<C> <S>
Jean-Marie Messier............... Chairman and CEO of Parent; formerly
Vivendi General Manager of Parent
42, avenue de Friedland
75009 Paris
France
Bernard Arnault.................. Chairman and CEO of LVMH
LVMH
30, avenue Hoche
75008 Paris
France
Jacques Calvert.................. Retired; formerly Chairman and CEO of PSA-
7, rue de Tilsil Peugeot-Citroen
75017 Paris
France
Eric Licoys...................... Chairman and CEO of Havas and General
Havas Manager of Parent; formerly Chairman of
31, rue du Colisee Fonds Partenaires Gestion and General
75008 Paris Manager of Havas
France
Guy Dejouany..................... President of Honor of Parent; formerly
Vivendi-Compagnie Generale des President of Compagnie Generale des Eaux
Eaux
52, Rue d'Anjou
75008, Paris
France
Simon Murray..................... Executive at Simon Murray and Associates
Simon Murray and Associates (UK) Ltd., Chairman of Gens (HK) Ltd.,
(U.K.) Director of Tommy Hilfiger, Director of
Ltd. Usinor Sacilor and Director of Hutchison
Princes House Waampta Hong Kong; formerly Chairman of
38 Jermyn Street Deutsche Bank Asia
England
Esther Koplowitz................. Vice President of F.C.C.
F.C.C.--Madrid--Spain
Plaza Pablo Ruiz Picasso
28020 Madrid
Spain
Serge Tchuruk.................... Chairman and CEO of Alcatel; formerly
Alcatel Chairman and CEO of Total S.A.
64, rue de la Boetie
75008 Paris
France
</TABLE>
I-1
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation or Employment; 5-Year
Name and Address Employment History
---------------- -------------------------------------------
<C> <S>
Jean-Marc Espalioux.............. Chairman and CEO of Accor; Director of Fiat
Accor France and Europcar International
2, rue de la Mare Neuve
91021 Evry Cedex
France
Philippe Foriel-Destezet......... Co-Chairman of Addeco, Chairman of Ecco SA,
Nescofin and Chairman of Nescofin
43 Rutlandgate
S.W. 71 ED London
England
Jacques Friedmann................ Chairman of the Supervisory Board of AXA;
AXA formerly Chairman of UAP
9, Place Vendome
75001 Paris
France
Henri Lachmann................... Chairman and CEO of Schneider S.A. and
Schneider S.A. Schneider Electric S.A.; formerly Chairman
64/70 avenue Jean-Baptiste and CEO of the Strafor Facom Group
Clement
92646 Boulogne Billancourt
France
Thomas Middelhoff................ Chairman and CEO of Bertelsmann
Bertelsmann AG
Carl-Bertelsmann-Strabe 270
D-33311 Gutersloh
Germany
Marc Vienot...................... Chairman of Paris-Europlace, Honorary
Paris Europlace Chairman and Director of Societe Generale
39, rue Cambon and Director of Rhone Poulenc; formerly
75039 Paris Cedex 1er Chairman and CEO of Societe Generale,
France Director of Alcatel-Alsthom, Director of
Havas
Rene Thomas...................... Honorary Chairman of Banque Nationale de
Banque Nationale de Paris Paris
16, boulevard des Italiens
75009, Paris
France
</TABLE>
I-2
<PAGE>
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
Principal Occupation or Employment; 5-Year
Name and Address Employment History
---------------- -------------------------------------------
<C> <S>
Jean-Marie Messier............... Chairman and CEO of Parent; formerly
Vivendi General Manager of Parent
42, avenue de Friedland
75008 Paris
France
Henri Proglio.................... Senior Executive Vice President of Vivendi
Vivendi Utilities
42, avenue de Friedland
75008 Paris
France
Philippe L. Germond.............. CEO of Cegetel; Senior Executive Vice
Cegetel President of Vivendi Communications;
1, Place Carpeaux formerly General Manager of Hewlett-Packard
92, Paris La Defense Europe; and CEO of SFR
France
Guillaume Hannezo................ Executive Vice President of Finance of
Vivendi Parent
42, avenue de Friedland
75008 Paris
France
Eric Licoys...................... Chief Operating Officer of Parent; formerly
Havas Chairman of Fonds Partenaires Gestion and
31, rue du Colisee General Manager of Havas
75008 Paris
France
Daniel Caille.................... Directeur of Parent; Chairman of Generale
Vivendi des Eaux; Vice President of Anjou Recherche
42, avenue de Friedland
75008 Paris
France
Jean-Francois Colin.............. Executive Vice President of Human Resources
of Parent
Vivendi
42, avenue de Friedland
75008 Paris
France
Jean-Francois Dubos.............. Secretary of Parent
Vivendi
42, avenue de Friedland
75008 Paris
France
Christine Delavennat............. Corporate Communication Officer of Parent
Vivendi
42, avenue de Friedland
75008 Paris
France
</TABLE>
I-3
<PAGE>
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
Principal Occupation or Employment; 5-
Name and Address Year Employment History
---------------- -----------------------------------------
<C> <S>
Thierry de Beauce................ International Affairs Officer of Parent
Vivendi
42, avenue de Friedland
75008 Paris
France
Agnes Audier..................... Strategy and Business Development Officer
of Parent
Vivendi
42, avenue de Friedland
75008 Paris
France
Sylvie d'Arvisenet............... Ethical Standards Officer of Parent
Vivendi
42, avenue de Friedland
75008 Paris
France
</TABLE>
I-4
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF THE PURCHASER
The name, business address, present principal occupation or employment and
five-year history of each of the directors and executive officers of the
Purchaser are set forth below. Unless otherwise indicated, the business
address of each such director and each such executive officer is care of
Vivendi North America Management Services, Inc. ("Vivendi North America"), 800
Third Avenue, 38th Floor, New York, NY 10022. Unless otherwise indicated, all
directors and executive officers listed below are citizens of the United
States.
DIRECTOR
<TABLE>
<CAPTION>
Principal Occupation or Employment; 5-Year
Name and Address Employment History
---------------- ------------------------------------------
<C> <S>
Michel Avenas.................... President of the Purchaser; President of
VNA; formerly Assistant to the Chairman of
Compagnie Generale des Eaux. Citizen of
France
</TABLE>
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
Principal Occupation or Employment; 5-Year
Name and Address Employment History
---------------- -------------------------------------------
<C> <S>
Thierry Mallet................... Executive Vice President of the Purchaser;
President of the Company. Citizen of France
Christian Farman................. Vice-President, Assistant Secretary and
Treasurer of the Purchaser; Vice President
and Chief Financial Officer of VNA
Neil Lawrence Lane............... Vice President and Secretary of the
Purchaser; General Counsel of VNA and
General Counsel of the Company; formerly
Associate General Counsel, Citicorp
Investment Services, and associate Dewey
Ballantine.
</TABLE>
I-5
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The name, business address, present principal occupation or employment and
five-year history of each of the directors and executive officers of the
Company are set forth below. Unless otherwise indicated, the business address
of each such director and each such executive officer is care of Aqua Alliance
Inc., 30 Harvard Mill Square, Wakefield, Massachusetts 01880. Unless otherwise
indicated, all directors and executive officers listed below are citizens of
the United States.
DIRECTORS
<TABLE>
<CAPTION>
Principal Occupation or Employment; 5-Year
Name and Address Employment History
---------------- -------------------------------------------
<C> <S>
William V. Kriegel............... Chairman of the Company Board since October
1997; Director since June 1994; Chairman of
the Board, President, Chief Executive
Officer and Director of Sithe Energies,
Inc. and its subsidiaries since 1981;
Chairman of the Board and Chief Executive
Officer of VNAC.
Thierry M. Mallet................ President, CEO, and Director of the Company
since 1997; formerly President and CEO of
Sociedad Mediterranean de Aquas from 1995-
1997. Prior to 1995, Mr. Mallet was Charge
de Mission to the General Management of
Parent in Paris.
Jean-Claude Banon................ Director, Chairman of the Business Planning
Committee and member of the Compensation
and Stock Option Committee of the Company
since October 1997; Managing Director of
General Utilities PLC since 1989; Managing
Director of Vivendi UK, Ltd. since 1992.
Alain Brunais.................... Senior Vice President of the Company since
May 1997, CFO since September 1994, and
Director since November 1986; responsible
for foreign investment under Finance
director of Parent prior to joining the
Company.
Daniel Caille.................... Director and member of the Business
Planning Committee of the Company since May
1997; Chief Executive of Parent's worldwide
Water Business; formerly Chairman of the
Board of Parent's healthcare subsidiary,
which he founded in 1987; Director of
Research and Development of Parent from
1982 to 1990.
Martha O. Hesse.................. Director of the Company since June 1998;
member of the Audit Committee, the Business
Planning Committee and the Compensation and
Stock Option Committee; President of Hesse
Gas Company; Senior Vice President of First
Chicago Corporation in 1990; Chairman of
the Federal Energy Regulatory Commission
from 1986 to 1989. Also serves as a
director of Mutual Trust Life Insurance
Co., Chairman and member of Compliance and
Ethics Committee of Laidlaw Inc., and
Chairman and Audit Committee member of
Pinnacle West Capital Corporation and
Arizona Public Service.
John W. Morris................... Director of the Company since June 1992;
member of the Audit Committee, the
Compensation and Stock Option Committee and
the Business Planning Committee; President
of J.W. Morris Ltd. for more than five
years; President of National Waterways
Foundation. From 1988 to October 1992
Lieutenant General Morris served as
director of M&E. From 1986 to 1987 he
served as President and Chairman of the
Engineering Group of Planning Research
Corporations.
</TABLE>
I-6
<PAGE>
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
Name and Address Principal Occupation or Employment; 5-Year Employment History
- ---------------- -------------------------------------------------------------
<S> <C>
Thierry M. Mallet................ President, CEO and Director of the Company
Alain Brunais.................... Senior Vice President, CFO and Director of the Company
Neil Lawrence Lane............... Vice President, General Counsel and Secretary of the Company
Michael A. Szomjassy............. Executive Vice President and Chief Operating Officer of the Company
Joseph M. Bolton................. Executive Vice President of Business Development of the Company
Joseph R. Vidal.................. Treasurer of the Company
Jeffrey M. Fitzgerald............ Vice President and Corporate Controller of the Company
Gail M. Fulwider................. Vice President of Human Resources of the Company
Robert S. Volland................ Vice President and Chief Administrative Officer of the Company
Francis X. Ferrara............... Vice President and Associate General Counsel of the Company
Kevin P. Duffy................... Vice President and Associate General Counsel of the Company
Jekabs P. Vittands............... Senior Vice President of the Company
</TABLE>
I-7
<PAGE>
SCHEDULE II
399 Park Avenue
New York, New York 10022
[212] 339-9100
FAX: [212] 339-9109
The Beacon Group Capital Services, LLC
CONFIDENTIAL
July 13, 1999
Independent Committee of the Board of Directors of Aqua Alliance Inc.
30 Harvard Mill Square
Wakefield, MA 01880
Lady and Gentleman:
You have requested that The Beacon Group Capital Services, LLC ("Beacon")
deliver to you Beacon's opinion concerning the fairness from a financial point
of view to the holders of the outstanding shares of common stock, par value
$0.001 per share, (the "Shares") of Aqua Alliance Inc. (the "Company"), other
than Vivendi SA and any of its subsidiaries of affiliates (collectively
"Vivendi"), of the $2.90 per share in cash to be received by such holders in
connection with an offer (the "Offer") made on July 9, 1999 by Vivendi to
purchase all of the Shares which are not owned by Vivendi. It is contemplated
that the Offer will be structured as a tender offer followed by a short-form
merger of the Company with a subsidiary of United States Filter Corporation, a
wholly owned subsidiary of Vivendi.
As part of its investment banking business, Beacon is continually engaged in
the valuation of businessess and their securities in connection with mergers
and acquisitions, financings, private placements, principal investments and
other purposes. In this regard, Beacon has been serving as your financial
advisor in connection with the Offer and has participated in certain of the
negotiations relating to the Offer.
In connection with its opinion, Beacon reviewed, among other things, the
Offer, Annual Reports to stockholders and Annual Reports on Form 10-K of the
Company for the ten years ended December 31, 1998, certain interim reports to
stockholders and Quarterly Reports on Form 10-Q of the Company, certain other
communications from the Company to its stockholders and certain internal
financial analyses and projections for the Company prepared by its management.
Beacon also held discussions with members of senior management of the Company
and Vivendi regarding the past and current business, operations and financial
condition and the future prospects of the Company, reviewed the reported price
and trading activity for the Shares, compared certain financial and stock
market information for the Company with similar information concerning certain
other companies the securities of which are publicly traded, reviewed the
financial terms of certain recent business combinations in industries and
markets Beacon deemed relevant, reviewed the potential for utilizing the
Company's net operating tax loss carry-forwards subsequent to completion of
the purchase of Shares contemplated by the Offer and performed other studies
and analyses that Beacon considered appropriate.
For purposes of this opinion, Beacon assumed and relied without independent
verification on the accuracy and completeness of the financial and other
information reviewed by it. With respect to the financial projections
furnished to Beacon by the Company, Beacon has assumed, with your consent,
that they have been reasonably prepared on a basis which reflects the best
current estimates and judgments of the management of the Company as to the
future operating and financial performance of the Company and relevant
economic conditions. Beacon did not make an independent evaluation or
appraisal of the assets and liabilities of the Company or any of its
respective subsidiaries and was not furnished with any such evaluation or
appraisal.
II-1
<PAGE>
The financial advisory services that Beacon has provided to you and Beacon's
opinion have been and are provided for your information and assistance in
connection with your consideration of the Offer and does not constitute a
recommendation to any holder of Shares as to how that holder should respond to
the Offer. Beacon's opinion is necessarily based on economic, market,
financial and other conditions as they existed on, and could be evaluated as
of, the date hereof.
Based on and subject to the foregoing and other matters Beacon considers
relevant, it is Beacon's opinion that, as of the date hereof, the $2.90 per
share to be received by the holders of Shares, other than Vivendi, in
connection with the Offer is fair from a financial point of view to such
holders.
Very truly yours,
The Beacon Group Capital Services,
LLC
The Beacon Group Capital Services,
LLC
II-2
<PAGE>
SCHEDULE III
SECTION 262
OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE
262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has neither voted in
favor of the merger or consolidation nor consented thereto in writing pursuant
to (S) 228 of this title shall be entitled to an appraisal by the Court of
Chancery of the fair value of the stockholder's shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to (S) 251 (other than a merger effected pursuant to
(S) 251(g) of this title), (S) 252, (S) 254, (S) 257, (S) 258, (S) 263 or
(S) 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of (S) 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
(S)(S) 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S) 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
III-1
<PAGE>
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsections (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation,
a written demand for appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to (S) 228 or
(S) 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given; provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
III-2
<PAGE>
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied
with subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger
or consolidation, any stockholder shall have the right to withdraw his demand
for appraisal and to accept the terms offered upon the merger or
consolidation. Within 120 days after the effective date of the merger or
consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which
demands for appraisal have been received and the aggregate number of holders
of such shares. Such written statement shall be mailed to the stockholder
within 10 days after his written request for such a statement is received by
the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court
may, in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted his certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to
appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of
the certificates representing such stock. The Court's decree may be enforced
as other decrees in the Court of
III-3
<PAGE>
Chancery may be enforced, whether such surviving or resulting corporation be a
corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal
of his demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal
proceeding in the Court of Chancery shall be dismissed as to any stockholder
without the approval of the Court, and such approval may be conditioned upon
such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation. (Last amended by Ch. 120, L.
'97, eff. 7-1-97).
III-4
<PAGE>
SCHEDULE IV-A
AUDITED FINANCIAL STATEMENTS FOR THE COMPANY FOR THE YEARS ENDED OCTOBER 31,
1997 AND OCTOBER 31, 1998
AIR & WATER TECHNOLOGIES CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Reports of Independent Public Accountants................................ 2
Consolidated Balance Sheets as of October 31, 1997 and 1996.............. 4
Consolidated Statements of Operations for the Years Ended October 31,
1997, 1996 and 1995..................................................... 5
Consolidated Statements of Stockholders' Equity for the Years Ended
October 31, 1997, 1996 and 1995......................................... 6
Consolidated Statements of Cash Flows for the Years Ended October 31,
1997, 1996 and 1995..................................................... 7
Notes to Consolidated Financial Statements............................... 8
</TABLE>
IV-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Air & Water Technologies
Corporation:
We have audited the accompanying consolidated balance sheets of Air & Water
Technologies Corporation and its Subsidiaries as of October 31, 1997 and 1996,
and the related consolidated statements of operations, stockholders' equity
and cash flows for the years 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 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 its Subsidiaries as of October 31, 1997 and 1996 and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
McGladrey & Pullen, LLP
New York, New York
December 13, 1997, except
for the last paragraph of
Note 7 as to which the
date is January 28, 1998
IV-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Air & Water Technologies Corporation:
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of Air & Water Technologies Corporation (a
Delaware corporation) and subsidiaries for the year 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 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 consolidated statements of operations, stockholders'
equity and cash flows referred to above present fairly, in all material
respects, the results of operations and cash flows of Air & Water Technologies
Corporation and subsidiaries for the year ended October 31, 1995, in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Roseland, New Jersey
December 8, 1995
IV-3
<PAGE>
AIR & WATER TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEETS
As of October 31, 1997 and 1996
(In thousands, except share data)
<TABLE>
<CAPTION>
October 31,
------------------
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents, including restricted cash of
$413 and $849 in 1997 and 1996, respectively............ $ 12,089 $ 12,667
Accounts receivable, less allowance for doubtful accounts
of $3,300 and $1,300 in 1997 and 1996, respectively..... 76,681 61,818
Costs and estimated earnings in excess of billings on
uncompleted contracts................................... 33,557 37,437
Inventories.............................................. 1,893 1,921
Prepaid expenses and other current assets................ 4,460 7,878
Net current assets of discontinued operations............ -- 21,410
-------- --------
Total current assets................................... 128,680 143,131
-------- --------
Property, plant and equipment, net......................... 13,388 28,890
Investments in environmental treatment facilities.......... 21,817 22,062
Goodwill, net.............................................. 164,337 169,578
Other assets............................................... 30,391 27,927
Net non-current assets of discontinued operations.......... 24,452 104,770
-------- --------
Total assets........................................... $383,065 $496,358
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current installments of long-term debt................... $ 398 $ 378
Accounts payable......................................... 80,007 56,914
Accrued expenses......................................... 86,681 63,921
Billings in excess of costs and estimated earnings on
uncompleted contracts................................... 15,320 12,520
Income taxes payable..................................... 1,485 1,842
Net current liabilities of discontinued operations....... 591 --
-------- --------
Total current liabilities.............................. 184,482 135,575
-------- --------
Long-term debt............................................. 307,845 306,542
-------- --------
Commitments and contingencies (Note 13).................... -- --
Stockholders' equity (deficit):
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 shares........................ 32 32
Additional paid-in capital............................... 427,036 427,036
Accumulated deficit...................................... (535,214) (372,433)
Common stock in treasury, at cost........................ (108) (108)
Cumulative currency translation adjustment............... (1,020) (298)
-------- --------
Total stockholders' equity (deficit)................... (109,262) 54,241
-------- --------
Total liabilities and stockholders' equity (deficit)... $383,065 $496,358
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
IV-4
<PAGE>
AIR & WATER TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended October 31, 1997, 1996 and 1995
(In thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended October 31,
-----------------------------
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Sales.......................................... $ 456,375 $482,091 $398,661
Cost of sales.................................. 385,573 394,124 309,496
--------- -------- --------
Gross margin............................... 70,802 87,967 89,165
Selling, general and administrative expenses... 75,755 62,316 66,697
Depreciation and amortization.................. 16,861 13,983 12,279
Impairment charge.............................. 5,000 -- --
--------- -------- --------
Operating income (loss) from continuing
operations................................ (26,814) 11,668 10,189
Interest income................................ 359 923 1,113
Interest expense............................... (24,356) (22,597) (23,925)
Other expense, net............................. (502) (2,296) (37)
--------- -------- --------
Loss from continuing operations before
income taxes.............................. (51,313) (12,302) (12,660)
Income tax (expense) benefit................... (514) 1,246 (587)
--------- -------- --------
Loss from continuing operations............ (51,827) (11,056) (13,247)
Discontinued operations:
Income (loss) from operations of discontinued
segment..................................... (44,854) 5,788 5,262
Loss from disposal of discontinued segment... (63,900) -- --
--------- -------- --------
Net loss................................... (160,581) (5,268) (7,985)
Preferred stock dividend, including dividends
in arrears of $1,100 at October 31, 1997...... (3,300) (3,300) (3,300)
--------- -------- --------
Net loss applicable to common
stockholders.............................. $(163,881) $ (8,568) $(11,285)
========= ======== ========
Income (loss) per common share (after preferred
stock dividend):
Continuing operations........................ $ (1.72) $ (.45) $ (.52)
Discontinued operations...................... (3.40) .18 .17
--------- -------- --------
Net loss................................... $ (5.12) $ (.27) $ (.35)
========= ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
IV-5
<PAGE>
AIR & WATER TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For The Years Ended October 31, 1997, 1996 and 1995
(In thousands, except share data)
<TABLE>
<CAPTION>
Series A Class A
Preferred Stock Common Stock Class A Common Cumulative
$.01 Par Value $.001 Par Value Additional Treasury Stock Currency
---------------- ----------------- Paid-in Accumulated --------------- Translation
Shares Amount Shares Amount Capital Deficit Shares Amount Adjustment Total
--------- ------ ---------- ------ ---------- ----------- ------- ------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, October 31,
1994................ 1,200,000 $12 32,107,906 $32 $427,028 $(352,580) (89,902) $(108) $ (3) $ 74,381
Net loss............. -- -- -- -- -- (7,985) -- -- -- (7,985)
Cash dividends,
Series A Preferred
Stock............... -- -- -- -- -- (3,300) -- -- -- (3,300)
Currency translation
adjustment.......... -- -- -- -- -- -- -- -- (7) (7)
--------- --- ---------- --- -------- --------- ------- ----- ------- ---------
Balance, October 31,
1995................ 1,200,000 12 32,107,906 32 427,028 (363,865) (89,902) (108) (10) 63,089
Net loss............. -- -- -- -- -- (5,268) -- -- -- (5,268)
Cash dividends,
Series A Preferred
Stock............... -- -- -- -- -- (3,300) -- -- -- (3,300)
Exercise of stock
options............. -- -- 1,250 -- 8 -- -- -- -- 8
Currency translation
adjustment.......... -- -- -- -- -- -- -- -- (288) (288)
--------- --- ---------- --- -------- --------- ------- ----- ------- ---------
Balance, October 31,
1996................ 1,200,000 12 32,109,156 32 427,036 (372,433) (89,902) (108) (298) 54,241
Net loss............. -- -- -- -- -- (160,581) -- -- -- (160,581)
Cash dividends,
Series A Preferred
Stock............... -- -- -- -- -- (2,200) -- -- -- (2,200)
Currency translation
adjustment.......... -- -- -- -- -- -- -- -- (722) (722)
--------- --- ---------- --- -------- --------- ------- ----- ------- ---------
Balance, October 31,
1997................ 1,200,000 $12 32,109,156 $32 $427,036 $(535,214) (89,902) $(108) $(1,020) $(109,262)
========= === ========== === ======== ========= ======= ===== ======= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
IV-6
<PAGE>
AIR & WATER TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended October 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
Years Ended October 31,
---------------------------
1997 1996 1995
--------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss......................................... $(160,581) $(5,268) $(7,985)
Adjustments to reconcile net loss to net cash
provided by (used for) continuing operations--
Discontinued operations.......................... 108,754 (5,788) (5,262)
Depreciation and amortization.................... 16,861 13,983 12,279
Other............................................ 7,865 890 196
Changes in assets and liabilities, excluding
effects of divestitures--
(Increase) decrease in assets--
Accounts receivable............................. (14,988) (2,318) (2,993)
Costs and estimated earnings in excess of
billings on uncompleted contracts.............. 3,880 (7,383) (1,213)
Inventories..................................... 28 (1,199) 169
Prepaid expenses and other current assets....... 3,418 (798) (1,103)
Other assets.................................... 8,100 (380) 14,827
Increase (decrease) in liabilities--
Accounts payable................................ 23,061 11,240 19,134
Accrued expenses................................ 2,266 (7,317) (6,776)
Billings in excess of costs and estimated
earnings on uncompleted contracts.............. 2,800 (681) (171)
Income taxes.................................... (357) (600) 3,412
--------- ------- -------
Net cash provided by (used for) continuing
operations.................................... 1,107 (5,619) 24,514
Net cash provided by (used for) discontinued
operations.................................... 13,887 6,507 (11,531)
--------- ------- -------
Net cash provided by operating activities..... 14,994 888 12,983
--------- ------- -------
Cash flows from investing activities:
Proceeds from sale of businesses................. 2,015 6,186 12,962
Capital expenditures............................. (4,949) (6,276) (5,402)
Investment in environmental treatment
facilities...................................... 123 530 798
Start up costs and other......................... (8,400) (11,122) (5,501)
Discontinued operations.......................... (978) (1,206) (3,569)
--------- ------- -------
Net cash used for investing activities........ (12,189) (11,888) (712)
--------- ------- -------
Cash flows from financing activities:
Proceeds from issuances of common and preferred
stock........................................... -- 8 --
Payments of notes payable and long-term debt..... (377) (366) (654)
Net borrowings under credit facilities........... 1,700 17,800 14,500
Accounts receivable repurchased.................. -- -- (20,000)
Cash dividends paid on preferred stock........... (2,475) (3,300) (3,300)
Other............................................ (2,231) (1,643) (2,670)
--------- ------- -------
Net cash provided by (used for) financing
activities................................... (3,383) 12,499 (12,124)
--------- ------- -------
Net increase (decrease) in cash and cash
equivalents...................................... (578) 1,499 147
Cash and cash equivalents at beginning of year.... 12,667 11,168 11,021
--------- ------- -------
Cash and cash equivalents at end of year.......... $ 12,089 $12,667 $11,168
========= ======= =======
Supplemental disclosures of cash flow information:
Cash paid for interest........................... $ 23,599 $22,417 $24,879
========= ======= =======
Cash paid for income taxes....................... $ 1,468 $ 1,292 $ 604
========= ======= =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
IV-7
<PAGE>
AIR & WATER TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIIES
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. Revenues related to the operations, maintenance and management
services within the PSG operating segment are generally recognized as the
related services are provided.
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. Substantially all of the costs and estimated
earnings in excess of billings on uncompleted contracts are expected to be
collected in fiscal year 1998. 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 cost or market (first in,
first out method) and consists primarily of chemicals and spare parts.
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 10 years for
IV-8
<PAGE>
AIR & WATER TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
machinery, equipment and fixtures. Leasehold improvements are amortized over
the term of the lease. Repair and maintenance costs are expensed as incurred;
major renewals and betterments are capitalized. Property, plant and equipment
at October 31 consists of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Land and land improvements............................. $ 122 $ 4,733
Buildings and leasehold improvements................... 3,899 13,114
Machinery, equipment and fixtures...................... 26,324 31,842
--------- --------
30,345 49,689
Less--Accumulated depreciation and amortization........ (16,957) (20,799)
--------- --------
$ 13,388 $ 28,890
========= ========
</TABLE>
In connection with the planned Research-Cottrell divestiture (See Note 3),
the Company has decided to sell the land and building located in Branchburg,
New Jersey which was primarily occupied by the operations of Research-
Cottrell. The carrying value was reduced to approximately $5,500,000 after the
recognition of a $5,000,000 impairment charge based on current offers from
interested parties and is classified in other non-current assets.
Goodwill and long-lived assets
Goodwill is being amortized over 40 years under the straight-line method.
Goodwill amortization was $5,240,000, $5,025,000 and $4,987,000 for the years
ended October 31, 1997, 1996 and 1995. Accumulated amortization of goodwill
was $38,373,000 and $33,132,000 at October 31, 1997 and 1996. 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 cash flows over the remaining life of the assets in determining
whether the assets are impaired. Any impairment is measured using discounted
operating cash flows or other fair value measures as appropriate. The
realizablility of goodwill and other long lived assets is the result of an
estimate based on the underlying assets' remaining estimated useful lives and
projected operating cash flows. It is possible that this estimate will change
as a consequence of further deterioration in market conditions and operating
results. The effect of a change, if any, would be material to the financial
condition and results of operations.
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 costs are included in other assets and amounted to
$14,044,000 and $13,767,000 at October 31, 1997 and 1996. 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 $2,946,000 and $3,147,000 at October 31, 1997 and 1996.
IV-9
<PAGE>
AIR & WATER TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Accrued expenses
Accrued expenses included the following as of October 31, 1997 and 1996 (in
thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Salaries and benefits....................................... $19,736 $24,166
Self-insured loss reserves.................................. 21,863 20,700
Retained liabilities of discontinued operations (Note 3).... 21,000 --
Interest and other financing costs.......................... 6,843 5,820
Other....................................................... 17,239 13,235
------- -------
Total..................................................... $86,681 $63,921
======= =======
</TABLE>
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 was 32,019,000 in 1997 and 32,018,000 in 1996 and 1995. Common
stock equivalents (stock options) and the Company's 8% Convertible
Subordinated Debentures due 2015 (the "Convertible Debentures") 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 1996 and 1995 consolidated
financial statements to conform to the 1997 presentation including the effects
of removing the accounts of the discontinued operations from continuing
operations (See Note 3).
Recently issued accounting pronouncements
Statement 128: "Earnings Per Share"--This statement requires that the
Company begin to report "basic" and "diluted" earnings per share which would
replace "primary" and "fully diluted" earnings per share currently reported by
the Company. The key difference is that "basic" earnings per share does not
adjust for common stock equivalents. Statement 128 is effective for the
Company beginning with the first quarter of fiscal 1998 (the three-month
period ending January 31, 1998) and requires restatement of all prior-period
earnings per share data. Adoption of Statement 128 is not expected to have a
material effect.
(2) CGE RELATIONSHIP
As of October 31, 1997, approximately 43% of the Company's Class A Common
Stock, par value $.001 per share (the "Class A Common Stock"), and all of the
5 1/2% Series A Convertible Exchangeable Preferred Stock (the "Series A
Preferred Stock") comprising approximately 50.0009% of the voting power of the
Company, are owned by Compagnie Generale Des Eaux ("CGE"), a French company.
The Company also has certain financial and other relationships with Anjou
International Company, a wholly-owned subsidiary of CGE
IV-10
<PAGE>
AIR & WATER TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
("Anjou"). Pursuant to a March 1994 Investment Agreement among the Company,
CGE and Anjou, as amended as of September 24, 1997 by the Recapitalization
Agreement discussed below, CGE received the right to designate a number of
members of the Company's Board of Directors proportionate to the voting power
represented by CGE's ownership interest and to appoint the Company's Chief
Executive Officer and Chief Financial Officer. CGE has agreed to make the
Company its exclusive vehicle in the United States, its possessions and its
territories for CGE's water management and wastewater management and air
pollution activities; provided that the foregoing shall not apply to any
acquisition or investment by CGE (or any of its affiliates) of a privately-
owned, publicly-traded or publicly-owned company in the water utility sector
whose primary business is the production, distribution and/or sale of potable,
fire, bulk, draining or irrigation water, nor to CGE's present or future
investments in Consumers Water Company and Philadelphia Suburban Corporation;
provided further, that the foregoing shall have no application to Kruger,
Inc., a distributor of water treatment plant parts and components and an
indirect subsidiary of Omnium Traitement et de Valorisation.
In addition to its direct ownership interest, the Company has benefited from
certain financial undertakings by CGE, including a $125 million term loan from
CGE (See Note 6) and a $60 million credit facility with Anjou (See Note 5). In
connection with a major contract undertaken by PSG in Puerto Rico (See Note
11), CGE has unconditionally guaranteed performance of the contract by PSG.
Anjou has also agreed to guarantee certain obligations of the Company relating
to the bonding of certain contracts (See Note 13). The Company compensates CGE
for its support of the Company's credit facilities (See Note 5) in an amount
equal to 0.95% per annum of the outstanding commitment of its credit
facilities ($1.2 million, $1.2 million and $0.8 million for the years ended
October 31, 1997, 1996 and 1995).
On September 24, 1997, the Company, CGE and Anjou entered into the
Recapitalization Agreement, whereby the Company would repay the CGE note and
the Anjou credit facility and exchange all of the outstanding shares of Series
A Preferred Stock. The Recapitalization is comprised of two primary elements:
(i) the exchange of the Series A Preferred Stock for shares of Class A Common
Stock (the "Exchange") and (ii) a rights offering (the "Rights Offering")
pursuant to which CGE has committed to subscribe to a minimum of $185 million
of common stock, the proceeds of which would be used to reduce the debt to CGE
and Anjou discussed above. The Company has filed a Registration Statement on
Form S-1 with respect to the securities offered in the Rights Offering. The
pro forma loss per share, for the year ended October 31, 1997, after giving
effect to the issuance of 140,000,000 shares under the Minimum Subscription
and the exchange of the Series A Preferred Stock and repayment of the $125
million term loan from CGE and $60 million credit facility with Anjou would be
$0.23 per share. Other items included in the Recapitalization Agreement are as
follows: (i) the Company has agreed to conduct a consent solicitation of its
Convertible Debenture holders to amend certain provisions of the indenture
which require the Company to repurchase the Convertible Debentures if any
person acquires more than 75% of the voting control of the Company (the
"Consent Solicitation"); (ii) an amendment to the Company's charter will be
made which would increase the authorized shares of Class B Common Stock, par
value $.001 per share, a class of nonvoting common stock of the Company, which
would be issued to CGE in the event the Company does not receive the requisite
consents in the Consent Solicitation; and (iii) CGE agreed to further its
efforts with the Company to enhance the Company's participation in the
privatization market in the water and wastewater management industry. The
Rights Offering provides for public participation up to an additional $25
million in gross proceeds. The Recapitalization Agreement may be terminated by
either party if the Recapitalization shall not have been consummated on or
before March 22, 1998.
(3) RESEARCH-COTTRELL
On December 2, 1997, the Company announced that it will divest its Research-
Cottrell business segment which provides air pollution control technologies
and services. The Company is currently in negotiations with several interested
parties and believes that most of these businesses will be sold within the
next several months,
IV-11
<PAGE>
AIR & WATER TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
but in any event no later than November 30, 1998, and has reported its results
of operations and financial condition as a discontinued operation. Summarized
financial data of Research-Cottrell is as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- --------
<S> <C> <C>
Current assets............................................ $44,441 $ 61,607
Current liabilities....................................... 45,617 41,912
------- --------
Net current assets (liabilities).......................... (1,176) 19,695
Goodwill.................................................. 20,383 96,282
Property, plant and equipment and other................... 4,069 8,488
------- --------
Net non-current assets.................................... 24,452 104,770
------- --------
Net carrying value........................................ $23,276 $124,465
======= ========
</TABLE>
The current assets consist primarily of accounts receivable, costs and
estimated earnings in excess of billings on uncompleted contracts and
inventories. The current liabilities consist primarily of accounts payable,
accrued expenses and billings in excess of costs and estimated earnings on
uncompleted contracts. In addition to the above amounts are estimated retained
liabilities of $21,000,000 related to the estimated losses through
disposition, certain warranty, litigation, lease and other obligations which
are included in accrued expenses at October 31, 1997.
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- --------
(In thousands)
<S> <C> <C> <C>
Sales....................................... $ 173,140 $219,008 $220,207
Costs and expenses.......................... 211,400 206,910 207,487
Depreciation and amortization............... 5,101 6,032 6,069
--------- -------- --------
Operating income (loss)..................... (43,361) 6,066 6,651
Non-operating income (expense).............. (854) 550 (861)
--------- -------- --------
Income (loss) before taxes and loss on
disposal................................... (44,215) 6,616 5,790
Income taxes................................ (639) (828) (528)
--------- -------- --------
Loss before loss on disposal................ (44,854) 5,788 5,262
Loss on disposal............................ (63,900) -- --
--------- -------- --------
Income (loss) from discontinued operations.. $(108,754) $ 5,788 $ 5,262
========= ======== ========
</TABLE>
The loss on disposal was developed using a range of estimated proceeds based
on current negotiations with several potential buyers and includes estimated
losses through disposition of $8,500,000. The loss may change in the near-term
based on the ultimate negotiated sale prices and proceeds received, the timing
of the anticipated sale transactions, actual results through disposition and
final resolution of any retained liabilities.
Also included in the Company's consolidated balance sheets are the net
current assets of the discontinued asbestos abatement operations which
amounted to $585,000 and $1,715,000 at October 31, 1997 and 1996.
(4) 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
transfer to them substantially all risks of ownership
IV-12
<PAGE>
AIR & WATER TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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
nonrecourse debt (approximately $28,575,000 and $29,925,000 at October 31,
1997 and 1996) is 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 thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Future minimum lease payments............................ $35,804 $38,099
Expected residual value (unguaranteed)................... 9,354 9,354
Unearned income.......................................... (4,607) (5,538)
------- -------
Net investment in leases................................. 40,551 41,915
Offset--nonrecourse debt, net of available funds in hands
of trustee.............................................. (23,933) (25,584)
------- -------
Net investment in leases................................. 16,618 16,331
Facility enhancements, net of depreciation............... 5,199 5,731
------- -------
Investments in environmental treatment facilities........ $21,817 $22,062
======= =======
</TABLE>
At October 31, 1997, minimum lease payments to be received, net of executory
costs for each of the five succeeding fiscal years, are $1,961,000,
$2,069,000, $2,216,000, $2,306,000 and $2,306,000.
(5) FINANCING ARRANGEMENTS:
The Company maintains a $60.0 million seven-year revolving credit facility
with Anjou which matures on August 2, 2003. As of October 31, 1997 and 1996,
the Company's borrowings under the facility totaled $60.0 million. The
facility bears interest at LIBOR plus 0.6% (6.2% at October 31, 1997).
Interest expense related to this facility which was entered into during 1996
was $3,686,000 and $714,000 for the years ended October 31, 1997 and 1996. The
Company expects to repay the outstanding borrowings under the facility with a
portion of the gross proceeds from the Rights Offering discussed in Note 2.
The Company also maintains a secured bank credit facility (the "Bank Credit
Facility") which was increased by $20.0 million to $70.0 million as of April
28, 1997. As of October 31, 1997, the Company's borrowings under the Bank
Credit Facility totaled $3.0 million and outstanding letters of credit under
the Bank Credit Facility totaled $22.5 million (unused capacity of $44.5
million).
As of December 12, 1997 the configuration and structure of the Bank Credit
Facility was revised. Societe Generale purchased and assumed from all of the
other lending banks under the Bank Credit Facility all of such banks' rights
and obligations under the Bank Credit Facility, becoming the sole lending bank
thereunder. In addition, the Company and Societe Generale, entered into an
amendment to extend the $70.0 million credit facility until December 11, 1998.
The facility had been scheduled to expire on March 31, 1998. The amendment
waives the Company's compliance with certain covenants and amends others. The
prior amendments and waiver would have terminated on December 15, 1997 had the
facility not been amended.
The Bank Credit Facility is primarily designed to finance working capital
requirements, subject to certain limitations, and provide for the issuance of
letters of credit, and is secured by a first security interest in
substantially all of the assets of the Company. Of the total commitment,
borrowings are limited to the lesser of
IV-13
<PAGE>
AIR & WATER TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
$70.0 million or 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 plus 1.25% (6.9% at
October 31, 1997), or at a defined bank rate approximating prime (8.5% at
October 31, 1997). 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
revised agreement requires CGE to maintain its support of the Company,
including a minimum 48% voting equity ownership interest in the Company and
its right to designate at least 48% of the Company's Board of Directors, as
well as to appoint the Chief Executive Officer and the Chief Financial Officer
of the Company.
The gross amount of proceeds from and repayments of working capital
borrowings under these credit facilities consists of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
----------- --------- ---------
<S> <C> <C> <C>
Borrowings................................ $ 1,171,000 $ 728,900 $ 509,000
Repayment................................. (1,169,300) (711,100) (494,500)
----------- --------- ---------
Net....................................... $ 1,700 $ 17,800 $ 14,500
=========== ========= =========
</TABLE>
(6) LONG-TERM DEBT
The Company's long-term debt consists of the following at October 31 (in
thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Term loan from CGE...................................... $125,000 $125,000
Convertible Subordinated Debentures due May 15, 2015.... 115,000 115,000
Anjou credit facility (Note 5).......................... 60,000 60,000
Bank Credit Facility (Note 5)........................... 3,000 --
Note due July 1, 2007 at 8.5%........................... 3,095 3,200
Real estate mortgage loans at 8.75%..................... 2,148 2,420
Other................................................... -- 1,300
-------- --------
308,243 306,920
Less current installments of long-term debt............. (398) (378)
-------- --------
Long-term debt.......................................... $307,845 $306,542
======== ========
</TABLE>
The $125 million 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 the Company, plus 1.25% (6.9% at October 31, 1997), 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 $8,715,000,
$8,884,000 and $9,142,000 during the years ended October 31, 1997, 1996 and
1995. The Company expects to repay the term loan from CGE with a portion of
the gross proceeds from the Rights Offering (see Note 2).
Interest on the Convertible Debentures is payable semi-annually at 8%. The
Convertible Debentures are redeemable in whole or in part at the option of the
Company at any time, at a redemption price of 102.4% of the principal amount
as of October 31, 1997 reducing to 100% of the principal amount on May 15,
2000, together
IV-14
<PAGE>
AIR & WATER TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
with accrued interest to the redemption date. The Convertible Debentures
require equal annual sinking fund payments beginning May 15, 2000, which are
calculated to retire 75% of the Convertible Debentures prior to maturity. The
Convertible Debentures are convertible into shares of Class A Common Stock at
a conversion price of $30.00 per share subject to adjustments as defined. In
addition, each holder of Convertible Debentures has the right to require the
Company to repurchase such holder's Convertible Debentures at a repurchase
price of 100% of the principal amount of the Convertible Debentures, together
with accrued interest to the repurchase date for cash or common stock (at the
option of the Company), if any person becomes the beneficial owner of 75% or
more of the total voting power of all shares of capital stock of the Company
entitled to vote in an election of directors (See Note 2 regarding the Consent
Solicitation).
At October 31, 1997, the aggregate maturities of long-term debt for each of
the five succeeding fiscal years and thereafter are approximately $0.4
million, $3.4 million, $6.2 million, $131.3 million, $6.3 million, and $160.6
million.
The Company has obtained a waiver relating to violations of certain
financial covenants under the CGE term loan through November 1, 1998.
(7) 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.
At the option of the Company, its Series A Preferred Stock, all of which is
held by CGE, 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
$50.00 per share. Such notes and Series A Preferred Stock are convertible at
$12.50 per share into shares of Class A Common Stock, subject to adjustments
as defined. The Company did not declare the quarterly dividends aggregating
$1,650,000 due September 30, 1997 and December 31, 1997 on the Series A
Preferred Stock due to its concerns over liquidity and the adequacy of its
surplus. On January 28, 1998, the Company effected the Exchange pursuant to
which all of the shares of Series A Preferred Stock held by CGE (representing
all of the issued and outstanding shares of Series A Preferred Stock) were
exchanged for approximately 34,285,000 shares of Class A Common Stock. The
dividends in arrears on the Series A Preferred Stock have not been paid and
were extinguished pursuant to the Exchange.
(8) 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
and Stock Option Committee of the Board of Directors determines the purchase
price of shares issuable under the Stock Purchase Plan. At each of October 31,
1997 and 1996, 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, during 1996 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
IV-15
<PAGE>
AIR & WATER TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
summary of certain information pertaining to options under the Plan, all of
which were granted at the fair market value.
<TABLE>
<CAPTION>
1997 1996 1995
--------- ---------- ---------
<S> <C> <C> <C>
Outstanding
Beginning of year........................ 1,711,331 1,985,120 2,291,347
Granted.................................. 60,000 999,177 129,200
Exercised................................ -- (1,250) --
Forfeited................................ (563,997) (1,271,716) (435,427)
--------- ---------- ---------
Outstanding
End of year.............................. 1,207,334 1,711,331 1,985,120
========= ========== =========
At October 31
Exercisable.............................. 934,910 887,952 1,375,493
Available for grant...................... 2,543,161 2,039,164 766,625
Outstanding Option price per share:
Weighted average......................... $ 7.91 $ 8.16 $ 12.76
Range.................................... $ 4.31 $ 4.25 $ 4.31
to to to
$ 28.57 $ 28.57 $ 31.43
Exercised Option price per share:.......... $ -- $ 6.00 $ --
</TABLE>
As permitted under generally accepted accounting principles, grants under
the Plan are accounted for following APB Opinion No. 25 and related
interpretations, and accordingly no compensation cost has been recognized in
the financial statements. Had compensation cost for the Plan been determined
based on the grant date fair values of awards (the method described in FASB
Statement No. 123), reported net loss would have been increased to
$161,671,000 and $6,427,000 in the years ended October 31, 1997 and 1996 and
the loss per common share after preferred stock dividend would have been
increased to $5.15 and $0.30 in the years ended October 31, 1997 and 1996. In
determining the pro forma amounts referred to above, the fair value of each
grant is estimated at the grant date using the Black-Scholes option pricing
model with the following weighted average assumptions for grants: zero
dividend rate, price volatility of 44% and expected lives of 8 years for both
1997 and 1996, and risk free interest rates of 6.0% and 6.3% in 1997 and 1996,
respectively.
(9) 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 employee's contribution up to a maximum of
4% of such employee's 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 charged to continuing operations applicable to these plans was
approximately $1,700,000, $2,200,000 and $2,200,000 for the years ended
October 31, 1997, 1996 and 1995.
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 $1,500,000, $1,300,000 and $1,000,000 for the
years ended October 31, 1997, 1996 and 1995. The accrued pension liabilities
were approximately $2,800,000, $2,800,000 and $2,700,000 at October 31, 1997,
1996 and 1995.
IV-16
<PAGE>
AIR & WATER TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(10) INVESTMENTS IN JOINT VENTURES
The Company, in the normal conduct of its subsidiaries' businesses, has
entered into certain partnership arrangements, referred to as "joint
ventures." The joint ventures operate primarily in the water and wastewater
engineering industry. The joint venture activities typically include
engineering, design and/or construction management services. Certain joint
ventures are also involved in program management of construction activities. A
separate joint venture is established with respect to each such project. The
joint venture arrangements generally commit each partner to supply a
predetermined proportion of the engineering labor and capital, and provide
each partner a predetermined proportion of income or loss. The Company is
jointly and severally liable for the obligations of the joint ventures and has
rights to the assets in proportion to its share of ownership. Each joint
venture is terminated upon the completion of the underlying project.
The Company's investment in joint ventures (included in other assets)
amounted to $2,775,000 and $5,050,000 at October 31, 1997 and 1996. In
addition, the Company had receivables from the joint ventures totaling
$2,581,000 and $3,848,000 at October 31, 1997 and 1996 related to current
services provided by the Company to the joint ventures. The Company's share of
its joint venture income (loss) amounted to $(25,000), $1,127,000 and
$3,227,000 during the years ended October 31, 1997, 1996 and 1995. 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.
(11) BUSINESS SEGMENTS
Through October 31, 1997, the Company's operation may be categorized in
three 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 PRASA representing 39%, 39% and 12% of total
segment sales in 1997, 1996 and 1995. In addition, total receivables due
from PRASA for certain reimbursable costs were $34.3 million and $16.0
million at October 31, 1997 and 1996. The contract with PRASA has a five-
year term, but PRASA may cancel the contract for any reason after August
31, 1998. The Company's wholly-owned subsidiary, PS Group of Puerto Rico,
Inc., is in the process of negotiations with PRASA regarding a replacement
contract for the existing five-year contract. Management currently expects
that the contract with PRASA will not be canceled by PRASA in August 1998,
but will remain in effect through its original five-year term ending August
2000 or be amended or replaced with a new contract. Additionally, the PRASA
employees who operate the PRASA facilities are subject to a collective
bargaining agreement which expires in June 1998.
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, 1997.
Research-Cottrell provides air pollution control technologies and
services. As discussed in Note 3, the Company's Board of Directors has
decided to divest this segment.
Sales to the federal government represented approximately 10%, 15% and 16%
of consolidated sales in the years ended October 31, 1997, 1996 and 1995.
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, 1997, 1996 and 1995 were less than 10% of the consolidated assets
and sales.
IV-17
<PAGE>
AIR & WATER TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information by business segment is as follows (in thousands):
<TABLE>
<CAPTION>
Metcalf Research- Unallocated
PSG & Eddy Cottrell Other Corporate Eliminations Consolidated
-------- -------- --------- ------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
For the Year ended
October 31, 1997:
Sales.................. $271,650 $186,490 $ -- $ -- $ -- $(1,765) $456,375
Costs and expenses..... 261,707 192,936 -- -- 13,450 (1,765) 466,328
Depreciation and
amortization.......... 8,119 8,227 -- -- 515 -- 16,861
-------- -------- -------- ------ -------- ------- --------
Operating income
(loss)................ $ 1,824 $(14,673) $ -- $ -- $(13,965) $ -- $(26,814)
======== ======== ======== ====== ======== ======= ========
Identifiable assets as
of October 31, 1997... $173,041 $165,794 $ 24,452 $ 88 $ 19,690 $ -- $383,065
======== ======== ======== ====== ======== ======= ========
Capital expenditures... $ 2,448 $ 2,479 $ -- $ -- $ 22 $ -- $ 4,949
======== ======== ======== ====== ======== ======= ========
Depreciation........... $ 1,676 $ 4,785 $ -- $ -- $ 378 $ -- $ 6,839
======== ======== ======== ====== ======== ======= ========
For the Year ended
October 31, 1996:
Sales.................. $270,640 $215,358 $ -- $ -- $ -- $(3,907) $482,091
Costs and expenses..... 255,882 195,745 -- -- 8,720 (3,907) 456,440
Depreciation and
amortization.......... 7,335 6,223 -- -- 425 -- 13,983
-------- -------- -------- ------ -------- ------- --------
Operating income
(loss)................ $ 7,423 $ 13,390 $ -- $ -- $ (9,145) $ -- $ 11,668
======== ======== ======== ====== ======== ======= ========
Identifiable assets as
of October 31, 1996... $157,566 $188,403 $124,465 $ 154 $ 25,770 $ -- $496,358
======== ======== ======== ====== ======== ======= ========
Capital expenditures... $ 2,520 $ 3,604 $ -- $ -- $ 152 $ -- $ 6,276
======== ======== ======== ====== ======== ======= ========
Depreciation........... $ 1,703 $ 3,083 $ -- $ -- $ 406 $ -- $ 5,192
======== ======== ======== ====== ======== ======= ========
For the Year ended
October 31, 1995:
Sales.................. $179,713 $216,852 $ -- $6,133 $ -- $(4,037) $398,661
Costs and expenses..... 164,435 200,125 -- 6,096 9,574 (4,037) 376,193
Depreciation and
amortization.......... 5,679 5,691 -- 307 602 -- 12,279
-------- -------- -------- ------ -------- ------- --------
Operating income
(loss)................ $ 9,599 $ 11,036 $ -- $ (270) $(10,176) $ -- $ 10,189
======== ======== ======== ====== ======== ======= ========
Identifiable assets as
of October 31, 1995... $148,402 $181,590 $127,417 $3,037 $ 28,872 $ -- $489,318
======== ======== ======== ====== ======== ======= ========
Capital expenditures... $ 2,135 $ 2,818 $ -- $ -- $ 449 $ -- $ 5,402
======== ======== ======== ====== ======== ======= ========
Depreciation........... $ 1,660 $ 2,747 $ -- $ 241 $ 584 $ -- $ 5,232
======== ======== ======== ====== ======== ======= ========
</TABLE>
(12) INCOME TAXES
At October 31, 1997, the Company has a net deferred tax asset of
$139,700,000 which has been fully reserved by a valuation allowance. The
deferred tax asset is comprised of the tax effects of net operating losses
($116,400,000), receivable reserves ($2,900,000), inventory reserves
($300,000), other assets ($1,900,000) and accruals not yet deductible
($22,800,000). A deferred tax liability of $4,600,000 is comprised of fixed
assets depreciation. At October 31, 1997, the Company had tax loss
carryforwards of approximately $333,000,000. Such carryforwards expire through
2012.
Income (loss) from continuing operations before income taxes during the
years ended October 31, 1997, 1996 and 1995, respectively, from the United
States was $(51,131,000), $(9,041,000) and $(12,982,000) and from foreign
jurisdictions was $(182,000), $(3,261,000) and $322,000. The provision
(benefit) for income taxes during the years ended October 31, 1997, 1996 and
1995, respectively, included foreign taxes of $185,000, $(1,071,000) and
$146,000 and state taxes of $329,000, $(175,000) and $441,000. The difference
between the
IV-18
<PAGE>
AIR & WATER TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
income tax provision (benefit) computed by applying the statutory federal
income tax rate to the pretax loss from continuing operations and the actual
tax provision (benefit) is as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Statutory benefit............................... $(17,960) $(4,306) $(4,431)
State income taxes.............................. 214 (114) 287
Goodwill and other.............................. 2,709 2,634 1,745
Impact of net operating loss.................... 15,302 470 2,953
Impact of foreign operations.................... 249 70 33
-------- ------- -------
$ 514 $(1,246) $ 587
======== ======= =======
</TABLE>
(13) COMMITMENTS AND CONTINGENCIES
DOJ Investigation
In connection with a broad investigation by the U.S. Department of Justice
(the "DOJ") 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 DOJ 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 then Chief Executive Officer on administrative leave of absence with
pay. The PSG Chief Executive Officer, 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 DOJ 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.
Bremerton Litigation
The City of Bremerton, Washington brought a contribution action against
Metcalf & Eddy Services, Inc. ("M&E Services"), the operator of a City-owned
wastewater treatment plant from 1987 until late 1995. The contribution action
arises from two prior lawsuits against the City for alleged odor nuisances
brought by two groups of homeowners neighboring the plant. In the first
homeowners' suit, the City paid $4.3 million in cash and approximately $5
million for odor control technology to settle the case. M&E Services
understands the odor control measures generally have been successful and the
odors have been reduced as a result. M&E Services was not a party to the first
homeowners' suit, which has been dismissed with prejudice as to all parties.
In the settlement of the second homeowners' case, the City of Bremerton paid
the homeowners $2.9 million, and M&E Services contributed $0.6 million to the
settlement without admitting liability. All claims raised by the homeowners in
the second suit (except for two recalcitrant homeowners) were resolved. All
claims by and between M&E Services and the City in the second homeowners' suit
were expressly reserved and will be tried after the city's contribution
action, which is currently scheduled for trial in March 1998. The City is
seeking to recover the amounts it expended on the two settlements, damages for
M&E Services' alleged substandard operation of the plant, and attorneys' fees.
M&E Services denies any liability to the City and believes it has
IV-19
<PAGE>
AIR & WATER TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
meritorious defenses to the claim. However, no assurances can be given that an
adverse judgment would not have a material adverse effect on the financial
position or results of M&E Services or the Company taken as a whole.
R-C Belgium Litigation
On October 14, 1997, Research-Cottrell, Inc. and its subsidiary, Research-
Cottrell Belgium, S.A. ("R-C Belgium"), were named in a lawsuit by N.V.
Seghers Engineering ("Seghers") filed in the Commercial Court in Mechelen,
Belgium. Seghers is R-C Belgium's joint venture partner on two large pollution
control projects. The suit claims damages of approximately $13 million
allegedly resulting from R-C Belgium's breach of contract and substandard
performance. Damages claimed in the lawsuit consist not only of Seghers'
alleged cost to repair the R-C Belgium equipment, but also lost profits,
damages to business reputation, theft of employees (R-C Belgium hired two
former Seghers' employees), increased costs arising out of the failure to gain
timely acceptance of the two plants, excessive payments to R-C Belgium due to
alleged unfair pricing practices by R-C Belgium and other miscellaneous
interest charges and costs. The initial response to the suit is due January
20, 1998. The case involves complex technical and legal issues and is in its
earliest stages. Nevertheless, the Company denies liability to Seghers and,
based upon the information currently available, believes Seghers' claimed
damages are grossly inflated. In addition, the Company believes it has
meritorious counterclaims based upon Seghers' breaches of contact and poor
performance.
Other Matters
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 which required an immediate cash
payment of approximately $2.2 million. Total rent expense in the periods ended
October 31, 1997, 1996 and 1995 was $16.9 million, $17.1 million and $16.7
million, respectively. At October 31, 1997, minimum rental commitments under
all noncancellable leases for the five succeeding fiscal years, and
thereafter, are $11.4 million, $10.5 million, $8.5 million, $7.6 million, $6.7
million and $12.5 million. These minimum rental commitments are net of
noncancellable sub-leases for the five succeeding fiscal years of $1.3
million, $1.3 million, $1.2 million $1.1 million and $0.5 million.
The Company currently maintains various types of insurance, including
workers' compensation, general and professional liability and property
coverages and believes that it presently maintains adequate insurance
coverages for all of its present operational activities. It has been both a
Company policy and a requirement of many of its clients that the Company
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, the Company
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 the Company's
exposures. Claims made policies provide coverage to the Company only for
claims reported during the policy period. The Company'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 the
Company and its subsidiaries will continue
IV-20
<PAGE>
AIR & WATER TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 the Company's insurance
coverage or for which there is no coverage could have a material adverse
effect on the Company.
In connection with the sale of two manufacturing facilities in prior years,
the Company remains contingently liable as guarantor under $2.9 million of
Industrial Revenue Bond financing.
The Company is often required to procure bid and performance bonds from
surety companies, particularly for clients in the public sector. A bid bond
guarantees that the Company will enter into the contract under consideration
at the price bid and a performance bond guarantees performance of the
contract. The Company is required to indemnify surety companies providing bid
and performance bonds for any payments the sureties are required to make under
the bonds. The Company and its subsidiaries obtain bid and performance bonds
pursuant to a Master Surety Agreement with USF&G. The Company 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, (collectively, "Reliance") although no
bonds have been obtained under these agreements since June 27, 1995, and the
Company anticipates that all of its foreseeable future bonding requirements
will be provided by USF&G. In addition, the Company's Bank Credit Facility
provides for issuance of letters of credit for purposes which include direct
or indirect fulfillment of bid and performance bond requirements by the
Company and its subsidiaries. The Company has never forfeited a bid or a
performance bond and no project sponsor has ever called and drawn a bond
issued in support of the Company's contract obligations. The Company has
obtained a waiver relating to violations of certain financial covenants
relating to its bonding agreements with Reliance through November 1, 1998.
In August 1997, USF&G notified the Company that it would suspend the renewal
and issuance of new bid and performance bonds as of September 30, 1997, due to
the Company's operating performance and resulting financial condition as
reported at the end of the fiscal quarter ended April 30, 1997, unless it
received indemnification from CGE or Anjou for at least 20% of all future bond
requests including renewals. Anjou has entered into an agreement with USF&G
regarding an arrangement pursuant to which, until terminated at Anjou's
discretion, Anjou will enter into guarantees of certain obligations of the
Company relating to the bonding of certain contracts under the Master Surety
Agreements, dated as of October 31, 1995, between USF&G and the Company and
its subsidiaries. Such guarantees would cover, in each instance, 30% of the
aggregate amount of the bonds executed, procured or provided on behalf of the
Company or its subsidiaries on or after October 1, 1997 and certain penalty
amounts, up to $45 million. There can be no assurance that USF&G will be
willing to provide bid bonds to the Company following the Recapitalization
without a guarantee from CGE (or one of its affiliates) and there can be no
assurance that CGE (or one of its affiliates) would be willing to provide such
a guarantee.
On May 26, 1995, Metcalf & Eddy settled litigation with 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.
IV-21
<PAGE>
AIR & WATER TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(14) QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1997 and 1996 is as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
1997 By Quarter
-------------------------------------------------
First Second Third Fourth Year
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Sales................... $106,637 $108,631 $110,828 $130,279 $ 456,375
-------- -------- -------- -------- ---------
Gross margin............ 17,170 7,522 21,371 24,739 70,802
-------- -------- -------- -------- ---------
Loss from continuing
operations............. (9,792) (33,304) (2,024) (6,707) (51,827)
-------- -------- -------- -------- ---------
Loss from discontinued
operations............. (2,738) (30,682) (2,766) (72,568) (108,754)
-------- -------- -------- -------- ---------
Net loss................ $(12,530) $(63,986) $ (4,790) $(79,275) $(160,581)
======== ======== ======== ======== =========
Loss per common share
after preferred stock
dividend:
Continuing
operations........... $ (.33) $ (1.07) $ (.09) $ (.20) $ (1.72)
-------- -------- -------- -------- ---------
Discontinued
operations........... (.09) (.95) (.09) (2.27) (3.40)
-------- -------- -------- -------- ---------
Net loss................ $ (.42) $ (2.02) $ (.18) $ (2.47) $ (5.12)
======== ======== ======== ======== =========
<CAPTION>
1996 By Quarter
-------------------------------------------------
First Second Third Fourth Year
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Sales................... $110,557 $113,165 $119,524 $138,845 $ 482,091
-------- -------- -------- -------- ---------
Gross margin............ 20,623 23,459 22,426 21,459 87,967
-------- -------- -------- -------- ---------
Loss from continuing
operations............. (3,401) (2,963) (1,819) (2,873) (11,056)
-------- -------- -------- -------- ---------
Income from discontinued
operations............. 456 1,658 1,361 2,313 5,788
-------- -------- -------- -------- ---------
Net loss................ $ (2,945) $ (1,305) $ (458) $ (560) $ (5,268)
======== ======== ======== ======== =========
Income (loss) per common
share after preferred
stock dividend:
Continuing
operations........... $ (.13) $ (.12) $ (.08) $ (.12) $ (.45)
-------- -------- -------- -------- ---------
Discontinued
operations........... .01 .05 .04 .08 .18
-------- -------- -------- -------- ---------
Net loss................ $ (.12) $ (.07) $ (.04) $ (.04) $ (.27)
======== ======== ======== ======== =========
</TABLE>
- --------
Note a: 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.
Note b: Significant charges affecting the comparability of the 1997 quarterly
loss from continuing operations include a $1.7 million first quarter
charge related to a cancellation penalty for a high cost leased
facility; operating charges of $26.6 million reflected in the second
quarter for professional fees related to marketing consultants and the
DOJ investigation, increases to reserves for litigation, professional
liability and certain project contingencies, increases to receivable
reserves, equipment write-offs and other direct and indirect costs; a
$3.2 million third quarter reduction in previously accrued
discretionary and self-insured employee benefits; a fourth quarter $5.0
million asset impairment charge related to the Branchburg facility and
a $0.8 million severance benefit related to the former chief executive
officer.
IV-22
<PAGE>
AIR & WATER TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note c: Significant charges affecting the comparability of the 1997 quarterly
loss from discontinued operations include a $25.0 million impairment
charge primarily related to Ecodyne and KVB and operating charges of
$4.0 million related to increases to Ecodyne receivable and Custodis
warranty reserves both of which were reflected during the second
quarter; third quarter operating charges of $2.3 million primarily
related to higher than anticipated costs on a specific APCD project
and increases to receivable and warranty reserves for R-C
International partially off-set by a reduction of previously accrued
discretionary and self-insured employee benefits; fourth quarter
operating charges of $8.1 million related to additional increases to
warranty reserves at R-C International, additional costs related to an
APCD project and various other reserves for retained assets of
businesses previously sold as well as an estimated loss on the
disposal of the segment of $63.9 million.
IV-23
<PAGE>
SCHEDULE IV-B
AQUA ALLIANCE INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditor's Report............................................. 25
Consolidated Balance Sheets as of October 31, 1998 And 1997.............. 26
Consolidated Statements of Operations for the Years Ended October 31,
1998, 1997 and 1996..................................................... 27
Consolidated Statements of Stockholders' Equity for the Years Ended
October 31, 1998, 1997 and 1996......................................... 28
Consolidated Statements of Cash Flows for the Years Ended October 31,
1998, 1997 and 1996..................................................... 29
Notes to Consolidated Financial Statements............................... 30
</TABLE>
IV-24
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors of
Aqua Alliance Inc.
We have audited the accompanying consolidated balance sheets of Aqua
Alliance Inc. and its Subsidiaries as of October 31, 1998 and 1997, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended October 31, 1998. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Aqua
Alliance Inc. and its Subsidiaries as of October 31, 1998 and 1997 and the
results of their operations and their cash flows for each of the three years
in the period ended October 31, 1998 in conformity with generally accepted
accounting principles.
As discussed in Note 2 to the consolidated financial statements, effective
November 1, 1997, the Company changed its method of accounting for start-up
costs.
McGladrey & Pullen, llp
New York, New York
January 12, 1999
IV-25
<PAGE>
AQUA ALLIANCE INC.
CONSOLIDATED BALANCE SHEETS
As of October 31, 1998 and 1997
(In thousands, except share data)
<TABLE>
<CAPTION>
October 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents, including restricted cash of
$587 and $413 in 1998 and 1997, respectively.......... $ 22,197 $ 12,089
Accounts receivable, less allowance for doubtful
accounts of $4,909 and $3,300 in 1998 and 1997,
respectively.......................................... 77,776 76,681
Costs and estimated earnings in excess of billings on
uncompleted contracts................................. 33,559 33,557
Inventories............................................ 1,470 1,893
Prepaid expenses and other current assets.............. 8,521 4,460
Net current assets of discontinued operations.......... 1,401 --
--------- ---------
Total current assets................................. 144,924 128,680
--------- ---------
Property, plant and equipment, net....................... 9,768 13,388
Investments in environmental treatment facilities........ 21,651 21,817
Goodwill, net............................................ 159,198 164,337
Other assets............................................. 20,572 30,391
Net non-current assets of discontinued operations........ 3,239 24,452
--------- ---------
Total assets......................................... $ 359,352 $ 383,065
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current installments of long-term debt................. 443 398
Accounts payable....................................... 87,557 80,007
Accrued expenses....................................... 92,135 86,681
Billings in excess of costs and estimated earnings on
incompleted contracts................................. 13,484 15,320
Income taxes payable................................... 2,325 1,485
Net current liabilities of discontinued operations
total current liabilities............................. 483 591
--------- ---------
196,427 184,482
--------- ---------
Long-term debt........................................... 119,405 307,845
Commitments and contingencies (note 15).................. -- --
Stockholders' equity (deficit):
Preferred stock, par value $.01, authorized 2,500,000
shares; issued 0 shares and 1,200,000 shares in 1998
and 1997, respectively; liquidation value $0 and
$60,000 in 1998 and 1997, respectively................ -- 12
Common stock, par value $.001, authorized 260,000,000
shares and 100,000,000 shares in 1998 and 1997,
respectively; issued 185,266,429 shares and 32,109,156
shares in 1998 and 1997, respectively................. 185 32
Additional paid-in capital............................. 629,130 427,036
Accumulated deficit.................................... (585,165) (535,214)
Common stock in treasury, at cost...................... (108) (108)
Cumulative currency translation adjustment............. (522) (1,020)
--------- ---------
Total stockholders' equity (deficit)................. 43,520 (109,262)
--------- ---------
Total liabilities and stockholders' equity
(deficit)........................................... $ 359,352 $ 383,065
========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
IV-26
<PAGE>
AQUA ALLIANCE INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended October 31, 1998, 1997 and 1996
(In thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended October 31,
-----------------------------
1998 1997 1996
-------- --------- --------
<S> <C> <C> <C>
Sales........................................... $445,119 $ 456,375 $482,091
Cost of sales................................... 389,737 385,573 394,124
-------- --------- --------
Gross margin................................ 55,382 70,802 87,967
Selling, general and administrative expenses.... 61,379 75,755 62,316
Depreciation and amortization................... 13,110 16,861 13,983
Impairment charge (recovery).................... (3,000) 5,000 --
-------- --------- --------
Operating income (loss) from continuing
operations................................. (16,107) (26,814) 11,668
Interest income................................. 509 359 923
Interest expense................................ (14,899) (24,356) (22,597)
Other expense, net.............................. (1,273) (502) (2,296)
-------- --------- --------
Loss from continuing operations before
income taxes and cumulative effect of a
change in accounting principle............. (31,770) (51,313) (12,302)
Income tax (expense) benefit.................... (1,099) (514) 1,246
Loss from continuing operations............. (32,869) (51,827) (11,056)
Discontinued operations:
Income (loss) from operations of discontinued
segment...................................... -- (44,854) 5,788
Loss from disposal of discontinued segment.... (6,000) (63,900) --
Cumulative effect on prior years (to October 31,
1997) of change in the method of accounting for
start-up costs (note 2)........................ (11,082) -- --
-------- --------- --------
Net loss.................................... (49,951) (160,581) (5,268)
Preferred stock dividends....................... -- (3,300) (3,300)
-------- --------- --------
Net loss applicable to common stockholders.. (49,951) (163,881) (8,568)
-------- --------- --------
Basic income (loss) per common share (after
preferred stock dividends):
Continuing operations......................... (.24) (1.72) (.45)
Discontinued operations....................... (.05) (3.40) .18
Cumulative effect on prior years (to October
31, 1997) of change in the method of
accounting for start-up costs (note 2)....... (.08) -- --
-------- --------- --------
Net loss.................................... $ (.37) $ (5.12) $ (.27)
======== ========= ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
IV-27
<PAGE>
AQUA ALLIANCE INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended October 31, 1998, 1997 and 1996
(In thousands, except share data)
<TABLE>
<CAPTION>
Series A Class A
Preferred Stock Common Stock Class A Common Cumulative
$.01 Par Value $.001 Par Value Additional Treasury Stock Currency
------------------ ------------------- Paid-In Accumulated --------------- Translation
Shares Amount Shares Amount Capital Deficit Shares Amount Adjustment Total
---------- ------ ------------ ------ ---------- ----------- ------- ------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, October
31, 1995........ 1,200,000 $ 12 32,107,906 $ 32 $427,028 $(363,865) (89,902) $(108) $ (10) $ 63,089
Net loss......... -- -- -- -- -- (5,268) -- -- -- (5,268)
Cash dividends,
Series A
Preferred
Stock........... -- -- -- -- -- -- (3,300) -- -- (3,300)
Exercise of stock
options......... -- -- 1,250 -- 8 -- -- -- -- 8
Currency
translation
adjustment...... -- -- -- -- -- -- -- -- (288) (288)
---------- ---- ------------ ---- -------- --------- ------- ----- ------- ---------
Balance, October
31, 1996........ 1,200,000 12 32,109,156 32 427,036 (372,433) (89,902) (108) (298) 54,241
Net loss......... -- -- -- -- -- (160,581) -- -- -- (160,581)
Cash dividends,
Series A
Preferred
Stock........... -- -- -- -- -- (2,200) -- -- -- (2,200)
Currency
translation
adjustment...... -- -- -- -- -- -- -- -- (722) (722)
---------- ---- ------------ ---- -------- --------- ------- ----- ------- ---------
Balance, October
31, 1997........ 1,200,000 12 32,109,156 32 427,036 (535,214) (89,902) (108) (1,020) (109,262)
Net loss......... -- -- -- -- -- (49,951) -- -- -- (49,951)
Exchange of
Series A........ 34
Preferred Stock.. (1,200,000) (12) 34,285,714 34 (22) -- -- -- -- --
Issuance of
Common Stock.... -- -- 118,871,559 119 202,116 -- -- -- -- 202,235
Currency
translation
adjustment...... -- -- -- -- -- -- -- -- 498 498
---------- ---- ------------ ---- -------- --------- ------- ----- ------- ---------
Balance, October
31, 1998........ -- $-- $185,266,429 $185 $629,130 $(585,165) (89,902) (108) $ (522) 43,520
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
IV-28
<PAGE>
AQUA ALLIANCE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended October 31, 1998, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
Years Ended October 31,
------------------------------
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss...................................... $ (49,951) $(160,581) $ (5,268)
Adjustments to reconcile net loss to net cash
provided by (used for) continuing
operations--
Discontinued operations....................... 6,000 108,754 (5,788)
Cumulative effect on prior years (to October
31, 1997) of change in the method of
Accounting for start-up costs (note 2)....... 11,082 -- --
Depreciation and amortization................. 13,110 16,861 13,983
Other......................................... 528 7,865 890
Changes in assets and liabilities, excluding
effects of divestitures--
(Increase) decrease in assets--
Accounts receivable......................... (1,095) (14,988) (2,318)
Costs and estimated earnings in excess of
billings on uncompleted contracts.......... (2) 3,880 (7,383)
Inventories................................. 423 28 (1,199)
Prepaid expenses and other current assets... (4,061) 3,418 (798)
Other assets................................ 3,568 8,100 (380)
Increase (decrease) in liabilities--
Accounts payable............................ 7,550 23,061 11,240
Accrued expenses............................ 5,454 2,266 (7,317)
Billings in excess of costs and estimated
earnings on uncompleted contracts.......... (1,836) 2,800 (681)
Income taxes payable........................ 840 (357) (600)
--------- --------- --------
Net cash provided by (used for) continuing
operations................................ (8,390) 1,107 (5,619)
Net cash provided by (used for)
discontinued operations................... (6,604) 13,887 6,507
--------- --------- --------
Net cash provided by (used for) operating
activities................................ (14,994) 14,994 888
--------- --------- --------
Cash flows from investing activities:
Proceeds from sale of businesses.............. 17,920 2,015 6,186
Capital expenditures.......................... (4,082) (4,949) (6,276)
Investment in environmental treatment
facilities................................... (124) 123 530
Start-up costs, investments in new contracts,
and other.................................... (2,969) (8,400) (11,122)
Discontinued operations....................... 21 (978) (1,206)
--------- --------- --------
Net cash provided by (used for) investing
activities................................ 10,766 (12,189) (11,888)
--------- --------- --------
Cash flows from financing activities:
Proceeds from issuances of common stock....... 202,235 -- 8
Payments of notes payable and long-term debt.. (125,397) (377) (366)
Net borrowings (repayments) under credit
facilities................................... (63,000) 1,700 17,800
Cash dividends paid on preferred stock........ -- (2,475) (3,300)
Other......................................... 498 (2,231) (1,643)
--------- --------- --------
Net cash provided by (used for) financing
activities................................ 14,336 (3,383) 12,499
--------- --------- --------
Net increase (decrease) in cash and cash
equivalents............................... 10,108 (578) 1,499
Cash and cash equivalents at beginning of
year.......................................... 12,089 12,667 11,168
--------- --------- --------
Cash and cash equivalents at end of year....... $ 22,197 $ 12,089 $ 12,667
========= ========= ========
Supplemental disclosures of cash flow
information:
Cash paid for interest........................ $ 16,320 $ 23,599 $ 22,417
========= ========= ========
Cash paid for income taxes.................... $ 323 $ 1,468 $ 1,292
========= ========= ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
IV-29
<PAGE>
AQUA ALLIANCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of Aqua Alliance
Inc., formerly Air & Water Technologies Corporation ("AAI" or the "Company")
and all majority-owned subsidiaries. The Company markets its products and
services through two widely recognized trade names: Professional Services
Group ("PSG") for the operation, maintenance and management of water and
wastewater treatment systems; and Metcalf &Eddy ("M&E") for water, wastewater
and hazardous waste engineering and consulting services. 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.
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. Revenues related to the operations, maintenance and management
services within the PSG operating segment are generally recognized in the
contract year as the related services are provided.
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. Substantially all of the costs and estimated
earnings in excess of billings on uncompleted contracts are expected to be
collected in fiscal year 1999. At October 31, 1998, the balance of $33,559,000
included $5,852,000 of retainage due from customers in accordance with
applicable retainage provisions of engineering and construction type contracts
which will become billable upon future delivery of services or completion of
such contracts. At October 31, 1997, the balance of $33,557,000 included
retention of $5,603,000. 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 cost or market (first in,
first out method) and consists primarily of chemicals and spare parts.
IV-30
<PAGE>
AQUA ALLIANCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 10 years for machinery, equipment and fixtures.
Leasehold improvements are amortized over the term of the lease. Repair and
maintenance costs are expensed as incurred; major renewals and betterments are
capitalized. Property, plant and equipment at October 31, 1998 and 1997,
respectively, consists of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Land and land improvements................................. $ -- $ 122
Buildings and leasehold improvements....................... 4,209 3,899
Machinery, equipment and fixtures.......................... 29,458 26,324
------- -------
33,667 30,345
Less accumulated depreciation and amortization............. (23,899) (16,957)
------- -------
$ 9,768 $13,388
======= =======
</TABLE>
In connection with the Research-Cottrell divestiture (See Note 5), the
Company has decided to sell the land and building located in Branchburg, New
Jersey which was primarily occupied by the operations of Research-Cottrell.
The carrying value of approximately $8,100,000, based on current offers from
interested parties, is classified in other non- current assets. In 1997, the
Company recorded an impairment charge of approximately $5,000,000 based on
current offers at that time. In the fourth quarter of 1998, the Company
increased the carrying value by $3,000,000 based on a letter of intent
received in October, 1998. The Company expects the sale of the facility to
occur in early 1999.
Goodwill and long-lived assets
Goodwill is being amortized over 40 years under the straight-line method.
Goodwill amortization was $5,139,000, $5,240,000, and $5,025,000 for the years
ended October 31, 1998, 1997 and 1996, respectively. Accumulated amortization
of goodwill was $43,512,000 and $38,373,000 at October 31, 1998 and 1997,
respectively. 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 cash flows over the remaining life of the
assets in determining whether the assets are impaired. Any impairment is
measured using discounted operating cash flows or other fair value measures as
appropriate. The realizability of goodwill and other long-lived assets is the
result of an estimate based on the underlying assets' remaining estimated
useful lives and projected operating cash flows. It is possible that this
estimate will change as a consequence of further deterioration in market
conditions or operating results. The effect of a change, if any, would be
material to the financial condition and results of start-up operations.
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 costs are included in other assets and amounted to
$4,879,000 and $14,044,000 at October 31, 1998 and 1997, respectively (See
Note 2 regarding a change in accounting for these costs). 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 $2,730,000 and $2,946,000 at October 31, 1998 and 1997,
respectively.
IV-31
<PAGE>
AQUA ALLIANCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Accrued expenses
Accrued expenses included the following as of October 31, 1998 and 1997 (in
thousands):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Salaries and benefits....................................... $17,583 $19,736
Self-insured loss reserves.................................. 31,529 21,863
Retained liabilities of discontinued operations (Note 5).... 20,011 21,000
Interest and other financing costs.......................... 5,507 6,843
Other....................................................... 17,505 17,239
------- -------
Total..................................................... $92,135 $86,681
======= =======
</TABLE>
Earnings (loss) per share
The Company's loss per share for the years ended October 31, 1998, 1997 and
1996 has been calculated in accordance with the new Financial Accounting
Standard No. 128 "Earnings Per Share." This statement requires that the
Company report "basic" and "diluted" earnings per share instead of "primary"
and "fully diluted" earnings per share as previously reported. The key
difference is that "basic" earnings per share does not adjust for common stock
equivalents. The adoption of this statement, in the first quarter of 1998, had
no effect on the Company's per share data. The numerator and denominator for
basic and diluted per share data are the same due to the antidilutive effects
of the Company's common stock equivalents and convertible securities. The
weighted-average number of shares of common stock used to compute the loss per
share was 136,121,000, 32,019,000 and 32,018,000 shares for the years ended
October 31, 1998, 1997 and 1996, respectively.
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 1997 and 1996 consolidated
financial statements to conform to the 1998 presentation including the effects
of reporting the accounts of the discontinued operations separate from
continuing operations (See Note 5).
Recently issued accounting pronouncements
Following is a description of certain recently issued accounting
pronouncements recently adopted by the Company or not yet adopted by the
Company.
In June 1997, Statement of Financial Accounting Standard (SFAS) No. 130,
"Reporting Comprehensive Income," was issued. The statement must be adopted by
the Company in the first quarter of fiscal 1999. Under provisions of this
statement, the Company will be required to include a financial statement
presentation of comprehensive income and its components. As a consequence of
this change, certain reclassifications will be necessary for previously
reported amounts to achieve the required presentation of comprehensive income.
Implementation of this standard will not affect the Company's financial
position or results of operations.
IV-32
<PAGE>
AQUA ALLIANCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In June 1997, SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information," was issued. The statement must be adopted by the Company
for fiscal 1999. Under provisions of this statement, the Company will be
required to modify or expand the financial statement disclosures for operating
segments, products and services, and geographic areas. Implementation of this
disclosure standard will not affect the Company's financial position or
results of operations.
In December 1997, SFAS No. 132, "Employer's Disclosure about Pensions and
Other Postretirement Benefits," was issued and is effective for the Company's
1999 fiscal year. The statement revises current disclosure requirements for
employers' pensions and other retiree benefits. Implementation of this
disclosure standard will not affect the Company's financial position or
results of operations.
(2) CHANGE IN ACCOUNTING
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position No. 98-5, "Reporting on the Costs of Start-Up
Activities" (SOP 98-5). SOP 98-5 provides guidance on the financial reporting
of start-up and organization costs and requires such costs to be expensed as
incurred, with the effect of initial adoption reported as a cumulative effect
of a change in accounting principle. The Company has early adopted SOP 98-5
effective November 1, 1997, as permitted by the SOP.
The total amount of deferred start-up costs reported as a cumulative effect
of a change in accounting principle is $11,082,000. The impact of adoption of
the SOP on previously reported operating income will be to change the first
quarter 1998 results from an operating loss of $11,673,000 to an operating
loss of $10,761,000, the second quarter 1998 from an operating loss of
$11,856,000 to an operating loss of $10,950,000, and the third quarter 1998
from an operating loss of $7,637,000 to an operating loss of $6,730,000. The
reported loss per share from continuing operations will change in the first
quarter of 1998 from $.35 to $.32, in the second quarter of 1998 from $.09 to
$.08, and was unchanged in the third quarter 1998. The impact of adopting the
SOP for the year ended October 31, 1998, was to decrease the operating loss by
$3,632,000 and to decrease the loss per share by $.03.
(3) VIVENDI RELATIONSHIP
As of October 31, 1998, approximately 83% of the Company's Class A Common
Stock, par value $.001 per share (the "Class A Common Stock"), was
beneficially owned by Vivendi (formerly Compagnie Generale des Eaux), a French
company and the Company's largest stockholder ("Vivendi"). The Company also
has certain financial and other relationships with Vivendi North America
Company, (formerly Anjou International Company), an indirect wholly-owned
subsidiary of Vivendi and a Delaware corporation ("VNA"). Pursuant to a March
1994 Investment Agreement among the Company, Vivendi and VNA, as amended as of
September 24, 1997, by the Recapitalization Agreement discussed in Note 4,
Vivendi received the right to designate a number of members of the Company's
Board of Directors proportionate to the voting power represented by Vivendi's
ownership interest, to designate the Chairman of the Company's Board of
Directors and to appoint the Company's Chief Executive Officer and Chief
Financial Officer. Vivendi has agreed that, so long as Vivendi and its
affiliates are the largest stockholder of the Company, the Company shall be
Vivendi's exclusive vehicle in the United States, its possessions and its
territories for Vivendi's water management and wastewater management provided
that the foregoing shall not apply to any acquisition or investment by Vivendi
(or any of its affiliates) of a privately-owned, publicly-traded or publicly-
owned company in the water utility sector whose primary business is the
production, distribution and/or sale of potable, fire, bulk, draining or
irrigation water, nor to Vivendi's present or future investment in
Philadelphia Suburban Corporation; provided further, that the foregoing shall
have no application to Kruger, Inc., a distributor of water treatment plant
parts and components and an indirect subsidiary of Omnium Traitement et de
Valorisation, a wholly-owned subsidiary of Vivendi.
IV-33
<PAGE>
AQUA ALLIANCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Vivendi and VNA have the right, pursuant to the Investment Agreement, to
require the Company to register the shares of Class A Common Stock owned by
Vivendi and its affiliates for sale to the public, with certain exceptions.
However, Vivendi and VNA have not exercised this right.
As of December 31, 1998, the shares of the Company's Class A Common Stock,
which have been owned directly and indirectly by Vivendi (83% of the
outstanding shares of such stock at that date), were transferred to Vivendi's
wholly-owned subsidiary, Vivendi North American Operations, Inc. ("VNAO").
In addition to its direct ownership interest, the Company has benefitted
from certain financial undertakings by Vivendi, including a $125 million term
loan from Vivendi (see Note 8) and a $60 million credit facility with VNA (see
Note 7), both of which were repaid in March 1998 with a portion of the gross
proceeds from the Rights Offering discussed in Note 4. The Company compensates
Vivendi for its support of the Company's credit facilities (see Note 7), in an
amount equal to 0.95% per annum of the outstanding commitment of its credit
facilities, and for other services , including $2.0 million for financial
advisor and legal fees and expenses related to the Recapitalization. (Total
fees to Vivendi and its subsidiaries were approximately $6.0 million, $2.3
million and $2.1 million for the three years ended October 31, 1998, 1997 and
1996, respectively). At October 31, 1998 and 1997, the Company had accounts
payable and accrued expenses to Vivendi and its subsidiaries of approximately
$8,338,000 and $3,483,000, respectively. In addition, the Company has agreed
to function as the agent of Vivendi's water subsidiary for operations under
the amended and restated contract with the Puerto Rico Aqueduct and Sewer
Authority ("PRASA") (see Note 12); Vivendi had previously guaranteed
performance of PSG's original contract with PRASA. VNA also has partially
indemnified certain obligations of the Company relating to the bonding of
certain contracts (see Note 15).
(4) RECAPITALIZATION
Exchange
On January 28, 1998, pursuant to the terms of the Recapitalization
Agreement, dated as of September 24, 1997 (as amended, the "Recapitalization
Agreement"), among the Company, Vivendi, and VNA, the Company exchanged (the
"Exchange") the outstanding 1,200,000 shares of its 5 1/2% Series A
Convertible Exchangeable Preferred Stock, par value $.01 per share (the
"Series A Preferred Stock"), held by Vivendi and its subsidiaries
(representing all of the issued and outstanding shares of Series A Preferred
Stock) for 34,285,714 shares of the Company's Class A Common Stock, par value
$.001 per share (the "Class A Common Stock"). Immediately following the
Exchange, Vivendi beneficially owned in the aggregate approximately 72.2% of
the outstanding Class A Common Stock and voting control of the Company.
The Company did not declare the September 30, 1997, and December 31, 1997,
quarterly dividends aggregating $1,650,000 on the Series A Preferred Stock,
all of which was held by Vivendi, due to its concerns over liquidity and the
adequacy of its surplus. The dividends in arrears on the Series A Preferred
Stock were not paid and were extinguished pursuant to the Exchange.
Rights Offering
On January 26, 1998, the Board of Directors of the Company declared a
dividend (the "Rights Offering") to holders of record of its Class A Common
Stock as of the close of business on January 29, 1998, of 120,000,000
transferable subscription rights (the "Rights") which allowed Rights holders
to subscribe for and purchase shares of its common stock and also allowed
subscribers (other than Vivendi and VNA) in the Rights Offering to receive
transferable three-year warrants (the "Warrants") to purchase shares of Class
A Common Stock at an exercise price of $2.50 per share, subject to customary
antidilution adjustments.
IV-34
<PAGE>
AQUA ALLIANCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Rights Offering expired on March 4, 1998. In the Rights Offering,
98,160,427 Rights were exercised to purchase 99,840,089 shares of Class A
Common Stock, of which 1,679,662 shares were purchased pursuant to an
oversubscription privilege. In accordance with the terms of the
Recapitalization Agreement, Vivendi and VNA each exercised its basic
subscription privilege in full for an aggregate basic subscription of
86,682,816 shares of Class A Common Stock, and Vivendi subscribed for and
purchased 19,031,470 additional shares of Class A Common Stock available as a
result of unexercised Rights in the Rights Offering, for a total aggregate
subscription of $185 million.
In addition, 3,949,099 Warrants to acquire in the aggregate 3,949,099 shares
of Class A Common Stock were issued to subscribers (other than Vivendi and
VNA) in the Rights Offering. In accordance with the terms of the Rights
Offering, neither Vivendi nor VNA received any Warrants. On March 12, 1998,
the Company was notified that the Warrants had been approved for listing on
the American Stock Exchange, Inc. (the "AMEX"). The Warrants currently trade
on the AMEX under the symbol "AAI.WS."
The Company received gross proceeds of approximately $208 million from the
Rights Offering, including approximately $23 million of publicly raised
proceeds. The Company used a portion of the gross proceeds from the Rights
Offering to repay a $125 million unsecured term loan from Vivendi and
borrowings under a $60 million credit facility with VNA. The remaining $23
million of proceeds, representing all of the publicly-raised proceeds, were
retained for general corporate purposes, including a reduction in borrowings
under the Bank Credit Facility (as defined hereinafter) and payment of fees
related to the Recapitalization of approximately $5.8 million.
Following the Rights Offering, Vivendi beneficially owns an aggregate of
153,609,975 shares of Class A Common Stock, representing approximately 83.0%
of the issued and outstanding Class A Common Stock.
Consent Solicitation
Concurrently with the Rights Offering, pursuant to the terms of the
Recapitalization Agreement, the Company solicited the consent (the "Consent
Solicitation") of the holders of at least a majority in principal amount (the
"Requisite Consents") of the Company's 8% Convertible Subordinated Debentures
due 2015 (the "Convertible Debentures") to amend a certain provision of the
indenture (the "Indenture") governing the Convertible Debentures permitting
the holders to require the Company to repurchase the Convertible Debentures if
any person acquires beneficial ownership of 75% or more of the voting control
of the Company (the "Change of Control Provision").
On February 23, 1998, the Consent Solicitation expired. In the Consent
Solicitation, the Company received the consent of $105,937,000 aggregate
principal amount of the outstanding Convertible Debentures, representing
approximately 92.1% of the outstanding principal amount of the Convertible
Debentures, to amend the Change of Control Provision. On February 23, 1998,
the Company and The Chase Manhattan Bank as Trustee, executed a Supplemental
Indenture (the "Supplemental Indenture"), which amended the Indenture to
exempt acquisitions by Vivendi or any of its Affiliates (as defined therein)
of voting power equal to or greater than 75% from the application of the
Change of Control Provision. Following the execution of the Supplemental
Indenture and pursuant to the terms of the Consent Solicitation, the Company
made an aggregate payment of approximately $0.5 million to holders of
Convertible Debentures who provided their consents.
Charter Amendment
In connection with the Rights Offering, on January 26, 1998, the Board of
Directors of the Company adopted a resolution setting forth proposed
amendments to the Restated Certificate of Incorporation of the Company (the
"Charter Amendment"). On February 6, 1998, Vivendi and VNA, beneficial owners
as of such date of an aggregate of approximately 72.2% of the outstanding
Class A Common Stock and voting power of
IV-35
<PAGE>
AQUA ALLIANCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the Company, provided their written consent to the Charter Amendment. The
consent of Vivendi and VNA was sufficient to adopt the Charter Amendment
without any further vote of the Company's stockholders. On March 2, 1998, the
Company filed a certificate of amendment to its Restated Certificate of
Incorporation with the Secretary of State of the State of Delaware which
increased the number of shares of Class A Common Stock that the Company is
authorized to issue from 95,000,000 shares to 255,000,000 shares. The Charter
Amendment became effective upon such filing.
Prior to the filing of the Charter Amendment, the Company had authorized for
issuance 100,000,000 shares of common stock, par value $.001 per share, of
which 95,000,000 shares were shares of Class A Common Stock and 5,000,000
shares were shares of its Class B Common Stock, par value $.001 per share (the
"Class B Common Stock"). The terms of the Class B Common Stock and the Class A
Common Stock are identical in all respects except that the Class B Common
Stock is not entitled to vote. Following the filing of the Charter Amendment,
the Company is authorized to issue 260,000,000 shares of common stock, par
value $.001 per share, of which 255,000,000 shares are shares of Class A
Common Stock and 5,000,000 shares are shares of Class B Common Stock. The
Company's Bank Credit Facility currently prohibits dividend payments. (See
Note 7.)
(5) RESEARCH-COTTRELL
On December 2, 1997, as part of the implementation of its revised business
strategy, the Company announced that it would divest its Research-Cottrell
business segment which provides air pollution control technologies and
services.
On June 6, 1998, the Company entered into an agreement with Hamon & Cie
("Hamon"), pursuant to which Hamon acquired substantially all assets
(excluding certain contracts) and assumed substantially all liabilities
(excluding certain contracts, employee benefits and insurance liabilities)
related to the air pollution control operations of Research-Cottrell, Thermal
Transfer Corporation and Custodis-Cottrell, including the stock of certain
related European subsidiaries. The transaction closed on July 23, 1998, and
the Company received $6.8 million. The final purchase price is expected to be
$7.5 million after a $2.3 million payment to Hamon in August 1998 for the cash
flows generated by the businesses during the closing period and including a
$3.0 million deferred payment by Hamon due in July 2000. The $3.0 million
deferred payment is subject to adjustment pursuant to possible indemnification
in favor of Hamon under the agreement. Management does not expect any
adjustment to the deferred payment at this time.
During October 1998, the Company finalized the sale of two additional units
of the air pollution control business (Flex-Kleen & KVB) in two separate
transactions. The sale of these businesses which included the sale of
substantially all of the assets of Flex-Kleen and the common stock of KVB was
accomplished for a total value approximating $14.4 million, after taking into
consideration certain post-closing price adjustments. In connection with the
sale of KVB, the Company accepted $435,000 of notes payable due in
installments through the year 2001.
During 1998, the Company revised its estimated loss on disposal and recorded
an additional $6.0 million charge. Although management believes that current
provisions for the liquidation of Research-Cottrell are adequate, the
estimated loss on disposal and losses through disposition may change in the
near-term based on the final settlements relating to the sale of the Research-
Cottrell operations, actual results through disposition and final resolution
of any retained liabilities.
IV-36
<PAGE>
AQUA ALLIANCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Summarized balance sheet data of Research-Cottrell, as of October 31, 1998,
and October 31, 1997, is as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
------ -------
<S> <C> <C>
Current assets............................................... $4,431 $44,441
Current liabilities.......................................... 3,513 45,617
------ -------
Net current assets (liabilities)............................. 918 (1,176)
------ -------
Goodwill..................................................... 2,000 20,383
Property, plant and equipment and other...................... 409 4,069
------ -------
Net non-current assets....................................... 2,409 24,452
------ -------
Net carrying value........................................... $3,327 $23,276
====== =======
</TABLE>
The current assets consist primarily of accounts receivable, costs and
estimated earnings in excess of billings on uncompleted contracts and
inventories. The current liabilities consist primarily of accounts payable,
accrued expenses and billings in excess of costs and estimated earnings on
uncompleted contracts. In addition to the above amounts are estimated retained
liabilities of $20,011,000 related to the estimated losses through
disposition, certain warranty, litigation, lease and other obligations which
are included in accrued expenses at October 31, 1998.
Summarized operations data of Research-Cottrell, for the years ended October
31, 1998, 1997, and 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------- --------- --------
<S> <C> <C> <C>
Sales........................................ $95,674 $ 173,140 $219,008
Costs and expenses........................... 95,974 211,400 206,910
Depreciation and amortization................ 987 5,101 6,032
------- --------- --------
Operating income (loss)...................... (1,287) (43,361) 6,066
Non-operating income (expense)............... 1,287 (854) 550
------- --------- --------
Income (loss) before taxes and loss on
disposal.................................... -- (44,215) 6,616
Income taxes................................. -- (639) (828)
------- --------- --------
Income (loss) on operations.................. -- (44,854) 5,788
Loss on disposal............................. (6,000) (63,900) --
------- --------- --------
Income (loss) from discontinued operations... $(6,000) $(108,754) $ 5,788
======= ========= ========
</TABLE>
Also included in the Company's consolidated balance sheets are the net
assets of the discontinued asbestos abatement operations which amounted to
$830,000 and $585,000 at October 31, 1998 and 1997, respectively.
(6) INVESTMENTS IN ENVIRONMENTAL TREATMENT FACILITIES
In prior years 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 transfer 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
IV-37
<PAGE>
AQUA ALLIANCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the parties, and the revenues referred to above are legally assigned to
payment of debt service), neither the facilities nor the associated
nonrecourse debt (approximately $27,135,000 and $28,575,000 at October 31,
1998 and 1997, respectively) is 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, 1998 and 1997, respectively (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Future minimum lease payments.......................... $ 33,905 $ 35,804
Expected residual value (unguaranteed)................. 9,354 9,354
Unearned income........................................ (4,094) (4,607)
-------- --------
Net investment in leases............................... 39,165 40,551
Offset--nonrecourse debt, net of available funds in
hands of trustee...................................... (22,176) (23,933)
-------- --------
Net investment in leases............................... 16,989 16,618
Facility enhancements, net of depreciation............. 4,662 5,199
-------- --------
Investments in environmental treatment facilities...... $ 21,651 $ 21,817
======== ========
</TABLE>
The expected residual value is considered a significant estimate which is
subject to change.
At October 31, 1998, minimum lease payments to be received, net of executory
costs for each of the five succeeding fiscal years, are $2,087,000,
$2,199,000, $2,325,000, $2,455,000 and $2,590,000.
(7) FINANCING ARRANGEMENTS:
Since 1996, the Company has maintained a $60.0 million seven-year revolving
credit facility with VNA which was to mature on August 2, 2003. As of October
31, 1997, the Company's borrowings under the facility totaled $60.0 million.
These borrowings were repaid in full on March 4, 1998 with a portion of the
gross proceeds from the Rights Offering previously discussed, and the facility
was terminated. Interest on the facility was charged at LIBOR plus 0.6%.
Interest expense related to this facility was $1,293,000, $3,686,000 and
$714,000 for the years ended October 31, 1998, 1997 and 1996, respectively.
The Company also maintains a senior secured bank credit facility (the "Bank
Credit Facility"), dated as of March 10, 1995, with Societe Generale, New York
Branch ("Societe Generale"). As of October 31, 1998, the Company had no
borrowings under the Bank Credit Facility and outstanding letters of credit
under the Bank Credit Facility totaled $19.0 million (unused capacity of $51.0
million subsequently reduced to $31.0 million). The Bank Credit Facility was
decreased, at the Company's request, from $70.0 million to $50.0 million as of
December 12, 1998.
As of December 12, 1997, the configuration and structure of the Bank Credit
Facility was revised. Societe Generale purchased and assumed from all of the
other lending banks under the Bank Credit Facility all of such banks' rights
and obligations under the Bank Credit Facility, becoming the sole lending bank
thereunder. In addition, the Company and Societe Generale, entered into an
amendment to extend the Bank Credit Facility until December 11, 1998. The
amendment waived the Company's compliance with certain covenants and amended
others. As of December 12, 1998, the Company entered into an agreement with
Societe Generale for a short-term extension of the facility and continued the
waiver of the Company's compliance with certain covenants of the Bank Credit
Facility until a longer-term extension was developed. As of January 12, 1999,
Societe Generale
IV-38
<PAGE>
AQUA ALLIANCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
advised the Company of the extension of the existing Bank Credit Facility,
subject to execution of legal documentation, to December 11, 1999. It is
expected that there will be no significant changes in the terms and conditions
contained in the Bank Credit Facility extension and that the waivers and
amendments previously provided to the Company with regard to certain financial
covenants would be continued. It is management's intent to renegotiate the
terms of the existing facility prior to its maturity in order to replace it
with a longer-term facility.
The Bank Credit Facility is primarily designed to finance working capital
requirements, subject to certain limitations, and provide for the issuance of
letters of credit, and is secured by a first security interest in
substantially all of the assets of the Company. Of the total commitment,
borrowings are limited to the lesser of $50 million or 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 plus 1.25% or at a defined bank rate approximating prime
(8.0% at October 31, 1998). 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 Vivendi to maintain its support of the Company, including a
minimum 48% voting equity ownership interest in the Company and its right to
designate at least 48% of the Company's Board of Directors, as well as to
appoint the Chief Executive Officer and the Chief Financial Officer of the
Company. The Company compensates Vivendi for its support in an amount equal to
0.95% per annum of the outstanding commitment of its credit facilities ($0.9
million and $1.2 million for the years ended October 31, 1998 and 1997,
respectively).
The gross amount of proceeds from and repayments of working capital
borrowings under these credit facilities consists of the following (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------- -----
<S> <C> <C> <C>
Borrowings......................................... $ 12,800 $ 1,171 $ 729
Repayment.......................................... (75,800) (1,169) (711)
-------- ------- -----
Net................................................ $(63,000) $ 2 $ 18
======== ======= =====
</TABLE>
IV-39
<PAGE>
AQUA ALLIANCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(8) LONG-TERM DEBT
The Company's long-term debt consists of the following at October 31, 1998
and 1997, respectively (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Term loan from Vivendi.................................. $ -- $125,000
Convertible Subordinated Debentures due May 15, 2015.... 115,000 115,000
VNA credit facility (Note 7)............................ -- 60,000
Bank Credit Facility (Note 7)........................... -- 3,000
Note due July 1, 2007 at 8.5%........................... 2,995 3,095
Real estate mortgage loans at 8.75%..................... 1,853 2,148
-------- --------
119,848 308,243
Less current installments of long-term debt............. (443) (398)
-------- --------
Long-term debt.......................................... $119,405 $307,845
======== ========
</TABLE>
As of October 31, 1997, the Company had outstanding a $125 million term loan
from Vivendi as an unsecured facility bearing interest at a rate based upon
one, two, three or six-month LIBOR, as selected by the Company, plus 1.25%,
which had a final maturity of June 15, 2001. The term loan contained 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
$3,059,000, $8,715,000, and $8,884,000 during the years ended October 31,
1998, 1997 and 1996, respectively. The Company repaid this loan in full on
March 4, 1998, with a portion of the gross proceeds from the Rights Offering
previously discussed and concurrently terminated the facility.
Interest on the Convertible Debentures is payable semi-annually at 8.0%. The
Convertible Debentures are redeemable in whole or in part at the option of the
Company at any time, at a redemption price of 101.60% of the principal amount
as of October 31, 1998, reducing to 100% of the principal amount on May 15,
2000, together with accrued interest to the redemption date. The Convertible
Debentures require equal annual sinking fund payments beginning May 15, 2000,
which are calculated to retire 75% of the Convertible Debentures prior to
maturity. The Convertible Debentures are convertible into shares of Class A
Common Stock at a conversion price of $30.00 per share subject to adjustments
as defined. (See Note 4.)
At October 31, 1998, the aggregate maturities of long-term debt for each of
the five succeeding fiscal years and thereafter are approximately $0.4
million, $6.2 million, $6.3 million, $6.3 million, $6.3 million, and $94.3
million.
(9) 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
and Stock Option Committee of the Board of Directors determines the purchase
price of shares issuable under the Stock Purchase Plan. At each of October 31,
1998, 1997 and 1996, 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
IV-40
<PAGE>
AQUA ALLIANCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock of the Company plus shares remaining available for award under the prior
plan established in 1989. In addition, during 1996 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>
1998 1997 1996
---------- ---------- -----------
<S> <C> <C> <C>
Outstanding
Beginning of year........................ 1,207,334 1,711,331 1,985,120
Granted.................................. 1,651,500 60,000 999,177
Exercised................................ -- -- (1,250)
Forfeited................................ (432,982) (563,997) (1,271,716)
---------- ---------- -----------
Outstanding
End of year.............................. 2,425,852 1,207,334 1,711,331
========== ========== ===========
At October 31
Exercisable.............................. 919,479 934,910 887,952
Available for grant...................... 1,324,643 2,543,161 2,039,164
Outstanding Option price per share:
Weighted average......................... $ 4.30 $ 7.91 $ 8.16
Range.................................... $ 2.00 $ 4.31 $ 4.25
to to to
$ 28.57 $ 28.57 $ 28.57
Exercised Option price per share:.......... $ -- $ -- $ 6.00
</TABLE>
As permitted under generally accepted accounting principles, grants under
the Plan are accounted for following APB Opinion No. 25 and related
interpretations, and accordingly no compensation cost has been recognized in
the financial statements. Had compensation cost for the Plan been determined
based on the grant date fair values of award (the method described in FASB
statement No. 123), the reported net loss would have been increased to
$50,503,000, $161,671,000 and $6,427,000 in the years ended October 31, 1998,
1997, and 1996, respectively and the loss per common share after preferred
stock dividend would have been unchanged for the year ended October 31, 1998
and would have been increased to $5.15, and $0.30 in the years ended October,
1997, and 1996, respectively. In determining the pro forma amounts referred to
above, the fair value of each grant is estimated at the grant date using the
Black-Scholes option pricing model with the following weighted average
assumptions for grants: zero dividend rate for 1998, 1997 and 1996, price
volatility of 60% for 1998 and 44% for both 1997 and 1996, expected lives of
seven years for 1998 and eight years for 1997 and 1996, and risk free interest
rates of 5.8%, 6.0%, and 6.3% in 1998, 1997, and 1996, respectively.
(10) 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 employee's contribution up to a maximum of
4% of such employee's 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. The expense charged to continuing operations applicable to these
plans was approximately $2,900,000, $1,700,000 and $2,200,000 for the years
ended October 31, 1998, 1997 and 1996, respectively.
IV-41
<PAGE>
AQUA ALLIANCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 $1,600,000, $1,500,000 and $1,300,000 for the
years ended October 31, 1998, 1997 and 1996, respectively. The accrued pension
liabilities were approximately $3,700,000, $2,800,000 and $2,800,000 at
October 31, 1998, 1997 and 1996, respectively.
(11) INVESTMENTS IN JOINT VENTURES
The Company, in the normal conduct of its subsidiaries' businesses, has
entered into certain partnership arrangements, referred to as "joint
ventures." The joint ventures operate primarily in the water and wastewater
engineering industry. The joint venture activities typically include
engineering, design and/or construction management services. Certain joint
ventures are also involved in program management of construction activities. A
separate joint venture is established with respect to each such project. The
joint venture arrangements generally commit each partner to supply a
predetermined proportion of the engineering labor and capital, and provide
each partner a predetermined proportion of income or loss. The Company is
jointly and severally liable for the obligations of the joint ventures and has
rights to the assets in proportion to its share of ownership. Each joint
venture is terminated upon the completion of the underlying project.
The Company's investment in joint ventures (included in other assets)
amounted to $489,000 and $2,775,000 at October 31, 1998 and 1997,
respectively. In addition, the Company had receivables from the joint ventures
totaling $2,221,000 and $2,581,000 at October 31, 1998 and 1997, respectively,
related to current services provided by the Company to the joint ventures. The
Company's share of its joint venture income (loss) amounted to $(4,883,000),
$(25,000) and $1,127,000 during the years ended October 31, 1998, 1997 and
1996, respectively.
(12) PUERTO RICO
In September 1995 PSG's wholly-owned subsidiary PS Group of Puerto Rico
(PSG), Inc. ("PSG Puerto Rico") commenced operations under a five year
agreement with the Puerto Rico Water and Sewer Authority ("PRASA"), a public
corporation of the Commonwealth of Puerto Rico, providing for the operation,
management, repair and maintenance of Puerto Rico's water and sewage treatment
system. The PRASA system serves the 3.8 million residents of Puerto Rico.
Pursuant to the terms of the contract, PSG Puerto Rico manages 69 wastewater
plants, 128 water treatment plants and related collection and distribution
systems and pumping stations in Puerto Rico. During the term of this contract
PRASA and the Company have disputed certain costs paid or incurred by the
Company on behalf of PRASA and the payment of certain related power costs due
to the Puerto Rico Electric Power Authority ("PREPA") by the Company. As a
result, at October 31, 1997 the Company had $34.3 million of these
unreimbursed costs outstanding and amounts payable to PREPA totaling $33.2
million. In June 1998, the Company entered into an agreement which addressed
the issues relating to unreimbursed costs, settled any disputed items through
February 1998 and developed procedures to minimize the potential build-up of
these costs in the future. Concurrently, the Company collected $9.6 million in
settlement of prior claims and costs in question and used these proceeds to
reduce its obligations to PREPA. On September 15, 1998, the Company and a
Vivendi subsidiary executed a replacement contract, which amended and restated
the original contract, with PRASA for a term of approximately three years
beginning September 15, 1998. The Company has agreed to function as the agent
of Vivendi's water subsidiary for operations under the new contract through a
Puerto Rico subsidiary of the Company. In addition, among the other terms of
the contract, the Company, Vivendi and PRASA agreed to an increase in the
scope and fee structure of the original contract. PRASA has an option to
terminate the contract after two years with ninety-days written notice.
Management expects that the contract with PRASA will not be prematurely
cancelled by PRASA but will remain in effect
IV-42
<PAGE>
AQUA ALLIANCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
through its extended term, August 31, 2001. As of October 31, 1998, the
Company's contract with PRASA accounted for 39% and 24% of PSG and total
Company sales respectively and approximately 41% of the Company's total
reimbursable costs. Revenues under the new contract are expected to reach
approximately $125 million per year. As of October 31,1998, PSG had
receivables of $45.7 million due from PRASA, including amounts for certain
reimbursable costs, which are expected to be collected in fiscal 1999, and had
amounts payable to PREPA totaling $35.3 million.
Additionally, the PRASA employees who operate the PRASA facilities are
subject to a collective bargaining agreement which expired in June 1998. The
Company is currently negotiating a new collective bargaining agreement.
(13) BUSINESS SEGMENTS
Through October 31, 1998, the Company's operations may be categorized in
three business segments:
Professional Services Group provides complete services for the operation,
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 PRASA representing 39% of total segment sales in each of the years 1998,
1997 and 1996. In addition, total receivables due from PRASA for certain
reimbursable costs were $45.7 million and $34.3 million at October 31, 1998
and 1997, respectively. (See Note 12).
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 73% of M&E's sales for the year ended
October 31, 1998, compared to 80% for both years ended October 31, 1997, and
1996.
Research-Cottrell provides air pollution control technologies and services.
As discussed in Note 5, the Company's Board of Directors has decided to divest
this segment.
Sales to the federal government represented approximately 10%, 10%, and 15%
of consolidated sales in the years ended October 31, 1998, 1997, and 1996,
respectively. 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, 1998, 1997, and 1996 were less than 10% of the consolidated assets
and sales.
IV-43
<PAGE>
AQUA ALLIANCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Information by business segment is as follows (in thousands):
<TABLE>
<CAPTION>
Metcalf Research- Unallocated
PSG & Eddy Cottrell Other Corporate Eliminations Consolidated
-------- -------- --------- ----- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
For the year ended
October 31, 1998:
Sales.................. $271,512 $176,007 $ -- $-- $ -- $(2,400) $445,119
Costs and expenses..... 257,845 188,330 -- -- 4,341 (2,400) 448,116
Depreciation and
amortization.......... 5,439 7,156 -- -- 515 -- 13,110
-------- -------- -------- ---- -------- ------- --------
Operating income
(loss)................. $ 8,228 $(19,479) $ -- $-- $ (4,856) $ -- $(16,107)
======== ======== ======== ==== ======== ======= ========
Identifiable assets as
of October 31, 1998.... $166,491 $148,555 $ 3,810 $-- $ 40,496 $ -- $359,352
======== ======== ======== ==== ======== ======= ========
Capital expenditures.... $ 1,247 $ 2,818 $ -- $-- $ 17 $ -- $ 4,082
======== ======== ======== ==== ======== ======= ========
Depreciation............ $ 2,467 $ 3,767 $ -- $-- $ 379 $ -- $ 6,613
======== ======== ======== ==== ======== ======= ========
For the year ended
October 31, 1997:
Sales.................. $271,650 $186,490 $ -- $-- $ -- $(1,765) $456,375
Costs and expenses..... 261,707 192,936 -- -- 13,450 (1,765) 466,328
Depreciation and
amortization.......... 8,119 8,227 -- -- 515 -- 16,861
-------- -------- -------- ---- -------- ------- --------
Operating income
(loss)................. $ 1,824 $(14,673) $ -- $-- $(13,965) $ -- $(26,814)
======== ======== ======== ==== ======== ======= ========
Identifiable assets as
of October 31, 1997.... $173,041 $165,794 $ 24,452 $ 88 $ 19,690 $ -- $383,065
======== ======== ======== ==== ======== ======= ========
Capital expenditures.... $ 2,448 $ 2,479 $ -- $-- $ 22 $ -- $ 4,949
======== ======== ======== ==== ======== ======= ========
Depreciation............ $ 1,676 $ 4,785 $ -- $-- $ 378 $ -- $ 6,839
======== ======== ======== ==== ======== ======= ========
For the year ended
October 31, 1996:
Sales.................. $270,640 $215,358 $ -- $-- $ -- $(3,907) $482,091
Costs and expenses..... 255,882 195,745 -- -- 8,720 (3,907) 456,440
Depreciation and
amortization.......... 7,335 6,223 -- -- 425 -- 13,983
-------- -------- -------- ---- -------- ------- --------
Operating income
(loss)................. $ 7,423 $ 13,390 $ -- $-- $ (9,145) $ -- $ 11,668
======== ======== ======== ==== ======== ======= ========
Identifiable assets as
of October 31, 1996.... $157,566 $188,403 $124,465 $154 $ 25,770 $ -- $496,358
======== ======== ======== ==== ======== ======= ========
Capital expenditures.... $ 2,520 $ 3,604 $ -- $-- $ 152 $ -- $ 6,276
======== ======== ======== ==== ======== ======= ========
Depreciation............ $ 1,703 $ 3,083 $ -- $-- $ 406 $ -- $ 5,192
======== ======== ======== ==== ======== ======= ========
</TABLE>
IV-44
<PAGE>
AQUA ALLIANCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(14) INCOME TAXES
At October 31, 1998, the Company had a net deferred tax asset of
$155,600,000 which has been fully reserved by a valuation allowance. The
deferred tax asset is comprised of the tax effects of net operating losses of
$135,660,000, receivable reserves of $3,420,000 accruals not yet deductible of
$18,724,000, and other assets of $1,064,000. A deferred tax liability is
comprised of fixed assets depreciation of $2,508,000 and inventory reserves of
$760,000. At October 31, 1998, the Company had tax loss carryforwards of
approximately $357,000,000. Such carryforwards expire through 2018.
Loss from continuing operations before income taxes during the years ended
October 31, 1998, 1997 and 1996, respectively, from the United States was
$(31,436,000), $(51,131,000) and $(9,041,000) and from foreign jurisdictions
was $(334,000), $(182,000) and $(3,261,000). The provision (benefit) for
income taxes during the years ended October 31, 1998, 1997, and 1996,
respectively, included foreign taxes of $310,000, $185,000 and $(1,071,000)
and state taxes of $789,000, $329,000 and $(175,000). The difference between
the income tax provision (benefit) computed by applying the statutory U.S.
federal income tax rate to the pretax loss from continuing operations and the
actual tax provision (benefit) is as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Statutory U.S. federal benefit................. $(11,120) $(17,960) $(4,306)
State and local taxes net...................... 513 214 (114)
Goodwill and other............................. 4,774 2,709 2,634
Net operating loss............................. 6,505 15,302 470
Foreign operations............................. 427 249 70
-------- -------- -------
$ 1,099 $ 514 $(1,246)
======== ======== =======
</TABLE>
(15) COMMITMENTS AND CONTINGENCIES
DOJ Investigation
In connection with a broad investigation by the U.S. Department of Justice
(the "DOJ") 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 who 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 (the "DOJ
Investigation"). PSG has cooperated and continues to cooperate with the DOJ
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 then Chief Executive Officer
on administrative leave of absence with pay. The PSG Chief Executive Officer,
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
DOJ 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.
IV-45
<PAGE>
AQUA ALLIANCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Bremerton Litigation
The City of Bremerton, Washington brought a contribution and contract action
against Metcalf & Eddy Services, Inc. ("M&E Services"), the operator of a
City-owned wastewater treatment plant from 1987 until late 1995. The action
arises from two prior lawsuits against the City for alleged odor nuisances
brought by two groups of homeowners neighboring the plant. In the first
homeowners' suit, the City paid $4.3 million in cash and approximately $5
million for odor control technology to settle the case. M&E Services
understands the odor control measures generally have been successful and the
odors have been reduced as a result. M&E Services was not a party to the first
homeowners' suit, which has been dismissed with prejudice as to all parties.
In the settlement of the second homeowners' case, the City of Bremerton paid
the homeowners $2.9 million, and M&E Services contributed $0.6 million to the
settlement without admitting liability. All claims raised by the homeowners in
the second suit have been resolved. All claims by and between M&E Services and
the City in the second homeowners' suit were expressly reserved.
At trial, which commenced on March 2, 1998, the City sought to recover the
amounts it expended on the two settlements, damages for M&E Services' alleged
substandard operation of the plant, and attorney's fees. The damages claimed
exceeded $14 million. On April 22, 1998, the jury returned a verdict against
M&E Services and in favor of the City in the net amount of approximately $0.6
million. After considering various motions by the City challenging the verdict
and its amount, on June 26, 1998, the trial court entered final judgement
against M&E Services and in favor of the City in the net amount of
approximately $0.75 million. Both sides have appealed. The appellate court
could increase or decrease the judgement by $2.0 million or more or remand the
case for a new trail. No assurances can be given that, as a result of further
court proceedings, an adverse judgement would not have a material adverse
effect on the financial position or results of the Company.
Belgium Litigation
On October 14, 1997, Research-Cottrell, Inc. (now known as AWT Air Company,
Inc.) and its subsidiary, Research-Cottrell Belgium, S.A. (now known as AWT
Air Company (Belgium) S.A.) ("AWT Belgium") were named in a lawsuit by N.V.
Seghers Engineering ("Seghers") filed in the Commercial Court in Mechelen,
Belgium. Seghers is AWT Belgium's joint venture partner on two large pollution
control projects. The suit claims damages of approximately $13 million
allegedly resulting from AWT Belgium's breach of contract and substandard
performance. Damages claimed in the lawsuit consist not only of Seghers'
alleged cost to repair the AWT Belgium equipment, but also lost profits,
damages to business reputation, theft of employees (AWT Belgium hired two
former Seghers employees), increased costs arising out of the failure to gain
timely acceptance of the two plants, excessive payments to AWT Belgium due to
alleged unfair pricing practices by AWT Belgium and other miscellaneous
interest charges and costs. Seghers has also filed a suit in Belgium against
AWT Belgium, Hamon Research-Cottrell (Belgium) S.A., the purchaser of AWT
Belgium's assets, and related entities, claiming that the sale of AWT Belgium
would operate as a fraud and deprive Seghers of its rightful recovery in the
litigation. The cases involve complex technical and legal issues and are in
their early stages. Nevertheless, the Company denies liability to Seghers and,
based upon the information currently available, believes Seghers' claimed
damages are grossly inflated. In addition, the Company believes it has
counterclaims based upon Seghers' breaches of contract.
U.S. Attorney's Office Investigation
The United States Attorney's Office (the "U.S. Attorney's Office") in
Boston, Massachusetts is conducting an investigation of certain entertainment
and travel payments allegedly made to Egyptian officials between 1994 and 1996
by the Company's subsidiary, Metcalf & Eddy International, Inc. (which was
merged into its parent, Metcalf & Eddy, Inc.), while Metcalf & Eddy
International, Inc. was performing services in Egypt pursuant to contracts
with the United Stages Agency for International Development. M&E has
cooperated and continues to
IV-46
<PAGE>
AQUA ALLIANCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
cooperate fully with the U.S. Attorney's Office. No charges of wrongdoing have
been brought against M&E or any M&E executive or employee by any grand jury or
other government authority. To date, the government has advised M&E that it
has made no decision as to how it will proceed.
Other Matters
The Company and its subsidiaries are parties to various other legal actions
and government audits 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 and audits, individually or in the aggregate, will
not have an adverse effect on the consolidated financial position or results
of operations of the Company taken as a whole. Moreover, as a general matter,
providers of services similar to those provided by the Company may be subject
to lawsuits alleging negligence or other similar claims and environmental
liabilities, which may involve claims for substantial damages. Damages
assessed in connection with and the costs of defending any such actions could
be substantial. The Company's management believes that the levels of insurance
coverage are adequate to cover currently estimated exposures. Although the
Company believes that it will be able to obtain adequate insurance coverage in
the future at acceptable costs, there can be no assurance that the Company
will be able to obtain such coverage or will be able to do so at an acceptable
cost or that the Company will not incur significant liabilities in excess of
policy limits.
The Company and its subsidiaries are obligated under various leases for
office and warehouse 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 November 1997, the Company exercised a cancellation clause for
one of its leased facilities which required an immediate cash payment of $0.4
million. Total rent expense in the periods ended October 31, 1998, 1997 and
1996 was $13.3 million, $16.9 million, and $17.1 million, respectively. At
October 31, 1998, minimum rental commitments under all noncancellable leases
for the five succeeding fiscal years, and thereafter, are $8.5 million, $7.9
million, $7.3 million, $6.4 million, $5.6 million and $6.3 million. These
minimum rental commitments are net of noncancellable sub-leases for the four
remaining fiscal years of $1.1 million, $1.1 million, $1.0 million and $0.3
million.
The Company currently maintains various types of insurance, including
workers' compensation, general and professional liability and property
coverages and believes that it presently maintains adequate insurance
coverages for all of its present operational activities. It has been both a
Company policy and a requirement of many of its clients that the Company
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, the Company
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 the Company's
exposures. Claims made policies provide coverage to the Company only for
claims reported during the policy period. The Company'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 the
Company 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 the Company's insurance coverage or for which there is no
coverage could have a material adverse effect on the Company.
In connection with the sale of a manufacturing facility in prior years, the
Company remains contingently liable as guarantor under $1.8 million of
Industrial Revenue Bond financing.
IV-47
<PAGE>
AQUA ALLIANCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company is often required to procure bid, performance and/or payment
bonds from surety companies, particularly for clients in the public sector. A
bid bond guarantees that the Company will enter an awarded contract at the
price bid; a performance bond guarantees performance of the contract by
Company; and a payment bond (which may or may not be issued in conjunction
with a performance bond) secures the Company's payment obligations to its
subcontractors and vendors under bonded contracts. The Company entered into an
Agreement of Indemnity (the "Indemnity Agreement"), dated as of September 15,
1998, with the CIGNA Companies ("CIGNA"). Under the Indemnity Agreement,
CIGNA, through any one or more of its companies, will provide bid, performance
and/or payment bonds in support of the Company's client contractual
requirements. The Indemnity Agreement requires no additional indemnity or
guarantee other than that provided by Company. The Company also maintains a
Master Surety Agreement (the "Master Agreement"), dated October 31, 1995, with
United States Fidelity and Guaranty Company and certain of its affiliates
(collectively "USF&G"). USF&G was recently acquired by the St. Paul Fire and
Marine Insurance Company. Pursuant to the Master Agreement, USF&G has provided
bid, performance and/or payment bonds in support of the Company's client
contractual requirements. VNA has partially indemnified USF&G under the Master
Agreement.
(16) QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1998 and 1997 is as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
1998 By Quarter
------------------------------------------------
First Second Third Fourth Year
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Sales..................... $110,274 $111,802 $105,708 $117,335 $445,119
-------- -------- -------- -------- --------
Gross margin.............. 14,413 13,958 16,190 10,821 55,382
-------- -------- -------- -------- --------
Loss from continuing
operations............... (10,761) (10,950) (6,730) (4,428) (32,869)
-------- -------- -------- -------- --------
Loss from discontinued
operations............... -- (6,000) -- -- (6,000)
-------- -------- -------- -------- --------
Cumulative effect on prior
years (to October 31,
1997) of change in method
of accounting for start-
up costs (Note 2)........ (11,082) -- -- -- (11,082)
-------- -------- -------- -------- --------
Net loss.................. $(21,843) $(16,950) $ (6,730) $ (4,428) $(49,951)
======== ======== ======== ======== ========
Loss per common share
after preferred stock
dividend:
Continuing operations... $ (.32) $ (.08) $ (.04) $ (.02) $ (.24)
-------- -------- -------- -------- --------
Discontinued
operations............. -- (.04) -- -- (.05)
Cumulative effect on prior
years (to October 31,
1997) of change in method
of accounting for start-
up costs (Note 2)........ (.34) -- -- -- (.08)
-------- -------- -------- -------- --------
Net loss.................. $ (.66) $ (.12) $ (.04) $ (.02) $ (.37)
======== ======== ======== ======== ========
</TABLE>
IV-48
<PAGE>
AQUA ALLIANCE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
1997 By Quarter
-------------------------------------------------
First Second Third Fourth Year
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Sales................... $106,637 $108,631 $110,828 $130,279 $ 456,375
-------- -------- -------- -------- ---------
Gross margin............ 17,170 7,522 21,371 24,739 70,802
-------- -------- -------- -------- ---------
Loss from continuing
operations............. (9,792) (33,304) (2,024) (6,707) (51,827)
-------- -------- -------- -------- ---------
Loss from discontinued
operations............. (2,738) (30,682) (2,766) (72,568) (108,754)
-------- -------- -------- -------- ---------
Net loss................ $(12,530) $(63,986) $ (4,790) $(79,275) $(160,581)
======== ======== ======== ======== =========
Income (loss) per common
share after preferred
stock dividend:
Continuing
operations........... $ (.33) $ (1.07) $ (.09) $ (.20) $ (1.72)
-------- -------- -------- -------- ---------
Discontinued
operations........... (.09) (.95) (.09) (2.27) (3.40)
-------- -------- -------- -------- ---------
Net loss................ $ (.42) $ (2.02) $ (.18) $ (2.47) $ (5.12)
======== ======== ======== ======== =========
</TABLE>
- --------
Note a: 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.
Note b: Significant charges affecting the comparability of the 1997 quarterly
loss from continuing operations include a $1.7 million first quarter
charge related to a cancellation penalty for a high cost leased
facility; operating charges of $26.6 million reflected in the second
quarter for professional fees related to marketing consultants and the
DOJ investigation, increases to reserves for litigation, professional
liability and certain project contingencies, increases to receivable
reserves, equipment write-offs and other direct and indirect costs; a
$3.2 million third quarter reduction in previously accrued
discretionary and self-insured employee benefits; a fourth quarter
$5.0 million asset impairment charge related to the Branchburg
facility and a $0.8 million severance benefit related to the former
chief executive officer.
Note c: Significant charges affecting the comparability of the 1997 quarterly
loss from discontinued operations include a $25.0 million impairment
charge primarily related to Ecodyne and KVB and operating charges of
$4.0 million related to increases to Ecodyne receivable and Custodis
warranty reserves both of which were reflected during the second
quarter; third quarter operating charges of $2.3 million primarily
related to higher than anticipated costs on a specific APCD project
and increases to receivable and warranty reserves for R-C
International partially off-set by a reduction of previously accrued
discretionary and self-insured employee benefits; fourth quarter
operating charges of $8.1 million related to additional increases to
warranty reserves at R-C International, additional costs related to an
APCD project and various other reserves for retained assets of
businesses previously sold as well as an estimated loss on the
disposal of the segment of $63.9 million.
Note d: Significant charges affecting the comparability of the 1998 fourth
quarter loss from continuing operations include $4.2 million and $9.1
million of additional contract reserves for PSG and M&E, respectively;
$4.6 million for potential claims and accounts receivable reserves;
and $1.3 million for the closure of the Houston office. Partially
offsetting these charges are the $3.0 million impairment recovery in
the carrying value of the Branchburg building; a $2.3 million
favorable settlement of a lawsuit related to discontinued operations;
a $6.5 million recovery of prior period claims and costs, as well as a
revised fee structure under the PRASA contract. Also, as a result of
the Recapitalization, interest expense decreased by $3.8 million in
the fourth quarter. The early adoption of SOP 98-5 resulted in a
decrease in amortization expense of approximately $0.9 million in the
fourth quarter. In the second quarter of 1998 the company recorded an
additional $6.0 million change related to discontinued operations as
more fully described in Note 5.
IV-49
<PAGE>
AIR & WATER TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEETS
As of April 30, 1998 and October 31, 1997
(In thousands, except share data)
<TABLE>
<CAPTION>
April 30, October 31,
1998 1997
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................ $ 22,185 $ 12,089
Accounts receivable, less allowance for doubtful
accounts............................................ 69,832 76,681
Costs and estimated earnings in excess of billings on
uncompleted contracts............................... 36,459 33,557
Inventories.......................................... 1,791 1,893
Prepaid expenses and other current assets............ 8,351 4,460
Net current assets of discontinued operations........ 4,032 --
--------- ---------
Total current assets............................... 142,650 128,680
Property, plant and equipment, net..................... 11,034 13,388
Investments in environmental treatment facilities...... 21,533 21,817
Goodwill, net.......................................... 161,766 164,337
Other assets........................................... 29,030 30,391
Net non-current assets of discontinued operations...... 18,145 24,452
--------- ---------
Total assets....................................... $ 384,158 $ 383,065
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current installments of long-term debt............... $ 411 $ 398
Accounts payable..................................... 97,645 80,007
Accrued expenses..................................... 83,133 86,681
Billings in excess of costs and estimated earnings on
uncompleted contracts............................... 14,719 15,320
Income taxes payable................................. 1,601 1,485
Net current liabilities of discontinued operations... -- 591
--------- ---------
Total current liabilities.......................... 197,509 184,482
--------- ---------
Long-term debt......................................... 119,686 307,845
--------- ---------
Commitments and contingencies (Note 6) -- --
Stockholders' equity (deficit):
Preferred stock, par value $.01, authorized 2,500,000
shares; issued none as of April 30, 1998; issued
1,200,000 shares, liquidation value $60,000, as of
October 31, 1997.................................... -- 12
Common stock, par value $.001, authorized 260,000,000
shares; issued 185,266,429 shares as of April
30,1998; issued 32,109,156 shares as of October 31,
1997................................................ 185 32
Additional paid-in capital........................... 631,603 427,036
Accumulated deficit.................................. (564,748) (535,214)
Common stock in treasury, at cost.................... (108) (108)
Cumulative currency translation adjustment........... 31 (1,020)
--------- ---------
Total stockholders' equity (deficit)............... 66,963 (109,262)
--------- ---------
Total Liabilities and stockholders' equity
(deficit)......................................... $ 384,158 $ 383,065
========= =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
V-1
<PAGE>
AIR & WATER TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Three and Six Month Periods
Ended April 30, 1998 and 1997
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended Six Months Ended
April 30 April 30
------------------ ------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales................................. $111,802 $108,631 $222,076 $215,268
Cost of sales......................... 98,750 101,109 195,523 190,576
-------- -------- -------- --------
Gross margin...................... 13,052 7,522 26,553 24,692
Selling, general and administrative
expenses............................. 16,880 29,467 31,132 46,589
Depreciation and amortization......... 3,886 5,428 7,882 9,314
-------- -------- -------- --------
Operating loss from continuing
operations....................... (7,714) (27,373) (12,461) (31,211)
Interest expense, net................. (3,708) (5,893) (9,730) (11,776)
Other income (expense), net........... (165) 55 (824) 2
-------- -------- -------- --------
Loss from continuing operations
before income taxes.............. (11,587) (33,211) (23,015) (42,985)
Income tax expense.................... (269) (93) (514) (111)
-------- -------- -------- --------
Loss from continuing operations... (11,856) (33,304) (23,529) (43,096)
Discontinued operations:
Loss from discontinued segment.... (6,000) (30,682) (6,000) (33,420)
-------- -------- -------- --------
Net loss.......................... (17,856) (63,986) (29,529) (76,516)
Preferred stock dividend.............. -- (825) -- (1,650)
-------- -------- -------- --------
Net loss applicable to common
stockholders..................... $(17,856) $(64,811) $(29,529) $(78,166)
======== ======== ======== ========
Basic and diluted loss per common
share (after preferred stock
dividend):
Continuing operations............. $ (.09) $ (1.07) $ (.27) $ (1.40)
Discontinued operations........... (.04) (.95) (.07) (1.04)
-------- -------- -------- --------
Net loss.......................... $ (.13) $ (2.02) $ (.34) $ (2.44)
======== ======== ======== ========
Weighted average number of shares
outstanding...................... 140,490 32,019 87,753 32,019
======== ======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
V-2
<PAGE>
AIR & WATER TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Month Periods Ended April 30, 1998 and 1997
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
April 30,
------------------
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(29,529) $(76,516)
Adjustments to reconcile net loss to net cash used for
continuing operations--Discontinued operations........... 6,000 33,420
Depreciation and amortization........................... 7,882 9,314
Other................................................... 380 2,156
Changes in assets and liabilities, excluding effects of
divestitures--(Increase) decrease in assets--
Accounts receivable................................... 6,761 210
Costs and estimated earnings in excess of billings on
uncompleted contracts................................ (2,902) 8,827
Inventories........................................... 102 (805)
Prepaid expenses and other current assets............. (3,785) (257)
Other assets.......................................... 107 6,068
Increase (decrease) in liabilities--
Accounts payable...................................... 17,670 4,586
Accrued expenses...................................... (3,526) 6,384
Billings in excess of costs and estimated earnings on
uncompleted contracts................................ (601) 4
Income taxes.......................................... 177 527
-------- --------
Net cash used for continuing operations.............. (1,264) (6,082)
Net cash provided by (used for) discontinued
operations.......................................... (4,101) 6,559
Net cash provided by (used for) operating
activities.......................................... (5,365) 477
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment........................... 668 --
Capital expenditures...................................... (1,383) (3,183)
Investment in environmental treatment facilities.......... 139 234
Start up costs and other.................................. (2,476) (3,277)
Discontinued operations................................... (265) (683)
-------- --------
Net cash used for investing activities............... (3,317) (6,599)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock.................... 208,025 --
Payments of notes payable and long-term debt.............. (125,146) (133)
Net borrowings (repayments) under credit facilities....... (63,000) 8,700
Cash dividends paid on preferred stock.................... -- (1,650)
Other..................................................... (2,179) (206)
Discontinued operations................................... 1,078 580
-------- --------
Net cash provided by financing activities............ 18,778 7,291
-------- --------
Net increase in cash and cash equivalents............ 10,096 1,169
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............. 12,089 12,667
-------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR................... $ 22,185 $ 13,836
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest............................... $ 10,969 $ 11,389
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
V-3
<PAGE>
AIR & WATER TECHNOLOGIES CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) BASIS OF PRESENTATION
The interim consolidated financial statements and the following notes should
be read in conjunction with the notes to the Consolidated Financial Statements
of Air & Water Technologies Corporation and its consolidated subsidiaries (the
"Company" or "AWT"), which are included in its Annual Report on Form 10-K for
the fiscal year ended October 31, 1997 filed with the Securities and Exchange
Commission. The interim information reflects all adjustments, including normal
recurring accruals, which are, in the opinion of management, necessary for a
fair presentation of the results for the interim period. Results for the
interim period are not necessarily indicative of results to be expected for
the full year.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reclassifications
Certain reclassifications have been made to the 1997 consolidated financial
statements to conform to the 1998 interim presentation.
Loss per share
The Company's loss per share for the three and six month periods ended April
30, 1998 and 1997 has been calculated in accordance with the new Financial
Accounting Standard No. 128 "Earnings Per Share". This statement requires that
the Company report "basic" and "diluted" earnings per share instead of
"primary" and "fully diluted" earnings per share previously as reported. The
key difference is that "basic" earnings per share does not adjust for common
stock equivalents. The adoption of this statement had no effect on the
Company's per share data. The numerator and denominator for basic and diluted
per share data are the same due to the antidilutive effects of the Company's
common stock equivalents and convertible securities.
(3) RECAPITALIZATION
Exchange
On January 28, 1998, pursuant to the terms of the Recapitalization
Agreement, dated as of September 24, 1997, as amended as of January 26, 1998
(the "Recapitalization Agreement"), among the Company, Vivendi (formerly named
Compagnie Generale des Eaux, a French company and the Company's largest
stockholder), and Vivendi's indirectly wholly-owned subsidiary, Anjou
International Company, a Delaware corporation ("Anjou"), the Company exchanged
(the "Exchange") the outstanding 1,200,000 shares of its 5 1/2% Series A
Convertible Exchangeable Preferred Stock, par value $.01 per share (the
"Series A Preferred Stock"), held by Vivendi and its subsidiaries
(representing all of the issued and outstanding shares of Series A Preferred
Stock) for 34,285,714 shares of its Class A Common Stock, par value $.001 per
share (the "Class A Common Stock"). The Series A Preferred Stock reacquired by
the Company in the Exchange has been retired and is not available for
reissuance. Immediately following the Exchange, Vivendi beneficially owned in
the aggregate approximately 72.2% of the outstanding Class A Common Stock and
voting power of the Company.
The Company did not declare the September 30, 1997 and December 31, 1997
quarterly dividends aggregating $1,650,000 on the Series A Preferred Stock,
all of which was held by Vivendi, due to its concerns over liquidity and the
adequacy of its surplus. The dividends in arrears on the Series A Preferred
Stock have not been paid and were extinguished pursuant to the Exchange.
Rights Offering
On January 26, 1998, the Board of Directors of the Company declared a
dividend to holders of record of its Class A Common Stock as of the close of
business on January 29, 1998 of 120,000,000 transferable subscription rights
(the "Rights") which allowed Rights holders to subscribe for and purchase
shares of its common stock
V-4
<PAGE>
and also allowed subscribers (other than Vivendi and Anjou) in the Rights
Offering to receive transferable three-year warrants (the "Warrants") to
purchase shares of Class A Common Stock (the "Rights Offering"). The terms of
the Rights Offering are set forth in the Company's Prospectus dated January
30, 1998.
The Rights Offering expired on March 4, 1998. In the Rights Offering,
98,160,427 Rights were exercised to purchase 99,840,089 shares of Class A
Common Stock, of which 1,679,662 shares were purchased pursuant to an
oversubscription privilege. In accordance with the terms of the
Recapitalization Agreement, Vivendi and Anjou each exercised its basic
subscription privilege in full for an aggregate basic subscription of
86,682,816 shares of Class A Common Stock, and Vivendi subscribed for and
purchased 19,031,470 additional shares of Class A Common Stock available as a
result of unexercised Rights in the Rights Offering, for a total aggregate
subscription of $185 million.
In addition, 3,949,099 Warrants to acquire in the aggregate 3,949,099 shares
of Class A Common Stock were issued to subscribers (other than Vivendi and
Anjou) in the Rights Offering. In accordance with the terms of the Rights
Offering, neither Vivendi nor Anjou received any Warrants. On March 12, 1998,
the Company was notified that the Warrants had been approved for listing on
the American Stock Exchange, Inc. (the "AMEX"). The Warrants currently trade
on the AMEX under the symbol "AWT.WS."
The Company received gross proceeds of approximately $208 million from the
Rights Offering, including approximately $23 million of publicly raised
proceeds. The Company used a portion of the gross proceeds from the Rights
Offering to repay a $125 million unsecured term loan from Vivendi and
borrowings under a $60 million credit facility with Anjou. The remaining $23
million of proceeds, representing all of the publicly-raised proceeds, will be
retained for general corporate purposes, including a reduction in borrowings
under the Bank Credit Facility (as defined hereinafter) and fees related to
the Recapitalization. See Note 5--Financing Arrangements.
Following the Rights Offering, Vivendi beneficially owns an aggregate of
153,609,975 shares of Class A Common Stock, representing approximately 83.0%
of the issued and outstanding Class A Common Stock. The pro forma loss per
share from continuing operations for the six months ended April 30, 1998 and
1997 was $.10 and $.20 per share, respectively, after giving effect to the
aforementioned issuance of shares of Class A Common Stock in the Exchange and
the Rights Offering and repayment of debt, as if such events had occurred as
of the beginning of such periods.
Consent Solicitation
Concurrently with the Rights Offering, pursuant to the terms of the
Recapitalization Agreement, the Company solicited the consent (the "Consent
Solicitation") of the holders of at least a majority in principal amount (the
"Requisite Consents") of the Company's 8% Convertible Subordinated Debentures
due 2015 (the "Convertible Debentures") to amend a certain provision of the
indenture (the "Indenture") governing the Convertible Debentures permitting
the holders to require the Company to repurchase the Convertible Debentures if
any person acquires beneficial ownership of 75% or more of the voting power of
the Company (the "Change of Control Provision").
On February 23, 1998, the Consent Solicitation expired. In the Consent
Solicitation, the Company received the consent of $105,937,000 aggregate
principal amount of the outstanding Convertible Debentures, representing
approximately 92.1% of the outstanding principal amount of the Convertible
Debentures, to amend the Change of Control Provision. On February 23, 1998,
the Company and The Chase Manhattan Bank, as Trustee, executed a Supplemental
Indenture (the "Supplemental Indenture"), which amended the Indenture to
exempt acquisitions by Vivendi or any of its Affiliates (as defined therein)
of voting power equal to or greater than 75% from the application of the
Change of Control Provision. Following the execution of the Supplemental
Indenture and pursuant to the terms of the Consent Solicitation, the Company
made an aggregate payment of approximately $477,000 to holders of Convertible
Debentures who provided their consents.
V-5
<PAGE>
Charter Amendment
In connection with the Rights Offering, on January 26, 1998, the Board of
Directors of the Company adopted a resolution setting forth proposed
amendments to the Restated Certificate of Incorporation of the Company--(the
"Charter Amendment"). On February 6, 1998, Vivendi and Anjou, beneficial
owners of an aggregate of approximately 72.2% of the outstanding Class A
Common Stock and voting power of the Company provided their written consent to
the Charter Amendment. The consent of Vivendi and Anjou was sufficient to
adopt the Charter Amendment without any further vote of the Company's
stockholders. On March 2, 1998, the Company filed a certificate of amendment
to its Restated Certificate of Incorporation with the Secretary of State of
the State of Delaware which increased the number of shares of Class A Common
Stock that the Company is authorized to issue from 95,000,000 shares to
255,000,000 shares. The Charter Amendment became effective upon such filing.
As of January 31, 1998, the Company had authorized for issuance 100,000,000
shares of common stock, par value $.001 per share, of which 95,000,000 shares
were shares of Class A Common Stock and 5,000,000 shares were shares of its
Class B Common Stock, par value $.001 per share (the "Class B Common Stock").
The terms of the Class B Common Stock and the Class A Common Stock are
identical in all respects except that the Class B Common Stock is not entitled
to vote. Following the filing of the Charter Amendment, the Company is
authorized to issue 260,000,000 shares of common stock, par value $.001 per
share, of which 255,000,000 shares are shares of Class A Common Stock and
5,000,000 shares are shares of Class B Common Stock.
(4) RESEARCH-COTTRELL
On December 2, 1997, as part of the implementation of its revised business
strategy, the Company announced that it will divest its Research-Cottrell
business segment which provides air pollution control technologies and
services.
On June 6, 1998, the Company entered into an agreement with Hamon & Cie,
pursuant to which Hamon will acquire certain assets and assume certain
liabilities related to the air pollution control operations of Research-
Cottrell, Thermal Transfer Corporation and Custodis-Cottrell, including the
stock of certain related European subsidiaries. The transaction, which is
subject to regulatory approvals and the receipt of certain consents, is
expected to close by July 31, 1998. The purchase price is expected to be in
cash and notes and is subject to certain adjustments including adjustments
related to cash flows from May 1, 1998 through closing. The Company will
continue to pursue negotiations with other parties regarding the divestiture
of its three remaining air pollution control businesses (Flex-Kleen, REECO and
KVB) in order to fully implement the decision to exit this business segment.
In connection with the above, the Company has revised its estimated loss on
disposal and has provided an additional $6.0 million loss during the current
quarter. Although management currently believes that such provision for
Research-Cottrell is adequate, the estimated loss on disposal and losses
through disposition may change in the near-term based on the final sales
prices and proceeds received from a complete sale of the Research-Cottrell
operations, the timing of the anticipated sales transactions, actual results
through disposition and final resolution of any retained liabilities.
(5) FINANCING ARRANGEMENTS
The Company maintains a $70.0 million secured bank credit facility (the
"Bank Credit Facility") which expires December 11, 1998. As of April 30, 1998,
the Company had $22.6 million of outstanding letters of credit and no
borrowings under the Bank Credit Facility (unused capacity of $47.4 million).
As of October 31, 1997, the Company had outstanding borrowings of $125
million under an unsecured term loan from Vivendi (the "Vivendi Note") and $60
million under a fully-utilized seven-year revolving credit facility with Anjou
(the "Anjou Note"). Pursuant to the terms of the Recapitalization Agreement,
the Company
V-6
<PAGE>
repaid the Vivendi Note and Anjou Note with a portion of the gross proceeds
from the Rights Offering and terminated the related credit agreements. For a
discussion of the Rights Offering, see Note 3--Recapitalization--Rights
Offering.
(6) COMMITMENTS AND CONTINGENCIES
DOJ Investigation
In connection with a broad investigation by the U.S. Department of Justice
(the "DOJ") into alleged illegal payments by various persons to members of the
Houston City Council, the Company's subsidiary, Professional Services Group
("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 (the "DOJ Investigation"). PSG has cooperated and continues
to cooperate with the DOJ 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 then Chief
Executive Officer on administrative leave of absence with pay. The PSG Chief
Executive Officer, 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 DOJ 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 asset 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.
Bremerton Litigation
The City of Bremerton, Washington brought a contribution and contract action
against Metcalf & Eddy Services, Inc. ("M&E Services"), the operator of a
City-owned wastewater treatment plant from 1987 until late 1995. The action
arises from two prior lawsuits against the City for alleged odor nuisances
brought by two groups of homeowners neighboring the plant. In the first
homeowners' suit, the City paid $4.3 million in cash and approximately $5
million for odor control technology to settle the case. M&E Services
understands the odor control measures generally have been successful and the
odors have been reduced as a result. M&E Services was not a party to the first
homeowners' suit, which has been dismissed with prejudice as to all parties.
In the settlement of the second homeowners' case, the City of Bremerton paid
the homeowners $2.9 million, and M&E Services contributed $0.6 million to the
settlement without admitting liability. All claims raised by the homeowners in
the second suit have been resolved. All claims by and between M&E Services and
the City in the second homeowners' suit were expressly reserved.
At trial which commenced on March 2, 1998, the City sought to recover the
amounts it expended on the two settlements, damages for M&E Services' alleged
substandard operation of the plant, and attorneys' fees. The damages claimed
exceeded $14 million. On April 22, 1998, the jury returned a verdict against
M&E Services and in favor of the City in the net amount of approximately $0.6
million. The City filed a post-trial motion asking the trial court to enter
judgment against M&E Services in the amount of $8.1 million notwithstanding
the jury's verdict. On June 5, 1998, the trial court denied the City's request
to increase the amount of the jury's award in its favor, but granted the
City's motion to reduce the amount awarded on M&E Services' counterclaim for
unpaid invoices. Accordingly, the net judgment against M&E Services and in
favor of the City is approximately $0.75 million. On June 11, 1998, the City
filed a motion for a new trial. No assurances can be given that, in the event
of a new trial, an adverse judgment would not have a material adverse effect
on the financial position or results of M&E Services or the Company taken as a
whole. In the event a new trial is not granted, further proceedings in the
litigation, including possible appeals, could increase or decrease the
judgment by $2 million or more.
V-7
<PAGE>
R-C Belgium Litigation
On October 14, 1997, Research-Cottrell, Inc. and its subsidiary, Research-
Cottrell Belgium, S.A. ("R-C Belgium"), were named in a lawsuit by N.V.
Seghers Engineering ("Seghers") filed in the Commercial Court in Mechelen,
Belgium. Seghers is R-C Belgium's joint venture partner on two large pollution
control projects. The suit claims damages of approximately $13 million
allegedly resulting from R-C Belgium's breach of contract and substandard
performance. Damages claimed in the lawsuit consist not only of Seghers'
alleged cost to repair the R-C Belgium equipment, but also lost profits,
damages to business reputation, theft of employees (R-C Belgium hired two
former Seghers' employees), increased costs arising out of the failure to gain
timely acceptance of the two plants, excessive payments to R-C Belgium due to
alleged unfair pricing practices by R-C Belgium and other miscellaneous
interest charges and costs. The case involves complex technical and legal
issues and is in its earliest stages. Nevertheless, the Company denies
liability to Seghers and, based upon the information currently available,
believes Seghers' claimed damages are grossly inflated. In addition, the
Company believes it has meritorious counterclaims based upon Seghers breaches
of contract and poor performance.
Other Matters
The Company and its subsidiaries are parties to various other legal actions,
government audits and investigations 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, audits and investigations,
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 currently maintains various types of insurance, including
workers' compensation, general and professional liability and property
coverages and believes that it presently maintains adequate insurance
coverages for all of its present operational activities. It has been both a
Company policy and a requirement of many of its clients that the Company
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, the Company
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 the Company's
exposures. Claims made policies provide coverage to the Company only for
claims reported during the policy period. The Company'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 the
Company 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 the Company's insurance coverage or for which there is no
coverage could have a material adverse effect on the Company.
The Company is often required to procure bid and performance bonds from
surety companies, particularly for clients in the public sector. A bid bond
guarantees that the Company will enter into the contract under consideration
at the price bid and a performance bond guarantees performance of the
contract. The Company is required to indemnify surety companies providing bid
and performance bonds for any payments the sureties are required to make under
the bonds. The Company has never forfeited a bid or a performance bond and no
project sponsor has ever called and drawn a bond issued in support of the
Company's contract obligations. Anjou has entered into an agreement with
United States Fidelity and Guaranty Company and certain of its affiliates
("USF&G") regarding an arrangement pursuant to which, until terminated at
Anjou's discretion, Anjou will enter into guarantees of certain obligations of
the Company relating to the bonding of certain contracts under the Master
Surety Agreement, dated October 31, 1995, between USF&G and the Company and
its subsidiaries. Such guarantees would cover, in each instance, 30% of the
aggregate amount of the bonds executed, procured or provided on behalf of the
Company or its subsidiaries on or after October 1, 1997 and certain penalty
amounts, up to $45 million. There can be no assurance that USF&G will be
willing to continue to provide bid and performance bonds to the Company
without a guarantee from Vivendi or one of its affiliates.
V-8
<PAGE>
UNAUDITED FINANCIAL STATEMENTS FOR THE COMPANY
FOR THE SIX-MONTH PERIODS ENDED APRIL 30, 1998 AND APRIL 30, 1999
SCHEDUALE V-A
AQUA ALLIANCE INC.
CONSOLIDATED BALANCE SHEETS
As of April 30, 1999 and October 31, 1998
(In thousands, except share data)
<TABLE>
<CAPTION>
April 30, October 31,
1999 1998
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................ $ 46,675 $ 22,197
Accounts receivable, less allowance for doubtful
accounts............................................ 61,707 77,776
Costs and estimated earnings in excess of billings on
uncompleted contracts............................... 32,054 33,559
Inventories.......................................... 1,425 1,470
Prepaid expenses and other current assets............ 9,367 8,521
Net current assets of discontinued operations........ 868 1,401
--------- --------
Total current assets............................... 152,096 144,924
Property, plant and equipment, net..................... 11,501 9,768
Investments in environmental treatment facilities...... 21,039 21,651
Goodwill, net.......................................... 156,629 159,198
Other assets........................................... 15,791 20,572
Net non-current assets of discontinued operations...... 184 3,239
--------- --------
Total assets....................................... $ 357,240 $359,352
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt............... $ 115 $ 443
Accounts payable..................................... 97,088 87,557
Accrued expenses..................................... 95,892 92,135
Billings in excess of costs and estimated earnings on
uncompleted contracts............................... 13,478 13,484
Income taxes payable................................. 2,341 2,325
Net current liabilities of discontinued operations... -- 483
--------- --------
Total current liabilities.......................... 208,914 196,427
--------- --------
Long-term debt......................................... 117,755 119,405
--------- --------
Commitments and contingencies (Note 6)
Stockholders' equity:
Common stock, par value $.001, authorized 260,000,000
shares; issued 185,266,429 shares................... 185 185
Additional paid-in capital........................... 629,130 629,130
Accumulated deficit.................................. (598,093) (58,516)
Common stock in treasury, at cost.................... (108) (108)
Cumulative currency translation adjustment........... (543) (522)
Total stockholders' equity......................... 30,571 43,520
--------- --------
Total liabilities and stockholders' equity......... $ 357,240 $359,352
========= ========
</TABLE>
The accompanying notes to consolidated financial statements are an integralpart
of these financial statements.
V-9
<PAGE>
AQUA ALLIANCE INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Six Month Periods Ended April 30, 1999 and 1998
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended Six Months Ended
April 30 April 30
------------------ ------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales.................................. $118,028 $111,802 $231,186 $222,076
Cost of sales.......................... 101,669 98,750 203,008 195,523
-------- -------- -------- --------
Gross margin....................... 16,359 13,052 28,178 26,553
Selling, general and administrative
expenses.............................. 15,642 16,880 30,651 31,132
Depreciation and amortization.......... 2,707 2,980 5,277 6,064
-------- -------- -------- --------
Operating loss from continuing
operations........................ (1,990) (6,808) (7,750) (10,643)
Interest expense, net.................. (2,125) (3,708) (4,339) (9,730)
Other expense, net..................... (174) (165) (388) (824)
-------- -------- -------- --------
Loss from continuing operations
before income taxes and cumulative
effect of change in accounting
principle......................... (4,289) (10,681) (12,477) (21,197)
Income tax expense..................... (225) (269) (451) (514)
-------- -------- -------- --------
Loss from continuing operations.... (4,514) (10,950) (12,928) (21,711)
Discontinued operations:
Loss from discontinued segment....... -- (6,000) -- (6,000)
Cumulative effect on prior years (to
October 31, 1997) of change in the
method of accounting for start-up
costs................................. -- -- -- (11,082)
-------- -------- -------- --------
Net loss........................... $ (4,514) $(16,950) $(12,928) $(38,793)
======== ======== ======== ========
Loss per common share:
Continuing operations................ $ (.02) $ (.08) $ (.07) $ (.25)
Discontinued operations.............. -- (.04) -- (.07)
Cumulative effect on prior years (to
October 31, 1997) of change in the
method of accounting for start-up
costs............................... -- -- -- (.12)
-------- -------- -------- --------
Net loss............................... $ (.02) $ (.12) $ (.07) $ (.44)
======== ======== ======== ========
Weighted average number of shares
outstanding........................... 185,177 140,490 185,177 87,753
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
V-10
<PAGE>
AQUA ALLIANCE INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three and Six Month Periods Ended April 30, 1999 and 1998
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended Six Months Ended
April 30 April 30
----------------- ------------------
1999 1998 1999 1998
------- -------- -------- --------
<S> <C> <C> <C> <C>
Net loss................................. $(4,514) $(16,950) $(12,928) $(38,793)
Other comprehensive income:
Foreign currency translation
adjustments........................... (16) 1,229 (21) 1,051
------- -------- -------- --------
Total comprehensive income (loss)........ $(4,530) $(15,721) $(12,949) $(37,742)
======= ======== ======== ========
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these financial statements.
V-11
<PAGE>
AQUA ALLIANCE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Month Periods Ended April 30, 1999 and 1998
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
April 30
------------------
1999 1998
-------- --------
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss.................................................. $(12,928) $(38,793)
Adjustments to reconcile net loss to net cash used for
continuing operations--
Cumulative effect on prior years (to October 31, 1997) of
change in the method of accounting for start-up costs.... -- 11,082
Discontinued operations................................... -- 6,000
Depreciation and amortization............................. 5,277 6,064
Other..................................................... 57 380
Changes in assets and liabilities, excluding effects of
divestitures--
(Increase) decrease in assets--
Accounts receivable..................................... 16,069 6,761
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 1,505 (2,902)
Inventories............................................. 45 102
Prepaid expenses and other current assets............... (846) (3,785)
Other assets............................................ 80 107
Increase (decrease) in liabilities--
Accounts payable........................................ 9,531 17,670
Accrued expenses........................................ 4,696 (3,526)
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. (6) (601)
Income taxes............................................ 16 177
-------- --------
Net cash provided by (used for) continuing operations.. 23,496 (1,264)
Net cash provided by (used for) discontinued
operations............................................ 1,223 (4,101)
-------- --------
Net cash provided by (used for) operating activities... 24,719 (5,365)
-------- --------
Cash Flows From Investing Activities:
Proceeds from sale of businesses.......................... 2,000 --
Capital expenditures...................................... (3,864) (1,383)
Proceeds from sale of property, plant and equipment....... 7,086 668
Investment in environmental treatment facilities.......... 555 139
Investments in new contracts and other.................... (3,901) (2,476)
Discontinued operations................................... (118) (265)
-------- --------
Net cash provided by (used for) investing activities... 1,758 (3,317)
-------- --------
Cash Flows From Financing Activities:
Proceeds from issuance of common stock.................... -- 208,025
Payments of notes payable and long-term debt.............. (1,978) (125,146)
Net borrowings under credit facilities.................... -- (63,000)
Other..................................................... (21) (2,179)
Discontinued operations................................... -- 1,078
-------- --------
Net cash provided by (used for) financing activities... (1,999) 18,778
-------- --------
Net increase in cash and cash equivalents.............. 24,478 10,096
Cash and Cash Equivalents at Beginning of Period........... 22,197 12,089
-------- --------
Cash and Cash Equivalents at End of Period................. $ 46,675 $ 22,185
======== ========
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest.................................... $ 4,808 $ 10,969
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
V-12
<PAGE>
AQUA ALLIANCE INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(1) BASIS OF PRESENTATION
The interim consolidated financial statements and the following notes should
be read in conjunction with the notes to the Consolidated Financial Statements
of Aqua Alliance Inc., formerly Air & Water Technologies Corporation ("AAI" or
the "Company"), and its consolidated subsidiaries, which are included in its
Annual Report on Form 10-K for the fiscal year ended October 31, 1998 filed
with the Securities and Exchange Commission. The interim information reflects
all adjustments, including normal recurring accruals, which are, in the
opinion of management, necessary for a fair presentation of the results for
the interim period. Results for the interim period are not necessarily
indicative of results to be expected for the full year.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reclassifications
Certain reclassifications have been made to the 1998 consolidated financial
statements to conform to the 1999 interim presentation.
Recently adopted accounting pronouncements
In June 1997, Statement of Financial Accounting Standard (SFAS) No. 130,
"Reporting Comprehensive Income," was issued. As required by the statement,
the Company adopted SFAS No. 130 on November 1, 1998. Under provisions of this
statement, the Company has included a financial statement presentation of
comprehensive income and its components. Implementation of this standard did
not affect the Company's financial position or results of operations.
(3) CHANGE IN ACCOUNTING
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position No. 98-5, "Reporting on the Costs of Start-Up
Activities" (SOP 98-5). SOP 98-5 provides guidance on the financial reporting
of start-up and organization costs and requires such costs to be expensed as
incurred, with the effect of initial adoption reported as a cumulative effect
of a change in accounting principle. The Company early adopted SOP 98-5
effective November 1, 1997, as permitted by the SOP.
The total amount of deferred start-up costs reported as a cumulative effect
of a change in accounting principle is $11,082,000. The impact of adoption of
the SOP on previously reported operating income was to change the results for
the three and six month periods ended April 30, 1998 from operating losses of
$11,856,000 and $23,529,000, to operating losses of $10,950,000 and
$21,711,000, respectively. The reported loss per share from continuing
operations in the second quarter of 1998 was reduced from $0.09 to $0.08. The
reported loss per share from continuing operations for the six month period
ended April 30, 1998 was reduced from $0.27 to $0.25.
(4) REVISED BUSINESS STRATEGY
As part of the final stages of the Research-Cottrell segment divestiture, on
January 19, 1999, the Company sold Regenerative Environmental Equipment
Company, Inc. ("REECO"), the last of the Research-Cottrell units, for
approximately $2.0 million. Although management believes that current
provisions for the liquidation of Research-Cottrell are adequate, the
estimated loss on disposal may change in the near-term based on the final
resolution of the remaining assets and liabilities of the discontinued
segment.
The results of operations and financial condition of Research-Cottrell are
reported as discontinued operations for all periods presented.
V-13
<PAGE>
AQUA ALLIANCE INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
(5) RECENT DEVELOPMENTS
Vivendi Going Private Proposal
See Note (6) for a discussion of Vivendi's proposal to take the Company
private.
Contract with PRASA
In September 1995, PSG's wholly-owned subsidiary P S Group (PSG) of Puerto
Rico, Inc., now known as Compania de Aguas de Puerto Rico, Inc. ("PSG Puerto
Rico"), commenced operations under a five year contract with the Puerto Rico
Aqueduct & Sewer Authority ("PRASA"), a public corporation of the Commonwealth
of Puerto Rico, providing for the operation, management, repair and
maintenance of a significant portion of Puerto Rico's water and sewage
treatment system.
On September 15, 1998, the Company and Compagnie Generale des Eaux-Sahide
("CGE"), a subsidiary of Vivendi, a French corporation and the Company's
largest stockholder ("Vivendi"), collectively as the Operator, executed the
First Amended and Restated Agreement, an amendment to the original PRASA
contract (the "First Amendment"), including the assignment by PSG Puerto Rico
of the contract with PRASA to the Company and CGE. This amendment, in addition
to expanding the scope and increasing the fee base of the original contract,
extended the term of the contract to August 31, 2001. On March 1, 1999,the
Second Amended and Restated Agreement, a second amendment to the original
PRASA contract (the "Second Amendment"), was executed. The Second Amendment
further expanded the services performed to include, among others, management
and oversight of PRASA's Engineering Department, its Environmental Compliance
Division, the office of General Counsel and certain functions of PRASA's
Office of the Executive Director. In conjunction with the execution of the
First Amendment and the Second Amendment, the Company, PRASA and the Puerto
Rico Electric Power Authority ("PREPA") executed certain payments among the
parties, the result of which was that amounts due to the Company from PRASA
and amounts due by the Company to PREPA were significantly reduced.
The fee structure under the Second Amendment is based on various components
including a management fee, part of which will be deferred and earned-out as
performance incentives, compensation for operating costs and certain pass
through costs. If all incentives are earned, the Second Amendment is expected
to generate approximately $145 million of revenues per annum. This level of
revenues could be increased in the event the Company either earns additional
incentives or effects cost reductions below certain established benchmark
levels in areas such as utilities or chemical usage. Alternatively, in the
event that costs incurred are in excess of the levels designated in the Second
Amendment, the Company would be required to absorb the overruns. The Company's
performance obligations to PRASA are secured by a performance bond issued by
an independent surety company and a limited guarantee in favor of PRASA
provided by Vivendi. Concurrently, the Government Development Bank for Puerto
Rico has guaranteed the payment obligation of PRASA due to the Company to the
extent of $18.9 million for the period September 1, 1998 through August 31,
1999, and in the amount of $20.8 million each year through the Second
Amendment's current term. While PRASA has a one-time option to terminate the
contract on September 1, 2000 with a ninety-day written notice, management
expects that this contract will not be prematurely cancelled but will remain
in effect through its extended term of August 31, 2001.
(6) COMMITMENTS AND CONTINGENCIES
DOJ Investigation
In connection with a broad investigation by the U.S. Department of Justice
(the "DOJ") 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
V-14
<PAGE>
AQUA ALLIANCE INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
representatives who 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 (the "DOJ Investigation"). PSG has
cooperated and continues to cooperate with the DOJ 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 then Chief Executive Officer on administrative leave
of absence with pay. The PSG Chief Executive Officer, 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 DOJ 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.
Bremerton Litigation
The City of Bremerton, Washington brought a contribution and contract action
against Metcalf & Eddy Services, Inc. ("M&E Services"), the operator of a
City-owned wastewater treatment plant from 1987 until late 1995. The action
arises from two prior lawsuits against the City for alleged odor nuisances
brought by two groups of homeowners neighboring the plant. In the first
homeowners' suit, the City paid $4.3 million in cash and approximately $5
million for odor control technology to settle the case. M&E Services
understands the odor control measures generally have been successful and the
odors have been reduced as a result. M&E Services was not a party to the first
homeowners' suit, which has been dismissed with prejudice as to all parties.
In the settlement of the second homeowners' case, the City of Bremerton paid
the homeowners $2.9 million, and M&E Services contributed $0.6 million to the
settlement without admitting liability. All claims raised by the homeowners in
the second suit have been resolved. All claims by and between M&E Services and
the City in the second homeowners' suit were expressly reserved.
At trial, which commenced on March 2, 1998, the City sought to recover the
amounts it expended on the two settlements, damages for M&E Services' alleged
substandard operation of the plant, and attorney's fees. The damages claimed
exceeded $14 million. On April 22, 1998, the jury returned a verdict against
M&E Services and in favor of the City in the net amount of approximately $0.6
million. After considering various motions by the City challenging the verdict
and its amount, on June 26, 1998, the trial court entered final judgement
against M&E Services and in favor of the City in the net amount of
approximately $0.75 million. Both sides have appealed. The appellate court
could increase or decrease the judgement by $2.0 million or more or remand the
case for a new trail. No assurances can be given that, as a result of further
court proceedings, an adverse judgement would not have a material adverse
effect on the financial position or results of operations of the Company.
Belgium Litigation
On October 14, 1997, Research-Cottrell, Inc. (now known as AWT Air Company,
Inc.) and its subsidiary, Research-Cottrell Belgium, S.A. (now known as AWT
Air Company (Belgium) S.A.) ("AWT Belgium") were named in a lawsuit by N.V.
Seghers Engineering ("Seghers") filed in the Commercial Court in Mechelen,
Belgium. Seghers is AWT Belgium's joint venture partner on two large pollution
control projects. The suit claims damages of approximately $13 million
allegedly resulting from AWT Belgium's breach of contract and substandard
performance. Damages claimed in the lawsuit consist not only of Seghers'
alleged cost to repair the
V-15
<PAGE>
AQUA ALLIANCE INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
AWT Belgium equipment, but also lost profits, damages to business reputation,
theft of employees (AWT Belgium hired two former Seghers employees), increased
costs arising out of the failure to gain timely acceptance of the two plants,
excessive payments to AWT Belgium due to alleged unfair pricing practices by
AWT Belgium and other miscellaneous interest charges and costs. Seghers has
also filed a suit in Belgium against AWT Belgium, Hamon Research-Cottrell
(Belgium) S.A., the purchaser of AWT Belgium's assets, and related entities,
claiming that the sale of AWT Belgium would operate as a fraud and deprive
Seghers of its rightful recovery in the litigation. The cases involve complex
technical and legal issues. Nevertheless, the Company denies liability to
Seghers and, based upon the information currently available, believes Seghers'
claimed damages are grossly inflated. In addition, the Company believes it has
counterclaims based upon Seghers' breaches of contract.
U.S. Attorney's Office Investigation
The United States Attorney's Office (the "U.S. Attorney's Office") in
Boston, Massachusetts is conducting an investigation of certain entertainment
and travel payments allegedly made to Egyptian officials between 1994 and 1996
by the Company's subsidiary, Metcalf & Eddy International, Inc. (which was
merged into its parent, Metcalf & Eddy, Inc.), while Metcalf & Eddy
International, Inc. was performing services in Egypt pursuant to contracts
with the United Stages Agency for International Development. M&E has
cooperated and continues to cooperate fully with the U.S. Attorney's Office.
No charges of wrongdoing have been brought against M&E or any M&E executive or
employee by any grand jury or other government authority. To date, the
government has advised M&E that it has made no decision as to how it will
proceed.
Vivendi Going Private Proposal
On April 1, 1999, Vivendi submitted to members of a special committee of the
Company's Board of Directors a proposal to take the Company private for $2.00
per share in cash for each outstanding share of Class A Common Stock. Six
purported class action complaints relating to Vivendi's April 1 proposal to
take the Company private have been filed in the Delaware Court of Chancery
against Vivendi, Vivendi North America Company or Vivendi North America
Operations, Inc., and each of the members (and one former member) of the
Company's Board of Directors. The complaints allege, among other things, that
the consideration proposed to be paid by Vivendi for the shares of Class A
Common Stock is grossly inadequate and that the terms of the proposed
transaction are unfair to the Company's public stockholders. The complaints
seek preliminary and permanent injunctive relief, recission in the event that
the transaction is consummated and compensatory damages. The special committee
is in the process of reviewing the going private proposal from Vivendi. The
Company believes that the claims are meritless and intends to defend them
vigorously.
Other Matters
The Company and its subsidiaries are parties to various other legal actions
and government audits 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 and audits, individually or in the aggregate, will
not have an adverse effect on the consolidated financial position or results
of operations of the Company taken as a whole. Moreover, as a general matter,
providers of services similar to those provided by the Company may be subject
to lawsuits alleging negligence or other similar claims and environmental
liabilities, which may involve claims for substantial damages. Damages
assessed in connection with and the costs of defending any such actions could
be substantial. The Company's management believes that the levels of insurance
coverage are adequate to cover currently estimated exposures. Although the
Company believes that it will be able to obtain adequate insurance coverage in
the future at acceptable costs, there can be no assurance that the Company
will be able to obtain such coverage or will be able to do so at an acceptable
cost or that the Company will not incur significant liabilities in excess of
policy limits.
V-16
<PAGE>
. Dependency on key projects, customers and contracts.
. The ability to obtain new contracts (some of which are significant) from
existing and new clients.
. The ability of the Company to continue to obtain new bid and performance
bonds.
. The execution of expected new projects and those projects in backlog
within the most recent cost estimates.
. Changes in interest rates causing an increase in the Company's effective
borrowing rate.
. Adverse resolution of litigation matters and existing claims arising in
the ordinary course of business.
. The ability of the Company to access capital (through an investment fund,
off-balance sheet vehicle or otherwise) and to effect and finance future
investments.
. The ability of the Company to successfully implement its revised business
strategy.
. The ability of the Company to obtain any necessary waivers, extensions or
renewals of the Bank Credit Facility.
. The acceptance by the Company's current and prospective customers of the
Company's financial position.
. The effectiveness of the business planning committee of the Board of
Directors in identifying strategies aimed at increasing stockholder
value.
. The ability of the Company to identify and remediate any Y2K compliance
issues on a timely basis.
V-17
<PAGE>
Facsimile copies of the Letter of Transmittal, properly completed and duly
executed, will be accepted. The Letter of Transmittal, certificates for Shares
and any other required documents should be sent or delivered by each
stockholder of the Company or his broker, dealer, commercial bank, trust
company or other nominee to the Depositary at one of its addresses set forth
below:
THE DEPOSITARY FOR THE OFFER IS:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
By Mail: By Hand: By Overnight:
Reorganization Reorganization Department Reorganization
Department 120 Broadway Department
P.O. Box 3301 13th Floor 85 Challenger Road,
South Hackensack, NJ New York, NY 10271 Mail Drop-Reorg
07606
By Facsimile Transmission: Ridgefield Park, NJ
(for eligible institutions only) 07660
(201) 296-4293
Confirm Facsimile Transmission:
By Telephone Only
(201) 296-1860
Questions and requests for assistance may be directed to the Information
Agent at the address and telephone number set forth below. Additional copies
of this Offer to Purchase, the Letter of Transmittal and other tender offer
materials may be obtained from the Information Agent as set forth below and
will be furnished promptly at the Purchaser's expense. Stockholders and
Warrantholders may also contact their broker, dealer, commercial bank, trust
company or other nominee for assistance concerning the Offer.
THE INFORMATION AGENT FOR THE OFFER IS:
INNISFREE M&A INCORPORATED
501 MADISON AVENUE, 20TH FLOOR
NEW YORK, NEW YORK 10022
BANKS AND BROKERS CALL COLLECT: (212) 750-5833
ALL OTHERS CALL TOLL FREE (888) 750-5834
The Dealer Manager for the Offer is:
Lazard Freres & Co. llc
30 Rockefeller Plaza
New York, New York 10020
(212) 632-6717
<PAGE>
EXHIBIT (a)(2)
<PAGE>
Letter of Transmittal
To Tender Shares of Common Stock and
Warrants to Purchase Common Stock
of
Aqua Alliance Inc.
Pursuant to the Offer to Purchase
Dated July 16, 1999
by
Aqua Acquisition Corporation,
an indirect wholly owned subsidiary of
Vivendi
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK
CITY TIME, ON THURSDAY, AUGUST 12, 1999, UNLESS THE OFFER IS EXTENDED. THE
SHARES AND WARRANTS WHICH ARE TENDERED PURSUANT TO THE OFFER MAY BE
WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE.
The Depositary for the Offer is:
ChaseMellon Shareholder Services, L.L.C.
By Mail: By Hand: By Overnight Delivery:
Reorganization Reorganization Department
Reorganization Department 85 Challenger Road
Department 120 Broadway Mail Drop-Reorg.
P.O. Box 3301 13th Floor Ridgefield Park, NJ 07660
South Hackensack, NJ New York, NY 10271
07606
By Facsimile Transmission:
(201) 296-4293
(For Eligible Institutions Only)
Confirm Facsimile by Telephone:
(201) 296-4860
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS, OR TRANSMISSION OF
INSTRUCTIONS VIA FACSIMILE TO A NUMBER, OTHER THAN AS SET FORTH ABOVE DOES NOT
CONSTITUTE A VALID DELIVERY TO THE DEPOSITARY.
THE INSTRUCTIONS CONTAINED WITHIN THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be used by stockholders of Aqua Alliance
Inc. (the "Company") and Warrantholders of the Company if certificates for the
Shares (as such term is defined below) and/or Warrants (as such term is
defined below), respectively, are to be forwarded herewith or, unless an
Agent's Message (as defined in Instruction 2 below) is utilized, if delivery
of the Shares and/or Warrants is to be made by book-entry transfer to an
account maintained by the Depositary at a Book-Entry Transfer Facility (as
defined in and pursuant to the procedures set forth in "THE TENDER OFFER--
Section 3. Procedures for Accepting the Offer and Tendering the Shares and
Warrants" of the Offer to Purchase). Stockholders who deliver the Shares and
holders of Warrants ("Warrantholders") who deliver the Warrants by book-entry
transfer are referred to herein as "Book-Entry
<PAGE>
Stockholders" and "Book-Entry Warrantholders," respectively, and other
stockholders and Warrantholders who deliver the Shares and Warrants,
respectively, are referred to herein as "Certificate Stockholders" and
"Certificate Warrantholders," respectively.
Stockholders and Warrantholders whose certificates for the Shares and
Warrants, respectively, are not immediately available or who cannot deliver
either the certificates for, or a Book-Entry Confirmation (as defined in "THE
TENDER OFFER--Section 3. Procedures for Accepting the Offer and Tendering the
Shares and Warrants" of the Offer to Purchase) with respect to, their Shares
and Warrants and all other documents required hereby to the Depositary prior
to the Expiration Date (as defined in "THE TENDER OFFER--Section 1. Terms of
the Offer" of the Offer to Purchase) must tender their Shares and Warrants,
respectively, pursuant to the guaranteed delivery procedures set forth in "THE
TENDER OFFER--Section 3. Procedures for Accepting the Offer and Tendering the
Shares and Warrants" of the Offer to Purchase. See Instruction 2. DELIVERY OF
DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO
THE DEPOSITARY.
(BOXES BELOW FOR USE BY ELIGIBLE INSTITUTIONS ONLY)
[_]CHECK HERE IF TENDERED SHARES AND/OR WARRANTS ARE BEING DELIVERED BY BOOK-
ENTRY TRANSFER TO THE DEPOSITARY'S ACCOUNT AT ONE OF THE BOOK-ENTRY
TRANSFER FACILITIES AND COMPLETE THE FOLLOWING (ONLY PARTICIPANTS IN A
BOOK-ENTRY TRANSFER FACILITY MAY DELIVER SHARES AND/OR WARRANTS BY BOOK-
ENTRY TRANSFER):
Name of Tendering Institution ______________________________________________
Check box if Shares will be tendered by book-entry transfer: [_]
Account Number ________________
Transaction Code Number _______
[_]CHECK HERE IF TENDERED SHARES AND/OR WARRANTS ARE BEING DELIVERED PURSUANT
TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Owner(s) _____________________________________________
Window Ticket Number (if any) ______________________________________________
Date of Execution of Notice of Guaranteed Delivery _________________________
Name of Institution which Guaranteed Delivery ______________________________
Check box if Warrants will be tendered by book-entry transfer: [_]
Account Number ________________
Transaction Code Number _______
2
<PAGE>
DESCRIPTION OF SHARES TENDERED
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Name(s) and Address(es) of
Registered Holder(s)
(Please fill in, if blank,
exactly as name(s)
appear(s) on Share Shares Tendered
certificate(s)) (Attach additional signed list if necessary)
- ---------------------------------------------------------------------------------
Total Number
of Shares
Share Represented by Number of
Certificate Share Shares
Number(s)(1) Certificate(s)(1) Tendered(2)
--------------------------------------------------
<S> <C> <C> <C>
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
Total Shares
- ---------------------------------------------------------------------------------
</TABLE>
(1) Need not be completed by Book-Entry Stockholders.
(2) Unless otherwise indicated, it will be assumed that all Shares
represented by Share certificates delivered to the Depositary are
being tendered hereby. See Instruction 4.
DESCRIPTION OF WARRANTS TENDERED
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Name(s) and Address(es) of
Registered Holder(s)
(Please fill in, if blank,
exactly as name(s)
appear(s) on Warrant Warrants Tendered
certificate(s)) (Attach additional signed list if necessary)
- ---------------------------------------------------------------------------------
Total Number
of Warrants
Warrant Represented by Number of
Certificate Warrant Warrants
Number(s)(1) Certificate(s)(1) Tendered(2)
--------------------------------------------------
<S> <C> <C> <C>
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
Total Warrants
- ---------------------------------------------------------------------------------
</TABLE>
(1) Need not be completed by Book-Entry Warrantholders.
(2) Unless otherwise indicated, it will be assumed that all Warrants
represented by Warrant certificates delivered to the Depositary are
being tendered hereby. See Instruction 4.
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE INSTRUCTIONS SET FORTH IN THIS LETTER OF TRANSMITTAL
CAREFULLY.
Ladies and Gentlemen:
The undersigned hereby tenders to Aqua Acquisition Corporation (the
"Purchaser"), a Delaware corporation and an indirect wholly owned subsidiary
of Vivendi ("Parent"), a societe anonyme organized under the laws of the
Republic of France, the above-described shares of Class A Common Stock, par
value $.001 per share (the "Shares") of Aqua Alliance Inc. (the "Company"), a
Delaware corporation, at a purchase price of $2.90 per Share, net to the
seller in cash, without interest thereon and/or Warrants to purchase the
Shares issued
3
<PAGE>
pursuant to the Company Rights Offering, dated January 26, 1998 ("Warrants"),
at a purchase price of $0.40 per Warrant, upon the terms and subject to the
conditions set forth in the Offer to Purchase, dated July 16, 1999, and in
this Letter of Transmittal (which, together with any amendments or supplements
thereto or hereto, collectively constitute the "Offer"). The undersigned
understands that the Purchaser reserves the right to transfer or assign, in
whole at any time, or in part from time to time, to one or more of its
affiliates, the right to purchase all or any portion of the Shares and/or
Warrants tendered pursuant to the Offer, but any such transfer or assignment
will not relieve the Purchaser of its obligations under the Offer and will in
no way prejudice the rights of tendering stockholders and Warrantholders to
receive payment for the Shares and Warrants, respectively, validly tendered
and accepted for payment pursuant to the Offer. Receipt of the Offer is hereby
acknowledged.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of July 9, 1999 (the "Merger Agreement"), by and among Parent, the
Purchaser and the Company.
Upon the terms and subject to the conditions of the Offer (and if the Offer
is extended or amended, the terms of any such extension or amendment), subject
to, and effective upon, acceptance for payment of, and payment for, the Shares
and/or Warrants tendered herewith in accordance with the terms of the Offer,
the undersigned hereby sells, assigns and transfers to, or upon the order of,
the Purchaser all right, title and interest in and to all the Shares and/or
Warrants that are being tendered hereby (and any and all non-cash dividends,
distributions, rights, other Shares or other securities issued or issuable in
respect thereof on or after July 16, 1999 (collectively, "Distributions")) and
irrevocably constitutes and appoints the Depositary the true and lawful Agent
and attorney-in-fact of the undersigned with respect to such Shares and/or
Warrants (and all Distributions), with full power of substitution (such power
of attorney being deemed to be an irrevocable power coupled with an interest),
to (i) deliver certificates for such Shares and/or Warrants (and any and all
Distributions), or transfer ownership of such Shares and/or Warrants (and any
and all Distributions) on the account books maintained by any of the Book-
Entry Transfer Facilities, together, in any such case, with all accompanying
evidences of transfer and authenticity, to or upon the order of the Purchaser,
(ii) present such Shares and/or Warrants (and any and all Distributions) for
transfer on the books of the Company and (iii) receive all benefits and
otherwise exercise all rights of beneficial ownership of such Shares and/or
Warrants (and any and all Distributions), all in accordance with the terms of
the Offer.
By executing this Letter of Transmittal (including delivery through an
Agent's Message), the undersigned hereby irrevocably appoints the designees of
the Purchaser, and each of them, the attorneys-in-fact and proxies of the
undersigned, each with full power of substitution, to vote at any annual or
special meeting of the Company's stockholders or any adjournment or
postponement thereof or otherwise in such manner as each such attorney-in-fact
and proxy or his substitute shall in his sole discretion deem proper with
respect to, to execute any written consent concerning any matter as each such
attorney-in-fact and proxy or his substitute shall in his sole discretion deem
proper with respect to, and to otherwise act as each such attorney-in-fact and
proxy or his substitute shall in his sole discretion deem proper with respect
to, all of the Shares and/or the Warrants (and any and all Distributions)
tendered hereby and accepted for payment by the Purchaser. This appointment
will be effective if and when, and only to the extent that, the Purchaser
accepts such Shares and/or Warrants for payment pursuant to the Offer. This
power of attorney and proxy are irrevocable and are granted in consideration
of the acceptance for payment of such Shares and/or Warrants in accordance
with the terms of the Offer. Such acceptance for payment shall, without
further action, revoke any prior powers of attorney and proxies granted by the
undersigned at any time with respect to such Shares and/or Warrants (and any
and all Distributions), and no subsequent powers of attorney, proxies,
consents or revocations may be given by the undersigned with respect thereto
(and, if given, will not be deemed effective). The Purchaser reserves the
right to require that, in order for the Shares, Warrants or other securities
to be deemed validly tendered and not properly withdrawn, immediately upon the
Purchaser's acceptance for payment of such Shares and/or Warrants, the
Purchaser must be able to exercise full voting, consent and other rights with
respect to such Shares and/or Warrants (and any and all Distributions),
including voting at any meeting of the Company's stockholders.
4
<PAGE>
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Shares and/or
Warrants tendered hereby and all Distributions, that the undersigned owns the
Shares and/or Warrants tendered hereby within the meaning of Rule 14e-4
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), that the tender of the tendered Shares and/or Warrants
complies with Rule 14e-4 under the Exchange Act, and that when the same are
accepted for payment by the Purchaser, the Purchaser will acquire good,
marketable and unencumbered title thereto and to all Distributions, free and
clear of all liens, restrictions, charges and encumbrances and the same will
not be subject to any adverse claims. The undersigned will, upon request,
execute and deliver any additional documents deemed by the Depositary or the
Purchaser to be necessary or desirable to complete the sale, assignment and
transfer of the Shares and/or Warrants tendered hereby and all Distributions.
In addition, the undersigned shall remit and transfer promptly to the
Depositary for the account of the Purchaser all Distributions in respect of
the Shares and/or Warrants tendered hereby, accompanied by appropriate
documentation of transfer, and, pending such remittance and transfer or
appropriate assurance thereof, the Purchaser shall be entitled to all rights
and privileges as owner of each such Distribution and may withhold the entire
purchase price of the Shares and/or Warrants tendered hereby or deduct from
such purchase price the amount or value of such Distribution as determined by
the Purchaser in its sole discretion.
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned, and any obligation of the undersigned
hereunder shall be binding upon the heirs, executors, administrators, personal
representatives, trustees in bankruptcy, successors and assigns of the
undersigned. Except as stated in the Offer, this tender is irrevocable.
The undersigned understands that the valid tender of the Shares and/or
Warrants pursuant to any one of the procedures described in Section 3 of the
Offer to Purchase and in the Instructions hereto will constitute a binding
agreement between the undersigned and the Purchaser upon the terms and subject
to the conditions of the Offer (and if the Offer is extended or amended, the
terms or conditions of any such extension or amendment). Without limiting the
foregoing, if the price to be paid in the Offer is amended in accordance with
the Merger Agreement, the price to be paid to the undersigned will be the
amended price notwithstanding the fact that a different price is stated in
this Letter of Transmittal. The undersigned recognizes that under certain
circumstances set forth in the Offer to Purchase, the Purchaser may not be
required to accept for payment any of the Shares and/or Warrants tendered
hereby.
Unless otherwise indicated under "Special Payment Instructions," please
issue the check for the purchase price of all the Shares and/or Warrants
purchased and/or return any certificates for the Shares and/or Warrants not
tendered or accepted for payment in the name(s) of the registered holder(s)
appearing above under "Description of Shares Tendered" and/or "Description of
Warrants Tendered." Similarly, unless otherwise indicated under "Special
Delivery Instructions," please mail the check for the purchase price of all
the Shares and/or Warrants purchased and/or return any certificates for the
Shares and/or Warrants not tendered or not accepted for payment (and any
accompanying documents, as appropriate) to the address(es) of the registered
holder(s) appearing above under "Description of Shares Tendered" and/or under
"Description of Warrants Tendered." In the event that the boxes entitled
"Special Payment Instructions" and "Special Delivery Instructions" are both
completed, please issue the check for the purchase price of all the Shares
and/or Warrants purchased and/or return any certificates evidencing the Shares
and/or Warrants not tendered or not accepted for payment (and any accompanying
documents, as appropriate) in the name(s) of, and deliver such check and/or
return any such certificates (and any accompanying documents, as appropriate)
to, the person(s) so indicated. Unless otherwise indicated herein in the box
entitled "Special Payment Instructions," please credit any of the Shares
and/or Warrants tendered herewith by book-entry transfer that are not accepted
for payment by crediting the account at the Book-Entry Transfer Facility
designated above. The undersigned recognizes that the Purchaser has no
obligation, pursuant to the "Special Payment Instructions," to transfer any
Shares and/or Warrants from the name of the registered holder thereof if the
Purchaser does not accept for payment any of the Shares and/or Warrants so
validly tendered and not withdrawn.
5
<PAGE>
[_]CHECK HERE IF ANY OF THE CERTIFICATES REPRESENTING THE SHARES THAT YOU OWN
HAVE BEEN LOST, DESTROYED OR STOLEN AND SEE INSTRUCTION 11.
Number of the Shares represented by lost, destroyed or stolen
certificates: ______________________________________________________________
[_]CHECK HERE IF ANY OF THE CERTIFICATES REPRESENTING WARRANTS THAT YOU OWN
HAVE BEEN LOST, DESTROYED OR STOLEN AND SEE INSTRUCTION 11.
Number of Warrants represented by lost, destroyed or stolen certificates: __
6
<PAGE>
SPECIAL PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 1, 5, 6 and 7) (See Instructions 1, 5, 6 and 7)
To be completed ONLY if the To be completed ONLY if certifi-
check for the purchase price of cates for the Shares and/or War-
the Shares and/or Warrants ac- rants not validly tendered or not
cepted for payment is to be is- accepted for payment and/or the
sued in the name of someone other check for the purchase price of
than the undersigned, if certifi- the Shares and/or Warrants ac-
cates for the Shares and/or War- cepted for payment is to be sent
rants not tendered or not ac- to someone other than the under-
cepted for payment are to be is- signed or to the undersigned at
sued in the name of someone other an address other than that shown
than the undersigned or if the under "Description of Shares Ten-
Shares and/or Warrants validly dered" and/or under "Description
tendered hereby and delivered by of Warrants Tendered."
book-entry transfer that are not
accepted for payment are to be Mail check and/or the Share cer-
returned by credit to an account tificates to:
maintained at a Book-Entry Trans-
fer Facility other than the ac- Name _____________________________
count indicated above. (Please Print)
Issue check and/or the Share cer- Address __________________________
tificate(s) to:
__________________________________
Name _____________________________ (Include Zip Code)
(Please Print)
__________________________________
Address __________________________ (Taxpayer Identification or
Social Security Number)
__________________________________ (See Substitute Form W-9)
(Include Zip Code)
Mail check and/or Warrant certif-
__________________________________ icates to:
(Taxpayer Identification or
Social Security Number) Name _____________________________
(See Substitute Form W-9) (Please Print)
Credit the Shares delivered by Address __________________________
book-entry transfer and not pur-
chased to the Book-Entry Transfer __________________________________
Facility account set forth below (Include Zip Code)
__________________________________ __________________________________
(Account Number) (Taxpayer Identification or
Social Security Number)
Issue check and/or Warrant cer- (See Substitute Form W-9)
tificate(s) to:
Name _____________________________
(Please Print)
Address __________________________
__________________________________
(Include Zip Code)
__________________________________
(Taxpayer Identification or
Social Security Number)
(See Substitute Form W-9)
Credit Warrants delivered by
book-entry transfer and not pur-
chased to the Book-Entry Transfer
Facility account set forth below
__________________________________
(Account Number)
7
<PAGE>
SIGN HERE
(Also Complete Substitute Form W-9 Below)
____________________________________________________________________________
____________________________________________________________________________
(Signature(s) of Stockholder(s) and/or Warrantholder(s))
Dated: _____________________, 1999
(Must be signed by registered holder(s) exactly as name(s) appear(s) on the
Share certificate(s) and/or the Warrant certificate(s) or on a security
position listing or by person(s) authorized to become registered holder(s)
by certificates and documents transmitted herewith. If signature is by
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative
capacity, please provide the following information and see Instruction 5.)
Name(s) ____________________________________________________________________
(Please Print)
Name of Firm _______________________________________________________________
Capacity (full title) ______________________________________________________
(see Instruction 5)
Address ____________________________________________________________________
____________________________________________________________________________
(Include Zip Code)
Area Code and Telephone Number _____________________________________________
Taxpayer Identification or Social Security Number __________________________
(See Substitute Form W-9)
GUARANTEE OF SIGNATURE(S)
(See Instructions 1 and 5)
Authorized Signature _______________________________________________________
Name(s) ____________________________________________________________________
(Please Print)
Title ______________________________________________________________________
Name of Firm _______________________________________________________________
Address ____________________________________________________________________
____________________________________________________________________________
(Include Zip Code)
Area Code and Telephone Number _____________________________________________
8
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Offer
1. Guarantee of Signatures. No signature guarantee is required on this
Letter of Transmittal (a) if this Letter of Transmittal is signed by the
registered holder(s) (which term, for purposes of this Section, includes any
participant in any of the Book-Entry Transfer Facility's system whose name
appears on a security position listing as the owner of the Shares and/or
Warrants) of the Shares and/or Warrants tendered herewith, unless such
registered holder(s) has completed either the box entitled "Special Payment
Instructions" or the box entitled "Special Delivery Instructions" on the
Letter of Transmittal or (b) if such Shares and/or Warrants are tendered for
the account of a financial institution (including most commercial banks,
savings and loan associations and brokerage houses) that is a participant in
the Security Transfer Agents Medallion Program and or other entity which is an
"eligible guarantor institution," as such term is defined in Rule 17A-15 under
the Exchange Act (an "Eligible Institution"). In all other cases, all
signatures on this Letter of Transmittal must be guaranteed by an Eligible
Institution. See Instruction 5.
2. Delivery of Letter of Transmittal and Shares; Guaranteed Delivery
Procedures. This Letter of Transmittal is to be completed by stockholders
and/or Warrantholders of the Company either if the Share certificates and
Warrant certificates, respectively, are to be forwarded herewith or, unless an
Agent's Message is utilized, if delivery of the Shares and Warrants,
respectively, is to be made by book-entry transfer pursuant to the procedures
set forth herein and in "THE TENDER OFFER--Section 3. Procedures for Accepting
the Offer and Tendering the Shares and Warrants" of the Offer to Purchase. For
a stockholder and/or Warrantholder validly to tender the Shares and the
Warrants, respectively, pursuant to the Offer, either (a) a properly completed
and duly executed Letter of Transmittal (or facsimile thereof), together with
any required signature guarantees or an Agent's Message (in connection with
book-entry transfer) and any other required documents, must be received by the
Depositary at one of its addresses set forth herein prior to the Expiration
Date and either (i) certificates for tendered Shares and/or Warrants must be
received by the Depositary at one of such addresses prior to the Expiration
Date or (ii) the Shares and/or Warrants must be delivered pursuant to the
procedures for book-entry transfer set forth herein and in "THE TENDER OFFER--
Section 3. Procedures for Accepting the Offer and Tendering the Shares and
Warrants" of the Offer to Purchase and a Book-Entry Confirmation must be
received by the Depositary prior to the Expiration Date or (b) the tendering
stockholder must comply with the guaranteed delivery procedures set forth
herein and in "THE TENDER OFFER--Section 3. Procedures for Accepting the Offer
and Tendering the Shares and Warrants" of the Offer to Purchase.
Stockholders and/or Warrantholders whose certificates for the Shares and
Warrants, respectively, are not immediately available or who cannot deliver
their certificates and all other required documents to the Depositary prior to
the Expiration Date or who cannot comply with the book-entry transfer
procedures on a timely basis may validly tender their Shares and Warrants,
respectively, by properly completing and duly executing the Notice of
Guaranteed Delivery pursuant to the guaranteed delivery procedure set forth
herein and in Section 3 of the Offer to Purchase.
Pursuant to such guaranteed delivery procedures, (i) such tender must be
made by or through an Eligible Institution, (ii) a properly completed and duly
executed Notice of Guaranteed Delivery, substantially in the form provided by
the Purchaser, must be received by the Depositary prior to the Expiration Date
and (iii) the certificates for all tendered Shares and/or Warrants, in proper
form for transfer (or a Book-Entry Confirmation with respect to all tendered
Shares and/or Warrants), together with a properly completed and duly executed
Letter of Transmittal (or a facsimile thereof), with any required signature
guarantees, or, in the case of a book-entry transfer, an Agent's Message, and
any other required documents must be received by the Depositary within three
trading days after the date of execution of such Notice of Guaranteed
Delivery. A "trading day" is any day on which the American Stock Exchange is
open for business.
The term "Agent's Message" means a message, transmitted by the Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, which states that the Book-Entry Transfer Facility
has received an express acknowledgment from the participant in the Book-Entry
Transfer Facility tendering the Shares and/or Warrants, that such participant
has received and agrees to be bound by the terms of the Letter of Transmittal
and that the Purchaser may enforce such agreement against the participant.
9
<PAGE>
The signatures on this Letter of Transmittal cover the Shares and/or
Warrants tendered hereby.
The method of delivery of the Shares and/or Warrants, this Letter of
Transmittal and all other required documents, including delivery through any
book-entry transfer facility, is at the election and risk of the tendering
stockholder and/or Warrantholder. The Shares and/or Warrants will be deemed
delivered only when actually received by the Depositary (including, in the
case of a book-entry transfer, by book-entry confirmation). If delivery is by
mail, registered mail with return receipt requested, properly insured, is
recommended. In all cases, sufficient time should be allowed to ensure timely
delivery.
No alternative, conditional or contingent tenders will be accepted, and no
fractional Shares and/or Warrants will be purchased. All tendering
stockholders and/or Warrantholders, by executing this Letter of Transmittal
(or facsimile thereof), waive any right to receive any notice of acceptance of
their Shares and/or Warrants for payment.
3. Inadequate Space. If the space provided herein under "Description of
Shares Tendered" and/or "Description of Warrants Tendered" is inadequate, the
number of the Shares and/or Warrants tendered and the Share certificate and/or
Warrant certificate numbers with respect to such Shares and/or Warrants should
be listed on a separate signed schedule attached hereto.
4. Partial Tenders. (Not applicable to stockholders and/or Warrantholders
who tender by book-entry transfer). If fewer than all the Shares and/or
Warrants evidenced by any Share certificate and/or Warrant certificate
delivered to the Depositary herewith are to be tendered hereby, fill in the
number of the Shares and/or Warrants that are to be tendered in the box
entitled "Number of Shares Tendered" and/or "Number of Warrants Tendered." In
any such case, new certificate(s) for the remainder of the Shares and/or
Warrants that were evidenced by the old certificates will be sent to the
registered holder, unless otherwise provided in the appropriate box on this
Letter of Transmittal, as soon as practicable after the Expiration Date or the
termination of the Offer. All the Shares and/or Warrants represented by
certificates delivered to the Depositary will be deemed to have been tendered
unless otherwise indicated.
5. Signatures on Letter of Transmittal, Stock Powers and Endorsements. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
and/or Warrants tendered hereby, the signature(s) must correspond with the
name(s) as written on the face of the certificate(s) without alteration,
enlargement or any change whatsoever.
If any of the Shares and/or Warrants tendered hereby are held of record by
two or more joint owners, all such owners must sign this Letter of
Transmittal.
If any of the tendered Shares and/or Warrants are registered in different
names on several certificates, it will be necessary to complete, sign and
submit as many separate Letters of Transmittal as there are different
registrations of certificates.
If this Letter of Transmittal or any Share certificate, Warrant certificate
or stock power is signed by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a
fiduciary or representative capacity, such person should so indicate when
signing, and proper evidence satisfactory to the Purchaser of the authority of
such person so to act must be submitted.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares and/or Warrants listed and transmitted hereby, no endorsements of the
Share certificates, Warrant certificates or separate stock powers are required
unless payment or certificates for the Shares and/or Warrants not validly
tendered or not accepted for payment are to be issued in the name of a person
other than the registered holder(s). Signatures on any such Share
certificates, Warrant certificates or stock powers must be guaranteed by an
Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Shares and/or Warrants evidenced by certificates
listed and transmitted hereby, the Share certificates and/or Warrant
certificates must be endorsed or accompanied by appropriate stock powers, in
either case signed exactly as the name(s) of the registered holder(s)
appear(s) on the Share certificates and/or Warrant certificates. Signature(s)
on any such Share certificates, Warrant certificates or stock powers must be
guaranteed by an Eligible Institution.
10
<PAGE>
6. Stock Transfer Taxes. Except as otherwise provided in this Instruction 6,
the Purchaser will pay all stock transfer taxes with respect to the transfer
and sale of any of the Shares and Warrants to it or its order pursuant to the
Offer. If, however, payment of the purchase price of any of the Shares and
Warrants purchased is to be made to, or if certificates for the Shares and
Warrants not tendered or not accepted for payment are to be registered in the
name of, any person other than the registered holder(s), or if tendered
certificates are registered in the name of any person other than the person(s)
signing this Letter of Transmittal, the amount of any stock transfer taxes
(whether imposed on the registered holder(s) or such other person) payable on
account of the transfer to such other person will be deducted from the
purchase price of such Shares and Warrants purchased unless evidence
satisfactory to the Purchaser of the payment of such taxes, or exemption
therefrom, is submitted.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Share certificates and Warrant
certificates evidencing the Shares and Warrants tendered hereby.
7. Special Payment and Delivery Instructions. If a check for the purchase
price of any Shares and Warrants accepted for payment is to be issued in the
name of, and/or the Share certificates and/or Warrant certificates for the
Shares and Warrants, respectively, not accepted for payment or not tendered
are to be issued in the name of and/or returned to, a person other than the
signer of this Letter of Transmittal or if a check is to be sent, and/or such
certificates are to be returned, to a person other than the signer of this
Letter of Transmittal, or to an address other than that shown above, the
appropriate boxes on this Letter of Transmittal should be completed. Any
stockholder(s) and/or Warrantholder(s) delivering the Shares and Warrants,
respectively, by book-entry transfer may request that the Shares and Warrants
not purchased be credited to such account maintained at the Book-Entry
Transfer Facility as such stockholder(s) and Warrantholder(s), respectively,
may designate in the box entitled "Special Payment Instructions." If no such
instructions are given, any such Shares and/or Warrants not purchased will be
returned by crediting the account at the Book-Entry Transfer Facility
designated above as the account from which such Shares and Warrants were
delivered.
8. Requests for Assistance or Additional Copies. Questions and requests for
assistance or additional copies of the Offer to Purchase, this Letter of
Transmittal, the Notice of Guaranteed Delivery and the Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 may be
directed to the Information Agent, at the addresses or telephone numbers set
forth below, or from brokers, dealers, commercial banks or trust companies.
9. Waiver of Conditions. The Purchaser reserves the absolute right in its
sole discretion to waive, at any time or from time to time, any of the
specified conditions of the Offer, in whole or in part, in the case of any of
the Shares and Warrants tendered.
10. Backup Withholding. In order to avoid "backup withholding" of federal
income tax on payments of cash pursuant to the Offer, a stockholder and/or
Warrantholder surrendering the Shares and Warrants, respectively, in the Offer
must, unless an exemption applies, provide the Depositary with such
stockholder's and/or Warrantholder's correct taxpayer identification number
("TIN") on Substitute Form W-9 in this Letter of Transmittal and certify,
under penalties of perjury, that such TIN is correct and that such stockholder
and/or Warrantholder is not subject to backup withholding.
Backup withholding is not an additional income tax. Rather, the amount of
the backup withholding can be credited against the federal income tax
liability of the person subject to the backup withholding, provided that the
required information is given to the IRS. If backup withholding results in an
overpayment of tax, a refund can be obtained by the stockholder and/or
Warrantholder upon filing an income tax return.
The stockholder and/or Warrantholder is required to give the Depositary the
TIN (i.e., social security number or employer identification number) of the
record owner of the Shares and/or Warrants. If the Shares and/or Warrants are
held in more than one name or are not in the name of the actual owner, consult
the enclosed "Guidelines for Certification of Taxpayer Identification Number
on Substitute Form W-9" for additional guidance on which number to report.
11
<PAGE>
The box in Part 3 of the Substitute Form W-9 may be checked if the tendering
stockholder and/or Warrantholder has not been issued a TIN and has applied for
a TIN or intends to apply for a TIN in the near future. If the box in Part 3
is checked, the stockholder, Warrantholder or other payee must also complete
the Certificate of Awaiting Taxpayer Identification Number below in order to
avoid backup withholding. Notwithstanding that the box in Part 3 is checked
and the Certificate of Awaiting Taxpayer Identification Number is completed,
the Depositary will withhold 31% on all payments made prior to the time a
properly certified TIN is provided to the Depositary. However, such amounts
will be refunded to such stockholder and/or Warrantholder if a TIN is provided
to the Depositary within 60 days.
Certain stockholders and/or Warrantholders (including, among others, all
corporations and certain foreign individuals and entities) are not subject to
backup withholding. Noncorporate foreign stockholders and/or Warrantholders
should complete and sign the main signature form and a Form W-8, Certificate
of Foreign Status, a copy of which may be obtained from the Depositary, in
order to avoid backup withholding. See the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
more instructions.
11. Lost, Destroyed or Stolen Share Certificates and Warrant
Certificates. If any certificate(s) representing Shares or Warrants has been
lost, destroyed or stolen, the stockholder or Warrantholder, respectively,
should promptly notify the Share and Warrant transfer agent, First Chicago
Trust Company of New York, a division of EquiServe. The stockholder and
Warrantholder will then be instructed as to the steps that must be taken in
order to replace the Share or Warrant certificate(s), respectively. This
Letter of Transmittal and related documents cannot be processed until the
procedures for replacing lost, destroyed or stolen Share and Warrant
certificates have been followed.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE HEREOF) TOGETHER WITH
ANY REQUIRED SIGNATURE GUARANTEES, OR, IN THE CASE OF A BOOK-ENTRY TRANSFER,
AN AGENT'S MESSAGE, AND ANY OTHER REQUIRED DOCUMENTS, MUST BE RECEIVED BY THE
DEPOSITARY PRIOR TO THE EXPIRATION DATE AND EITHER CERTIFICATES FOR TENDERED
SHARES AND WARRANTS MUST BE RECEIVED BY THE DEPOSITARY OR SHARES OR WARRANTS
MUST BE DELIVERED PURSUANT TO THE PROCEDURES FOR BOOK-ENTRY TRANSFER, IN EACH
CASE PRIOR TO THE EXPIRATION DATE, OR THE TENDERING STOCKHOLDER AND/OR
WARRANTHOLDER MUST COMPLY WITH THE PROCEDURES FOR GUARANTEED DELIVERY.
IMPORTANT TAX INFORMATION
Under Federal income tax law, a stockholder and/or Warrantholder whose
tendered Shares and/or Warrants are accepted for payment is required to
provide the Depositary (as payer) with such stockholder's and/or
Warrantholder's correct taxpayer identification number on Substitute Form W-9
below. If such stockholder and/or Warrantholder is an individual, the taxpayer
identification number is his social security number. If a tendering
stockholder and/or Warrantholder is subject to backup withholding, such
stockholder and/or Warrantholder must cross out item (2) of the Certification
box on the Substitute Form W-9. If the Depositary is not provided with the
correct taxpayer identification number, the stockholder and/or the
Warrantholder may be subject to a $50 penalty imposed by the Internal Revenue
Service. In addition, payments that are made to such stockholder and/or
Warrantholder with respect to Shares and/or Warrants purchased pursuant to the
Offer may be subject to backup withholding.
Certain stockholders and/or Warrantholders (including, among others, all
corporations, and certain foreign individuals) are not subject to these backup
withholding and reporting requirements. In order for a foreign individual to
qualify as an exempt recipient, that stockholder and/or Warrantholder must
submit a statement, signed under penalties of perjury, attesting to that
individual's exempt status. Such statements can be obtained from the
Depositary. Exempt stockholders and/or Warrantholders, other than foreign
individuals, should furnish their TIN, write "Exempt" on the face of the
Substitute Form W-9 below, and sign, date and return the Substitute Form W-9
to the Depositary. See the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional instructions.
12
<PAGE>
If backup withholding applies, the Depositary is required to withhold 31% of
any payments made to the stockholder and/or Warrantholder. Backup withholding
is not an additional tax. Rather, the tax liability of persons subject to
backup withholding will be reduced by the amount of tax withheld. If
withholding results in an overpayment of taxes, a refund may be obtained from
the Internal Revenue Service.
Purpose of Substitute Form W-9
To prevent backup withholding on payments that are made to a stockholder
and/or Warrantholder with respect to the Shares and/or Warrants purchased
pursuant to the Offer, the stockholder and/or Warrantholder is required to
notify the Depositary of such stockholder's and/or Warrantholder's correct
taxpayer identification number by completing the form contained herein
certifying that the taxpayer identification number provided on Substitute Form
W-9 is correct (or that such stockholder and/or Warrantholder is awaiting a
taxpayer identification number).
What Number to Give the Depositary
The stockholder and/or Warrantholder is required to give the Depositary the
social security number or employer identification number of the record owner
of the Shares and/or Warrants. If the Shares and/or Warrants are in more than
one name or are not in the name of the actual owner, consult the enclosed
Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9 for additional guidance on which number to report. If the tendering
stockholder and/or Warrantholder has not been issued a TIN and has applied for
a number or intends to apply for a number in the near future, such stockholder
and/or Warrantholder should write "Applied For" in the space provided for in
the TIN in Part 1, and sign and date the Substitute Form W-9. If "Applied For"
is written in Part 1 and the Depositary is not provided with a TIN within 60
days, the Depositary will withhold 31% on all payments of the purchase price
until a TIN is provided to the Depositary.
13
<PAGE>
PAYER'S NAME: ChaseMellon Shareholder Services, L.L.C.
Part 1--PLEASE PROVIDE YOUR
TIN IN THE BOX AT RIGHT AND
CERTIFY BY SIGNING AND
DATING BELOW
----------------------
SUBSTITUTE Social Security Number
FORM W-9 (If awaiting TIN write
"Applied For")
Department of
the Treasury OR
Internal Revenue
Service ----------------------
Employer Identification
Number (If awaiting TIN
write "Applied For")
Payer's Request for
Taxpayer Identification
Number ("TIN")
--------------------------------------------------------
Part 2--Certificate--Under penalties of perjury, I
certify that:
(1) The number shown on this form is my correct
Taxpayer Identification Number (or I am waiting
for a number to be issued for me), and
(2) I am not subject to backup withholding because:
(a) I am exempt from backup withholding, or (b) I
have not been notified by the Internal Revenue
Service (the "IRS") that I am subject to backup
withholding as a result of a failure to report
all interest or dividends, or (c) the IRS has
notified me that I am no longer subject to backup
withholding.
--------------------------------------------------------
CERTIFICATION INSTRUCTIONS--You must cross out item
(2) above if you have been notified by the IRS that
you are currently subject to backup withholding
because of under-reporting interest or dividends on
your tax returns. However, if after being notified by
the IRS that you are subject to backup withholding,
you receive another notification from the IRS that
you are no longer subject to backup withholding, do
not cross out such item (2). (Also see instructions
in the enclosed Guidelines).
SIGNATURE ______________________ DATE _______ , 1999
--------------------------------------------------------
Part 3--Awaiting TIN [_]
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY CASH PAYMENTS MADE TO YOU PURSUANT TO THE
OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3
OF THE SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a Taxpayer Identification
Number has not been issued to me, and either (1) I have mailed or delivered
an application to receive a Taxpayer Identification Number to the
appropriate Internal Revenue Service Center or Social Security
Administration Office or (2) I intend to mail or deliver an application in
the near future. I understand that if I do not provide a Taxpayer
Identification Number to the Depositary by the time of payment, 31% of all
reportable payments made to me thereafter will be withheld, but that such
amounts will be refunded to me if I provide a certified Taxpayer
Identification Number to the Depositary within sixty (60) days.
____________________________________ _____________________________ , 1999
Signature Date
14
<PAGE>
Questions and requests for assistance or additional copies of the Offer to
Purchase, this Letter of Transmittal and other tender offer materials may be
directed to the Information Agent as set forth below:
The Information Agent for the Offer is:
Innisfree M&A Incorporated
501 MADISON AVENUE, 20TH FLOOR
NEW YORK, NEW YORK 10022
BANKS AND BROKERS CALL COLLECT: (212) 750-5833
ALL OTHERS CALL TOLL FREE (888) 750-5834
15
<PAGE>
EXHIBIT (a)(3)
<PAGE>
Notice of Guaranteed Delivery
for
Tender of Shares of Common Stock and
Warrants to Purchase Common Stock
of
Aqua Alliance Inc.
Pursuant to the Offer to Purchase
Dated July 16, 1999
of
Aqua Acquisition Corporation,
an indirect wholly owned subsidiary of
Vivendi
(Not to be Used for Signature Guarantees)
This Notice of Guaranteed Delivery, or a form substantially equivalent
hereto, must be used to accept the Offer (as defined below) if certificates
representing shares of Class A Common Stock, par value $.001 per share (the
"Shares"), of Aqua Alliance Inc. (the "Company"), a Delaware corporation, and
Warrants to purchase the Shares issued pursuant to the Company Rights
Offering, dated January 26, 1998 ("Warrants"), are not immediately available,
if the procedure for book-entry transfer cannot be completed prior to the
Expiration Date (as defined in "THE TENDER OFFER--Section 1. Terms of the
Offer" of the Offer to Purchase), or if time will not permit all required
documents to reach the Depositary prior to the Expiration Date. Such form may
be delivered by hand, transmitted by facsimile transmission or mailed to the
Depositary. See "THE TENDER OFFER--Section 3. Procedures for Accepting the
Offer and Tendering the Shares and Warrants" of the Offer to Purchase.
The Depositary for the Offer is:
ChaseMellon Shareholder Services, L.L.C.
By Mail: By Hand: By Overnight Delivery:
Reorganization Reorganization Reorganization
Department Department Department
P.O. Box 3301 120 Broadway 85 Challenger Road
South Hackensack, NJ 13th Floor Mail Drop-Reorg.
07606 New York, NY 10271 Ridgefield Park, NJ
07660
By Facsimile
Transmission:
(201) 296-4293
(For Eligible
Institutions Only)
Confirm Facsimile by
Telephone:
(201) 296-4860
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION
OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
This form is not to be used to guarantee signatures. If a signature on a
Letter of Transmittal is required to be guaranteed by an Eligible Institution
(as defined below) under the instructions thereto, such signature guarantee
must appear in the applicable space provided in the signature box on the
Letter of Transmittal.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Aqua Acquisition Corporation (the
"Purchaser"), a Delaware corporation and an indirect wholly owned subsidiary
of Vivendi, a societe anonyme organized under the laws of the Republic of
France, receipt of which is hereby acknowledged, the shares of Class A Common
Stock, par value $.001 per share (the "Shares") of Aqua Alliance Inc. (the
"Company"), a Delaware corporation, the number of which is set forth below,
and the Warrants to purchase the Shares issued pursuant to the Company Rights
Offering, dated January 26, 1998 ("Warrants"), the number of which is set
forth below, pursuant to the Purchaser's Offer to Purchase, dated July 16,
1999, and the related Letter of Transmittal (which, together with any
amendment or supplements thereto, collectively constitute the "Offer"),
pursuant to the guaranteed delivery procedures set forth in "THE TENDER
OFFER--Section 3. Procedures for Accepting the Offer and Tendering the Shares
and Warrants" of the Offer to Purchase.
Number of Shares: _________________ Name(s) of Record Holder(s):
Certificate Nos. (if available): -----------------------------------
----------------------------------- -----------------------------------
Please Print
-----------------------------------
Address(es): ______________________
Check box if Shares will be
tendered by book-entry transfer:
[_]
-----------------------------------
-----------------------------------
Account Number: ___________________ Zip Code
Dated: _____________________ , 1999 Area Code and Tel. No.:
Number of Warrants: _______________ -----------------------------------
Certificate Nos. (if available): -----------------------------------
----------------------------------- Signature(s): _____________________
----------------------------------- -----------------------------------
Check box if Warrants will be
tendered by book-entry transfer:
[_]
Account Number: ___________________
Dated: _____________________ , 1999
2
<PAGE>
GUARANTEE
(Not To be Used for Signature Guarantees)
The undersigned, a participant in the Security Transfer Agents Medallion
Program or other entity which is an "eligible guarantor institution," as such
term is defined in Rule 17A-15 under the Securities Exchange Act of 1934, as
amended (an "Eligible Institution"), guarantees to deliver to the Depositary
either certificates representing the Shares and/or Warrants tendered hereby,
in proper form for transfer, or confirmation of book-entry transfer of such
Shares and/or Warrants into the Depositary's accounts at The Depository Trust
Company, in each case with delivery of a properly completed and duly executed
Letter of Transmittal (or facsimile thereof), with any required signature
guarantees, or an Agent's Message, and any other documents required by the
Letter of Transmittal, within three trading days (as defined in the Offer to
Purchase) after the date hereof.
The Eligible Institution that completes this form must communicate the
guarantee to the Depositary and must deliver the Letter of Transmittal and
certificates for the Shares and/or Warrants to the Depositary within the time
period shown herein. Failure to do so could result in a financial loss to such
Eligible Institution.
Name of Firm: _______________________ _____________________________________
Authorized Signature
Address: ____________________________
Name: _______________________________
_____________________________________ Please Print
Zip Code
Title: ______________________________
Area Code and Tel. No.: _____________
Dated: _______________________ , 1999
NOTE: DO NOT SEND CERTIFICATES FOR SHARES AND/OR WARRANTS WITH THIS NOTICE.
CERTIFICATES SHOULD BE SENT ONLY WITH YOUR LETTER OF TRANSMITTAL.
3
<PAGE>
EXHIBIT (a)(4)
<PAGE>
Offer to Purchase for Cash
Any and All Outstanding Shares of Common Stock
and
Any and All Outstanding Warrants to Purchase Common Stock
of
Aqua Alliance Inc.
by
Aqua Acquisition Corporation,
an indirect wholly owned subsidiary of
Vivendi
At
$2.90 Net Per Share of Common Stock and
$0.40 Net Per Warrant
THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON THURSDAY, AUGUST 12, 1999, UNLESS THE OFFER IS EXTENDED. THE
SHARES AND/OR WARRANTS WHICH ARE TENDERED PURSUANT TO THE OFFER MAY BE
WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE.
July 16, 1999
To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees:
We have been appointed by Aqua Acquisition Corporation (the "Purchaser"), a
Delaware corporation and an indirect wholly owned subsidiary of Vivendi
("Parent"), a societe anonyme organized under the laws of the Republic of
France, to act as Dealer Manager in connection with the Purchaser's offer to
purchase all outstanding shares of Class A Common Stock, par value $.001 per
share (the "Shares") of Aqua Alliance Inc. (the "Company"), a Delaware
corporation, at a purchase price of $2.90 per Share, net to the seller in
cash, without interest thereon (the "Share Offer Price") and all outstanding
Warrants to purchase the Shares issued pursuant to the Company Rights
Offering, dated January 26, 1998 ("Warrants"), at the purchase price of $0.40
per Warrant (the "Warrant Offer Price") upon the terms and subject to the
conditions set forth in the Offer to Purchase, dated July 16, 1999, and in the
related Letter of Transmittal (which, together with any amendments or
supplements thereto or hereto, collectively constitute the "Offer") enclosed
herewith. Please furnish copies of the enclosed materials to those of your
clients for whose accounts you hold the Shares and/or Warrants registered in
your name or in the name of your nominee.
The Offer is conditioned upon, among other things, there being validly
tendered and not properly withdrawn prior to the Expiration Date (as defined
in the Offer to Purchase) that number of the Shares which constitutes, when
aggregated with the Shares and Warrants owned directly or indirectly by
Parent, at least 90% of the Shares then outstanding (assuming exercise of all
outstanding options). The Offer is also subject to the other terms and
conditions contained in the Offer to Purchase. See "THE TENDER OFFER--Section
10. Certain Conditions of the Offer" of the Offer to Purchase.
For your information and for forwarding to your clients for whom you hold
the Shares and/or Warrants registered in your name or in the name of your
nominee, we are enclosing the following documents:
1. Offer to Purchase dated July 16, 1999;
2. Letter of Transmittal for your use in accepting the Offer and
tendering the Shares and/or Warrants and for the information of your
clients;
<PAGE>
3. Notice of Guaranteed Delivery to be used to accept the Offer if
certificates for the Shares and/or Warrants and all other required
documents cannot be delivered to the Depositary, or if the procedures for
book-entry transfer cannot be completed, by the Expiration Date (as defined
in the Offer to Purchase);
4. A letter which may be sent to your clients for whose accounts you hold
the Shares and/or Warrants registered in your name or in the name of your
nominee, with space provided for obtaining such clients' instructions with
regard to the Offer;
5. A letter to stockholders and holders of Warrants of the Company from
Thierry M. Mallet, President and Chief Executive Officer of the Company,
together with a Solicitation/Recommendation Statement on Schedule 14D-9,
dated July 16, 1999, which has been filed by the Company with the
Securities and Exchange Commission;
6. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9; and
7. A return envelope addressed to the Depositary.
Upon the terms and subject to the conditions of the Offer (including, if the
Offer is extended or amended, the terms and conditions of any such extension
or amendment), the Purchaser will accept for payment and pay for the Shares
and/or Warrants which are validly tendered and not properly withdrawn prior to
the Expiration Date when, as and if the Purchaser gives oral or written notice
to the Depositary of the Purchaser's acceptance of such Shares and/or Warrants
for payment pursuant to the Offer. Payment for the Shares and/or Warrants
purchased pursuant to the Offer will in all cases be made only after timely
receipt by the Depositary of (i) certificates for such Shares and/or Warrants,
or timely confirmation of a book-entry transfer of such Shares and/or Warrants
into the Depositary's account at The Depository Trust Company, pursuant to the
procedures described in "THE TENDER OFFER--Section 3. Procedures for Accepting
the Offer and Tendering the Shares and Warrants" of the Offer to Purchase,
(ii) a properly completed and duly executed Letter of Transmittal (or a
properly completed and manually signed facsimile thereof) or an Agent's
Message in connection with a book-entry transfer and (iii) all other documents
required by the Letter of Transmittal.
The Purchaser will not pay any fees or commissions to any broker or dealer
or other person (other than the Depositary and the Information Agent as
described in the Offer to Purchase) for soliciting tenders of the Shares
and/or Warrants pursuant to the Offer. The Purchaser will, however, upon
request, reimburse brokers, dealers, commercial banks and trust companies for
customary mailing and handling costs incurred by them in forwarding the
enclosed materials to their customers.
The Purchaser will pay or cause to be paid all stock transfer taxes
applicable to its purchase of the Shares and/or Warrants pursuant to the
Offer, subject to Instruction 6 of the Letter of Transmittal.
WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE NOTE
THAT THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON THURSDAY, AUGUST 12, 1999, UNLESS THE OFFER IS EXTENDED.
In order to take advantage of the Offer, a duly executed and properly
completed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees, or an Agent's Message (as defined in the Offer to
Purchase) in connection with a book-entry transfer of the Shares and/or
Warrants, and any other required documents, should be sent to the Depositary,
and certificates representing the tendered Shares and/or Warrants should be
delivered or such Shares and/or Warrants should be tendered by book-entry
transfer, all in accordance with the Instructions set forth in the Letter of
Transmittal and in the Offer to Purchase.
If holders of the Shares and/or Warrants wish to tender, but it is
impracticable for them to forward their certificates or other required
documents or to complete the procedures for delivery by book-entry transfer
prior to the expiration of the Offer, a tender may be effected by following
the guaranteed delivery procedures specified in "THE TENDER OFFER--Section 3.
Procedures for Accepting the Offer and Tendering the Shares and Warrants" of
the Offer to Purchase.
2
<PAGE>
Any inquiries you may have with respect to the Offer should be addressed to,
and additional copies of the enclosed materials may be obtained from, the
Information Agent at the addresses and telephone numbers set forth on the back
cover of the Offer to Purchase.
Very truly yours,
Lazard Freres & Co. llc
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
THE AGENT OF PARENT, THE PURCHASER, THE COMPANY, THE INFORMATION AGENT, THE
DEPOSITARY OR ANY AFFILIATE OF ANY OF THE FOREGOING, OR AUTHORIZE YOU OR ANY
OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON BEHALF OF ANY OF
THEM IN CONNECTION WITH THE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH
AND THE STATEMENTS CONTAINED THEREIN.
3
<PAGE>
EXHIBIT (a)(5)
<PAGE>
Offer to Purchase for Cash
Any and All Outstanding Shares of Common Stock
and
Any and All Outstanding Warrants to Purchase Common Stock
of
Aqua Alliance Inc.
by
Aqua Acquisition Corporation,
an indirect wholly owned subsidiary of
Vivendi
At
$2.90 Net Per Share of Common Stock and
$0.40 Net Per Warrant
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON THURSDAY, AUGUST 12, 1999, UNLESS THE OFFER IS EXTENDED. THE SHARES
AND/OR WARRANTS WHICH ARE TENDERED PURSUANT TO THE OFFER MAY BE WITHDRAWN AT
ANY TIME PRIOR TO THE EXPIRATION DATE.
To Our Clients:
Enclosed for your consideration are the Offer to Purchase, dated July 16,
1999, and the related Letter of Transmittal (which, together with any
amendments or supplements thereto, collectively constitute the "Offer") in
connection with the offer by Aqua Acquisition Corporation (the "Purchaser"), a
Delaware corporation and an indirect wholly owned subsidiary of Vivendi
("Parent"), a societe anonyme organized under the laws of the Republic of
France, to purchase for cash all outstanding shares of Class A Common Stock,
par value $.001 per share (the "Shares") of Aqua Alliance Inc. (the
"Company"), a Delaware corporation, and all Warrants to purchase the Shares
issued pursuant to the Company Rights Offering, dated January 26, 1998
("Warrants"). We are the holder of record of the Shares and/or Warrants held
for your account. A tender of such Shares and/or Warrants can be made only by
us as the holder of record and pursuant to your instructions. The enclosed
Letter of Transmittal is furnished to you for your information only and cannot
be used by you to tender the Shares and/or Warrants held by us for your
account.
We request instructions as to whether you wish us to tender any or all of
the Shares and/or Warrants held by us for your account, upon the terms and
subject to the conditions set forth in the Offer.
Your attention is invited to the following:
1. The offer price is $2.90 per Share, net to you in cash, without
interest and $0.40 per Warrant, net to you in cash, without interest.
2. The Offer is being made for any and all outstanding Shares and
Warrants.
3. The Board of Directors of the Company has unanimously approved the
Offer and determined that the Offer is fair to, and in the best interest
of, the stockholders and the Warrantholders of the Company and recommends
that stockholders and Warrantholders accept the Offer and tender their
Shares and Warrants, respectively, pursuant to the Offer.
4. The Offer and withdrawal rights expire at 12:00 Midnight, New York
City time, on Thursday, August 12, 1999, unless the Offer is extended.
<PAGE>
5. The Offer is conditioned upon, among other things, there being validly
tendered and not withdrawn prior to the Expiration Date (as defined in the
Offer to Purchase) that number of the Shares and Warrants which
constitutes, when aggregated with the Shares and Warrants owned directly or
indirectly by Parent, at least 90% of the Shares then outstanding (assuming
exercise of all outstanding options). The Offer is also subject to the
other terms and conditions contained in the Offer to Purchase.
6. Any stock transfer taxes applicable to the sale of the Shares and/or
Warrants to the Purchaser pursuant to the Offer will be paid by the
Purchaser, except as otherwise provided in Instruction 6 of the Letter of
Transmittal.
Except as disclosed in the Offer to Purchase, the Purchaser is not aware of
any state in which the making of the Offer is prohibited by administrative or
judicial action pursuant to any valid state statute. In any jurisdiction in
which the securities, blue sky or other laws require the Offer to be made by a
licensed broker or dealer, the Offer will be deemed to be made on behalf of
the Purchaser by one or more registered brokers or dealers licensed under the
laws of such jurisdiction.
If you wish to have us tender any or all of your Shares and/or Warrants,
please so instruct us by completing, executing and returning to us the
instruction form set forth on the reverse side of this letter. An envelope to
return your instructions to us is enclosed. If you authorize the tender of
your Shares and/or Warrants, all such Shares and/or Warrants will be tendered
unless otherwise specified on the reverse side of this letter. Your
instructions should be forwarded to us in ample time to permit us to submit a
tender on your behalf prior to the expiration of the Offer.
2
<PAGE>
INSTRUCTIONS WITH RESPECT TO THE
OFFER TO PURCHASE FOR CASH
ANY AND ALL OUTSTANDING SHARES OF COMMON STOCK
AND
ANY AND ALL OUTSTANDING WARRANTS TO PURCHASE COMMON STOCK
OF
AQUA ALLIANCE INC.
The undersigned acknowledge(s) receipt of your letter and the enclosed Offer
to Purchase, dated July 16, 1999, and the related Letter of Transmittal in
connection with the Offer by Aqua Acquisition Corporation, a Delaware
corporation and an indirect wholly owned subsidiary of Vivendi, a societe
anonyme organized under the laws of the Republic of France, to purchase any
and all outstanding shares of Class A Common Stock, par value $.001 per share
(the "Shares") of Aqua Alliance Inc. (the "Company"), a Delaware corporation,
and warrants to purchase the Shares issued pursuant to the Company Rights
Offering, dated January 26, 1998 ("Warrants").
This will instruct you to tender the number of Shares and/or Warrants
indicated below (or if no number is indicated below, all the Shares and/or
Warrants) held by you for the account of the undersigned, upon the terms and
subject to the conditions set forth in the Offer.
Number of Warrants to be Tendered:*
Number of Shares to be Tendered:*
Shares Warrants
Dated: , 1999 -------------------------------------
-------------------------------------
Signature(s)
-------------------------------------
-------------------------------------
Print Name(s)
-------------------------------------
-------------------------------------
Address(es)
-------------------------------------
Area Code and Telephone Number
-------------------------------------
Tax ID or Social Security Number
- --------
* Unless otherwise indicated, it will be assumed that all the Shares and/or
Warrants held by us for your account are to be tendered.
3
<PAGE>
EXHIBIT (a)(6)
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Guidelines for Determining the Proper Identification Number to Give the
Payer.-- Social Security numbers have nine digits separated by two hyphens:
i.e., 000-00-0000. Employer identification numbers have nine digits separated
by only one hyphen: i.e., 00-0000000. The table below will help determine the
number to give the payer.
- ----------------------------------- -----------------------------------
<TABLE>
<CAPTION>
Give the
SOCIAL SECURITY
For this type of account: number of--
- --------------------------------------------
<S> <C>
1. An individual's account The individual
2. Two or more individuals The actual owner
(joint account) of the account
or, if combined
funds, the first
individual on
the account(1)
3. Husband and wife The actual owner
of the account
or, if joint
funds, either
person(1)
4. Custodian account of a The minor(2)
minor (Uniform Gift to
Minors Act)
5. Adult and minor (joint The adult or, if
account) the minor is the
only
contributor, the
minor(1)
6. Account in the name of The ward, minor
guardian or committee or incompetent
for a designated ward, person(3)
minor or incompetent
person
7.a. The usual revocable The grantor-
savings trust (grantor trustee(1)
is also trustee)
b. So-called trust account The actual
that is not a legal or owner(1)
valid trust under State
law
- --------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Give the EMPLOYER
IDENTIFICATION
For this type of account: number of--
<S> <C>
8. Sole proprietorship The owner(4)
account
9. A valid trust, estate The legal entity
or pension trust (Do not furnish
the identifying
number of the
personal
representative
or trustee
unless the legal
entity itself is
not designated
in the account
title)(5)
10. Corporate account The corporation
11. Religious, charitable, The organization
or educational
organization account
12. Partnership account The partnership
13. Association, club or The organization
other tax-exempt
organization
14. A broker or registered The broker or
nominee nominee
15. Account with the The public
Department of entity
Agriculture in the
name of a public
entity (such as a
state or local
government, school
district, or prison)
that receives
agricultural program
payments
--
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner. If the owner does not have an employer
identification number, furnish the owner's social security number.
(5) List first and circle the name of the legal trust, estate or pension
trust.
Note: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Page 2
Obtaining a Number
If you do not have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card (for
individuals), or Form SS-4, Application for Employer Identification Number
(for businesses and all other entities), at the local office of the Social
Security Administration or the Internal Revenue Service (the "IRS") and apply
for a number.
Payees and Payments Exempt from Backup Withholding
The following is a list of payees exempt from backup withholding and for
which no information reporting is required. For interest and dividends, all
listed payees are exempt except item (9). For broker transactions, payees
listed in items (1) through (13) and a person registered under the Investment
Advisors Act of 1940 who regularly acts as a broker are exempt. Payments
subject to reporting under sections 6041 and 6041A are generally exempt from
backup withholding only if made to payees described in items (1) through (7),
except a corporation (other than certain hospitals described in Regulations
section 1.6041-3(c)) that provides medical and health care services or bills
and collects payments for such services is not exempt from backup withholding
or information reporting. Only payees described in items (1) through (5) are
exempt from backup withholding for barter exchange transactions and patronage
dividends.
(1) An organization exempt from tax under section 501(a), or an IRA, or a
custodial account under section 403(b)(7), if the account satisfies the
requirements of section 401(f)(2).
(2) The United States or any of its agencies or instrumentalities.
(3) A state, the District of Columbia, a possession of the United States or
any of their political subdivisions or instrumentalities.
(4) A foreign government or any of its political subdivisions, agencies or
instrumentalities.
(5) An international organization or any of its agencies or instrumentalities.
(6) A corporation.
(7) A foreign central bank of issue.
(8) A dealer in securities or commodities required to register in the United
States, the District of Columbia or a possession of the United States.
(9) A futures commission merchant registered with the Commodity Futures
Trading Commission.
(10) A real estate investment trust.
(11) An entity registered at all times during the tax year under the
Investment Company Act of 1940.
(12) A common trust fund operated by a bank under section 584(a).
(13) A financial institution.
(14) A middleman known in the investment community as a nominee or listed in
the most recent publication of the American Society of Corporate Secretaries,
Inc., Nominee List.
(15) A trust exempt from tax under section 664 or described in section 4947.
Payments of dividends and patronage dividends not generally subject to
backup withholding include the following:
. Payments to nonresident aliens subject to withholding under section 1441.
. Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident alien partner.
. Payments of patronage dividends where the amount received is not paid in
money.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
. Payments of interest on obligations issued by individuals. Note: You may be
subject to backup withholding if this interest is $600 or more and is paid
in the course of the payer's trade or business and you have not provided
your correct taxpayer identification number to the payer.
. Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
. Payments described in section 6049(b)(5) to non-resident aliens.
. Payments on tax-free covenant bonds under section 1451.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Exempt payees described above should file substitute Form W-9 to avoid
possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH
YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM,
SIGN AND DATE THE FORM AND RETURN IT TO THE PAYER. IF YOU ARE A NON-RESIDENT
ALIEN OR A FOREIGN ENTITY NOT SUBJECT TO BACKUP WITHHOLDING, FILE WITH PAYER A
COMPLETED INTERNAL REVENUE FORM W-8 (CERTIFICATE OF FOREIGN STATUS).
Certain payments other than interest, dividends and patronage dividends that
are not subject to information reporting are also not subject to backup
withholding. For details, see sections 6041, 6041A, 6042, 6044, 6045, 6049 and
6050A.
Privacy Act Notice.--Section 6109 requires most recipients of dividend,
interest or other payments to give taxpayer identification numbers to payers
who must report the payments to the IRS. The IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
recipients are required to file tax returns. Payers must generally withhold
31% of taxable interest, dividend and certain other payments to a payee who
does not furnish a taxpayer identification number to a payer. Certain
penalties may also apply.
Penalties
(1) Penalty for Failure to Furnish Taxpayer Identification Number.--If you
fail to furnish your correct taxpayer identification number to a payer, you
are subject to a penalty of $50 for each such failure unless your failure is
due to reasonable cause and not to willful neglect.
(2) Civil Penalty for False Information With Respect to Withholding.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) Criminal Penalty for Falsifying Information.--Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
2
<PAGE>
EXHIBIT (a)(7)
<PAGE>
Press Release
------------------------
[LOGO] AQUA
ALLIANCE
- --------
Contact: Robert S. Volland
Aqua Alliance Inc.
781-224-6116
AQUA ALLIANCE INC. ANNOUNCES DEFINITIVE MERGER AGREEMENT
WAKEFIELD, MA -- July 12, 1999--Aqua Alliance Inc. (AMEX, AAI) announced today
that on July 9, 1999, it entered into a definitive merger agreement with Vivendi
for the purchase by Vivendi of all outstanding shares of Aqua Alliance common
stock that it does not already own for $2.90 per share in cash and all
outstanding warrants to purchase common stock for $.40 per warrant. Vivendi
currently owns approximately 83% of Aqua Alliance's common stock.
The terms of the merger agreement represent an improvement from Vivendi's prior
proposal of $2.00 per share in cash. The Aqua Alliance Board of Directors
approved the merger agreement after approval by a special committee of
independent directors, which was advised by separate legal and financial
advisors. The special committee has received the opinion of its financial
advisors that the cash consideration to be received in the transaction is fair
to the Aqua Alliance stockholders other than Vivendi from a financial point of
view.
The merger agreement provides for the commencement of a tender offer by Vivendi
by Friday, July 16, 1999. Under the terms of the merger agreement, each Aqua
Alliance share that is not purchased in the offer will be acquired by merger as
soon as practical thereafter in a second step merger, also for $2.90 per share
in cash. Also in the second step merger, each warrant that is not purchased in
the offer will remain outstanding and be exercisable, upon payment of the
$2.50 exercise price, in exchange for $2.90 in cash.
In connection with entering into the merger Agreement, Vivendi and Aqua Alliance
have reached an agreement in principle settling the litigations filed in the
Delaware Court of Chancery by certain stockholders of Aqua Alliance, subject to
completion of confirmatory discovery and court approval.
Aqua Alliance Inc. is an integrated single source provider of services and
solutions for the water and wastewater and hazardous waste remediation markets.
Aqua Alliance, through its subsidiaries, provides a comprehensive range of
services and technologies directed primarily 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; and the remediation of hazardous waste.
Aqua Alliance Inc.
30 Harvard Mill Square, Wakefield, MA 01880-3371
Tel: 781 224 6116 Fax: 781 224 6696 www.aquaalliance.com
<PAGE>
EXHIBIT (c)(1)
<PAGE>
AGREEMENT AND PLAN OF MERGER,
Dated as of July 9, 1999,
among
Vivendi,
Aqua Acquisition Corporation
and
Aqua Alliance Inc.
<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of July 9, 1999 (this "AGREEMENT"),
among Vivendi, a societe anonyme organized and existing under the laws of the
Republic of France ("PARENT"), Aqua Alliance Corporation, a Delaware corporation
and an indirect wholly owned subsidiary of Parent ("PURCHASER"), and Aqua
Alliance Inc., a Delaware corporation (the "COMPANY").
WHEREAS, Parent beneficially owns an aggregate of 153,609,975 shares
(the "PURCHASER SHARES") of Class A Common Stock, par value $.001 per share
("SHARES"), of the Company, constituting approximately 83% of the total
outstanding Shares, and has proposed to the special committee of the Board of
Directors of the Company (the "SPECIAL COMMITTEE"), that Purchaser acquire the
remaining Shares;
WHEREAS, Parent has also proposed to the Special Committee that
Purchaser acquire all outstanding Warrants issued pursuant to the Company Rights
Agreement dated January 26, 1998 ("WARRANTS");
WHEREAS, immediately prior to the Effective Time (as defined below)
Parent will cause the contribution of the Purchaser Shares to Purchaser
(including Shares acquired through the exercise of all Warrants then owned
directly or indirectly by Parent);
WHEREAS, the Board of Directors of the Company (the "BOARD") and the
Special Committee have determined that it is in the best interests of the
Company to approve Purchaser's proposed acquisition and have voted (i) to
recommend that the stockholders and Warrantholders of the Company accept the
Offer (as defined below) and tender their Shares and Warrants pursuant to the
Offer and (ii) to approve and deem advisable the merger (the "MERGER") of
Purchaser with and into the Company, with the Company being the surviving
corporation, in accordance with the General Corporation Law of the State of
Delaware ("DELAWARE LAW") following consummation of the Offer;
WHEREAS, it is proposed that Purchaser will make a cash tender offer
(the "OFFER") in compliance with Section 14(d)(1) of the Securities Exchange Act
of 1934, as amended (the "EXCHANGE ACT"), and the rules and regulations
promulgated thereunder, to acquire (i) all the issued and outstanding Shares
(other than the Purchaser Shares) for $2.90 per Share (such amount, or any
greater amount per Share paid pursuant to the Offer, being hereinafter referred
to as the "PER
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<PAGE>
SHARE AMOUNT") and (ii) all issued and outstanding Warrants for $0.40 per
Warrant (such amount, or any greater amount per Warrant paid pursuant to the
Offer, being hereinafter referred to as the "PER WARRANT AMOUNT"), in each case,
net to the seller in cash, upon the terms and subject to the conditions of this
Agreement; and that the Offer will be followed by the Merger, pursuant to which
each issued and outstanding Share not owned by Purchaser will be converted into
the right to receive the Per Share Amount and each Warrant not owned by
Purchaser will be converted into the right to exercise such Warrant in exchange
for the Per Share Amount, upon the terms and subject to the conditions provided
herein; and
WHEREAS, the Special Committee has received the opinion of Beacon
Group Capital Services, L.L.C. ("Beacon") that the consideration to be received
by the holders of Shares (other than Parent and its subsidiaries) pursuant to
the Offer and the Merger is fair to such holders from a financial point of view.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Parent, Purchaser and the Company hereby agree as follows:
ARTICLE I
THE OFFER
SECTION 1.01. THE OFFER. (a) Provided that this Agreement shall not have been
terminated in accordance with Section 8.01 and none of the events set forth in
Annex A hereto shall have occurred or be existing, Purchaser shall commence, and
Parent shall cause Purchaser to commence, within the meaning of Rule 14d-2 under
the Exchange Act, the Offer as promptly as reasonably practicable after the date
hereof, but in no event later than five business days after the initial public
announcement of Purchaser's intention to commence the Offer. The obligation of
Purchaser to accept for payment and pay for Shares and/or Warrants tendered
pursuant to the Offer shall be subject only to the satisfaction of the
conditions set forth in Annex A hereto. Purchaser expressly reserves the right
to waive any such condition, to increase the Per Share Amount and/or the Per
Warrant Amount and to make any other changes in the terms and conditions of the
Offer; PROVIDED, HOWEVER, that, without the prior written consent of the Special
Committee, Purchaser will not (i) decrease the Per Share Amount or the Per
Warrant Amount, (ii) reduce the maximum number of Shares or Warrants to be
purchased in the Offer, (iii) change the form of the consideration payable in
the Offer, (iv) add to, modify or supplement the conditions to the Offer set
forth in Annex A hereto, (v) extend the expiration date of
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<PAGE>
the Offer beyond the twentieth business day following commencement thereof;
PROVIDED, HOWEVER, Purchaser may extend the expiration date of the Offer, (A) if
the conditions to the Offer set forth in Annex A have not been satisfied and (B)
to the extent necessary to respond to comments on the Offer Documents (as
defined below) from the United States Securities and Exchange Commission (the
"SEC") or (vi) make any other change in the terms or conditions of the Offer
which is materially adverse to the holders of Shares or Warrants. The Per Share
Amount and the Per Warrant Amount shall, subject to any applicable withholding
of taxes, be net to each seller in cash, upon the terms and subject to the
conditions of the Offer. Subject to the terms and conditions of the Offer,
Purchaser shall, and Parent shall cause Purchaser to, accept for payment and
pay, as promptly as practicable after expiration of the Offer, for all Shares
and Warrants validly tendered and not properly withdrawn.
(b) On the date of commencement of the Offer, Parent and Purchaser
shall file with the SEC (i) a Tender Offer Statement on Schedule 14D-1,
including all exhibits thereto (together with all amendments and supplements
thereto, the "SCHEDULE 14D-1"), with respect to the Offer and (ii) a Rule 13e-3
Transaction Statement on Schedule 13E-3, including all exhibits thereto
(together with all amendments and supplements thereto, the "SCHEDULE 13E-3"),
with respect to the Offer and the other transactions contemplated hereby (the
"TRANSACTIONS"). The Schedule 14D-1 and the Schedule 13E-3 shall contain or
shall incorporate by reference an offer to purchase (the "OFFER TO PURCHASE")
and the related letter of transmittal (the Schedule 14D-1, the Schedule 13E-3,
the Offer to Purchase, the related letter of transmittal and such other
documents, together with all supplements and amendments thereto, being referred
to herein collectively as the "OFFER DOCUMENTS"). Parent, Purchaser and the
Company shall correct promptly any information provided by any of them for use
in the Offer Documents which shall become false or misleading, and Parent and
Purchaser shall take all steps necessary to cause the Schedule 14D-1 and the
Schedule 13E-3, as so corrected, to be filed with the SEC and the other Offer
Documents, as so corrected, to be disseminated to holders of Shares and
Warrants, in each case as and to the extent required by applicable law. The
Company, the Special Committee and their respective counsel shall be given
reasonable opportunity to review and comment on the Offer Documents prior to the
filing thereof with the SEC. Parent and Purchaser shall provide the Company, the
Special Committee and their respective counsel with a copy of any written
comments or telephonic notification of any oral comments Parent or Purchaser may
receive from the SEC or its staff with respect to the Offer Documents promptly
after the receipt thereof. Parent and its counsel shall provide the Company, the
Special Committee and their respective counsel with a reasonable opportunity to
participate in all communications with the SEC and its staff, including any
meetings and tele-
3
<PAGE>
phone conferences, relating to the Offer Documents, the Transactions or this
Agreement. In the event that Parent or the Purchaser receives any comments from
the SEC or its staff with respect to the Offer Documents, each shall use its
reasonable best efforts to respond promptly to such comments and take all other
actions necessary to resolve the issues raised therein.
(c) Parent shall provide or cause to be provided to Purchaser on a
timely basis the funds necessary to accept for payment, and pay for, any Shares
and/or Warrants that Purchaser becomes obligated to accept for payment, and pay
for, pursuant to the Offer.
SECTION 1.02. COMPANY ACTION . (a) As soon as reasonably practicable after the
date of commencement of the Offer, the Company shall file with the SEC a
Solicitation/Recommendation Statement on Schedule 14D-9, including all exhibits
thereto (together with all amendments and supplements thereto, the "SCHEDULE
14D-9"), containing the recommendations of the Special Committee and the Board
described in Section 3.04(b), and shall disseminate the Schedule 14D-9 to the
extent required by Rule 14d-9 under the Exchange Act, and any other applicable
law. The Company, Parent and Purchaser shall correct promptly any information
provided by any of them for use in the Schedule 14D-9 which shall become false
or misleading, and the Company shall take all steps necessary to cause the
Schedule 14D-9, as so corrected, to be filed with the SEC and disseminated to
holders of Shares and Warrants, in each case as and to the extent required by
applicable law. Parent, Purchaser and their respective counsel shall be given
the opportunity to review and comment on the Schedule 14D-9 prior to the filing
thereof with the SEC. The Company shall provide Parent, Purchaser and their
respective counsel with a copy of any written comments or telephonic
notification of any oral comments the Company may receive from the SEC or its
staff with respect to the Schedule 14D-9 promptly after the receipt thereof. The
Company and its counsel shall provide Parent, Purchaser and their respective
counsel with a reasonable opportunity to participate in all communications with
the SEC and its staff, including any meetings and telephone conferences,
relating to the Schedule 14D-9, the Transactions or this Agreement.
(b) In connection with the Transactions, the Company shall promptly furnish,
or cause to be furnished, Parent and Purchaser with mailing labels containing
the names and addresses of the record holders of Shares and Warrants as of a
recent date and of those persons becoming record holders subsequent to such
date, together with copies of all lists of stockholders, Warrantholders,
security position listings and computer files and all other information in the
Company's possession or control regarding the beneficial owners of Shares and
Warrants, and shall furnish to
4
<PAGE>
Purchaser such information and assistance (including updated lists of
stockholders, Warrantholders, security position listings and computer files) as
Parent and Purchaser may reasonably request in communicating the Offer to the
Company's stockholders and Warrantholders. Subject to the requirements of
applicable law, and except for such steps as are necessary to disseminate the
Offer Documents and any other documents necessary to consummate the Merger,
Parent and Purchaser and their agents shall hold in confidence the information
contained in any such labels, listings and files, will use such information only
in connection with the Offer and the Merger and, if this Agreement shall be
terminated, will deliver, and will use their reasonable efforts to cause their
agents to deliver, to the Company all copies and any extracts or summaries from
such information then in their possession or control.
ARTICLE II
THE MERGER
SECTION 2.01. THE MERGER . Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with Delaware Law, at the Effective
Time (as hereinafter defined) Purchaser shall be merged with and into the
Company. As a result of the Merger, the separate corporate existence of
Purchaser shall cease and the Company shall continue as the surviving
corporation of the Merger (the "SURVIVING CORPORATION").
SECTION 2.02. CLOSING . Unless this Agreement shall have been terminated and
the transactions herein contemplated shall have been abandoned pursuant to
Section 8.01 and subject to the satisfaction or waiver of the conditions set
forth in Article VII, the consummation of the Merger will take place as
promptly as practicable (and in any event within two business days) after the
satisfaction or waiver of the conditions set forth in Article VII at the
offices of Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third Avenue, New
York, New York, unless another date, time or place is agreed to in writing by
the parties hereto.
SECTION 2.03. EFFECTIVE TIME . As promptly as practicable after the
satisfaction or, if permissible, waiver of the conditions set forth in Article
VII, the parties hereto shall cause the Merger to be consummated by filing a
certificate of merger (the "CERTIFICATE OF MERGER") with the Secretary of State
of the State of Delaware, in such form as is required by, and executed in
accordance with the relevant provisions of, Delaware Law (the date and time of
such filing being the "EFFECTIVE TIME").
5
<PAGE>
SECTION 2.04. EFFECT OF THE MERGER . At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of Delaware Law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time all the property, rights, privileges, powers and franchises of
the Company and Purchaser shall vest in the Surviving Corporation, and all
debts, liabilities, obligations, restrictions, disabilities and duties of the
Company and Purchaser shall become the debts, liabilities, obligations,
restrictions, disabilities and duties of the Surviving Corporation.
SECTION 2.05. CERTIFICATE OF INCORPORATION; BY-LAWS . (a) At the Effective
Time, the Certificate of Incorporation of Purchaser, as in effect immediately
prior to the Effective Time, shall be the Certificate of Incorporation of the
Surviving Corporation until thereafter amended as provided by law and such
Certificate of Incorporation.
(b) The By-laws of Purchaser, as in effect immediately prior to the Effective
Time, shall be the By-laws of the Surviving Corporation until thereafter amended
as provided by law, the Certificate of Incorporation of the Surviving
Corporation and such By-laws.
SECTION 2.06. DIRECTORS AND OFFICERS . The directors of Purchaser immediately
prior to the Effective Time shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and By-laws of the Surviving Corporation. The officers of the
Company immediately prior to the Effective Time shall be the initial officers of
the Surviving Corporation, in each case until their respective successors are
duly elected or appointed and qualified.
SECTION 2.07. CONVERSION OF SECURITIES . At the Effective Time, by virtue of
the Merger and without any action on the part of Purchaser, the Company or the
holders of any of the following securities:
(a) Each Share issued and outstanding immediately prior to the Effective Time
(other than any Shares to be cancelled pursuant to Section 2.07(b) and any
Dissenting Shares (as hereinafter defined)) shall be cancelled and shall be
converted automatically into the right to receive an amount equal to the Per
Share Amount in cash (the "SHARE CONSIDERATION") payable, without interest, to
the holder of such Share, upon surrender, in the manner provided in Section
2.09, of the certificate that formerly evidenced such Share;
6
<PAGE>
(b) Each Share and each Warrant owned by Purchaser immediately prior to the
Effective Time shall be cancelled without any conversion thereof and no payment
or distribution shall be made with respect thereto;
(c) Each Warrant issued and outstanding immediately prior to the Effective
Time (other than any Warrants to be cancelled pursuant to Section 2.07(b)) shall
remain outstanding and shall be converted automatically into the right to
exercise each such Warrant at an exercise price of $2.50 in exchange for an
amount equal to the Per Share Amount in Cash (the "WARRANT CONSIDERATION")
payable without interest, to the holder of such Warrant, upon exercise, in the
manner provided by the terms of such Warrant; and
(d) Each share of common stock, par value $.01 per share, of Purchaser issued
and outstanding immediately prior to the Effective Time shall be converted into
and exchanged for one validly issued, fully paid and nonassessable share of
common stock, par value $.001 per share, of the Surviving Corporation.
SECTION 2.08. DISSENTING SHARES . (a) Notwithstanding any provision of this
Agreement to the contrary, Shares that are outstanding immediately prior to the
Effective Time and which are held by stockholders who shall have not voted in
favor of the Merger or consented thereto in writing and who shall have demanded
properly in writing appraisal for such Shares in accordance with Section 262 of
Delaware Law (collectively, the "DISSENTING SHARES") shall not be converted into
or represent the right to receive the Share Consideration. Such stockholders
shall be entitled to receive payment of the appraised value of such Shares held
by them in accordance with the provisions of such Section 262, except that all
Dissenting Shares held by stockholders who shall have failed to perfect or who
effectively shall have withdrawn or lost their rights to appraisal of such
Shares under such Section 262 shall thereupon be deemed to have been converted
into and to have become exchangeable for, as of the Effective Time, the right to
receive the Share Consideration, without any interest thereon, upon surrender,
in the manner provided in Section 2.09, of the certificate or certificates that
formerly evidenced such Shares.
(b) The Company shall give Parent (i) prompt notice of any demands for
appraisal received by the Company, withdrawals of such demands, and any other
instruments served pursuant to Delaware Law and received by the Company and (ii)
the opportunity to direct all negotiations and proceedings with respect to
demands for appraisal under Delaware Law. The Company shall not, except with the
prior written consent of Parent, make any payment with respect to any demands
for appraisal or offer to settle or settle any such demands.
7
<PAGE>
SECTION 2.09. SURRENDER OF SHARES; STOCK TRANSFER BOOKS . (a) Prior to the
Effective Time, Parent shall designate a bank or trust company reasonably
satisfactory to the Company to act as agent (the "PAYING AGENT") for the holders
of Shares and Warrants in connection with the Merger to receive the funds to
which holders of Shares and Warrants shall become entitled pursuant to Section
2.07(a) and Section 2.07(b), respectively. When and as needed, Parent shall make
available to the Paying Agent sufficient funds to make the payments pursuant to
Section 2.07 hereof to holders (other than Parent or any of its affiliates) of
Shares and Warrants that are issued and outstanding immediately prior to the
Effective Time (such amounts being hereinafter referred to as the "EXCHANGE
FUND"), and to make the appropriate cash payments, if any, to holders of
Dissenting Shares. The Paying Agent shall, pursuant to irrevocable instructions,
make the payments provided for in the preceding sentence out of the Exchange
Fund. The Exchange Fund shall not be used for any other purpose, except as
provided in this Agreement.
(b) Promptly after the Effective Time, the Surviving Corporation shall cause
to be mailed to each person who was, at the Effective Time, a holder of record
of Shares entitled to receive the Share Consideration pursuant to Section
2.07(a) a form of letter of transmittal in customary form (which shall specify
that delivery shall be effected, and risk of loss and title to the certificates
evidencing such Shares (the "CERTIFICATES"), shall pass, only upon proper
delivery of the Certificates to the Paying Agent) and instructions for use in
effecting the surrender of the Certificates pursuant to such letter of
transmittal. Upon surrender to the Paying Agent of a Certificate, together with
such letter of transmittal, duly completed and validly executed in accordance
with the instructions thereto, and such other documents as may be required
pursuant to such instructions, the holder of such Certificate shall be entitled
to receive in exchange therefor the Share Consideration for each Share formerly
evidenced by such Certificate, and such Certificate shall then be canceled. No
interest shall accrue or be paid on the consideration payable upon the surrender
of any Certificate for the benefit of the holder of such Certificate. If payment
of the Share Consideration is to be made to a person other than the person in
whose name the surrendered Certificate is registered on the stock transfer books
of the Company, it shall be a condition of payment that the Certificate so
surrendered shall be endorsed properly or otherwise be in proper form for
transfer and that the person requesting such payment shall have paid all
transfer and other taxes required by reason of the payment of the Share
Consideration to a person other than the registered holder of the Certificate
surrendered or shall have established to the satisfaction of the Surviving
Corporation that such taxes either have been paid or are not applicable.
8
<PAGE>
(c) At any time following the sixth month after the Effective Time, the
Surviving Corporation shall be entitled to require the Paying Agent to deliver
to it any funds which had been made available to the Paying Agent and not
disbursed to holders of Shares (including, without limitation, all interest and
other income received by the Paying Agent in respect of all funds made available
to it), and thereafter such holders shall be entitled to look to the Surviving
Corporation (subject to abandoned property, escheat and other similar laws) only
as general creditors thereof with respect to any Share Consideration that may be
payable upon due surrender of the Certificates held by them. Notwithstanding the
foregoing, neither the Surviving Corporation nor the Paying Agent shall be
liable to any holder of a Share for any Share Consideration delivered in respect
of such Share to a public official pursuant to any abandoned property, escheat
or other similar law.
(d) At the close of business on the day of the Effective Time, the stock
transfer books of the Company shall be closed and thereafter there shall be no
further registration of transfers of Shares on the records of the Company. From
and after the Effective Time, the holders of Shares outstanding immediately
prior to the Effective Time shall cease to have any rights with respect to such
Shares except as otherwise provided herein or by applicable law.
SECTION 2.10. WITHHOLDING RIGHTS . The Surviving Corporation or the Paying
Agent shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of Shares or Warrants such
amounts that the Surviving Corporation or the Paying Agent is required to deduct
and withhold with respect to the making of such payment under the United States
Internal Revenue Code of 1986, as amended (the "Code"), or any provision of
state, local or foreign tax law. To the extent that amounts are so withheld by
the Surviving Corporation or the Paying Agent, such amounts shall be treated for
all purposes of this Agreement as having been paid to the holder of the Shares
or Warrants in respect of which such deduction and withholding was made by the
Surviving Corporation or the Paying Agent.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Purchaser that,
except as set forth in the Company SEC Reports (as defined herein) or the dis-
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<PAGE>
closure schedule dated the date hereof and attached hereto (the "DISCLOSURE
SCHEDULE"), it being understood that disclosure on the Disclosure Schedule shall
be deemed disclosure respecting all sections of the Agreement:
SECTION 3.01. ORGANIZATION AND QUALIFICATION . Each of the Company and its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as it is now being conducted. Each of the Company
and its Subsidiaries has all necessary licenses, permits, authorizations, and
governmental approvals to own, lease and operate its properties and to carry on
its business as it is currently being conducted, except where the failure to
have such licenses, permits, authorizations and governmental approvals would
not, individually or in the aggregate, have a Company Material Adverse Effect
(as hereinafter defined). Each of the Company and its Subsidiaries is duly
qualified and in good standing to do business in each jurisdiction in which the
nature of the business conducted by it or the ownership or leasing of its
properties makes such qualification necessary, other than where the failure to
be so duly qualified and in good standing would not have a Company Material
Adverse Effect. The term "COMPANY MATERIAL ADVERSE EFFECT," as used in this
Agreement, means any change or effect that, individually or when taken together
with all other such changes or effects, is or is reasonably likely to be
materially adverse to the financial condition, business, or results of
operations of the Company and its Subsidiaries, taken as a whole.
SECTION 3.02. CERTIFICATE OF INCORPORATION AND BY-LAWS . The Company has
heretofore furnished to Parent and Purchaser a complete and correct copy of the
Certificate of Incorporation and the By-laws, each as amended to date, of the
Company. Such Certificate of Incorporation and By-laws are in full force and
effect. None of the Company and its Subsidiaries is in violation of any
provision of its Certificate of Incorporation or By-laws.
SECTION 3.03. CAPITALIZATION . The authorized capital stock of the Company
consists of 255,000,000 Shares, 5,000 shares of Class B Common Stock, par value
.001 per share ("CLASS B STOCK") and 2,500,000 shares of preferred stock, par
value $.01 per share ("PREFERRED STOCK"). As of July 9,1999, (i) 185,266,429
Shares were issued and outstanding, all of which were validly issued, fully paid
and nonassessable, (ii) 89,902 Shares were held in the treasury of the Company,
(iii) 2,000,000 Shares were authorized for future issuance (with respect to
which options to acquire Shares were issued and outstanding) pursuant to
employee stock options or stock incentive rights granted pursuant to the
Company's stock op-
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tion plans, (iv) 3,949,099 Shares were reserved for issuance upon the exercise
of Warrants, (v) 3,833,333 Shares were reserved for issuance upon the conversion
of the Company's 8% Convertible Debentures Due 2015, (vi) no shares of Class B
Common Stock were issued and outstanding; and (vii) no shares of Preferred Stock
were issued and outstanding. Except as set forth in Section 3.03 of the
Disclosure Schedule or as otherwise contemplated by this Agreement, there are no
options, warrants or other rights, agreements, arrangements or commitments of
any character relating to the issued or unissued capital stock of the Company or
any Subsidiary or obligating the Company or any Subsidiary to issue or sell any
shares of capital stock of, or other equity interests in, the Company or any
Subsidiary. All shares of capital stock of the Company and any Subsidiary
subject to issuance as aforesaid, upon issuance on the terms and conditions
specified in the instruments pursuant to which they are issuable, will be duly
authorized, validly issued, fully paid and nonassessable. There are no
outstanding contractual obligations of the Company or any Subsidiary to
repurchase, redeem or otherwise acquire any shares of capital stock of the
Company or any Subsidiary or to provide funds to, or make any investment (in the
form of a loan, capital contribution or otherwise) in, any person.
SECTION 3.04. AUTHORITY RELATIVE TO THIS AGREEMENT . (a)The Company has all
necessary corporate power and authority to execute and deliver this Agreement,
to perform its obligations hereunder and to consummate the Transactions. The
execution and delivery of this Agreement by the Company and the consummation by
the Company of the Transactions have been duly and validly authorized by all
necessary corporate action, and no other corporate proceedings on the part of
the Company are necessary to authorize this Agreement or to consummate the
Transactions (other than, with respect to the Merger, the approval and adoption
of this Agreement by the affirmative vote of a majority of the then outstanding
Shares, if and to the extent required by applicable law, and the filing and
recordation of appropriate merger documents as required by Delaware Law). This
Agreement has been duly and validly executed and delivered by the Company and,
assuming the due authorization, execution and delivery by Parent and Purchaser,
constitutes a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms.
(b) The Company hereby represents that (i)the Special Committee has been duly
authorized and constituted, (ii) the Special Committee, at a meeting thereof
duly called and held on July 9, 1999, determined that this Agreement and the
Transactions are fair to and in the best interests of the stockholders of the
Company (other than the Parent and its affiliates), and (iii)the Board of
Directors of the Company, at a meeting thereof duly called and held on July 9,
1999, (A) determined that
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this Agreement and the Transactions are fair to and in the best interests of the
stockholders of the Company, (B) determined that it is advisable for the Company
to enter into, and, if and to the extent required by applicable law, for the
stockholders of the Company to approve and adopt, this Agreement and the
Transactions, (C) approved and adopted this Agreement and the Transactions,
including the Offer and the Merger, (D) recommended that the stockholders of the
Company tender their Shares pursuant to the Offer and, if and to the extent
required by applicable law, approve and adopt this Agreement and the Merger and
(E) recommended that the Warrantholders of the Company tender their Warrants
pursuant to the Offer.
SECTION 3.05. NO CONFLICT; REQUIRED FILINGS AND CONSENTS . (a) The execution
and delivery of this Agreement by the Company do not, and the performance of
this Agreement by the Company will not, (i)conflict with or violate the
Certificate of Incorporation or By-laws of the Company or any Subsidiary,
(ii)assuming that all consents, approvals, authorizations, and other actions
described in subsection (b) have been obtained or made, to the knowledge of the
Company conflict with or violate any law, rule, regulation, order, judgment or
decree applicable to the Company or any Subsidiary or by which any property or
asset of the Company or any Subsidiary is bound or affected or (iii) except as
set forth on Section 3.05 of the Disclosure Schedule, result in any breach of or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or require payment under, or result
in the creation of any Encumbrance on any of the properties or assets of the
Company or any of its Subsidiaries pursuant to, or trigger any right of first
refusal under, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which the
Company or any Subsidiary is a party or by which the Company or any Subsidiary
or any of their respective properties is bound, except for any thereof that
would not have a Company Material Adverse Effect. The restrictions on business
combinations contained in Section 203(a) of Delaware Law will not apply to
Parent, Purchaser or their respective affiliates as a result of this Agreement
or the Transactions.
(b) The execution and delivery of this Agreement by the Company do not, and
the performance of this Agreement by the Company will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
governmental or regulatory authority, domestic or foreign, except for applicable
requirements, if any, of the Exchange Act, state securities or "blue sky" laws
("BLUE SKY LAWS"), and filing and recordation of appropriate merger documents as
required by Delaware Law.
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SECTION 3.06. SEC FILINGS; FINANCIAL STATEMENTS . (a) The Company has filed
all forms, reports and documents required to be filed by it with the SEC since
October 31, 1996, and has heretofore made available to Parent and Purchaser, in
the form filed with the SEC, (i) its Annual Reports on Form 10-K for the fiscal
years ended October 31, 1996, 1997 and 1998, respectively, (ii) all proxy
statements relating to the Company's meetings of stockholders (whether annual or
special) held since October 31, 1996, and (iii)all other forms, reports and
other registration statements (other than Quarterly Reports on Form 10-Q) filed
by the Company with the SEC since October 31, 1996 (the forms, reports and other
documents referred to in clauses (i), (ii) and (iii) above being referred to
herein, collectively, as the "SEC REPORTS"). The SEC Reports (i) were prepared
in accordance with the requirements of the Securities Act of 1933, as amended
(the "SECURITIES ACT"), and the Exchange Act, as the case may be, and the rules
and regulations thereunder, (ii) to the knowledge of the Company, did not at the
time they were filed contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements made therein, in the light of the circumstances under which
they were made, not misleading, and (iii) were filed in a timely manner or were
deemed filed in a timely manner pursuant to Rule 12(b)-25 Under the Exchange
Act. No Subsidiary of the Company was or is required to file any form, report or
other document with the SEC.
(b) Each of the financial statements (including, in each case, any notes
thereto) contained in the SEC Reports (i)was prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated (except as may be indicated in the notes
thereto) and each fairly presented in all material respects the consolidated
financial position, results of operations and cash flows of the Company and the
consolidated Subsidiaries as at the respective dates thereof and for the
respective periods indicated therein, except that any unaudited interim
financial statements were or will be subject to normal and recurring year-end
adjustments that did not and are not expected, individually or in the aggregate,
to have a Company Material Adverse Effect.
(c) The Company has no liabilities or obligations of any nature, except:(i) as
and to the extent set forth on the balance sheet of the Company as at April 30,
1999, including the notes thereto (the "1999 BALANCE SHEET"), (ii) as would not,
individually or in the aggregate, have a Company Material Adverse Effect or
(iii) liabilities and obligations incurred in the ordinary course of business
consistent with past practice since April 30, 1999 and which would not have a
Company Material Adverse Effect.
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(d) Since April 30, 1999, there has not been any Company Material Adverse
Effect, except for changes that affect the economy in general or the industry in
which the Company operates.
SECTION 3.07. OFFER DOCUMENTS; SCHEDULE 14D-9; PROXY STATEMENT. The
information supplied by the Company for inclusion in the Schedule 14D-9 and the
Offer Documents shall not, at the respective times the Schedule 14D-9 or the
Offer Documents are filed with the SEC or are first published, sent or given to
stockholders and/or Warrantholders of the Company, as the case may be, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements made
therein, in light of the circumstances under which they are made, not
misleading. The information supplied by the Company for inclusion in the proxy
statement or information statement to be sent to the stockholders of the Company
in connection with the Stockholders' Meeting (as defined in Section 6.01) or the
information statement to be sent to such stockholders, as appropriate (such
proxy statement or information statement, as amended or supplemented, being
referred to herein as the "PROXY STATEMENT"), shall not, at the date the Proxy
Statement (or any amendment or supplement thereto) is first mailed to
stockholders of the Company, at the time of the Stockholders' Meeting and at the
Effective Time, be false or misleading with respect to any material fact, or
omit to state any material fact required to be stated therein or necessary in
order to make the statements made therein, in the light of the circumstances
under which they are made, not misleading or necessary to correct any statement
in any earlier communication with respect to the solicitation of proxies for the
Stockholders' Meeting which shall have become false or misleading. The Schedule
14D-9, Proxy Statement and the Offer Documents shall comply in all material
respects as to form with the requirements of the Exchange Act and the rules and
regulations thereunder except that no representation or warranty is made by the
Company with respect to statements made or incorporated by reference therein
based on information supplied by Parent or Purchaser for inclusion or
incorporation by reference therein.
SECTION 3.08. BROKERS . No broker, finder or investment banker (other than
Beacon) is entitled to any brokerage, finder's or other fee or commission in
connection with the Transactions based upon arrangements made by or on behalf of
the Company. The Company has heretofore furnished to Parent a complete and
correct copy of all agreements between the Company and Beacon pursuant to which
such firm would be entitled to any payment relating to the Transactions.
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SECTION 3.09. OPINION OF FINANCIAL ADVISOR . The Special Committee has
received the opinion of Beacon dated July 9, 1999, that, as of the date of such
opinion, the Per Share Amount to be received by the stockholders of the Company
pursuant to this Agreement are fair to such stockholders of the Company (other
than Parent and its affiliates) from a financial point of view and such opinion
has not been withdrawn. A copy of such opinion has been delivered to Parent and
Purchaser.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Parent and Purchaser hereby, jointly and severally, represent and
warrant to the Company that:
SECTION 4.01. CORPORATE ORGANIZATION . Each of Parent and Purchaser is
a corporation duly organized, validly existing under the laws of the
jurisdiction of its organization and Purchaser is in good standing in the State
of Delaware.
SECTION 4.02. AUTHORITY RELATIVE TO THIS AGREEMENT . Each of Parent
and Purchaser has all necessary corporate power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate
the Transactions. The execution and delivery of this Agreement by Parent and
Purchaser and the consummation by Parent and Purchaser of the Transactions have
been duly and validly authorized by all necessary corporate action and no other
corporate proceedings on the part of Parent or Purchaser are necessary to
authorize this Agreement or to consummate the Transactions (other than, with
respect to the Merger, the filing and recordation of appropriate merger
documents as required by Delaware Law). This Agreement has been duly and validly
executed and delivered by Parent and Purchaser and, assuming the due
authorization, execution and delivery by the Company, constitutes a legal, valid
and binding obligation of each of Parent and Purchaser enforceable against each
of Parent and Purchaser in accordance with its terms.
SECTION 4.03. NO CONFLICT; REQUIRED FILINGS AND CONSENTS . (a) The
execution and delivery of this Agreement by Parent and Purchaser do not, and the
performance of this Agreement by Parent and Purchaser will not, (i) conflict
with or violate the Certificate of Incorporation or By-laws (or equivalent
organizational documents) of either Parent or Purchaser, or (ii) assuming that
all consents, approvals, authorizations, and other actions described in
subsection (b) have been made, conflict with or violate any law, rule,
regulation, order, judg-
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ment or decree applicable to Parent or Purchaser or by which any property or
asset of either of them is bound or affected.
(b) The execution and delivery of this Agreement by Parent and Purchaser do
not, and the performance of this Agreement by Parent and Purchaser will not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, domestic or foreign,
except (i) for applicable requirements, if any, of the Exchange Act, Blue Sky
Laws, and filing and recordation of appropriate merger documents as required by
Delaware Law and (ii) where failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not
prevent or delay consummation of the Merger, or otherwise prevent Parent or
Purchaser from performing their respective obligations under this Agreement.
SECTION 4.04. FINANCING . Each of Parent and Purchaser has available to it
sufficient funds to acquire all the outstanding Shares and Warrants in the Offer
and/or the Merger and to pay the related fees and expenses.
SECTION 4.05. OFFER DOCUMENTS; PROXY STATEMENT. The information supplied by
Parent and Purchaser for inclusion in the Offer Documents will not, at the time
the Offer Documents are filed with the SEC or are first published, sent or given
to stockholders of the Company, as the case may be, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements made therein, in light of
the circumstances under which they are made, not misleading. The information
supplied by Parent and Purchaser for inclusion in the Proxy Statement will not,
on the date the Proxy Statement (or any amendment or supplement thereto) is
first mailed to stockholders and Warrantholders of the Company, at the time of
the Stockholders' Meeting (as defined below) or at the Effective Time, contain
any statement which, at such time and in light of the circumstances under which
it is made, is false or misleading with respect to any material fact, or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein not false or misleading or necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for the Stockholders' Meeting which shall have become false or
misleading. The Offer Documents shall comply in all material respects as to form
with the requirements of the Exchange Act and the rules and regulations
thereunder.
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ARTICLE V
COVENANTS OF THE COMPANY
SECTION 5.01. AFFIRMATIVE COVENANTS OF THE COMPANY . The Company hereby
covenants and agrees that, prior to the Effective Time, unless otherwise
expressly contemplated by this Agreement or consented to in writing by Parent
and Purchaser, the Company will and will cause its Subsidiaries to (a)operate
its business in the usual and ordinary course consistent with past practices;
(b)use its reasonable best efforts to preserve substantially intact its business
organization, maintain its rights and franchises, retain the services of its
respective principal officers and key employees and maintain its relationships
with its respective principal customers, suppliers and other persons with which
it or any Subsidiary has significant business relations; and (c)use its
reasonable best efforts to maintain and keep its properties and assets in as
good repair and condition as at present, ordinary wear and tear excepted.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. STOCKHOLDERS' MEETING . If required by applicable law in order
to consummate the Merger, the Company, acting through the Board, shall in
accordance with Delaware Law and its Certificate of Incorporation and By-laws,
take all necessary action to duly call, give notice of, convene and hold an
annual or special meeting of its stockholders as soon as practicable for the
purpose of considering and taking action on this Agreement and the transactions
contemplated hereby (the "STOCKHOLDERS' MEETING"). At the Stockholders' Meeting,
Parent and Purchaser shall cause all Shares then owned by them and their
subsidiaries to be voted in favor of the approval and adoption of this Agreement
and the transactions contemplated hereby. In the event a Stockholders' Meeting
is called, the Company shall use its reasonable best efforts to solicit from
stockholders of the Company proxies in favor of the approval and adoption of the
Merger Agreement and to secure the vote or consent of stockholders required by
Delaware Law to approve and adopt the Merger Agreement, unless otherwise
required by the applicable fiduciary duties of the directors of the Company or
of the Company's directors constituting the Special Committee, as determined by
such directors in good faith, and after consultation with independent legal
counsel (which may include the Company's regularly engaged legal counsel).
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SECTION 6.02. PROXY STATEMENT . If required by applicable law, as soon as
practicable following consummation of the Offer, Parent, Purchaser and the
Company shall file the Proxy Statement with the SEC under the Exchange Act, and
shall use its best efforts to have the Proxy Statement cleared by the SEC.
Parent, Purchaser and the Company shall cooperate with each other in the
preparation of the Proxy Statement, and the Company shall notify Parent and
Purchaser of the receipt of any comments of the SEC with respect to the Proxy
Statement and of any requests by the SEC for any amendment or supplement thereto
or for additional information and shall provide to Parent and Purchaser promptly
copies of all correspondence between the Company or any representative of the
Company and the SEC. The Company shall give Parent, Purchaser and their
respective counsel the opportunity to review the Proxy Statement prior to its
being filed with the SEC and shall give Parent, Purchaser and their respective
counsel the opportunity to review all amendments and supplements to the Proxy
Statement and all responses to requests for additional information and replies
to comments prior to their being filed with, or sent to, the SEC. Each of the
Company, Parent and Purchaser agrees to use its reasonable efforts, after
consultation with the other parties hereto, to respond promptly to all such
comments of and requests by the SEC and to cause the Proxy Statement and all
required amendments and supplements thereto to be mailed to the holders of
Shares entitled to vote at the Stockholders' Meeting at the earliest practicable
time.
SECTION 6.03. PUBLIC ANNOUNCEMENTS . Parent, Purchaser and the Company shall
obtain the prior consent of each other before issuing any press release or
otherwise making any public statements with respect to this Agreement or any
Transaction and shall not issue any such press release or make any such public
statement without such prior consent, except as may be required by law or any
listing agreement with a national securities exchange to which Parent or the
Company is a party.
SECTION 6.04. REDEMPTION OF SUBORDINATED CONVERTIBLE DEBENTURES . The
Company shall use its reasonable best efforts to cause the redemption of the
Company's 8% Subordinated Convertible Debentures prior to the Effective Time or
as soon as reasonably practicable thereafter.
SECTION 6.05. FURTHER ACTION . Subject to the terms and conditions herein
provided, each of the parties hereto covenants and agrees to use all reasonable
efforts to deliver or cause to be delivered such documents and other papers and
to take or cause to be taken such further actions as may be necessary, proper or
advisable under applicable laws to consummate and make effective the
Transactions, including the Merger.
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ARTICLE VII
CONDITIONS TO THE MERGER
SECTION 7.01. CONDITIONS TO THE MERGER . The respective obligations of each
party to effect the Merger shall be subject to the satisfaction at or prior to
the Effective Time of the following conditions, any or all of which may be
waived, in whole or in part, to the extent permitted by applicable law:
(a) STOCKHOLDER APPROVAL. This Agreement and the Transactions shall have been
approved and adopted by the affirmative vote of the stockholders of the Company
to the extent required by Delaware Law and the Certificate of Incorporation and
By-laws of the Company; and
(b) NO ORDER. No foreign, United States or state governmental authority or
other agency or commission or foreign, United States or state court of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
law, rule, regulation, executive order, decree, injunction or other order
(whether temporary, preliminary or permanent) which is then in effect and has
the effect of making the acquisition of Shares by Purchaser illegal or otherwise
restricting, preventing or prohibiting consummation of the Offer or the Merger.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. TERMINATION . This Agreement may be terminated and the Merger
and the other transactions contemplated hereby may be abandoned at any time
prior to the Effective Time, notwithstanding any requisite approval and adoption
of this Agreement and the transactions contemplated hereby by the stockholders
of the Company: (a) by mutual written consent duly authorized by the Boards of
Directors of Parent, Purchaser and the Company, if such termination is also
approved by the Special Committee;
(b) by either Parent, Purchaser or the Company if (i) the Effective Time shall
not have occurred on or before December 31, 1999; PROVIDED, HOWEVER, that the
right to terminate this Agreement under this Section 8.01(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the Effective
Time to occur on or before such date or (ii) any court of competent jurisdiction
or other governmental authority shall have issued an order, decree, ruling or
taken any other ac-
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tion restraining, enjoining or otherwise prohibiting the Merger and such order,
decree, ruling or other action shall have become final and nonappealable; or
(c) by Parent, if (i) due to an occurrence or circumstance that would result
in a failure to satisfy any condition set forth in Annex A hereto, Purchaser
shall have (A) failed to commence the Offer within 60 days following the date of
this Agreement, (B) terminated the Offer without having accepted any Shares or
Warrants for payment thereunder, or (C) failed to pay for the Shares and
Warrants validly tendered pursuant to the Offer within 90 days following the
commencement of the Offer, unless such termination or failure to pay for Shares
or Warrants shall have been caused by or resulted from the failure of Parent or
Purchaser to perform in any material respect any covenant or agreement of either
of them contained in this Agreement or the material breach by Parent or
Purchaser of any representation or warranty of either of them contained in this
Agreement or (ii) prior to the purchase of any Shares or Warrants validly
tendered pursuant to the Offer, the Special Committee shall have withdrawn or
modified in a manner that is, in the reasonable judgment of Parent, materially
adverse to Parent or Purchaser, its approval or recommendation of this
Agreement, the Offer, the Merger or any other Transaction or shall have
recommended another merger, consolidation or business combination involving, or
acquisition of, the Company or its assets or another tender offer for Shares or
Warrants, or shall have resolved to do any of the foregoing.
SECTION 8.02. EFFECT OF TERMINATION . In the event of the termination of this
Agreement pursuant to Section 8.01, this Agreement shall forthwith become void,
and there shall be no liability on the part of any party hereto, except as set
forth in Sections 9.01 and 9.11; PROVIDED, HOWEVER that nothing contained herein
shall relieve any party from liability for wilful breach of this Agreement.
SECTION 8.03. AMENDMENT . This Agreement may be amended by the parties hereto
by action taken by or on behalf of their respective Boards of Directors at any
time prior to the Effective Time; PROVIDED, HOWEVER, that, after the approval
and adoption of this Agreement and the Transactions contemplated hereby by the
stockholders of the Company, no amendment may be made which would reduce the
amount or change the type of consideration into which each Share shall be
converted upon consummation of the Merger, imposes conditions to the Merger
other than set forth in Article VII or would otherwise amend or change the terms
and conditions of the Merger in a manner materially adverse to the holders of
Shares, other than Parent and its affiliates; and PROVIDED FURTHER that such
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amendment is also approved by the Special Committee. This Agreement may not be
amended except by an instrument in writing signed by the parties hereto.
SECTION 8.04. WAIVER . At any time prior to the Effective Time, any party
hereto may (i) extend the time for the performance of any obligation or other
act of any other party hereto, (ii) waive any inaccuracy in the representations
and warranties contained herein or in any document delivered pursuant hereto and
(iii) waive compliance with any agreement or condition contained herein;
PROVIDED, HOWEVER, that, if the Company seeks to make such extension or waiver
as provided in (i), (ii) or (iii) above, it must first obtain the approval of
the Special Committee. Any such extension or waiver shall be valid if set forth
in an instrument in writing signed by the party or parties to be bound thereby.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS . The
representations, warranties and agreements in this Agreement shall terminate at
the Effective Time or upon the termination of this Agreement pursuant to Section
8.01, as the case may be, except that the agreements set forth in Articles II
and this Article IX shall survive the Effective Time indefinitely.
SECTION 9.02. NOTICES . All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made upon receipt) by delivery in
person, by overnight courier service, by facsimile (followed by delivery of a
copy via overnight courier service) or by registered or certified mail (postage
prepaid, return receipt requested) to the respective parties at the following
addresses (or at such other address for a party as shall be specified in a
notice given in accordance with this Section 9.02):
(a) if to Parent or Purchaser:
C/O Vivendi North America Corporation
\ 800 3rd Avenue
17th Floor
New York, NY 10022
Attention: General Counsel
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Telecopier: (212) 753-9301
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
Attention: Martha E. McGarry, Esq.
Telecopier: (212) 735-2000
(b) if to the Company:
Aqua Alliance Inc.
30 Harvard Mill Square
Wakefield, Ma. 01880
Attention: General Counsel
Telecopier: (212) 702-2711
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
Attention: Martha E. McGarry, Esq.
Telecopier: (212) 735-2000
SECTION 9.03. CERTAIN DEFINITIONS . For purposes of this Agreement, the term:
(a) "AFFILIATE" means a person that directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is under common
control with, the first mentioned person;
(b) "BUSINESS DAY" means any day on which the principal offices of the
SEC in Washington, D.C. are open to accept filings, or, in the case of
determining a date when any payment is due, any day on which banks are not
required or authorized by law or executive order to close in the City of New
York;
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(c) "ENCUMBRANCE" means any security interest, pledge, mortgage, lien,
charge, adverse claim of ownership or use, or other encumbrance of any kind.
(d) "PERSON" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group (as
defined in Section 13(d) of the Exchange Act);
(e) "SUBSIDIARY" or "SUBSIDIARIES" means any corporation, partnership,
joint venture or other legal entity of which the Company or any Subsidiary of
the Company, as the case may be (either alone or through or together with any
other Subsidiary), owns, directly or indirectly, 50% or more of the stock or
other equity interests the holders of which are generally entitled to vote for
the election of the board of directors or other governing body of such
corporation or other legal entity; and
SECTION 9.04. SEVERABILITY . If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the Transactions is not affected in any manner materially adverse to any party.
Upon such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner in order that the
Transactions be consummated as originally contemplated to the fullest extent
possible.
SECTION 9.05. ENTIRE AGREEMENT; ASSIGNMENT . This Agreement constitutes the
entire agreement among the parties with respect to the subject matter hereof and
supersedes all prior agreements and undertakings, both written and oral, among
the parties, or any of them, with respect to the subject matter hereof. This
Agreement shall not be assigned by operation of law or otherwise, except that
Parent and Purchaser may assign all or any of their rights and obligations
hereunder to any affiliate of Parent provided that no such assignment shall
relieve the assigning party of its obligations hereunder if such assignee does
not perform such obligations.
SECTION 9.06. PARTIES IN INTEREST . This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person
23
<PAGE>
any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement, other than Section 6.04 (which is intended to be for the
benefit of the persons covered thereby and may be enforced by such persons).
SECTION 9.07. SPECIFIC PERFORMANCE . The parties hereto agree that irreparable
damage would occur in the event any provision of this Agreement was not
performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity.
SECTION 9.08. GOVERNING LAW . Except to the extent that Delaware Law applies
to these Transactions, this Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York applicable to contracts
executed in and to be performed in that State.
SECTION 9.09. HEADINGS . The descriptive headings contained in this Agreement
are included for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
SECTION 9.10. COUNTERPARTS . This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
SECTION 9.11. FEES AND EXPENSES . All fees and expenses incurred in connection
with this Agreement and the Transactions contemplated hereby shall be paid by
Parent.
24
<PAGE>
IN WITNESS WHEREOF, Parent, Purchaser and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
AQUA ALLIANCE INC.
By: /s/ Thierry Mallet
-----------------------------------
Name: Thierry Mallet
Title: President and CEO
VIVENDI
By: /s/ Daniel Caille
-----------------------------------
Name: Daniel Caille
Title: Directeur
AQUA ACQUISITION CORPORATION
By: /s/ Michel Avenas
-----------------------------------
Name: Michel Avenas
Title: President
25
<PAGE>
Annex A
- -------
Notwithstanding any other term or provision of the Offer, Purchaser shall
not be required to, subject to any applicable rules and regulations of the SEC,
including Rule 14e-1(c) under the Exchange Act (relating to Purchaser's
obligation to pay for or return tendered Shares and Warrants promptly after
termination or withdrawal of the Offer), accept for payment, purchase or pay for
any validly tendered Shares and Warrants and may terminate or amend the Offer
and may postpone the acceptance for payment of and payment for any Shares and
Warrants, if (i) the Minimum Condition (as defined in the Offer to Purchase) is
not satisfied or (ii) at any time on or after July 16, 1999, and prior to the
acceptance for payment of any Shares or Warrants, any of the following shall
occur or exist (or shall have been determined by the Company to have occurred or
existed) that, in Purchaser's judgment in any such case and regardless of the
circumstances giving rise thereto (including an action or omission to act by
Purchaser), makes it inadvisable or impracticable to proceed with the Offer or
with such acceptance for payment or payment:
(a) there shall have been any action threatened or taken, or approval
withheld, or any statute, rule or regulation proposed, sought, promulgated,
enacted, entered, amended, enforced or deemed to be applicable to the Offer, the
Merger, Parent or Purchaser or any of their subsidiaries, by any governmental,
regulatory or administrative authority or agency or tribunal, domestic or
foreign, which, in the Purchaser's sole judgment, would directly or indirectly:
(i) make the acceptance for payment of, or payment for, some or all of the
Shares or Warrants illegal or otherwise restrict or prohibit consummation of the
Offer or the Merger, or (ii) delay or restrict the ability of the Purchaser, or
render the Purchaser unable, to accept for payment or pay for some or all of the
Shares or Warrants pursuant to the Offer or to consummate the Merger; or
(b) there shall be threatened, instituted or pending any action or
proceeding by any government or governmental authority or agency, domestic or
foreign, or by any other person, domestic or foreign, before any court or
governmental authority or agency, domestic or foreign, challenging or seeking
to, or which could, make illegal, delay or otherwise directly or indirectly
restrain or prohibit or make materially more costly (i) the making of the Offer,
(ii) the acceptance for payment of, or payment for, some of or all Shares or
Warrants pursuant to the Offer, (iii) the purchase of Shares or Warrants
pursuant to the Offer, (iv) consummation of the Merger, (v) seeking to obtain
damages in connection with the Offer or the Merger, or (vi) seeking to restrain
or prohibit the consummation of the Offer, the Merger or the transactions
contem-
26
<PAGE>
plated thereby or which otherwise directly or indirectly relates to the Offer or
the Merger; or
(c) a preliminary or permanent injunction or other order by any Federal or
state court which prevents (i) the acceptance for payment of, or payment for,
some of or all the Shares or Warrants pursuant to the Offer or (ii) consummation
of the Merger shall have been issued and shall remain in effect; or
(d) the Special Committee (i) shall have withdrawn or modified in a manner
that is, in the reasonable judgment of Purchaser, materially adverse to
Purchaser or Parent (including by way of any amendment to the Schedule 13E-3)
its recommendation of the Offer or (ii) shall have resolved to do any of the
foregoing; or
(e) any change shall occur or be threatened in the business, condition
(financial or other), income, operations or prospects of the Company and its
subsidiaries, taken as a whole, which is or may be material to the Company and
its subsidiaries taken as a whole; or
(f) there shall have occurred: (i) the declaration of any banking
moratorium or suspension of payments in respect of banks in the United States;
(ii) any general suspension of trading in, or limitation on prices for,
securities on any United States national securities exchange or in the over-the-
counter market; (iii) the commencement of a war, armed hostilities or any other
national or international crisis directly or indirectly involving the United
States; (iv) any limitation (whether or not mandatory) by any governmental,
regulatory or administrative agency or authority on, or any event which might
affect, the extension of credit by banks or other lending institutions in the
United States; or (v) in the case of any of the foregoing existing at the time
of the commencement of the Offer, a material acceleration or worsening thereof;
or
(g) all consents and approvals required to be obtained from any Federal or
state governmental agency, authority or instrumentality in connection with the
Offer shall not have been obtained or Purchaser shall have been advised that any
such consent or approval will be denied or substantially delayed, or will not be
given other than upon terms or conditions which would, in the opinion of the
Purchaser, make it impracticable to proceed with the Offer or the Merger; or
(h) Parent, Purchaser and the Company (with the approval of the Special
Committee) shall have agreed that the Purchaser shall terminate the Offer or
postpone for payment of or the payment for Shares or Warrants thereunder.
27
<PAGE>
The foregoing conditions are for Purchaser's sole benefit and may be
asserted by Purchaser regardless of the circumstances giving rise to any such
condition (including any action or inaction by Purchaser) or may be waived by
Purchaser in whole or in part. Purchaser's failure at any time to exercise any
of the foregoing rights shall not be deemed a waiver of any such right, and each
such right shall be deemed an ongoing right that may be asserted at any time and
from time to time. In certain circumstances, if Purchaser waives any of the
foregoing conditions, it may be required to extend the Expiration Date of the
Offer. Any determination by Purchaser concerning the events described above and
any related judgment or decision by Purchaser regarding the inadvisability of
proceeding with the purchase of or payment for any Shares or Warrants tendered
will be final and binding on all parties.
28
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I
THE OFFER 2
SECTION 1.01. THE OFFER. 2
SECTION 1.02. COMPANY ACTION 4
ARTICLE II
THE MERGER 5
SECTION 2.01. THE MERGER 5
SECTION 2.02. CLOSING 5
SECTION 2.03. EFFECTIVE TIME 5
SECTION 2.04. EFFECT OF THE MERGER 6
SECTION 2.05. CERTIFICATE OF INCORPORATION; BY-LAWS 6
SECTION 2.06. DIRECTORS AND OFFICERS 6
SECTION 2.07. CONVERSION OF SECURITIES 6
SECTION 2.08. DISSENTING SHARES 7
SECTION 2.09. SURRENDER OF SHARES; STOCK TRANSFER
BOOKS 8
SECTION 2.10. WITHHOLDING RIGHTS 9
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY 10
SECTION 3.01. ORGANIZATION AND QUALIFICATION 10
SECTION 3.02. CERTIFICATE OF INCORPORATION AND
BY-LAWS 10
SECTION 3.03. CAPITALIZATION 10
SECTION 3.04. AUTHORITY RELATIVE TO THIS AGREEMENT 11
SECTION 3.05. NO CONFLICT; REQUIRED FILINGS AND
CONSENTS 12
SECTION 3.06. SEC FILINGS; FINANCIAL STATEMENTS 13
SECTION 3.07. OFFER DOCUMENTS; SCHEDULE 14D-9; PROXY STATEMENT. 14
SECTION 3.08. BROKERS 15
SECTION 3.09. OPINION OF FINANCIAL ADVISOR 15
</TABLE>
xxx
<PAGE>
<TABLE>
<S> <C>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER 15
SECTION 4.01. CORPORATE ORGANIZATION 15
SECTION 4.02. AUTHORITY RELATIVE TO THIS AGREEMENT 15
SECTION 4.03. NO CONFLICT; REQUIRED FILINGS AND
CONSENTS 16
SECTION 4.04. FINANCING 16
SECTION 4.05. OFFER DOCUMENTS; PROXY STATEMENT 16
ARTICLE V
COVENANTS OF THE COMPANY 17
SECTION 5.01. AFFIRMATIVE COVENANTS OF THE COMPANY 17
ARTICLE VI
ADDITIONAL AGREEMENTS 17
SECTION 6.01. STOCKHOLDERS' MEETING 17
SECTION 6.02. PROXY STATEMENT 18
SECTION 6.03. PUBLIC ANNOUNCEMENTS 18
SECTION 6.04. REDEMPTION OF SUBORDINATED CONVERTIBLE DEBENTURES 19
SECTION 6.05. FURTHER ACTION 19
ARTICLE VII
CONDITIONS TO THE MERGER 19
SECTION 7.01. CONDITIONS TO THE MERGER 19
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER 20
SECTION 8.01. TERMINATION 20
SECTION 8.02. EFFECT OF TERMINATION 21
SECTION 8.03. AMENDMENT 21
SECTION 8.04. WAIVER 21
</TABLE>
xxxi
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<TABLE>
<S> <C>
ARTICLE IX
GENERAL PROVISIONS 21
SECTION 9.01. NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS 21
SECTION 9.02. NOTICES 22
SECTION 9.03. CERTAIN DEFINITIONS 23
SECTION 9.04. SEVERABILITY 24
SECTION 9.05. ENTIRE AGREEMENT; ASSIGNMENT 24
SECTION 9.06. PARTIES IN INTEREST 25
SECTION 9.07. SPECIFIC PERFORMANCE 25
SECTION 9.08. GOVERNING LAW 25
SECTION 9.09. HEADINGS 25
SECTION 9.10. COUNTERPARTS 25
SECTION 9.11. FEES AND EXPENSES 25
ANNEX A A-I
</TABLE>
<PAGE>
EXHIBIT (c)(2)
<PAGE>
EXHIBIT 10.1
CONFORMED COPY
RECAPITALIZATION AGREEMENT
Among
COMPAGNIE GENERALE DES EAUX
ANJOU INTERNATIONAL COMPANY
and
AIR & WATER TECHNOLOGIES CORPORATION
Dated as of September 24, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I
THE RECAPITALIZATION
<S> <C>
Section 1.1 Conversion of Series A Preferred Stock into
AWT Common Stock............................................... 2
Section 1.2 Rights Offering................................................ 2
Section 1.3 Conditional CGE Subscription................................... 5
Section 1.4 Use of Proceeds................................................ 6
ARTICLE II
THE CLOSING
Section 2.1 Closing Date................................................... 6
Section 2.2 AWT Deliveries at the Closing.................................. 6
Section 2.3 CGE and Anjou Deliveries at the Closing........................ 7
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF AWT
Section 3.1 Organization and Qualification................................. 8
Section 3.2 Capitalization................................................. 8
Section 3.3 Authority Relative to this Agreement........................... 9
Section 3.4 No Conflict; Required Filings and Consents..................... 9
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CGE AND ANJOU
Section 4.1 Organization and Qualification; Ownership of
Shares......................................................... 10
Section 4.2 Authority Relative to this Agreement........................... 11
Section 4.3 No Conflict; Required Filings and Consents..................... 11
ARTICLE V
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COVENANTS
<S> <C>
Section 5.1 Registration Statement.......................................... 12
Section 5.2 Charter Amendment; Information/Proxy Statement.................. 12
Section 5.3 Business Planning Committee..................................... 13
Section 5.4 Information Statement Disclosure................................ 14
Section 5.5 Clarification of Investment Agreement........................... 14
Section 5.6 USF&G Guarantees................................................ 15
Section 5.7 Analyst Conferences............................................. 16
Section 5.8 No Short-Form Merger............................................ 16
Section 5.9 Consent Solicitation; Supplemental Indenture.................... 16
Section 5.10 Warrant Agreement............................................... 16
Section 5.11 Continued Listing............................................... 17
ARTICLE VI
CONDITIONS TO OBLIGATION TO CLOSE
Section 6.1 Representations, Warranties and Covenants....................... 17
Section 6.2 Consents........................................................ 17
Section 6.3 No Order........................................................ 17
Section 6.4 Registration Statement; Rights Offering......................... 18
Section 6.5 Exchange of Series A Preferred Stock............................ 18
Section 6.6 Stockholder Approval; Restated Certificate of
Incorporation................................................... 18
Section 6.7 Warrant Agreement............................................... 18
ARTICLE VII
TERMINATION AND AMENDMENT
Section 7.1 Termination..................................................... 18
Section 7.2 Amendment....................................................... 18
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Non-Survival of Representations, Warranties
and Agreements.................................................. 19
Section 8.2 Notices......................................................... 19
Section 8.3 Certain Definitions............................................. 20
Section 8.4 Severability.................................................... 21
Section 8.5 Entire Agreement; Assignment.................................... 21
Section 8.6 Parties in Interest............................................. 22
Section 8.7 Governing Law................................................... 22
Section 8.8 Headings........................................................ 22
Section 8.9 Counterparts.................................................... 22
</TABLE>
Glossary of Defined Terms
(Not Part of this Agreement)
<TABLE>
<CAPTION>
Defined Term Location of Definition
<S> <C>
affiliate.................................................. SECTION 8.3(a)
Agreement.................................................. Preamble
AMEX....................................................... SECTION 1.2(a)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Anjou...................................................... Preamble
Anjou Note................................................. SECTION 1.4
AWT........................................................ Preamble
Basic Subscription Privilege............................... SECTION 1.2(b)
beneficial owner........................................... SECTION 8.3(b)
Blue Sky Laws.............................................. SECTION 3.4(b)
Board...................................................... Recitals
business day............................................... SECTION 8.3(c)
Business Planning Committee................................ SECTION 5.3
CGE........................................................ Preamble
CGE Debt................................................... SECTION 1.4
CGE Material Adverse Effect................................ SECTION 4.3(b)
CGE Note................................................... SECTION 1.4
Charter Amendment.......................................... SECTION 5.2(a)
Class A Common Stock....................................... SECTION 1.1(a)
Closing.................................................... SECTION 2.1
Closing Date............................................... SECTION 2.1
Closing Price.............................................. SECTION 1.2(d)
Commencement Date.......................................... SECTION 1.2(e)
Company Preferred Stock.................................... SECTION 3.2
Conditional CGE Subscription............................... SECTION 1.3
Consent Solicitation....................................... SECTION 5.8
control.................................................... SECTION 8.3(d)
Convertible Debentures..................................... SECTION 3.2
DGCL....................................................... SECTION 3.3
Excess Shares.............................................. SECTION 1.2(b)
Exchange Act............................................... SECTION 3.4(b)
Exchange Common Shares..................................... SECTION 1.1(a)
Expiration Date............................................ SECTION 1.2(e)
Governmental Entity........................................ SECTION 3.4(b)
Indenture.................................................. SECTION 5.8
Information Statement...................................... SECTION 5.2(b)
Investment Agreement....................................... Recitals
Law........................................................ SECTION 3.4(a)
Material Adverse Effect.................................... SECTION 3.4(b)
Non-Voting Common Stock.................................... SECTION 1.2(f)
Option..................................................... SECTION 3.2
Oversubscription Privilege................................. SECTION 1.2(b)
person..................................................... SECTION 8.3(e)
Prospectus................................................. SECTION 1.2(f)
Public..................................................... SECTION 1.3
Recapitalization........................................... Recitals
Record Date................................................ SECTION 1.2(a)
Registration Statement..................................... SECTION 5.1
Requisite Consents......................................... SECTION 5.8
Right...................................................... SECTION 1.2(a)
Rights Offering............................................ SECTION 1.2(b)
SEC........................................................ SECTION 1.2 (f)
Securities Act............................................. SECTION 3.4(b)
Series A Preferred Stock................................... SECTION 1.1(a)
Special Committee.......................................... Recitals
Subscription Price......................................... SECTION 1.2(d)
Subsidiary................................................. SECTION 3.1
Subsidiary................................................. SECTION 8.3(f)
Supplemental Indenture..................................... SECTION 5.8
Trading Day................................................ SECTION 1.2(d)
Underlying Share........................................... SECTION 1.2(b)
USF&G...................................................... SECTION 5.6
Warrant Agreement.......................................... SECTION 5.9
Warrant Pool............................................... SECTION 1.2(c)
</TABLE>
<PAGE>
Warrants ........................................................ SECTION 1.2(c)
RECAPITALIZATION AGREEMENT (this "Agreement"),
dated as of September 24, 1997, among Air & Water
Technologies Corporation, a Delaware corporation ("AWT"),
Compagnie Generale des Eaux, a company organized under
the laws of the Republic of France ("CGE"), and its
indirectly wholly-owned subsidiary, Anjou International
Company, a Delaware corporation ("Anjou").
WHEREAS, the Board of Directors of AWT (the
"Board") has deemed it to be in the best interests of AWT
and its stockholders for AWT to effect a comprehensive
recapitalization of AWT as described herein (the
"Recapitalization") which includes certain transactions
between AWT and each of CGE and Anjou;
WHEREAS, AWT, CGE and Anjou have entered into
an Investment Agreement, dated as of March 30, 1994 (the
"Investment Agreement"), pursuant to which CGE and its
affiliates agreed to certain restrictions on certain
transactions with AWT;
WHEREAS, CGE and Anjou beneficially own in the
aggregate approximately 50.0009% of the Class A Common
Stock (as hereinafter defined) and approximately
50.0009% of the aggregate voting power of AWT;
WHEREAS, a special committee comprised of the
Independent Directors (as defined in the Investment
Agreement) of the Board (the "Special Committee") have
(i) determined that the Recapitalization is fair to, and
in the best interests of, AWT and the stockholders of AWT
(other than CGE and its subsidiaries), and (ii) resolved
to approve and recommend this Agreement and the
transactions contemplated hereby to the Board, subject to
the terms and conditions hereof, having taken into
account, among other things, the fairness opinion of the
Special Committee's financial advisor, Wasserstein
Perella & Co., Inc.
WHEREAS, the Board has (i) determined that the
Recapitalization is fair to, and in the best interests
of, AWT and the stockholders of AWT, and (ii) resolved to
approve and adopt this Agreement and the transactions
contemplated hereby subject to the terms and conditions
hereof; and
WHEREAS, the parties to this Agreement desire
to set forth their understanding with respect to matters
described herein;
NOW THEREFORE, in consideration of the
foregoing and the mutual respective representations,
warranties, covenants and agreements contained herein,
and intending to be legally bound hereby, the parties
hereto agree as follows:
<PAGE>
ARTICLE I
THE RECAPITALIZATION
Section 1.1 Conversion of Series A Preferred
Stock into AWT Common Stock. Upon the terms and
subject to the conditions set forth in this Agreement, at
the close of business on the Trading Day (as hereinafter
defined) immediately preceding the Record Date (as
hereinafter defined), the outstanding 1,200,000 shares
having an aggregate liquidation preference of $60,000,000
of the 5 1/2% Series A Convertible Exchangeable Preferred
Stock of AWT (the "Series A Preferred Stock") held by CGE
or its subsidiaries (representing all of the issued and
outstanding shares of Series A Preferred Stock of AWT)
shall be automatically exchanged for such number of
shares (the "Exchange Common Shares") of Class A Common
Stock, par value $.001 per share, of AWT (the "Class A
Common Stock") equal to the quotient obtained by dividing
$60,000,000 by an exchange price per share equal to the
Subscription Price (as defined hereinafter). As soon as
practicable following 4:00 p.m. on the Trading Day
immediately preceding the Record Date (as hereinafter
defined), CGE and Anjou shall deliver to AWT the
certificates held by them formerly representing Series A
Preferred Stock in exchange for certificates representing
the duly authorized, validly issued, fully-paid and non-
assessable Exchange Common Shares, in such names and
denominations as CGE may request.
Section 1.2 Rights Offering. (a) On a date
(the "Record Date") which is at least five days prior to
the effective date of the Registration Statement (as
defined hereinafter) to be determined by the Board in
accordance with the Certificate of Incorporation and
Bylaws of AWT and the applicable rules of the American
Stock Exchange (the "AMEX"), AWT shall declare a dividend
(subject to the Registration Statement (as hereinafter
defined) becoming effective at a future date) to all
holders of Class A Common Stock of record as of the
Record Date of such number of transferable rights (a
"Right"), which when multiplied by the Subscription Price
shall equal $210,000,000 in gross proceeds. As soon as
practicable following the effective date of the
Registration Statement, AWT will distribute such Rights
to such holders of Class A Common Stock.
(b) Each Right shall entitle the holder
thereof to acquire (the "Basic Subscription Privilege"),
at the Subscription Price, one share of Class A Common
Stock (an "Underlying Share") and, for each holder other
than CGE and its subsidiaries, such number of Warrants
(as hereinafter defined) determined in accordance with
Section 1.2(c). All holders of Rights (other than CGE
and its subsidiaries) who exercise the Basic Subscription
Privilege may also subscribe for additional Underlying
Shares that are not otherwise purchased pursuant to the
exercise of Rights ("Excess Shares") at the Subscription
Price, if any (the "Oversubscription Privilege"). If an
<PAGE>
insufficient number of Excess Shares are available to
satisfy fully all elections to exercise the
Oversubscription Privilege, the available Excess Shares
shall be prorated among holders who exercise their
Oversubscription Privilege. CGE hereby agrees to
exercise its Basic Subscription Privilege in full. The
"Rights Offering" means the offering of Underlying Shares
to holders of Rights pursuant to both the Basic
Subscription Privilege and the Oversubscription
Privilege.
(c) As promptly as practicable following the
Closing, but in no event later than the date on which
certificates representing Underlying Shares are sent to
persons exercising Rights in the Rights Offering, AWT
shall issue to each person who exercises Rights in the
Rights Offering (other than CGE and its subsidiaries)
such number of transferable warrants to purchase shares
of Class A Common Stock having substantially the terms
set forth on Exhibit A hereto (the "Warrants") equal to
the product of the Warrant Pool (as hereinafter defined)
multiplied by a fraction the numerator of which is the
total number of Underlying Shares purchased by each such
holder in the Rights Offering and the denominator of
which is the total number of Underlying Shares purchased
by Rights holders (other than CGE and its subsidiaries)
in the Rights Offering. For purposes of this Section
1.2(c), "Warrant Pool" shall mean that number of Warrants
equal to the product of 10,000,000 multiplied by a
fraction the numerator of which is the total number of
Underlying Shares purchased by holders of Rights (other
than CGE and its subsidiaries) in the Rights Offering and
the denominator of which is the total number of
Underlying Shares issuable upon the full exercise of
Rights by Rights holders (other than CGE and its
subsidiaries) in the Rights Offering.
(d) "Subscription Price" means the price per
share of Class A Common Stock equal to 82% of the average
daily Closing Prices of the Class A Common Stock for the
ten consecutive Trading Days ending five days prior to
the Record Date; provided, however, that in no event
shall the Subscription Price be less than $1.75 per
share of Class A Common Stock or exceed $2.50 per share
of Class A Common Stock. For purposes of this Agreement,
(i) "Closing Price" means on any day the last reported
sale price regular way on such day or in case no sale
takes place on such day, the average of the reported bid
and asked prices regular way on the AMEX or, if the Class
A Common Stock is not listed on such exchange, on the
principal national securities exchange or quotation
system on which such Class A Common Stock is listed or
admitted to trading or quoted, or, if not listed or
admitted to trading or quoted on any national securities
exchange or quotation system, the average of the closing
bid and asked prices in the over-the-counter market on
such day as reported by the National Quotation Bureau
Incorporated, or a similar generally accepted reporting
service, or, if not so available in such manner, as
furnished by any New York Stock Exchange Member firm
<PAGE>
selected from time to time by the Board for that purpose
and (ii) "Trading Day" means a day on which securities
traded on the national securities exchange or quotation
system or in the over-the-counter market used to
determine the Closing Price.
(e) The expiration date of the Rights Offering
(the "Expiration Date") shall be no later than the date
which is thirty calendar days following the date (subject
to AWT's right to extend such date for a period not to
exceed 10 days) (the "Commencement Date") upon which the
Prospectus is first sent to holders of record of the
Class A Common Stock as of the Record Date. The
Prospectus shall be sent to such holders on or about the
effective date of the Registration Statement.
(f) Notwithstanding anything contained in this
Agreement to the contrary, promptly following the
execution of this Agreement and prior to the initial
filing of the Registration Statement with the Securities
and Exchange Commission (the "SEC"), AWT and CGE shall
(with the prior approval of the Special Committee)
determine to take one of the actions described in clauses
(i), (ii) or (iii) below. AWT shall either:
(i) elect to adopt as a term of the Rights
Offering and this Agreement a provision which
provides that in the event AWT fails to obtain the
Requisite Consents (as hereinafter defined) and any
person's beneficial ownership of the voting power of
the capital stock of AWT entitled to vote in the
election of directors would, upon the exercise of
such holder's Basic Subscription Privilege or
Oversubscription Privilege or pursuant to Section
1.3 of this Agreement, exceed 74% of the total
voting power then outstanding, then AWT shall issue
to such person only such number of shares of Class A
Common Stock as would cause such person's aggregate
beneficial ownership of the then outstanding voting
power of AWT to equal 74% and any additional shares
to be issued thereunder to such person shall be
shares of Class B Common Stock, par value $.001 per
share (the "Non-Voting Common Stock"), of AWT which
shall be non-voting shares of common stock of AWT;
or
(ii) elect to take all actions necessary to
amend the Restated Certificate of Incorporation to
amend the terms of the Class A Common Stock to
provide that until such time as Section 1501 of the
Indenture (as hereinafter defined) is amended to
eliminate the right of the holders of Convertible
Debentures (as hereinafter defined) to require AWT
to repurchase the Convertible Debentures or until
Section 1501 of the Indenture is terminated in
accordance with its terms), stockholders' shares of
Class A Common Stock shall automatically convert
into shares of Class B Common Stock if and only to
the extent the beneficial ownership of Class A
Common Stock would cause such person's beneficial
<PAGE>
ownership of the then outstanding voting power of
AWT entitled to vote in the election of directors to
exceed 74%; or
(iii) elect to amend this Agreement such that
(x) the Restated Certificate of Incorporation of AWT
would be amended to authorize a new class of non-
voting common stock which would automatically
convert into Class A Common Stock, except to the
extent the holder thereof would own more than 74% of
the aggregate voting power of AWT entitled to vote
in the election of directors of AWT immediately
following such conversion and (y) the Underlying
Shares offered in the Rights Offering would be
shares of such new class of non-voting common stock.
The parties hereto acknowledge that it is the
intent of the foregoing provision to prevent any person
from beneficially owning in excess of 74% of the voting
power of the capital stock of AWT entitled to vote in the
election of directors prior to the receipt of the
Requisite Consents or the termination of the effect of
Section 1501 of the Indenture.
(g) Except as otherwise provided by this
Agreement, the terms of the Rights Offering shall be set
forth in the prospectus (the "Prospectus") forming a part
of the Registration Statement (as hereinafter defined)
which terms shall be reasonably satisfactory to CGE and
the Special Committee.
(h) CGE and AWT each agree to support the
Rights Offering through the development and
implementation of a timely coordinated "roadshow" to
current AWT stockholders and potential investors in Class
A Common Stock.
Section 1.3 Conditional CGE Subscription. In
the event that all Underlying Shares are not purchased
pursuant to the Rights Offering (including pursuant to
the Oversubscription Privilege), CGE and AWT hereby agree
that, as immediately following the Expiration Date, CGE
shall subscribe for and purchase from AWT and AWT shall
issue and sell to CGE, or a subsidiary thereof designated
by CGE, at the Subscription Price, such number of shares
of Class A Common Stock (the "Conditional CGE
Subscription"), such that (i) the total number of shares
of Class A Common Stock subscribed by CGE in the
Conditional CGE Subscription shall be no greater than (A)
the total number of shares of Class A Common Stock
available to be purchased by holders of Rights other than
CGE and its subsidiaries (the "Public"), minus (B) the
total number of shares of Class A Common Stock actually
purchased by the Public, and (ii) in no event shall the
gross proceeds resulting from CGE's and its subsidiaries'
Basic Subscription Privilege and Conditional CGE
Subscription pursuant to this Section 1.3 exceed
$185,000,000.
Section 1.4 Use of Proceeds. Other than the
<PAGE>
first $25,000,000 of gross proceeds received pursuant to
the Rights Offering from subscriptions by the Public,
which shall be retained by AWT for general corporate
purposes, the proceeds to AWT from the transactions
contemplated by this Article I shall first be used to
repay the $185,000,000 aggregate principal amount of debt
of CGE (the "CGE Debt"), consisting of (i) the
$125,000,000 million aggregate principal amount note of
AWT held by CGE under the Credit Agreement dated as of
June 14 ,1994, between CGE and AWT (the "CGE Note") and
(ii) the $60,000,000 aggregate principal amount note of
AWT held by Anjou under the Revolving Credit Agreement
dated as of August 6, 1996, between Anjou and AWT (the
"Anjou Note"). Any proceeds remaining following the
repayment of the CGE Debt shall be retained for general
corporate purposes.
ARTICLE II
THE CLOSING
Section 2.1 Closing Date. Upon the terms and
subject to the conditions contained in this Agreement,
the closing of certain of the transactions contemplated
by this Agreement (the "Closing") shall take place at the
offices of Skadden, Arps, Slate, Meagher & Flom LLP, 919
Third Avenue, New York, New York 10022, or at such other
place as the parties may mutually agree, as soon as
practicable following the satisfaction or waiver of the
conditions set forth in Article VI. The date on which
the Closing occurs is hereinafter referred to as the
"Closing Date").
Section 2.2 AWT Deliveries at the Closing. At
the Closing AWT shall deliver or cause to be delivered to
CGE and Anjou, the following:
(a) Certificates representing duly authorized,
validly issued, fully-paid and non-assessable Underlying
Shares and Conditional CGE Shares purchased by CGE and
Anjou or their subsidiaries pursuant to the terms of the
Rights Offering and Section 1.3 of this Agreement in the
names and denominations specified by CGE prior to the
Closing Date;
(b) The certificate contemplated by Section
6.1(a);
(c) Copies of any consents to obtained by AWT
as contemplated by Section 6.2;
(d) Payment by wire transfer of immediately
available funds to an account designated by CGE prior to
the Closing Date of $185,000,000, in repayment of the CGE
Note and the Anjou Note; and
(e) To the extent the Requisite Consents have
been obtained in the Consent Solicitation, a duly
executed Supplemental Indenture (as hereinafter defined).
<PAGE>
(f) Such other and further instruments as CGE
or Anjou may reasonably request.
Section 2.3 CGE and Anjou Deliveries at the
Closing. At the Closing CGE and Anjou shall deliver to
AWT, the following:
(a) The certificate contemplated by Section
6.1(b);
(b) Payment by wire transfer of immediately
available funds to an account designated by AWT prior to
the Closing Date of an amount equal to the product of the
number of Conditional CGE Shares purchased by CGE
pursuant to Section 1.3 multiplied by the Subscription
Price;
(c) Evidence of payment by wire transfer of
immediately available funds to the subscription agent for
the Rights Offering by CGE of an amount equal to the
product of the Subscription Price and the number of
Rights exercised by CGE pursuant to its Basic
Subscription Privilege.
(d) Copies of any consents to be obtained by
CGE or Anjou as contemplated by Section 6.2;
(e) The Anjou Note and the CGE Note for
cancellation upon repayment of the principal amounts
thereof; and
(f) Such other and further instruments as AWT
may reasonably request.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF AWT
As of the date hereof, AWT hereby represents
and warrants to CGE and Anjou that:
Section 3.1 Organization and Qualification.
Each of AWT and each subsidiary of AWT (a "Subsidiary")
is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its
organization and has the requisite power and authority
and all necessary governmental approvals to own, lease
and operate its properties and to carry on its business
as it is now being conducted. AWT and each Subsidiary is
duly qualified or licensed to do business, and is in good
standing, under the laws of each jurisdiction where the
ownership, lease or operation of its property or the
conduct of its business makes such qualification or
licensing necessary.
Section 3.2 Capitalization. As of the date of
this Agreement, the authorized capital stock of AWT
consists of 100,000,000 shares of Common Stock, par value
$.001 per share, and 2,500,000 shares of preferred stock,
par value $.01 per share ("Company Preferred Stock"). As
<PAGE>
of the date of this Agreement, (i) 32,019,254 shares of
Class A Common Stock are issued and outstanding, all of
which are validly issued, fully paid and nonassessable,
(ii) 89,902 shares of AWT Common Stock are held in the
treasury of AWT, and (iii) 1,239,509 options to purchase
Class A Common Stock (in each case, an "Option") were
outstanding pursuant to AWT's employee stock option
plans, each such Option entitling the holder thereof to
purchase one share of Class A Common Stock, and of which
Options to purchase an aggregate of 854,532 shares of
Class A Common Stock were exercisable. As the date
hereof, 1,200,000 shares of Series A Preferred Stock,
convertible into 4,800,000 shares of Class A Common
Stock are issued and outstanding. As of the date of this
Agreement, $115,000,000 aggregate principal amount of 8%
Convertible Subordinated Debentures due 2015 (the
"Convertible Debentures"), convertible into shares of
Class A Common Stock are issued and outstanding. Except
as set forth above, there are no options, warrants or
other rights, agreements, arrangements or commitments of
any character issued or authorized by AWT relating to the
issued or unissued capital stock of AWT or any Subsidiary
or obligating AWT or any Subsidiary to issue or sell any
shares of capital stock of, or other equity interests in,
AWT or any Subsidiary. All shares of Class A Common
Stock subject to issuance as aforesaid, upon issuance on
the terms and conditions specified in the instruments
pursuant to which they are issuable, will be duly
authorized, validly issued, fully paid and nonassessable.
There are no outstanding contractual obligations of AWT
or any Subsidiary to repurchase, redeem or otherwise
acquire any shares of Class A Common Stock or any capital
stock of any Subsidiary or to provide funds to, or make
any investment (in the form of a loan, capital
contribution or otherwise) in, any person. Each
outstanding share of capital stock of each Subsidiary is
duly authorized, validly issued, fully paid and
nonassessable.
Section 3.3 Authority Relative to this
Agreement. AWT has all necessary corporate power and
authority to execute and deliver this Agreement, to
perform its obligations hereunder and to consummate the
transactions contemplated hereby. The form, terms, and
provisions of this Agreement and the execution and
delivery of this Agreement by AWT, the performance by AWT
of its obligations hereunder and the consummation by AWT
of the transactions contemplated by this Agreement have
been duly and validly approved by the Special Committee.
The execution and delivery of this Agreement by AWT, the
performance by AWT of its obligations hereunder and the
consummation by AWT of the transactions contemplated by
this Agreement have been duly and validly authorized by
all necessary corporate action and, except for the
requisite approval of the Charter Amendment (as
hereinafter defined) under the General Corporation Law of
the State of Delaware (the "DGCL"), no other corporate
proceedings on the part of AWT are necessary to authorize
this Agreement or to consummate any of the transactions
contemplated by this Agreement. This Agreement has been
<PAGE>
duly and validly executed and delivered by AWT and,
assuming the due authorization, execution and delivery by
CGE, constitutes a legal, valid and binding obligation of
AWT enforceable against AWT in accordance with its terms.
Section 3.4 No Conflict; Required Filings and
Consents. a) The execution and delivery of this
Agreement by AWT do not, and the performance of this
Agreement by AWT will not, (i) conflict with or violate
the Certificate of Incorporation or Bylaws or equivalent
organization documents of AWT or any of its Subsidiaries,
(ii)) conflict with or violate any United States federal,
state or local or any foreign statute, rule, regulation,
ordinance, code, ruling, decree, order or any other
requirement or rule of law (a "Law"), applicable to AWT
or by which any property or asset of AWT is bound, or
(iii) result in any breach of or constitute a default (or
an event which with notice or lapse of time or both would
become a default) under, or give to others any right of
termination, amendment, acceleration or cancellation of,
or result in the creation of a lien or other encumbrance
on any property or asset of AWT or any Subsidiary
pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which AWT or any
Subsidiary is a party or by which AWT or any Subsidiary
or any property or asset of either of them is bound,
except for any such conflicts, violations, breaches,
defaults or other occurrences which would not,
individually or in the aggregate, prevent or materially
delay the performance by AWT of any of its obligations
under this Agreement or the consummation of any of the
transactions contemplated hereby.
(b) The execution and delivery of this
Agreement by AWT do not, and the performance of this
Agreement by AWT will not, require any consent, approval,
authorization or permit of, or filing with or
notification to, any United States federal, state or
local or any foreign government or any court,
administrative or regulatory agency or commission or
other governmental authority or agency, domestic or
foreign (a "Governmental Entity"), except (i) for
applicable requirements, if any, of (x) the Securities
Act of 1933, as amended (the "Securities Act"), (y) the
Securities Exchange Act of 1934 (the "Exchange Act"), or
(z) state securities or "blue sky" laws ("Blue Sky
Laws"), (ii) compliance with the rules and regulations of
the AMEX, (iii) the filing of the Charter Amendment with
the Secretary of State of the State of Delaware, and (iv)
where failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or
notifications, would not, individually or in the
aggregate, have a Material Adverse Effect or prevent or
materially delay the performance by AWT of any of its
obligations under this Agreement or the consummation of
any of the transactions contemplated by this Agreement.
The term "Material Adverse Effect" means any change or
effect that is or is reasonably likely to be materially
adverse to the business, operations, properties
<PAGE>
financial condition, prospects, assets or liabilities of
AWT and the Subsidiaries taken as a whole.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CGE AND ANJOU
As of the date hereof, CGE and Anjou hereby,
jointly and severally, represent and warrant to AWT that:
Section 4.1 Organization and Qualification;
Ownership of Shares. (a) CGE is a company duly organized
and validly existing under the laws of the Republic of
France, and Anjou is a corporation duly organized,
validly existing, and in good standing under the laws of
the State of Delaware.
(b) As of the date of this Agreement, CGE and
Anjou beneficially own an aggregate of 18,409,975 shares
of Class A Common Stock (which beneficial ownership
includes 4,800,000 shares of Class A Common Stock
issuable upon conversion of the Series A Preferred
Stock), and CGE also beneficially owns 1,200,000 shares
of the Series A Preferred Stock.
Section 4.2 Authority Relative to this
Agreement. Each of CGE and Anjou has all necessary
corporate power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The
execution and delivery of the Agreement by CGE and Anjou,
the performance by CGE and Anjou of their respective
obligations hereunder and the consummation by CGE and
Anjou of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate
action and no other corporate proceedings on the part of
CGE or Anjou are necessary to authorize this Agreement or
to consummate any of the transactions contemplated
hereby. This Agreement has been duly and validly
executed and delivered by CGE and Anjou and, assuming the
due authorization, execution and delivery by AWT,
constitutes a legal, valid and binding obligation of each
of CGE and Anjou enforceable against each of CGE and
Anjou in accordance with its terms.
Section 4.3 No Conflict; Required Filings and
Consents. (a) The execution and delivery of this
Agreement by CGE and Anjou do not, and the performance of
this Agreement by CGE and Anjou will not, (i) conflict
with or violate the statuts (articles of association) and
bylaws (or other similar organizational documents) of CGE
or the Certificate of Incorporation or Bylaws of Anjou,
(ii) conflict with or violate any Law applicable to CGE
or Anjou or by which any property or asset of either or
them is bound, or (iii) result in any breach of or
constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or
to give to others any right of termination, amendment,
acceleration or cancellation of, or result in the
creation of a lien or other encumbrance on any property
<PAGE>
or asset of CGE or Anjou pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to
which CGE or Anjou is a party or by which CGE or Anjou or
any property or asset of either of them is bound, except
for any such conflicts, violations, breaches, defaults or
other occurrences which would not, individually or in the
aggregate, materially delay the performance by CGE or
Anjou of any of its obligations under this Agreement or
the consummation of any of the transactions contemplated
hereby.
(b) The execution and delivery of this
Agreement by CGE and Anjou do not, and the performance of
this Agreement by CGE and Anjou will not, require any
consent, approval, authorization or permit of, or filing
with or notification to, any Governmental Entity, except
(i) for applicable requirements, if any, of (x) the
Securities Act, (y) the Exchange Act or (z) Blue Sky
Laws, (ii) compliance with the rules and regulations of
the AMEX, and (iii) where failure to obtain such
consents, approvals, authorizations or permits, or to
make such filings or notifications, would not prevent or
materially delay the performance by CGE or Anjou of any
of its obligations under this Agreement or the
consummation of any of the transactions contemplated
hereby.
ARTICLE V
COVENANTS
Section 5.1 Registration Statement. As soon
as reasonably practicable, AWT shall file with the SEC a
registration statement (the "Registration Statement")
under the Securities Act in connection with the Rights
Offering and with respect to the Rights, the Underlying
Shares and the Warrants and shall use its best efforts to
effect the registration of the Rights, the Underlying
Shares and the Warrants. AWT shall provide CGE and the
Special Committee and their respective counsel with a
copy of any written comments or telephonic notification
of any oral comments AWT may receive from the SEC or its
staff with respect to the Registration Statement promptly
after the receipt thereof. AWT shall provide CGE and the
Special Committee and their respective counsel with a
reasonable opportunity to participate in all
communications with the SEC and its staff, including any
meetings and telephone conferences, relating to the
issuance of the Rights or the Underlying Shares.
Section 5.2 Charter Amendment;
Information/Proxy Statement. (a) In order to consummate
the Recapitalization, AWT, acting through the Board,
shall, as promptly as reasonably practicable, in
accordance with applicable Law and AWT's Certificate of
Incorporation and Bylaws, duly approve and adopt an
amendment to AWT's Certificate of Incorporation (the
"Charter Amendment") substantially in the form of Exhibit
<PAGE>
B to this Agreement to increase the authorized capital
stock of AWT in order to permit the consummation of the
transactions contemplated by this Agreement.
CGE and Anjou agree to vote for or give
their written consent to AWT, as applicable, in respect
of the Charter Amendment and any other amendment to the
Restated Certificate of Incorporation necessary to
consummate the transactions contemplated by this
Agreement.
(b) To the extent practicable, concurrent with
the preparation and filing with the SEC of the
Registration Statement, AWT will prepare and file with
the SEC, and CGE will cooperate with AWT in such
preparation and filing, a preliminary information
statement, or if required by the applicable rules of the
AMEX, a preliminary proxy statement relating to the
Charter Amendment and use its best efforts to furnish the
information required to be included by the SEC in an
information or proxy statement on Schedule 14C or 14A, as
the case may be, and, after consultation with CGE, to
respond promptly to any comments made by the SEC with
respect to the preliminary information or proxy
statement and shall use its best efforts to cause a
definitive information or proxy statement (the
"Information Statement") to be mailed to AWT's
stockholders as soon as reasonably practicable. AWT
shall provide CGE and the Special Committee and their
respective counsel with a copy of any written comments or
telephonic notification of any oral comments AWT may
receive from the SEC or its staff with respect to the
Information Statement promptly after the receipt thereof.
AWT shall provide CGE and the Special Committee and their
respective counsel with a reasonable opportunity to
participate in all communications with the SEC and its
staff, including any meetings and telephone conferences,
relating to the Information Statement. AWT will cause
the Charter Amendment to be filed with the Secretary of
State of the State of Delaware the next business day
after all applicable time periods for taking such action
have expired. If at any time prior to the effectiveness
of the Charter Amendment there shall occur any event that
is required to be set forth in an amendment or supplement
to the Information Statement, AWT will prepare and mail
to its stockholders such an amendment or supplement.
Section 5.3 Business Planning Committee. The
Board of AWT will establish a committee (the "Business
Planning Committee") of the Board to review the business
strategies prepared by AWT senior management and, as
appropriate, make recommendations on the formulation and
implementation of those strategies that have as their
objective increasing stockholder value. Among other
things, the Business Planning Committee will identify
areas where CGE's management expertise and AWT's business
may be effectively integrated. The Business Planning
Committee will remain in place through the end of fiscal
1999 and will be comprised of three CGE appointed
directors and two directors who are independent and
<PAGE>
unaffiliated with CGE.
Section 5.4 Information Statement Disclosure.
AWT and CGE hereby agree that the Information Statement
and the Registration Statement shall address the subject
of future funding for AWT as follows:
"Following the Recapitalization, AWT will
require additional financial resources to
develop and support each of its businesses at
Metcalf and Eddy and Professional Services
Group, to undertake related long-term capital
expenditures and to participate in the emerging
privatization market in the wastewater
management industry. CGE intends to work with
AWT to explore various ways to develop such
financial resources for these purposes,
including, among others, the raising by CGE of
an investment fund or other off-balance sheet
vehicle which would invest, on a case-by-case
basis, in various project financings undertaken
by AWT. It is anticipated that any such
vehicle would invest in such project finance
activities of AWT on terms which are
commercially reasonable. As a result, CGE and
AWT and possibly others, investing either
directly or indirectly through such vehicle or
otherwise, would share in the returns on such
projects pro rata in relation to their
respective equity investments."
Section 5.5 Clarification of Investment
Agreement. Section 5.6 of the Investment Agreement is
hereby amended and restated to read as follows:
"5.6 Joint Efforts. (a) CGE agrees on
behalf of itself and its Affiliates that, after
Closing, for so long as CGE and its Affiliates
are the largest stockholder of AWT, AWT shall
be CGE's exclusive vehicle in the United
States, its possessions and its territories for
its water management and waste water management
and air pollution activities; provided that the
foregoing shall not apply to any acquisition or
investment by CGE or any of its Affiliates of a
privately-owned, publicly-traded or publicly-
owned company in the water utility sector whose
primary business is the production,
distribution and/or sale of potable, fire,
bulk, draining or irrigation water ("Water
Utility"), nor to CGE's present or future
investments in Consumers Water Company
("Consumers Water") and Philadelphia Suburban
Corporation ("Philadelphia Suburban") (such
Water Utilities, Consumers Water and
Philadelphia Suburban hereinafter referred to
collectively as the "Water Businesses"). CGE
shall, and shall cause its Affiliates to assist
AWT in developing its water management and
wastewater management and air pollution
<PAGE>
activities in both Canada and Mexico, subject
to contractual agreements as of March 30, 1994
and taking into account the respective
interests of AWT on the one hand and CGE and
its Affiliates on the other. CGE shall offer,
and shall cause its Affiliates to offer, AWT
an active participation in any proposed water
management or wastewater management activities
by CGE or any of its Affiliates in the United
States (which shall be deemed to exclude the
Water Businesses), which investment is too
capital intensive for AWT to undertake on a
stand-alone basis. In the event CGE or any of
its Affiliates acquires control of a Water
Business which is also engaged in wastewater
activities similar to those conducted by AWT as
of the date hereof, then CGE or such Affiliate
shall use reasonable efforts to cause, subject
to the fiduciary duties of the board of
directors of such Water Business and other
applicable regulatory standards, that Water
Business to offer to AWT (i) the opportunity to
obtain operating and maintenance contracts
with the wastewater management business of such
Water Business and (ii) the opportunity to
obtain new engineering contracts with such
Water Business, in each case, on terms which
are commercially reasonable in the judgment of
such Water Business; provided that the
foregoing shall not apply to any existing
business of Consumers Water or Philadelphia
Suburban as of the date hereof. In addition,
CGE and its Affiliates, on the one hand, and
AWT on the other, will establish a privileged
commercial relationship for the development of
air pollution activities in Europe.
(b) The provisions of this Section 5.6
shall have no application to Kruger Inc., a
distributor of water treatment plant parts and
components and an indirect subsidiary of Omnium
Traitement et de Valorisation."
Section 5.6 USF&G Guarantees. AWT, hereby
approves for purposes of Section 7.3 of the Investment
Agreement, the proposed arrangements between CGE or one
of its affiliates and U.S. Fidelity & Guaranty (the
"USF&G") whereby, from the later of (i) September 30,
1997 and (ii) the date of this Agreement, and continuing
until the Closing of the Recapitalization, CGE or one of
its affiliates will enter into guarantees of certain
obligations of AWT relating to the bonding of certain
contracts under the Master Surety Agreement, between
USF&G and AWT and its subsidiaries, in consideration of
which CGE or one of its affiliates shall receive
assurances from USF&G that, in the event of a default by
AWT, USF&G shall assign and transfer to CGE or one of its
affiliates any and all of USF&G's resultant rights in
the bonded commercial contract (whether arising under the
Master Surety Agreement, or by operation of law, or
<PAGE>
otherwise).
Section 5.7 Analyst Conferences. The Board of
AWT hereby agrees, for as long as shares of Class A
Common Stock are traded on the AMEX or any other national
securities exchange or national quotation system, to
cause management of AWT to hold semi-annual analyst
conferences, conduct conference calls concurrent with
earnings releases, promote analyst coverage of its stock
and initiate a stockholder relations program.
Section 5.8 No Short-Form Merger. CGE hereby
agrees that until the third anniversary of the Closing
Date, CGE agrees to not effect a "short-form" merger in
which the shares of Class A Common Stock are converted
into the right to receive cash pursuant to Section 253 of
the DGCL (or any successor provision thereto) without the
approval of a majority of the Independent Directors.
Section 5.9 Consent Solicitation; Supplemental
Indenture. Prior to or concurrently with the
commencement of the Rights Offering, AWT shall commence a
solicitation (the "Consent Solicitation") of consents to
amendments to the Indenture, dated as of May 15, 1997,
between AWT and Midlantic National Bank, as Trustee,
governing the Convertible Debentures (the "Indenture")
from the holders of not less than a majority in aggregate
principal amount of the Convertible Debentures
outstanding (the consents from such holders, the
"Requisite Consents") in order to delete Section 1501
from the Indenture. Any amount to be offered to holders
of the Convertible Debentures pursuant to the Consent
Solicitation for rendering their consents thereunder
shall be subject to the prior approval of, and timely
notice to, the Special Committee. Promptly following the
receipt of the Requisite Consents, AWT shall execute a
supplemental indenture containing the proposed amendments
(the "Supplemental Indenture").
Section 5.10 Warrant Agreement. Prior to the
effective date of the Registration Statement, CGE shall
negotiate in good faith with the Special Committee the
terms of a definitive agreement governing the Warrants
(the "Warrant Agreement") which Warrant Agreement shall
include the terms set forth in Exhibit A to this
Agreement.
Section 5.11 Listing of Class A Common Stock
and Rights. AWT shall use its commercially reasonable
efforts to (i) meet the continued listing requirements of
the AMEX and to continue to be listed thereon and (ii)
cause the Rights to be listed or admitted to trading, as
appropriate, on the AMEX.
ARTICLE VI
CONDITIONS TO OBLIGATION TO CLOSE
The respective obligations of each of the
parties to this Agreement to consummate the transactions
<PAGE>
which are to be effected at the Closing hereunder shall
be subject to the satisfaction or waiver of the following
conditions; provided that any waiver by AWT must be
approved by a majority of the Special Committee.
Section 6.1 Representations, Warranties and
Covenants.
(a) All representations and warranties of AWT
contained in this Agreement shall be true and correct in
all material respects at and as of the Closing Date as if
such representations and warranties were made at and as
of the Closing Date, and AWT shall have performed in all
material respects all agreements and covenants required
hereby to be performed by it prior to or at the Closing
Date. There shall be delivered to CGE and Anjou at
Closing a certificate signed by the Chairman of the
Board, the President or an Executive Vice-President of
AWT as to the satisfaction of this condition.
(b) All representations and warranties of CGE
and Anjou contained in this Agreement shall be true and
correct in all material respects at and as of the Closing
Date as if such representations and warranties were made
at and as of the Closing Date, and CGE and Anjou shall
have performed in all material respects all agreements
and covenants required hereby to be performed by it prior
to or at the Closing Date. There shall be delivered to
AWT at Closing a certificate signed by the authorized
officer of CGE and Anjou as to the satisfaction of this
condition.
Section 6.2 Consents. All consents, approvals
and waivers from Governmental Entities and other parties
necessary to effect the transactions contemplated by this
Agreement shall have been obtained.
Section 6.3 No Order. No Governmental Entity
shall have enacted, issued, promulgated, enforced or
entered any Law (whether temporary, preliminary or
permanent) which is then in effect and has the effect of
preventing or prohibiting consummation of the
transactions contemplated by this Agreement or the
effective operation of the business of AWT and the
Subsidiaries after the Closing Date.
Section 6.4 Registration Statement; Rights
Offering. The SEC shall have declared the Registration
Statement effective under the Securities Act and the
Expiration Date shall have occurred.
Section 6.5 Exchange of Series A Preferred
Stock. AWT shall have completed an exchange of the
Series A Preferred Stock held by CGE into Exchange Common
Shares pursuant to Section 1.1, and CGE and Anjou shall
have received duly executed certificates representing the
Exchange Common Shares.
Section 6.6 Stockholder Approval; Restated
Certificate of Incorporation Amendments. The Charter
<PAGE>
Amendment and any amendment to the Restated Certificate
of Incorporation of AWT requires as a result of AWT
election to take the actions contemplated by Section
1.2(f) shall have been filed with the Secretary of State
of the State of Delaware and be effective under the DGCL.
Section 6.7 Warrant Agreement. AWT shall have
entered into the Warrant Agreement with the warrant agent
thereunder.
ARTICLE VII
TERMINATION AND AMENDMENT
Section 7.1 Termination. This Agreement may
be terminated and the Transactions may be abandoned at
any time prior to the Closing Date (i) by mutual written
consent duly authorized by the Boards of Directors of
CGE, Anjou and the Special Committee on behalf of AWT or
(ii) by either CGE or the Special Committee on behalf of
AWT if the Closing shall not have been consummated on or
before March 22, 1998.
Section 7.2 Amendment. This Agreement may be
amended by the parties hereto by action taken by or on
behalf of their respective Boards of Directors (and
approved by the Special Committee) at any time prior to
the Closing Date. Any provision of this Agreement may be
amended or waived prior to the Closing Date if, but only
if, such amendment or waiver is in writing and is signed
by each party against whom or which such amendment or
waiver is to be enforced. Any amendment, supplement or
modification of or to any provision of this Agreement,
and any consent to any departure by any party from the
terms of any provision of this Agreement, shall be
effective only in the specific instance and for the
specific purpose for which made or given.
ARTICLE VIIII
MISCELLANEOUS
Section 8.1 Non-Survival of Representations,
Warranties and Agreements. The representations,
warranties and agreements in this Agreement shall
terminate at the Closing or upon the termination of this
Agreement pursuant to Section 7.1, as the case may be,
except that the agreements set forth in Sections 5.3,
5.5, 5.6, 5.7, 5.8, 5.11 and Article VIII shall survive
the Closing and the termination of this Agreement
indefinitely.
Section 8.2 Notices. All notices, requests,
claims, demands and other communications hereunder shall
be in writing and shall be given (and shall be deemed to
have been duly given upon receipt) by delivery in person,
by telecopy or by registered or certified mail (postage
prepaid, return receipt requested) to the respective
parties at the following addresses (or at such other
<PAGE>
address for a party as shall be specified in a notice
given in accordance with this Section 8.2):
if to AWT, to:
Air & Water Technologies Corporation
U.S. Highway 22 West and Station Road
Branchburg, New Jersey 08876
Telecopier No.: (908) 685-4029
Attention: General Counsel
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
1001 Pennsylvania Avenue, N.W.
Suite 800
Washington, D.C. 20004
Telecopier No.: (202) 639-7004
Attention: Richard A. Steinwurtzel, Esq.
if to CGE or Anjou, to:
Compagnie Generale des Eaux
52 Rue d'Anjou
75384 Paris Cedex 08
France
Telecopier No.: 011-331-4924-6922
Attention: Directeur General du Pole Eau
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Telecopier No.: (212) 735-2000
Attention: Martha E. McGarry, Esq.
Section 8.3 Certain Definitions. For purposes
of this Agreement, the term:
(a) "affiliate" of a specified person means a
person who directly or indirectly through one or more
intermediaries controls, is controlled by, or is under
common control with, such specified person;
(b) "beneficial owner" shall have the meaning
ascribed thereto in Rule 13d-3 under the Exchange Act.
(c) "business day" means any day on which the
principal offices of the SEC in Washington, D.C. are
open to accept filings, or, in the case of determining a
date when any payment is due, any day on which banks are
not required or authorized by law or executive order to
close in the City of New York;
(d) "control" (including the terms "controlled
by" and "under common control with") means the
possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction
of the management and policies of a person, whether
<PAGE>
through the ownership of voting securities, as trustee or
executor, by contract or credit arrangement or otherwise
(it being understood and agreed that any person which
beneficially owns more than 50% of the voting equity
capital of the person (in the case of a corporation, the
shares of a corporation's capital stock entitled
generally to elect its board of directors shall be such
corporation's "voting equity capital" for this purpose)
shall be presumed to control the person);
(e) "person" means an individual, corporation,
partnership, limited partnership, limited liability
company, syndicate, person (including, without
limitation, a "person" as defined in Section 13(d)(3) of
the Exchange Act), trust, association or entity or
government, political subdivision, agency or
instrumentality of a government; and
(f) "subsidiary" or "subsidiaries" of AWT, CGE
or any other person means an affiliate controlled by such
person, directly or indirectly, through one or more
intermediaries.
Section 8.4 Severability. If any term or
other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this
Agreement shall nevertheless remain in full force and
effect so long as the economic or legal substance of the
transactions contemplated by this Agreement is not
affected in any manner materially adverse to any party.
Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify
this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable
manner in order that the transactions contemplated by
this Agreement be consummated as originally contemplated
to the fullest extent possible.
Section 8.5 Entire Agreement; Assignment.
This Agreement constitutes the entire agreement among the
parties with respect to the subject matter hereof and
supersede all prior agreements and undertakings, both
written and oral, among the parties, or any of them, with
respect to the subject matter hereof. This Agreement
shall not be assigned by operation of law or otherwise,
except that CGE and Anjou may assign all or any of their
rights and obligations hereunder to any wholly-owned
subsidiary of CGE provided that no such assignment shall
relieve the assigning party of its obligations hereunder
if such assignee does not perform such obligations. To
the extent that any terms of the Investment Agreement and
this Agreement are inconsistent, the terms of this
Agreement shall control.
Section 8.6 Parties in Interest. This
Agreement shall be binding upon and inure solely to the
benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall
<PAGE>
confer upon any other person any right, benefit or remedy
of any nature whatsoever under or by reason of this
Agreement.
Section 8.7 Governing Law. Except to the
extent that the DGCL is mandatorily applicable to the
transactions contemplated by this Agreement, this
Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York
(without regard to conflicts of laws principle thereof).
All actions and proceedings arising out of or relating to
this Agreement shall be heard and exclusively determined
in any New York state or federal court sitting in the
County of New York and the parties hereto hereby consent
to the jurisdiction of such courts in any such action or
proceeding.
Section 8.8 Headings. The descriptive
headings contained in this Agreement are included for
convenience of reference only and shall not affect in any
way the meaning or interpretation of this Agreement.
Section 8.9 Counterparts. This Agreement may
be executed in one or more counterparts (including by
facsimile transmission), and by the different parties
hereto in separate counterparts, each of which when
executed shall be deemed to be an original but all of
which taken together shall constitute one and the same
agreement.
IN WITNESS WHEREOF, CGE, Anjou and AWT have
caused this Agreement to be executed as of the date first
written above by their respective officers hereunto duly
authorized.
COMPAGNIE GENERALE DES EAUX
By /s/ Francois Jobard
--------------------------------------
Name: Francois Jobard
Title: Charge de Mission a la
Direction Financiere
ANJOU INTERNATIONAL COMPANY
By /s/ William V. Kriegel
--------------------------------------
Name: William V. Kriegel
Title: Chairman and Chief Executive
Officer
AIR & WATER TECHNOLOGIES CORPORATION
By /s/ Robert B. Sheh
--------------------------------------
Name: Robert B. Sheh
Title: Chairman, President and Chief
Executive Officer
<PAGE>
LIVEDGAR Information Provided By:
GSI ONLINE
A division of Global Securities Information, Inc.
Washington, DC New York, NY Chicago, IL
Los Angeles, CA Dallas, TX
For Additional Information About LIVEDGAR, Call
1-800-669-1154
or Visit Us on the World Wide Web at
http://www.gsionline.com
<PAGE>
EXHIBIT 10.15(a)
AMENDMENT NO. 1 TO RECAPITALIZATION AGREEMENT
Amendment No. 1 (this "Amendment"), dated as of January 26, 1998, amending
---------
the Recapitalization Agreement, dated as of September 24, 1997 (the
"Recapitalization Agreement"), among Air & Water Technologies Corporation, a
- ---------------------------
Delaware corporation ("AWT"), Compagnie Generale des Eaux, a company organized
---
under the laws of the Republic of France ("CGE"), and its indirect wholly-owned
---
subsidiary, Anjou International Company, a Delaware corporation ("Anjou").
-----
WHEREAS, the parties hereto desire to amend the hereby amend and supplement
the Recapitalization Agreement in certain respects;
NOW, THEREFORE, the parties hereto hereby agree as follows:
Section 1. Definitions. Capitalized terms used herein but not otherwise
-----------
defined herein shall have the meanings assigned to such terms in the
Recapitalization Agreement.
Section 2. Recapitalization Agreement Amendments. As of the date hereof,
-------------------------------------
the Recapitalization Agreement is amended as follows:
(a) Section 1.2(a) is amended and restated in its entirety to read as
follows:
"(a) On a date (the "Record Date") to be determined by the Board in
-----------
accordance with the Certificate of Incorporation and Bylaws of AWT and
the applicable rules of the American Stock Exchange (the "AMEX"), AWT
----
shall declare a dividend (subject to the Registration Statement (as
hereinafter defined) becoming effective) to all holders of Class A
Common Stock of record as of the Record Date of such number of
transferable rights (a "Right"), which when multiplied by the
-----
Subscription Price shall equal $210,000,000 in gross proceeds. As
soon as practicable following the effective date of the Registration
Statement, AWT will distribute such Rights to such holders of Class A
Common Stock."
(b) Section 1.2(b) is amended and restated in its entirety to read as
follows:
<PAGE>
"(b) Each Right shall entitle the holder thereof to
acquire (the "Basic Subscription Privilege"), at the Subscription
----------------------------
Price, one share of Class A Common Stock (an "Underlying Share")
----------------
(subject to AWT's obligation to issue shares of Class B Common Stock,
par value $.001 per share (the "Class B Common Stock"), in certain
--------------------
circumstances) and, for each holder other than CGE and Anjou, such
number of Warrants (as hereinafter defined) determined in accordance
with Section 1.2(c). All holders of Rights (other than CGE and Anjou)
who exercise the Basic Subscription Privilege may also subscribe for
additional Underlying Shares that are not otherwise purchased pursuant
to the exercise of Rights ("Excess Shares") at the Subscription
-------------
Price, if any, subject to AWT's obligation to issue Class B Common
Stock (in certain circumstances) (the "Oversubscription Privilege").
--------------------------
If an insufficient number of Excess Shares are available to satisfy
fully all elections to exercise the Oversubscription Privilege, the
available Excess Shares shall be prorated among holders who exercise
their Oversubscription Privilege. CGE hereby agrees to exercise its
Basic Subscription Privilege in full. The "Rights Offering" means the
---------------
offering of Underlying Shares to holders of Rights pursuant to (i) the
Basic Subscription Privilege, (ii) the Oversubscription Privilege and
(iii) the Conditional CGE Subscription (as defined hereinafter)."
(c) Section 1.2(c) is amended by adding the following as the last sentence
thereof:
"'Warrant Shares' means the shares of Class A Common Stock issuable upon
--------------
exercise of the Warrants."
(d) Section 1.2(f)(i) is amended and restated in its entirety to read as
follows:
"(i) elect to adopt as a term of the Rights Offering and this Agreement
a provision which provides that in the event AWT fails to obtain the
Requisite Consents (as hereinafter defined) and any person's beneficial
ownership of the voting power of the capital stock of AWT entitled to vote
in the election of directors would, upon the exercise of such holder's
Basic Subscription Privilege or Oversubscription Privilege or pursuant to
Section 1.3 of this Agreement, exceed 74% of the total voting power then
outstanding, then AWT shall issue to such
2
<PAGE>
person only such number of shares of Class A Common Stock as would cause
such person's aggregate beneficial ownership of the then outstanding
voting power of AWT to equal 74% and any additional shares to be issued
thereunder to such person shall be shares of Class B Common Stock, par
value $.001 per share (the "Non-Voting Common Stock"), of AWT which shall
-----------------------
be non-voting shares of common stock of AWT and which shares shall
automatically convert into Shares of Class A Common Stock immediately upon
the earlier of August 1, 2000 or seventy five days following termination of
(by amendment of the Indenture (as hereinafter defined), redemption of the
Convertible Debentures (as hereinafter defined) or otherwise) of Section
1501 of the Indenture; or"
(e) Section 5.1 is amended by restating the first sentence therein to read as
follows:
"As soon as reasonably practicable, AWT shall file with the SEC a
registration statement (the "Registration Statement") under the Securities
----------------------
Act in connection with the Rights Offering and with respect to the Rights,
the Underlying Shares, the Warrants and the Warrant Shares and shall use
its best efforts to effect the registration of the Rights, the Underlying
Shares, the Warrants and the Warrant Shares."
(f) Section 5.2 is amended by restating paragraph (a) therein to read as
follows:
"(a) In order to consummate the Recapitalization, AWT, acting through
the Board, shall, as promptly as reasonably practicable, in accordance
with applicable Law and AWT's Certificate of Incorpo-
3
<PAGE>
ation and Bylaws, duly approve and adopt an amendment to AWT's
Certificate of Incorporation (the "Charter Amendment") substantially in
-----------------
the form of Exhibit B to this Agreement (i) to increase the authorized
capital stock of AWT in order to permit the consummation of the
transactions contemplated by this Agreement and (ii) in the event the
Requisite Consents are not obtained, to amend the conversion rights of
holders of the Class B Common Stock to provide for automatic conversion of
shares of Class B Common Stock into Class A Common Stock upon the earlier
of (A) August 1, 2000 or (B) seventy-five days following the termination of
the application of Section 1501 of the Indenture (as hereinafter defined)
to such holder. CGE and Anjou agree to vote for or give their written
consent to AWT, as applicable, in respect of the Charter Amendment and any
other amendment to the Restated Certificate of Incorporation necessary to
consummate the transactions contemplated by this Agreement."
(g) Section 5.9 is amended by restating the first sentence therein to read as
follows:
"Prior to or concurrently with the commencement of the Rights Offering,
AWT shall commence a solicitation (the "Consent Solicitation") of consents
--------------------
to amendments to the Indenture, dated as of May 15, 1990, between AWT and
Midlantic National Bank, as Trustee, governing the Convertible Debentures
(the "Indenture") from the holders of not less than a majority in
---------
aggregate principal amount of the Convertible Debentures outstanding (the
consents from such holders, the "Requisite Consents") in order to exempt
------------------
CGE and its affiliates from the application of Section 1501 of the
Indenture."
(h) Exhibit A is amended by amending and restating the paragraph captioned
"Registration of Warrant Shares" to read as follows:
"Holders of Warrants shall be able to exercise their Warrants only if
(i)(x) a registration statement relating to the Warrant Shares is then in
effect, and the Company has delivered to each person exercising a Warrant a
current prospectus meeting the requirements of the Securities Act, or (y)
the exercise of such Warrants is exempt from the registration requirements
of the Securities Act, and (ii) such securities are qualified for sale or
exempt from qualification under the applicable state blue sky laws, AWT
shall prepare, file and use its best efforts to cause to become effective
under the Securities Act a registration statement in respect of all of the
Warrant Shares. Subject to Black Out Periods (as hereinafter defined) and
Postponement Periods (as hereinafter defined), AWT shall use its
commercially reasonable efforts to keep such registration statement
continuously effective under the Securities Act in order to permit the
prospectus included therein to be lawfully delivered. Notwithstanding the
foregoing, AWT shall not be required to amend or supplement the
registration statement, any related prospectus or any document incorporated
therein by reference
4
<PAGE>
(i) for a period (a "Black Out Period") not to exceed the shorter of
----------------
(x) the period ending on the date the information responsible for the Black
Out Period is disclosed to the public and (y) 60 days (provided that no two
Black Out Periods shall occur during any period of 135 consecutive days) in
the event that (1) an event occurs and is continuing as a result of which
the registration statement, any related prospectus or any document
incorporated therein by reference as then amended or supplemented would, in
AWT's good faith judgment, contain an untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, and (2)(A) AWT determines in its good faith judgment that the
disclosure of such event at such time would have a material adverse effect
on the business, operations or prospects of AWT or (B) the disclosure
otherwise relates to a material business transaction which has not yet been
publicly disclosed; provided that no Black Out Period may be in effect
during the six months prior to the Warrant Expiration Date and there shall
be no more than three Black Out Periods during the term of the Warrants; or
(ii) in the event that the Company determines in its good faith
judgment that the current market price per share of the Class A Common
Stock is substantially below the Warrant Exercise Price such that
exercise of the Warrants is unlikely to occur, for a period (a
"Postponement Period") continuing until such time as the Company
-------------------
determines in its good faith judgment that exercise of the Warrants appears
likely; provided that during the Postponement Period the Company (x) shall
monitor the current market price per share of the Class A Common Stock and
(y) shall not permit the exercise of any Warrant unless the Company shall
have delivered to each person exercising a Warrant a current prospectus
meeting the requirements of Section 10(a) of the Securities Act."
(i) Exhibit B is amended by restating Paragraph (iii) of Article THIRD to read
as follows:
5
<PAGE>
(iii) Paragraph 3A of Paragraph B.3 of Article FOURTH is hereby deleted
in its entirety and the following paragraph is inserted in lieu thereof:
3A. Conversion of Class B Common. On the Conversion Date (as
----------------------------
such term is defined below), a holder's shares of Class B Common
shall automatically convert into the same number of shares of Class
A Common. For purposes of this Paragraph 3, the "Conversion Date"
shall mean the date which is the earlier of (i) August 1, 2000 or,
(ii) seventy-five days following the date on which the "Right to
Require Repurchase" provided in Section 1501 of the Indenture
governing the Corporation's 8% Convertible Subordinated Debentures
due 2015 (the "Debentures") which grants holders the right to
require the corporation to repurchase the Debentures when any person
becomes the beneficial owner of 75% or more of the voting stock of
the Corporation becomes inapplicable with respect to such holder.
Section 2 Parties in Interest. This Amendment shall be binding upon and
-------------------
inure solely to the benefit of each party hereto, and nothing in this Amendment,
express or implied, is intended to or shall confer upon any other person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Amendment.
Section 3 Governing Law. This Amendment shall be governed by, and construed
-------------
in accordance with, the laws of the State of New York (without regard to
conflicts of laws principle thereof). All actions and proceedings arising out of
or relating to this Amendment shall be heard and exclusively determined in any
New York state or federal court sitting in the County of New York and the
parties hereto hereby consent to the jurisdiction of such courts in any such
action or proceeding.
Section 4 Headings. The descriptive headings contained in this Amendment are
--------
included for convenience of reference only and shall not affect in any way the
meaning or interpretation of this Amendment.
Section 5 Counterparts. This Amendment may be executed in one or more
------------
counterparts (including by facsimile transmission), and by the different parties
hereto in separate counterparts, each of which when executed shall be deemed to
be an
6
<PAGE>
original but all of which taken together shall constitute one and the same
agreement.
7
<PAGE>
IN WITNESS WHEREOF, CGE, Anjou and AWT have caused this Amendment to be
executed as of the date first written above by their respective officers
hereunto duly authorized.
COMPAGNIE GENERALE DES EAUX
By /s/ Francois Jobard
___________________________________
Name: Francois Jobard
Title: Charge de Mission a la Direction Financiere
ANJOU INTERNATIONAL COMPANY
By /s/ Michael Avenas
____________________________________
Name: Michael Avenas
Title: President
AIR & WATER TECHNOLOGIES CORPORATION
By /s/ Douglas A. Satzger
___________________________________
Name: Douglas A. Satzger
Title: Senior Vice President
<PAGE>
EXHIBIT (c)(3)
<PAGE>
ANNEX I
INVESTMENT AGREEMENT
DATED AS OF
MARCH 30, 1994
AMONG
AIR & WATER TECHNOLOGIES CORPORATION
COMPAGNIE GENERALE DES EAUX
AND
ANJOU INTERNATIONAL COMPANY
<PAGE>
TABLE OF CONTENTS
ARTICLE 1
DEFINITIONS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1.1 Definitions........................................................ I-1
ARTICLE 2
PURCHASE AND SALE; MERGER
2.1 Purchase and Sale.................................................. I-4
2.2 The Merger......................................................... I-4
2.3 Closing............................................................ I-4
2.4 Closing Balance Sheet.............................................. I-5
2.5 Adjustment of Purchase Price....................................... I-6
2.6 Legending of Securities............................................ I-6
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF ANJOU AND CGE
3.1 Corporate Existence and Power...................................... I-6
3.2 Corporate Authorization............................................ I-7
3.3 Governmental Authorization......................................... I-7
3.4 Non-Contravention.................................................. I-7
3.5 Capitalization..................................................... I-7
3.6 Ownership of Shares................................................ I-7
3.7 Subsidiaries....................................................... I-7
3.8 Financial Statements............................................... I-7
3.9 AWT Proxy Materials................................................ I-8
3.10 Absence of Certain Changes......................................... I-8
3.11 No Undisclosed Material Liabilities................................ I-8
3.12 Intercompany Accounts.............................................. I-9
3.13 Material Contracts................................................. I-9
3.14 Litigation......................................................... I-9
3.15 Compliance with Laws and Court Orders; No Defaults................. I-9
3.16 Insurance Coverage................................................. I-10
3.17 Finders' Fees; Certain Payments.................................... I-10
3.18 Employee Benefit Plans............................................. I-10
3.19 Taxes.............................................................. I-11
3.20 Environmental Matters.............................................. I-11
3.21 Properties......................................................... I-12
3.22 Receivables........................................................ I-12
3.23 Purchase for Investment............................................ I-12
3.24 Other Information.................................................. I-12
</TABLE>
i
<PAGE>
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF AWT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
4.1 Corporate Existence and Power...................................... I-12
4.2 Corporate Authorization............................................ I-12
4.3 Governmental Authorization......................................... I-13
4.4 Non-Contravention.................................................. I-13
4.5 Capitalization..................................................... I-13
4.6 SEC Filings........................................................ I-13
4.7 Financial Statements............................................... I-13
4.8 Absence of Certain Changes......................................... I-14
4.9 No Undisclosed Material Liabilities................................ I-14
4.10 AWT Proxy Materials................................................ I-14
4.11 Compliance with Contracts.......................................... I-15
4.12 Litigation......................................................... I-15
4.13 Compliance with Laws and Court Orders; No Defaults................. I-15
4.14 Insurance Coverage................................................. I-15
4.15 Finders' Fees...................................................... I-15
4.16 Employee Benefit Plans............................................. I-15
4.17 Taxes.............................................................. I-16
4.18 Purchase for Investment............................................ I-17
4.19 Other Information.................................................. I-17
ARTICLE 5
COVENANTS OF CGE AND ANJOU
5.1 Conduct of the PSG Group........................................... I-17
5.2 Access to Information.............................................. I-18
5.3 Notices of Certain Events.......................................... I-18
5.4 Resignations....................................................... I-18
5.5 Voting of Shares; Acquisitions of Shares........................... I-18
5.6 Joint Efforts...................................................... I-18
5.7 Other Agreements................................................... I-18
ARTICLE 6
COVENANTS OF AWT
6.1 Conduct of Business................................................ I-19
6.2 Access to Information.............................................. I-19
6.3 Notices of Certain Events.......................................... I-19
6.4 Stockholder Meeting; Proxy Materials............................... I-20
6.5 No-Shop............................................................ I-20
6.6 Access to Books and Records........................................ I-20
6.7 Registration Rights................................................ I-20
ARTICLE 7
COVENANTS OF AWT, ANJOU AND CGE
7.1 Intercompany Accounts; Bonding and Insurance....................... I-20
7.2 Board Representation; Management................................... I-21
7.3 Affiliate Transactions............................................. I-21
7.4 Filings; Consents; Best Efforts.................................... I-22
</TABLE>
ii
<PAGE>
ARTICLE 8
TAX MATTERS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
8.1 Tax Covenants...................................................... I-22
8.2 Transfer Taxes..................................................... I-23
8.3 Termination of Existing Tax Sharing Arrangements................... I-23
8.4 Tax Sharing........................................................ I-23
8.5 Cooperation on Tax Matters......................................... I-23
8.6 Indemnification by Anjou........................................... I-24
8.7 Refunds............................................................ I-25
8.8 Survival........................................................... I-25
ARTICLE 9
EMPLOYEE BENEFITS
9.1 Pension Plan....................................................... I-25
9.2 Other Employee Plans............................................... I-26
9.3 Third Party Beneficiaries.......................................... I-26
ARTICLE 10
CONDITIONS TO CLOSING
10.1 Conditions to Obligations of AWT, CGE and Anjou................... I-26
10.2 Conditions to Obligation of AWT................................... I-27
10.3 Conditions to Obligation of CGE and Anjou......................... I-27
ARTICLE 11
TERMINATION
11.1 Grounds for Termination........................................... I-28
11.2 Effect of Termination............................................. I-28
ARTICLE 12
MISCELLANEOUS
12.1 Notices........................................................... I-28
12.2 Amendments and Waivers............................................ I-29
12.3 Expenses.......................................................... I-29
12.4 Successors and Assigns............................................ I-29
12.5 Governing Law..................................................... I-29
12.6 Counterparts; Third Party Beneficiaries........................... I-29
12.7 No Survival....................................................... I-29
12.8 Public Announcements.............................................. I-29
12.9 Entire Agreement; Exhibits........................................ I-30
12.10 Headings.......................................................... I-30
12.11 Specific Performance.............................................. I-30
</TABLE>
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INVESTMENT AGREEMENT
AGREEMENT dated as of March 30, 1994 among Air & Water Technologies
Corporation, a Delaware corporation ("AWT"), Compagnie Generale des Eaux, a
French corporation ("CGE") and its indirectly wholly-owned subsidiary, Anjou
International Company, a Delaware corporation ("ANJOU").
The parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. (a) The following terms, as used herein, have the following
meanings:
"AFFILIATE" means, with respect to any Person, any other Person directly or
indirectly controlling, controlled by, or under common control with such Person;
provided that for purposes of this Agreement (i) PSG and PSG Canada shall not be
considered an Affiliate of CGE or Anjou, (ii) CGE and AWT (and their respective
Subsidiaries) shall not be considered Affiliates of one another and (iii) any
joint-venture or partnership by any party hereto with any other Person shall be
deemed not to be an Affiliate of any party hereto.
"ASSOCIATE" means, when used to indicate a relationship with a Person, a
corporation or other entity of which such Person is, directly or indirectly, the
beneficial owner of 15% or more of its total voting power.
"AWT BENEFIT ARRANGEMENT" means any employment, severance or similar contract
or arrangement (whether or not written) or any plan, policy, fund, program or
contract or arrangement (whether or not written) providing for compensation,
bonus, profit-sharing, stock option, or other stock related rights or other
forms of incentive or deferred compensation, vacation benefits, insurance
coverage (including any self-insured arrangements), health or medical benefits,
disability benefits, worker's compensation, supplemental unemployment benefits,
severance benefits and post-employment or retirement benefits (including
compensation, pension, health, medical or life insurance or other benefits) that
(i) is not an AWT Employee Plan, (ii) is entered into, maintained, administered
or contributed to, as the case may be, by AWT, any of its Affiliates or
Subsidiaries and (iii) covers any employee or former employee of AWT or any
Subsidiary of AWT employed in the United States.
"AWT EMPLOYEE PLAN" means any "EMPLOYEE BENEFIT PLAN", as defined in Section
3(3) of ERISA, that (i) is subject to any provision of ERISA, (ii) is
maintained, administered or contributed to by AWT or any of its Affiliates or
Subsidiaries and (iii) covers any employee or former employee of AWT or any
Subsidiary of AWT.
"AWT INTERNATIONAL PLAN" means any employment, severance or similar contract
or arrangement (whether of not written) or any plan, policy, fund, program or
arrangement or contract providing for compensation, bonus, profit-sharing, stock
option, or other stock related rights or other forms of incentive or deferred
compensation, vacation benefits, insurance coverage (including any self-insured
arrangements), health or medical benefits, disability benefits, worker's
compensation, supplemental unemployment benefits, severance benefits and post-
employment or retirement benefits (including compensation, pension, health,
medical or life insurance or other benefits) that (i) is not an AWT Employee
Plan or an AWT Benefit Arrangement, (ii) is entered into, maintained,
administered or contributed to by AWT or any of its Affiliates and (iii) covers
any employee or former employee of AWT or any Subsidiary of AWT.
"AWT PROXY MATERIALS" means each document filed by AWT with the Commission in
connection with the meeting of the stockholders of AWT described in Section 6.4
including, without limitation, the proxy statement of AWT and any amendment or
supplement thereto.
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"BALANCE SHEET" means the balance sheet of the PSG Group as of December 31,
1993.
"BASKET" means the amount at any time equal to (a) $250,000 plus the reserves
for Taxes, if any, provided for on the books and records of PSG and PSG Canada,
minus (b) any reductions (in the aggregate) made pursuant to Section 8.6(d)
hereof.
"CLASS A COMMON STOCK" means the Class A Common Stock of AWT, par value $.001
per share.
"CLOSING DATE" means the date of the Closing.
"CODE" means the United States Internal Revenue Code of 1986, as amended.
"COMMISSION" means the United States Securities and Exchange Commission.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended,
and any successor statute thereto, and the rules and regulations promulgated
thereunder.
"ERISA AFFILIATE" of any entity means any other entity which, together with
such entity, would be treated as a single employer under Section 414 of the
Code.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
"LIEN" means, with respect to any property or asset, any mortgage, lien,
pledge, charge, security interest, encumbrance or other adverse claim of any
kind in respect of such property or asset. For the purposes of this Agreement, a
Person shall be deemed to own subject to a Lien any property or asset which it
has acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
relating to such property or asset.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on the condition
(financial or otherwise), business, assets or results of operations of AWT or
the PSG Group, as the case may be, and their respective Subsidiaries, taken as a
whole; provided that any continuation of any existing unfavorable business or
financial trend without a material worsening thereof shall be deemed not to give
rise to any Material Adverse Effect.
"MULTIEMPLOYER PLAN" means each PSG Group Employee Plan or each AWT Employee
Plan, as the case may be, that is a multiemployer plan, as defined in Section
3(37) of ERISA.
"1934 ACT" means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PENSION PLAN" means each "DEFINED BENEFIT PLAN" within the meaning of Section
3(35) of ERISA other than any such plan which is a Multiemployer Plan.
"PERSON" means an individual, corporation, partnership, limited liability
company, association, trust or other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"PSG COMMON STOCK" means the Common Stock, par value $1.00 per share, of PSG.
"PSG" means PSC Professional Services Group, Inc., a Minnesota corporation and
a wholly-owned subsidiary of Anjou.
"PSG GROUP BENEFIT ARRANGEMENT" means any employment, severance or similar
contract or arrangement (whether or not written) or any plan, policy, fund,
program or contract or arrangement (whether
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<PAGE>
or not written) providing for compensation, bonus, profit-sharing, stock option,
or other stock related rights or other forms of incentive or deferred
compensation, vacation benefits, insurance coverage (including any self-insured
arrangements), health or medical benefits, disability benefits, worker's
compensation, supplemental unemployment benefits, severance benefits and post-
employment or retirement benefits (including compensation, pension, health,
medical or life insurance or other benefits) that (i) is not a PSG Group
Employee Plan, (ii) is entered into, maintained, administered or contributed to,
as the case may be, by CGE, the PSG Group or any of their respective Affiliates
and (iii) covers any employee or former employee of the PSG Group or any
Subsidiary of the PSG Group employed in the United States.
"PSG CANADA" means 2815869 Canada, Inc., a corporation organized under the
Canada Business Corporations Act and a wholly-owned subsidiary of Anjou.
"PSG GROUP EMPLOYEE PLAN" means any "EMPLOYEE BENEFIT PLAN", as defined in
Section 3(3) of ERISA, that (i) is subject to any provision of ERISA, (ii) is
maintained, administered or contributed to by CGE, the PSG Group or any of its
Affiliates and (iii) covers any employee or former employee of the PSG Group or
any Subsidiary of the PSG Group.
"PSG GROUP" means, collectively, PSG and PSG Canada.
"PSG GROUP INTERNATIONAL PLAN" means any employment, severance or similar
contract or arrangement (whether of not written) or any plan, policy, fund,
program or arrangement or contract providing for compensation, bonus, profit-
sharing, stock option, or other stock related rights or other forms of incentive
or deferred compensation, vacation benefits, insurance coverage (including any
self-insured arrangements), health or medical benefits, disability benefits,
worker's compensation, supplemental unemployment benefits, severance benefits
and post-employment or retirement benefits (including compensation, pension,
health, medical or life insurance or other benefits) that (i) is not a PSG Group
Employee Plan or a PSG Group Benefit Arrangement, (ii) is entered into,
maintained, administered or contributed to by Anjou, the PSG Group or any of
their respective Affiliates and (iii) covers any employee or former employee of
the PSG Group or any Subsidiary of the PSG Group.
"PSG PENSION PLAN" means the Anjou Pension Plan.
"SERIES A PREFERRED" means the Series A Convertible Exchangeable Preferred
Stock of AWT, par value $.01 per share, having the designations, rights and
preferences substantially in the form of Exhibit A hereto.
"SHARES" means shares of Class A Common Stock, par value $.001, of AWT.
"SUBSIDIARY" means any entity of which securities or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
other persons performing similar functions are at the time directly or
indirectly owned by PSG or AWT, as the case may be.
"TAX" (and, with correlative meaning, "Taxes" and "Taxable") means (i) any net
income, alternative or add-on minimum tax, gross income, gross receipts, sales,
use, ad valorem, value added, transfer, franchise, profits, license, withholding
on amounts paid to or by any Person, payroll, employment, excise, severance,
stamp, occupation, premium, property, environmental or windfall profit tax,
custom, duty or other tax, governmental fee or other like assessment or charge
of any kind whatsoever, together with any interest or any penalty, addition to
tax or additional amount imposed by any governmental authority (a "Taxing
authority") responsible for the imposition of any such tax (domestic or
foreign), (ii) liability of any Person for the payment of any amounts of the
type described in (i) as a result of being a member of any affiliated,
consolidated, combined or unitary group or being a party to any agreement or
arrangement whereby liability of a Person for payments of such amounts was
determined or taken into account with reference to the liability of any other
Person for any period, and (iii) liability of any Person for the payment of any
amounts of the type described in (i) as a result of any express or implied
obligation to indemnify any other Person.
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<PAGE>
"TAX ASSET" means any net operating loss, net capital loss, investment tax
credit, foreign tax credit, charitable deduction or any other credit or tax
attribute which could reduce Taxes (including, without limitation, deductions
and credits related to alternative minimum Taxes).
(b) Each of the following terms is defined in the Section set forth opposite
such term:
TERM SECTION
---- -------
AWT Securities................................... 4.5
Base Stockholder's Equity........................ 2.5
Board............................................ 6.5
Closing.......................................... 2.3
Closing Balance Sheet............................ 2.4
Closing Stockholder's Equity..................... 2.4
Company 10-K..................................... 4.6
Company 10-Q..................................... 4.6
Exon-Florio...................................... 3.3
Final Stockholder's Equity....................... 2.5
Independent Director............................. 7.2
PSG Securities................................... 3.5
Takeover proposal................................ 6.5
Utilities........................................ 3.7
ARTICLE 2
PURCHASE AND SALE; MERGER
2.1 Purchase and Sale. Upon the terms and subject to the conditions of this
Agreement:
(a) AWT agrees to sell and CGE agrees to purchase for cash 1,200,000
shares of Series A Preferred for an aggregate purchase price of
$60,000,000; and
(b) Anjou agrees to exchange (the "EXCHANGE") all of the outstanding
capital stock of PSG Canada for, and AWT agrees to issue, 650,000 shares of
Class A Common Stock.
The foregoing consideration shall be paid or exchanged in accordance with
Section 2.3. The Exchange consideration received by Anjou shall be adjusted as
provided in Section 2.5.
2.2 The Merger. (a) At Closing, AWT and Anjou shall cause a newly formed
Minnesota subsidiary (the "MERGER SUBSIDIARY") to be merged (the "MERGER") with
and into PSG in accordance with the terms and provisions of a Plan of Merger,
substantially in the form of Exhibit B hereto, whereupon the separate existence
of Merger Subsidiary shall cease, and PSG shall be the surviving corporation.
(b) As provided for in the Plan of Merger, all PSG Common Stock outstanding
immediately prior to the effective time of the Merger shall, except as otherwise
provided therein, be converted into the right to receive in the aggregate
5,850,000 shares of Class A Common Stock.
(c) The merger consideration received by Anjou shall be adjusted as provided
in Section 2.5.
2.3 Closing. The closing (the "CLOSING") of the transactions contemplated
hereby shall take place at the offices of Davis Polk & Wardwell, 450 Lexington
Avenue, New York, New York as soon as practicable, but in no event later than 10
business days, after satisfaction of the conditions set forth in Article 10, or
at such other time or place as AWT and CGE may agree. At the Closing:
(a) AWT shall deliver to (i) Anjou one or more certificates for the Class
A Common Stock received in connection with the Exchange and the Merger,
registered in the name of Anjou, and (ii) CGE one or
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<PAGE>
more certificates for the Series A Preferred, registered in the name of CGE
(or such other Person as CGE may designate to AWT no later than two business
days prior to the Closing).
(b) CGE shall deliver to AWT $60,000,000 in immediately available funds
by wire transfer to an account of AWT designated by AWT, by notice to CGE,
no later than two business days prior to the Closing).
(c) Anjou shall deliver to AWT all outstanding capital stock of PSG
Canada along with duly endorsed stock powers in the name of AWT.
2.4 Closing Balance Sheet. (a) As promptly as practicable, but no later than
60 days, after the Closing Date, Anjou will cause to be prepared and delivered
to AWT, at Anjou's expense, the Closing Balance Sheet, together with an
unqualified report of Arthur Andersen & Co., Houston, Texas office, thereon, and
a certificate based on such Closing Balance Sheet setting forth Anjou's
calculation of Closing Stockholder's Equity. The Closing Balance Sheet ("CLOSING
BALANCE SHEET") shall (x) fairly present the financial position of the PSG Group
as at the close of business on the Closing Date in accordance with generally
accepted accounting principles applied on a basis consistent with those used in
the preparation of the Balance Sheet, (y) include line items substantially
consistent with those in the Balance Sheet, and (z) be prepared in accordance
with accounting policies and practices consistent with those used in the
preparation of the Balance Sheet. "CLOSING STOCKHOLDER'S EQUITY" means the
stockholder's equity of the PSG Group as shown on the Closing Balance Sheet
(which shall exclude all intercompany accounts, which shall be settled or
capitalized pursuant to Section 7.1), with the following adjustments: less all
cash and cash equivalents and all assets that in accordance with generally
accepted accounting principles would be classified as intangible assets,
including but not limited to goodwill, patents, trademarks and unamortized debt
discount.
(b) If AWT disagrees with Anjou's calculation of Closing Stockholder's Equity
delivered pursuant to Section 2.4(a) and the amount of any such disagreement is
in excess of $250,000, AWT may, within 30 days after delivery of the documents
referred to in Section 2.4(a), deliver a notice to Anjou disagreeing with such
calculation and setting forth AWT's calculation of such amount. Any such notice
of disagreement shall specify those items or amounts as to which AWT disagrees,
and AWT shall be deemed to have agreed with all other items and amounts
contained in the Closing Balance Sheet and the calculation of Closing
Stockholder's Equity delivered pursuant to Section 2.4(a).
(c) If a notice of disagreement shall be delivered pursuant to Section 2.4(b),
Anjou and AWT shall, during the 10 days following such delivery, use their best
efforts to reach agreement on the disputed items or amounts in order to
determine, as may be required, the amount of Closing Stockholder's Equity, which
amount shall not be more than the amount thereof shown in Anjou's calculations
delivered pursuant to Section 2.4(b) nor less than the amount thereof shown in
AWT's calculation delivered pursuant to Section 2.4(b). If, during such period,
Anjou and AWT are unable to reach such agreement, they shall promptly thereafter
cause independent accountants of nationally recognized standing reasonably
satisfactory to AWT and Anjou (who shall not have any material relationship with
AWT, Anjou or CGE), promptly to review this Agreement and the disputed items or
amounts for the purpose of calculating Closing Stockholder's Equity. In making
such calculation, such independent accountants shall consider only those items
or amounts in the Closing Balance Sheet or Anjou's calculation of Closing
Stockholder's Equity as to which AWT has disagreed. Such independent accountants
shall deliver to Anjou and AWT, as promptly as practicable, a report setting
forth such calculation. Such report shall be final and binding upon Anjou and
AWT. The cost of such review and report shall be borne equally by the parties.
(d) Anjou and AWT agree that they will, and agree to cause their respective
independent accountants and the PSG Group to, cooperate and assist in the
preparation of the Closing Balance Sheet and the calculation of Closing
Stockholder's Equity and in the conduct of the audits and reviews referred to in
this Section, including without limitation, the making available to the extent
necessary of books, records, work papers and personnel.
I-5
<PAGE>
2.5 Adjustment of Purchase Price. (a) If Base Stockholder's Equity exceeds
Final Stockholder's Equity, Anjou shall pay to AWT, as an adjustment to the
consideration received in the Exchange and the Merger, in the manner and with
interest as provided in Section 2.5(b), the amount of such excess. If Final
Stockholder's Equity exceeds Base Stockholder's Equity, AWT shall pay to Anjou,
in the manner and with interest as provided in Section 2.5(b), the amount of
such excess. "BASE STOCKHOLDER'S EQUITY" calculated on the same basis as the
Closing Stockholder's Equity is $12,741,000. "FINAL STOCKHOLDER'S EQUITY" means
the Closing Stockholder's Equity (i) as shown in Anjou's calculation delivered
pursuant to Section 2.4(a), if no notice of disagreement with respect thereto is
duly delivered pursuant to Section 2.4(b); or (ii) if such a notice of
disagreement is delivered, (A) as agreed by AWT and CGE pursuant to Section
2.4(c) or (B) in the absence of such agreement, as shown in the independent
accountants' calculation delivered pursuant to Section 2.4(c); provided that, in
no event shall Final Stockholder's Equity be more than Anjou's calculation of
Closing Stockholder's Equity delivered pursuant to Section 2.4(a) or less than
AWT's calculation of Closing Stockholder's Equity delivered pursuant to Section
2.4(b).
(b) Any payment pursuant to Section 2.5(a) shall be made at a mutually
convenient time and place within 10 days after the Final Stockholder's Equity
has been determined by delivery (i) in the case of AWT, of shares of Class A
Common Stock registered in the name of Anjou or (ii) in the case of Anjou, of a
certified or official bank check payable in immediately available funds to AWT
or by causing such payments to be credited to such account of AWT as may be
designated by AWT. The amount of any payment of cash or Class A Common Stock, as
the case may be, to be made pursuant to this Section shall bear interest from
and including the Closing Date to but excluding the date of payment at a rate
per annum equal to the Prime Rate in effect from time to time during the period
from the Closing Date to the date of payment. The amount of such interest shall
be payable in cash or shares of Class A Common Stock, as applicable, at the same
time as the payment to which it relates and shall be calculated daily on the
basis of a year of 365 days and the actual number of days elapsed. The price per
share of any Class A Common Stock delivered by AWT pursuant to this Section 2.5
shall be $10. Notwithstanding anything to the contrary in this Section 2.5, in
no event shall AWT be required to pay an adjustment with respect to an increase
in the stockholder's equity of PSG Canada to the extent such adjustment exceeds
324,000 shares of Class A Common Stock.
2.6 Legending of Securities. All securities to be issued to Anjou or CGE by
AWT hereunder shall bear the following legend:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OF THE UNITED STATES AND THE
SECURITIES REGULATORY AUTHORITIES OF APPLICABLE STATES OR UNLESS AN
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE."
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF ANJOU AND CGE
CGE and Anjou jointly and severally represent and warrant to AWT as of the
date hereof and as of the Closing Date that:
3.1 Corporate Existence and Power. Each of CGE, Anjou, PSG and PSG Canada is a
corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation and has all corporate powers and all
governmental licenses, authorizations, permits, consents and approvals required
to carry on its business as now conducted, except for those licenses,
authorizations, permits, consents and approvals the absence of which would not,
individually or in the aggregate, have a Material Adverse Effect. Each of PSG
and PSG Canada is duly qualified to do business as a foreign corporation and is
in good standing in each jurisdiction where such qualification is necessary,
except for those jurisdictions where failure to be so qualified would not,
individually or in the aggregate, have a Material Adverse Effect. Anjou has
I-6
<PAGE>
heretofore delivered to AWT true and complete copies of the articles of
incorporation and bylaws of each of PSG and PSG Canada as currently in effect.
3.2 Corporate Authorization. The execution, delivery and performance by Anjou
and CGE of this Agreement are within their respective corporate powers and have
been duly authorized by all necessary corporate action on the part of each of
Anjou and CGE. This Agreement constitutes a valid and binding agreement of each
of Anjou and CGE enforceable against it in accordance with its terms.
3.3 Governmental Authorization. The execution, delivery and performance by
each of CGE and Anjou of this Agreement require no action by or in respect of,
or filing with, any governmental body, agency, or official other than (i)
compliance with any applicable requirements of the HSR Act; (ii) compliance with
the provisions of the Omnibus Trade and Competitiveness Act of 1988, as amended
("EXON-FLORIO"); (iii) any filings to be made in Minnesota or Delaware, as the
case may be, in connection with the Merger and the Certificate of Designations
of the Series A Preferred; and (iv) any such action or filing as to which the
failure to make or obtain would not, individually or in the aggregate, have a
Material Adverse Effect.
3.4 Non-Contravention. The execution, delivery and performance by CGE and
Anjou of this Agreement do not and will not (i) violate the charter or bylaws of
Anjou, PSG or PSG Canada or the constituent documents of CGE, (ii) assuming
compliance with the matters referred to in Section 3.3, violate any applicable
law, rule, regulation, judgment, injunction, order or decree or (iii) require
any consent or other action by any Person under, constitute a default under, or
give rise to any right of termination, cancellation or acceleration of any right
or obligation of the PSG Group or to a loss of any benefit to which the PSG
Group is entitled under, any agreement or other instrument binding upon the PSG
Group or any license, franchise, permit or other similar authorization held by
the PSG Group, except in the case of clauses (ii) and (iii) to the extent that
any such violation, failure to obtain any such consent or other action, default,
right, loss would not, individually or in the aggregate, have a Material Adverse
Effect.
3.5 Capitalization. (a) The authorized capital stock of PSG consists of 2,000
shares of Common Stock, par value $1.00 per share. As of the date hereof, there
were outstanding 1,250 shares of Common Stock of PSG. The authorized capital
stock of PSG Canada consists of unlimited shares of Common Stock, par value
Canadian $1.00 per share. As of the date hereof, there were outstanding 190,000
shares of Common Stock of PSG Canada.
(b) All outstanding shares of capital stock of the PSG Group have been duly
authorized and validly issued and are fully paid and non-assessable. Except as
set forth in this Section 3.5, there are no outstanding (i) shares of capital
stock or voting securities of the PSG Group, (ii) securities of the PSG Group
convertible into or exchangeable for shares of capital stock or voting
securities of the PSG Group or (iii) options or other rights to acquire from the
PSG Group, or other obligation of the PSG Group to issue, any capital stock,
voting securities or securities convertible into or exchangeable for capital
stock or voting securities of the PSG Group (the items in clauses (i), (ii) and
(iii) being referred to collectively as the "PSG SECURITIES"). There are no
outstanding obligations of the PSG Group to repurchase, redeem or otherwise
acquire any PSG Securities.
3.6 Ownership of Shares. Except as disclosed in Schedule 3.6, Anjou is the
registered and beneficial owner of all outstanding shares of capital stock of
the PSG Group, free and clear of any Lien and any other limitation or
restriction (including any restriction on the right to vote, sell or otherwise
dispose of such capital stock).
3.7 Subsidiaries. None of PSG and PSG Canada has any Subsidiaries, except for
Utilities Services Group, Inc., a Texas corporation ("UTILITIES"), which has no
assets and is inactive.
3.8 Financial Statements. The audited balance sheets of the PSG Group as of
December 31, 1992 and December 31, 1993 and the related statements of income and
cash flows for each of the years ended
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December 31, 1992 and December 31, 1993, present fairly, in all material
respects, the financial position of the PSG Group as of the dates thereof and
its results of operations and changes in cash flows for the periods then ended
in conformity with generally accepted accounting principles applied on a
consistent basis (except as may be indicated in the notes thereto).
3.9 AWT Proxy Materials. The information with respect to CGE, Anjou or the
PSG Group and their subsidiaries that has been furnished to AWT in writing
specifically for use in any AWT Proxy Materials, each time any AWT Proxy
Materials are distributed to stockholders of AWT or any other solicitation of
stockholders of AWT is made by or on behalf of AWT or any Affiliate of AWT, and
at the time the stockholders of AWT vote on the issuance of AWT Securities
pursuant to this Agreement will not include any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which such
statements were made, not misleading or necessary to correct any statement in
any earlier communication with respect to the solicitation of a proxy for the
same meeting or subject matter which has become false or misleading.
3.10 Absence of Certain Changes. Except as set forth on Schedule 3.10, since
December 31, 1993, the business of the PSG Group has been conducted in the
ordinary course consistent with past practices and there has not been:
(i) any event, occurrence, development or state of circumstances or facts
which has had or would reasonably be expected to have a Material Adverse
Effect;
(ii) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the PSG Group, or
any repurchase, redemption or other acquisition by the PSG Group of any
outstanding shares of capital stock or other securities of, or other ownership
interests in, the PSG Group;
(iii) any amendment of any material term of any outstanding security of
the PSG Group;
(iv) any incurrence, assumption or guarantee by the PSG Group of any
indebtedness for borrowed money, except in the ordinary course of business
consistent with past practices;
(v) any sale, transfer or other disposition of a material amount of the
assets of the PSG Group;
(vi) any creation or assumption by the PSG Group of any Lien on any
material asset other than in the ordinary course of business consistent
with past practices;
(vii) any damage, destruction or other casualty loss (whether or not
covered by insurance) affecting the business or assets of PSG which,
individually or in the aggregate, has had or would reasonably be expected to
have a Material Adverse Effect;
(viii) any change in any method of accounting or application thereof by
the PSG Group;
(ix) except as previously disclosed to AWT, any (A) written employment,
deferred compensation, severance, retirement or other similar agreement
entered into with any director, officer or employee of the PSG Group (or any
amendment to any such existing agreement), (B) grant of any severance or
termination pay to any director, officer or employee of the PSG Group, or (C)
change in compensation or other benefits payable to any director, officer or
employee of the PSG Group pursuant to any severance or retirement plans or
policies thereof, other than in the ordinary course of business consistent
with past practices; or
(x) any labor dispute, other than routine individual grievances, or any
activity or proceeding by a labor union or representative thereof to organize
any employees of the PSG Group, which employees were not subject to a
collective bargaining agreement at December 31, 1993, or any lockouts,
strikes, slowdowns, work stoppages or threats thereof by or with respect to
any employees of the PSG Group.
3.11 No Undisclosed Material Liabilities. There are no liabilities of the PSG
Group of any kind whatsoever, whether accrued, contingent, absolute or
otherwise, and there is no existing condition, situation or set of circumstances
which would result in such a liability, other than:
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(a) liabilities provided for in the Balance Sheet or disclosed in the
notes thereto;
(b) liabilities disclosed on Schedule 11; and
(c) other undisclosed liabilities which, individually or in the
aggregate, would not reasonably be expected to result in a Material Adverse
Effect.
3.12 Intercompany Accounts. Schedule 3.12 contains a complete list of all
intercompany balances as of December 31, 1993 between CGE, Anjou and their
Affiliates, on the one hand, and the PSG Group, on the other hand. Since
December 31, 1993 there has not been any accrual of liability by the PSG Group
to CGE or Anjou or any of their respective Affiliates or other transaction
between the PSG Group and CGE or Anjou and any of their respective Affiliates,
except in the ordinary course of business of the PSG Group consistent with past
practices.
3.13 Material Contracts. (a) Except as disclosed in Schedule 3.13, and except
for any agreements that are terminable on not more than 90 days notice and
without the payment of any penalty by, or any other material consequence to, the
PSG Group, the PSG Group is not a party to or bound by:
(i) any sales, distribution or other similar agreement providing for the
sale by the PSG Group of materials, supplies, goods, services, equipment or
other assets that provides for either (A) annual payments to the PSG Group of
$2,000,000 or more or (B) aggregate payments to the PSG Group of $2,000,000 or
more;
(ii) any partnership, joint venture or other similar agreement or
arrangement;
(iii) any agreement relating to indebtedness for borrowed money or the
deferred purchase price of property (in either case, whether incurred,
assumed, guaranteed or secured by any asset); or
(iv) any agreement that limits the freedom of the PSG Group to compete in
any line of business or with any Person or in any geographic area or which
would so limit the freedom of the PSG Group after the Closing Date.
(b) Each agreement, commitment, arrangement or plan disclosed in any Schedule
to this Agreement or required to be disclosed pursuant to this Section is a
valid and binding agreement of the PSG Group and is in full force and effect,
and the PSG Group is not nor, to the knowledge of CGE or Anjou, is any other
party thereto in default or breach in any material respect under the terms of
any such agreement, contract, plan, lease, arrangement or commitment.
3.14 Litigation. Except as set forth on Schedule 3.14, there is no action,
suit, investigation or proceeding pending against, or to the knowledge of CGE or
Anjou threatened against or affecting, CGE, Anjou or the PSG Group or any of
their respective properties before any court or arbitrator or any governmental
body, agency or official (i) which would reasonably be expected to have a
Material Adverse Effect or (ii) which in any manner challenges or seeks to
prevent, enjoin, alter or materially delay the transactions contemplated by this
Agreement.
3.15 Compliance with Laws and Court Orders; No Defaults. (a) The PSG Group is
not in violation of any applicable law, rule, regulation, judgement, injunction,
order or decree except for violations that have not had and would not reasonably
be expected to have, individually or in the aggregate, a Material Adverse
Effect.
(b) The PSG Group is not in default under, and no condition exists that with
notice or lapse of time or both would constitute a default under, any agreement
or other instrument binding upon the PSG Group or any license, franchise, permit
or similar authorization held by the PSG Group, which defaults or potential
defaults, individually or in the aggregate, would reasonably be expected to have
a Material Adverse Effect.
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3.16 Insurance Coverage. PSG has furnished to AWT a list of, and true and
complete copies of, all insurance policies and fidelity bonds relating to the
assets, business, operations, employees, officers or directors of the PSG Group.
There is no claim by the PSG Group pending under any of such policies or bonds
as to which coverage has been questioned, denied or disputed by the underwriters
of such policies or bonds or in respect of which such underwriters have reserved
their rights, except for such claims which, individually or in the aggregate,
would not reasonably be expected to have a Material Adverse Effect. All premiums
payable under all such policies and bonds have been paid timely and the PSG
Group has otherwise complied fully with the terms and conditions of all such
policies and bonds. Such policies of insurance and bonds (or other policies and
bonds providing substantially similar insurance coverage) have been in effect
since January 1, 1994 and remain in full force and effect. Such policies and
bonds are of the type and in amounts customarily carried by Persons conducting
businesses similar to those of the PSG Group. The PSG Group shall after the
Closing continue to have coverage under such policies and bonds with respect to
events occurring prior to the Closing.
3.17 Finders' Fees; Certain Payments. (a) Except for Lazard Freres & Co. whose
fees will be paid by CGE, there is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on behalf of
CGE, Anjou or the PSG Group who might be entitled to any fee or commission in
connection with the transactions contemplated by this Agreement.
(b) All payments by or for the benefit of the PSG Group to agents, consultants
and others have been in payment of bona fide fees and commissions.
3.18 Employee Benefit Plans. (a) Schedule 3.18 identifies each PSG Group
Employee Plan. Anjou has furnished or made available to AWT copies of the PSG
Group Employee Plans (and, if applicable, related trust agreements) and all
amendments thereto and written interpretations thereof together with (i) the
most recent annual report prepared in connection with any PSG Group Employee
Plan (Form 5500 including, if applicable, Schedule B thereto) and (ii) if
applicable, the most recent actuarial valuation report prepared in connection
with any PSG Group Employee Plan.
(b) Neither Anjou nor any of its ERISA Affiliates has incurred, or reasonably
expects to incur prior to the Closing Date, any liability under Title IV of
ERISA arising in connection with the termination of, or complete or partial
withdrawal from, any plan covered or previously covered by Title IV of ERISA
that could become a liability of AWT or any of its ERISA Affiliates after the
Closing Date. To the best knowledge of Anjou, no condition exists that (i) could
constitute grounds for termination by the PBGC of any PSG Group Employee Plan
that is subject to Title IV of ERISA that is maintained solely by Anjou or any
of its ERISA Affiliates or (ii) presents a material risk of complete or partial
withdrawal from any Multiemployer Plan under Title IV of ERISA other than a
complete or partial withdrawal that would not have a Material Adverse Effect.
(c) Each PSG Group Employee Plan (other than a Multiemployer Plan) that is
intended to be qualified under Section 401(a) of the Code has been determined by
the Internal Revenue Service to be so qualified or can become so qualified
within the remedial amendment period of Section 401(b) of the Code and to the
best knowledge of Anjou, no event has occurred since the date of such
determination that would adversely affect such qualification or affect the
ability to become so qualified within the remedial amendment period of Section
401(b) of the Code; each trust created under any such Plan has been determined
by the Internal Revenue Service to be exempt from tax under Section 501(a) of
the Code or can be so determined within the aforesaid remedial amendment period
and, to the best knowledge of Anjou, no event has occurred since the date of
such determination that would adversely affect such exemption or affect the
ability to be determined to be exempt within the aforesaid remedial amendment
period. Anjou has furnished or made available to AWT the most recent
determination letter of the Internal Revenue Service relating to each such PSG
Group
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Employee Plan. To the best knowledge of Anjou, each PSG Group Employee Plan
(other than a Multiemployer Plan) has been maintained in substantial compliance
with its terms and substantially with the requirements prescribed by any and all
applicable statutes, orders, rules and regulations, including but not limited to
ERISA and the Code, except for any instance of non-compliance that would not
have a Material Adverse Effect.
(d) Schedule 3.18 identifies each PSG Group Benefit Arrangement. Anjou has
furnished or made available to AWT copies or descriptions of each PSG Group
Benefit Arrangement. To the best knowledge of Anjou, each PSG Group Benefit
Arrangement has been maintained in substantial compliance with its terms and
with the requirements prescribed by any and all applicable statutes, orders,
rules and regulations, except for any instance of non-compliance that would not
have a Material Adverse Effect.
(e) Schedule 3.18 identifies each PSG Group International Plan. Anjou has
furnished to AWT copies of each PSG Group International Plan. To the best
knowledge of Anjou, each PSG Group International Plan has been maintained in
substantial compliance with its terms and with the requirements prescribed by
any and all applicable statutes, orders, rules and regulations (including any
special provisions relating to qualified plans where such Plan was intended to
so qualify) and has been maintained in good standing with applicable regulatory
authorities, except for any instance of non-compliance or failure to be so
maintained that would not, in either case, have a Material Adverse Effect.
(f) All representations and warranties contained in the foregoing subsections
of this Section 3.18 are subject to such limitations and exceptions as are
specifically noted in Schedule 3.18.
3.19 Taxes. Except as set forth on the Balance Sheet (including the notes
thereto) and except for Taxes, the liability for which would not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect,
(i) all material Tax returns, statements, reports and forms required to be filed
with any Taxing authority by or on behalf of PSG (collectively, the "Returns"),
have been or will be filed when due in accordance with all applicable laws
except where failure to so file would not subject PSG to liabilities or
penalties; (ii) as of the time of filing, the Returns correctly reflected in all
material respects (and, as to any Returns not filed as of the date hereof, will
correctly reflect) the facts regarding the income, business, assets, operations,
activities and status of PSG; (iii) PSG has timely paid, withheld or made
provision for all Taxes shown as due and payable on the Returns that have been
filed; (iv) the charges, accruals and reserves for Taxes with respect to PSG for
any Tax period (or portion thereof) ending on or before the Closing Date
(excluding any provision for deferred income taxes) reflected on the books of
PSG are adequate to cover such Taxes; (v) PSG is not delinquent in the payment
of any material Tax and has not requested any extension of time within which to
file or send any Return, which Return has not since been filed or sent; (vi)
neither PSG (nor any member of any affiliated or combined group of which PSG is
or has been a member) has granted any extension or waiver of the limitation
period applicable to any Returns; (vii) there is no claim, audit, action, suit,
proceeding or investigation now pending or threatened against or with respect to
PSG of which PSG or Anjou is aware in respect of any material Tax or assessment;
and (viii) there are no material liens for Taxes upon the assets of PSG except
liens for current Taxes not yet due.
3.20 Environmental Matters. To the best of CGE's and Anjou's knowledge there
are no liabilities of the PSG Group which (a) arise under or relate to matters
covered by Environmental Laws, (b) are attributable to actions occurring or
conditions existing on or prior to the Closing Date and (c) would reasonably be
expected to have a Material Adverse Effect.
"ENVIRONMENTAL LAWS" means any and all federal, state and local statutes,
laws, regulations, rules, judgments and orders relating to the environment, to
emissions, discharges or releases of pollutants, contaminants, hazardous
substances or hazardous or toxic wastes into the environment or to the handling,
use, storage, transportation or disposal thereof.
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3.21 Properties. (a) The PSG Group has good title to, or in the case of leased
property has valid leasehold interests in, all property and assets (whether real
or personal, tangible or intangible) reflected on the Balance Sheet or acquired
after December 31, 1993, except for property and assets sold since December 31,
1993 in the ordinary course of business consistent with past practices.
(b) The plants, buildings, structures and equipment owned or leased by the PSG
Group (i) have no material defects, are in good operating condition and repair
and have been reasonably maintained consistent with standards generally followed
in the industry (giving due account to the age and length of use of same,
ordinary wear and tear excepted) and (ii) comply in all material respects with
applicable zoning and other applicable land-use regulations.
3.22 Receivables. All accounts receivable of the PSG Group are fully
collectible in the aggregate amount thereof, subject to normal and customary
trade discounts, less any reserves for doubtful accounts recorded on the Balance
Sheet and subsequent to December 31, 1993 in the ordinary course of business
consistent with past practices.
3.23 Purchase for Investment. Each of CGE and Anjou is acquiring the Series A
Preferred and the Shares, respectively, for investment for its own account and
not with a view to, or for sale in connection with, any distribution any such
shares. Each of CGE and Anjou (either alone or together with its advisors) has
sufficient knowledge and experience in financial and business matters so as to
be capable of evaluating the merits and risks of its investments in AWT and is
capable of bearing the economic risks of such investment.
3.24 Other Information. None of the documents or information delivered to AWT
by any of CGE, Anjou or PSG in connection with its due diligence investigation
of the PSG Group contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained
therein, in the light of the circumstances under which such statements were
made, not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF AWT
AWT represents and warrants to each of CGE and Anjou as of the date hereof and
as of the Closing Date that:
4.1 Corporate Existence and Power. AWT is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware
and has all corporate powers and all governmental licenses, authorizations,
permits, consents and approvals required to carry on its business as now
conducted, except for those licenses, authorizations, permits, consents and
approvals the absence of which would not, individually or in the aggregate, have
a Material Adverse Effect.
4.2 Corporate Authorization. (a) The execution, delivery and performance by
AWT of this Agreement are within the corporate powers of AWT and, except for any
required approval by AWT's stockholders, have been duly authorized by all
necessary corporate action on the part of AWT. This Agreement constitutes a
valid and binding agreement of AWT enforceable against it in accordance with its
terms.
(b) The Shares and the Series A Preferred, when issued and delivered to and
paid for by Anjou and CGE, as the case may be, pursuant to this Agreement, will
be validly issued, fully paid and non-assessable, and such Shares and Series A
Preferred will be free of pre-emptive or similar rights. The Shares reserved for
issuance upon conversion of the Series A Preferred have been duly authorized by
AWT and reserved for issuance upon such conversion and, when issued upon such
conversion in accordance with the terms of the
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Certificate of Designations for the Series A Preferred, will have been validly
issued, fully paid and non-assessable, and such Shares will be free of pre-
emptive or similar rights.
4.3 Governmental Authorization. The execution, delivery and performance by AWT
of this Agreement require no action by or in respect of, or filing with, any
governmental body, agency or official other than (i) compliance with any
applicable requirements of the HSR Act; (ii) compliance with any applicable
requirements of the 1934 Act; (iii) compliance with the rules and regulations of
the American Stock Exchange; (iv) any filings to be made in Minnesota or
Delaware, as the case may be, in connection with the Merger and the Certificate
of Designations of the Series A Preferred; and (v) any such action or filing as
to which the failure to make or obtain would not, individually or in the
aggregate, have a Material Adverse Effect.
4.4 Non-Contravention. The execution, delivery and performance by AWT of this
Agreement do not and will not (i) violate the certificate of incorporation or
bylaws of AWT or (ii) assuming compliance with the matters referred to in
Section 4.3, violate any applicable law, rule, regulation, judgment, injunction,
order or decree except, in the case of clause (ii), to the extent that any such
violation would not, individually or in the aggregate, have a Material Adverse
Effect.
4.5 Capitalization. (a) The authorized capital stock of AWT consists of
100,000,000 shares of Common Stock, par value $0.001 per share and 2,500,000
shares of preferred stock, par value $0.01 per share. As of the date hereof,
there were outstanding (i) 25,313,281 shares of Common Stock, (ii) no shares of
preferred stock, (iii) $115,000,000 aggregate principal amount of 8% Convertible
Subordinated Debentures, convertible into shares of Class A Common Stock at a
conversion price of $30.00 per share and (iv) employee stock options to purchase
an aggregate of 2,197,025 Shares (of which options to purchase an aggregate of
891,580 Shares were exercisable).
(b) All outstanding Shares have been duly authorized and validly issued and
are fully paid and non-assessable. Except as set forth in this Section 4.5,
there are no outstanding (i) shares of capital stock or voting securities of
AWT, (ii) securities of AWT convertible into or exchangeable for shares of
capital stock or voting securities of AWT or (iii) options or other rights to
acquire from AWT, or other obligation of AWT to issue, any capital stock, voting
securities or securities convertible into or exchangeable for capital stock or
voting securities of AWT (the items in clauses (i), (ii) and (iii) being
referred to collectively as the "AWT SECURITIES"). There are no outstanding
obligations of PSG to repurchase, redeem or otherwise acquire any AWT
Securities.
4.6 SEC Filings. (a) AWT has delivered to CGE the annual report on Form 10-K
for its fiscal year ended October 31, 1993 (the "COMPANY 10-K") and the
quarterly report on Form 10-Q for its quarter ended January 31, 1994 (the
"COMPANY 10-Q").
(b) As of its respective filing date, the Company 10-K and the Company 10-Q
did not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading.
4.7 Financial Statements. (a) The audited consolidated financial statements
for the fiscal years ended October 31, 1992 and October 31, 1993 of AWT included
in the Company 10-K and (b) the unaudited consolidated financial statements for
the quarter ended January 31, 1994 of AWT included in the Company 10-Q as filed
with the Commission fairly present, in conformity with generally accepted
accounting principles applied on a consistent basis (except as may be indicated
in the notes thereto and except for normal year-end adjustments), the
consolidated financial position of the Company and its consolidated subsidiaries
as of the dates thereof and their consolidated results of operations and
statement of cash flows for the periods then ended.
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4.8 Absence of Certain Changes. Except as set forth on Schedule 4.8, since
January 31, 1994, the business of AWT has been conducted in the ordinary course
consistent with past practices and there has not been:
(i) any event, occurrence, development or state of circumstances or facts
which has had or would reasonably be expected to have a Material Adverse
Effect;
(ii) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of AWT, or any
repurchase, redemption or other acquisition by AWT of any outstanding shares
of capital stock or other securities of, or other ownership interests in, AWT;
(iii) any amendment of any material term of any outstanding security of AWT;
(iv) any incurrence, assumption or guarantee by AWT of any indebtedness for
borrowed money, except in the ordinary course of business consistent with past
practices;
(v) any creation or assumption by AWT of any Lien on any material asset
other than in the ordinary course of business consistent with past practices;
(vi) any damage, destruction or other casualty loss (whether or not covered
by insurance) affecting the business or assets of AWT which, individually or
in the aggregate, has had or would reasonably be expected to have a Material
Adverse Effect;
(vii) any change in any method of accounting or accounting practice by
AWT;
(viii) any (A) employment, deferred compensation, severance, retirement or
other similar agreement entered into with any director, officer or employee of
AWT (or any amendment to any such existing agreement), (B) grant of any
severance or termination pay to any director, officer or employee of AWT, or
(C) change in compensation or other benefits payable to any director, officer
or employee of AWT pursuant to any severance or retirement plans or policies
thereof, other than in the ordinary course of business consistent with past
practices; or
(ix) any labor dispute, other than routine individual grievances, or any
activity or proceeding by a labor union or representative thereof to organize
any employees of AWT, which employees were not subject to a collective
bargaining agreement at January 31, 1994, or any lockouts, strikes, slowdowns,
work stoppages or threats thereof by or with respect to any employees of AWT.
4.9 No Undisclosed Material Liabilities. Other than liabilities disclosed, or
provided for, in the Company 10-Q or otherwise disclosed to CGE in writing, (i)
there exist no liabilities of AWT or its consolidated Subsidiaries of any kind
whatsoever, whether accrued, contingent, absolute or otherwise and (ii) there is
no existing condition, situation or set of circumstances which would result in
such a liability, except in the case of each of clauses (i) and (ii) for
liabilities that, individually or in the aggregate, have not had and would not
reasonably be expected to have a Material Adverse Effect.
4.10 AWT Proxy Materials. (a) The AWT Proxy Materials will, when filed, comply
as to form in all material respects with the applicable requirements of the 1934
Act.
(b) Each time any AWT Proxy Materials are distributed to stockholders of AWT
or any other solicitation of stockholders of AWT is made by or on behalf of AWT
or any Affiliate of AWT, and at the time the stockholders of AWT vote on the
issuance of AWT Securities pursuant to this Agreement, the AWT Proxy Materials
(as supplemented and amended, if applicable) will not include an untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in the light of the circumstances
under which the statements were made, not misleading, or necessary to correct
any statement in any earlier communication with respect to the solicitation of a
proxy for the same meeting or subject matter which has become false or
misleading. The representations and warranties contained in this Section 4.10
will not apply to statements or omissions included in the AWT Proxy Materials
based upon information furnished to AWT in writing by CGE, Anjou or PSG
specifically for use therein.
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4.11 Compliance with Contracts. Neither AWT nor any of its Subsidiaries is in
default under, and no condition exists that with notice or lapse of time or both
would constitute a default under, (i) any mortgage, loan agreement, indenture or
evidence of indebtedness for borrowed money to which AWT or any of its
Subsidiaries is a party or by which AWT or any of its Subsidiaries or any
material amount of their assets is bound or (ii) any judgment, order or
injunction of any court, arbitrator or governmental body, agency, official or
authority which defaults or potential defaults under either clauses (i) or (ii),
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect.
4.12 Litigation. Except as disclosed in Schedule 4.12, there is no action,
suit, investigation or proceeding pending against, or to the knowledge of AWT
threatened against or affecting, AWT before any court or arbitrator or any
governmental body, agency or official (i) which would reasonably be expected to
have a Material Adverse Effect or (ii) which in any manner challenges or seeks
to prevent, enjoin, alter or materially delay the transactions contemplated by
this Agreement.
4.13 Compliance with Laws and Court Orders; No Defaults. (a) AWT is not in
violation of any applicable law, rule, regulation, judgement, injunction, order
or decree except for violations that have not had and would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.
(b) AWT is not in default under, and no condition exists that with notice or
lapse of time or both would constitute a default under, any agreement or other
instrument binding upon AWT or any license, franchise, permit or similar
authorization held by AWT, which defaults or potential defaults, individually or
in the aggregate, would reasonably be expected to have a Material Adverse
Effect.
4.14 Insurance Coverage. AWT has furnished to Anjou a list of, and true and
complete copies of, all insurance policies and fidelity bonds relating to the
assets, business, operations, employees, officers or directors of AWT. There is
no claim by AWT pending under any of such policies or bonds as to which coverage
has been questioned, denied or disputed by the underwriters of such policies or
bonds or in respect of which such underwriters have reserved their rights,
except for such claims which, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect. All premiums payable
under all such policies and bonds have been paid timely and AWT has otherwise
complied fully with the terms and conditions of all such policies and bonds.
Such policies of insurance and bonds (or other policies and bonds providing
substantially similar insurance coverage) have been in effect since November 1,
1993 and remain in full force and effect. Such policies and bonds are of the
type and in amounts customarily carried by Persons conducting businesses similar
to those of AWT. Except as disclosed in Schedule 4.14, AWT shall after the
Closing continue to have coverage under such policies and bonds with respect to
events occurring prior to the Closing.
4.15 Finders' Fees. Except for Allen & Company Incorporated, whose fees will
be paid by AWT, there is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on behalf of AWT
who might be entitled to any fee or commission from either CGE or Anjou or any
of its Affiliates upon consummation of the transactions contemplated by this
Agreement.
4.16 Employee Benefit Plans. (a) Schedule 4.16 identifies each AWT Employee
Plan. AWT has furnished or made available to CGE copies of the AWT Employee
Plans (and, if applicable, related trust agreements) and all amendments thereto
and written interpretations thereof together with (i) the most recent annual
report prepared in connection with any AWT Employee Plan (Form 5500 including,
if applicable, Schedule B thereto) and (ii) if applicable, the most recent
actuarial valuation report prepared in connection with any AWT Employee Plan.
(b) Neither AWT nor any of its ERISA Affiliates has incurred, or reasonably
expects to incur prior to the Closing Date, any liability under Title IV of
ERISA arising in connection with the termination of, or complete or partial
withdrawal from, any plan covered or previously covered by Title IV of ERISA
that could
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become a liability of CGE or any of its ERISA Affiliates after the Closing Date.
To the best knowledge of AWT, no condition exists that (i) could constitute
grounds for termination by the PBGC of any AWT Employee Plan that is subject to
Title IV of ERISA that is maintained solely by AWT or any of its ERISA
Affiliates (ii) or presents a material risk of complete or partial withdrawal
from any Multiemployer Plan under Title IV of ERISA other than a complete or
partial withdrawal that would not have a Material Adverse Effect.
(c) Each AWT Employee Plan (other than a Multiemployer Plan) that is intended
to be qualified under Section 401(a) of the Code has been determined by the
Internal Revenue Service to be so qualified or can become so qualified within
the remedial amendment period of Section 401(b) of the Code and, to the best
knowledge of AWT, no event has occurred since the date of such determination
that would adversely affect such qualification or affect the ability to become
so qualified within the remedial amendment period of Section 401(b) of the Code;
each trust created under any such Plan has been determined by the Internal
Revenue Service to be exempt from tax under Section 501(a) of the Code or can be
so determined within the aforesaid remedial amendment period and, to the best
knowledge of AWT, no event has occurred since the date of such determination
that would adversely affect such exemption or affect the ability to be
determined to be exempt within the aforesaid remedial amendment period. AWT has
furnished or made available to CGE the most recent determination letter of the
Internal Revenue Service relating to each such AWT Employee Plan. To the best
knowledge of AWT, each AWT Employee Plan (other than a Multiemployer Plan) has
been maintained in substantial compliance with its terms and substantially with
the requirements prescribed by any and all applicable statutes, orders, rules
and regulations, including but not limited to ERISA and the Code, except for any
instance of non-compliance that would not have a Material Adverse Effect.
(d) Schedule 4.16 identifies each AWT Benefit Arrangement. AWT has furnished
or made available to CGE copies or descriptions of each AWT Benefit Arrangement.
To the best knowledge of AWT, each AWT Benefit Arrangement has been maintained
in substantial compliance with its terms and with the requirements prescribed by
any and all applicable statutes, orders, rules and regulations, except for any
instance of non-compliance that would not have a Material Adverse Effect.
(e) Schedule 4.16 identifies each AWT International Plan. AWT has furnished to
CGE copies of each AWT International Plan. To the best knowledge of AWT, each
AWT International Plan has been maintained in substantial compliance with its
terms and with the requirements prescribed by any and all applicable statutes,
orders, rules and regulations (including any special provisions relating to
qualified plans where such Plan was intended to so qualify) and has been
maintained in good standing with applicable regulatory authorities, except for
any instance of non-compliance or failure to be so maintained that would not, in
either case, have a Material Adverse Effect.
(f) All representations and warranties contained in the foregoing subsections
of this Section 4.16 are subject to such limitations and exceptions as are
specificallly noted in Schedule 4.16.
4.17 Taxes. Except as disclosed in the financial statements included in the
Company 10-K or the Company 10-Q (including the notes thereto) or on Schedule
4.17 and except for Taxes, the liability for which would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect, (i) all
material Tax returns, statements, reports and forms required to be filed with
any Taxing authority by or on behalf of AWT or any of its Subsidiaries
(collectively, the "Returns"), have been or will be filed when due in accordance
with all applicable laws except where failure to so file would not subject AWT
or any AWT Subsidiary to liabilities or penalties; (ii) as of the time of
filing, the Returns correctly reflected in all material respects (and, as to any
Returns not filed as of the date hereof, will correctly reflect) the facts
regarding the income, business, assets, operations, activities and status of AWT
and each AWT Subsidiary; (iii) AWT and each of its Subsidiaries has timely paid,
withheld or made provision for all Taxes shown as due and payable on the Returns
that have been filed; (iv) the charges, accruals and reserves for Taxes with
respect to AWT and its Subsidiaries for any Tax period (or portion thereof)
ending on or before the Closing Date (excluding
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any provision for deferred income taxes) reflected on the books of AWT and its
Subsidiaries are adequate to cover such Taxes; (v) neither AWT nor any of its
Subsidiaries is delinquent in the payment of any material Tax and has not
requested any extension of time within which to file or send any Return, which
Return has not since been filed or sent; (vi) neither AWT nor any of its
Subsidiaries (or any member of any affiliated or combined group of which AWT or
any AWT Subsidiary is or has been a member) has granted any extension or waiver
of the limitation period applicable to any Returns; (vii) there is no claim,
audit, action, suit, proceeding or investigation now pending or threatened
against or with respect to AWT or any of its Subsidiaries of which AWT is aware
in respect of any material Tax or assessment; and (viii) there are no material
liens for Taxes upon the assets of AWT or its Subsidiaries except liens for
current Taxes not yet due.
4.18 Purchase for Investment. AWT is acquiring all of the outstanding shares
of capital stock of the PSG Group for investment for its own account and not
with a view to, or for sale in connection with, any distribution any shares of
capital stock of PSG. AWT (either alone or together with its advisors) has
sufficient knowledge and experience in financial and business matters so as to
be capable of evaluating the merits and risks of its investments in PSG and is
capable of bearing the economic risks of such investment.
4.19 Other Information. None of the documents or information delivered to CGE
or Anjou by AWT in connection with their due diligence investigation of AWT
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained therein, in the light
of the circumstances under which such statements were made, not misleading.
ARTICLE 5
COVENANTS OF CGE AND ANJOU
CGE and Anjou agree that:
5.1 Conduct of the PSG Group. From the date hereof until the Closing Date,
except as provided in Section 8.4 with respect to payments to Anjou in respect
of Taxes of the PSG Group, CGE and Anjou shall cause the PSG Group to conduct
its business in the ordinary course consistent with past practice and to use its
best efforts to preserve intact its business organizations and relationships
with third parties and to keep available the services of its present officers
and employees. Without limiting the generality of the foregoing, from the date
hereof until the Closing Date, CGE and Anjou will not permit the PSG Group to:
(i) adopt or propose any change in its articles of incorporation or
bylaws;
(ii) merge or consolidate with any other Person or acquire a material
amount of assets of any other Person;
(iii) except as previously disclosed to AWT, modify or enter into any
employee benefit arrangements or any agreements with employees or grant any
severance or termination compensation rights to employees;
(iv) sell, lease, license or otherwise dispose of any material assets or
property except (A) pursuant to existing contracts or commitments and (B)
in the ordinary course consistent with past practice; or
(v) agree or commit to do any of the foregoing.
CGE and Anjou will not, and will not permit PSG to (A) take or agree or commit
to take any action that would make any representation and warranty of CGE and
Anjou hereunder inaccurate in any material respect at, or as of any time prior
to, the Closing Date or (B) omit or agree or commit to omit to take any action
necessary to prevent any such representation or warranty from being inaccurate
in any material respect at any such time.
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5.2 Access to Information. From the date hereof until the Closing Date, CGE
and Anjou will (i) give, and will cause PSG to give, AWT, its counsel, financial
advisors, auditors and other authorized representatives full access to the
offices, properties, books and records of the PSG Group and to the books and
records of Anjou relating to the PSG Group, (ii) furnish, and will cause the PSG
Group to furnish, to AWT, its counsel, financial advisors, auditors and other
authorized representatives such financial and operating data and other
information relating to the PSG Group as such Persons may reasonably request and
(iii) instruct the employees, counsel and financial advisors of CGE, Anjou or
the PSG Group to cooperate with AWT in its investigation of the PSG Group.
5.3 Notices of Certain Events. CGE and Anjou shall promptly notify AWT of:
(i) any notice or other communication from any Person alleging that the
consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement;
(ii) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement; and
(iii) any actions, suits, claims, investigations or proceedings commenced
or, to its knowledge threatened against, relating to or involving or
otherwise affecting CGE, Anjou or PSG that, if pending on the date of this
Agreement, would have been required to have been disclosed pursuant to
Section 3.14 or that relate to the consummation of the transactions
contemplated by this Agreement.
5.4 Resignations. Anjou will deliver to AWT the resignations of all directors
of PSG who will not be officers, directors or employees of AWT or any of its
Affiliates after the Closing Date from their positions with PSG at or prior to
the Closing Date.
5.5 Voting of Shares; Acquisitions of Shares. (a) CGE will vote, or cause to
be voted, all Shares of AWT that CGE beneficially owns to approve the issuance
of AWT Securities pursuant to this Agreement at any meeting of the stockholders
of AWT, and at any adjournment thereof, at which the issuance of AWT Securities
pursuant to this Agreement is submitted for the consideration and vote of the
stockholders of AWT.
(b) Prior to Closing, CGE will give AWT two days' prior written notice of any
acquisition of more than 1% of the outstanding Shares. After Closing, CGE will
give AWT one days' prior written notice of any sale of Shares or Series A
Preferred held by CGE or its Affiliates if to the knowledge of CGE such sale
would result in any Person beneficially owning more than 15% of the outstanding
Shares.
5.6 Joint Efforts. CGE agrees on behalf of itself and its Affiliates that,
after Closing, for so long as CGE and its Affiliates are the largest stockholder
of AWT, AWT shall be CGE's exclusive vehicle in the United States, its
possessions and its territories for its water and waste water management and air
pollution activities. After Closing, CGE shall, and shall cause its Affiliates
to, assist AWT in developing its water and waste water management and air
pollution activities in both Canada and Mexico, subject to existing contractual
agreements and taking into account the respective interests of AWT on the one
hand and CGE and its Affiliates, on the other. CGE shall, and shall cause its
Affiliates to, offer AWT an active participation in any new water management
investments by CGE or any of its Affiliates in the United States which are too
capital intensive for AWT to undertake on a stand-alone basis. In addition, CGE
and its Affiliates, on the one hand, and AWT on the other, will establish a
privileged commercial relationship for the development of air pollution
activities in Europe.
5.7 Other Agreements. In the event that CGE materially breaches any of its
obligations or representations contained herein (including, but not limited to,
its obligation under the last sentence of Section 6.1) or with respect to its
financial undertakings contained in the certain letter dated March 18, 1994 to
AWT, CGE agrees that the provisions of Article VI of the Stock Purchase
Agreement dated May 13, 1990 been CGE and AWT shall be reinstated for an
additional three-year period from the date hereof.
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ARTICLE 6
COVENANTS OF AWT
AWT agrees that:
6.1 Conduct of Business. From the date hereof until the Closing Date, AWT and
its Subsidiaries shall conduct their businesses in the ordinary course
consistent with past practice and shall use their best efforts to preserve
intact their business organizations and relationships with third parties and to
keep available the services of its present officers and employees. Without
limiting the generality of the foregoing, from the date hereof until the Closing
Date, AWT will not:
(i) adopt or propose any change in its certificate of incorporation or
bylaws, except as contemplated hereby;
(ii) adopt any stockholders rights plan (or any arrangement which is
designed to disadvantage CGE on the basis of the size of its
shareholdings);
(iii) make any material change in its capital structure or issue any
capital stock except pursuant to any outstanding securities or options;
(iv) merge or consolidate with any other Person or acquire a material
amount of assets of any other Person, except as contemplated hereby;
(v) sell, lease, license or otherwise dispose of any material assets or
property except (A) pursuant to existing contracts or commitments and (B)
in the ordinary course consistent with past practice; or
(vi) agree or commit to do any of the foregoing.
AWT will not, and will not permit any of its Subsidiaries to (a) take or agree
or commit to take any action that would make any representation and warranty of
AWT hereunder inaccurate in any material respect at, or as of any time prior to,
the Closing Date or (b) omit or agree or commit to omit to take any action
necessary to prevent any such representation or warranty from being inaccurate
in any material respect at any such time. The foregoing restrictions shall
terminate in the event that (i) CGE materially breaches any of its obligations
or representations contained herein or in its financial undertakings to AWT as
set forth in that certain letter dated March 18, 1994 or (ii) CGE commences a
tender offer for or acquires more than 1% of the outstanding shares of Class A
Common Stock (except as contemplated hereby) or commences any solicitation of
proxies from AWT's stockholders not approved by AWT's Board of Directors.
6.2 Access to Information. From the date hereof until the Closing Date, AWT
will (i) give CGE, its counsel, financial advisors, auditors and other
authorized representatives full access to the offices, properties, books and
records of AWT, (ii) furnish to CGE, its counsel, financial advisors, auditors
and other authorized representatives such financial and operating data and other
information relating to AWT as such Persons may reasonably request and (iii)
instruct the employees, counsel and financial advisors of AWT to cooperate with
CGE in its investigation of AWT.
6.3 Notices of Certain Events. AWT shall promptly notify CGE of:
(i) any notice or other communication from any Person alleging that the
consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement;
(ii) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement; and
(iii) any actions, suits, claims, investigations or proceedings commenced
or, to its knowledge threatened against, relating to or involving or
otherwise affecting AWT that, if pending on the date of this Agreement,
would have been required to have been disclosed pursuant to Section 3.14 or
that relate to the consummation of the transactions contemplated by this
Agreement.
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6.4 Stockholder Meeting; Proxy Materials. AWT shall cause a meeting of its
stockholders to be duly called and held as soon as reasonably practicable for
the purpose of approving the issuance of AWT Securities pursuant to this
Agreement. The board of directors of AWT shall, subject to their fiduciary
duties under applicable law as advised by counsel, recommend to AWT's
stockholders approval of the issuance of AWT Securities pursuant to this
Agreement. In connection with such meeting, AWT (i) will promptly prepare and
file with the SEC, will use its best efforts to have cleared by the SEC and will
thereafter mail to its stockholders as promptly as practicable a proxy statement
and all other AWT Proxy Materials for such meeting as may be required under
applicable law, (ii) will use its best efforts to obtain the necessary approval
by its stockholders of the issuance of AWT Securities pursuant to this Agreement
and (iii) will otherwise comply with all legal requirements applicable to such
meeting.
6.5 No-Shop. AWT shall not nor shall AWT permit any of its Subsidiaries or any
of its or their respective officers, directors, employees, agents or advisers to
initiate, solicit or encourage, or take any other action to facilitate
(including by way of furnishing nonpublic information, except to the extent
determined in good faith by the Board of Directors of AWT (the "BOARD") based on
the advice of counsel to be legally required for the discharge by the Board of
its fiduciary duties), any inquiries or the making of any proposal which
constitutes, or may reasonably be expected to lead to, any takeover proposal (as
defined below) or, except to the extent determined in good faith by the Board
based on the advice of counsel to be legally required for the discharge by the
Board of its fiduciary duties, agree to or endorse any takeover proposal, or
participate in any discussions or negotiations, or provide third-parties with
any nonpublic information, relating to any such inquiry or proposal. AWT shall
promptly inform CGE orally and in writing of any such inquiry or proposal. As
used herein, "TAKEOVER PROPOSAL" shall mean any tender or exchange offer,
proposal for a merger, consolidation or other business combination involving AWT
or any of its subsidiaries (other than that involving solely an acquisition of a
business or assets by AWT or any of its subsidiaries) or any proposal or offer
to acquire in any manner a significant (i.e., more than 10% of the then
outstanding shares of AWT) equity interest in, or a significant (i.e., more than
10% of the consolidated total assets of AWT) portion of the assets of (including
the stock or assets of subsidiaries), AWT, but excluding the transactions
contemplated hereby.
6.6 Access to Books and Records. AWT agrees that, after Closing and for so
long as CGE beneficially owns directly or indirectly at least 26% of the
outstanding Shares on a fully diluted basis, it will have access on reasonable
terms to the books, records and employees of AWT and its subsidiaries and to the
provision by AWT of all information reasonably requested by such party, subject
to confidentiality obligations that at the time may be owed by AWT to third
parties, to appropriate confidentiality arrangements and requirements of law.
6.7 Registration Rights. AWT agrees that CGE and Anjou shall have the
registration rights set forth in Exhibit C.
ARTICLE 7
COVENANTS OF AWT, ANJOU AND CGE
AWT, CGE and Anjou agree that:
7.1 Intercompany Accounts; Bonding and Insurance. (a) All intercompany
accounts between the CGE, Anjou or their Affiliates, on the one hand, and PSG,
on the other hand, as of the Closing shall be settled (irrespective of the terms
of payment of such intercompany accounts) in the manner provided in this
Section. At least five business days prior to the Closing, Anjou shall prepare
and deliver to AWT a statement setting out in reasonable detail the calculation
of all such intercompany account balances based upon the latest available
financial information as of such date and, to the extent requested by AWT,
provide AWT with supporting documentation to verify the underlying intercompany
charges and transactions. All such intercompany account balances shall be paid
in full in cash prior to the Closing; provided (i) that all amounts
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for money borrowed or owed by the PSG Group to Anjou and its Affiliates as of
December 31, 1993 ($8,513,000) shall be capitalized; (ii) the accrued pension
liability of the PSG Group owed to Anjou and its Affiliates as of December 31,
1993 ($2,200,000) shall be capitalized; (iii) all accrued liabilities owed by
the PSG Group to Anjou and its Affiliates in respect of projected self-
insurance claims arising or accruing prior to Closing shall remain outstanding
and Anjou shall invoice the PSG Group from time to time after Closing in respect
of any losses or changes incurred by the PSG Group in respect of such self-
insurance.
(b) The increase in intercompany balances owed by PSG to Anjou and its
Affiliates from December 31, 1993 through Closing shall remain outstanding as of
Closing. Such amount shall remain outstanding as indebtedness owing to Anjou and
its Affiliates and shall be evidenced by a promissory note of PSG which shall
provide for interest at a rate per annum equal to the Prime Rate announced from
time to time by Citibank, N.A. Interest and principal shall be repaid one year
after the Closing Date. Prepayment without premium of principal (plus interest
accrued through the date of prepayment) may be made at any time by PSG. Any
increase in intercompany balances owed by PSG Canada to Anjou and its Affiliates
from December 31, 1993 through Closing shall be capitalized on the Closing
Balance Sheet.
(c) As of Closing, the PSG Group shall no longer be provided insurance and
self-insurance coverage under any insurance policies or self-insurance programs
of Anjou and its Affiliates. Effective as of Closing, AWT will cause outstanding
surety bonds issued for the benefit of the PSG Group under any of Anjou's surety
agreements to be replaced by surety bonds issued under AWT's surety agreements.
7.2 Board Representation; Management. (a) AWT agrees that CGE shall have the
right to cause AWT to include, as nominees for AWT's Board of Directors
recommended by the Board, a number of Directors (rounded down to the next whole
number if the fraction referred to below is less than one-half or, if otherwise,
rounded up to the next whole number) that is equal to the product of the total
number of Directors on the Board times a fraction the numerator of which is the
aggregate number of Shares owned by CGE and its affiliates (assuming conversion
of the Series A Preferred (or other securities convertible into or exercisable
or exchangeable for Shares) held by CGE or its Affiliates) and the denominator
of which is the total number of Shares outstanding (assuming conversion of the
Series A Preferred (or other securities convertible into or exercisable or
exchangeable for Shares) held by CGE and its affiliates. AWT further agrees that
CGE shall have the right to the same proportionate representation on all
Committees of the Board (other than any Special Committee of independent
directors formed to consider or approve any matters referred to in Section 7.3)
as CGE is entitled to the Board hereunder.
(b) Immediately after Closing, AWT shall cause the Board of Directors to
consist of 11 Directors, with five directors designated by CGE (who may be
Independent Directors (as defined below)), five Directors consisting of Messrs.
Beck, Costle, Dowd, Morris and Senior and an additional Independent Director
satisfactory to CGE. AWT and CGE agree that the Board shall have at least three
Independent Directors at any time. For purposes of this Agreement, an
"INDEPENDENT DIRECTOR" means any Director who is not an employee, agent or
representative of AWT, CGE or any of their respective Affiliates or Associates
and may include any person acting as outside counsel or financial advisor for
either AWT or CGE or any of their respective Affiliates or Associates. All
Independent Directors shall be satisfactory to CGE. AWT further agrees that the
Chairman of the Board of AWT shall be designated by CGE.
(c) AWT agrees that immediately after Closing, CGE shall have the right to
designate the Chief Executive Officer and the Chief Financial Officer of AWT
(and the Bylaws of AWT shall be amended to so reflect). CGE agrees that current
AWT management will participate in the transition as mutually agreed by AWT and
CGE. It is CGE's current intention to work with as many members of current
management as possible. Mr. Beck shall continue as Chairman and Chief Executive
Officer until Closing. CGE agrees to cause all agreements of AWT with its
employees to be honored.
7.3 Affiliate Transactions. CGE agrees on behalf of itself and its Affiliates
that any transactions (or series of related transactions in a chain) between AWT
and any of its Affiliates and CGE or any of its Affiliates
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or Associates shall be on an arms length basis. Any such transaction (or such
series of transactions) having an aggregate value in excess of $1,000,000 and
any settlement of the existing litigation between AWT and PRASA must be approved
by a majority of the Independent Directors or a Special Committee thereof,
acting in a separate meeting or by unanimous written consent. CGE, Anjou and AWT
further agree that after Closing, all actions by AWT with respect to any claims
by AWT against CGE or its Affiliates under this Agreement (including, without
limitation, any adjustment of the purchase price pursuant to Section 2.4) shall
be taken only by majority approval of such Independent Directors or Special
Committee, so acting in a meeting or by written consent.
7.4 Filings; Consents; Best Efforts. (a) Each of CGE, Anjou and AWT agrees to
cooperate with each other in good faith and to use its reasonable best efforts
in making all required governmental filings and obtaining at the earliest
practicable date all necessary approvals and consents from governmental entities
and third parties.
(b) Each of the parties hereto agrees to use its reasonable best efforts to
consummate the transactions contemplated hereby and to fulfill the conditions
set forth herein.
ARTICLE 8
TAX MATTERS
8.1 Tax Covenants. (a) Anjou and CGE jointly and severally covenant that Anjou
will not cause or permit PSG, Utilities or PSG Canada (i) to take any action
with respect to Taxes on the Closing Date other than as provided herein or in
the ordinary course of business, (ii) to make any election or deemed election
under Section 338 of the Code, or (iii) to make or change any Tax election,
amend any Tax Return or take any tax position on any Tax Return, take any
action, omit to take any action or enter into any transaction that results in
any increased Tax liability or reduction of any Tax Asset of PSG, Utilities or
PSG Canada. Anjou agrees that AWT and its Affiliates are to have no liability
for any Tax resulting from any action referred to in the preceding sentence of
Anjou or CGE, and agrees to indemnify and hold harmless AWT and its Affiliates
against any such Tax; provided, however that the indemnity in this Section
8.1(a) shall not apply to Taxes of PSG, Utilities or PSG Canada that relate to a
pre-Closing Tax period.
(b) AWT covenants that it will not cause or permit PSG, Utilities or PSG
Canada or any Affiliate of AWT (i) to take any action on the Closing Date other
than in the ordinary course of business, including but not limited to the
distribution of any dividend or the effectuation of any redemption that could
give rise to any tax liability of Anjou or any Affiliate thereof, (ii) to make
any election or deemed election under Section 338 of the Code, or (iii) to make
or change any tax election, amend any tax Return or take any tax position on any
tax Return, take any action, omit to take any action or enter into any
transaction that results in any increased tax liability or reduction of any Tax
Asset of Anjou in respect of any pre-Closing Tax period. AWT represents that it
has no present plan or intention and covenants that during the two year period
following the Closing Date it will not cause or permit (i) the issuance of any
stock of PSG, Utilities or PSG Canada, (ii) the liquidation, merger or
consolidation with any other person, distribution or disposition of assets
(other than in the ordinary course of business) of PSG, Utilities or PSG Canada,
(iii) the sale, distribution, transfer, exchange or other disposition of the
stock of PSG, Utilities or PSG Canada, (iv) the discontinuance of the active
conduct of the trade or business of PSG or PSG Canada or (v) to the best of its
knowledge, pay any consideration to Anjou or CGE with respect to this
transaction except as provided for in this Agreement. AWT further covenants that
it will not take, cause or permit any action that jeopardizes the tax-free
status of the Merger or the Exchange. AWT agrees that Anjou and its Affiliates
are to have no liability for any Tax resulting from any action or breach of
representation, referred to in the preceding three sentences, of PSG,
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Utilities or PSG Canada, AWT or any Affiliate of AWT, and agrees to indemnify
and hold harmless Anjou and its Affiliates against any such Tax. Notwithstanding
the foregoing, AWT may take action inconsistent with the covenants contained in
the second sentence of this Section 8.1(b) if, on the basis of valid
representations, it obtains an opinion (reasonably satisfactory to Anjou) from
nationally recognized tax counsel to the effect that the likelihood that such
action will cause Anjou to recognize taxable income by virtue of the Exchange or
Merger is remote, provided, however, that any action taken pursuant to the
procedures provided in this sentence shall not relieve AWT of its indemnity
obligations under this Section 8.1(b).
(c) For any Taxable period of PSG, Utilities or PSG Canada that includes (but
does not end on) the Closing Date, AWT shall prepare, or cause to be prepared,
all Returns required to be filed by the PSG, Utilities or PSG Canada. Any such
Return shall be prepared in a manner consistent with past practice and without a
change of any election or any accounting method and shall be submitted by AWT to
Anjou (together with schedules, statements and, to the extent requested by
Anjou, supporting documentation) at least 60 days prior to the due date
(including extensions) of such Return. Anjou shall have the right at its own
expense to review all work papers and procedures used to prepare any such
Return. If Anjou, within 30 business days after delivery of any such Return,
notifies AWT in writing that it objects to any items in such Return, the
disputed items shall be resolved (within a reasonable time, taking into account
the deadline for filing such Return) by a nationally recognized independent
accounting firm chosen and mutually acceptable to both AWT and Anjou. Upon
resolution of all such items, the relevant Return shall be adjusted to reflect
such resolution and shall be binding upon the parties without further
adjustment. The costs, fees and expenses of such accounting firm shall be borne
equally by AWT and Anjou. If AWT fails to agree to the selection of an
accounting firm within 10 days, Anjou shall have the right to adjust the
relevant Return in the manner it deems appropriate and the Return as so adjusted
shall be binding upon the parties without further adjustment.
8.2 Transfer Taxes. All transfer, documentary, sales, use, stamp, registration
and other such Taxes and fees (including any penalties and interest) incurred in
connection with this Investment Agreement (including any New York State Gains
Tax, New York City Transfer Tax and any similar tax imposed in other states or
subdivisions) shall be borne and paid by the party on which imposed, provided,
however, that such Taxes and fees that are joint obligations shall be borne and
paid equally by Anjou and AWT. AWT will file all necessary Tax returns and other
documentation with respect to all such Taxes and fees, and, if required by
applicable law, CGE, Anjou, PSG, Utilities and PSG Canada will, and will cause
their respective Affiliates to, join in the execution of any such Tax Returns
and other documentation.
8.3 Termination of Existing Tax Sharing Arrangements. Any and all existing Tax
sharing arrangements between PSG, Utilities or PSG Canada and Anjou and any
Affiliate of Anjou shall be terminated as of the Closing Date. After such date
neither PSG, Utilities, PSG Canada, Anjou nor any Affiliate of Anjou shall have
any further rights or liabilities thereunder (with respect to PSG, Utilities and
PSG Canada). This Agreement shall be the sole Tax sharing agreement relating to
PSG, Utilities and PSG Canada for all pre-Closing Tax periods.
8.4 Tax Sharing. Immediately preceding the Closing, PSG and Utilities shall
pay Anjou an amount equal to the Taxes of PSG and Utilities, as applicable
(calculated in good faith in accordance with prior practice) with respect to all
pre-Closing Tax periods for which no Return has yet been filed, except to the
extent such amount is accounted for under Section 7.1 hereof.
8.5 Cooperation on Tax Matters. (a) Anjou and AWT agree to furnish or cause to
be furnished to each other, upon request, as promptly as practicable, such
information (including access to books and records) and assistance relating to
PSG, Utilities and PSG Canada as is reasonably necessary for the filing of any
Return, for the preparation for any audit, and for the prosecution or defense of
any claim, suit or proceeding relating to any proposed adjustment. Anjou and AWT
agree to retain or cause to be retained all books and records pertinent to PSG's
Taxes, Utilities' Taxes or PSG Canada's Taxes and until the applicable period
for assessment under applicable law (giving effect to any and all extensions or
waivers) has expired,
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and to abide by or cause the abidance with all record retention agreements
entered into with any Taxing authority. AWT and Anjou agree to give each other
reasonable notice prior to transferring, discarding or destroying any such books
and records relating to Tax matters and, if such other party so requests, it
shall be allowed to take possession of such books and records. Anjou and AWT
shall cooperate with each other in the conduct of any audit or other proceedings
involving PSG, Utilities and PSG Canada for any Tax purposes and each shall
execute and deliver such powers of attorney and other documents as are necessary
to carry out the intent of this subsection.
8.6 Indemnification by Anjou. (a) Anjou hereby indemnifies AWT against and
agrees to hold it harmless from any (i) Tax of PSG, Utilities or PSG Canada and
(ii) liabilities, costs, expenses (including, without limitation, reasonable
expenses of investigation and attorneys' fees and expenses), arising out of or
incident to the imposition, assessment or assertion of any Tax (including Taxes
reflected on PSG, Utilities or PSG Canada Tax Returns filed after the Closing),
including those incurred in the contest in good faith in appropriate proceedings
relating to the imposition, assessment or assertion of any Tax, in each case
with respect to any pre-Closing Tax period and in each case incurred or suffered
by AWT, any of its Affiliates or, effective upon the Closing, PSG, Utilities or
PSG Canada (the sum of (i) and (ii) being referred to as a "Loss"); provided,
however, that Anjou shall have no liability for the payment of any loss
attributable to or resulting from any action described in Section 8.1(b) hereof,
provided, further, that Anjou shall have no obligation to make any payment
pursuant to this Section 8.6(a) if at the time the Loss is incurred or suffered
by PSG, Utilities or PSG Canada, as the case may be, AWT no longer owns directly
or indirectly PSG, Utilities or PSG Canada (or its successor), as the case may
be; and provided, further, that Anjou shall have no obligation to make any
payment to AWT pursuant to this Section 8.6(a) until the amount of all claims
arising pursuant hereto in the aggregate (minus any Tax Benefit (as defined in
Section 8.6(b) below) attributable thereto) exceeds the Basket, in which case
AWT shall be entitled to indemnity for the full amount of all claims in excess
of the Basket.
(b) If Anjou's indemnification obligation under this Section 8.6 arises in
respect of an adjustment which makes allowable to AWT, any of its Affiliates or,
effective upon the Closing, PSG, Utilities or PSG Canada any deduction,
amortization, exclusion from income or other allowance (a "Tax Benefit") which
would not, but for such adjustment, be allowable, then any payment by Anjou to
AWT shall be an amount equal to (x) the amount otherwise due but for this
subsection (b), minus (y) the present value of the Tax Benefit (using a discount
rate equal to 5 percent per annum) from the earliest time such Tax Benefit could
be allowable multiplied (i) by the maximum federal or state, as the case may be,
corporate tax rate in effect at the time Anjou's indemnification obligation
arises or (ii) in the case of a credit, by 100 percent. The reduction provided
for in clause (y) of this Section shall in no event reduce below zero Anjou's
indemnification obligation under this Section 8.6.
(c) If as a result of an adjustment Anjou makes a payment to any Taxing
authority in respect of a Tax of PSG or Utilities with respect to any pre-
Closing Tax period, then AWT shall promptly pay to Anjou an amount equal to such
payment made by Anjou, provided, however, that any such payment by AWT shall not
exceed an amount equal to (x) the positive balance, if any, in the Basket plus
(y) the Tax Benefit, if any, attributable to the adjustment giving rise to such
payment.
(d) The Basket shall be reduced by (i) the amount of any claim of AWT under
Section 8.6(a) hereof that is not paid in whole or part by Anjou solely by
reason of there being a positive balance in the Basket, minus any Tax Benefit
attributable thereto and (ii) the amount of any payment of AWT to Anjou under
Section 8.6(c) hereof, minus any Tax Benefit attributable thereto.
(e) Any payment by Anjou pursuant to this Section 8.6 shall be made not later
than 30 days after receipt by Anjou of written notice from AWT stating that any
Loss has been paid by AWT, any of its Affiliates or, effective upon the Closing,
PSG, Utilities or PSG Canada and the amount thereof and of the indemnity payment
requested.
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(f) If any claim or demand for Taxes in respect of which indemnity may be
sought pursuant to this Section 8.6 is asserted in writing against AWT, any of
its Affiliates or, effective upon the Closing, PSG, Utilities or PSG Canada, AWT
shall notify Anjou of such claim or demand within 30 days of receipt thereof, or
such earlier time that would allow Anjou to timely respond to such claim or
demand, and shall give Anjou such information with respect thereto as Anjou may
reasonably request. The failure of AWT to promptly notify Anjou pursuant to the
preceding sentence shall not relieve Anjou of its obligation to indemnify AWT
under this Section 8.6, unless such failure prejudices Anjou's contest rights
with respect to the indemnified item. Anjou may discharge, at any time, its
indemnification obligation under this Section 8.6 by paying to AWT the amount of
the applicable Loss, calculated on the date of such payment. Anjou may, at its
own expense, participate in and, upon notice to AWT, assume the defense of any
such claim, suit, action, litigation or proceeding (including any Tax audit). If
Anjou assumes such defense, AWT shall have the right (but not the duty) to
participate in the defense thereof and to employ counsel, at its own expense,
separate from the counsel employed by Anjou. Whether or not Anjou chooses to
defend or prosecute any claim, all of the parties hereto shall cooperate in the
defense or prosecution thereof.
(g) Anjou shall not be liable under this Section 8.6 for (i) any Tax the
payment of which was made without its prior written consent (other than pursuant
to a final determination of a contest conducted in accordance with the
provisions of this Section 8) or (ii) any settlements effected without the
consent of Anjou, or resulting from any claim, suit, action, litigation or
proceeding in which Anjou was not permitted an opportunity to participate.
8.7 Refunds. AWT shall promptly pay or shall cause prompt payment to be made
to Anjou of all refunds of Taxes and interest thereon received by AWT, any
Affiliate of AWT, PSG, Utilities, or PSG Canada attributable to Taxes paid by
Anjou, PSG, Utilities or PSG Canada (or any predecessor or Affiliate of Anjou)
with respect to any pre-Closing Tax period. Anjou represents that there are
currently no material refunds reflected on the December 31, 1993 balance sheet
of the PSG Group either as receivables or as a reduction or adjustment to the
reserves account.
8.8 Survival. Notwithstanding anything in this Agreement to the contrary, the
provisions of this Section 8 shall survive for the full period of all statutes
of limitations (giving effect to any waiver, mitigation or extension thereof
plus 30 days).
ARTICLE 9
EMPLOYEE BENEFITS
9.1 Pension Plan. (a) On the Closing Date or as soon as practicable
thereafter, Anjou shall cause the Trustee of the PSG Pension Plan to segregate,
in accordance with the spin-off provisions set forth under Section 414(l) of the
Code and in accordance with the provisions set forth below, the assets allocable
to accrued benefits of active, retired and former employees of PSG or any of its
Subsidiaries as of the Closing Date (the "Transferred Employees") and shall make
any and all filings and submissions to the appropriate governmental agencies
arising in connection with such segregation of assets and all necessary
amendments to the PSG Pension Plan and related trust agreement to provide for
the segregation of assets and the transfer of assets as described below.
(b) The amount of such assets (the "Transfer Amount") shall be equal to the
aggregate present value of accrued benefits of Transferred Employees under the
PSG Pension Plan (including special early retirement benefits and death benefit
coverage both before and after expected retirement ages) determined as of the
Closing Date using the actuarial assumptions used in funding such Plan contained
in the Foster Higgins
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Anjou Pension Plan Actuarial Funding Report, Plan Year Beginning January 1,
1993, dated February, 1994. At AWT's request, Anjou shall provide to an actuary
designated by AWT all information necessary to verify and agree with the
calculation of the Transfer Amount.
(c) As soon as practicable after the Closing Date, AWT shall establish or
designate one or more defined benefit pension plans for the benefit of the
Transferred Employees (the "Successor Pension Plan"), shall take all necessary
action to qualify the Successor Pension Plan under the applicable provisions of
the Code and shall make any and all filings and submissions to the appropriate
governmental agencies required to be made by it in connection with the transfer
of assets described below. As soon as practicable following the earlier of the
receipt of a favorable determination letter from the Internal Revenue Service
regarding the qualified status of the Successor Pension Plan (as amended to the
date of transfer) or the issuance of indemnities satisfactory to Anjou and AWT,
Anjou shall cause the trustee of the PSG Pension Plan to transfer the Transfer
Amount for such Plan, increased or decreased by the earnings or losses
attributable to the investment of such assets at the rate earned on thirty-day
Treasury Notes determined as of the first business day of each month during the
period from the Closing Date to the date of transfer described herein and
reduced by any required benefit payments made to or in respect of any
Transferred Employee covered by the PSG Pension Plan who retired or otherwise
terminated service after the Closing Date and prior to the date of transfer
described herein, to the appropriate trustee designated by AWT under the trust
agreement forming a part of the Successor Pension Plan for the PSG Pension Plan.
(d) In consideration for the transfer of assets described herein, the
applicable Successor Pension Plan shall, effective as of the date of transfer
described herein, assume all of the obligations of the PSG Pension Plan in
respect of benefits accrued by Transferred Employees under the PSG Pension Plan
(exclusive of benefits paid prior to the date of transfer described herein) on
or prior to the Closing Date. Neither AWT nor PSG nor any of its Subsidiaries
(nor any Pension Plan maintained by any of them) shall assume any other
obligations or liabilities arising under or attributable to the PSG Pension
Plan.
9.2 Other Employee Plans. Anjou shall retain all obligations and liabilities
under the PSG Group Employee Plans, PSG Group Benefit Arrangements and PSG Group
International Plans in respect of any employee or former employee or any
independent contractor (including any beneficiary or dependent thereof) who is
not a Transferred Employee.
9.3 Third Party Beneficiaries. No provision of this Article 9 shall create any
third party beneficiary rights in any employee or former employee of the PSG
Group (including any beneficiary or dependent thereof) in respect of continued
employment or resumed employment and no provision of this Article 9 shall create
any rights in any such persons in respect of any benefits that may be provided,
directly or indirectly, under any employee benefit plan or arrangement.
ARTICLE 10
CONDITIONS TO CLOSING
10.1 Conditions to Obligations of AWT, CGE and Anjou. The obligations of AWT,
CGE and Anjou to consummate the Closing are subject to the satisfaction of the
following conditions:
(i) Any applicable waiting period under the HSR Act relating to the
transactions contemplated hereby shall have expired or been terminated.
(ii) No provision of any applicable law or regulation and no judgment,
injunction, order or decree shall prohibit the consummation of the Closing.
(iii) All actions by or in respect of or filings with any governmental
body, agency, official or authority required to permit the consummation of
the Closing under the provisions of Exon-Florio shall have been taken, made
or obtained.
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(iv) The issuance of AWT Securities pursuant to this Agreement shall have
been approved by the stockholders of AWT in accordance with applicable
rules and regulations of the American Stock Exchange.
10.2 Conditions to Obligation of AWT. The obligation of AWT to consummate the
Closing is subject to the satisfaction of the following further conditions:
(i) (A) Each of CGE and Anjou shall have performed in all material
respects all of its obligations hereunder required to be performed by it on
or prior to the Closing Date, (B) the representations and warranties of CGE
and Anjou contained in this Agreement and in any certificate or other
writing delivered by CGE or Anjou pursuant hereto shall be true in all
material respects at and as of the Closing Date, as if made at and as of
such date, and (C) AWT shall have received a certificate signed by the
President or Vice President, or the equivalent, of each of CGE and Anjou to
the foregoing effect.
(ii) AWT shall have received an opinion of Davis Polk & Wardwell, special
counsel to CGE and Anjou, dated the Closing Date, in form and substance
reasonably satisfactory to AWT. In rendering such opinion, such counsel may
rely upon certificates of public officers and, as to matters of fact, upon
certificates of officers of CGE or Anjou, copies of which certificates
shall be contemporaneously delivered to AWT.
(iii) AWT shall have received an opinion of Bernard Portnoi, Conseil
Juridique of CGE, dated the Closing Date, in form and substance reasonably
satisfactory to AWT. In rendering such opinion, such counsel may rely upon
certificates of public officers and, and as to matters of fact, upon
certificates of officers of CGE, copies of which certificates shall be
contemporaneously delivered to AWT.
(iv) AWT shall have received a written opinion of Allen & Company
Incorporated, AWT's financial advisors, to the effect that the transactions
contemplated by this Agreement are fair, from a financial point of view, to
the stockholders of AWT (other than CGE).
(v) AWT shall have received all documents it may reasonably request
relating to the existence of each of CGE, Anjou or PSG and their respective
authority for this Agreement, all in form and substance reasonably
satisfactory to AWT.
10.3 Conditions to Obligation of CGE and Anjou. The obligation of CGE and
Anjou to consummate the Closing is subject to the satisfaction of the following
further conditions:
(i) (A) AWT shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the
Closing Date, (B) the representations and warranties of AWT contained in
this Agreement and in any certificate or other writing delivered by AWT
pursuant hereto shall be true in all material respects at and as of the
Closing Date, as if made at and as of such date, and (C) CGE and Anjou
shall have received a certificate signed by the Chief Executive Officer,
President or any Senior Vice President of AWT to the foregoing effect.
(ii) Anjou and CGE shall have received an opinion of Mintz, Levin, Cohn,
Ferris, Glovsky and Popeo, special counsel to AWT, in form and substance
reasonably satisfactory to CGE. In rendering such opinion, such counsel may
rely upon certificates of public officers and, as to matters of fact, upon
certificates of officers of AWT, copies of which certificates shall be
contemporaneously delivered to CGE and Anjou.
(iii) CGE and Anjou shall have received all documents it may reasonably
request relating to the existence of AWT and the authority of AWT for this
Agreement, all in form and substance reasonably satisfactory to CGE and
Anjou.
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ARTICLE 11
TERMINATION
11.1 Grounds for Termination. This Agreement may be terminated at any time
prior to the Closing:
(i) by mutual written agreement of CGE, Anjou and AWT;
(ii) by either CGE or AWT if the Closing shall not have been consummated
on or before September 1, 1994;
(iii) by either CGE or AWT if there shall be any law or regulation that
makes consummation of the transactions contemplated hereby illegal or
otherwise prohibited or if consummation of the transactions contemplated
hereby would violate any nonappealable final order, decree or judgment of
any court or governmental body having competent jurisdiction; or
(iv) by CGE if AWT has caused to be duly called and held a meeting of its
stockholders as required by Section 6.4 and at such meeting the requisite
number of votes were not obtained to approve the issuance of AWT Securities
pursuant to this Agreement under applicable law.
The party desiring to terminate this Agreement shall give notice of such
termination to each other party.
11.2 Effect of Termination. If this Agreement is terminated as permitted by
Section 11.1, termination shall be without liability of any party (or any
stockholder, director, officer, employee, agent, consultant or representative of
such party) to the other parties to this Agreement; provided that if such
termination shall result from the willful failure of any party to fulfill a
condition to the performance of the obligations of any other party or to perform
a covenant of this Agreement or from a willful breach by any party to this
Agreement, such party shall be fully liable for any and all damage, loss or
expense incurred or suffered by the other party or parties as a result of such
failure or breach. The provisions of Sections 5.7, 12.3 and 12.9 shall survive
any termination hereof pursuant to Section 11.1.
ARTICLE 12
MISCELLANEOUS
12.1 Notices. All notices, requests and other communications to any party
hereunder shall be in writing (including facsimile transmission) and shall be
given,
if to AWT, to:
Air & Water Technologies Corporation
US Highway 22 West and Station Road
Branchburg, New Jersey 08876
Attention: General Counsel
Fax: (908) 685-4029
with a copy to:
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo
One Financial Center
Boston, Massachusetts 02111
Attention: Richard R. Kelly, Esq.
Fax: (617) 542-2241
if to CGE or Anjou, to:
Compagnie Generale des Eaux
52, rue d'Anjou
75384 Paris Cedex 08
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France
Attention: Directeur General
Fax: 011-331-4924-6666
Anjou International Management Services, Inc.
800 Third Avenue, 38th Floor
New York, New York 10022
Attention: President
Fax: (212) 753-9301
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: John A. Bick, Esq.
Fax: (212) 450-4800
All such notices, requests and other communications shall be deemed received
on the date of receipt by the recipient thereof if received prior to 5 p.m. in
the place of receipt and such day is a business day in the place of receipt.
Otherwise, any such notice, request or communication shall be deemed not to have
been received until the next succeeding business day in the place of receipt.
12.2 Amendments and Waivers. (a) Any provision of this Agreement may be
amended or waived prior to the Closing Date if, but only if, such amendment or
waiver is in writing and is signed, in the case of an amendment, by each party
to this Agreement, or in the case of a waiver, by the party against whom the
waiver is to be effective.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
12.3 Expenses. All costs and expenses incurred in connection with this
Agreement shall be paid by the party incurring such cost or expense.
12.4 Successors and Assigns. The provisions of this Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns; provided that no party may assign, delegate or otherwise
transfer any of its rights or obligations under this Agreement without the
consent of each other party hereto, except that CGE may assign its right to
purchase the Series A Preferred to Anjou or any of its Subsidiaries.
12.5 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF DELAWARE, WITHOUT REGARD TO THE
CONFLICTS OF LAW RULES OF SUCH STATE.
12.6 Counterparts; Third Party Beneficiaries. This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument. No
provision of this Agreement is intended to confer upon any Person other than the
parties hereto any rights or remedies hereunder.
12.7 No Survival. Except for Sections 3.6 and 4.2 which shall survive for a
period of one year after closing, the representations and warranties of the
parties hereto contained in this Agreement or in any certificate or other
writing delivered pursuant hereto or in connection herewith shall not survive
the Closing.
12.8 Public Announcements. AWT and CGE shall agree on the form and content of
any public announcements which shall be made concerning this Agreement or the
transactions contemplated hereby and neither AWT nor CGE shall make any such
public announcement without the consent of the other, except
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with respect to any public announcement or other public disclosure, to the
extent either party determines, in good faith and with the advice of counsel,
such announcement or disclosure is required by law or the rules or regulations
of any exchange on which such party's securities are listed or to avoid undue
risk that the transactions contemplated hereby will be enjoined or that such
party, its officers, directors or representatives will be liable for damages as
a result thereof.
12.9 Entire Agreement; Exhibits. This Agreement constitutes the entire
agreement among the parties with respect to the subject matter of this Agreement
and supersedes all prior agreements and understandings, both oral and written,
among the parties with respect to the subject matter of this Agreement, except
for the letter dated March 18, 1994 from CGE to AWT with respect to certain
financial undertakings and the Confidentiality Agreement dated October 22, 1992
between CGE and AWT, to which Anjou hereby subscribes and agrees to be bound. No
representation, inducement, promise, understanding, condition or warranty not
set forth herein has been made or relied upon by any party hereto. Neither this
Agreement nor any provision hereof is intended to confer upon any Person other
than the parties hereto any rights or remedies hereunder. All exhibits hereto
constitute part of this Agreement and are expressly incorporated herein.
12.10 Headings. The headings and the table of contents appearing in this
Agreement are inserted only as a matter of convenience and for reference and in
no way define, limit or describe the scope and intent of this Agreement or any
of the provisions hereof.
12.11 Specific Performance. Each of the parties hereto agrees that any breach
by it of any provision of this Agreement would irreparably injure the other
parties and that money damages would be an inadequate remedy therefor.
Accordingly, each of the parties hereto agrees that the other parties shall be
entitled to one or more injunctions enjoining any such breach or requiring
specific performance of this Agreement and consents to the entry thereof, this
being in addition to any other remedy to which the non-breaching party is
entitled at law or in equity.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.
AIR & WATER TECHNOLOGIES CORPORATION
/s/ Eckardt C. Beck
By:---------------------------------------
Eckardt C. Beck
Chairman and Chief Executive Officer
COMPAGNIE GENERALE DES EAUX
/s/ Jacques-Henri David
By:---------------------------------------
Jacques-Henri David
Directeur General
ANJOU INTERNATIONAL COMPANY
/s/ Claudio Elia
By:---------------------------------------
Claudio Elia
President
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EXHIBIT A
AIR & WATER TECHNOLOGIES CORPORATION
CERTIFICATE OF DESIGNATION
5 1/2% SERIES A CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
($0.01 par value)
We, the undersigned, and of Air & Water Technologies
Corporation, a Delaware corporation (hereinafter called the "Corporation"),
pursuant to the provisions of Sections 103 and 151 of the General Corporation
Law of the State of Delaware do hereby make this Certificate of Designation
under the corporate seal of the Corporation and do hereby state and certify that
pursuant to the authority expressly vested in the Board of Directors of the
Corporation by the Certificate of Incorporation, the Board of Directors duly
adopted the following resolutions:
RESOLVED, that, pursuant to Article Fourth of the Certificate of Incorporation
(which authorizes 2,500,000 shares of Preferred Stock, $0.01 par value, none of
which are presently issued and outstanding), the Board of Directors hereby fixes
the voting powers, designation and preferences and relative participating,
optional and other special rights, and qualifications, limitations and
restrictions of a class of Preferred Stock.
RESOLVED, that each share of the Convertible Exchangeable Preferred Stock
shall rank equally in all respects and shall be subject to the following
provisions:
(1) Number and Designation. 1,200,000 shares of the Preferred Stock of the
Corporation shall be designated as 5 1/2% Series A Convertible Exchangeable
Preferred Stock (the "Series A Preferred Stock").
(2) Rank. The Series A Preferred Stock shall, with respect to dividend rights
and rights on liquidation, winding up and dissolution, rank prior to all classes
or series of equity securities of the Corporation, including the Common Stock
(as defined below).
(3) Dividends. (a) Except as otherwise provided in paragraph (8) below, the
holders of the shares of Series A Preferred Stock shall be entitled to receive,
when, as and if declared by the Board of Directors, out of funds legally
available for the payment of dividends, cumulative dividends, at the annual rate
of $2.75 per share, payable in cash quarterly in arrears in equal amounts on
March 31, June 30, September 30 and December 31 of each year, commencing June
30, 1994, unless such day is not a business day, in which event on the next
succeeding business day (each of such dates being a "Dividend Payment Date"), in
preference to dividends on the Common Stock. Such dividends shall be paid to the
holders of record at the opening of business on the record date for on such
Dividend Payment Date.
(b) Dividends shall accrue from the date of original issue of the Series A
Preferred Stock (the "Series A Initial Issuance Date"). Dividends, other than
for a full quarterly period, shall accrue on the basis of a year of 365 days and
the actual number of days elapsed (including the first day but excluding the
last day of such period). Quarterly dividends which are not paid in full in cash
will cumulate without interest until such accumulated quarterly dividends shall
have been declared and paid in cash by the Board of Directors of the
Corporation. Any such declaration may be for a portion, or all, of the then
accumulated dividends. Any accumulated dividends which are not paid will
continue to cumulate in the manner described above.
(c)(i) The holders of the shares of the Series A Preferred Stock shall be
entitled to receive in preference to and in priority over dividends upon any of
the Common Stock all accrued dividends provided for in this paragraph (3).
(ii) The Corporation shall not declare, pay or set apart for payment any
dividend on any of the Common Stock or make any distribution in respect thereof,
either directly or indirectly, and whether in cash,
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obligations or shares of the Corporation or other property (all such dividends
and distributions hereinafter referred to as a "Common Stock Distribution"),
unless the holders of the shares of Series A Preferred Stock shall have received
all accrued dividends which such holders are entitled to receive pursuant to
paragraph (3) through and including the immediately preceding Dividend Payment
Date or, if such Common Stock Distribution is made on a Dividend Payment Date,
through and including such Dividend Payment Date. In no event may the
Corporation retire, redeem, purchase or otherwise acquire for value (including
acquiring, directly or indirectly, any equity interest in any Person which owns,
legally or beneficially, any Common Stock) any of the Common Stock or make any
payment on account of or set apart for payment money for a sinking or other
similar fund for the purchase, redemption or other retirement of, any of the
Common Stock, or permit any corporation or other entity directly or indirectly
controlled by the Corporation to purchase or redeem any of the Common Stock
unless, prior to or contemporaneously with such retirement, redemption, purchase
or acquisition, the holders of the shares of Series A Preferred Stock shall have
received all accrued dividends which such holders are entitled to receive
pursuant to paragraph (3) through and including the immediately preceding
Dividend Payment Date or, if such retirement, redemption, purchase or
acquisition is made on a Dividend Payment Date, through and including such
Dividend Payment Date.
(d) Subject to the foregoing provisions of this paragraph (3), paragraph (8)
and applicable law, the Board of Directors may declare and the Corporation may
pay or set apart for payment dividends on any of the Common Stock, may make any
payment on account of or set apart for payment money for a sinking fund or other
similar fund for the purchase, redemption or other retirement of, any of the
Common Stock, and may make any distribution in respect thereof, either directly
or indirectly, and whether in cash, obligations or shares of the Corporation or
other property, and may purchase or otherwise redeem any of the Common Stock and
the holders of the shares of the Series A Preferred Stock shall not be entitled
to share therein.
(e) All dividends paid with respect to shares of the Series A Preferred Stock
pursuant to the foregoing provisions of this paragraph (3) shall be paid pro
rata on each outstanding share of Series A Preferred Stock.
(f) Each fractional share of Series A Preferred Stock outstanding shall be
entitled to a ratably proportionate amount of all dividends accruing with
respect to each outstanding share of Series A Preferred Stock pursuant to this
paragraph (3), and all such dividends with respect to such outstanding
fractional shares shall be fully cumulative and shall accrue (whether or not
declared) without interest, and shall be payable in the same manner and at such
times as provided for in the foregoing provisions of this paragraph (3) with
respect to dividends on each outstanding share of Series A Preferred Stock.
(4) Liquidation Preference. (a) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation, the
holders of the shares of Series A Preferred Stock then outstanding shall be
entitled to be paid out of the assets of the Corporation available for
distribution to its stockholders an amount in cash equal to $50 for each share
outstanding, plus an amount in cash equal to all accrued but unpaid dividends
thereon to the date fixed for liquidation, dissolution or winding up (including
pro rata dividends for the period from the last Dividend Payment Date to the
date fixed for liquidation, dissolution or winding up), whether or not declared
to the date of such payment, before any payment shall be made or any assets
distributed to the holders of any of the Common Stock. If the assets of the
Corporation, or the proceeds thereof, are not sufficient to pay in full the
liquidation payments payable on each outstanding share of Series A Preferred
Stock, then each such share shall share ratably in such distribution of assets,
or the proceeds thereof, in accordance with the amount which would be payable on
such distribution if the amount to which each outstanding share of Series A
Preferred Stock is entitled was paid in full. Except as provided in the
preceding sentences, the holders of the shares of Series A Preferred Stock shall
not be entitled to any distribution in the event of liquidation, dissolution or
winding up of the affairs of the Corporation.
(b) For the purposes of this paragraph (4), neither the voluntary sale, lease,
or other transfer of all or substantially all the property or assets of the
Corporation nor the consolidation or merger of the Corporation with or into one
or more other Persons shall be deemed to be a liquidation, dissolution or
winding up of the Corporation.
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(c) The liquidation payment with respect to each outstanding fractional share
of Series A Preferred Stock shall be equal to a ratably proportionate amount of
the liquidation payment with respect to each outstanding share of Series A
Preferred Stock.
(5) Redemption. Shares of Series A Preferred Stock shall be redeemable by the
Corporation as provided below (with all references in this paragraph (5) to a
redemption price per share to be adjusted proportionally in respect of
fractional shares).
(a) The shares of Series A Preferred Stock shall not be redeemable prior to
the Initial Redemption Date. The "Initial Redemption Date" shall be June 30,
1997.
(b) At the option of the Corporation, shares of Series A Preferred Stock may
be redeemed at any time or from time to time (subject to the provisions set
forth below and paragraph (8)) on or after the Initial Redemption Date, in whole
or in part, at the price (the "Redemption Price"), payable in cash, equal to the
percentage set forth below of the liquidation preference per share for
redemptions during the 12-month periods beginning on the Initial Redemption Date
or the annual anniversaries thereof indicated below, plus, in each case, an
amount equal to accrued and unpaid dividends thereon (whether or not declared
and whether or not there are funds of the Corporation legally available for the
payment of dividends), to the date fixed for redemption:
<TABLE>
<CAPTION>
12-MONTH PERIOD BEGINNING ON PERCENTAGE
---------------------------- ----------
<S> <C>
Initial Redemption Date........................................ 103.85%
First Anniversary thereof...................................... 103.30%
Second Anniversary thereof..................................... 102.75%
Third Anniversary thereof...................................... 102.20%
Fourth Anniversary thereof..................................... 101.65%
Fifth Anniversary thereof...................................... 101.10%
Sixth Anniversary thereof...................................... 100.55%
Seventh Anniversary thereof and thereafter..................... 100.00%
</TABLE>
Notwithstanding the foregoing, the Corporation may elect to redeem shares of
Series A Preferred Stock at any time on or after the Initial Redemption Date and
prior to the fourth anniversary of the Initial Redemption Date only if for at
least 20 Trading Days during the period consisting of the 30 consecutive Trading
Days ending on the date notice of such redemption is given, including the last
Trading Day of such period, the Closing Price per share of Common Stock exceeds
$18.75, as adjusted pursuant to paragraph (8)(h) (the "Redemption Threshold").
(c) In the event that fewer than all of the shares of Series A Preferred Stock
are to be redeemed pursuant to this paragraph (5), the Corporation shall call
for redemption shares of Series A Preferred Stock pro rata among the holders,
based on the number of shares of Series A Preferred Stock held by each holder,
except that the Corporation may redeem all of the shares of Series A Preferred
Stock held by any holders of fewer than 100 shares of Series A Preferred Stock
(or all the shares of Series A Preferred Stock held by holders who would hold
less than 100 shares of Series A Preferred Stock as a result of such
redemption). Any redemption for which shares are called for redemption on a pro
rata basis (whether or not some of the shares so called are subsequently
converted pursuant to paragraph (8)) shall comply with this paragraph (5)(c).
(d) In accordance with paragraph (7) hereof, the Corporation shall mail to the
record holders of Series A Preferred Stock written notice of its intention to
redeem shares of Series A Preferred Stock held by such holders.
(6) Exchange. Subject to paragraph (8) below, commencing June 30, 1997, the
Series A Preferred Stock shall be exchangeable, in whole and not in part, at the
sole option of the Corporation, at any time, for the Corporation's 5 1/2%
Convertible Subordinated Notes, a form of which is attached hereto as
Attachment A
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<PAGE>
(the "Exchange Notes"). The holders of the outstanding shares or fractional
shares of Series A Preferred Stock will be entitled to receive in exchange for
each share of Series A Preferred Stock to be exchanged by it Exchange Notes in a
principal amount of $50 plus, with respect to each outstanding fractional share,
a ratably proportionate amount thereof. An amount equal to all accrued but
unpaid dividends on each such share to the date which coincides with the date of
exchange shall be paid on such date (including pro rata dividends for the period
from the last Dividend Payment Date to the date of exchange). At the time of any
exchange hereunder, the rights of the holders of the shares of Series A
Preferred Stock as stockholders of the Corporation shall cease, and the persons
entitled to receive the Exchange Notes issuable upon exchange shall be treated
for all purposes as the registered holders of such Exchange Notes as of the date
which coincides with the date of exchange. In accordance with paragraph (7)
hereof, the Corporation shall mail to the record holders of Series A Preferred
Stock written notice of its intention to exchange shares of Series A Preferred
Stock held by such holders. The Corporation will cause the Exchange Notes to be
dated the date which coincides with the date of exchange thereof.
(7) Procedure for Redemption or Exchange. (a) In the event the Corporation
shall redeem or exchange shares of Series A Preferred Stock, notice of such
redemption or exchange shall be given by first class mail, postage prepaid,
mailed not less than 30 days nor more than 60 days prior to the redemption or
exchange date, to the holders of record of the shares to be redeemed or
exchanged at such holder's address as the same appears on the stock register of
the Corporation. Each such notice shall state: (i) the redemption or exchange
date; (ii) the redemption price or exchange rate; (iii) the place or places
where certificates for such shares are to be surrendered for payment of the
redemption price or exchange for the Exchange Notes; (iv) that dividends on the
shares to be redeemed or exchanged will cease to accrue on such redemption date
or the date of exchange; and (v) the number of shares to be redeemed or
exchanged.
(b) Notice having been mailed as aforesaid, from and after the redemption date
or as of the exchange date (unless, in the case of a redemption, default shall
be made by the Corporation in providing money for the payment of the redemption
price or a Notice of Intention to Convert or Notice of Election to Convert has
been delivered to the Corporation pursuant to paragraph (8)), dividends on the
shares of Series A Preferred Stock shall cease to accrue, and such shares shall
no longer be deemed to be outstanding and shall be cancelled and shall not be
available for reissue or redesignation, and all rights of the holders thereof as
stockholders of the Corporation (except the right to receive from the
Corporation the redemption price or the Exchange Notes and any other amounts
payable pursuant to paragraph (5) or paragraph (6)) shall cease. Upon surrender
in accordance with said notice of the certificates for any shares so redeemed or
exchanged (properly endorsed or assigned for transfer, if the Board of Directors
of the Corporation shall so require and the notice shall so state), such shares
shall be redeemed or exchanged by the Corporation at the redemption price or
exchange rate aforesaid.
(c) The Corporation shall pay any and all issuance and delivery taxes that may
be payable in respect of the issuance or delivery of Exchange Notes in exchange
for shares of Series A Preferred Stock. The Corporation shall not, however, be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of Exchange Notes in a name other than that in
which the shares of Series A Preferred Stock so exchanged were registered, and
no such issuance or delivery shall be made unless and until the person
requesting such issuance has paid to the Corporation the amount of any such tax
or has established to the satisfaction of the Corporation that such tax has been
paid.
(8) Conversion. (a) Subject to the provisions of this paragraph (8), the
holders of the shares of Series A Preferred Stock shall have the right, at any
time, from time to time, at such holder's option, to convert any or all
outstanding shares (and fractional shares) of Series A Preferred Stock, in whole
or in part, into fully paid and non-assessable shares of Common Stock. The
number of shares of Common Stock deliverable upon conversion of a share of
Series A Preferred Stock, adjusted as hereinafter provided, is referred to
herein as the "Conversion Ratio." The Conversion Ratio as of the Series A
Initial Issuance Date shall be 4.0, subject to adjustment from time to time
pursuant to paragraph (8)(g) hereof. Notwithstanding any call for redemption
pursuant to paragraph (5) or exchange pursuant to paragraph (6), the right to
convert shares so
I-A-4
<PAGE>
called for redemption or exchange shall terminate at the close of business on
the date immediately preceding the date fixed for such redemption or exchange,
as the case may be, unless the Corporation shall default in making payment of
the amount payable upon such redemption or in making the exchange and payment of
any amount payable upon such exchange.
(b)(i) In order to exercise the conversion privilege, the holder of the shares
of Series A Preferred Stock to be converted shall surrender the certificate
representing such shares at the office of the Corporation, with the Notice of
Election to Convert completed and signed. Unless the shares issuable on
conversion are to be issued in the same name as the name in which such shares of
Series A Preferred Stock are registered, each share surrendered for conversion
shall be accompanied by instruments of transfer, in form satisfactory to the
Corporation, duly executed by the holder or the holder's duly authorized
attorney and an amount sufficient to pay any transfer or similar tax.
(ii) As promptly as practicable after the surrender by the holder of the
certificates for shares of Series A Preferred Stock as aforesaid, the
Corporation shall issue and shall deliver to such holder, or on the holder's
written order to the holder's transferee, a certificate or certificates for the
whole number of shares of Common Stock issuable upon the conversion of such
shares in accordance with the provisions of this paragraph (8).
(iii) Each conversion shall be deemed to have been effected immediately prior
to the close of business on the date on which the certificates for shares of
Series A Preferred Stock shall have been surrendered and such notice received by
the Corporation as aforesaid, and the person in whose name or names any
certificate or certificates for shares of Common Stock shall be issuable upon
such conversion shall be deemed to have become the holder of record of the
shares of Common Stock represented thereby at such time on such date and such
conversion shall be into a number of shares of Common Stock equal to the product
of the number of shares of Series A Preferred Stock surrendered times the
Conversion Ratio in effect at such time on such date. All shares of Common Stock
delivered upon conversion of the Series A Preferred Stock will upon delivery be
duly and validly issued and fully paid and non-assessable, free of all liens and
charges and not subject to any preemptive rights. Upon the surrender of
certificates representing shares of Series A Preferred Stock, such shares shall
no longer be deemed to be outstanding and all rights of a holder with respect to
such shares surrendered for conversion shall immediately terminate except the
right to receive the Common Stock and other amounts payable pursuant to this
paragraph (8).
(c)(i) Upon delivery to the Corporation by a holder of shares of Series A
Preferred Stock of a Notice of Election to Convert or a Notice of Intention to
Convert, the right of the Corporation to redeem such shares of Series A
Preferred Stock shall terminate, regardless of whether a notice of redemption
has been mailed as aforesaid.
(ii) From the date of delivery by a holder of shares of Series A Preferred
Stock of such Notice of Election to Convert or such Notice of Intention to
Convert, in lieu of dividends on such Series A Preferred Stock pursuant to
paragraph (3), such Series A Preferred Stock shall participate equally and
ratably with the holders of shares of Common Stock in all dividends paid on the
Common Stock as if such shares of Series A Preferred Stock had been converted to
shares of Common Stock at the time of such delivery.
(iii) If a Notice of Intention to Convert or a Notice of Election to Convert
is delivered by a holder of shares of Series A Preferred Stock to the
Corporation before the delivery by the Corporation to such holder of a notice of
redemption, such holder shall be entitled to receive all accrued dividends which
such holder is entitled to receive pursuant to paragraph (3). In addition, such
holder at the opening of business on a Dividend Payment Date shall be entitled
to receive the dividend payable on such shares on such Dividend Payment Date
notwithstanding the Corporation's default in payment of the dividend due on such
Dividend Payment Date. Such dividends shall be in preference to and in priority
over any dividends on the Common Stock.
I-A-5
<PAGE>
(iv) If, after receipt by a holder of shares of Series A Preferred Stock of a
notice of redemption pursuant to paragraph (5), such holder delivers to the
Corporation a Notice of Intention to Convert or a Notice of Election to Convert,
such Series A Preferred Stock shall cease to accrue dividends pursuant to
paragraph (3) but such shares shall continue to be entitled to receive all
accrued dividends which such holder is entitled to receive pursuant to paragraph
(3) through the date of delivery of such Notice of Intention to Convert or such
Notice of Election to Convert (including pro rata dividends for the period from
the last Dividend Payment Date to the date of delivery of the Notice of
Intention to Convert or the Notice of Election to Convert, as the case may be)
in preference to and in priority over any dividends on the Common Stock. Such
accrued dividends shall be payable to such holder when, as and if declared by
the Board of Directors, out of funds legally available for the payment of
dividends, as provided in paragraph (3) above.
(v) Except as provided above and in paragraph (8)(g), the Corporation shall
make no payment or adjustment for accrued and unpaid dividends on shares of
Series A Preferred Stock, whether or not in arrears, on conversion of such
shares or for dividends in cash on the shares of Common Stock issued upon such
conversion.
(d)(i) The Corporation covenants that it will at all times reserve and keep
available, free from preemptive rights, such number of its authorized but
unissued shares of Common Stock as shall be required for the purpose of
effecting conversions of the Series A Preferred Stock and Exchange Notes.
(ii) Prior to the delivery of any securities which the Corporation shall be
obligated to deliver upon conversion of the Series A Preferred Stock, the
Corporation shall comply with all applicable federal and state laws and
regulations which require action to be taken by the Corporation.
(e) The Corporation will pay any and all documentary stamp or similar issue or
transfer taxes payable in respect of the issue or delivery of shares of Common
Stock on conversion of the Series A Preferred Stock pursuant hereto; provided,
that the Corporation shall not be required to pay any tax which may be payable
in respect of any transfer involved in the issue or delivery of shares of Common
Stock in a name other than that of the holder of the Series A Preferred Stock to
be converted and no such issue or delivery shall be made unless and until the
person requesting such issue or delivery has paid to the Corporation the amount
of any such tax or has established, to the satisfaction of the Corporation, that
such tax has been paid.
(f) In connection with the conversion of any shares of Series A Preferred
Stock, no fractions of shares of Common Stock shall be issued, but in lieu
thereof the Corporation shall pay a cash adjustment in respect of such
fractional interest in an amount equal to such fractional interest multiplied by
the Daily Price per share of Common Stock on the Trading Day on which such
shares of Series A Preferred Stock are deemed to have been converted. If more
than one share of Series A Preferred Stock shall be surrendered for conversion
by the same holder (or Affiliate of such holder) at the same time, the number of
full shares of Common Stock issuable on conversion thereof shall be computed on
the basis of the total number of shares of Series A Preferred Stock so
surrendered.
(g)(i) In case the Corporation shall at any time after the Series A Initial
Issuance Date (I) declare a dividend or make a distribution on Common Stock
payable in Common Stock, (II) subdivide or split the outstanding Common Stock,
(III) combine or reclassify the outstanding Common Stock into a smaller number
of shares, (IV) issue any shares of its capital stock in a reclassification of
Common Stock (including any such reclassification in connection with a
consolidation or merger in which the Corporation is the continuing corporation),
or (V) consolidate with, or merge with or into, any other Person, the Conversion
Ratio in effect at the time of the record date for such dividend or distribution
or of the effective date of such subdivision, split, combination, consolidation,
merger or reclassification shall be proportionately adjusted so that the
conversion of the Series A Preferred Stock after such time shall entitle the
holder to receive the aggregate number of shares of Common Stock or other
securities of the Corporation (or shares of any security into which such shares
of Common Stock have been combined, consolidated, merged or reclassified
pursuant to clause (III), (IV) or (V) above) which, if this Series A Preferred
Stock had been converted immediately
I-A-6
<PAGE>
prior to such time, such holder would have owned upon such conversion and been
entitled to receive by virtue of such dividend, distribution, subdivision,
split, combination, consolidation, merger or reclassification, assuming such
holder of Common Stock of the Corporation (x) is not a Person with which the
Corporation consolidated or into which the Corporation merged or which merged
into the Corporation or to which such recapitalization, sale or transfer was
made, as the case may be ("constituent Person"), or an affiliate of a
constituent Person and (y) failed to exercise any rights of election as to the
kind or amount of securities, cash and other property receivable upon such
reclassification, change, consolidation, merger, recapitalization, sale or
transfer (provided, that if the kind or amount of securities, cash and other
property receivable upon such reclassification, change, consolidation, merger,
recapitalization, sale or transfer is not the same for each share of Common
Stock of the Corporation held immediately prior to such reclassification,
change, consolidation, merger, recapitalization, sale or transfer by other than
a constituent Person or an affiliate thereof and in respect of which such rights
of election shall not have been exercised ("non-electing share"), then for the
purpose of this subparagraph (g) the kind and amount of securities, cash and
other property receivable upon such reclassification, change, consolidation,
merger, recapitalization, sale or transfer by each non-electing share shall be
deemed to be the kind and amount so receivable per share by a plurality of the
non-electing shares). Such adjustment shall be made successively whenever any
event listed above shall occur.
(ii) In case the Corporation shall issue or sell any Common Stock (other than
Common Stock issued (I) upon conversion of the Series A Preferred Stock, the
Exchange Notes or the 8% Convertible Subordinated Debentures due May 15, 2015,
(II) pursuant to the Corporation's Stock Option Plans or pursuant to any other
Common Stock related employee compensation plan of the Corporation approved by
the Corporation's Board of Directors or (III) upon exercise or conversion of any
security the issuance of which caused an adjustment under paragraphs (g)(iii) or
(g)(iv) hereof) without consideration or for a consideration per share less than
the then Conversion Price Per Common Share (as defined in paragraph (g)(vi)),
the Conversion Ratio to be in effect after such issuance or sale shall be
determined by multiplying the Conversion Ratio in effect immediately prior to
such issuance or sale by a fraction, (A) the numerator of which shall be the
product of the aggregate number of shares of Common Stock outstanding
immediately after such issuance or sale and the Current Valuation Per Common
Share (as defined in paragraph (g)(vi)) immediately prior to such issuance or
sale and (B) the denominator of which shall be the sum of (x) the number of
shares of Common Stock outstanding immediately prior to the time of such
issuance or sale multiplied by the Current Valuation Per Common Share
immediately prior to such issuance or sale and (y) the aggregate consideration,
if any, to be received by the Corporation upon such issuance or sale. In case
any portion of the consideration to be received by the Corporation shall be in a
form other than cash, the fair market value of such noncash consideration shall
be utilized in the foregoing computation. Such fair market value shall be
determined by the Board of Directors of the Corporation; provided that if the
holders of 25% of the Series A Preferred Stock shall object to any such
determination, the Board of Directors shall retain an independent appraiser
reasonably satisfactory to such holders to determine such fair market value. The
holders shall be notified promptly of any consideration other than cash to be
received by the Corporation and furnished with a description of the
consideration and the fair market value thereof, as determined by the Board of
Directors.
(iii) In case the Corporation shall fix a record date for the issuance of
rights, options or warrants to the holders of its Common Stock or other
securities entitling such holders to subscribe for or purchase shares of Common
Stock (or securities convertible into shares of Common Stock) at a price per
share of Common Stock (or having a conversion price per share of Common Stock,
if a security convertible into shares of Common Stock) less than the then
Conversion Price Per Common Share on such record date, the maximum number of
shares of Common Stock issuable upon exercise of such rights, options or
warrants (or conversion of such convertible securities) shall be deemed to have
been issued and outstanding as of such record date and the Conversion Ratio
shall be adjusted pursuant to paragraph (g)(ii) hereof, as though such maximum
number of shares of Common Stock had been so issued for an aggregate
consideration payable by the holders of such rights, options, warrants or
convertible securities prior to their receipt of such shares of Common Stock. In
case any portion of such consideration shall be in a form other than cash, the
fair market value of such noncash consideration shall be determined as set forth
in paragraph (g)(ii) hereof. Such adjustment shall
I-A-7
<PAGE>
be made successively whenever such record date is fixed; and in the event that
such rights, options or warrants are not so issued or expire unexercised, or in
the event of a change in the number of shares of Common Stock to which the
holders of such rights, options or warrants are entitled (other than pursuant to
adjustment provisions therein comparable to those contained in this paragraph
(g)), the Conversion Ratio shall again be adjusted to be the Conversion Ratio
which would then be in effect if such record date had not been fixed, in the
former event, or the Conversion Ratio which would then be in effect if such
holder had initially been entitled to such changed number of shares of Common
Stock, in the latter event.
(iv) In case the Corporation shall issue rights, options (other than options
issued pursuant to a plan described in clause II of paragraph (g)(ii)) or
warrants entitling the holders thereof to subscribe for or purchase Common Stock
(or securities convertible into shares of Common Stock) or shall issue
convertible securities, and the price per share of Common Stock of such rights,
options, warrants or convertible securities (including, in the case of rights,
options or warrants, the price at which they may be exercised) is less than the
then Conversion Price Per Common Share, the maximum number of shares of Common
Stock issuable upon exercise of such rights, options or warrants or upon
conversion of such convertible securities shall be deemed to have been issued
and outstanding as of the date of such sale or issuance, and the Conversion
Ratio shall be adjusted pursuant to paragraph (g)(ii) hereof as though such
maximum number of shares of Common Stock had been so issued for an aggregate
consideration equal to the aggregate consideration paid for such rights,
options, warrants or convertible securities and the aggregate consideration
payable by the holders of such rights, options, warrants or convertible
securities prior to their receipt of such shares of Common Stock. In case any
portion of such consideration shall be in a form other than cash, the fair
market value of such noncash consideration shall be determined as set forth in
paragraph (g)(ii) hereof. Such adjustment shall be made successively whenever
such rights, options, warrants or convertible securities are issued; and in the
event that such rights, options or warrants expire unexercised, or in the event
of a change in the number of shares of Common Stock to which the holders of such
rights, options, warrants or convertible securities are entitled (other than
pursuant to adjustment provisions therein comparable to those contained in this
paragraph (g)), the Conversion Ratio shall again be adjusted to be the
Conversion Ratio which would then be in effect if such rights, options, warrants
or convertible securities had not been issued, in the former event, or the
Conversion Ratio which would then be in effect if such holders had initially
been entitled to such changed number of shares of Common Stock, in the latter
event. No adjustment of the Conversion Ratio shall be made pursuant to this
paragraph (g)(iv) to the extent that the Conversion Ratio shall have been
adjusted pursuant to paragraph (g)(iii) upon the setting of any record date
relating to such rights, options, warrants or convertible securities and such
adjustment fully reflects the number of shares of Common Stock to which the
holders of such rights, options, warrants or convertible securities are entitled
and the price payable therefor.
(v) In case the Corporation shall fix a record date for the making of a
distribution to holders of Common Stock (including any such distribution made in
connection with a consolidation or merger in which the Corporation is the
continuing corporation) of evidences of indebtedness, assets or other property
(other than dividends payable in Common Stock or rights, options or warrants
referred to in, and for which an adjustment is made pursuant to, paragraph
(g)(iii) hereof), the Conversion Ratio to be in effect after such record date
shall be determined by multiplying the Conversion Ratio in effect immediately
prior to such record date by a fraction, (A) the numerator of which shall be the
Current Valuation Per Common Share on such record date, and (B) the denominator
of which shall be the Current Valuation Per Common Share on such record date,
less the fair market value (determined as set forth in paragraph (g)(ii) hereof)
of the portion of the assets, other property or evidence of indebtedness so to
be distributed which is applicable to one share of Common Stock. Such
adjustments shall be made successively whenever such a record date is fixed; and
in the event that such distribution is not so made, the Conversion Ratio shall
again be adjusted to be the Conversion Ratio which would then be in effect if
such record date had not been fixed.
(vi) For the purpose of any computation under paragraph (f) or paragraphs
(g)(ii), (iii), (iv) or (v) hereof, on any determination date, (I) the "Current
Valuation Per Common Share" shall be the greater of the Current
I-A-8
<PAGE>
Market Price Per Common Share and the Conversion Price Per Common Share (each as
defined below), (II) the "Current Market Price Per Common Share" shall be deemed
to be the average (weighted by daily trading volume) of the Daily Prices (as
defined below) per share of the applicable class of Common Stock for the 20
consecutive trading days immediately prior to such date, (III) the "Conversion
Price Per Common Share" shall be deemed to be the amount in dollars which is
equal to $50 divided by the Conversion Ratio immediately prior to such
adjustment, and (IV) "Daily Price" means (1) if the shares of such class of
Common Stock then are listed and traded on the American Stock Exchange, Inc.
("AMEX"), the closing price on such day as reported on the AMEX Composite
Transactions Tape; (2) if the shares of such class of Common Stock then are not
listed and traded on the AMEX, the closing price on such day as reported by the
principal national securities exchange on which the shares are listed and
traded; (3) if the shares of such class of Common Stock then are not listed and
traded on any such securities exchange, the last reported sale price on such day
on the National Market of the National Association of Securities Dealers, Inc.
Automated Quotation System ("NASDAQ"); or (4) if the shares of such class of
Common Stock then are not traded on the NASDAQ National Market, the average of
the highest reported bid and lowest reported asked price on such day as reported
by NASDAQ. For purposes of any computation under this paragraph (g), the number
of shares of Common Stock outstanding at any given time shall not include shares
owned or held by or for the account of the Corporation.
(vii) No adjustment to the Conversion Ratio pursuant to paragraphs (g)(ii),
(iii), (iv) and (v) above shall be required unless such adjustment would require
an increase or decrease of at least 1% in the Conversion Ratio; provided
however, that any adjustments which by reason of this paragraph (g)(vii) are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this paragraph (g) shall be made
to the nearest four decimal points.
(viii) In the event that, at any time as a result of the provisions of this
paragraph (g), the holder of this Series A Preferred Stock upon subsequent
conversion shall become entitled to receive any shares of capital stock of the
Corporation other than Common Stock, the number of such other shares so
receivable upon conversion of this Series A Preferred Stock shall thereafter be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions contained herein.
(h) Whenever an adjustment is made to the Conversion Ratio pursuant to
paragraph (8)(g), the Redemption Threshold shall be adjusted by multiplying the
Redemption Threshold by the Conversion Ratio in effect immediately prior to such
adjustment and dividing such product by the Conversion Ratio in effect
immediately after such adjustment. All adjustments pursuant to this paragraph
(8) shall be notified to the holders of this Series A Preferred Stock and such
notice shall be accompanied by a Schedule of Computations of the adjustments.
(9) Voting Rights. (a) Except as otherwise provided by applicable law, the
holders of the shares of Series A Preferred Stock (i) shall be entitled to vote
with the holders of the Common Stock on all matters submitted for a vote of
holders of Common Stock, (ii) shall be entitled to a number of votes equal to
the number of votes to which the shares of Common Stock issuable upon conversion
of such shares of Series A Preferred Stock would have been entitled if such
shares of Common Stock had been outstanding at the time of the applicable vote
and related record date and (iii) shall be entitled to notice of any
stockholders' meeting in accordance with the certificate of incorporation and
by-laws of the Corporation.
(b) So long as any shares of Series A Preferred Stock are outstanding, the
Corporation shall not, without the written consent or affirmative vote at a
meeting called for that purpose of the holders of a majority of the shares of
Series A Preferred Stock then outstanding, amend, alter or repeal, whether by
merger, consolidation, combination, reclassification or otherwise, the
Certificate of Incorporation or By-laws of the Corporation or of any provision
thereof (including the adoption of a new provision thereof (including the
adoption of a new provision thereof) which would result in an alteration or
circumvention of the voting powers, designation and preferences and relative
participating, optional and other special rights, and qualifications,
limitations
I-A-9
<PAGE>
and restrictions of the Series A Preferred Stock; provided, however that any
such amendment or alteration that changes the dividend payable on, or the
liquidation preference or the par value of, the Series A Preferred Stock shall
require the affirmative vote at a meeting of holders of Series A Preferred Stock
duly called for such purpose, or the written consent, of the holder of each
share of Series A Preferred Stock.
(c) The consent or votes required in paragraph (b) above shall be in addition
to any approval of stockholders of the Corporation which may be required by law
or pursuant to any provision of the Corporation's Certificate of Incorporation
or By-Laws, which approval shall be obtained by vote of the stockholders of the
Corporation in the manner provided in paragraph (a) above.
(10) Issuance and Amendment. (a) The Corporation will not issue more than
1,200,000 shares of Series A Preferred Stock and the number of shares designated
as shares of Series A Preferred Stock may not be increased or decreased without
the consent of the holders of a majority of the shares of Series A Preferred
Stock outstanding.
(b) Shares of Series A Preferred Stock which have been issued and reacquired
in any manner, including shares purchased, redeemed, converted or exchanged,
shall (upon compliance with any applicable provisions of the laws of the State
of Delaware) be cancelled and shall not be available for reissue or
redesignation.
(c) Upon any such reacquisition by the Corporation, a certificate identifying
the shares reacquired, stating that reissuance of such shares is prohibited and
reciting the retirement of such shares shall be executed, acknowledged and filed
in accordance with provisions of the laws of the State of Delaware.
(11) Definitions. The following terms, as used herein, have the following
meanings:
"By-Laws", with respect to a corporation, shall mean the by-laws, articles of
association, or similar corporate organizational document.
"Certicate of Incorporation", with respect to a corporation, shall mean the
charter, certificate of incorporation, or similar corporate organizational
document.
"Common Stock" shall mean the Class A Common Stock, par value $0.001 per
share, of the Corporation.
"Common Stock Distribution" shall have the meaning set forth in paragraph
(3)(d)(ii).
"Series A Preferred Stock" shall have the meaning set forth in paragraph (1).
"Dividend Payment Date" shall have the meaning set forth in paragraph (3)(a).
"Exchange Notes" shall have the meaning set forth in paragraph (6)
"Notice of Election to Convert" shall mean the Notice of Election to Convert
on the back of each certificate representing an outstanding share of Series A
Preferred Stock.
"Notice of Intention to Convert" shall mean a notice stating that the holder
of the shares of Series A Preferred Stock intends to convert such shares
pursuant to paragraph (8) upon receipt of the Required Approvals.
["STOCK OPTION PLANS" SHALL MEAN THE STOCK OPTION AND RESTRICTED STOCK AWARD
PLAN AND THE EMPLOYEE STOCK PURCHASE PLAN OF THE CORPORATION.]
"outstanding", when used with reference to shares of stock, shall mean issued
shares, excluding shares held by the Corporation or a subsidiary.
"Person" shall mean any corporation, partnership, trust, organization,
association, group (within the meaning of Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended), other entity or individual.
"Required Approvals" shall mean any approvals or consents (including
regulatory approvals) or the expiration of any waiting periods required for
conversion of the outstanding shares of Series A Preferred Stock.
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"Trading Day" shall mean a day on which the principal national securities
exchange on which the shares of Common Stock are listed or admitted to trading
is open for the transaction of business or, if the shares of Common Stock are
not listed or admitted to trading on any national securities exchange, a day on
which NASDAQ or other similar system as may be then in use is open for the
reporting of bid and asked prices in the over-the-counter market, or, if bid and
asked prices for the shares of Common Stock are not so reported by any such
system, a Business Day.
(12) General Provisions. (a) The headings of the paragraphs, subparagraphs,
clauses and subclauses of this Certificate of Designation are for convenience of
reference only and shall not define, limit or affect any of the provisions
hereof.
(b) The holder of Series A Preferred Stock or Exchange Notes, by acceptance
thereof, acknowledges and agrees that payments of dividends, interest, premium
and principal on, and exchange, redemption and repurchase of, such securities by
the Corporation are subject to restrictions contained in certain credit and
financing agreements on the Corporation.
IN WITNESS WHEREOF, Air & Water Technologies Corporation has caused this
Certificate of Designation to be signed and attested by the undersigned this day
of , 1994.
AIR & WATER TECHNOLOGIES CORPORATION
By__________________________________
Name:
Title:
By__________________________________
Name:
Title:
ATTEST:
_________________________________
Name:
Title:
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<PAGE>
Attachment A
to
Certificate of
Designation
AIR & WATER TECHNOLOGIES CORPORATION
5 1/2% CONVERTIBLE SUBORDINATED NOTES
FOR VALUE RECEIVED, Air & Water Technologies Corporation, a Delaware
corporation (the "Company"), hereby promises to pay to or
registered assigns, the principal amount of ($ ), on the
Maturity Date pursuant to Section 2.01 and promises to pay interest on the
unpaid principal amount of this Note on the dates and at the rate provided for
in Section 2.02.
This Note is one of the series designated 5 1/2% Convertible Subordinated
Notes, limited in aggregate principal amount to $60,000,000 (the "Notes").
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. The following terms, as used herein, have the
following meanings:
"Affiliate" of any Person means any other Person (other than, in the case of
the Company, a Subsidiary and, in the case of a Subsidiary, the Company)
directly or indirectly controlling, controlled by or under common control with
such Person. As used in this definition of "Affiliate", the term "control" means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through ownership
of voting securities, by contract or otherwise.
"Business Day" means any day except a Saturday, Sunday or other day on which
commercial banks in New York City are authorized by law to close.
"By-Laws", with respect to a corporation, shall mean the by-laws, articles of
association, or similar corporate organizational document.
"Capitalized Lease" means, as applied to any Person, any lease of any property
(whether real, personal or mixed) the obligations of such Person as lessee under
which, in conformity with generally accepted accounting principles, are required
to be capitalized on the balance sheet of that Person.
"Capitalized Lease Obligation" means, as applied to any Person, the obligation
of such Person under any Capitalized Lease to the extent required to be
capitalized in accordance with generally accepted accounting principles.
"Certificate of Incorporation", with respect to a corporation, shall mean the
charter, certificate of incorporation, or similar corporate organizational
document.
"Common Stock" shall mean the Class A Common Stock, par value $0.001 per
share, of the Company.
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable arising in the ordinary course of
business, (iv) all obligations of such Person to purchase securities (or other
property) for its own account which arise out of or in connection with the sale
of the same or substantially similar securities or properties, (v) all
obligations of such Person in respect of letters of credit or bankers'
acceptances or other similar instruments (or reimbursement obligations with
respect thereto), (vi) all obligations of such Person as lessee under
Capitalized Leases, (vii) all Debt of others Guaranteed by such Person, (viii)
all Debt of others secured by a Lien on any asset of such Person, whether or not
such Debt is assumed by such Person and (ix) all renewals, extensions,
refundings, deferrals, amendments or modifications of Debt described in clauses
(i), (ii), (iii), (iv), (v), (vii) and (viii) and all renewals and extensions of
Capital Leases described in clauses (vi), (vii) and (viii).
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"Default" means any condition or event which constitutes an Event of Default
or which with the giving of notice or lapse of time or both would, unless cured
or waived, become an Event of Default.
"Event of Default" has the meaning set forth in Article VII.
"Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person directly or indirectly guaranteeing any Debt of any other Person
and, without limiting the generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of such Person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Debt (whether
arising by virtue of partnership arrangements, by agreement to keep-well, to
purchase assets, goods, securities or services, to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for the
purpose of assuring in any other manner the obligee of such Debt of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part), provided that the term Guarantee shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Interest Payment Date" means the last Business Day of each March, June,
September and December.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset. For the
purposes of this Agreement, the Company or any Subsidiary shall be deemed to own
subject to a Lien any asset which it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, Capitalized
Lease or other title retention agreement relating to such asset.
"Maturity Date" means the earlier of (i) the tenth anniversary of the date of
issue of this Note and (ii) any date fixed for redemption in accordance with
Article V.
"Noteholder" means each Person which is a holder of any of the Notes, and
their respective successors.
"Notice of Election to Convert" shall mean the Notice of Election to Convert
set forth in Schedule A to this Note.
"Notice of Intention to Convert" shall mean a notice stating that the
Noteholder intends to convert this Note pursuant to Article IV upon receipt of
the Required Approvals.
"outstanding", when used with reference to shares of stock, shall mean issued
shares, excluding shares held by the Company or a Subsidiary.
"Person" shall mean any corporation, partnership, trust, organization,
association, group (within the meaning of Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended), other entity or individual.
"Required Approvals" shall mean any approvals or consents (including
regulatory approvals) or the expiration of any waiting periods required for
conversion of this Note.
"Series A Preferred Stock" shall mean the 5 1/2% Series A Convertible
Exchangeable Preferred Stock of the Company.
["STOCK OPTION PLANS" SHALL MEAN THE STOCK OPTION AND RESTRICTED STOCK AWARD
PLAN AND THE EMPLOYEE STOCK PURCHASE PLAN OF THE CORPORATION.]
"Subsidiary" means any corporation or other entity of which securities or
other ownership interests having ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions are at the
time directly or indirectly owned by the Company.
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<PAGE>
"Trading Day" shall mean a day on which the principal national securities
exchange on which the shares of Common Stock are listed or admitted to trading
is open for the transaction of business or, if the shares of Common Stock are
not listed or admitted to trading on any national securities exchange, a day on
which NASDAQ or other similar system as may be then in use is open for the
reporting of bid and asked prices in the over-the-counter market, or, if bid and
asked prices for the shares of Common Stock are not so reported by any such
system, a Business Day.
ARTICLE II
PAYMENT OF PRINCIPAL AND INTEREST
SECTION 2.01. Mandatory Redemption. On the Maturity Date (the "Principal
Repayment Date") the principal amount of this Note together with all accrued and
unpaid interest to the Maturity Date shall be due and payable, and the Company
shall repay such amount on the Maturity Date to the Noteholder.
SECTION 2.02. Interest Rate. (a) Except as provided in Article IV, this Note
shall bear interest on the outstanding principal amount thereof, for each day
from the date of this Note until it becomes due, at a rate per annum equal to 5
1/2%. Such interest shall be payable in four equal quarterly payments in arrears
on each Interest Payment Date and on the Maturity Date.
(b) Any overdue principal of or interest on the Loan shall bear interest,
payable on demand, for each day from and including the date payment thereof was
due to but excluding the date of actual payment, at a rate per annum equal to 6
1/2%.
SECTION 2.03. Computation of Interest. Interest, other than interest for a
quarterly period, shall be computed on the basis of a year of 365 days and paid
for the actual number of days elapsed (including the first day but excluding the
last day).
ARTICLE III
SUBORDINATION
SECTION 3.01. Definitions. The following term, as used in this Article, shall
have the following meaning:
"Superior Indebtedness" means all Debt of the Company (including, without
limitation, any interest which accrues after the commencement of any case,
proceeding or other action relating to the bankruptcy, insolvency or
reorganization of the Company) other than the Notes.
SECTION 3.02. Subordination to Superior Indebtedness. The Company and the
Noteholders agree for the benefit of the holders of the Superior Indebtedness
that the Notes shall, in the manner hereinafter set forth, be subordinate and
junior in right of payment to all Superior Indebtedness of the Company.
SECTION 3.03. Limitations on Payments and Acceleration. (a) Upon the maturity
of all or any part of the Superior Indebtedness by lapse of time, acceleration
or otherwise, such Superior Indebtedness shall first be paid in full, or such
payment shall be duly provided for in cash or in a manner satisfactory to the
holders of the Superior Indebtedness, before any payment by the Company is made
on account of the principal of or interest on the Notes or to acquire the Notes.
(b) In the event and during the continuation of any default in the payment of
any principal of or interest on any Superior Indebtedness when due and payable
(each a "Payment Default"), whether at maturity, upon any redemption, by
declaration or otherwise, no payment shall be made by the Company on or with
respect to the principal of, or interest on, the Notes or to acquire the Notes
unless and until such Payment Default shall have been remedied. In any such
event, no holder of the Notes shall accept or receive any payment of or on
account of the Notes, notwithstanding the terms of the Notes.
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<PAGE>
(c) In the event that any event or condition shall occur and be continuing
which would permit, or which with notice or lapse of time or both would permit,
the holder or holders of any Superior Indebtedness (or a trustee acting on
behalf of the holders thereof) to declare such Superior Indebtedness due and
payable prior to the date on which it would otherwise have become due and
payable (each such event or condition being referred to in this Note as a "Non-
Payment Default"), no payment shall be made by the Company on or with respect to
the principal of, or interest on, the Notes or to acquire the Notes during any
period commencing on the date written notice of such Non-Payment Default (a
"Blockage Notice") shall have been given to the Company and the holders of the
Notes by the holders of a majority in principal amount of the Superior
Indebtedness then outstanding with respect to which such Non-Payment Default
shall have occurred (or their authorized agent) and ending on the earliest to
occur of the date (the "Blockage Expiration Date") (i) 180 days after the date
of the Blockage Notice, (ii) such Non-Payment Default shall have been remedied
or effectively waived or shall have ceased to exist and (iii) the Superior
Indebtedness in respect of which such Non-Payment Default shall have occurred
shall have been paid in full, provided that the foregoing provisions do not
limit the number of Blockage Notices which may be given during any 360-day
period, provided further that the number of days on which payment on the Notes
may be prohibited under this subdivision (c) during any 360-day period shall not
exceed 180 days. At the Blockage Expiration Date, the Company shall, subject to
Section 3.03(b), promptly pay the holder or holders of the Notes all sums not
paid as a result of this Section 3.03(c). In any such event, no holder of the
Notes shall accept or receive during any such period any payment of or an
account of the Notes, notwithstanding the terms of the Notes.
SECTION 3.04. Note Subordinated to Prior Payment of all Superior Indebtedness
on Dissolution, Liquidation or Reorganization of Company. In the event of any
insolvency or bankruptcy proceedings, and any receivership, liquidation,
reorganization or other similar proceedings in connection therewith, relative to
the Company or to its creditors, in their capacity as creditors of the Company,
or to substantially all of its property, and in the event of any proceedings for
voluntary liquidation, dissolution or other winding up of the Company, whether
or not involving insolvency or bankruptcy, then
(a) the holders of all Superior Indebtedness shall first be entitled to
receive payment in full of the principal thereof, interest and all other
amounts payable thereon (accruing before and after the commencement of the
proceedings) before any holder of the Notes is entitled to receive any payment
on account of the principal of or interest on the Notes; and
(b) any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities to which any holder of the
Notes would be entitled, but for the provisions of this Article III, shall be
paid or distributed by the liquidating trustee or agent or other person making
such payment or distribution, whether a trustee in bankruptcy, a receiver or
liquidating trustee or other trustee or agent, directly to the holders of the
Superior Indebtedness or any other representative on behalf of the holders of
Superior Indebtedness, to the extent necessary to make payment in full of all
principal, interest and all other amounts payable on all Superior Indebtedness
remaining unpaid, after giving effect to any concurrent payment or
distribution to the holders of the Superior Indebtedness.
SECTION 3.05. Rights of Holders of Superior Indebtedness;
Subrogation. (a) Should any payment or distribution or security or the proceeds
of any thereof be collected or received by any holder of the Notes in respect of
the Notes, and such collection or receipt is prohibited hereunder prior to the
payment in full of the Superior Indebtedness, such holder will forthwith deliver
the same to the holders of the Superior Indebtedness for the equal and ratable
benefit of the holders of the Superior Indebtedness in precisely the form
received (except for the endorsement or the assignment of or by such holder
where necessary) for application to payment of all Superior Indebtedness in
full, after giving effect to any concurrent payment or distribution to the
holders of Superior Indebtedness and, until so delivered, the same shall be held
in trust by such holder as the property of the holders of the Superior
Indebtedness.
(b) All payments and distributions received by the holders of the Superior
Indebtedness in respect of the Notes, to the extent received in or converted
into cash, may be applied by the holders of the Superior
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<PAGE>
Indebtedness first to the payment of any and all reasonable out-of-pocket
expenses (including attorney's fees and legal expenses) paid or incurred by the
holders of the Superior Indebtedness or such representative in enforcing the
provisions hereof or in endeavoring to collect or realize upon the Notes or any
security therefor, and any balance thereof shall, solely as between any holder
of the Notes, on the one hand, and the holders of the Superior Indebtedness, on
the other hand, be applied by the holders of the Superior Indebtedness in such
order of application as the holders of the Superior Indebtedness may from time
to time select, toward the payment of the Superior Indebtedness remaining
unpaid.
(c) No holder of the Notes shall be subrogated to the rights of the holders of
the Superior Indebtedness to receive payments or distributions of assets of the
Company until all amounts payable with respect to the Superior Indebtedness
shall be paid in full; and, for the purposes of such subrogation, no payments or
distributions to the holders of the Superior Indebtedness of any cash, property
or securities to which any holder of the Notes would be entitled except for
these provisions shall, as between the Company, its creditors other than the
holders of the Superior Indebtedness, and such holders of the Notes, be deemed
to be a payment by the Company to or on account of the Superior Indebtedness.
(d) Subject to the payment in full of all Superior Indebtedness, the holders
of the Notes shall be subrogated (equally and ratably with the holders of all
subordinated indebtedness of the Company which, by its terms, is not superior in
right of payment to the Notes, and ranks on a parity with the Notes) to the
rights of the holders of Superior Indebtedness to receive payments or
distributions of cash, property or securities of the Company applicable to the
Superior Indebtedness until all amounts owing on the Notes shall be paid in
full. For purposes of such subrogation, no payments or distributions to the
holders of the Notes of cash, property, securities or other assets by virtue of
the subrogation herein provided which otherwise would have been made to the
holders of the Superior Indebtedness shall, as between the Company, its
creditors other than the holders of Superior Indebtedness and the holders of the
Notes, be deemed to be a payment to or on account of the Notes. The holders of
the Notes agree that, in the event that all or any part of any payment made on
account of the Superior Indebtedness is recovered from the holders of Superior
Indebtedness as a preference, fraudulent transfer or similar payment under any
bankruptcy, insolvency or similar law, any payment or distribution received by
the holders of the Notes on account of the Notes at any time after the date of
the payment so recovered, whether pursuant to the right of subrogation provided
for in this Section 3.05 or otherwise, shall be deemed to have been received by
such holders of the Notes in trust as the property of the holders of the
Superior Indebtedness and such holders shall forthwith deliver the same to the
holders of the Superior Indebtedness for the equal and ratable benefit of the
holders of the Superior Indebtedness for application to payment of all Superior
Indebtedness until paid in full.
SECTION 3.06. Renewals, Extensions and Increases of Superior Indebtedness.
Each holder of the Notes by his acceptance thereof thereby waives any and all
notice of renewal, extension, accrual or (consistent with the definition of
Superior Indebtedness) increase in the amount of any of the Superior
Indebtedness, present or future, and agrees and consents that without notice to
or assent by any holder or holders of the Notes:
(i) the obligation and liabilities of the Company or any other party or
parties for or upon the Superior Indebtedness (or any promissory note,
security document or guaranty evidencing or securing the same) may, from time
to time, in whole or in part, be renewed, extended, increased (consistent with
the definition of Superior Indebtedness), modified, amended, accelerated,
compromised, supplemented, terminated, sold, exchanged, waived or released;
(ii) the holders of the Superior Indebtedness or any other representative
acting on behalf of the holders of the Superior Indebtedness and the holders
of the Superior Indebtedness may exercise or refrain from exercising any
right, remedy or power granted by or in connection with any agreements
relating to the Superior Indebtedness; and
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<PAGE>
(iii) any balance or balances of funds with any holders of the Superior
Indebtedness at any time standing to the credit of the Company may, from time
to time, in whole or in part, be surrendered or released;
all as the holders of the Superior Indebtedness or any other representative or
representatives acting on behalf of the holders of the Superior Indebtedness and
the holders of the Superior Indebtedness may deem advisable and all without
impairing, abridging, diminishing, releasing or affecting the subordination of
the Notes to the Superior Indebtedness provided for herein.
SECTION 3.07. Obligation of Company Unconditional. Nothing contained in this
Article III or in the Notes is intended to or shall impair, as between the
Company, its creditors other than the holders of the Superior Indebtedness, and
the holders of the Notes, the obligation of the Company, which is absolute and
unconditional, to pay to the holders of the Notes the principal of, and interest
on the Notes, as and when the same shall become due and payable, by lapse of
time, acceleration or otherwise, in accordance with their terms, or is intended
to or shall affect the relative rights of the holders of the Notes and other
creditors of the Company other than the holders of the Superior Indebtedness,
nor shall anything herein or therein prevent the holder of the Notes (i) from
taking all appropriate actions to preserve their rights under the Notes not
inconsistent with the rights of the holders of the Superior Indebtedness under
this Article III, or (ii) from exercising all remedies, including without
limitation equitable remedies, otherwise permitted by applicable law upon
default under the Notes, subject to the rights, if any, under this Article III
of the holders of the Superior Indebtedness in respect of cash, property or
securities of the Company otherwise payable or delivered to such holders upon
the exercise of any such remedy. The provisions of this Article III are and are
intended solely for the purpose of defining the relative rights of holders of
the Notes, on the one hand, and the holders of the Superior Indebtedness, on the
other hand.
SECTION 3.08. Miscellaneous. (a) Each holder of the Notes by its acceptance
thereof thereby acknowledges and agrees that the holders of the Superior
Indebtedness have relied upon and will continue to rely upon the subordination
provided for in this Article III in entering into the agreements relating to
Superior Indebtedness and in extending credit to the Company pursuant thereto.
(b) No present or future holder of Superior Indebtedness shall be prejudiced
in his right to enforce the subordination contained herein in accordance with
the terms hereof by any act or failure to act on the part of the Company or any
holder of the Notes. The subordination provisions contained in this Article III
are for the benefit of the holders of the Superior Indebtedness from time to
time and, so long as Superior Indebtedness is outstanding under any agreement,
may not be rescinded, cancelled or modified in any way without the prior written
consent thereto of holders of at least 75% in aggregate principal amount of the
Superior Indebtedness at the time outstanding.
(c) The subordination provisions contained in this Article III shall be
binding upon any holder of the Notes and upon the heirs, legal representatives,
successors and assigns of any holder of the Notes; and, to the extent that any
holder of the Notes is either a partnership or a corporation, all references
herein to any holder of the Notes shall be deemed to include any successor or
successors, whether immediate or remote, to such partnership or corporation.
ARTICLE IV
CONVERSION
SECTION 4.01. Conversion. (a) Subject to the provisions of this Article IV,
the Noteholder shall have the right, at any time, at such Noteholder's option,
to convert any or all of the principal amount of this Note, in whole or in part,
into fully paid and non-assessable shares of Common Stock. The number of shares
of Common Stock deliverable upon conversion of each $50 of principal amount of
this Note, adjusted as hereinafter provided, is referred to herein as the
"Conversion Ratio." The Conversion Ratio as of the date of
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<PAGE>
issue of this Note shall be the Conversion Ratio under the Series A Preferred
Stock immediately prior to the exchange of such Series A Preferred Stock for
this Note, subject to adjustment from time to time pursuant to Section 4.07
hereof. Notwithstanding any call for redemption pursuant to Article V, the right
to convert shares so called for redemption shall terminate at the close of
business on the date immediately preceding the date fixed for such redemption or
exchange, as the case may be, unless the Company shall default in making payment
of the amount payable upon such redemption or in making the exchange and payment
of any amount payable upon such exchange.
SECTION 4.02. Exercise Procedure. (a) In order to exercise the conversion
privilege, the Noteholder shall surrender this Note at the office of the
Company, with the Notice of Election to Convert completed and signed. Unless the
shares issuable on conversion are to be issued in the same name as the name in
which this Note is registered, each share surrendered for conversion shall be
accompanied by instruments of transfer, in form satisfactory to the Company,
duly executed by the Noteholder or the Noteholder's duly authorized attorney and
an amount sufficient to pay any transfer or similar tax.
(b) As promptly as practicable after the surrender by the Noteholder as
aforesaid, the Company shall issue and shall deliver to such Noteholder, or on
the Noteholder's written order to the Noteholder's transferee, a certificate or
certificates for the whole number of shares of Common Stock issuable upon the
conversion of such shares in accordance with the provisions of this Article IV.
(c) Each conversion shall be deemed to have been effected immediately prior to
the close of business on the date on which this Note shall have been surrendered
and such notice received by the Company as aforesaid, and the person in whose
name or names any certificate or certificates for shares of Common Stock shall
be issuable upon such conversion shall be deemed to have become the holder of
record of the shares of Common Stock represented thereby at such time on such
date and such conversion shall be into a number of shares of Common Stock equal
to the product of (A) the principal amount of this Note surrendered for
conversion divided by 50 and (B) the Conversion Ratio in effect at such time on
such date. All shares of Common Stock delivered upon conversion of this Note
will upon delivery be duly and validly issued and fully paid and non-assessable,
free of all liens and charges and not subject to any preemptive rights. Upon the
surrender of this Note, the principal amount of this Note surrendered for
conversion shall no longer be deemed to be outstanding and all rights of a
Noteholder with respect to the principal amount of this Note surrendered for
conversion shall immediately terminate except the right to receive the Common
Stock and other amounts, including any accrued and unpaid interest on this Note,
payable pursuant to this Article IV.
SECTION 4.03. Effect of Election. (a) Upon delivery to the Company by the
Noteholder of a Notice of Election to Convert or a Notice of Intention to
Convert, the right of the Company to redeem the principal amount of this Note
which is to be converted shall terminate, regardless of whether a notice of
redemption has been mailed.
(b) Interest on the outstanding principal amount of this Note delivered for
conversion shall cease to accrue on the date of delivery by the Noteholder of
such Notice of Election to Convert or Notice of Intention to Convert. Any such
accrued and unpaid interest shall be payable by the Company to the Noteholder on
the next succeeding Interest Payment Date. [From and after the date of such
delivery, this Note shall participate equally and ratably with the holders of
shares of Common Stock in all dividends paid on the Common Stock as if this Note
had been converted to shares of Common Stock at the time of such delivery.]/1/
(c) Except as provided above and in Section 4.07, the Company shall make no
adjustment for accrued and unpaid interest on this Note, on conversion of this
Note or for dividends in cash on the shares of Common Stock issued upon such
conversion.
SECTION 4.04. Issuance of Shares. (a) The Company covenants that it shall at
all times reserve and keep available, free from preemptive rights, such number
of its authorized but unissued shares of Common Stock as shall be required for
the purpose of effecting conversions of the Notes.
- --------
/1/ This provision should also be included in the Company's charter.
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<PAGE>
(b) Prior to the delivery of any securities which the Company shall be
obligated to deliver upon conversion of the Notes, the Company shall comply with
all applicable federal and state laws and regulations which require action to be
taken by the Company.
SECTION 4.05. Taxes on Conversion. The Company will pay any and all
documentary stamp or similar issue or transfer taxes payable in respect of the
issue or delivery of shares of Common Stock on conversion of any part of the
principal amount of this Note pursuant hereto; provided, that the Company shall
not be required to pay any tax which may be payable in respect of any transfer
involved in the issue or delivery of shares of Common Stock in a name other than
that of the Noteholder to be converted and no such issue or delivery shall be
made unless and until the person requesting such issue or delivery has paid to
the Company the amount of any such tax or has established, to the satisfaction
of the Company, that such tax has been paid.
SECTION 4.06. No Fractions of Common Stock to be Issued. In connection with
the conversion of the principal amount of this Note, no fractions of shares of
Common Stock shall be issued, but in lieu thereof the Company shall pay a cash
adjustment in respect of such fractional interest in an amount equal to such
fractional interest multiplied by the Daily Price (as defined in Section
4.07(f)) per share of Common Stock on the Trading Day on which this Note is
deemed to have been converted. If more than one Note is surrendered for
conversion by the same Noteholder (or Affiliate of such Noteholder) at the same
time, the number of full shares of Common Stock issuable on conversion of the
principal amount thereof surrendered for conversion shall be computed on the
basis of the total principal amounts of the Notes so surrendered.
Section 4.07. Anti-dilution. (a) In case the Company shall at any time after
the date of initial issue of this Note (I) declare a dividend or make a
distribution on Common Stock payable in Common Stock, (II) subdivide or split
the outstanding Common Stock, (III) combine or reclassify the outstanding Common
Stock into a smaller number of shares, (IV) issue any shares of its capital
stock in a reclassification of Common Stock (including any such reclassification
in connection with a consolidation or merger in which the Company is the
continuing corporation), or (V) consolidate with, or merge with or into, any
other Person, the Conversion Ratio in effect at the time of the record date for
such dividend or distribution or of the effective date of such subdivision,
split, combination, consolidation, merger or reclassification shall be
proportionately adjusted so that the conversion of this Note after such time
shall entitle the Noteholder to receive the aggregate number of shares of Common
Stock or other securities of the Company (or shares of any security into which
such shares of Common Stock have been combined, consolidated, merged or
reclassified pursuant to clause (III), (IV) or (V) above) which, if this Note
had been converted immediately prior to such time, such Noteholder would have
owned upon such conversion and been entitled to receive by virtue of such
dividend, distribution, subdivision, split, combination, consolidation, merger
or reclassification, assuming such holder of Common Stock of the Company (x) is
not a Person with which the Company consolidated or into which the Company
merged or which merged into the Company or to which such recapitalization, sale
or transfer was made, as the case may be ("constituent Person"), or an affiliate
of a constituent Person and (y) failed to exercise any rights of election as to
the kind or amount of securities, cash and other property receivable upon such
reclassification, change, consolidation, merger, recapitalization, sale or
transfer (provided, that if the kind or amount of securities, cash and other
property receivable upon such reclassification, change, consolidation, merger,
recapitalization, sale or transfer is not the same for each share of Common
Stock of the Company held immediately prior to such reclassification, change,
consolidation, merger, recapitalization, sale or transfer by other than a
constituent Person or an affiliate thereof and in respect of which such rights
of election shall not have been exercised ("non-electing share"), then for the
purpose of this Section 4.07 the kind and amount of securities, cash and other
property receivable upon such reclassification, change, consolidation, merger,
recapitalization, sale or transfer by each non-electing share shall be deemed to
be the kind and amount so receivable per share by a plurality of the non-
electing shares). Such adjustment shall be made successively whenever any event
listed above shall occur.
(b) In case the Company shall issue or sell any Common Stock (other than
Common Stock issued (I) upon conversion of the Series A Preferred Stock, the
Notes or the 8% Convertible Subordinated Debentures
I-A-a-8
<PAGE>
due May 15, 2015, (II) pursuant to the Company's Stock Option Plans or pursuant
to any other Common Stock related employee compensation plan of the Company
approved by the Company's Board of Directors or (III) upon exercise or
conversion of any security the issuance of which caused an adjustment under
Sections 4.07(c) or (d) hereof) without consideration or for a consideration per
share less than the then Conversion Price Per Common Share (as defined in
Section 4.07(f)), the Conversion Ratio to be in effect after such issuance or
sale shall be determined by multiplying the Conversion Ratio in effect
immediately prior to such issuance or sale by a fraction, (A) the numerator of
which shall be the product of the aggregate number of shares of Common Stock
outstanding immediately after such issuance or sale and the Current Valuation
Per Common Share (as defined in Section 4.07(f)) immediately prior to such
issuance or sale and (B) the denominator of which shall be the sum of (x) the
number of shares of Common Stock outstanding immediately prior to the time of
such issuance or sale multiplied by the Current Valuation Per Common Share
immediately prior to such issuance or sale and (y) the aggregate consideration,
if any, to be received by the Company upon such issuance or sale. In case any
portion of the consideration to be received by the Company shall be in a form
other than cash, the fair market value of such noncash consideration shall be
utilized in the foregoing computation. Such fair market value shall be
determined by the Board of Directors of the Company; provided that if the
Noteholders of 25% or more of the aggregate principal amount of the Notes shall
object to any such determination, the Board of Directors shall retain an
independent appraiser reasonably satisfactory to such Noteholders to determine
such fair market value. The Noteholders shall be notified promptly of any
consideration other than cash to be received by the Company and furnished with a
description of the consideration and the fair market value thereof, as
determined by the Board of Directors.
(c) In case the Company shall fix a record date for the issuance of rights,
options or warrants to the holders of its Common Stock or other securities
entitling such holders to subscribe for or purchase shares of Common Stock (or
securities convertible into shares of Common Stock) at a price per share of
Common Stock (or having a conversion price per share of Common Stock, if a
security convertible into shares of Common Stock) less than the then Conversion
Price Per Common Share on such record date, the maximum number of shares of
Common Stock issuable upon exercise of such rights, options or warrants (or
conversion of such convertible securities) shall be deemed to have been issued
and outstanding as of such record date and the Conversion Ratio shall be
adjusted pursuant to Section 4.07(b) hereof, as though such maximum number of
shares of Common Stock had been so issued for an aggregate consideration payable
by the holders of such rights, options, warrants or convertible securities prior
to their receipt of such shares of Common Stock. In case any portion of such
consideration shall be in a form other than cash, the fair market value of such
noncash consideration shall be determined as set forth in Section 4.07(b)
hereof. Such adjustment shall be made successively whenever such record date is
fixed; and in the event that such rights, options or warrants are not so issued
or expire unexercised, or in the event of a change in the number of shares of
Common Stock to which the holders of such rights, options or warrants are
entitled (other than pursuant to adjustment provisions therein comparable to
those contained in this Section 4.07), the Conversion Ratio shall again be
adjusted to be the Conversion Ratio which would then be in effect if such record
date had not been fixed, in the former event, or the Conversion Ratio which
would then be in effect if such holder had initially been entitled to such
changed number of shares of Common Stock, in the latter event.
(d) In case the Company shall issue rights, options (other than options issued
pursuant to a plan described in clause II of Section 4.07(b)) or warrants
entitling the holders thereof to subscribe for or purchase Common Stock (or
securities convertible into shares of Common Stock) or shall issue convertible
securities, and the price per share of Common Stock of such rights, options,
warrants or convertible securities (including, in the case of rights, options or
warrants, the price at which they may be exercised) is less than the then
Conversion Price Per Common Share, the maximum number of shares of Common Stock
issuable upon exercise of such rights, options or warrants or upon conversion of
such convertible securities shall be deemed to have been issued and outstanding
as of the date of such sale or issuance, and the Conversion Ratio shall be
adjusted pursuant to Section 4.07(b) hereof as though such maximum number of
shares of Common Stock had been so issued for an aggregate consideration equal
to the aggregate consideration paid for such rights, options, warrants or
convertible securities and the aggregate consideration payable by the holders of
such
I-A-a-9
<PAGE>
rights, options, warrants or convertible securities prior to their receipt of
such shares of Common Stock. In case any portion of such consideration shall be
in a form other than cash, the fair market value of such noncash consideration
shall be determined as set forth in Section 4.07(b) hereof. Such adjustment
shall be made successively whenever such rights, options, warrants or
convertible securities are issued; and in the event that such rights, options or
warrants expire unexercised, or in the event of a change in the number of shares
of Common Stock to which the holders of such rights, options, warrants or
convertible securities are entitled (other than pursuant to adjustment
provisions therein comparable to those contained in this Section 4.07), the
Conversion Ratio shall again be adjusted to be the Conversion Ratio which would
then be in effect if such rights, options, warrants or convertible securities
had not been issued, in the former event, or the Conversion Ratio which would
then be in effect if such holders had initially been entitled to such changed
number of shares of Common Stock, in the latter event. No adjustment of the
Conversion Ratio shall be made pursuant to this Section 4.07(d) to the extent
that the Conversion Ratio shall have been adjusted pursuant to Section 4.07(c)
upon the setting of any record date relating to such rights, options, warrants
or convertible securities and such adjustment fully reflects the number of
shares of Common Stock to which the holders of such rights, options, warrants or
convertible securities are entitled and the price payable therefor.
(e) In case the Company shall fix a record date for the making of a
distribution to holders of Common Stock (including any such distribution made in
connection with a consolidation or merger in which the Company is the continuing
corporation) of evidences of indebtedness, assets or other property (other than
dividends payable in Common Stock or rights, options or warrants referred to in,
and for which an adjustment is made pursuant to, Section 4.07(c) hereof), the
Conversion Ratio to be in effect after such record date shall be determined by
multiplying the Conversion Ratio in effect immediately prior to such record date
by a fraction, (A) the numerator of which shall be the Current Valuation Per
Common Share on such record date, and (B) the denominator of which shall be the
Current Valuation Per Common Share on such record date, less the fair market
value (determined as set forth in Section 4.07(b) hereof) of the portion of the
assets, other property or evidence of indebtedness so to be distributed which is
applicable to one share of Common Stock. Such adjustments shall be made
successively whenever such a record date is fixed; and in the event that such
distribution is not so made, the Conversion Ratio shall again be adjusted to be
the Conversion Ratio which would then be in effect if such record date had not
been fixed.
(f) For the purpose of any computation under Section 4.06 or Sections 4.07(b),
(c), (d) or (e) hereof, on any determination date, (I) the "Current Valuation
Per Common Share" shall be the greater of the Current Market Price Per Common
Share and the Conversion Price Per Common Share (each as defined below), (II)
the "Current Market Price Per Common Share" shall be deemed to be the average
(weighted by daily trading volume) of the Daily Prices (as defined below) per
share of the applicable class of Common Stock for the 20 consecutive trading
days immediately prior to such date, (III) the "Conversion Price Per Common
Share" shall be deemed to be the amount in dollars which is equal to $50 divided
by the Conversion Ratio immediately prior to such adjustment, and (IV) "Daily
Price" means (1) if the shares of such class of Common Stock then are listed and
traded on the American Stock Exchange, Inc. ("AMEX"), the closing price on such
day as reported on the AMEX Composite Transactions Tape; (2) if the shares of
such class of Common Stock then are not listed and traded on the AMEX, the
closing price on such day as reported by the principal national securities
exchange on which the shares are listed and traded; (3) if the shares of such
class of Common Stock then are not listed and traded on any such securities
exchange, the last reported sale price on such day on the National Market of the
National Association of Securities Dealers, Inc. Automated Quotation System
("NASDAQ"); or (4) if the shares of such class of Common Stock then are not
traded on the NASDAQ National Market, the average of the highest reported bid
and lowest reported asked price on such day as reported by NASDAQ. For purposes
of any computation under this Section 4.07, the number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Company.
(g) No adjustment to the Conversion Ratio pursuant to Sections 4.07(b), (c),
(d) and (e) above shall be required unless such adjustment would require an
increase or decrease of at least 1% in the Conversion Ratio; provided however,
that any adjustments which by reason of this Section 4.07(g) are not required to
be made
I-A-a-10
<PAGE>
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this Section 4.07 shall be made to the nearest four
decimal points.
(h) In the event that, at any time as a result of the provisions of this
Section 4.07, the Noteholder of this Note upon subsequent conversion shall
become entitled to receive any shares of capital stock of the Company other than
Common Stock, the number of such other shares so receivable upon conversion of
this Note shall thereafter be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions
contained herein.
Section 4.08. Adjustment of Redemption Threshold. Whenever an adjustment is
made to the Conversion Ratio pursuant to Section 4.07, the Redemption Threshold
(as defined in Section 5.01(b) shall be adjusted by multiplying the Redemption
Threshold by the Conversion Ratio in effect immediately prior to such adjustment
and dividing such product by the Conversion Ratio in effect immediately after
such adjustment. All adjustments pursuant to Sections 4.07 and 4.08 shall be
notified to the Noteholders and such notice shall be accompanied by a Schedule
of Computations of the adjustments.
ARTICLE V
REDEMPTION
SECTION 5.01. Redemption. The Notes shall be redeemable by the Corporation as
provided below.
(a) The Notes shall not be redeemable prior to the Initial Redemption Date.
The "Initial Redemption Date" shall be June 30, 1997.
(b) At the option of the Corporation, the Notes may be redeemed at any time or
from time to time (subject to the provisions set forth below and in Article IV)
on or after the Initial Redemption Date, in whole or in part, at the price (the
"Redemption Price"), payable in cash, equal to the percentage set forth below of
the principal amount of the Notes for redemptions during the 12-month periods
beginning on the Initial Redemption Date or the annual anniversaries thereof
indicated below, plus, in each case, an amount equal to accrued and unpaid
interest thereon, to the date fixed for redemption:
<TABLE>
<CAPTION>
12-MONTH PERIOD BEGINNING ON PERCENTAGE
---------------------------- ----------
<S> <C>
Initial Redemption Date........................................ 103.85%
First Anniversary thereof...................................... 103.30%
Second Anniversary thereof..................................... 102.75%
Third Anniversary thereof...................................... 102.20%
Fourth Anniversary thereof..................................... 101.65%
Fifth Anniversary thereof...................................... 101.10%
Sixth Anniversary thereof...................................... 100.55%
Seventh Anniversary thereof and thereafter..................... 100.00%
</TABLE>
Notwithstanding the foregoing, the Corporation may elect to redeem the Notes
at any time on or after the Initial Redemption Date and prior to the fourth
anniversary of the Initial Redemption Date only if for at least 20 Trading Days
during the period consisting of the 30 consecutive Trading Days ending on the
date notice of such redemption is given, including the last Trading Day of such
period, the Closing Price per share of Common Stock exceeds $18.75, as adjusted
pursuant to Section 4.08 (the "Redemption Threshold").
(c) In the event that less than all of the principal amount of the Notes is to
be redeemed pursuant to this Article V, the Corporation shall call for
redemption the Notes pro rata among the holders, based on the
I-A-a-11
<PAGE>
principal amount of Notes held by each holder. Any redemption for which the
principal amount of Notes is called for redemption on a pro rata basis (whether
or not some of the principal amount of Notes so called are subsequently
converted pursuant to Article IV) shall comply with this Section 5.01(c).
SECTION 5.02. Procedure for Redemption. (a) In the event the Company shall
redeem the Notes, notice of such redemption shall be given by first class mail,
postage prepaid, mailed not less than 30 days nor more than 60 days prior to the
redemption date, to the Noteholders of record at such Noteholders' addresses as
the same appears on the books of the Company. Each such notice shall state: (i)
the redemption date; (ii) the redemption price; (iii) the place or places where
the Notes is to be surrendered for payment of the redemption price; (iv) that
interest on the Notes will cease to accrue on such redemption date, and (v) the
principal amount of the Notes to be redeemed.
(b) Notice having been mailed as aforesaid, from and after the redemption date
(unless default shall be made by the Company in providing money for the payment
of the redemption price or a Notice of Intention to Convert or Notice of
Election to Convert has been delivered to the Company pursuant to Article IV),
interest on the principal amount of the Notes called for redemption shall cease
to accrue, and such principal amount of the Notes called for redemption shall no
longer be deemed to be outstanding and shall be cancelled and shall not be
available for reissue, and all rights of the Noteholders as creditors of the
Company (except the right to receive from the Company the redemption price and
any other amounts payable pursuant to Section 5.01) in respect of such principal
amount of the Notes called for redemption shall cease. Upon surrender in
accordance with said notice of the Notes representing the principal amount of
the Notes called for redemption (properly endorsed or assigned for transfer, if
the Board of Directors of the Company shall so require and the notice shall so
state), the principal amount of the Notes so called for redemption shall be
redeemed by the Company at the redemption price aforesaid.
ARTICLE VI
VOTING RIGHTS
Section 6.01. General. Except as otherwise provided by applicable law, the
Noteholders of the Notes (i) shall be entitled to vote with the holders of the
Common Stock on all matters submitted for a vote of holders of Common Stock,
(ii) shall be entitled to a number of votes equal to the number of votes to
which the shares of Common Stock issuable upon conversion of the Notes would
have been entitled if such shares of Common Stock had been outstanding at the
time of the applicable vote and related record date and (iii) shall be entitled
to notice of any stockholders' meeting in accordance with the Certificate of
Incorporation and By-Laws of the Company.
Section 6.02. No Changes to Voting Rights. So long as any of the principal
amount of the Notes is outstanding, the Company shall not, without the written
consent or affirmative vote of Noteholders which in the aggregate own more than
50% of the aggregate principal amount of the Notes then outstanding, at a
meeting called for that purpose of the Noteholders, amend, alter or repeal,
whether by merger, consolidation, combination, reclassification or otherwise,
the Certificate of Incorporation or By-laws of the Company or of any provision
thereof (including the adoption of a new provision thereof) which would result
in an alteration or circumvention of the voting powers or other rights of the
Notes; provided, however that any such amendment or alteration that changes the
interest payable on, or the principal amount of, the Notes shall require the
affirmative vote at a meeting of holders of the Notes duly called for such
purpose, or the written consent, of the holders of 100% of the aggregate
principal amount of the Notes then outstanding.
Section 6.03. Stockholder Approval Required. The consent or votes required in
Section 6.02 above shall be in addition to any approval of stockholders of the
Company which may be required by law or pursuant to any provision of the
Company's Certificate of Incorporation or By-Laws, which approval shall be
obtained by vote of the stockholders of the Company in the manner provided in
Section 6.01 above.
I-A-a-12
<PAGE>
ARTICLE VII
DEFAULTS
If one or more of the following events ("Events of Default") shall have
occurred and be continuing:
(a) the Company shall fail to pay when due any principal of the Notes, or
shall fail to pay within fifteen days of the due date thereof any interest or
other amount payable hereunder;
(b) the Company shall fail to observe or perform any covenant or agreement
contained in the Notes (other than those covered by clause (a) above) for 30
days after written notice thereof has been given to the Company by the
Noteholder;
(c) the Company (i) shall commence a voluntary case or other proceeding
seeking liquidation, reorganization or other relief with respect to itself or
its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
conservator, liquidator, custodian or other similar official of it or any
substantial part of its property, or (ii) shall consent to any such relief or
to the appointment of or taking possession by any such official in an
involuntary case or other proceeding commenced against it, or (iii) shall make
a general assignment for the benefit of creditors, or (iv) shall fail
generally to pay its debts as they become due, or (v) shall take any corporate
action to authorize any of the foregoing;
(d) an involuntary case or other proceeding shall be commenced against the
Company seeking liquidation, reorganization or other relief with respect to it
or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
conservator, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other
proceeding shall remain undismissed and unstayed for a period of 90 days; or
an order for relief shall be entered against the Company under the Federal
bankruptcy laws as now or hereafter in effect;
(e) a judgment or order for the payment of money in excess of $5,000,000
shall be rendered against the Company or any Subsidiary and such judgment or
order shall continue unsatisfied and unstayed for a period of 30 days;
then, and in every such event, unless such Event of Default is no longer
continuing, the Noteholder may by notice to the Company accelerate the maturity
of the Notes by declaring the Notes (together with accrued interest thereon) to
be, and the Notes shall thereupon become, immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Company; provided that in the case of any of the Events of
Default specified in subsection (c) or (d) above with respect to the Company,
without any notice to the Company or any other act by the Noteholder, the Notes
(together with accrued interest thereon) shall become immediately due and
payable without presentment, demand, protest or other notice of any kind, all of
which are hereby waived by the Company.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Notices. All notices, requests and other communications to any
party hereunder shall be in writing (including bank wire, telex, facsimile
transmission or similar writing) and shall be given to such party, at its
address, telex number or facsimile number set forth on the signature pages
hereof or such other address, telex number or facsimile as such party may
hereafter specify for the purpose of notice to the other party. Each such
notice, request or other communication shall be effective (i) if given by telex,
when such
I-A-a-13
<PAGE>
telex is transmitted to the telex number specified in this Section and the
appropriate answerback is received, (ii) if given by facsimile, when such
facsimile is transmitted to the facsimile number specified in this Section and
the appropriate confirmation is received, or (iii) if given by any other means,
when delivered at the address specified in this Section.
SECTION 8.02. No Waivers. No failure or delay by the Noteholder in exercising
any right, power or privilege hereunder or under any Note shall operate as a
waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided shall be cumulative and not
exclusive of any rights or remedies provided by law.
SECTION 8.03. Amendments, Waivers and Issuance. (a) Any provision of the
Notes may be amended or waived if, but only if, such amendment or waiver is in
writing and is signed by the Company and Noteholders which in the aggregate own
more than 50% of the aggregate principal amount of the Notes.
(b) The Company will not issue more than $60,000,000 aggregate principal
amount of the Notes without the consent of Noteholders which in the aggregate
own more than 50% of the aggregate principal amount of the Notes.
SECTION 8.04. Governing Law. The Notes shall be governed by and construed in
accordance with the laws of the State of New York.
AIR & WATER TECHNOLOGIES
CORPORATION
By
-----------------------------------
Name:
Title:
I-A-a-14
<PAGE>
[SUBJECT TO REVIEW BY MINNESOTA COUNSEL]
EXHIBIT B
PLAN OF MERGER
DATED AS OF
, 1994
AMONG
AIR & WATER TECHNOLOGIES CORPORATION
PSC PROFESSIONAL SERVICES GROUP, INC.
AND
[NAME OF MERGER SUBSIDIARY]
I-B-1
<PAGE>
PLAN OF MERGER
Agreement dated as of , 1994 among PSC Professional Services
Group, Inc., a Minnesota corporation ("PSG"), Air & Water Technologies
Corporation, a Delaware corporation ("AWT"), and [name of acquisition
subsidiary], a Minnesota corporation and a wholly owned subsidiary of Buyer
("Merger Subsidiary").
The parties hereto agree as follows:
ARTICLE 1
THE MERGER
1.1 The Merger. (a) At the effective time of the merger (the "Merger"), Merger
Subsidiary shall be merged with and into PSG in accordance with the Section
302A.611 of the Minnesota Business Corporation Act, whereupon the separate
existence of Merger Subsidiary shall cease, and PSG shall be the surviving
corporation (the "Surviving Corporation").
(b) Concurrently with the closing of the transactions contemplated by the
Investment Agreement dated March , 1994 among AWT, Compagnie Generale des Eaux
and Anjou International Company, PSG and Merger Subsidiary will file articles of
merger with the Secretary of State of the State of Minnesota and make all other
filings or recordings required by Minnesota Law in connection with the Merger.
The Merger shall become effective at such time as the articles of merger is duly
filed with the Secretary of State of the State of Minnesota or at such later
time as is specified in the certificate of merger (the "Effective Time").
(c) From and after the Effective Time, the Surviving Corporation shall possess
all the rights, privileges, powers and franchises and be subject to all of the
restrictions, disabilities and duties of PSG and Merger Subsidiary, all as
provided under Minnesota Law.
1.2 Conversion of Shares. At the Effective Time:
(a) each share of common stock, par value $ , of PSG (the "PSG Common
Stock") held by PSG as treasury stock shall be cancelled, and no payment
shall be made with respect thereto;
(b) each share of common stock of Merger Subsidiary outstanding
immediately prior to the Effective Time shall be converted into and become one
share of common stock of the Surviving Corporation with the same rights,
powers and privileges as the shares so converted and shall constitute the only
outstanding shares of capital stock of the Surviving Corporation; and
(c) all outstanding PSG Common Stock outstanding immediately prior to the
Effective Time shall, except as otherwise provided in Section 1.2(a) be
converted into the right to receive in the aggregate 5,850,000 shares of Class
A Common Stock, par value $.001 of AWT.
ARTICLE 2
THE SURVIVING CORPORATION
2.1 Articles of Incorporation. The articles of incorporation of Merger
Subsidiary in effect at the Effective Time shall be the articles of
incorporation of the Surviving Corporation until amended in accordance with
applicable law, except that the name of the Surviving Corporation shall be
changed to "Professional Services Group, Inc."
2.2 Bylaws. The bylaws of PSG in effect at the Effective Time shall be the
bylaws of the Surviving Corporation until amended in accordance with applicable
law.
I-B-2
<PAGE>
2.3 Directors and Officers. From and after the Effective Time, until
successors are duly elected or appointed and qualified in accordance with
applicable law, (i) the directors of Merger Subsidiary at the Effective Time
shall be the directors of the Surviving Corporation, and (ii) the officers of
PSG at the Effective Time shall be the officers of the Surviving Corporation.
ARTICLE 3
MISCELLANEOUS
3.1 Governing Law. This Agreement shall be construed in accordance with and
governed by the law of the State of Minnesota.
3.2 Counterparts; Effectiveness. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument. This Agreement
shall become effective when each party hereto shall have received counterparts
hereof signed by all of the other parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.
AIR & WATER TECHNOLOGIES CORPORATION
By__________________________________
Title:
PSC PROFESSIONAL SERVICES GROUP, INC.
By__________________________________
Title:
[MERGER SUBSIDIARY]
By__________________________________
Title:
I-B-3
<PAGE>
EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions. Terms defined in the Investment Agreement (the
"AGREEMENT") dated as of March 30, 1994 among Air & Water Technologies
Corporation, a Delaware corporation (the "COMPANY"), Compagnie Generale des
Eaux, a French corporation ("CGE"), Anjou International Company, a Delaware
corporation ("ANJOU", and together with CGE, the "SHAREHOLDER") are used herein
as therein defined. In addition, the following terms, as used herein, have the
following meanings:
"DEMAND REGISTRATION" means a Demand Registration as defined in Section 2.1.
"PIGGYBACK REGISTRATION" means a Piggyback Registration as defined in Section
2.2.
"REGISTRABLE SECURITIES" means shares of Common Stock, Series A Preferred or
the Company's 5 1/2% Convertible Subordinated Notes, owned from time to time by
the Shareholder and its Affiliates, and any other securities issued by the
Company in exchange for or upon conversion of any such securities.
"UNDERWRITER" means a securities dealer who purchases any Registrable
Securities as principal and not as part of such dealer's market-making
activities.
"1933 ACT" means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
ARTICLE II
REGISTRATION RIGHTS
SECTION 2.1. Demand Registration. (a) Shareholder may make up to four written
requests for registration under the 1933 Act of all or part of its Registrable
Securities (a "DEMAND REGISTRATION"); provided that the Company shall not be
obligated (i) to effect more than one Demand Registration in any 6-month period,
(ii) to effect a Demand Registration for less than five percent of the
outstanding Shares, (iii) to effect a Demand Registration within 6 months of
Shareholder selling any Registrable Securities pursuant to a Piggyback
Registration under Section 2.2 or (iv) subject to Section 2.2, to effect a
Demand Registration if the Company shall have filed or announced its intention
to file a registration statement of an offering of Shares for its own account
and shall be taking steps in pursuance thereof or if the Company shall have
completed such a registered offering within the immediately preceding 90 days.
Such request will specify the number of shares of Registrable Securities
proposed to be sold and will also specify the intended method of disposition
thereof. A registration will not count as a Demand Registration until it has
become effective.
(b) If Shareholder so elects, the offering of such Registrable Securities
pursuant to such Demand Registration shall be in the form of an underwritten
offering. Shareholder shall select the book-running and other managing
Underwriters in connection with such offering and any additional investment
bankers and managers to be used in connection with the offering.
SECTION 2.2. Piggyback Registration. If the Company proposes to file a
registration statement under the 1933 Act with respect to an offering of Common
Stock (i) for the Company's own account (other than a registration statement on
Form S-4 or S-8 or relating solely to securities issued pursuant to any present
or future restricted stock, stock option, stock purchase or dividend
reinvestment plan or other similar type of plan of the Company which provides
for the issuance of equity securities or options or rights to purchase equity
securities of the Company (or any substitute form that may be adopted by the
Commission)), or (ii) for the account of any of its holders of Common Stock,
then the Company shall give written notice of such proposed filing to
Shareholder as soon as practicable (but in no event less than 20 days before the
anticipated
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<PAGE>
filing date), and such notice shall offer, subject to the terms and conditions
hereof, Shareholder the opportunity to register such Registrable Securities as
Shareholder may request on the same terms and conditions as the Company's or
such holders' shares (a "PIGGYBACK REGISTRATION").
SECTION 2.3. Reduction of Offering. Notwithstanding anything contained herein,
if the managing Underwriter or Underwriters of an offering described in Section
2.1 or 2.2 shall advise the Company that (i) the size of the offering that
Shareholder, the Company and any other Persons intend to make or (ii) the kind
of securities that Shareholder, the Company and such other Persons intend to
include in such offering are such that the success of the offering would be
materially and adversely affected, then (A) if the size of the offering is the
basis of such Underwriter's advice, the amount of Registrable Securities to be
offered for the account of Shareholder shall be reduced to the extent necessary
to reduce the total amount of securities to be included in such offering to the
amount recommended by such managing Underwriter or Underwriters; provided that
(x) in the case of a Demand Registration, the amount of Registrable Securities
to be offered for the account of the Shareholder shall be reduced only after the
amount of securities to be offered for the account of the Company and such other
Persons has been reduced to zero, and (y) in the case of a Piggyback
Registration, if securities are being offered for the account of Persons other
than the Company, then the proportion by which the amount of such Registrable
Securities intended to be offered for the account of Shareholder is reduced
shall not exceed the proportion by which the amount of such securities intended
to be offered for the account of such other Persons is reduced; and (B) if the
combination of securities to be offered is the basis of such Underwriter's
advice, (x) the Registrable Securities to be included in such offering shall be
reduced as described in clause (A) above (subject to the proviso in clause (A)),
or (y) in the case of a Piggyback Registration, if the actions described in sub-
clause (x) of this clause (B) would, in the judgment of the managing
Underwriter, be insufficient to eliminate the adverse effect that inclusion of
the Registrable Securities requested to be included would have on such offering,
such Registrable Securities will be excluded from such offering.
ARTICLE III
REGISTRATION PROCEDURES
SECTION 3.1. Filings; Information. Whenever Shareholder requests that any
Registrable Securities be registered pursuant to Section 2.1 hereof, the Company
will use its best efforts to effect the registration of such Registrable
Securities as quickly as practicable, and in connection with any such request:
(a) The Company will as expeditiously as possible prepare and file with
the Commission a registration statement on any form for which the Company then
qualifies and which counsel for the Company shall deem appropriate and
available for the sale of the Registrable Securities to be registered
thereunder in accordance with the intended method of distribution thereof, and
use best efforts to cause such filed registration statement to become and
remain effective for a period of not less than 90 days; provided that if the
Company shall furnish to Shareholder a certificate signed by its Chairman,
Chief Executive Officer or Chief Financial Officer stating that in his or her
good faith judgment it would be detrimental or otherwise disadvantageous to
the Company or its shareholders for such a registration statement to be filed,
or, in the case of an effective registration statement, for sales to be
effected thereunder, the Company shall have a period of not more than 90 days
within which to file such registration statement measured from the date of
receipt of the request in accordance with Section 2.1 or, in the case of an
effective registration statement, the Company shall be entitled to require
Shareholder to refrain from selling Registrable Securities under such
registration statement for a period of up to 90 days. If the Company furnishes
a notice under this paragraph at a time when a registration statement filed
pursuant to this Agreement is effective, the Company shall extend the period
during which such registration statement shall be maintained effective as
provided in this Section 3.1(a) hereof by the number of days during the period
from and including the date of the giving of notice under this paragraph to
the date when sales under the registration statement may recommence.
I-C-2
<PAGE>
(b) The Company will, if requested, prior to filing such registration
statement or any amendment or supplement thereto, furnish to Shareholder and
each managing Underwriter, if any, copies thereof, and thereafter furnish to
Shareholder and each such Underwriter, if any, such number of copies of such
registration statement, each amendment and supplement thereto (in each case
including all exhibits thereto and documents incorporated by reference
therein) and the prospectus included in such registration statement (including
each preliminary prospectus) as Shareholder or such Underwriter may reasonably
request in order to facilitate the sale of the Registrable Securities.
(c) After the filing of the registration statement, the Company will
promptly notify Shareholder of any stop order issued or, to the knowledge of
the Company, threatened to be issued by the Commission and take all necessary
actions required to prevent the entry of such stop order or to remove it if
entered.
(d) The Company will use its reasonable best efforts qualify the
Registrable Securities for offer and sale under such other securities or blue
sky laws of such jurisdictions in the United States as Shareholder reasonably
(in light of Shareholder's intended plan of distribution) requests; provided
that the Company will not be required to (i) qualify generally to do business
in any jurisdiction where it would not otherwise be required to qualify but
for this paragraph (d), (ii) subject itself to taxation in any such
jurisdiction or (iii) generally consent to service of process in any such
jurisdiction.
(e) The Company shall, as promptly as practicable, notify Shareholder, at
any time when a prospectus relating to the sale of the Registrable Securities
is required by law to be delivered in connection with sales by an Underwriter
or dealer, of the occurrence of an event requiring the preparation of a
supplement or amendment to such registration statement or prospectus so that,
as thereafter delivered to the purchasers of such Registrable Securities, such
registration statement or prospectus will not contain an untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, and as promptly as practicable
make available to Shareholder and to the Underwriters any such supplement or
amendment. Shareholder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in the preceding
sentence, Shareholder will forthwith discontinue the offer and sale of
Registrable Securities pursuant to the registration statement covering such
Registrable Securities until receipt of the copies of such supplemented or
amended prospectus and, if so directed by the Company, Shareholder will
deliver to the Company all copies, other than permanent file copies then in
Shareholder's possession, of the most recent prospectus covering such
Registrable Securities at the time of receipt of such notice. In the event the
Company shall give such notice, the Company shall extend the period during
which such registration statement shall be maintained effective as provided in
Section 3.1(a) hereof by the number of days during the period from and
including the date of the giving of such notice to the date when the Company
shall make available to Shareholder such supplemented or amended prospectus.
(f) The Company will enter into customary agreements (including an
underwriting agreement in customary form and satisfactory in form and
substance to the Company in its reasonable judgment) and take such other
actions as are reasonably required in order to expedite or facilitate the sale
of such Registrable Securities.
(g) The Company will furnish to Shareholder and to each managing
Underwriter, if any, a signed counterpart, addressed to Shareholder and each
Underwriter, of (i) an opinion or opinions of counsel to the Company and (ii)
a comfort letter or comfort letters from the Company's independent public
accountants, each in customary form and covering such matters of the type
customarily covered by opinions or comfort letters delivered to such parties.
(h) The Company will make generally available to its securityholders, as
soon as reasonably practicable, an earnings statement covering a period of 12
months, beginning within three months after the effective date of the
registration statement, which earnings statement shall satisfy the provisions
of Section 11(a) of the 1933 Act and the rules and regulations of the
Commission thereunder.
I-C-3
<PAGE>
(i) The Company will use its best efforts to cause all such Registrable
Securities to be listed on each securities exchange on which similar
securities issued by the Company are then listed.
The Company may require Shareholder promptly to furnish in writing to the
Company such information regarding Shareholder, the plan of distribution of the
Registrable Securities and other information as the Company may from time to
time reasonably request or as may be legally required in connection with such
registration.
SECTION 3.2. Registration Expenses. In connection with any Demand Registration
or Piggyback Registration, the Company shall pay the following expenses incurred
in connection with such registration (the "REGISTRATION EXPENSES"): (i) all
filing fees with the Commission and the National Association of Securities
Dealers, (ii) fees and expenses of compliance with securities or blue sky laws
(including reasonable fees and disbursements of counsel in connection with blue
sky qualifications of the Registrable Securities), (iii) printing expenses, (iv)
the fees and expenses incurred in connection with the listing of the Registrable
Securities, (v) fees and expenses of counsel and independent certified public
accountants for the Company (including the expenses of any comfort letters
pursuant to Section 3.1(g) hereof) and (vi) the reasonable fees and expenses of
any additional experts retained by the Company in connection with such
registration. The Shareholder shall pay any underwriting fees, discounts or
commissions attributable to the sale of Registrable Securities of the
Shareholder and any out-of-pocket expenses of Shareholder, including
Shareholder's counsel's fees and expenses. The Company shall pay internal
Company expenses (including, without limitation, all salaries and expenses of
its officers and employees performing legal or accounting duties).
ARTICLE IV
INDEMNIFICATION AND CONTRIBUTION
SECTION 4.1. Indemnification by the Company. The Company agrees to indemnify
and hold harmless Shareholder, its officers and directors, and each Person, if
any, who controls Shareholder within the meaning of either Section 15 of the
1933 Act or Section 20 of the 1934 Act from and against any and all losses,
claims, damages and liabilities caused by any untrue statement or alleged untrue
statement of a material fact contained in any registration statement or
prospectus relating to the Registrable Securities (as amended or supplemented if
the Company shall have furnished any amendments or supplements thereto) or any
preliminary prospectus (including documents incorporated by reference therein),
or caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages or liabilities are
caused by any such untrue statement or omission or alleged untrue statement or
omission based upon information furnished in writing to the Company by or on
behalf of Shareholder expressly for use therein; provided that the foregoing
indemnity agreement with respect to any preliminary prospectus shall not inure
to the benefit of Shareholder if a copy of the then current prospectus was not
provided to purchaser at or prior to the time of such purchase and such current
prospectus would have cured the defect giving rise to such loss, claim, damage
or liability or for any sales occurring after the Company has informed
Shareholder under Section 3.1(e) and prior to the delivery by the Company of any
supplement or amendment to such prospectus. The Company also agrees to indemnify
any Underwriters of the Registrable Securities, their officers and directors and
each person who controls such underwriters on substantially the same basis as
that of the indemnification of Shareholder provided in this Section 4.1.
SECTION 4.2. Indemnification by Shareholder. Shareholder agrees to indemnify
and hold harmless the Company, its officers and directors, and each Person, if
any, who controls the Company within the meaning of either Section 15 of the
Securities Act or Section 20 of the 1934 Act to the same extent as the foregoing
indemnity from the Company to Shareholder, but only with reference to
information furnished in writing by or on behalf of Shareholder expressly for
use in any registration statement or prospectus relating to the Registrable
Securities, or any amendment or supplement thereto, or any preliminary
prospectus.
I-C-4
<PAGE>
Shareholder also agrees to indemnify and hold harmless Underwriters of the
Registrable Securities, their officers and directors and each person who
controls such Underwriters on substantially the same basis as that of the
indemnification of the Company provided in this Section 4.2.
SECTION 4.3. Conduct of Indemnification Proceedings. In case any proceeding
(including any governmental investigation) shall be instituted involving any
Person in respect of which indemnity may be sought pursuant to Section 4.1 or
4.2, such Person (the "INDEMNIFIED PARTY") shall promptly notify the Person
against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in writing
and the Indemnifying Party, upon the request of the Indemnified Party, shall
retain counsel reasonably satisfactory to such Indemnified Party to represent
such Indemnified Party and any others the Indemnifying Party may designate in
such proceeding and shall pay the fees and disbursements of such counsel related
to such proceeding. In any such proceeding, any Indemnified Party shall have the
right to retain its own counsel, but the fees and expenses of such counsel shall
be at the expense of such Indemnified Party unless (i) the Indemnifying Party
and the Indemnified Party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the Indemnified Party and the Indemnifying Party
and representation of both parties by the same counsel would, in the opinion of
counsel reasonably acceptable to the Indemnifying Party, be inappropriate due to
actual or potential differing interests between them. It is understood that the
Indemnifying Party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel) at
any time for all such Indemnified Parties, and that all such fees and expenses
shall be reimbursed as they are incurred. In the case of any such separate firm
for the Indemnified Parties, such firm shall be designated in writing by the
Indemnified Parties. The Indemnifying Party shall not be liable for any
settlement of any proceeding effected without its written consent, but if
settled with such consent, or if there be a final judgment for the plaintiff,
the Indemnifying Party shall indemnify and hold harmless such Indemnified
Parties from and against any loss or liability (to the extent stated above) by
reason of such settlement or judgment.
SECTION 4.4. Contribution. If the indemnification provided for in this Article
IV is unavailable to the Indemnified Parties in respect of any losses, claims,
damages or liabilities referred to herein, then each such Indemnifying Party, in
lieu of indemnifying such Indemnified Party, shall contribute to the amount paid
or payable by such Indemnified Party as a result of such losses, claims, damages
or liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company, Shareholder and the Underwriters from the
offering of the securities, or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) but also the
relative fault of the Company, Shareholder and the Underwriters in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities, as well as any other relevant equitable considerations. The
relative benefits received by the Company, Shareholder and the Underwriters
shall be deemed to be in the same proportion as the total proceeds from the
offering (net of underwriting discounts and commissions but before deducting
expenses) received by each of the Company and Shareholder and the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the prospectus, bear to the
aggregate public offering price of the securities. The relative fault of the
Company, Shareholder and the Underwriters shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by such party and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Company and Shareholder agree that it would not be just and equitable if
contribution pursuant to this Section 4.4 were determined by pro rata allocation
(even if the Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an Indemnified Party as a result of the losses, claims,
damages or liabilities referred to in the immediately
I-C-5
<PAGE>
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such Indemnified
Party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 4.4, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission, and Shareholder shall
not be required to contribute any amount in excess of the amount by which the
net proceeds of the offering (before deducting expenses) received by Shareholder
exceeds the amount of any damages which Shareholder has otherwise been required
to pay by reason of such untrue or alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
ARTICLE V
MISCELLANEOUS
SECTION 5.1. Participation in Underwritten Registrations. No Person may
participate in any underwritten registered offering contemplated hereunder
unless such Person (a) agrees to sell its securities on the basis provided in
any underwriting arrangements and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements and these
Registration Rights.
SECTION 5.2. Rule 144. The Company covenants that it will use best efforts to
file any reports required to be filed by it under the 1933 Act and the 1934 Act
and that it will take such further action as Shareholder may reasonably request,
all to the extent required from time to time to enable Shareholder to sell
Registrable Securities without registration under the 1933 Act within the
limitation of the exemptions provided by Rule 144 under the 1933 Act, as such
Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission. Upon the request of Shareholder, the
Company will deliver to Shareholder a written statement as to whether it has
complied with such requirements.
SECTION 5.3. Holdback Agreements. (a) Shareholder agrees not to offer, sell,
contract to sell or otherwise dispose of any Registrable Securities, or any
securities convertible into or exchangeable or exercisable for such securities,
during the 14 days prior to, and during the 90 day period beginning on, the
effective date of any registration statement registering the Registrable
Securities other than the Registrable Securities to be sold pursuant to such
registration statement.
(b) The Company agrees not to offer, sell, contract to sell or otherwise
dispose of any securities similar to the Registrable Securities to be sold
pursuant hereto, or any securities convertible into or exchangeable or
exercisable for such securities, during the 14 days prior to, and during the 90
day period beginning on, the effective date of any registration statement
registering the Registrable Securities other than any shares of Common Stock
sold upon the exercise of an option or warrant or the conversion of a security
outstanding at such date or pursuant to any Company Stock Plan or issued by the
Company as consideration for an acquisition.
SECTION 5.4. Restricted Sales. Nothing in this Agreement shall be construed to
permit any sales or other disposition of Registrable Securities, the sale or
disposition of which is prohibited under the terms of the Investment Agreement.
I-C-6
<PAGE>
AMENDMENT TO THE INVESTMENT AGREEMENT
AMENDMENT TO THE INVESTMENT AGREEMENT (this "Amendment"), by and among
---------
AQUA ALLIANCE INC., a Delaware corporation ("AAI"), VIVENDI, a company organized
---
under the laws of the Republic of France ("Vivendi"), and its indirect
-------
wholly-owned subsidiary, VIVENDI NORTH AMERICA COMPANY, a Delaware corporation
("VNA"), dated as of March 31, 1999. This Amendment amends the Investment
---
Agreement, dated as of March 30, 1994 (the "Original Investment Agreement"), by
-----------------------------
and among AAI, Vivendi and VNA, as it has been amended by the Recapitalization
Agreement, dated as of September 24, 1997 (the "Recapitalization Agreement"),
--------------------------
by and among Vivendi, VNA and AAI. The Original Investment Agreement as amended
by the Recapitalization Agreement is referred to herein as the "Investment
----------
Agreement". Capitalized terms used herein but not otherwise defined herein shall
- ---------
have the meanings assigned to such terms in the Investment Agreement.
WHEREAS, pursuant to the Investment Agreement, AAI and Vivendi
have agreed that the Board of Directors of AAI (the "AAI Board") shall have at
---------
three Independent Directors (as defined in the Investment Agreement) at any
time;
WHEREAS, since April 25, 1997, the parties hereto have informally waived
such provision and agreed that two Independent Directors was sufficient for the
management by the AAI Board of the business and affairs of AAI; and
WHEREAS, the parties hereto desire to amend, and do hereby amend the
Investment Agreement to reflect this understanding.
NOW, THEREFORE, in consideration of the foregoing and the respective
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto,
intending to be legally bound hereby, agree as follows:
<PAGE>
ARTICLE I
THE AMENDMENT
Section 1.1 Amendment of Section 7.2(b) of the Investment
---------------------------------------------
Agreement. Effective as of March 31, 1999, Section 7.2(b) of the Investment
- ---------
Agreement is amended by restating the second sentence thereof to read as
follows:
"AWT and CGE agree that the Board shall have at least
two Independent Directors at any time."
ARTICLE II
MISCELLANEOUS
Section 2.1 Amendment: Entire Agreement. This Amendment is
---------------------------
limited precisely as written and shall not be deemed to be an amendment to any
other terms or conditions of the Investment Agreement. Whenever the Investment
Agreement is referred to in the Investment Agreement or in any other agreements,
documents and instruments, such reference shall be deemed to be to the
Investment Agreement as amended by this Amendment. Except as expressly set forth
in Section 12.9 of the Investment Agreement, the Investment Agreement together
with this Amendment and the Recapitalization Agreement embodies the entire
agreement and understanding of the parties with respect to the subject matter
thereof and hereof and hereby supersedes all prior written or oral commitments,
arrangements or understandings with respect thereto.
Section 2.2 No Third Party Beneficiaries. This Amendment shall
----------------------------
be binding upon and shall inure solely to the benefit of each party hereto, and
nothing in this Amendment, express or implied, is intended to or shall confer
upon any other person any right, benefit or remedy of any nature whatsoever
under or by reason of this Amendment.
Section 2.3 GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY,
-------------
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE (WITHOUT
REGARD TO CONFLICTS OF LAWS PRINCIPLES THEREOF).
<PAGE>
Section 2.4 Headings. The descriptive headings contained in
--------
this Amendment are included for convenience of reference only and shall not
affect in any way the meaning or interpretation of this Amendment.
Section 2.5 Counterparts. This Amendment may be executed in one
------------
or more counterparts (including by facsimile transmission), and by the different
parties hereto in separate counterparts, each of which when executed shall be
deemed to be an original but all of which taken together shall constitute one
and the same agreement.
<PAGE>
IN WITNESS WHEREOF, AAI, Vivendi and VNA have caused this
Amendment to the Investment Agreement to be executed as of March 31, 1999 by
their respective officers hereunto duly authorized.
AQUA ALLIANCE INC.
By /s/ Thierry Mallet
------------------
Name: Thierry Mallet
Title: President and Chief Executive Officer
VIVENDI
By /s/ Daniel Caille
-----------------
Name: Daniel Caille
Title: Directeur
VIVENDI NORTH AMERICA COMPANY
By /s/ Michel Avenas
-----------------
Name: Michel Avenas
Title: President
<PAGE>
EXHIBIT (c)(4)
<PAGE>
EXHIBIT 99(c)(4)
AMENDMENT, dated as of July 15, 1999 (this "Amendment"), to the
AGREEMENT AND PLAN OF MERGER (the "Merger Agreement"), dated as of July 9, 1999,
among Vivendi, a societe anonyme organized and existing under the laws of the
Republic of France ("PARENT"), Aqua Alliance Corporation, a Delaware corporation
and an indirect wholly owned subsidiary of Parent ("PURCHASER"), and Aqua
Alliance Inc., a Delaware corporation (the "COMPANY").
WHEREAS, Parent, Purchaser and the Company entered into the Merger
Agreement on July 9, 1999; and
WHEREAS, Parent, Purchaser and the Company desire to effect certain
technical changes to the Merger Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Parent, Purchaser and the Company hereby agree as follows:
1. ARTICLE VII, Section 7.01 of the Merger Agreement is hereby amended
by adding the following subsection:
(c) REDEMPTION OF SUBORDINATED CONVERTIBLE
DEBENTURES. The Company's 8% Subordinated Convertible
Debentures shall have been redeemed.
2. ANNEX A shall be amended and revised to read as attached Exhibit A.
Subordinated Convertible
<PAGE>
IN WITNESS WHEREOF, Parent, Purchaser and the Company have caused this
Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.
AQUA ALLIANCE INC.
By: ________________________
Name:
Title:
VIVENDI
By: ________________________
Name:
Title:
AQUA ACQUISITION
CORPORATION
By: ________________________
Name:
Title:
