<PAGE> 1
As filed with the Securities and Exchange Commission on June 29, 1998
Registration No. 333-_______
- ------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
-----------------
STONE & WEBSTER, INCORPORATED
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 8711 13-5416910
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
245 Summer Street
Boston, Massachusetts 02210
(617) 589-5111
(Address, Including ZIP Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
JAMES P. JONES
VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
STONE & WEBSTER, INCORPORATED
245 Summer Street
Boston, Massachusetts 02210
(617) 589-5111
(Name, Address, Including ZIP Code, and Telephone Number, Including Area Code,
of Agent for Service)
with copies to:
Steven N. Farber, Esq.
Marc A. Rubenstein, Esq.
Palmer & Dodge LLP
One Beacon Street
Boston, Massachusetts 02108
(617) 573-0100
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective and
all other conditions to the merger described in the enclosed Prospectus and
Proxy Statement have been satisfied or waived.
------------------------------
(continued on following page)
<PAGE> 2
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------------
Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Amount to be Offering Price Per Aggregate Offering Registration
Securities to be Registered Registered Share Price Fee
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock,
$1.00 par value(1) 3,000,000 shares $38.22(2) $114,660,000(2) $33,825
- ------------------------------------------------------------------------------------------------
Rights to Receive Contingent
Merger Consideration (3) N/A N/A $0.00(4) $100.00
================================================================================================
</TABLE>
(1) This Registration Statement also pertains to rights to purchase shares of
Series A Junior Participating Preferred Stock of Stone & Webster,
Incorporated (the "Registrant"). One right is attached to and trades with
each share of the Registrant's common stock, $1.00 par value per share
(the "Common Stock"). Until the occurrence of certain events, the rights
are not exercisable and will not be evidenced or transferred apart from
the Common Stock. Any value attributable to such rights is reflected in
the market price of the Common Stock.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended and
based upon the average of the high and low sale prices for June 25,
1998, as reported in the New York Stock Exchange Composite Transactions.
(3) In addition to shares of Common Stock of the Registrant, this Registration
Statement also pertains to rights of former stockholders of Power
Technologies, Inc. who participate in the merger transaction to receive
additional shares of Common Stock of the Registrant as contingent payments
in the event that certain conditions are met, including the achievement of
milestones based on the net income of the surviving corporation over a
five-year period following the merger. Such rights will not become
exercisable, if at all, until after December 31, 2002, except that the
exercisability of such rights may be accelerated in the event of (i) a
merger, consolidation, combination or other transaction which would cause
such rights to become the right to receive, upon exercise, securities or
property other than the voting stock of Registrant; (ii) a sale of all or
substantially all of the assets of Registrant; or (iii) a complete
liquidation of Registrant. Such rights are not transferable except by
operation of law and under the applicable laws of descent and
distribution.
(4) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f) under the Securities Act of 1933, as amended.
Since there is no market for the shares of Common Stock of Power
Technologies, Inc. (the "PTI Common Stock"), $0.10 par value per share, to
be received by the Registrant in exchange for such rights in the Merger,
this value is computed using the book value of such securities as of the
latest practicable date in accordance with Rule 457(f)(2). At March 31,
1998, the book value of all outstanding shares of PTI Common Stock was
approximately $5,700,000. At the effective time of the merger transaction,
however, the holders of PTI Common Stock will receive shares of Common
Stock having an approximate aggregate market value of $9,000,000.
Accordingly, the book value attributable to the shares of PTI Common Stock
exchanged for the rights to receive contingent merger consideration and
the proposed aggregate offering price of such rights for purposes of Rule
457(f)(2) equals $0.00 and, accordingly, the amount of the registration
fee payable with respect to such shares under Section 6(b) of the
Securities Act of 1933, as amended, equals $100.00.
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the registration statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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<PAGE> 3
EXPLANATORY NOTE
This Registration Statement includes two prospectuses: (i) a prospectus
and proxy statement containing information about the proposed acquisition by
Registrant of Power Technologies, Inc. and covering the shares of Common Stock
and the Rights to be issued by the Registrant in connection with such
transaction and (ii) a "base" prospectus covering the remaining shares of Common
Stock that may be issued from time to time by the Registrant under this
Registration Statement pursuant to Rule 415 under the Securities Act of 1933 in
connection with transactions of the type described in General Instruction A to
Form S-4.
<PAGE> 4
POWER TECHNOLOGIES, INC.
1482 Erie Boulevard
Schenectady, New York 12301-1058
July __, 1998
Dear Shareholder and/or ESOP Participant:
You are cordially invited to attend the annual meeting of shareholders of
Power Technologies, Inc. ("PTI") to be held at 3:00 p.m. on July __, 1998 at the
offices of PTI, located at 1482 Erie Boulevard, Schenectady, New York.
The principal purposes of the meeting will be (i) to elect a class
consisting of three directors of PTI, (ii) to consider and vote on a proposal to
amend the Certificate of Incorporation of PTI to limit the liability of the
directors of PTI to PTI and the shareholders of PTI for certain breaches of
fiduciary duties, and (iii) to consider and vote on a proposal to approve and
adopt an Agreement and Plan of Merger dated as of April 20, 1998 (the "Merger
Agreement") which provides for the merger (the "Merger") of Stone & Webster
Acquisition Corp. (the "Merger Sub"), a wholly-owned subsidiary of Stone &
Webster, Incorporated ("SWI"), with and into PTI, with PTI (the "Surviving
Corporation") surviving as a wholly-owned subsidiary of SWI.
Under the terms of the Merger Agreement, if the Merger is consummated, the
outstanding shares of each class of common stock of PTI, par value $.10 per
share (the "PTI Common Stock"), will be converted into the right to receive, in
the aggregate, the following consideration:
(a) a number of shares of common stock of SWI, par value $1.00 per share
("SWI Common Stock"), equal to (1) the lesser of 1.5 times the
stockholders' equity of PTI at December 31, 1997 and $9,000,000,
divided by (2) the average of the closing prices of SWI Common Stock
as reported in the New York Stock Exchange (the "NYSE") Composite
Transactions for the 30 trading days ending on the third trading day
prior to the closing date (the "Closing Market Value");
(b) the right to receive additional shares of SWI Common Stock, up to a
maximum number of shares equal to $8,000,000 divided by the Closing
Market Value (the "Contingent Shares"), if and to the extent that
certain milestones based on the cumulative net income of the
Surviving Corporation before deducting taxes (as determined under
the Merger Agreement) during the period from January 1, 1998 to
December 31, 2002 are achieved;
(c) if Contingent Shares are payable and certain other circumstances
described in the Merger Agreement exist, additional shares of SWI
Common Stock up to a maximum number of shares equal to $500,000
divided by the average of the closing prices of SWI Common Stock as
reported in the NYSE Composite Transactions for the period of ten
trading days ending on the third trading day before such shares
would be distributed; and
(d) if the Surviving Corporation receives income from PTI's "Transasia"
project as described in the Merger Agreement, the income received by
the Surviving Corporation net of all taxes and costs of collecting
and administering such income, not to exceed 20% of the value of the
other Merger Consideration.
The Merger Agreement and certain financial and other information concerning SWI
and PTI are included in the enclosed Prospectus and Proxy Statement. Please
review the Prospectus and Proxy Statement carefully.
The Board of Directors believes that the Merger is in the best interests
of the shareholders of PTI and has unanimously approved the Merger.
We appreciate the loyalty and support our shareholders have demonstrated
over the years. We hope that you will continue this support by voting FOR the
Merger proposal now. Approval of the Merger requires the affirmative vote of the
holders of two-thirds of all of the outstanding PTI Common Stock and the
separate affirmative vote of the holders of a majority of each class of PTI
Common Stock. Therefore, regardless of the
<PAGE> 5
number of shares you may own, it is important that your shares be represented at
the meeting. Accordingly, whether or not you plan to attend the meeting, please
promptly complete and sign the following documents and return them in the
envelope provided: (i) the enclosed proxy card, (ii) if you are a participant in
PTI's Employee Stock Ownership Plan (the "ESOP"), the enclosed voting
instructions which direct the ESOP Trustee how to vote your allocated shares
held by the ESOP, and (iii) two copies of the enclosed Shareholders' Committee
Agreement which authorizes a shareholders' committee to represent your interests
in connection with the Merger following the Closing.
Sincerely,
[Insert Balser facsimile signature]
President
NOTE: PLEASE DO NOT SEND IN YOUR STOCK CERTIFICATES NOW.
<PAGE> 6
POWER TECHNOLOGIES, INC.
1482 Erie Boulevard
Schenectady, New York 12301-1058
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY __, 1998
------------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Power
Technologies, Inc. ("PTI") will be held on July ___, 1998, at 3:00 p.m., at the
offices of PTI for the following purposes which are more fully described in the
attached Prospectus and Proxy Statement:
1. To elect one class consisting of three directors of PTI;
2. To consider and vote on a proposal to amend the Certificate of
Incorporation of PTI to limit the liability of the directors of PTI to PTI and
the shareholders of PTI for certain breaches of fiduciary duties; and
3. To approve and adopt the Agreement and Plan of Merger (the "Merger
Agreement") dated April 20, 1998 among PTI, the directors and certain
shareholders of PTI, Stone & Webster, Incorporated ("SWI"), Stone & Webster
Acquisition Corp. ("Merger Sub"), a wholly-owned subsidiary of SWI, and Stone &
Webster Management Consultants, Inc. and the transactions contemplated thereby
including the merger of the Merger Sub with and into PTI as contemplated by the
Merger Agreement, a copy of which is attached as Appendix A to the accompanying
Prospectus and Proxy Statement.
4. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
Shareholders at the close of business on June __, 1998 are entitled to
notice of, and to vote at, the PTI Annual Meeting and any adjournment or
postponement of the PTI Annual Meeting.
By Order of the Board of Directors,
[Insert Hirschman facsimile signature]
Secretary
Schenectady, New York
July __, 1998
IT IS IMPORTANT THAT PROXIES AND OTHER MATERIALS BE RETURNED PROMPTLY.
THEREFORE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE PROMPTLY
COMPLETE AND SIGN THE FOLLOWING DOCUMENTS AND RETURN THEM IN THE ENVELOPE
PROVIDED: (I) THE ENCLOSED PROXY CARD, (II) IF YOU ARE A PARTICIPANT IN PTI'S
EMPLOYEE STOCK OWNERSHIP PLAN (THE "ESOP"), THE ENCLOSED VOTING INSTRUCTIONS
WHICH DIRECT THE ESOP TRUSTEE HOW TO VOTE YOUR ALLOCATED SHARES HELD BY THE
ESOP, AND (III) TWO COPIES OF THE ENCLOSED SHAREHOLDERS' COMMITTEE AGREEMENT
WHICH AUTHORIZES A SHAREHOLDERS' COMMITTEE TO REPRESENT YOUR INTERESTS IN
CONNECTION WITH THE MERGER FOLLOWING THE CLOSING.
<PAGE> 7
Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with
the Securities and Exchange Commission. These securities may not be sold
nor may offers to buy be accepted prior to the time the Registration
Statement becomes effective. This Prospectus and Proxy Statement shall not
constitute an offer to sell or the solicitation of an offer to buy nor
shall there be any sale of these securities in any state in which such
offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such state.
Subject to Completion Dated June 29, 1998
Prospectus and Proxy Statement
Stone & Webster, Incorporated Power Technologies, Inc.
245 Summer Street 1482 Erie Boulevard
Boston, Massachusetts 02210 Schenectady, New York 12301-1058
(617) 589-5111 (518) 395-5000
PROSPECTUS PROXY STATEMENT
Common Stock, $1.00 par value For the PTI Annual Meeting of
Shareholders to be held
on July ___, 1998
This Prospectus and Proxy Statement (the "Prospectus and Proxy Statement")
is being furnished to holders of Class A Common Stock, Class B Common Stock, and
Class C Common Stock, each $0.10 par value per share (collectively, "PTI Common
Stock"), of Power Technologies, Inc., a New York corporation ("PTI"), in
connection with the solicitation of proxies by the Board of Directors of PTI to
be used at the PTI Annual Meeting of Shareholders of PTI (the "PTI Annual
Meeting") to be held on July ___, 1998 and any adjournments or postponements
thereof.
The principal purposes of the PTI Annual Meeting will be (i) to elect a
class consisting of three directors of PTI, (ii) to consider and vote on a
proposal to amend the Certificate of Incorporation of PTI to limit the liability
of the directors of PTI to PTI and the shareholders of PTI for certain breaches
of fiduciary duties, and (iii) to consider and vote on a proposal to approve and
adopt an Agreement and Plan of Merger dated as of April 20, 1998 (the "Merger
Agreement"), by and among Stone & Webster, Incorporated, a Delaware corporation
("SWI"), Stone & Webster Acquisition Corp., a Delaware corporation and
wholly-owned subsidiary of SWI (the "Merger Sub"), Stone & Webster Management
Consultants, Inc., a New York corporation and wholly-owned subsidiary of SWI
("SWMCI"), PTI, certain shareholders of PTI (the "Principal Shareholders") and
the directors of PTI who are not Principal Shareholders. The Merger Agreement
provides for the merger (the "Merger") of the Merger Sub with and into PTI, with
PTI (referred to as the "Surviving Corporation" following the Merger) surviving
as a wholly-owned subsidiary of SWI.
Under the Merger Agreement, the PTI shareholders will be entitled to
receive in the aggregate (i) shares of SWI Common Stock, $1.00 par value per
share ("SWI Common Stock"), having a value, based on the average of the closing
prices of the SWI Common Stock as reported in the New York Stock Exchange (the
"NYSE") Composite Transactions for the 30 trading days ending on the third day
prior to the closing date (the "Closing Market Value"), equal to the lesser of
1.5 times the stockholders' equity of PTI at December 31, 1997 and $9,000,000,
(ii) depending on the extent to which certain milestones based on the cumulative
net income of the Surviving Corporation before deducting taxes during the period
from January 1, 1998 through December 31, 2002 (the "Contingent Period") (such
cumulative net income, as determined pursuant to the Merger Agreement, is
referred to as the "Final Cumulative Net Earnings") are achieved, a maximum
number of additional shares of SWI Common Stock equal to $8,000,000 divided by
the Closing Market Value (the "Contingent Merger Consideration"), (iii) in the
event that Contingent Merger Consideration becomes payable and certain other
circumstances exist, a maximum number of shares of SWI Common Stock equal to
$500,000 divided by the average of the closing prices of SWI Common Stock as
reported in the NYSE Composite Transactions for the ten trading days ending on
the third trading day prior to the day on which such shares are paid, and (iv)
if the Surviving Corporation receives income from PTI's "Transasia" project as
described in the Merger Agreement, the income received by the Surviving
Corporation less its costs in collecting and administering such income. As soon
as practicable following the effective time of the Merger, SWI will transfer all
shares of the Surviving Corporation to SWMCI so that the Surviving Corporation
will become a wholly-owned subsidiary of SWMCI. The Merger Agreement is attached
as
<PAGE> 8
Appendix A to this Prospectus and Proxy Statement and is incorporated herein by
reference.
SWI has filed a registration statement on Form S-4 (including the exhibits
and amendments thereto, the "Registration Statement") pursuant to the Securities
Act of 1933, as amended (the "Securities Act"), covering (i) the shares of SWI
Common Stock issuable as Initial Merger Consideration in accordance with the
Merger Agreement in exchange for PTI Common Stock, (ii) the right to receive the
Contingent Merger Consideration and Additional Contingent Shares (the "Rights"),
and (iii) certain other shares of SWI Common Stock to be issued by SWI in the
future in connection with other business combinations. This Prospectus and Proxy
Statement also constitutes the prospectus of SWI covering such shares of SWI
Common Stock and the Rights issuable in connection with the Merger.
See "RISK FACTORS" beginning on page 10 for certain information that should be
considered by PTI shareholders in deciding whether or not to vote in favor of
the Merger.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS AND PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Prospectus and Proxy Statement is July __, 1998, and it
is first being mailed or delivered to PTI shareholders on or about that date.
<PAGE> 9
TABLE OF CONTENTS
Page
----
AVAILABLE INFORMATION...................................................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................ 1
INTRODUCTION............................................................... 3
SUMMARY.................................................................... 3
Summary Business Description......................................... 3
The PTI Annual Meeting............................................... 4
The Merger........................................................... 5
RISK FACTORS............................................................... 10
Risks Relating to SWI................................................ 10
Risks Relating to the Merger......................................... 14
Risks Relating to PTI................................................ 16
SELECTED FINANCIAL DATA.................................................... 19
SWI Selected Financial Data.......................................... 19
PTI Selected Financial Data.......................................... 20
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION................. 21
COMPARATIVE PER SHARE FINANCIAL INFORMATION................................ 22
SWI MARKET PRICE AND DIVIDEND DATA......................................... 23
THE PTI ANNUAL MEETING..................................................... 24
Record Date; Outstanding Securities.................................. 24
Purposes of the PTI Annual Meeting................................... 24
Voting of Shares of PTI Common Stock Held by the ESOP................ 25
Voting of Proxies.................................................... 26
Dissenters' Rights................................................... 26
Solicitation of Proxies.............................................. 27
Other Matters........................................................ 27
Further Information.................................................. 27
THE MERGER................................................................. 28
General.............................................................. 28
Background of the Merger............................................. 29
PTI's Reasons for the Merger......................................... 29
SWI's Reasons for the Merger......................................... 30
Manner and Basis of Converting Shares................................ 31
Initial Merger Consideration......................................... 32
Contingent Consideration............................................. 32
Interests of Certain Persons in the Merger........................... 36
Effective Time....................................................... 37
Resales of SWI Common Stock.......................................... 37
Shareholders' Committee.............................................. 37
i
<PAGE> 10
THE MERGER AGREEMENT....................................................... 39
Representations and Warranties....................................... 39
Certain Covenants.................................................... 39
Conditions of Merger................................................. 41
Termination.......................................................... 42
Termination Fee...................................................... 42
Waiver and Amendment................................................. 42
No Solicitation...................................................... 43
Indemnity and Escrow................................................. 43
CERTAIN OTHER MATTERS RELATING TO THE MERGER............................... 44
Regulatory Matters................................................... 44
Expenses............................................................. 44
Accounting Treatment................................................. 44
MANAGEMENT AND OTHER INFORMATION........................................... 45
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................... 45
Tax Consequences of the Merger....................................... 45
DESCRIPTION OF SWI......................................................... 47
SWI SHARE OWNERSHIP........................................................ 47
DESCRIPTION OF SWI CAPITAL STOCK........................................... 49
General Description.................................................. 49
Description of SWI Common Stock...................................... 49
Description of SWI Preferred Stock................................... 50
Description of SWI Series A Junior Participating Preferred Stock,
Rights to Purchase Series A Junior Participating Preferred
Stock and the Rights to be Issued in the Merger ............... 51
DESCRIPTION OF PTI......................................................... 51
General.............................................................. 51
Consulting Services.................................................. 51
Software Products.................................................... 53
Education/Training................................................... 53
Specialty Hardware................................................... 54
Operations........................................................... 54
Employees and Consultants............................................ 55
Directors and Officers............................................... 55
PTI MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............................. 56
General.............................................................. 56
Results of Operations................................................ 56
Liquidity............................................................ 58
Capital Resources.................................................... 59
PTI SHARE OWNERSHIP........................................................ 60
COMPARISON OF RIGHTS OF HOLDERS OF SWI COMMON STOCK........................ 61
General.............................................................. 61
Dividends............................................................ 61
Vote Required for Certain Transactions; Removal of Directors......... 61
Dissenters' Rights of Appraisal...................................... 62
ii
<PAGE> 11
"Anti-Takeover" Provisions........................................... 62
Corporate Action by Written Consent without a Shareholders' Meeting.. 62
Classification of the Board of Directors............................. 63
Number of Directors.................................................. 63
Issuance to Officers, Directors and Employees of Rights or
Options to Purchase Shares ....................................... 63
Loans to Directors................................................... 63
Inspection of Shareholders List...................................... 63
Indemnification of Officers and Directors; Limitation of Liability... 64
Voting Rights........................................................ 64
Transfer Restrictions................................................ 64
Shareholder Rights Plan.............................................. 65
LEGAL OPINIONS............................................................. 66
EXPERTS.................................................................... 66
SOLICITATION COMPENSATION.................................................. 66
OTHER MATTERS.............................................................. 66
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF PTI.........................FS-1
APPENDIX A -- Merger Agreement.........................................A-1
APPENDIX B -- Section 623 of the New York Business Corporation Law
Relating to Rights of Dissenting Holders.................B-1
APPENDIX C -- SWI's Annual Report on Form 10-K for the Fiscal Year
Ended December 31, 1997..................................C-1
APPENDIX D -- SWI's Quarterly Report on Form 10-Q for the Quarter
Ended March 31, 1998 ....................................D-1
APPENDIX E -- Descriptions of SWI Series A Junior Participating
Preferred Stock and SWI Rights to Purchase Series A
Junior Participating Preferred Stock ....................E-1
APPENDIX F -- SWI's Annual Report on Form 11-K for the Fiscal Year
Ended December 31, 1997 .................................F-1
iii
<PAGE> 12
AVAILABLE INFORMATION
SWI is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith, files periodic reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission") relating to its
business, financial statements and other matters. Reports, proxy and information
statements filed pursuant to Sections 14(a) and 14(c) of the Exchange Act and
other information filed with the Commission can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at the following
Regional Offices of the Commission: Midwest Regional Office, 500 West Madison
Avenue, Suite 1400, Chicago, Illinois 60661; and Northeast Regional Office, 7
World Trade Center, Suite 1300, 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 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549 or without charge at the Commission's
World Wide Web site (http://www.sec.gov), and can also be inspected at the
offices of the NYSE, 20 Broad Street, New York, New York 10005.
SWI has filed with the Commission a Registration Statement with respect to
the securities offered hereby. This Prospectus and Proxy Statement also
constitutes the prospectus of SWI filed as part of the Registration Statement
and does not contain all of the information set forth in the Registration
Statement and the exhibits thereto, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. Statements made in
this Prospectus and Proxy Statement as to the contents of any contract,
agreement or other document referred to are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference. The Registration Statement
and any amendments thereto, including exhibits filed or incorporated by
reference as a part thereof, are available for inspection and copying at the
Commission's offices as described above. All information included herein with
respect to PTI and its shareholders has been furnished by PTI.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by SWI with the Commission (File
No. 1-1228) under the Exchange Act are incorporated by reference herein and, as
indicated, are attached to this Prospectus and Proxy Statement:
(1) SWI's annual report on Form 10-K for the fiscal year ended December
31, 1997, filed with the Commission on March 30, 1998 (attached as
Appendix C).
(2) SWI's quarterly report on Form 10-Q for the quarter ended March 31,
1998, filed with the Commission on May 12, 1998 (attached as
Appendix D).
(3) All other reports filed pursuant to Section 13(a) or 15(d) of the
Exchange Act since the end of the fiscal period covered by the
annual report referred to in (1) above.
(4) The descriptions of SWI Series A Junior Participating Preferred
Stock and SWI Rights to Purchase Series A Junior Participating
Preferred Stock contained in its Registration Statement on Form 8-A
filed with the Commission on August 16, 1996 and amended by Form
8-A/A filed with the Commission on September 24, 1996 (attached as
Appendix E).
(5) SWI's annual report on Form 11-K for the fiscal year ended December
31, 1997, filed with the Commission on June 26, 1998 (attached as
Appendix F).
All documents filed by SWI pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act after the date of this Prospectus and Proxy Statement and
prior to the date of the PTI Annual Meeting shall be deemed to be incorporated
by reference in this Prospectus and Proxy Statement and to be a part hereof from
the date of filing such documents.
Any statement contained in a document incorporated or deemed to be
incorporated herein by reference shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein (or in any
other subsequently filed document which also is or is deemed to be incorporated
herein by reference) modifies
1
<PAGE> 13
or supersedes such statement. Any statement so modified or superseded shall not
be deemed, except as so modified or superseded, to constitute a part of this
Prospectus and Proxy Statement.
This Prospectus and Proxy Statement incorporates certain documents by
reference that are not presented herein or delivered herewith. SWI undertakes to
provide copies of such documents (other than exhibits to such documents unless
such exhibits are specifically incorporated by reference), without charge, to
any person, including any beneficial owner, to whom this Prospectus and Proxy
Statement is delivered, upon written or oral request to the attention of the
Corporate Secretary, Stone & Webster, Incorporated, 245 Summer Street, 8th
Floor, Boston, Massachusetts 02210 (telephone (617/589-5111). In order to ensure
delivery of the documents, such requests should be made by __________________,
1998.
No person is authorized to give any information or make any representation
not contained in this Prospectus and Proxy Statement, and, if given or made,
such information or representation should not be relied upon as having been
authorized. This Prospectus and Proxy Statement does not constitute an offer to
sell or a solicitation of an offer to buy the securities offered by this
Prospectus and Proxy Statement or a solicitation of a proxy in any jurisdiction
where, or to or from any person to whom, it is unlawful to make such offer or
solicitation of an offer or proxy solicitation. Neither the delivery of this
Prospectus and Proxy Statement nor any distribution of the securities offered
pursuant to this Prospectus and Proxy Statement shall create an implication that
there has been no change in the affairs of SWI or PTI since the date of this
Prospectus and Proxy Statement or that the information in this Prospectus and
Proxy Statement or in the documents incorporated herein by reference is correct
as of any time after the dates hereof or thereof.
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INTRODUCTION
This Prospectus and Proxy Statement is being furnished to the shareholders
of PTI in connection with the solicitation of proxies by the PTI Board to be
voted at the PTI Annual Meeting. This Prospectus and Proxy Statement is also the
prospectus of SWI filed as part of the Registration Statement relating to the
registration of the issuance of SWI Common Stock and the rights (the "Rights")
to receive the Contingent Merger Consideration and Additional Contingent Shares
to holders of PTI Common Stock pursuant to the Merger Agreement.
SUMMARY
The following summary is qualified in its entirety by reference to the
more detailed information contained elsewhere in this Prospectus and Proxy
Statement, including the appendices hereto. You are urged to read this
Prospectus and Proxy Statement, the Merger Agreement, which is attached hereto
as Appendix A and incorporated herein by reference, and the other appendices
attached hereto in their entirety. Cross-references in this summary are to
captions in this Prospectus and Proxy Statement. Certain capitalized terms used
in this summary are defined in this Prospectus and Proxy Statement.
Certain of the information contained in this Prospectus and Proxy
Statement, including documents incorporated by reference, may contain
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), including statements as to the benefits and synergies expected
to be realized as a result of the Merger. See "The Merger -- Background of
Merger"; "-- PTI's Reasons for the Merger"; "-- SWI's Reasons for the Merger";
and "The PTI Annual Meeting -- Purposes of the Annual Meeting -- The Merger
Agreement." There are a number of important factors that could cause actual
results to differ materially from those indicated by such forward-looking
statements. Such factors include but are not limited to those set forth in this
Prospectus and Proxy Statement under the caption "Risk Factors."
Summary Business Description
SWI and Merger Sub
SWI was incorporated as a Delaware corporation in 1929. SWI, through its
subsidiaries, is principally engaged in providing professional engineering,
construction and consulting services. Subsidiaries of SWI also own cold storage
warehousing facilities in Atlanta and Rockmart, Georgia, own and operate office
buildings in Boston, Massachusetts and Houston, Texas, and develop, take
ownership interests in and operate projects for which they may provide
engineering, construction and other services. Services of the nature inherent in
these businesses are provided to clients and customers. Merger Sub is a
wholly-owned subsidiary of SWI and was incorporated in Delaware on February 18,
1998. Merger Sub is not engaged in any operating activity. SWI's principal
executive offices are located at 245 Summer Street, Boston, Massachusetts 02210.
Its telephone number is (617) 589-5111.
PTI
PTI was incorporated as a New York corporation in 1969 to serve the
analytical engineering needs of the electric power industry in the areas of
power system analysis, design, and operation. PTI and its subsidiaries are
engaged primarily in providing consulting services, software products,
educational programs, and special hardware products to utilities, large
industrial companies, research organizations, regulators, reliability councils,
consultants, universities and power marketers. PTI's consulting services span
the range of activities related to utility and industrial power system
engineering and are provided in four areas of technology: system planning and
operation, transmission and distribution, generation and competitive power
market solutions. PTI conducts its business directly and through subsidiaries,
joint ventures and a network of sales representatives. Approximately 45% of
PTI's business is from customers outside of the United States. PTI's principal
executive offices are located at 1482 Erie Boulevard, P.O. Box 1058,
Schenectady, New York 12301-1058. Its telephone number is (518) 395-5000.
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The PTI Annual Meeting
The Meeting
The PTI Annual Meeting will be held on July ___, 1998, at 3:00 p.m., at
the headquarters offices of PTI. At the PTI Annual Meeting, the shareholders of
PTI will be asked to (i) elect a class consisting of three directors of PTI,
(ii) consider and vote on a proposal to amend the Certificate of Incorporation
of PTI to limit the liability of the directors of PTI to PTI and the
shareholders of PTI for certain breaches of fiduciary duties, and (iii) consider
and vote on a proposal to approve and adopt the Merger Agreement. The holders of
Class A Common Stock and Class C Common Stock of PTI are entitled to vote with
respect to all matters presented at the PTI Annual Meeting; however, the holders
of Class B Common Stock of PTI are entitled to vote only with respect to the
approval of the Merger Agreement. The holders of shares of PTI at the close of
business on June ___, 1998 (the "Record Date") are entitled to notice of and to
vote at the PTI Annual Meeting. At such date, [247,080.58] shares of Class A
Common Stock, [49,704.49] shares of Class B Common Stock and [22,100] shares of
Class C Common Stock were outstanding.
Quorum; Required Votes
The presence, in person or by proxy, at the PTI Annual Meeting of the
holders of a majority of the shares of Class A and Class C Common Stock of PTI
outstanding as of the Record Date is necessary to constitute a quorum at the
meeting; however, consideration of the Merger requires a quorum consisting of a
majority of all shares of PTI Common Stock outstanding as of the Record Date and
a separate majority of each class of PTI Common Stock outstanding as of the
Record Date. Each share of PTI Common Stock entitles the holder thereof to one
vote at the PTI Annual Meeting for each matter with respect to which such share
entitles the holder thereof to vote. At the PTI Annual Meeting, the directors
will be elected by a plurality of the votes cast by the holders of Class A and
Class C PTI Common Stock at the PTI Annual Meeting (the highest number of votes
cast even if less than a majority) if a quorum is present. The affirmative vote
of holders of a majority of the outstanding Class A and Class C Common Stock of
PTI is required to approve and adopt the proposed amendment to PTI's Certificate
of Incorporation (the "Certificate Amendment"). The affirmative vote of the
holders of two-thirds of all outstanding shares of PTI Common Stock and the
affirmative vote of the holders of a majority of each class of PTI Common Stock,
voting as a separate class, is required to approve and adopt the Merger
Agreement. Abstentions will be counted for purposes of determining a quorum but
will have the effect of votes against the adoption and approval of the Merger
Agreement and the Certificate Amendment. Shares not represented at the PTI
Annual Meeting will also have the effect of votes against the adoption and
approval of the Merger Agreement and the amendment to PTI's Certificate of
Incorporation. SWI and its directors and executive officers do not own any
shares of PTI Common Stock. The officers and directors of PTI collectively own
beneficially approximately [41.7]% of the shares of PTI Common Stock outstanding
as of the Record Date and have agreed to vote such shares in favor of the
approval and adoption of the Merger Agreement. See "PTI Share Ownership."
Voting of Shares of PTI Common Stock Held by the ESOP
Pursuant to the terms of PTI's Employee Stock Ownership Plan (the "ESOP"),
the participants in the ESOP are entitled to direct the trustee of the ESOP how
to vote shares of Class C Common Stock which are held by the ESOP and have been
allocated to their respective accounts. The ESOP provides that the ESOP trustee
must vote any unallocated shares in proportion to the votes cast on each issue
by the participants in the ESOP. As a result, if participants in the ESOP direct
the ESOP trustee to vote more allocated shares in favor of the Merger than
against the Merger, the separate class vote of the Class C PTI Common Stock will
be satisfied. A form for participants to direct the ESOP trustee how to vote
shares allocated to their accounts ("Voting Instructions") is enclosed with this
Prospectus and Proxy Statement. An ESOP participant may change his or her
direction to the ESOP trustee by submitting new Voting Instructions prior to the
date of the PTI Annual Meeting.
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<PAGE> 16
Proxies
The authority granted by an executed proxy may be revoked at any time
before its exercise by filing with the Secretary of PTI a written revocation or
a duly executed proxy bearing a later date or by voting in person at the
meeting. Shares represented by valid proxies will be voted in accordance with
the specifications in the proxies. If no specifications are made, the proxies
will be voted to approve the proposals set forth in the proxy in accordance with
the recommendation of the PTI Board of Directors. See "The PTI Annual Meeting --
Voting of Proxies."
Dissenters' Rights
Under New York law, holders of PTI Common Stock may elect to have the
"fair value" of their shares (determined in accordance with New York law)
judicially appraised and paid to them if the Merger is consummated. To exercise
this right, holders of PTI Common Stock must deliver to PTI a written demand for
payment before the taking of the vote, must not vote to adopt the Merger
Agreement and must comply with the other requirements of Section 623 of the New
York Business Corporation Law (the "NYBCL"), a copy of which is attached hereto
as Appendix B. A failure to properly and timely make a demand or a failure to
strictly comply with the requirements of Section 623 will preclude a holder from
exercising such rights. See "The PTI Annual Meeting -- Dissenters' Rights."
The Merger
Terms of the Merger
SWI's acquisition of PTI is structured as a merger of the Merger Sub into
PTI. Immediately following the Merger, PTI will be the Surviving Corporation and
will be a wholly-owned subsidiary of SWI. As soon as practicable following the
effective time of the Merger (the "Effective Time"), SWI will transfer all
shares of the Surviving Corporation to SWMCI so that the Surviving Corporation
will become a wholly-owned subsidiary of SWMCI. In connection with the Merger,
the holders of PTI Common Stock will be entitled to receive the following
consideration (collectively, the "Merger Consideration"):
o the "Initial Merger Consideration" which is a maximum number of shares of
Common Stock of SWI, $1.00 par value per share ("SWI Common Stock"), equal
to (i) the lesser of 1.5 times the stockholders' equity of PTI at December
31, 1997 and $9,000,000, divided by (ii) the average of the closing price
of the SWI Common Stock (the "Closing Market Value") as reported in the
NYSE Composite Transactions for the 30 trading days ending on the third
trading day prior to the closing date of the Merger (the "Closing");
o if and to the extent that certain milestones based on the Final Cumulative
Net Earnings are achieved, all or a portion of the "Contingent Merger
Consideration" which is a maximum number of shares of SWI Common Stock
equal to $8,000,000 divided by the Closing Market Value;
o in the event that all or a portion of the Contingent Merger Consideration
becomes payable and certain other conditions are satisfied, the
"Additional Contingent Shares" which is a maximum number of shares of SWI
Common Stock equal to a maximum of $500,000 divided by the average of the
closing price of the SWI Common Stock as reported in the NYSE Composite
Transactions for the ten trading days ending on the third trading day
prior to the date that such shares are paid; and
o the "Transasia Consideration" which is the amount, up to a maximum of 20%
of the value of the other Merger Consideration and net of any taxes or
expenses incurred with respect to collecting and administering such
amounts, of all payments paid, during the period from January 1, 1998
through the date the Contingent Merger Consideration is determined, to the
Surviving Corporation as development fees or on account of PTI's carried
interest under the Transasia Transmission Cooperation Agreement dated
August 4, 1997 and related agreements among PTI and certain parties,
together with the proceeds from the disposition of or modification of any
of such rights.
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<PAGE> 17
For a more detailed discussion of the procedures for determining the
Merger Consideration, see "The Merger -- Initial Consideration" and "--
Contingent Consideration."
The Initial Merger Consideration is payable at the Effective Time and any
Contingent Merger Consideration and Transasia Consideration to which the
Participating Holders are entitled becomes payable as soon as practicable
following the computation of the Contingent Merger Consideration (which, except
in certain circumstances under which such rights may be accelerated as described
in "The Merger -- Contingent Consideration," cannot occur until after December
31, 2002) but in any event prior to the fifth anniversary of the Closing. Any
Additional Contingent Shares to which the Participating Holders are entitled
will become payable as soon as practicable after the number of Additional
Contingent Shares is determined (which, except in certain circumstances under
which such rights may be accelerated which are described in "The Merger --
Contingent Consideration," cannot occur prior to August 30, 2003).
If there are shareholders of PTI who properly dissent to the Merger
("Dissenting Holders"), the PTI shareholders who are not Dissenting Holders (the
"Participating Holders") will be entitled to receive, in the aggregate, a
percentage of the Initial Merger Consideration and Contingent Merger
Consideration equal to the number of shares of PTI Common Stock owned by the
Participating Holders divided by the total number of outstanding shares of PTI
Common Stock (the "Participation Percentage"); otherwise, all PTI shareholders
will be Participating Holders and will be entitled to receive, in the aggregate,
all of the Initial Merger Consideration and Contingent Merger Consideration. The
presence of Dissenting Holders will not affect the aggregate number of
Additional Contingent Shares or the amount of Transasia Consideration. The
Dissenting Holders will not be entitled to receive any of the Merger
Consideration but will be entitled to receive a cash payment equal to the fair
value of their shares of PTI Common Stock. See "The PTI Annual Meeting --
Dissenters' Rights."
At the Effective Time, each issued and outstanding share of PTI Common
Stock, other than shares held by Dissenting Holders, treasury stock, or shares
held by a subsidiary of PTI ("Participating Shares"), will automatically be
converted into and become the right to receive (i) a proportionate share, based
on the total number of Participating Shares, of the aggregate Initial Merger
Consideration, Contingent Merger Consideration and Transasia Consideration
payable to the Participating Holders, and (ii) a portion of the Additional
Contingent Shares which will be based on the respective tax liabilities of the
Participating Holders incurred as a result of the payment of the Contingent
Merger Consideration.
A number of the shares of SWI Common Stock payable as Initial Merger
Consideration equal to $1,000,000 divided by the Closing Market Value and
multiplied by the greater of the Participation Percentage and 95% will be held
in escrow by The Chase Manhattan Bank, as escrow agent (the "Escrow") to satisfy
indemnity obligations based on representations, warranties or covenants of PTI
and the Principal Shareholders contained in the Merger Agreement. The Escrow
will be held until January 15, 2000 or until claims made by SWI during such
period are resolved after such date. In addition, SWI has the right to withhold
from the Contingent Merger Consideration, to the extent earned, shares of SWI
Common Stock having an aggregate Closing Market Value of up to a maximum amount
of $1,000,000 (assuming that all of the Contingent Merger Consideration is
earned) to satisfy indemnification obligations of PTI and the Principal
Shareholders for (i) claims made before January 15, 2000 but not satisfied out
of the Escrow, (ii) breaches of certain representations, warranties and
covenants relating to environmental matters arising after termination of the
Escrow but before January 15, 2003, and (iii) expenses relating to the
indemnification of the escrow agent for the Escrow.
The Merger will become effective after the conditions specified in the
Merger Agreement have been met. SWI and PTI have targeted the third quarter of
calendar 1998 for completion of the Merger. See "The Merger -- Merger and
Effective Time," "-- Conditions of Merger." Notwithstanding the foregoing, (i)
PTI has the right to terminate the Merger Agreement on the second business day
before the Closing date if the Closing Market Value is greater than $60.00 (the
"Ceiling Amount") unless SWI notifies PTI before 5:00 p.m. EST on the day before
the Closing date of its intention to fix the Closing Market Value at the Ceiling
Amount, and (ii) SWI has the right to terminate the Merger Agreement on the
second business day before the Closing date if the Closing Market Value is less
than $35.00 (the "Floor Amount") unless PTI notifies SWI before 5:00 p.m. EST on
the day before the Closing date of its intention to fix the Closing Market Value
at the Floor Amount. If the Closing Market Value
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<PAGE> 18
was computed based on the thirty trading days ending on the day immediately
preceding the date of this Prospectus and Proxy Statement, the Closing Market
Value would be $_____.
Shareholders' Committee
The Merger Agreement contemplates that each Participating Holder will
execute a Shareholders' Committee Agreement appointing __________________,
__________________ and __________________ as a shareholders' committee (the
"Shareholders' Committee") to represent the interests of the Participating
Holders in connection with administering the Escrow, negotiating indemnification
disputes, resolving issues regarding the amount of the Contingent Merger
Consideration and resolving any other disputes arising under the Merger
Agreement. The Shareholders' Committee Agreement grants the members of the
Shareholders' Committee a power of attorney to act on behalf of the
Participating Holders, authorizes the Shareholders' Committee to commence
litigation, releases the members of the Shareholders' Committee from certain
breaches of fiduciary duties, and provides for the Participating Holders to
indemnify the members of the Shareholders' Committee against any claims,
liabilities or losses incurred by them as a result of their actions as members
of the Shareholders' Committee. Two copies of a Shareholders' Committee
Agreement are enclosed with this Prospectus and Proxy Statement and the PTI
Board requests that you execute and return these Agreements whether or not you
vote for or against the Merger. Participating Holders who do not execute
Shareholders' Committee Agreements will not be represented by the Shareholders'
Committee and will be required to independently resolve any disputes relating to
the Merger with SWI directly.
Each of the members of the Shareholders' Committee will be entitled to an
annual retainer of $1,000 and will be paid $250 for each Shareholders' Committee
meeting that they attend (up to a maximum of four meetings per year). They will
also be entitled to be reimbursed for their reasonable out-of-pocket expenses
incurred in performing their duties as members of the Shareholders' Committee.
In order to compensate and satisfy expenses incurred by the Shareholders'
Committee (including without limitation legal and accounting fees and expenses
and compensation paid to members of the Shareholders' Committee), an escrow
account will be established and administered by the Shareholders' Committee with
a portion of the Initial Merger Consideration equal to the number of shares of
SWI Common Stock determined by dividing $250,000 by the Closing Market Value.
The number of shares of Initial Merger Consideration that are received by each
Participating Holder (whether or not they execute a Shareholders' Committee
Agreement) will be proportionately reduced. Any shares of SWI Common Stock not
used to satisfy expenses of the Shareholders' Committee will be distributed by
the Shareholder's Committee proportionately to the Participating Holders.
Recommendation of the PTI Board of Directors
The PTI Board of Directors has unanimously approved the Merger Agreement
and determined that the Merger is fair and in the best interests of PTI and its
shareholders. THE PTI BOARD OF DIRECTORS RECOMMENDS THAT PTI SHAREHOLDERS VOTE
TO ADOPT AND APPROVE THE MERGER AGREEMENT AND THE MERGER. For a discussion of
the factors considered by the PTI Board of Directors in reaching its decision to
approve the Merger Agreement and the Merger, see "The Merger -- Background of
the Merger" and "-- PTI's Reasons for the Merger."
SWI's Reasons for the Merger
The Board of Directors of SWI (the "SWI Board") has determined that the
Merger Agreement and the transactions contemplated thereby are in the best
interests of SWI and, therefore, has unanimously approved the Merger Agreement.
In making this determination, the SWI Board and management reviewed information
about PTI available to it from PTI's management and other sources and assessed
PTI's financial condition. After considering this information, the SWI Board
concluded that the anticipated business advantages of the Merger favored
adoption of the Merger Agreement and consummation of the Merger. See "The Merger
- -- Background of the Merger" and "-- SWI's Reasons for the Merger."
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Conditions to the Merger
The obligations of SWI and PTI to consummate the Merger are subject to the
satisfaction of certain conditions, including but not limited to, obtaining the
approval of PTI shareholders, obtaining requisite regulatory clearance, the
continuing accuracy as of the Effective Time of the representations and
warranties made by SWI and PTI in the Merger Agreement, limitations on the
exercise of dissenters' appraisal rights, the effectiveness of the Registration
Statement of which this Prospectus and Proxy Statement forms a part, and the
listing of the shares to be issued as Initial Merger Consideration on the NYSE.
Each party has the right to waive certain of the closing conditions referred to
above. See "Certain Other Matters Relating to the Merger Agreement -- Regulatory
Matters" and "The Merger Agreement -- Conditions of Merger."
Conduct of PTI's Business Pending the Merger
PTI has made certain covenants and agreements in the Merger Agreement
relating to, among other things, the conduct of its business pending the
consummation of the Merger, including actions taken by PTI in relation to
issuing shares of stock, employment and compensation, payment of dividends on
PTI Common Stock, acquisition transactions and other matters. See "The Merger
Agreement -- Certain Covenants."
No Solicitation
PTI has agreed that, from the date of the Merger Agreement through the
Effective Time, neither PTI or any of the Principal Shareholders will solicit,
initiate or encourage discussions with any third party concerning any proposal
regarding a merger or other business combination with PTI or (except to the
extent that the PTI Board of Directors determines upon the written advice of
independent legal counsel that the Board's fiduciary duties require it to do so)
participate in discussions or negotiations with, or furnish information to any
person with respect to any effort to do or seek to do any such transaction. See
"The Merger Agreement -- No Solicitation" and "-- Termination Fee."
Termination
The Merger Agreement is subject to termination by mutual written consent
of SWI and PTI, at the option of either SWI or PTI if the Merger is not
consummated by September 1, 1998 (although the parties may mutually extend such
date) or upon the occurrence of certain events, including if the Merger
Agreement is not approved by PTI's shareholders. See "The Merger Agreement --
Termination."
Termination Fee
PTI will be required to pay SWI a termination fee of $300,000 if the
Merger Agreement is terminated (i) by SWI because PTI or a Principal Shareholder
breaches a material representation, warranty or covenant and fails to timely
cure such breach or (ii) by SWI or PTI if PTI fails to obtain the requisite
shareholder approval or the PTI Board withdraws its recommendation that the
shareholders vote in favor of the Merger if at the time of such failure or
withdrawal or within 12 months thereafter, PTI or a Principal Shareholder shall
have entered into an agreement to engage in a merger or business combination
transaction with any person other than SWI or if the Board approves or
recommends that the PTI shareholders approve such a transaction. See "The Merger
Agreement -- Termination" and "-- Termination Fee."
Certain Federal Income Tax Consequences
The Merger is intended to be a tax-free reorganization within the meaning
of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code")
in which no gain or loss will be recognized by PTI, SWI or Merger Sub and no
gain or loss will be recognized by the Participating Holders, except in respect
of cash received in lieu of fractional shares. No ruling has been or will be
requested from the Internal Revenue Service with respect to any tax matters.
With respect to the foregoing, as well as the consequences if the Merger does
not constitute a reorganization within the meaning of the Code, see "Certain
Federal Income Tax Consequences" below.
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Because certain tax consequences of the Merger may vary depending upon the
particular circumstances of each PTI shareholder, each shareholder should
consult the PTI shareholder's own tax advisor as to the federal (and any state,
local or foreign) tax consequences of the Merger on the PTI shareholder's
particular circumstances.
Accounting Treatment
The Merger is expected to be accounted for as a "purchase" for accounting
and financial reporting purposes. See "Certain Other Matters Relating to the
Merger -- Accounting Treatment."
Interests of Certain Persons in the Merger
Steven J. Balser, the President and a Director of PTI, has an interest in
the Merger that is in addition to the interests of shareholders of PTI
generally. PTI has entered into an agreement with Mr. Balser that provides
certain benefits in the event of the termination of Mr. Balser's employment
following a change of control of PTI. The Merger will constitute a change in
control of PTI within the meaning of such agreement. See "The Merger --
Interests of Certain Persons in the Merger." The Board of Directors of PTI was
aware of this interest and considered it, among other matters, in approving and
adopting the Merger Agreement and the transactions contemplated thereby.
In addition, certain members of the Board of Directors and management of
PTI have agreed to enter into employment agreements with the Surviving
Corporation as a condition of the Merger.
Comparative Rights of Holders of PTI and SWI Common Stock
Upon consummation of the Merger, holders of PTI Common Stock will become
shareholders of SWI. The internal affairs of SWI are governed by the Delaware
General Corporation Law (the "DGCL") and SWI's Restated Certificate of
Incorporation and By-laws. There are certain differences in the rights of
holders of PTI and SWI Common Stock. See "Description of SWI Capital Stock" and
"Comparison of Rights of Holders of SWI Common Stock and PTI Common Stock."
Indemnification
The Merger Agreement also provides that the Surviving Corporation will
indemnify and hold harmless each former director and officer of PTI with respect
to actions taken before the Effective Time to the fullest extent permitted by
New York law. See "The Merger Agreement -- Certain Covenants."
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RISK FACTORS
The following risk factors, in addition to other information contained or
incorporated by reference in this Prospectus and Proxy Statement, should be
considered by the holders of PTI Common Stock in evaluating whether to approve
and adopt the Merger Agreement and thereby become holders of SWI Common Stock.
Risks Relating to SWI
General Business; Competition
SWI is principally engaged, through its subsidiaries, in providing
engineering, construction and consulting services. The principal business
activities of SWI in the engineering, construction and consulting services areas
are highly competitive, with competition from a large number of
well-established, well-financed concerns, both privately and publicly held.
Inasmuch as SWI is primarily a service organization, it competes in its areas of
interest by providing services of the highest quality. SWI believes it occupies
a strong competitive position, but is unable to estimate with reasonable
accuracy its competitive position in the engineering, construction and
consulting services industry. The markets served by the engineering,
construction and consulting businesses of SWI are likewise highly competitive
and, for the most part, require substantial resources and particularly highly
skilled and experienced technical personnel. A large number of multi-national
companies are also competing in the markets served by SWI's subsidiaries.
Intense competition in the engineering, construction and consulting businesses
is expected to continue, presenting SWI with significant challenges in its
ability to maintain strong growth rates while maintaining and improving
acceptable profit margins.
Backlog
The dollar amount of SWI's backlog as stated at any given time is not
necessarily indicative of the future earnings of SWI related to the performance
of such work. Clients frequently revise the scope of the services for which they
have contracted with subsidiaries of SWI, especially on projects subject to
regulatory approval or which require environmental permitting/licensing. Scope
increases and decreases of substantial magnitude are commonplace on such
projects and directly affect SWI's backlog. In addition, delays, suspensions and
cancellations of projects included within SWI's backlog may occur. Recently, the
Trans-Pacific Petrochemical Indotama ("TPPI") project in Indonesia, which
represents approximately $500 million of SWI's current backlog of approximately
$2.5 billion, was suspended. A prolonged suspension or cancellation of the TPPI
project, or the delay, suspension or cancellation of other projects included in
SWI's backlog, could have a material adverse effect on SWI's business or results
of operations.
Uncertainty Regarding Client Relationships
Although SWI's subsidiaries in the engineering, construction and
consulting services business have numerous clients and SWI historically has not
had a continuing dependence on any single client, one or a few clients has in
the past and may in the future contribute a substantial portion of SWI's
consolidated revenues in any one year, or over a period of several consecutive
years, due to the size of major engineering and construction projects. The
unexpected loss of business from any one of such customers could have a material
adverse effect on SWI's business or results of operations.
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Size and Uncertainty of Timing of Contracts
SWI's contract award prospects include a number of large-scale domestic
and international projects. The large size and uncertain timing of these
projects can create variability in SWI's contract award pattern. Consequently,
future contract award trends are difficult to predict with certainty. In
addition, the timing of receipt of revenue by SWI from engineering and
construction projects can be affected by a number of factors outside the control
of SWI and its subsidiaries. Frequently, the subsidiary's services on a project
take place over extended periods of time, and are subject to unavoidable delays
from weather conditions, unavailability of material and equipment from vendors,
changes in the scope of services requested by clients, or labor disruptions.
Uncertainty of the timing of contract execution and performance can also present
difficulties in matching workforce size with contract needs. In some cases, SWI
must maintain and bear the cost of maintaining the availability of a workforce
larger than called for under existing contracts in anticipation of future
workforce needs in connection with the execution and performance of contracts
not yet received, which may ultimately be delayed, modified or canceled.
Uncertainty Regarding International Nature of Business
A significant portion of SWI's business services are and are expected to
continue to be performed for clients located outside of the United States.
During 1997, revenues from SWI's services performed for and products sold to
clients outside the U.S. accounted for approximately 50.2% of its total
revenues. SWI's international operations and offices in foreign countries give
rise to political and economic uncertainties relating to, among other things,
U.S. and foreign trade restrictions; foreign government stability; foreign
economic stability; tariffs; export controls; government regulation (including
the Foreign Corrupt Practices Act); patent and trademark availability,
protection and registration; foreign exchange restrictions which limit the
repatriation of investments and earnings therefrom; changes in taxation or
international tax treaties; military action and other hostilities or
confiscation of property. SWI attempts to hedge against such risks, where
possible, using contractual protection and insurance coverage. However, there
can be no assurance that such measures will be effective in reducing the risks
associated with international operations.
SWI's revenues from the Asian region have created a particular risk
resulting from the Asian financial crisis. Projects in which SWI is involved,
including the TPPI project, have been suspended or delayed, and perhaps
jeopardized, by such crisis. SWI may experience decreases in demand for its
products and services as a result of the continuation of financial instability
in Asia which could have a material adverse effect on SWI's business and results
of operations.
SWI is subject to currency exchange risks to the extent that its purchases
and sales occur outside the U.S. and to the extent that it is unable to
denominate its purchases or sales in U.S. dollars, or otherwise shift to its
customers or suppliers, the risks of currency exchange rate fluctuations. SWI
attempts to hedge against currency risks, where possible, by using foreign
exchange contracts and avoiding concentrations of credit risk. However, there
can be no assurance that such measures will be effective in reducing the risks
associated with international operations.
Risk of Technological Changes
SWI believes that it has a leading position in technology associated with
the design and construction of plants which produce ethylene, which it protects
and develops with patent registrations, license restrictions, and a research and
development program. This technology position is subject to the risk that others
may develop competing processes which could affect SWI's pre-eminent position.
11
<PAGE> 23
Risks Due to Fixed, Maximum or Unit Priced Contracts
An increasing number of SWI's contracts for the provision of engineering
and construction services are fixed, maximum or unit price contracts. Under
fixed, maximum or unit price contracts, SWI's subsidiaries agree to perform the
contract for a fixed price and as a result, benefit from costs savings, but are
unable to recover for any cost overruns. Under fixed price incentive contracts,
SWI shares with the customer any savings up to a negotiated ceiling price and
carries some or all of the burden of costs exceeding the negotiated ceiling
price. Contract prices are established based in part on cost estimates which are
subject to a number of assumptions, such as assumptions regarding future
economic conditions. If in the future these estimates prove inaccurate, or
circumstances change, cost overruns can occur and can cause a material adverse
effect on SWI's business and results of operations.
Contract Performance Risk
In certain circumstances, SWI or its subsidiaries guarantee facility
completion by a scheduled acceptance date or achievement of certain acceptance
and performance testing levels. Failure to meet any such schedule or performance
requirements could result in additional costs and the amount of such additional
costs could exceed project profit margins. Performance problems for existing and
future contracts, whether fixed, maximum or unit priced, could cause actual
results of operations to differ materially from those anticipated by SWI.
Uncertainties in Government Contracts
Several of SWI's subsidiaries' significant contracts are contracts with
agencies of the U.S. Government. Generally, Government contracts are subject to
oversight audits by Government representatives, to profit and cost controls and
limitations, and to provisions permitting modification or termination, in whole
or in part, without prior notice, at the Government's convenience and with
payment of compensation only for work done and commitments made at the time of
termination. In the event of termination, SWI generally will receive some
allowance for profit on the work performed. In some cases, Government contracts
are subject to the uncertainties surrounding congressional appropriations or
agency funding. Government business is subject to specific procurement
regulations and a variety of socio-economic and other requirements. Failure to
comply with such regulations and requirements could lead to suspension or
debarment, for cause, from future Government contracting or subcontracting for a
period of time. Among the causes for debarment are violations of various
statutes, including those related to employment practices, the protection of the
environment, the accuracy of records and the recording of costs.
Environmental, Safety and Health Risks
It is impossible to predict the full impact of future legislative or
regulatory developments relating to environmental protection and occupational
health and safety issues on SWI's operations, because the standards to be met,
as well as the technology and length of time available to meet those standards,
continue to develop and change. SWI's business is primarily that of a
professional service provider. Therefore, although regulations and statutes
which relate to manufacturing and other non-service operations are not likely to
adversely impact SWI's business directly, they may adversely impact SWI's
subsidiaries' clients, causing a decrease in demand for SWI's services.
Potential Liability for Services Relating to Toxic and Hazardous Materials and
the Ability to Insure Such Risks
SWI's engineering and consulting services involve professional judgments
about the nature of soil and water conditions and other physical conditions,
including the extent to which toxic and hazardous materials are present, and
about the probable effect of procedures to mitigate problems or otherwise impact
those conditions. If those judgments and the recommendations based upon them do
not result in the anticipated consequences, losses to SWI's subsidiaries'
clients can occur for which such clients may seek to hold SWI liable. In
addition, projects often involve nuclear, hazardous and/or highly regulated
material, the improper characterization, handling, or disposal of which could
constitute violations of federal, state or local statutes, and result in
criminal and civil liabilities.
12
<PAGE> 24
SWI and its subsidiaries attempt to insure against risks for professional
liability, workers compensation, and general and automobile claims up to certain
policy limits. There can be no assurance that the dollar amount of SWI's
liabilities, if any, will not exceed the insurance coverage limits. In addition,
there can be no assurance that environmental impairment insurance coverage will
continue to be available in the insurance market.
Other Impact of Environmental Regulation
Much of SWI's subsidiaries' business is generated either directly or
indirectly as a result of federal and state laws, regulations and programs
related to environmental issues. United States regulatory enforcement has
fluctuated, and one of the key environmental laws, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), has
not yet received congressional reauthorization. Accordingly, changes of
environmental laws and regulations, or changes in governmental policies
regarding the funding, implementation or enforcement of such programs, could
have a material adverse effect on SWI's business. In addition, such laws and
regulations often subject SWI's subsidiaries to stringent regulation in the
conduct of their operations. The principal federal environmental legislation
affecting the Environmental/Infrastructure Division of SWI's principal
engineering subsidiary and its clients include: the National Environmental
Policy Act of 1969 ("NEPA"), the Resource Conservation and Recovery Act of 1976
("RCRA"), the Clean Air Act, the Federal Water Pollution Control Act, and the
Superfund Amendments and Reauthorization Act of 1986 ("SARA"). It is possible
that additional laws and regulations may be adopted which could have significant
impact on SWI and the clients of its subsidiaries.
Although the liabilities imposed by CERCLA, as amended by SARA, (and other
environmental legislation) are usually more directly related to SWI's clients,
they could, under certain circumstances, give rise to liability on the part of
SWI as a result of its subsidiaries efforts in completing client assignments
that involve transportation or disposal of contaminated samples or other
hazardous materials belonging to its clients or arising from certain historic
activities as discussed below under Litigation Risks. Liabilities imposed by
CERCLA can be joint and several where other parties are involved.
Litigation Risks
SWI and certain subsidiaries have been named as defendants, along with
others, in legal actions claiming damages in connection with engineering and
construction projects and other matters. Most of the legal actions involve
claims for personal injury or property damage which occur from time to time in
connection with services performed relating to project or construction sites and
other actions that arise in the normal course of business, including
employment-related claims and contractual disputes. Such contractual disputes
normally involve claims relating to the performance of equipment design or other
engineering services or project construction services provided by subsidiaries
of SWI.
SWI and certain of its subsidiaries have possible liabilities relating to
environmental pollution. While no governmental authority has sought redress from
SWI or its subsidiaries (except in the case of one subsidiary in connection with
claims made with respect to clients of that subsidiary) nor has SWI been
determined to be a Potentially Responsible Party by the federal or any state or
local governmental authority, some information has been requested from SWI with
regard to environmental matters, and there can be no assurance that SWI will not
be named as a party in such matters. Based on presently known facts and existing
laws and regulations, SWI believes that it has valid legal defenses and that the
costs associated with such matters, including legal costs, should be mitigated
by the presence of other entities which may be Potentially Responsible Parties,
by contractual indemnities, and by insurance coverage, but there can be no
assurance that such defenses will prevail, that the presence of such mitigating
factors will prove adequate or that SWI will not be held liable in connection
with such matters in amounts that would have a material adverse effect on SWI's
business and results of operations.
Attraction and Retention of Professional Personnel
SWI's ability to attract and retain qualified engineers, scientists and
other professionals, either through direct hiring or acquisition of other firms
employing such professionals, will be an important factor in determining SWI's
future success. The market for these professionals is competitive, and there can
be no assurance that SWI and its subsidiaries will be successful in its efforts
to attract and retain such professionals.
13
<PAGE> 25
Availability of Additional Acquisition Targets
SWI's ongoing acquisition program is an element of its growth strategy for
expanding its services. Consequently, the future growth of SWI depends in part
upon the successful continuation of its acquisition program. SWI may encounter
substantial competition in its efforts to acquire companies or entities which
meet its acquisition criteria. There can be no assurance that SWI will succeed
in locating or acquiring appropriate acquisition candidates at price levels and
on terms and conditions that SWI considers appropriate.
Risks Relating to the Merger
Uncertainty Regarding Amount of Contingent Merger Consideration and Transasia
Consideration Payments
The Contingent Merger Consideration represents a substantial portion of
the total available Merger Consideration (SWI Common Stock having a Closing
Market Value equal to up to $8,000,000 of the potential $17,000,000 of the
Merger Consideration). The number of shares of SWI Common Stock, if any, which
will ultimately be issued to the Participating Holders as Contingent Merger
Consideration and Additional Contingent Shares under the Merger Agreement cannot
presently be determined and is highly speculative. As discussed in "The Merger
- -- Contingent Consideration -- Contingent Merger Consideration," except in
certain circumstances where the right to receive the Contingent Merger
Consideration may be accelerated, the number of shares of SWI Common Stock to be
issued as Contingent Merger Consideration will be based on the Final Cumulative
Net Earnings during the period from January 1, 1998 through December 31, 2002
(the "Contingent Period"). See "The Merger -- Contingent Consideration --
Contingent Merger Consideration." The amount of Contingent Merger Consideration
payable, if any, is determined in accordance with milestones set forth in the
Merger Agreement based on projected net income of the Surviving Corporation. If
the Final Cumulative Net Earnings are not greater than $3,960,000, no Contingent
Merger Consideration or Additional Contingent Shares will be earned. The entire
amount of Contingent Merger Consideration will not be earned unless the Final
Cumulative Net Earnings are at least $11,327,000, which would require a
significant improvement in the income of the Surviving Corporation over the
historical income of PTI to be achieved.
Although the Merger Agreement contains certain covenants relating to the
conduct by SWI of the operations of the Surviving Corporation, SWI has
substantial discretion with regard to the management and operation of the
Surviving Corporation and such covenants may not provide the Participating
Holders with adequate protection against changes in the business of the
Surviving Corporation imposed by SWI. Future cash flows and income of the
Surviving Corporation may be significantly affected by changes in the operation
of the Surviving Corporation, including changes in the structure, ownership or
business of the Surviving Corporation made or required by SWI. There can be no
assurance that the Surviving Corporation will have any, or sufficient, Final
Cumulative Net Earnings during the Contingent Period to entitle the
Participating Holders to receive all or any portion of the Contingent Merger
Consideration. In addition, the number of shares issuable as Contingent Merger
Consideration will be determined by reference to the Closing Market Value, which
is a fixed value, while the actual market value of such shares when issued will
be based on the then market value of the SWI Common Stock, which may be less
than the Closing Market Value. See "-- Risks Relating to PTI" below for
additional factors that could limit the ability of the Surviving Corporation to
generate sufficient Final Cumulative Net Earnings to entitle the Participating
Holders to Contingent Merger Consideration.
The Transasia Consideration will only be payable to the extent that the
Surviving Corporation receives, during the Contingent Period, development fees
or payments on account of PTI's carried interest under the Transasia Agreements
or proceeds from the disposition of or modification of any right to receive such
fees or payments. The amount received by the Surviving Corporation will depend
solely on whether the Transasia project is pursued by the other parties involved
in the project and whether such parties are able to obtain financing for the
project. In addition, the Surviving Corporation is not required to attempt to
dispose of the rights to receive payments under the Transasia Agreements during
the Contingent Period and the value, if any, of such rights cannot be readily
ascertained. There can be no assurance that the Surviving Corporation will
receive any payments under the Transasia Agreements or dispose of the right to
receive such payments during the Contingent Period, nor, if it does so, that
sufficient net proceeds will be realized to pay to the Participating Holders any
Transasia Consideration.
14
<PAGE> 26
The Additional Contingent Shares will only be payable to the extent that
(i) the Contingent Merger Consideration is payable, and (ii) there has been
insufficient appreciation from the Closing Market Value to the market price of
SWI Common Stock at the time that the Contingent Merger Consideration, if any,
becomes payable to offset the amount of federal and state income tax incurred by
the Participating Holders as a result of imputed interest incurred from the
receipt of the Contingent Merger Consideration.
Integration of Operations; Conflicts of Interest
SWI and PTI operate world-wide businesses with complementary product lines
and development and sales forces in a variety of international locations.
Integrating the operations (including product integration, workforce
rationalization, marketing plans and activities, employee training, and
expansion strategy) and management of the two companies will be a time-consuming
process, and there can be no assurance that this integration will result in the
achievement of the anticipated synergies and other benefits expected to be
realized from the Merger. Moreover, the integration of these organizations will
require the dedication of management resources, which may temporarily distract
attention from the day-to-day business of the Surviving Corporation. The
inability of management to successfully integrate the operations of the two
companies could have a material adverse effect on the business and operating
results of the Surviving Corporation and, consequently, could impair the ability
of the Surviving Corporation to achieve the Final Cumulative Net Earnings
milestones necessary for the Contingent Merger Consideration to become payable.
In addition, as commonly occurs with mergers of technology companies, during the
pre-merger and integration phases aggressive competitors may undertake formal
initiatives to attract customers and recruit key employees through various
incentives. Following the Merger, PTI will have non-compete agreements with a
number of its professionals and senior management; however, such agreements may
not be effective in retaining the professionals and senior management. In
addition, changes in the nature of PTI following the Merger could influence some
of the professionals or senior management to leave their employment with PTI.
See "-- Risks Relating to PTI -- Dependence on Key Personnel."
In addition, the Merger or PTI's relationship as a subsidiary of SWI may
adversely affect PTI's relationship with one or more of its significant
customers, particularly if SWI or another one of its subsidiaries becomes
involved in a dispute with such a customer over a matter unrelated to PTI. Also,
PTI's relationship with SWI may prevent it from undertaking projects due to a
conflict of interest where SWI or another one of its subsidiaries is
participating in the project in another capacity or is participating in a
competing project. Such conflicts could have a material adverse effect on the
business and operating results of the Surviving Corporation. See "-- Risks
Relating to PTI -- Dependence on Significant Customers."
Indemnification Obligations
Under the Merger Agreement, PTI and the Principal Shareholders have made
extensive representations, warranties and covenants to SWI, SWMCI and Merger
Sub. The Merger Agreement provides that PTI, the Participating Holders and the
Principal Shareholders will indemnify SWI, SWMCI and Merger Sub for any Losses
(as defined in the Merger Agreement) resulting from breaches of such
representations, warranties and covenants. The Participating Holders are not
personally responsible for such indemnification obligations; however, they will
not be entitled to receive the Initial Merger Consideration placed in the Escrow
to the extent that it is necessary to satisfy indemnification claims. In
addition, up to $1,000,000 of the Contingent Merger Consideration (assuming a
sufficient amount of Contingent Merger Consideration is earned) is subject to
being withheld by SWI to satisfy indemnification claims. The nature of the items
that could give rise to indemnification claims is such that PTI is likely not
aware of such items or such items are beyond its control. As a result, there
could be significant indemnification claims and up to $2,000,000 of the Merger
Consideration could be used to satisfy such claims. See "The Merger Agreement --
Representations and Warranties" and "-- Indemnity and Escrow."
15
<PAGE> 27
No Rights to Cash Flow or Assets
The rights of the Participating Holders to receive the Contingent Merger
Consideration, Additional Contingent Shares and Transasia Merger Consideration,
if any, payable under the Merger Agreement represent solely contractual rights
to receive such payments to the extent that they become payable and do not
represent any ownership interest in, or rights to, cash flow or assets of any of
the Surviving Corporation, SWI or SWMCI. The rights of the Participating Holders
to receive such payments under the Merger Agreement could be substantially
impaired in the event of a bankruptcy or insolvency involving SWI, SWMCI or the
Surviving Corporation.
Limited Obligation to Provide Additional Capital
Under the Merger Agreement, SWI has only a limited obligation to provide
additional funding to the Surviving Corporation. There can be no assurance that
revenues from operations will be sufficient to fund operations of the Surviving
Corporation nor that third-party financing will be available on satisfactory
terms, or at all. Lack of sufficient funding during the Contingent Period could
significantly impair the ability of the Surviving Corporation to meet the Final
Cumulative Net Earnings milestones which must be satisfied for the Contingent
Merger Consideration to be payable.
Acceleration of Right to Receive Contingent Merger Consideration
Under certain circumstances involving a transaction which would cause the
Contingent Merger Consideration to be payable in other than voting stock of SWI,
the rights of the Participating Holders to receive the Contingent Merger
Consideration may be accelerated to before the end of the Contingent Period. In
the event such a transaction occurs and the Rights are accelerated, the amount
of the Contingent Merger Consideration, if any, that the Participating Holders
will be entitled to receive will be determined in accordance with the Final
Cumulative Net Earnings through the end of preceding fiscal year, as measured
against milestones which are pro-rated to reflect the shortening of the
Contingent Period. Such acceleration may occur following a period of relatively
poor financial performance by the Surviving Corporation which could have been
offset by improved financial performance during the latter part of the
Contingent Period. If such acceleration occurs, the ability of the Participating
Holders to achieve the applicable milestones and receive the Contingent Merger
Consideration could be significantly impaired.
Transfer Restrictions
Subject to certain limited exceptions, the rights of the Participating
Holders to receive the Contingent Merger Consideration and Additional Contingent
Shares under the Merger Agreement are not transferable. Accordingly, until the
Contingent Merger Consideration or Additional Contingent Shares are actually
issued, the Participating Holders will have a limited ability to monetize their
interests in the Contingent Merger Consideration and Additional Contingent
Shares under the Merger Agreement.
Risks Relating to PTI
Dependence on Significant Customers
The success of PTI depends heavily on the business it conducts with a
limited number of significant customers. In 1997, 6.7%, 3.1% and 3.0% of PTI's
net sales were attributable to the Electric Power Research Institute, Inc.
("EPRI"), Niagara Mohawk, and PT Freeport Indonesia, respectively, and 28% of
PTI's net sales were to its largest ten customers. PTI has had long-standing
relationships with most of its significant customers; however, it contracts with
them on a project by project basis and they may unilaterally reduce or
discontinue their purchases at any time. PTI's loss of (or failure to retain a
significant amount of business with) any of its significant customers could have
a material adverse effect on PTI.
16
<PAGE> 28
Dependence on Key Personnel
PTI is dependent upon the efforts of its engineers and computer science
professionals (collectively, "Professionals") generally and on certain key
members of its senior management team specifically. The loss of a significant
portion of its Professionals in a short time period would likely have a material
adverse effect on the operations of PTI, and the loss of a key member of PTI's
senior management team could have an adverse effect on the operations of PTI. In
addition, changes in the nature of PTI following the Merger could influence some
of the Professionals to leave their employment with PTI.
Risks Associated with International Operations
PTI is exposed to risks associated with international operations because a
significant portion of its sales are generated from customers in foreign
countries. Sales of PTI's services and products outside the United States
accounted for approximately 45% of its net sales during 1997. PTI intends to
continue to focus on the sale of its services and products in international
markets. PTI's international operations and offices in foreign countries give
rise to political and economic uncertainties relating to, among other things,
U.S. and foreign trade restrictions; foreign government stability; foreign
economic stability; tariffs; export controls; government regulation (including
the Foreign Corrupt Practices Act); patent and trademark availability,
protection and registration; foreign exchange restrictions which limit the
repatriation of investments and earnings therefrom; changes in taxation or
international tax treaties; military action and other hostilities or
confiscation of property.
PTI's sales to the Asian region have created a particular risk resulting
from the Asian financial crisis. Projects in which PTI is involved have been
delayed and perhaps jeopardized by such crisis, and as of March 31, 1998, PTI
had approximately $1,557,000 of accounts receivable for services provided in
connection with projects in Asia. PTI recorded a reserve of approximately
$754,000 on accounts receivable from such region as bad debt expense during
1997. PTI may incur additional losses if the remaining accounts receivable are
not collected, and the reduction in demand for PTI's services and products in
such region may materially adversely affect its ability to generate revenues.
PTI is subject to currency exchange risks to the extent that its purchases
and sales occur outside the United States and to the extent that it is unable to
denominate its purchases or sales in U.S. dollars, or otherwise shift to its
customers or suppliers, the risks of currency exchange rate fluctuations.
Currently, PTI denominates its price for services and products in U.S. dollars
and does not engage in currency hedging transactions for normal operations;
however, it may engage in hedging transactions in the future. Fluctuations in
exchange rates may affect the results of PTI's international operations reported
in U.S. dollars and the value of such operations' net assets reported in U.S.
dollars. Additionally, the results of operations, financial condition and
competitive position of PTI may be affected by the relative strength of the
currencies in countries where its services and products are sold.
Competition
The markets in which PTI operates are highly competitive. PTI's
competitors include most major power equipment manufacturers, some architectural
engineering companies, and internal engineering departments at utilities and
other PTI customers. In addition, PTI may face competition from new entrants
into these markets and increased competition from existing competitors. PTI has
observed a trend of utilities spinning-off their engineering departments in
connection with deregulation initiatives which creates additional competition
for PTI. The recent trend in the decline in PTI's revenues from its consulting
services business reflects in part the pressure of increasing competition for
the types of consulting services it provides. Also, the distribution of PTI's
software products, while it does generate revenues for PTI, reduces the scope of
the consulting services that PTI will provide on an on-going basis to customers
who purchase its software. A number of PTI's competitors have substantially
greater financial and other resources than PTI presently has or may have in the
future. PTI competes on the basis of such factors as professional expertise,
efficiency of providing services, cost of products and availability of
alternative sources of supply. There can be no assurance that PTI will continue
to be able to provide its services and products in a competitive manner, and its
failure to do so will have a material adverse effect on its operations.
17
<PAGE> 29
Dependence on Electric Power Industry; Risks of Technological Changes
Almost all of PTI's customers are in the electric power industry which is
characterized by continuous technological advances. The domestic electric power
industry is going through a deregulation process and the impact of such
deregulation on the operations of public utilities may have an adverse impact on
their need or desire to obtain services and products from PTI. Due to the
significant reliance of PTI on its PSS/E software, any technological changes
which made PSS/E obsolete could have a significant adverse effect on PTI. In
addition, significant technological changes in the electric power industry could
make PTI's expertise and software obsolete. PTI's future success will depend in
large part on its ability to stay abreast of technology to meet customer needs
as well as to enhance its existing services and products and to make them
cost-effective. Any failure by PTI to anticipate or respond rapidly to
technological advances, new products and enhancements by competitors, or changes
in customer requirements could have a material adverse effect on PTI.
Intellectual Property
PTI's ability to compete effectively will depend, in part, on its ability
to protect its intellectual property, including its patents, trademarks,
copyrights and trade secrets, and on its ability to develop and protect future
intellectual property. In addition to patents, PTI relies on a combination of
trademark registrations, copyrights and confidentiality agreements to protect
its proprietary rights in intellectual property. PTI's ability to compete
effectively also depends on its ability to avoid infringing on the proprietary
rights of others. New patent applications are continually being filed and
prosecuted, and pending U.S. patent applications are confidential until patents
are issued. As a result, it is impossible to anticipate all potential patent
infringement issues. There can be no assurance that the steps taken by PTI to
protect its intellectual property will be adequate to prevent misappropriation
or that others will not independently develop technology or products that
compete with or are superior to the products of PTI. Likewise, there can be no
assurance that PTI will not inadvertently infringe on the intellectual property
rights of others.
Year 2000 Problem
A significant portion of PTI's business (representing approximately 35% of
its net sales for 1997) is sales of its software products. While PTI believes
that the functionality of its software products will not be significantly
adversely affected by the "Year 2000" millennium change, PTI has not yet
completed analyzing all of its software for Year 2000 compliance and some of its
software will require modifications to function properly. PTI does not believe
that any of its software will require significant modifications or that any of
the software that it uses in its business will be significantly adversely
affected by the Year 2000 problem. If PTI's software products are adversely
affected more than PTI expects, if PTI is unable to make timely modifications to
such products or if the cost of necessary modifications is more than PTI
expects, it may have a material adverse effect on PTI. In addition, the overall
demand in the computer industry for software programmers to respond to Year 2000
issues may adversely affect PTI because it may make it more difficult for PTI to
retain computer programmers to develop and maintain its software products.
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<PAGE> 30
SELECTED FINANCIAL DATA
SWI Selected Financial Data
(Historical)
The following table sets forth summary historical financial statement data
of SWI and its subsidiaries on a consolidated basis. The balance sheet and
statement of operations data presented below for each of the years in the
five-year period ended December 31, 1997 are derived from SWI's financial
statements, which have been audited by Coopers & Lybrand L.L.P., independent
accountants. The financial statements as of December 31, 1996 and 1997 and for
each of the years in the three-year period ended December 31, 1997 and the
report of Coopers & Lybrand L.L.P. relating thereto are incorporated by
reference in this Prospectus and Proxy Statement and the summary financial data
presented below are qualified in their entirety by reference thereto. The
balance sheet data as of March 31, 1997 and 1998 and the statement of operations
data for the three-month periods ended March 31, 1997 and 1998 are derived from
SWI's unaudited consolidated financial statements which are also incorporated
herein by reference. In the opinion of SWI management, the unaudited
consolidated financial statements have been prepared on a basis consistent with
the audited consolidated financial statements and include all adjustments, none
of which were other than normal and recurring, necessary for a fair presentation
of the results of operations for these periods. The operating results for the
three months ended March 31, 1997 and 1998 are not necessarily indicative of the
results that may be expected for the entire fiscal year. The data should be read
in conjunction with the historical financial statements and notes thereto, and
related Management's Discussion and Analysis of Financial Condition and Results
of Operations of SWI incorporated by reference in this Prospectus and Proxy
Statement. See "Incorporation Of Certain Documents By Reference." Amounts are in
thousands, except for per share data.
<TABLE>
<CAPTION>
Three
Months Ended
March 31, Years Ended December 31,
------------------- -------------------------
1998 1997 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Statement of Operations Data
Revenues:
Engineering, Construction and
Consulting services ..................... $ 287,097 $ 344,686 $ 1,299,220 $ 1,143,587
Cold Storage and related activities ........ 6,860 4,839 23,320 21,250
Other ...................................... -- -- -- --
Total Revenue ................................ $ 293,957 $ 349,525 $ 1,322,540 $ 1,164,837
Operating income (loss)(4) ................... $ 11,634 $ 8,802 $ 47,292 $ (25,920)
Income (loss) from continuing operations ..... $ 7,613 $ 5,568 $ 33,510 $ (17,431)
Net income (loss)(1,2,3 and 4) ............... $ 7,613 $ 5,568 $ 33,510 $ (10,644)
Weighted average shares of common and
dilutive potential shares outstanding ..... 12,919 12,829 12,929 13,223
Basic income (loss) from continuing
operations per share ....................... $ 0.59 $ 0.43 $ 2.61 $ (1.32)
Diluted income (loss) from continuing
operations per share ....................... $ 0.59 $ 0.43 $ 2.59 $ (1.32)
Basic earnings (loss) per share(1,2,3 and 4) . $ 0.59 $ 0.43 $ 2.61 $ (0.80)
Diluted earnings (loss per share)(1,2,3 and 4) $ 0.59 $ 0.43 $ 2.59 $ (0.80)
Dividends declared per share(5) .............. $ 0.15 $ 0.15 $ 0.60 $ 0.45
Balance Sheet Data
Total assets ................................. $ 722,309 $ 787,408 $ 738,777 $ 692,065
Long-term debt ............................... $ 22,091 $ 23,866 $ 22,510 $ 24,260
<CAPTION>
Years Ended December 31,
---------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Statement of Operations Data
Revenues:
Engineering, Construction and
Consulting services...................... $ 969,284 $ 748,614 $ 1,013,265
Cold Storage and related activities ........ 21,188 17,280 16,914
Other ...................................... 12,347 13,361 16,130
Total Revenue ................................ $ 1,002,819 $ 779,255 $ 1,046,309
Operating income (loss)(4) ................... $ 35,041 $ (42,097) $ 6,813
Income (loss) from continuing operations ..... $ 14,880 $ (7,807) $ (370)
Net income (loss)(1,2,3 and 4) ............... $ 14,880 $ (7,807) $ 1,952
Weighted average shares of common and
dilutive potential shares outstanding ..... 14,376 14,907 14,978
Basic income (loss) from continuing
operations per share ....................... $ 1.04 $ (0.52) $ (0.03)
Diluted income (loss) from continuing
operations per share ....................... $ 1.04 $ (0.52) $ (0.03)
Basic earnings (loss) per share(1,2,3 and 4) . $ 1.04 $ (0.52) $ 0.13
Diluted earnings (loss per share)(1,2,3 and 4) $ 1.04 $ (0.52) $ 0.13
Dividends declared per share(5) .............. $ 0.60 $ 0.60 $ 0.60
Balance Sheet Data
Total assets ................................. $ 716,772 $ 678,384 $ 683,579
Long-term debt ............................... $ 74,677 $ 89,642 $ 47,739
</TABLE>
(1) Reflects gain or loss on sale of assets,which increased net income by
$5,363, or $0.41 per share in 1997, decreased net income by $7,511, or
$0.52 per share in 1995, and increased net income by $21,208 or $1.42 per
share in 1994.
(2) Includes income from divested operations of $1,048 or $0.08 per share in
1997 and an extraordinary gain of $6,787 or $0.52 per share in 1996 on
debt extinguishment from transfer of Auburn VPS Partnership assets to the
construction lenders.
(3) Includes cumulative effect of a change in accounting principle, which
increased net income by $2,322, or $0.16 per share in 1993.
(4) Net income includes a provision for SWI's share of contract losses on a
joint venture in the Middle East of $15,469, or $1.20 per share (operating
income includes $25,781) in 1997, restructuring and other charges of
$28,516 or $2.14 per share (operating income includes $54,424 for these
items) in 1996 (see Notes B, E and I to the 1997 SWI and subsidiaries
consolidated financial statements), a write-down
19
<PAGE> 31
of SWI's equity interest in Binghamton Cogeneration Partnership to fair
value in 1996 which reduced net income by $2,712, or $0.21 per share,
costs associated with the Incentive Retirement Program of $1,416, or $0.10
per share in 1995, pension curtailment gains which increased net income by
$218, or $0.02 per share in 1994 and by $1,072, or $0.07 per share in
1993, severance costs which decreased net income by $12,596, or $0.84 per
share in 1994 and $4,967, or $0.33 per share in 1993 and costs which
decreased net income in 1993 as follows: $5,460, or $0.36 per share,
associated with the Incentive Retirement Program; $1,131, or $0.08 per
share, related to an increase in the statutory federal income tax rate on
corporations from 34 percent to 35 percent; $2,340, or $0.16 per share,
related to a judgment against a subsidiary of SWI, $2,015, or $0.13 per
share, related to an IRS settlement in connection with prior years' income
tax returns and income from asset divestitures of $1,933 or $0.15 per
share (operating income includes $3,066) for the three months ended March
31, 1998.
(5) In the fourth quarter of 1996, SWI changed the quarterly dividend
declaration date to the first month of the quarter from the month
preceding the quarter. This change had no effect on the annual dividend
payment rate of $0.60 per share, although dividends declared in 1996
totaled $0.45 per share.
PTI Selected Financial Data
The following table represents summary historical financial data of PTI
and its subsidiaries on a consolidated basis. The balance sheet and statement of
operations data presented below for the year ended December 31, 1997 are derived
from PTI's financial statements which have been audited by Marvin and Company,
P.C., independent accountants. The balance sheet and statement of operations
data presented below for the years ended December 31, 1996, 1995, 1994 and 1993
and for the three months ended March 31, 1998 and 1997 are derived from the
unaudited financial statements of PTI. In the opinion of PTI's management, the
unaudited consolidated financial statements have been prepared on a basis
consistent with the audited consolidated financial statements and include all
adjustments, none of which were other than normal and recurring, necessary for a
fair presentation of the results of operations for these periods. The data
should be read in conjunction with the historical Consolidated Financial
Statements and notes thereto of PTI included in the Prospectus and Proxy
Statement. Amounts are in thousands, except for per share data.
<TABLE>
<CAPTION>
Three
Months Ended
March 31, Years Ended December 31,
---------------- -------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues ........................ $ 3,613 $ 3,872 $ 18,855 $ 17,565 $ 17,855 $ 19,149 $ 18,532
Net income (loss) ............... $ (337) $ (490) $ 73 $ 151 $ (25) $ 472 $ 491
Weighted average shares of
common and dilutive potential
shares outstanding ............. 317 285 301 286 308 313 312
Basic and diluted earnings (loss)
per share ...................... $ (1.06) $ (1.72) $ 0.24 $ 0.53 $ (0.08) $ 1.51 $ 1.58
Balance Sheet Data:
Total assets .................... $ 12,513 $ 11,714 $ 11,938 $ 12,130 $ 10,796 $ 11,129 $ 9,459
Long-term debt, excluding current
installments ................... $ 1,783 $ 2,450 $ 1,857 $ 2,195 $ 1,598 $ 1,613 $ 1,711
</TABLE>
20
<PAGE> 32
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial data assumes a
business combination between SWI and PTI accounted for as a purchase and is
based on, and should be read in conjunction with, the respective historical
financial statements and the notes thereto of SWI, which are incorporated by
reference in this Prospectus and Proxy Statement, and of PTI, which are included
in this Prospectus and Proxy Statement. See "Available Information" and
"Incorporation of Certain Documents by Reference." Amounts are in thousands,
except for per share data.
The unaudited pro forma combined condensed statement of operations data
combines information from the historical consolidated statements of operations
of SWI and PTI giving effect to the merger as if it occurred at the beginning of
the earliest period presented. Pro forma adjustments made to the combined
condensed statements of operations were to record the amortization of the cost
in excess of net assets acquired (goodwill) of $213 and $58 for the twelve and
three month periods ended December 31, 1997 and March 31, 1998, respectively,
and to record fees and expenses associated with Merger of $400 in 1997. The
combined statement of operations for SWI and PTI for the three month period
ended March 31, 1998 results in revenues of $297,569, operating income of
$11,126, net income of $7,223 and diluted earnings per share of $0.55. The
combined statement of operations for the twelve month period ended December 31,
1997 results in revenues of $1,341,395, operating income of $47,174, net income
of $33,129 and diluted earnings per share of $2.52. Goodwill is being amortized
over a life of 20 years. The unaudited pro forma combined condensed balance
sheet data combines information from the historical consolidated balance sheets
of SWI and PTI giving effect to the Merger as if it had been completed on March
31, 1998. Pro forma adjustments made to the combined condensed balance sheet
data were to record the cost in excess of assets acquired of $4,255, to
eliminate PTI's historical equity balances, and to record the assumed issuance
of 212,723 shares of SWI Common Stock at the assumed Closing Market Value of
$42.31 per share. The combined balance sheet for SWI and PTI at March 31, 1998
results in total assets of $739,076, long-term debt of $23,874, total
liabilities of $378,624 and shareholders' equity of $360,452.
For purposes of the preparation of the unaudited pro forma balance sheet
data, merger related integration expenses were not included. The pro forma
combined financial data does not include adjustments to conform the accounting
policies of PTI to those followed by SWI. The nature and extent of such
adjustments, if any, will be based upon further analysis and are not expected to
be material. The pro forma combined financial data set forth herein is presented
for illustrative purposes only and is not necessarily indicative of the
operating results or financial position that would have been achieved if the
Merger had been consummated as of the beginning of the relevant periods, nor is
it necessarily indicative of the future operating results or financial position
of the combined company. The pro forma combined financial data set forth herein
does not give effect to any cost savings which may result from the integration
of SWI's and PTI's operations.
21
<PAGE> 33
COMPARATIVE PER SHARE FINANCIAL INFORMATION
The following unaudited information reflects certain comparative per share
data related to book value and income (loss) from continuing operations (i) on a
historical basis for SWI Common Stock; (ii) on a pro forma basis per share of
SWI Common Stock giving effect to the Merger; and (iii) on an equivalent pro
forma basis per share of PTI Common Stock giving effect to the Merger.
Equivalent pro forma per share amounts for PTI Common Stock are calculated
assuming that the holder of one share of PTI Common Stock would be entitled to
0.667084 shares of SWI Common Stock for all periods presented (assuming a
Closing Market Value of $42.31 per share, calculated based on the average of the
closing prices of the SWI Common Stock as reported in the NYSE Composite
Transactions for the 30 trading days ended June 5, 1998). The pro forma combined
financial data is not necessarily indicative of the operating results or
financial position that would have been achieved if the Merger had been
consummated as of the beginning of the periods presented, nor is it necessarily
indicative of the future operating results or financial position of the
Surviving Corporation.
The information shown below should be read in conjunction with the
consolidated historical financial statements delivered herewith, and the notes
thereto.
<TABLE>
<CAPTION>
SWI
Three Months Year
Ended Ended
March 31, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
Historical Per Common Share Data
Income from continuing operations:
Basic ......................................... $ 0.59 $ 2.61
Diluted ....................................... $ 0.59 $ 2.59
Cash Dividends .................................. $ 0.15 $ 0.60
Book Value ...................................... $ 27.49 $ 26.92
Pro Forma Per Common Share Data
Income from continuing operations:
Basic ......................................... $ 0.55 $ 2.54
Diluted ....................................... $ 0.55 $ 2.52
Cash Dividends .................................. $ 0.15 $ 0.60
Book Value ...................................... $ 27.73 $ 27.17
PTI
Three Months Year
Ended Ended
March 31, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
Historical Per Common Share Data
Income (loss) from continuing operations:
Basic ......................................... $ (1.06) $ 0.24
Diluted ....................................... $ (1.06) $ 0.24
Cash Dividends .................................. -- --
Book Value ...................................... $ 17.97 $ 18.99
Pro Forma Per Common Share Data
Income from continuing operations:
Basic ......................................... $ 0.37 $ 1.70
Diluted ....................................... $ 0.37 $ 1.68
Cash Dividends .................................. $ 0.10 $ 0.40
Book Value ...................................... $ 18.50 $ 18.13
</TABLE>
22
<PAGE> 34
SWI MARKET PRICE AND DIVIDEND DATA
SWI Common Stock is quoted on the NYSE. The table below sets forth, for
the periods indicated, the reported high and low closing sales prices for SWI
Common Stock as reported in the NYSE Composite Transactions and the cash
dividends paid on each share of SWI Common Stock.
<TABLE>
<CAPTION>
High Low Dividend
---- --- --------
<S> <C> <C> <C>
1996
First Quarter...................... $ 36 $ 32 5/8 $0.15
Second Quarter..................... 37 3/8 32 0.15
Third Quarter...................... 35 3/8 28 5/8 0.15
Fourth Quarter..................... 34 1/8 30 0.15
1997
First Quarter...................... $37 1/2 $31 1/8 $0.15
Second Quarter..................... 45 3/8 36 0.15
Third Quarter...................... 55 41 7/8 0.15
Fourth Quarter..................... 55 1/8 41 1/4 0.15
1998
First Quarter...................... $47 $37 3/4 $0.15
Second Quarter (through June 25)... 50 9/16 37 7/8 --
</TABLE>
On April 17, 1998, the last full trading day before the execution and
delivery of the Merger Agreement and the public announcement thereof, the
closing price of SWI Common Stock as reported in the NYSE Composite Transactions
was $48.88 per share. Based on a conversion factor of 0.667084 shares of SWI
Common Stock for each share of PTI Common Stock (assuming a Closing Market Value
of $42.31 per share, calculated based on the average of the closing prices of
the SWI Common Stock as reported in the NYSE Composite Transactions for the 30
trading days ended June 5, 1998), the pro forma equivalent per share value of
PTI Common Stock on June 5, 1998 was $28.22 per share.
SWI has purchased and may continue to purchase from time to time shares of
SWI Common Stock on the NYSE, or otherwise. However, there is no assurance that
SWI will continue to purchase shares of its Common Stock. Also, see Note L to
the consolidated financial statements set forth in the Annual Report on Form
10-K for the fiscal year ended December 31, 1997, incorporated by reference
herein. The approximate number of record holders of SWI Common Stock as of
December 31, 1997 was 5,400. The SWI Common Stock is also listed for trading on
the Boston Stock Exchange.
On ______________, 1998, the most recent practicable date before the
printing of this Prospectus and Proxy Statement, the closing price of SWI Common
Stock as reported in the NYSE Composite Transactions was $ per share.
Because the market price of SWI Common Stock is subject to fluctuation,
the number of shares of SWI Common Stock that holders of PTI Common Stock will
receive in the Merger may increase or decrease prior to the Merger. PTI
shareholders are urged to obtain a current market quotation of SWI Common Stock.
PTI is a privately held company and there is no public market for PTI
Common Stock. PTI did not pay any dividends on shares of PTI Common Stock in
calendar years 1995, 1996 or 1997.
23
<PAGE> 35
THE PTI ANNUAL MEETING
Record Date; Outstanding Securities
The PTI Annual Meeting will be held on July ___, 1998, at 3:00 p.m., at
the headquarters offices of PTI. At the PTI Annual Meeting, the shareholders of
PTI will be asked to (i) elect a class consisting of three directors of PTI,
(ii) consider and vote on a proposal to amend the Certificate of Incorporation
of PTI to limit the liability of the directors of PTI to PTI and the
shareholders of PTI for certain breaches of fiduciary duties, and (iii) consider
and vote on a proposal to approve and adopt the Merger Agreement. The holders of
Class A Common Stock and Class C Common Stock of PTI are entitled to vote with
respect to all matters presented at the PTI Annual Meeting; however, the holders
of Class B Common Stock of PTI are entitled to vote only with respect to the
approval of the Merger Agreement. The holders of shares of PTI Common Stock at
the close of business on the Record Date of June ___, 1998 are entitled to
notice of and to vote at the PTI Annual Meeting. At such date, [247,080.58]
shares of Class A Common Stock, [49,704.49] shares of Class B Common Stock and
[22,100] shares of Class C Common Stock were outstanding. Each share of PTI
Common Stock entitles the holder thereof to one vote at the PTI Annual Meeting
for each matter with respect to which such share entitles the holder thereof to
vote. Abstentions will be counted for purposes of determining a quorum, but will
have the effect of votes against the adoption and approval of the Merger
Agreement and the Certificate Amendment. Shares not represented at the PTI
Annual Meeting will also have the effect of votes against the adoption and
approval of the Merger Agreement and the Certificate Amendment.
Purposes of the PTI Annual Meeting
Election of Directors
In accordance with PTI's By-Laws, the PTI Board of Directors is divided
into two classes. The PTI Board presently has seven members, and the term of
three of the PTI directors will expire at the PTI Annual Meeting. The three
directors to be elected at the PTI Annual Meeting will be elected to serve until
the 2000 PTI Annual Meeting of the PTI shareholders, and until their successors
are duly elected and qualified, or until their earlier resignation or removal.
Upon the consummation of the Merger, the existing members of the PTI Board of
Directors (other than Steven J. Balser) will be replaced by the directors of the
Merger Sub by virtue of the Merger. Only holders of shares of Class A Common
Stock and Class C Common Stock outstanding as of the Record Date are entitled to
vote in connection with the election of directors, and the presence, in person
or by proxy, at the PTI Annual Meeting of the holders of a majority of such
shares is necessary to constitute a quorum at the PTI Annual Meeting for such
purpose. The directors will be elected by a plurality of the votes cast by the
holders of Class A Common Stock and Class C Common Stock at the PTI Annual
Meeting (the highest number of votes cast even if less than a majority) if a
quorum is present. THE PTI BOARD RECOMMENDS THAT THE PTI SHAREHOLDERS VOTE FOR
EACH OF THE NOMINEES LISTED BELOW. PROXIES AND VOTING INSTRUCTIONS WHICH ARE
EXECUTED WITHOUT SPECIFICATION WILL BE VOTED FOR THE ELECTION OF THE NOMINEES
LISTED BELOW, ALL OF WHOM ARE NOW DIRECTORS OF PTI: DALE A. DOUGLASS, F.S.
PRABHAKARA AND MARY A. SAGER.
Amendment of PTI's Certification of Incorporation
On June 16, 1998, the PTI Board of Directors approved the Certificate of
Amendment to amend PTI's Certificate of Incorporation to limit the personal
liability of PTI's directors to PTI and PTI's shareholders for damages for any
breach of their duties as directors. The liability of each PTI director is not
limited if (i) a judgment or other final adjudication adverse to such director
establishes that such director's acts or omissions were in bad faith or involved
intentional misconduct or a knowing violation of law, (ii) such director
personally gained in fact a financial profit or other advantage to which such
director was not legally entitled, or (iii) such director's acts violated
certain provisions of the NYBCL prohibiting certain actions by directors. The
Certificate Amendment will not affect any liabilities of directors of PTI for
acts or omissions prior to the amendment of PTI's Certificate of Incorporation.
24
<PAGE> 36
Only holders of shares of Class A Common Stock and Class C Common Stock
outstanding as of the Record Date are entitled to vote in connection with the
Certificate Amendment, and the presence, in person or by proxy, at the PTI
Annual Meeting of the holders of a majority of such shares is necessary to
constitute a quorum at the PTI Annual Meeting for such purpose. The affirmative
vote of holders of a majority of the Class A Common Stock and Class C Common
Stock outstanding as of the Record Date is required to approve and adopt the
Certificate Amendment. THE PTI BOARD RECOMMENDS THAT THE PTI SHAREHOLDERS VOTE
FOR THE ADOPTION AND APPROVAL OF THE CERTIFICATE AMENDMENT. PROXIES AND VOTING
INSTRUCTIONS WHICH ARE EXECUTED WITHOUT SPECIFICATION WILL BE VOTED FOR THE
ADOPTION AND APPROVAL OF THIS PROPOSAL.
The Merger Agreement
At the PTI Annual Meeting, the shareholders of PTI will consider and vote
upon a proposal to adopt the Merger Agreement pursuant to which (i) the Merger
and the other transactions contemplated by the Merger Agreement are to be
consummated and (ii) holders of PTI Common Stock are to receive shares of SWI
Common Stock constituting the Initial Merger Consideration and the Rights to
receive the Contingent Merger Consideration, Additional Contingent Shares and
Transasia Consideration, if any, in exchange for the PTI Common Stock held by
each of them as of the Effective Time of the Merger.
The holders of all outstanding shares of PTI Common Stock as of the Record
Date (including the holders of Class B Common Stock) are entitled to vote in
connection with the Merger Agreement. Consideration of the Merger Agreement
requires a quorum consisting of a majority of all shares of PTI Common Stock
outstanding as of the Record Date and a separate majority of each class of PTI
Common Stock outstanding as of the Record Date. The affirmative vote of the
holders of two-thirds of all outstanding shares of PTI Common Stock and the
affirmative vote of the holders of a majority of each class of PTI Common Stock,
voting as a separate class, is required to approve and adopt the Merger
Agreement. SWI and its directors and executive officers do not own any shares of
PTI Common Stock. The officers and directors of PTI collectively own
beneficially approximately 42% of the Class A PTI Common Stock, 2% of the Class
B PTI Common Stock, 2% of the Class C PTI Common Stock and [41.7%] of the
aggregate of all classes of PTI Common Stock outstanding as of the Record Date
and have agreed to vote such shares in favor of the approval and adoption of the
Merger Agreement. See "PTI Share Ownership." THE PTI BOARD BELIEVES THAT THE
MERGER IS IN THE BEST INTERESTS OF PTI AND ITS SHAREHOLDERS AND UNANIMOUSLY
RECOMMENDS A VOTE TO ADOPT AND APPROVE THE MERGER AGREEMENT. PROXIES AND VOTING
INSTRUCTIONS WHICH ARE EXECUTED WITHOUT SPECIFICATION WILL BE VOTED FOR THE
ADOPTION AND APPROVAL OF THIS PROPOSAL.
Voting of Shares of PTI Common Stock Held by the ESOP
Pursuant to the terms of PTI's ESOP, the participants in the ESOP are
entitled to direct the trustee of the ESOP how to vote shares of Class C Common
Stock which are held by the ESOP and have been allocated to their respective
accounts. The ESOP provides that the ESOP trustee must vote any unallocated
shares in proportion to the votes cast on each issue by the participants in the
ESOP. As a result, if participants in the ESOP direct the ESOP trustee to vote
more allocated shares in favor of the Merger than against the Merger, the
separate class vote of the Class C Common Stock will be satisfied. A Voting
Instructions Form for participants to direct the ESOP trustee how to vote shares
allocated to their accounts is enclosed with this Prospectus and Proxy
Statement. An ESOP participant may change his or her direction to the ESOP
trustee by submitting new Voting Instructions prior to the date of the PTI
Annual Meeting.
25
<PAGE> 37
Voting of Proxies
All proxies that are properly executed and returned will be voted at the
PTI Annual Meeting in accordance with the instructions thereon, unless
previously revoked. With regard to any other business not specified above that
may properly come before the PTI Annual Meeting, shares represented by properly
executed proxies will be voted at the discretion of the persons named in the
relevant proxy. The execution and return of a proxy will not affect a
shareholder's right to attend the PTI Annual Meeting and vote in person.
ANY PTI SHAREHOLDER GIVING A PROXY HAS THE POWER TO REVOKE THE PROXY PRIOR
TO ITS EXERCISE. A PROXY MAY BE REVOKED BY (A) FILING WITH THE SECRETARY OF PTI
OR THE INSPECTOR OF ELECTIONS, AT OR BEFORE THE TAKING OF THE VOTE AT THE PTI
ANNUAL MEETING, (1) A WRITTEN NOTICE OF REVOCATION SPECIFYING THE NUMBER OF
SHARES AND CLEARLY IDENTIFYING THE PROXY TO BE REVOKED OR (2) A NEW, DULY
EXECUTED PROXY BEARING A LATER DATE, OR (B) ATTENDING THE PTI ANNUAL MEETING AND
VOTING IN PERSON (ALTHOUGH ATTENDANCE AT THE MEETING WILL NOT IN AND OF ITSELF
CONSTITUTE A REVOCATION OF A PROXY).
Dissenters' Rights
If the Merger is consummated, holders of PTI Common Stock will be entitled
to dissenters' rights under the NYBCL, provided that they comply with the
conditions established by Sections 910 and 623.
Section 910 of the NYBCL sets forth the rights of shareholders of PTI who
object to the Merger and provides that any shareholder of PTI who strictly
complies with the requirements of Section 623 of the NYBCL, a copy of which is
attached as Appendix B hereto ("Section 623") and does not vote in favor of the
Merger or duly revokes his or her vote in favor of the Merger has the right to
obtain payment in cash of the fair value of his or her PTI Common Stock if the
Merger is consummated.
To qualify as a dissenting shareholder, a shareholder must file with PTI,
before the taking of the vote on the Merger, a written objection including (i) a
statement of election to dissent, (ii) the shareholder's name and residence
address, (iii) the number and class of shares of PTI Common Stock as to which
dissent is made (which number may not be less than all of the shares as to which
such shareholder has a right to dissent) and (iv) a demand for payment of the
fair value of such shares if the Merger is consummated. Any such written
objection should be addressed to: Gordon B. Hirschman, Secretary, Power
Technologies, Inc., 1482 Erie Boulevard, Schenectady, New York 12301.
Within 10 days after the vote of shareholders authorizing the Merger, PTI
must give written notice of such authorization to each such dissenting
shareholder. Within 20 days after the giving of such notice, any shareholder to
whom PTI failed to give notice of the PTI Annual Meeting (and who was entitled
to such notice) who elects to dissent from the Merger must file with PTI a
written notice of such election, stating (i) the shareholder's name and
residence address, (ii) the number and class of shares of PTI Common Stock as to
which dissent is made (which number may not be less than all of the shares as to
which such shareholder has a right to dissent) and (iii) a demand for payment of
the fair value of such shares if the Merger is consummated.
At the time of filing a notice of election to dissent or within one month
thereafter, a dissenting shareholder must submit certificate(s) representing the
applicable shares to PTI or its transfer agent, Liberty Transfer Co., for
notation thereon of the election to dissent, after which such certificates will
be returned to the shareholder. Any shareholder who fails to submit his or her
share certificates for such notation shall, at the option of PTI exercised by
written notice to the shareholder within 45 days from the date of filing of the
notice of election to dissent, lose such shareholder's appraisal rights unless a
court, for good cause shown, shall otherwise direct.
Within 15 days after the expiration of the period within which
shareholders may file their notices of election to dissent, or within 15 days
after consummation of the Merger, whichever is later (but not later than 90 days
after the shareholders' vote authorizing the Merger), PTI must make a written
offer (which, if the Merger has not been consummated within the 90 day period
after the shareholders' vote authorizing the Merger, may be conditioned upon
26
<PAGE> 38
such consummation) to each shareholder who has filed such notice of election to
pay for the shares at a specified price which PTI considers to be their fair
value based on the fair value of the shares as of the close of business on the
day prior to the shareholders' vote authorizing the Merger. If PTI and the
dissenting shareholder are unable to agree as to such value, Section 623
provides for judicial determination of fair value based on the fair value of the
shares as of the close of business on the day prior to the shareholders' vote
authorizing the Merger. In the event of such a disagreement, a proceeding shall
be commenced by PTI in the Supreme Court of the State of New York, County of
Albany, or by the dissenting shareholder if PTI fails to commence the proceeding
within the time period required by Section 623. PTI intends to commence such a
proceeding in the event of such a disagreement.
A negative vote on the Merger does not constitute a "written objection"
filed by an objecting shareholder. Failure by a shareholder to vote against the
Merger will not, however, constitute a waiver of rights under Section 623
provided that a written objection has been properly filed and such shareholder
has not voted in favor of the Merger.
The foregoing does not purport to be a complete statement of the
provisions of Section 623 and is qualified in its entirety by reference to said
Section, a copy of which is attached hereto in full as Appendix B. Each
shareholder intending to exercise dissenter's rights should review Appendix B
carefully and consult such shareholder's counsel for a more complete and
definitive statement of the rights of a dissenting shareholder and the proper
procedure to follow to exercise such rights.
Solicitation of Proxies
All expenses of this solicitation, excluding SWI's costs incurred in
preparing and printing this Prospectus and Proxy Statement but including PTI's
costs incurred in preparing and mailing this Prospectus and Proxy Statement,
will be borne by PTI. In addition to solicitation by use of the mails, proxies
may be solicited by directors, officers and employees of PTI in person or by
telephone, telegram or other means of communication. Such directors, officers
and employees will not receive additional compensation, but may be reimbursed
for reasonable out-of-pocket expenses in connection with such solicitation.
Other Matters
At the date of this Prospectus and Proxy Statement, the Board of Directors
of PTI does not know of any business to be presented at the PTI Annual Meeting
other than as set forth in the notice accompanying this Prospectus and Proxy
Statement. If any other matters should properly come before the PTI Annual
Meeting, it is intended that the shares represented by proxies will be voted
with respect to such matters in accordance with the judgment of the person named
in such proxies.
Further Information
If you have any questions about giving your PTI proxy, directing the ESOP
Trustee how to vote your shares held by the ESOP or executing the Shareholders'
Committee Agreement or otherwise require assistance, please contact Eileen M.
Hanafin or Kathleen B. Rose at the following address or telephone number: Power
Technologies, Inc., 1482 Erie Boulevard, Schenectady, New York 12301 (telephone
518-395-5000).
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<PAGE> 39
THE MERGER
The detailed terms of and conditions to the consummation of the Merger are
contained in the Merger Agreement, a conformed copy of which is attached hereto
as Appendix A and incorporated herein by reference. The following discussion
sets forth a description of the material terms and conditions of the Merger and
the Merger Agreement and is qualified by, and made subject to, the more complete
information set forth in the Merger Agreement.
General
SWI's acquisition of PTI is structured as a merger of the Merger Sub into
PTI. Immediately following the Merger, PTI will be the Surviving Corporation and
will be a wholly-owned subsidiary of SWI. As soon as practicable following the
Effective Time, SWI will transfer all shares of the Surviving Corporation to
SWMCI so that the Surviving Corporation will become a wholly-owned subsidiary of
SWMCI. In connection with the Merger, Participating Holders will be entitled to
receive the following:
o the Initial Merger Consideration, consisting of a maximum number of shares
of SWI Common Stock, equal to (i) the lesser of 1.5 times the
stockholders' equity of PTI at December 31, 1997 and $9,000,000, divided
by (ii) the Closing Market Value;
o if and to the extent that certain milestones based on the Final Cumulative
Net Earnings are achieved, all or a portion of the Contingent Merger
Consideration, consisting of a maximum number of shares of SWI Common
Stock equal to $8,000,000 divided by the Closing Market Value;
o in the event that all or a portion of the Contingent Merger Consideration
becomes payable and certain other conditions are satisfied, the Additional
Contingent Shares consisting of a maximum number of shares of SWI Common
Stock equal to $500,000 divided by the average of the closing prices of
the SWI Common Stock as reported in the NYSE Composite Transactions for
the ten trading days ending on the third trading day prior to the date on
which such shares are paid; and
o the Transasia Consideration consisting of the amount, up to a maximum of
20% of the value of the other Merger Consideration and net of any taxes or
expenses incurred with respect to collecting and administering such
amounts, of all payments paid to the Surviving Corporation, if any, during
the period from January 1, 1998 through the date that the Contingent
Merger Consideration is determined, as development fees or on account of
PTI's carried interest under the Transasia Agreements, together with the
net proceeds from the disposition of or modification to any such rights.
The Initial Merger Consideration is payable at the Effective Time, and any
Contingent Merger Consideration and Transasia Consideration to which the
Participating Holders are entitled become payable as soon as practicable
following the computation of the Contingent Merger Consideration (which, except
in certain circumstances described in "- Contingent Consideration," cannot occur
until after December 31, 2002) but in any event prior to the fifth anniversary
of the Closing. Any Additional Contingent Shares to which the Participating
Holders are entitled will become payable as soon as practicable after the number
of Additional Contingent Shares is determined (which cannot, except in certain
circumstances described in "-- Contingent Consideration," occur prior to August
30, 2003).
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<PAGE> 40
If there are Dissenting Holders, the Participating Holders will be
entitled to receive, in the aggregate, the Initial Merger Consideration and
Contingent Merger Consideration multiplied by the Participation Percentage (the
number of shares of PTI Common Stock owned by the Participating Holders divided
by the total number of outstanding shares of PTI Common Stock); otherwise, all
PTI shareholders will be Participating Holders and will be entitled to receive,
in the aggregate, all of the Initial Merger Consideration and Contingent Merger
Consideration. The presence of Dissenting Holders will not affect the aggregate
number of Additional Contingent Shares or the amount of Transasia Consideration.
The Dissenting Holders will not be entitled to receive any of the Merger
Consideration but will be entitled to receive cash equal to the fair value of
their shares of PTI Common Stock. See "The PTI Annual Meeting -- Dissenters'
Rights."
The Merger will become effective after the conditions specified in the
Merger Agreement have been met. SWI and PTI have targeted the third quarter of
calendar 1998 for completion of the Merger. See "The Merger -- Effective Time,"
and "-- Conditions of Merger." Notwithstanding the foregoing in addition to
certain other events which may result in a party having a right to terminate the
Merger Agreement, (i) PTI has the right to terminate the Merger Agreement on the
second business day before the Closing date if the Closing Market Value is
greater than the Ceiling Amount ($60.00) unless SWI notifies PTI before 5:00
p.m. EST on the day before the Closing date of its intention to fix the Closing
Market Value at the Ceiling Amount, and (ii) SWI has the right to terminate the
Merger Agreement on the second business day before the Closing date if the
Closing Market Value is less than the Floor Amount ($35.00) unless PTI notifies
SWI before 5:00 p.m. EST on the day before the Closing Date of its intention to
fix the Closing Market Value at the Floor Amount. If the Closing Market Value
was computed based on the 30 trading days ending on the day immediately
preceding the date of this Prospectus and Proxy Statement, the Closing Market
Value would be $_____.
Background of the Merger
Due, in part, to liquidity concerns which began in 1995, PTI's management
determined that it was necessary for PTI to raise capital from sources other
than its employees to enable it to achieve its operating objectives and redeem
stock owned by employees who were nearing retirement. To this end, PTI
approached a number of companies with businesses that it considered to have
synergies with PTI's business proposing that such companies make an investment
in PTI by purchasing a 25% or more interest in PTI. As part of this process, PTI
initiated discussions with SWMCI, SWI's management consulting subsidiary. Both
companies were familiar with each other based on previous joint projects.
During subsequent visits from March 1996 to June 1997 between Steven J. Balser
of PTI, Richard Hieber, Victor Blanchett and Robert McWhinney, Jr. of SWMCI and
H. Kerner Smith and other members of management of SWI, SWI and PTI continued
to discuss potential investment alternatives.
In 1997, PTI's management determined that it would be unable to raise the
necessary capital by selling an interest in PTI and concluded that it would be
in the best interest of PTI's shareholders to pursue a sale of the company. In
September 1997, PTI circulated an offering binder soliciting purchase proposals
from a number of potential acquirors. PTI discussed transactions with a number
of potential partners and found the opportunities presented by the preliminary
offer from SWI the most attractive. After an initial period of investigation,
discussions were initiated among the parties, their representatives and
consultants, and a Letter of Intent was signed on October 31, 1997. After a
subsequent period of due diligence by both parties, the Merger Agreement was
negotiated and signed on April 20, 1998, subject to the approval of the
shareholders of PTI.
PTI's Reasons for the Merger
The PTI Board believes that the Merger will result in greater value to
PTI's shareholders than would likely have been realized by them in the
foreseeable future through the continued independent operation of PTI.
In reaching its determination, the PTI Board considered the anticipated
advantages of the Merger to PTI's shareholders and to PTI itself. The primary
benefit to PTI's shareholders is the immediate increase in the liquidity of
their investment coupled with a continued ability to benefit from PTI's success
during the period from January 1, 1998 through December 31, 2002. The PTI Common
Stock that they own is subject to transfer restrictions and there is no market
on which it can be traded, whereas the SWI Common Stock they will receive in
connection with
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<PAGE> 41
the Merger will be free from transfer restrictions (other than some securities
law requirements that must be complied with by certain PTI affiliates) and may
be freely traded on the NYSE. Due to limited capital resources, PTI has been
unable to repurchase shares of PTI Common Stock owned by employees of PTI when
they terminate their employment with PTI. In addition, several large
shareholders of PTI are nearing retirement and if PTI were unable to purchase
their shares, a significant percentage of PTI Common Stock would be owned by
non-employees, creating greater conflicts in the operation of PTI. PTI's
inability to redeem this PTI Common Stock was a significant factor in the PTI
Board's decision to pursue the Merger.
The PTI Board believes that PTI will benefit from its relationship with
SWI because it will have access to additional capital through SWI and will be
able to take advantage of business opportunities presented by SWI and its
affiliates. The PTI Board believes that SWI, through its relationships and
business, will be able to assist PTI by identifying potential projects and
enhancing PTI's ability to be selected for such projects. The Board also
believes that SWI will enable PTI to further enhance and expand its expertise.
To the extent that the Surviving Corporation is successful following the Merger
due to the additional capital and support from SWI, the Participating Holders
will share in that success until December 31, 2002 through their right to
receive the Contingent Merger Consideration and, to the extent that they are and
continue to be employees of the Surviving Corporation, will benefit from a
continued employment relationship with the Surviving Corporation.
The PTI Board considered that the consummation of the Merger necessarily
means that PTI's shareholders will not benefit directly from any increase in the
value of PTI which might be achieved if it were to continue to operate
independently. In order to achieve such increased value, however, the PTI Board
believes that PTI would be required to expand the scope of its operations in
order to obtain economies of scale and to increase revenues. The PTI Board
believes that the additional financing that would be required to achieve these
objectives might not be available on satisfactory terms, if at all. Accordingly,
in evaluating the Merger, the PTI Board considered PTI's immediate and
foreseeable prospects for such expansion and concluded that the Merger provides
the best available alternative to maximize shareholder value.
SWI's Reasons for the Merger
The SWI Board believes that the Merger is in the best interests of SWI
and, therefore, has unanimously approved the Merger Agreement and the
transactions contemplated thereby.
The SWI Board reviewed information about PTI available to it from PTI's
management and other sources and assessed PTI's financial condition. After
considering this information, the SWI Board concluded that the anticipated
business advantages of the Merger favored adoption of the Merger Agreement and
consummation of the Merger.
SWI's business strategy is to deliver superior returns to its shareholders
and to create shareholder wealth through building and refining its core
business. It attempts to do this by providing best in class full service to its
clients, customers and business partners in engineering, construction and
consulting for the Power, Process, Environmental/Infrastructure and Industrial
markets, while exceeding their expectations. An element of this strategy
involves an acquisition program under which the management of SWI has begun to
search for companies which can contribute to its long term growth in a
significant way, which will complement the existing and planned business
development, and which can be integrated at reasonable cost.
The SWI Board believes that PTI possesses a unique combination of
commercial assets that are attractive to SWI. Among these assets is a strong and
reputable electric systems consulting practice that specializes in the analysis
of the technical phenomena that are associated with reliable and cost effective
delivery of electric power. PTI's consulting practice, along with a base of
educational courses and training programs, complements SWI's objective to offer
a wide array of services to the energy industry. PTI also possesses a globally
recognized portfolio of computer software programs that are used to plan,
design, operate and control segments of an electric power system and has
demonstrated an ability to effectively produce, distribute and support its
portfolio of software products. PTI's software business is particularly
attractive to SWI because a single software sale can produce a high margin
revenue stream. The consulting services component of PTI also serves as a
natural conduit for new ideas and functionality which often take the form of new
or upgraded software products. Moreover, with clients and sales
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<PAGE> 42
representatives in over 70 countries outside the U.S., the SWI Board believes
that PTI has developed a well known and respected brand name that could be very
valuable in SWI's international business development efforts. The technical
skills of PTI's staff also complement the management, financial, regulatory and
policy strengths of SWI. The SWI Board believes that the technical skills of PTI
personnel will also be an important contributor to the analysis and valuation of
energy industry assets, particularly in the Lender's Advisory Services and the
Energy Markets Analysis businesses of SWI, where SWI is retained on behalf of
sellers, buyers and lenders to provide advice on the disposition, acquisition or
securitization of assets. The SWI Board believes that the structure of the
transaction as a merger with PTI, rather than as a purchase of assets, will
allow SWI to benefit from the goodwill associated with the PTI business and the
strength and reputation of PTI's personnel through their continued relationship
with the Surviving Corporation.
The SWI Board not only considered the benefits that could arise from the
Merger, but also considered certain adverse factors, including the dilution to
holders of SWI Common Stock resulting from the issuance of the shares of SWI
stock in the Merger and the potential contingent liabilities associated with
PTI's business, which SWI estimated would not be material. The SWI Board
concluded, in its business judgment, that the factors favoring adoption of the
Merger Agreement outweighed the Merger's potential adverse effect.
Manner and Basis of Converting Shares
At the Effective Time, the Participating Shares will be converted
automatically into and become the right to receive (i) a proportionate share,
based on the total number of Participating Shares, of the aggregate Initial
Merger Consideration, and, to the extent payable, the Contingent Merger
Consideration payable to the Participating Holders, (ii) a portion of any
Additional Contingent Shares payable to the Participating Holders which will be
based on the respective tax liabilities of the Participating Holders incurred as
a result of the payment of the Contingent Merger Consideration, and (iii) to the
extent payable, the Transasia Consideration payable to the Participating
Holders.
As soon as practicable following the Effective Time, SWI will mail to each
Participating Holder a letter of transmittal and other information advising such
holder of the consummation of the Merger and explaining how to exchange PTI
Common Stock certificates for SWI Common Stock certificates representing the
portion of the Initial Merger Consideration to which such Participating Holder
is entitled. Letters of transmittal will also be available following the
Effective Time at the offices of SWI in Boston, Massachusetts. After the
Effective Time, there will be no further registration of transfers on the stock
transfer books of PTI of shares of PTI Common Stock that were outstanding
immediately prior to the Effective Time. Share certificates should not be
surrendered for exchange by shareholders of PTI prior to the Effective Time and
the shareholder's receipt of a letter of transmittal.
No fractional shares of SWI Common Stock will be issued in the Merger.
Each shareholder of PTI otherwise entitled to a fractional share will receive an
amount in cash equal to the value of such fractional share based upon the price
of SWI Common Stock used as the divisor in the calculation of the Merger
Consideration. No interest will be paid on such amount, and all shares of PTI
Common Stock held by a record holder shall be aggregated for purpose of
computing the amount of such payment.
Until surrendered and exchanged, each certificate previously evidencing
PTI Common Stock will represent solely the right to receive the Merger
Consideration and cash in lieu of fractional shares. Unless and until any such
certificates are surrendered and exchanged, no dividends or other distributions
payable to the holders of record of SWI Common Stock as of any time on or after
the Effective Time will be paid to the holders of such certificates previously
evidencing PTI Common Stock; however, when such certificates are surrendered and
exchanged the record holders of the certificates issued and exchanged therefor
will be paid (i) the amount, without interest thereon, of dividends and other
distributions, if any, with a record date on or after the Effective Time
theretofore paid with respect to such whole shares of SWI Common Stock, and (ii)
at the appropriate payment date, the amount of dividends or other distributions,
if any, with a record date on or after the Effective Time but prior to surrender
and a payment date occurring after surrender, payable with respect to such whole
shares of SWI Common Stock.
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<PAGE> 43
Initial Merger Consideration
The Initial Merger Consideration consists of a number of shares of SWI
Common Stock, equal to (i) the lesser of 1.5 times the stockholders' equity of
PTI at December 31, 1997 and $9,000,000, (ii) divided by the Closing Market
Value (the average of the closing price of SWI Common Stock as reported in the
NYSE Composite Transactions for the 30 trading days ending on the third trading
day prior to the Closing Date) and (iii) multiplied by the Participation
Percentage. The Initial Merger Consideration will be allocated among the
Participating Holders pro rata based upon their respective holdings of PTI
Common Stock.
A number of the shares of SWI Common Stock payable as Initial Merger
Consideration equal to $1,000,000 divided by the Closing Market Value and
multiplied by the greater of the Participation Percentage and 95% will be held
in the Escrow to satisfy indemnity obligations based on representations,
warranties or covenants of PTI and the Principal Shareholders contained in the
Merger Agreement. The Escrow will be held until January 15, 2000 or until claims
made by SWI during such period are resolved. In addition, a separate escrow will
be established by the Shareholders' Committee to satisfy expenses incurred by
the Shareholders' Committee (including without limitation legal and accounting
fees and expenses and compensation paid to members of the Shareholders'
Committee), and a portion of the Initial Merger Consideration equal to the
number of shares of SWI Common Stock determined by dividing $250,000 by the
Closing Market Value will be deposited into that escrow. The number of shares of
Initial Merger Consideration that are received by each Participating Holder
(whether or not they execute a Shareholders' Committee Agreement) will be
proportionately reduced to take into account the shares of SWI Common Stock
placed in the Escrow or the escrow to fund the Stockholders' Committee's
expenses. Any shares of SWI Common Stock deposited in such escrow accounts which
are not used to satisfy indemnification obligations or expenses of the
Shareholders' Committee will be distributed by the Shareholders' Committee to
the Participating Holders in the same proportions as the Initial Merger
Consideration was distributed.
Contingent Consideration
In addition to the Initial Merger Consideration, the Participating Holders
will receive Rights entitling them to receive additional consideration (the
"Contingent Consideration") provided that certain conditions are met. The
"Contingent Consideration" consists of (i) the Contingent Merger Consideration,
(ii) the Additional Contingent Shares and (iii) the Transasia Consideration. The
Contingent Merger Consideration and the Transasia Consideration will be
allocated among the Participating Holders pro rata based upon their respective
holdings of PTI Common Stock and the Additional Contingent Shares will be
allocated based on the respective tax liabilities of the Participating Holders
entitled to receive Additional Contingent Shares. The following describes how
each type of Contingent Consideration will be determined and the conditions
under which each type of Contingent Consideration will be paid, if at all. The
Rights of the Participating Holders to receive the Contingent Consideration (i)
are personal to each such Participating Holder; (ii) are not transferable,
except by operation of law or by the laws of descent and distribution; (iii) do
not constitute any equity or ownership interest in the Surviving Corporation,
SWI or SWMCI and (iv) do not entitle the holder to any voting or dividend rights
or any other rights common to shareholders.
Contingent Merger Consideration
The amount of Contingent Merger Consideration, if any, payable to the
Participating Holders depends on the extent to which certain milestones based on
the Final Cumulative Net Earnings during the Contingent Period are achieved. If
the Final Cumulative Net Earnings for the Contingent Period equal or exceed
$11,327,000 (the "Full Payment Milestone") then the Participating Holders will
be entitled to receive the entire amount of the Contingent Merger Consideration
(equal to a number of shares of SWI Common Stock calculated as $8,000,000
divided by the Closing Market Value and multiplied by the Participation
Percentage). If the Final Cumulative Net Earnings for the Contingent Period is
less than the Full Payment Milestone but more than $3,960,000 (the "Minimum
Payment Milestone"), then the Participating Holders will be entitled to a pro
rata portion of the Contingent Merger Consideration equal to (i) the maximum
Contingent Merger Consideration, (ii) multiplied by a fraction, the numerator of
which will be equal to the Final Cumulative Net Earnings less the Minimum
Payment Milestone and the denominator of which will be equal to $7,367,000 (the
Full Payment Milestone less the Minimum
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Payment Milestone) and (iii) the resulting product multiplied by the
Participation Percentage. If the Final Cumulative Net Earnings for the
Contingent Period is less than the Minimum Payment Milestone, then the
Participating Holders will not be entitled to any portion of the Contingent
Merger Consideration. As described below, certain amounts may be deducted by SWI
from the amounts otherwise payable as Contingent Merger Consideration to (i)
satisfy claims for indemnification made by SWI and SWMCI and (ii) offset certain
expenses incurred in determining the Final Cumulative Net Earnings. In the event
of any transaction involving a change in identity, form or jurisdiction of
incorporation of SWI or a recapitalization, reclassification or change of
outstanding shares of SWI Common Stock (other than a change in par value or an
event which can be adjusted for by changing the Closing Market Value) which
results in the SWI Common Stock being converted into or exchanged for one or
more different classes or kinds of voting stock of SWI (each, a
"Reclassification Event"), each Participating Holder will thereafter have the
right to receive, in lieu of the Contingent Merger Consideration, the kind and
amount of voting stock which would have been issued to such Participating Holder
if the Contingent Merger Consideration had been paid immediately prior to such
Reclassification Event.
The Contingent Merger Consideration, if any, will be payable as soon as
practicable after the determination of the Final Cumulative Net Earnings. The
right to receive the Contingent Merger Consideration, however, may be
accelerated in the event of: (i) a business combination transaction between SWI
and any other entity (other than (X) a transaction in which SWI is the surviving
entity and SWI remains a publicly-traded company or (Y) which would constitute a
Reclassification Event) which would result in the SWI Common Stock outstanding
prior to such transaction being converted into or exchanged for capital stock or
other securities (other than voting stock of SWI), cash or other property; (ii)
the sale or disposition by SWI of all or substantially all of its assets; (iii)
a complete liquidation of SWI; or (iv) any other transaction or event (other
than a Reclassification Event) the consummation of which would preclude the
issuance of SWI Common Stock (or other voting stock of SWI) as the Contingent
Merger Consideration (each, an "Acceleration Event"). In the case of an
Acceleration Event, the Contingent Merger Consideration will be payable
immediately prior to the record date for the vote of stockholders of SWI
required to authorize such Acceleration Event. If the right to receive the
Contingent Merger Consideration is accelerated, the amount payable will be
determined using the same formula as described above, except that (i) Final
Cumulative Net Earnings will be determined as of the end of the calendar year
most recently ended before the Acceleration Date and (ii) the Minimum Payment
Milestone and Full Payment Milestone will be prorated based on the abbreviated
measuring period for Final Cumulative Net Earnings in accordance with the
following table:
<TABLE>
<CAPTION>
End of Year Prior to Acceleration Event
(Calendar Year Ended December 31,) Full Payment Milestone Minimum Payment Milestone
- ---------------------------------- ---------------------- -------------------------
<S> <C> <C>
1998 $1,328,000 $792,000
1999 $3,091,000 $1,584,000
2000 $5,342,000 $2,376,000
2001 $8,068,000 $3,168,000
2002 $11,327,000 $3,960,000
</TABLE>
In addition, upon the occurrence of any other event which impairs the rights of
the Participating Holders to receive or reduces the economic value of the
Contingent Merger Consideration and which would not be covered by any specific
provision of the Merger Agreement relating to the adjustment or acceleration of
the right to receive the Contingent Merger Consideration, SWI will make an
equitable adjustment in the application of such provisions, in accordance with
the intent and principles of such provisions, so as to protect the rights of the
Participating Holders to receive the Contingent Merger Consideration and to
preserve the economic value of the Contingent Merger Consideration.
The Final Cumulative Net Earnings will be determined based on income
statements to be prepared by SWI for each fiscal year during the Contingent
Period (each, an "Audit Period"). At the end of each Audit Period, SWI will
cause an audit to be conducted of the books and records of the Surviving
Corporation as of the end of such Audit Period and will cause an income
statement to be prepared for such Audit Period in accordance with generally
accepted accounting principles consistently applied (the "Income Statements").
Promptly following the end of each Audit Period, SWI's internal auditors under
the supervision of SWI's independent accountants (collectively, the "Auditors")
will determine and report the net earnings of the Surviving Corporation for the
Audit Period and the
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<PAGE> 45
cumulative net earnings of the Surviving Corporation from January 1, 1998
through the end of the most recently completed Audit Period (an "Earnings
Report") based on the Income Statements. For purposes of determining net
earnings and cumulative net earnings and reporting them in the Earnings Reports,
the Earnings Reports will start with income net of all other expenses but before
deducting tax expenses as reported in the applicable Income Statement ("Base
Earnings"), which amount will be adjusted as follows:
(i) increased by the amount of any costs or expenses included in Base
Earnings which were incurred by the Surviving Corporation for which SWI
actually received indemnification under the Merger Agreement;
(ii) increased by the amount of all costs and expenses included in Base
Earnings which were incurred by PTI and the Surviving Corporation in
connection with the Merger Agreement and related transactions, including
any amortization of goodwill by the Surviving Corporation resulting from
the transactions contemplated thereby, any expenses incurred by the
Surviving Corporation associated with imputed interest related to the
Contingent Merger Consideration and all legal and accounting fees and
disbursements in an aggregate amount not to exceed $400,000;
(iii) increased by any loss or increase in costs and expenses or decreased
by any gain or any decrease in costs or expenses resulting from the sale
of real properties owned by PTI at the Effective Time and located at 1473
and 1482 Erie Boulevard, Schenectady, New York;
(iv) increased by any costs and expenses (including, without limitation,
any additional funding requirements, interest incurred with respect to
such funding requirements, and legal and accounting fees and
disbursements) included in the Base Earnings incurred by PTI or the
Surviving Corporation solely as a result of the termination of any
qualified pension or profit sharing plan of PTI, including the PTI
Employee Stock Ownership Plan, and the termination of any PTI stock option
plan (other than amounts paid directly to option holders in connection
with the termination of such plans or options) and the liquidation and
dissolution of PTI's subsidiary Power Technologies International, Inc.;
(v) to the extent not otherwise accounted for by generally accepted
accounting principles, increased by any costs, expenses or losses which
are reimbursed by insurance or for which reserves were established before
the Contingent Period;
(vi) increased by any amount by which (X) amounts paid to holders of PTI
Common Stock who exercise their dissenters' rights under the NYBCL,
together with any costs to fund expenses associated with the satisfaction
of PTI's or the Surviving Corporation's obligations under the NYBCL exceed
(Y) the value of the shares of SWI Common Stock (based on the Closing
Market Value) which such Dissenting Holders would have received if such
dissenting holders were Participating Holders; provided, however, that no
such adjustment shall be made unless the amounts paid to Dissenting
Holders are reflected as an expense in the applicable Income Statement(s)
for the fiscal year(s) in which they were incurred;
(vii) increased by any costs and expenses incurred by the Surviving
Corporation in connection with any environmental remediation; provided,
that no such adjustment will be made for any costs and expenses incurred
in connection with environmental compliance in the ordinary course of
business as conducted by PTI prior to the Closing Date;
(viii) increased or decreased, as appropriate, to the extent necessary
during any Audit Period to adjust for changes in Base Earnings which
directly result from changes in generally accepted accounting principles
during any such Audit Period as compared to generally accepted accounting
principles as in effect as of the Effective Time; and
(ix) increased or decreased, as appropriate, to mitigate any other effect
of increases or decreases in "operating expenses" and "interest expense
and other income" resulting from the Surviving Corporation operating as a
subsidiary of SWI or SWMCI as compared to "operating expenses" and
"interest expense
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<PAGE> 46
and other income" that would have been incurred by the Surviving
Corporation if operated on a stand-alone basis, or resulting from changes
to the business of the Surviving Corporation imposed by SWI or SWMCI that
were not contemplated when the projections furnished by PTI to SWMCI were
prepared, and which would not otherwise have been incurred by PTI, or
which are not offset by incremental revenues resulting from such changes.
With respect to all Audit Periods other than the Audit Period ending December
31, 2002, SWI and the Shareholders' Committee will have ninety (90) days after
receiving the Earnings Report and the accompanying Income Statement for such
Audit Period to assert any disagreements with any items contained therein. The
Income Statement and Earnings Report for the Audit Period ending December 31,
2002 must be delivered to the Shareholders' Committee by February 28, 2003, and
SWI and the Shareholders' Committee will have until 5:00 p.m. EST on March 15,
2003 to assert any disagreements. If SWI and the Shareholders' Committee are
unable to resolve any properly asserted dispute concerning the final Earnings
Report by March 31, 2003, an independent accounting firm chosen in a manner set
forth in the Merger Agreement (the "Firm") will resolve the dispute. SWI and the
Shareholders' Committee may at any time, whether or not a Firm has been
retained, resolve any disputes and agree on the content of the final Earnings
Report and Final Cumulative Net Earnings. The fees of the Firm in connection
with this review and resolution of the disputes will be paid by SWI; however,
one-half of such costs will be deducted from the Contingent Merger Consideration
to which the Participating Holders would otherwise be entitled. The Contingent
Merger Consideration will be distributed promptly after the correct amount is
determined which can be no later than the fifth anniversary of the Closing Date.
SWI has the right to withhold a portion of the earned Contingent Merger
Consideration, to satisfy indemnification obligations of PTI and the Principal
Shareholders for (i) claims made before January 15, 2000 but not satisfied out
of the Escrow, (ii) breaches of certain representations, warranties and
covenants relating to environmental matters arising after termination of the
Escrow but before January 15, 2003, and (iii) expenses relating to the
indemnification of the escrow agent for the Escrow. The number of shares of SWI
Common Stock that can be withheld will vary proportionately depending on how
much of the Contingent Merger Consideration is earned; however, the number of
shares of SWI Common Stock having an aggregate Closing Market Value of
$1,000,000 is the maximum number that can be withheld if all of the Contingent
Merger Consideration is earned. The number of shares of Contingent Merger
Consideration that are received by each Participating Holder will be
proportionately reduced to take into account shares of SWI Common Stock withheld
by SWI pursuant to such provision.
Additional Contingent Shares
In the event that the Contingent Merger Consideration becomes payable and
certain other conditions described below are met, the Participating Holders who
follow the procedures outlined below will be entitled to receive the Additional
Contingent Shares. The payment of the Additional Contingent Shares is intended,
in the event of limited appreciation in the value of SWI Common Stock, to
partially offset the tax liability that Participating Holders may incur as a
result of recognizing imputed interest income from the Contingent Merger
Consideration. To become eligible to receive a portion of the Additional
Contingent Shares, a Participating Holder must provide to SWI's independent
auditors by August 30, 2003 a copy of his or her federal and applicable state
tax returns for 2002 as actually filed. On February 1, 2003, SWI will mail a
reminder to each Participating Holder at his, her or its last known address
setting forth the name of its independent auditors and the address to which
copies of the Participating Holders' 2002 tax returns are to be sent.
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The number of shares of SWI Common Stock that will be Additional
Contingent Shares will be determined by dividing the amount of Additional
Consideration (as defined below) by the average of the closing prices of SWI
Common Stock as reported in the NYSE Composite Transactions for the ten trading
days ending on the third trading day prior to the day that the Additional
Contingent Shares, if any, are distributed to the Participating Holders. The
"Additional Consideration" is equal to one-half of the amount, if any, by which
the aggregate Individual Tax Liability (as defined below) of all of the
Participating Holders who submit their tax returns exceeds the appreciation in
the value of the Contingent Merger Consideration between the Closing Date and
the date it was paid; however, the Additional Consideration cannot be greater
than $500,000 or less than zero. The "Individual Tax Liability" of the
Participating Holders is the amount, as reasonably estimated by SWI's
independent auditors based on the tax returns provided by Participating Holders,
by which the federal and state income tax liability of the Participating Holders
who submit their tax returns for 2002 would have increased if the amount of
imputed interest received by such Participating Holders as a result of the
distribution of the Contingent Merger Consideration had been included in such
Participating Holder's income for 2002.
The Additional Contingent Shares will be allocated among the Participating
Holders who submit their tax returns pro rata in the proportion that their
respective Individual Tax Liability bears to the aggregate Individual Tax
Liability of all such Participating Holders.
Transasia Consideration
If, during the period from January 1, 1998 until the Contingent Merger
Consideration is determined, the Surviving Corporation receives (i) payments of
"development fees" or payments on account of its "carried interest" pursuant to
the Transasia Agreement or (ii) net proceeds from the disposition of its
interest in the Transasia Agreement, then the Participating Holders will be
entitled to receive such amounts as Transasia Consideration. Such payments or
proceeds will be reduced by any taxes or expenses incurred in collecting and
administering such amounts and in determining the amount of the Transasia
Consideration. The aggregate amount payable as Transasia Consideration is
limited to not more than 20% of the aggregate value of the Initial Merger
Consideration and Contingent Merger Consideration received by the Participating
Holders. Any Transasia Consideration payable will be paid to the Participating
Holders by check on the date on which the certificates representing the
Contingent Merger Consideration are delivered or, if no Contingent Merger
Consideration is due, promptly after the amount of Transasia Consideration is
determined. To date, no development fees or payments on account of the Company's
carried interest pursuant to the Transasia Agreement have been paid.
Interests of Certain Persons in the Merger
Steven J. Balser, President and a Director of PTI, has an interest in the
Merger that is in addition to the interests of shareholders of PTI generally.
PTI has entered into an agreement with Mr. Balser that provides certain benefits
in the event of the termination of Mr. Balser's employment following a change of
control of PTI. The Merger will constitute a change in control of PTI within the
meaning of such agreement. This Agreement provides that if Mr. Balser is
terminated for other than "cause" within one year following the Merger, he will
be entitled to receive an amount equal to his annual salary pro-rated for each
month that he remains employed following the Merger, but in no event less than
50% of his annual salary. The Board of Directors of PTI was aware of this
interest and considered it, among other matters, in approving and adopting the
Merger Agreement and the transactions contemplated thereby.
In addition, it is a condition to the consummation of the Merger that Ian
Grant, Gordon Hirschman, James V. Mitsche, John D. Mountford, David J. Lawrence
and Timothy G. Schmehl, each a member of PTI's management, enter into employment
agreements with the Surviving Corporation.
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Effective Time
It is expected that the closing contemplated by the Merger Agreement will
take place on _________________ (the "Closing Date").
The date and time of the filing of appropriate merger documents with the
Secretary of State of the State of Delaware and the New York Department of
State, or such later time as may be specified therein, will be the Effective
Time of the Merger. PTI and SWI will cause such merger documents to be filed and
recorded as soon as practicable on or after the satisfaction or waiver of all
conditions to the Merger. It is expected that the Merger documents will be filed
on the Closing Date, and will specify an Effective Time of not later than
September 1, 1998.
Resales of SWI Common Stock
The shares of SWI Common Stock to be issued as Initial Merger
Consideration pursuant to the Merger Agreement have been registered under the
Securities Act and may be traded without restriction by all former holders of
shares of PTI Common Stock who are not "affiliates," as such term is defined
under the Securities Act, of PTI ("Affiliates"). The Rights to receive the SWI
Common Stock, if any, payable as Contingent Merger Consideration and Additional
Contingent Shares have been registered under the Securities Act. Such Rights are
not transferable by the holders thereof, except by operation of law or in
accordance with the applicable laws of descent and distribution. Under the
Merger Agreement, SWI has agreed, if necessary, to register the shares of SWI
Common Stock, if any, issued as Contingent Merger Consideration and Additional
Contingent Shares under the Securities Act.
Directors, executive officers and certain 10% shareholders of PTI may be
deemed to be Affiliates. It is a condition to SWI's obligations under the Merger
Agreement that each Affiliate execute and deliver to SWI an "affiliate letter"
(an "Affiliate Letter") setting forth certain restrictions on such Affiliate's
ability to sell the shares of SWI Common Stock received in the Merger. Such
restrictions arise from the applicable provisions of Rules 144 and 145 under the
Securities Act. The signatory to the letter also makes certain representations
as to the tax-free nature of the Merger.
Shareholders' Committee
The Merger Agreement contemplates that each Participating Holder will
execute a Shareholders' Committee Agreement appointing _____________,
____________ and ______________ as the Shareholders' Committee to represent the
interests of the Participating Holders in connection with administering the
Escrow, negotiating indemnification disputes, resolving issues regarding the
amount of the Contingent Merger Consideration and resolving any other disputes
arising under the Merger Agreement and Escrow Agreement. The members of the
Shareholders' Committee were selected by an informal vote of the PTI
shareholders. The Shareholders' Committee Agreement grants the members of the
Shareholders' Committee a power of attorney to act on behalf of the shareholders
of PTI who sign such agreements (the "Represented Shareholders"), authorizes the
Shareholders' Committee to commence litigation, releases the members of the
Shareholders' Committee from certain breaches of fiduciary duties, and provides
for the Represented Shareholders to indemnify the members of the Shareholders'
Committee against any claims, liabilities or losses incurred by them as a result
of their actions as members of the Shareholders' Committee. Two copies of a
Shareholders' Committee Agreement are enclosed with this Prospectus and Proxy
Statement, and the PTI Board requests that you execute and return these
Agreements whether you vote for or against the Merger. Participating Holders who
do not execute Shareholders' Committee Agreements will not be represented by the
Shareholders' Committee and will be required to independently resolve any
disputes relating to the Merger with SWI directly.
Each of the members of the Shareholders' Committee will be entitled to an
annual retainer of $1,000 and will be paid $250 for each Shareholders' Committee
meeting that they attend (up to a maximum of four meetings per year). They will
also be entitled to be reimbursed for their reasonable out-of-pocket expenses
incurred in performing their duties as members of the Shareholders' Committee.
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In order to satisfy expenses incurred by the Shareholders' Committee
(including without limitation legal and accounting fees and expenses and
compensation paid to members of the Shareholders' Committee), an escrow account
will be established with a portion of the Initial Merger Consideration equal to
the number of shares of SWI Common Stock determined by dividing $250,000 by the
Closing Market Value. The number of shares of Initial Merger Consideration that
are received by each Participating Holder (whether or not they are a Represented
Shareholder) will be proportionately reduced. Any shares of SWI Common Stock not
used to satisfy expenses of the Shareholders' Committee will be distributed
proportionately to the Participating Holders.
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THE MERGER AGREEMENT
Representations and Warranties
PTI and SWI have made certain representations and warranties to each other
relating to, among other things, (i) organization and similar corporate matters;
(ii) capitalization, (iii) the authorization, execution, delivery and
performance of the Merger Agreement and absence of conflicts, violations and
defaults under their respective charter and by-laws and certain other agreements
and documents, (iv) preparation of financial statements, (v) absence of material
adverse changes and events since a certain date, (vi) compliance with laws,
(vii) absence of investigations and litigation, (viii) that no brokers were
involved in the transactions, and (ix) full disclosure of material information.
The Merger Agreement also contains additional representations and warranties of
PTI relating to, among other things, (i) collectibility of and adequacy of
reserves made for accounts receivable, (ii) taxes, (iii) contracts and other
agreements, (iv) real property owned and leased, (v) tangible property owned,
(vi) intellectual property, (vii) title to its properties, (viii) customers,
(ix) employee benefit plans, (x) employee relations, (xi) relationships with
affiliates of PTI, (xii) insurance coverage and claims, (xiii) banking
relationships, (xiv) compliance with environmental laws, (xv) year 2000
compliance of software owned or licensed by PTI and (xvi) the information
provided by PTI for inclusion in this Prospectus and Proxy Statement. The Merger
Agreement also contains an additional representation and warranty by SWI
relating to the documents and reports filed by SWI with the Commission. Certain
of the representations and warranties made by PTI and SWI also extend in many
respects to their respective subsidiaries and affiliates. In the case of SWI,
Merger Sub and SWMCI join in certain of the representations and warranties. In
addition, the Merger Agreement contains various representations and warranties
by the Principal Shareholders relating to, among other things, (i) authority to
execute, deliver and perform the Merger Agreement, (ii) absence of conflicts,
violations and defaults, (iii) title to their shares and (iv) accuracy of the
representations and warranties of PTI.
Certain Covenants
PTI has agreed that, except with the prior written consent of SWI and with
certain other exceptions set forth in the Merger Agreement, prior to the
consummation of the Merger it will observe certain covenants relating to the
conduct of its business, including conducting its business in the usual course
and using reasonable efforts to (i) preserve intact and keep available the
services of PTI's employees, (ii) keep in effect certain insurance policies in
coverage amounts not less than those in effect on the date that the Merger
Agreement was executed, (iii) preserve its business, advertise, promote and
market its services, keep its properties intact and preserve its goodwill, (iv)
use all reasonable efforts to preserve and protect its intellectual property
rights and (v) operate its business diligently and solely in the ordinary course
of business.
PTI has also agreed that, except with the prior written consent of SWI and
with certain other exceptions set forth in the Merger Agreement, it will not
take the following actions: (i) sell or transfer, or mortgage, pledge or create
or permit to be created any security interest on any of its assets, except for
sales or transfers in the ordinary course of business and the disposition by PTI
of shares of Hydropower Technologies, Inc. held by PTI on terms satisfactory to
SWI; (ii) incur any obligation or liability other than in the ordinary course of
business, incur any indebtedness for borrowed money or enter into any other
contracts or commitments involving payments of $50,000 or more, except for
purchase orders or commitments for inventory, materials, supplies and items for
customers in the ordinary course of business; (iii) change the compensation or
fringe benefits for any officer, director, employee, or consultant, except for
ordinary merit increases for employees other than officers based on periodic
reviews in accordance with past practices, or enter into or modify any employee
benefit plan or any employment severance or other agreement with any officer,
director, employee, or consultant of PTI (except that PTI may terminate certain
benefits plans and distribute certain accrued benefits payable under such plans
to the extent permitted under the Merger Agreement); (iv) grant or accelerate
the exercisability of any option, warrant, or other right to purchase, or
convert any obligation into, shares of PTI capital stock (except that PTI may
accelerate the exercisability of options to purchase PTI Common Stock held by
employees and outstanding on the date of the Merger Agreement), declare or pay
any dividend or other distribution with respect to any shares of PTI capital
stock or issue any shares of its capital stock except upon the exercise of
certain options outstanding on the date of the Merger Agreement or in exchange
for shares of Class C Common Stock surrendered in exchange for shares of Class A
Common Stock upon the termination of the PTI Employee Stock Ownership Plan; (v)
amend its
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<PAGE> 51
certificate of incorporation or by-laws (other than to limit its directors'
liabilities in certain cases and to provide for indemnification of the officers
and directors to the fullest extent permitted by New York law and SWI's internal
policies); (vi) make any material acquisition of property other than in the
ordinary course of business or (vii) to enter into or modify any license,
technology development or technology transfer agreement with any third party,
other than software license agreements between PTI and its customers in the
ordinary course of business on PTI's standard form of license agreement and
involving payments of less than $200,000.
PTI has additionally agreed that it will (i) permit SWMCI and SWI and
their authorized employees and representatives to have access to the assets,
properties, business, books, records and operations of PTI and its subsidiaries
and affiliates and to cause its employees and representatives to cooperate with
such investigation; (ii) identify to SWI all persons that PTI believes may be
affiliates of PTI for purposes of Rule 145 under the Securities Act, to furnish
information to SWI concerning such persons and to cause such persons to deliver
an Affiliate Letter to SWI; and (iii) to use reasonable efforts to cause each
Participating Holder to execute and deliver a Shareholders' Committee Agreement
authorizing a shareholders' representative to act on behalf of such
Participating Holders in certain matters. The Principal Shareholders have joined
in certain of the covenants made by PTI to SWI.
SWI has agreed that prior to the Effective Time, it will (i) take all
action it deems reasonably necessary to register under the Securities Act the
issuance of SWI Common Stock to the holders of PTI Common Stock as Initial
Merger Consideration, and, if necessary, the shares of SWI Common Stock issuable
as Contingent Merger Consideration and Additional Contingent Shares, if any,
under the Securities Act and take any action reasonably required to be taken
under state blue sky or securities laws in connection with the issuance of such
shares of SWI Common Stock pursuant to the Merger Agreement; (ii) take such
steps as are required to accomplish, as of the Effective Time, the listing of
the shares of SWI Common Stock to be issued as Initial Merger Consideration on
the NYSE; (iii) through the Closing Date, furnish PTI with copies of each report
filed by SWI under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and to file all reports under the Exchange Act in a timely
manner and in compliance with the Exchange Act; (iv) provide employees of the
Surviving Corporation after the Merger with certain benefits described in the
Merger Agreement; (v) make available to the Surviving Corporation working
capital in an amount reasonably required to conduct the business of the
Surviving Corporation in the manner contemplated in the projections furnished by
PTI to SWI which form the basis for the calculation of the Contingent Merger
Consideration and on such other terms set forth in the Merger Agreement; (vi)
operate the Surviving Corporation as a separate entity during the period before
the Contingent Merger Consideration is paid and conduct the business of the
Surviving Corporation during such period in a manner which maximizes the
revenues and earnings of the Surviving Corporation; and (vii) indemnify and hold
harmless the former officers and directors of PTI with respect to actions taken
before the Effective Time to the fullest extent permitted under New York law.
PTI and SWI have each agreed to (i) use their respective reasonable
efforts to obtain the other party's approval prior to issuance of any press
release or other information to the press or any third party with respect to the
Merger Agreement or the transactions contemplated thereby and (ii) not take any
action that would cause the Merger to fail to qualify as a tax free
reorganization.
Under the Merger Agreement, the Principal Shareholders, consisting of
Messrs. Steven J. Balser, Lionel O. Barthold and Ian S. Grant, as well as the
other directors of PTI, consisting of Messrs. Dale Douglass, Gordon B. Hirschman
and F.S. Prabhakara and Ms. Mary A. Sager, have each agreed that, until the
Merger Agreement is terminated, he or she will vote all shares of PTI Stock held
by him or her in favor of the approval of the Merger Agreement and the
transactions contemplated by the Merger Agreement and will not exercise
dissenters' rights with respect to a vote on such matters. Each of such
individuals has additionally granted to SWI an irrevocable proxy to vote all
shares of PTI held by such individuals in favor of the Merger Agreement and the
transactions contemplated by the Merger Agreement. As of the Record Date, such
individuals had voting control over, in the aggregate, [102,940] shares of Class
A Common Stock, [971] shares of Class B Common Stock, and [446] shares of Class
C Common Stock, representing approximately [41.7]% of all of the outstanding
shares of PTI Common Stock as on such date.
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Conditions of Merger
The respective obligations of SWI and PTI to consummate the Merger are
subject to the satisfaction of certain conditions, including the following: (i)
approval of the Merger Agreement and the Merger by the shareholders of PTI; (ii)
the absence of any order or injunction prohibiting consummation of the Merger;
(iii) the accuracy in all material respects of the representations and
warranties made to each party and compliance in all material respects with all
agreements and covenants by each party; (iv) the eligibility for trading on the
NYSE of SWI Common Stock to be issued as Initial Merger Consideration; (v) the
declaration by the Commission of the effectiveness of the Registration Statement
of which this Prospectus and Proxy Statement forms a part; (vi) the execution
and delivery of the Escrow Agreement by all parties thereto, and; (vii) the
delivery by each party of all certificates of public officials reasonably
requested by the other party.
The obligations of PTI and the Principal Shareholders to consummate and
effect the Merger are further subject to receipt of certain closing certificates
and a legal opinion and fulfillment, or the waiver thereof by PTI and the
Principal Shareholders before the Effective Time, of the following conditions:
(i) the representations and warranties of SWI contained in the Merger Agreement
shall be, in all respects, true as of and at the Effective Time with the same
effect as though made at such date, except as affected by transactions permitted
or contemplated by the Merger Agreement; (ii) SWI shall have performed and
complied, in all material respects, with all covenants required by the Merger
Agreement to be performed or complied with by SWI before the Effective Time;
(iii) Nixon, Hargrave, Devans & Doyle LLP shall have delivered to PTI and the
Principal Shareholders dated as of the Closing Date and in a form satisfactory
to PTI and the Principal Shareholders its written opinion substantially to the
effect that the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code.
The obligations of SWI to consummate and effect the Merger are further
subject to the receipt of certain closing certificates and a legal opinion and
fulfillment, or to the waiver thereof by SWI before the Effective Time, of the
following conditions: (i) the representations and warranties of PTI contained in
the Merger Agreement shall be, in all respects, true as of and at the Effective
Time with the same effect as though made at such date, except as affected by
transactions permitted or contemplated by the Merger Agreement; (ii) PTI shall
have performed and complied, in all material respects, with all covenants
required by the Merger Agreement to be performed or complied with by PTI before
the Effective Time; (iii) PTI shall have delivered to SWI an Affiliate Letter
executed by each person affiliated by PTI who is required to execute such a
letter under the Merger Agreement; (iv) PTI shall have executed and delivered
the Merger Agreement, Escrow Agreement and related documents required to
effectuate the Merger and carry out the transactions contemplated thereby; (v)
SWMCI shall have entered into an employment and noncompetition agreement with
each of several key management employees of PTI and reached understandings with
at least seven out of ten key personnel identified by SWI to continue their
respective employment with the Surviving Corporation; (vi) PTI shall have
terminated the PTI Money Purchase Plan and Trust and the 401(k) Profit Sharing
Plan of PTI; (vii) Power Technologies International, Inc. shall have duly
redeemed all of its shares held by PTI; (viii) holders of not more than 5% of
the outstanding shares of PTI Common Stock on the date of the Merger Agreement
shall have received or be entitled to receive consideration pursuant to the
provisions of Section 623 of the NYBCL; (ix) Palmer & Dodge LLP shall have
delivered to SWI its written opinion that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code; (x) PTI shall
have delivered to SWI documentation necessary for SWI to change the authorized
signatories on PTI's bank and brokerage accounts; (xi) PTI shall have arranged
for the surrender and cancellation of any outstanding options exercisable for
PTI Common Stock, and; (xii) the SWI Board of Directors shall have ratified the
execution and delivery of the Merger Agreement by SWI.
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Termination
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether prior to or after approval by PTI's shareholders, as follows: (i)
by either SWI or PTI if, without fault of the terminating party, the Closing
Date shall not have occurred on or before September 1, 1998, which date may be
extended by mutual consent of the parties; (ii) by PTI if any representation or
warranty of SWI made herein was not true and correct in all material respects
when made, or if SWI has materially breached any covenant contained in the
Merger Agreement and has not cured such breach within 30 business days of
receipt of written notice from PTI or by the Closing Date, whichever occurs
first; (iii) by SWI upon written notice to PTI if any representation or warranty
made in the Merger Agreement by PTI or a Principal Shareholder was not true and
correct in all material respects when made or PTI or any Principal Shareholder
has materially breached any covenant in the Merger Agreement and has not cured
such breach within 30 business days of receipt of written notice from SWI or by
the Closing Date, whichever occurs first; (iv) if a court of competent
jurisdiction or governmental body shall have issued an order, decree or ruling
or taken any other action restraining, enjoining or otherwise prohibiting the
Merger and such order, decree or ruling shall have become final and
nonappealable; (v) by PTI or SWI if the PTI shareholders vote and fail to
approve the Merger as required by New York law (provided that SWI does not have
the right to terminate the Merger Agreement for this reason if PTI would
otherwise have a right to terminate this Agreement); (vi) by SWI if PTI's Board
of Directors (a) fails to include in this Prospectus and Proxy Statement its
recommendation that the PTI shareholders vote in favor of the adoption of the
Merger Agreement, (b) withdraws its recommendation that shareholders vote in
favor (other than in connection with exercising PTI's rights to terminate the
Merger Agreement pursuant to any other provisions) or (c) adopts resolutions
approving or otherwise authorizes an acquisition transaction prior to
termination of the Merger Agreement; (vii) by PTI, by 5:00 p.m. Boston time on
the second business day prior to the Closing Date, if the Closing Market Value
is greater than $60.00; provided that SWI may negate such termination by
notifying PTI prior to 5:00 p.m. Boston time on the day prior to the Closing
Date of its election to use $60.00 as the Closing Market Value; (viii) by SWI,
by 5:00 p.m. Boston time on the second business day prior to the Closing Date,
if the Closing Market Value is less than $35.00; provided that PTI may negate
such termination by notifying SWI prior to 5:00 p.m. Boston time on the day
prior to the Closing Date of its election to use $35.00 as the Closing Market
Value; (ix) by SWI, if the Disclosure Schedule to the Merger Agreement delivered
by PTI as of the Closing Date reflects any event, fact, circumstance or
condition (a) which was in existence on or as of the date hereof or which arose
subsequent to the date hereof, (b) which was not reflected on the PTI Disclosure
Schedule delivered with the Merger Agreement when executed, and (c) which
represents a material adverse change in the business or financial condition of
PTI; or (x) at any time with the written consent of SWI and PTI.
Termination Fee
PTI will be required to pay SWI a termination fee of $300,000 if the
Merger Agreement is terminated (i) by SWI because PTI or a Principal Shareholder
breaches a material representation, warranty or covenant and fails to timely
cure such breach or (ii) by SWI or PTI if PTI fails to obtain the requisite
shareholder approval or the PTI Board withdraws its recommendation that the
shareholders vote in favor of the Merger if at the time of such failure or
withdrawal or within 12 months thereafter, PTI or a Principal Shareholder shall
have entered into an agreement to engage in a merger or business combination
transaction with any person other than SWI or if the Board approves or
recommends that the PTI shareholders approve such a transaction.
Waiver and Amendment
At any time prior to the Effective Time (i) the parties to the Merger
Agreement may, by written agreement, waive or extend the time for performance of
any obligation under the Merger Agreements, and (ii) any term or provision of
the Merger Agreement may be waived in writing by the party entitled to the
benefits thereof.
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No Solicitation
PTI has agreed not to (i) solicit, initiate or encourage discussions with
any person, other than SWI, relating to the possible acquisition of PTI or all
or a material portion of the assets or capital stock of PTI or any merger or
other business combination with PTI, or (ii) except to the extent reasonably
required by fiduciary obligations under applicable law as advised in writing by
independent legal counsel, participate in any negotiations regarding, or furnish
to any other person information with respect to, any effort or attempt by any
other person to do or to seek any such transaction.
Indemnity and Escrow
Under the Merger Agreement, the holders of PTI Common Stock outstanding
immediately prior to the Effective Time, agree, jointly and severally, to
indemnify and hold harmless SWI (and its respective directors, officers,
employees, agents, affiliates and assigns) from and against all losses,
liabilities, damages, deficiencies, costs or expenses, including interest and
penalties and reasonable attorneys' fees whether or not arising out of
third-party claims, and including all amounts paid in investigation, defense or
settlement of any actions or claims or related proceedings (i) based upon,
arising out of or otherwise in respect of any inaccuracy in, or breach of, any
representation, warranty or covenant of PTI contained in the Merger Agreement or
in any certificate delivered pursuant to the Merger Agreement (separately and
together, "Losses") or (ii) resulting from the redemption by PTI on or after the
date of the Merger Agreement of any shares of PTI Common Stock pursuant to any
Share Repurchase Agreements between PTI and any shareholder of PTI. PTI and SWI
have agreed, however, that with respect to any Losses based upon or arising out
of a breach of or inaccuracy in the representations and warranties relating to
environmental matters, Losses shall only consist of: (i) losses relating to
Hazardous Materials (as such term is defined in the Merger Agreement) generated,
used, handled, treated, stored or disposed or released by PTI at any site owned
or premises leased by PTI, or relating to underground storage tanks located at
such sites or premises; (ii) losses relating to off-site shipments of Hazardous
Materials from any site owned by or premises leased by PTI, for the purpose of
treatment, storage or disposal; (iii) losses relating to conditions of which PTI
had knowledge as of the Closing Date and which were not disclosed in the
Disclosure Schedule delivered by PTI; (iv) losses relating to PTI's property
situated on the site known as Parcel 344 - Schenectady Industrial Development
Corporation located at 344 Knott Street, Schenectady, New York, and; (v) losses
not described in clauses (i), (ii) and (iii) above which arise as a result of
conditions (a) revealed by means other than (x) any environmental investigations
conducted by or on behalf of SWI, or (y) any environmental investigations
conducted by any third party which SWI, SWMCI or the Surviving Corporation is
not required to permit under any applicable law(s) regulation(s) or order(s) of
a governmental authority, or which are not required under any applicable law(s),
regulation(s) or order(s) of a governmental authority, and (b) required by any
applicable law(s), regulation(s) or of a governmental authority to be reported
and remediated.
Each Principal Shareholder has agreed to indemnify SWI (and its directors,
officers, employees, agents, affiliates and assigns) from and against Losses
based upon, arising out of or otherwise in respect of any inaccuracy in, or
breach of, any representation, warranty or covenant of such Principal
Shareholder contained in the Merger Agreement or in any certificate delivered
pursuant to the Merger Agreement.
A number of the shares of SWI Common Stock payable as Initial Merger
Consideration equal to $1,000,000 divided by the Closing Market Value and
multiplied by the greater of the Participation Percentage or 95% will be held in
escrow (the "Escrow") to satisfy indemnity obligations based on representations,
warranties or covenants of PTI and the Principal Shareholders contained in the
Merger Agreement. The Escrow will be held until January 15, 2000 or until claims
made by SWI during such period are resolved. In addition, SWI has the right to
withhold from the Contingent Merger Consideration, to the extent earned, shares
of SWI Common Stock having an aggregate Closing Market Value of up to a maximum
amount of $1,000,000 (assuming that all of the Contingent Merger Consideration
is earned) to satisfy indemnification obligations of PTI and the Principal
Shareholders for (i) claims made before January 15, 2000 but not satisfied out
of the Escrow, (ii) breaches of certain representations, warranties and
covenants relating to environmental matters arising after termination of the
Escrow but before January 15, 2003, and (iii) expenses relating to the
indemnification of the escrow agent for the Escrow. No indemnification shall be
payable by SWI, on the one hand, or PTI and the Principal Shareholders, on the
other hand, until the aggregate amount of all Losses covered by their respective
obligations to indemnify exceed $100,000.
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Notwithstanding the foregoing, no indemnification shall be payable by PTI for
Losses arising out of any breach by PTI of its representations and warranties
relating to intellectual property matters except to the extent that such Losses,
in the aggregate, exceed $25,000.
In addition, to the extent that the amount of claims and expenses for
which SWI may withhold shares of SWI Common Stock otherwise payable as
Contingent Merger Consideration are disputed or cannot be readily ascertained on
the date that the Contingent Merger Consideration is paid, then SWI may withhold
and deposit into escrow an amount of shares of SWI Common Stock having an
aggregate Closing Market Value equal to the estimated amount of such claims. The
escrow into which such shares are deposited will provide for customary terms and
conditions substantially similar to those contained in the Escrow Agreement.
By voting in favor of the Merger, a PTI shareholder is approving the terms
and conditions of the Escrow Agreement and thereby is agreeing to share in the
obligation to indemnify SWI under the Merger Agreement to the extent of the
funds deposited in escrow.
CERTAIN OTHER MATTERS RELATING TO THE MERGER
Regulatory Matters
Other than the filing of appropriate merger documents with the Secretary
of State of Delaware and the New York Department of State, the declaration of
effectiveness of the Registration Statement of which this Prospectus and Proxy
Statement is a part, and routine approvals and actions required under PTI's
permits and licenses to reflect the change in control of PTI, there are no
governmental approvals required to effect the Merger.
Expenses
The Merger Agreement provides that if the Merger is not consummated, SWI
and PTI will each bear their respective expenses incurred in connection with the
preparation, execution, and performance of the Merger Agreement and the
transactions contemplated thereby. The Principal Shareholders will bear their
own expenses whether or not the Merger is consummated. SWI will pay all fees
relating to the registration and issuance of the shares of SWI Common Stock
comprising the Initial Merger Consideration and the rights to receive the
Contingent Merger Consideration and Additional Contingent Shares under
applicable federal and state securities laws. The expense of printing the
Prospectus and Proxy Statement will also be borne by SWI.
Accounting Treatment
The Merger will be accounted for under the purchase method of accounting
in accordance with generally accepted accounting principles ("GAAP"). Under this
method of accounting, the purchase price, including costs directly related to
the Merger, will be allocated to the assets acquired and liabilities assumed
based upon their estimated fair values as of the date of consummation, with any
excess purchase consideration allocated to cost in excess of net assets
acquired. The operating results of PTI will be included with those of SWI from
the date of consummation.
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MANAGEMENT AND OTHER INFORMATION
Immediately following the consummation of the Merger, PTI will be a
wholly-owned subsidiary of SWI, and all of PTI's subsidiaries will be indirect
wholly-owned subsidiaries of SWI. As soon as practicable following the Effective
Time, SWI will transfer all shares of the Surviving Corporation to SWMCI so that
the Surviving Corporation will become a wholly-owned subsidiary of SWMCI and an
indirect wholly-owned subsidiary of SWI. After the consummation of the Merger,
SWI will be managed by the same Board of Directors and executive officers as
existed prior to the Merger. Certain information relating to the management,
executive compensation, certain relationships and related transactions and other
related matters pertaining to SWI is set forth in or incorporated by reference
in SWI's Annual Report on Form 10-K for the fiscal year ended December 31, 1997,
which is incorporated by reference in this Prospectus and Proxy Statement and
attached hereto as Appendix C. See "Incorporation of Certain Documents by
Reference."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax consequences
of the Merger. This summary is not a complete description of all of the federal
income tax consequences of the Merger, nor does it discuss the possible tax
consequences of the Merger to shareholders who are subject to special treatment
under the Code, such as shareholders who are not U.S. citizens or residents,
shareholders who do not hold their PTI Common Stock as a capital asset, or
shareholders who acquired their PTI Common Stock pursuant to the exercise of
employee stock options or otherwise as compensation. In addition, this summary
does not discuss the tax consequences of the Merger under state, local or
foreign law. PTI shareholders are urged to consult their own tax advisors
regarding the tax consequences of the Merger to them based on their particular
tax situations, as well as the effects of state, local and foreign law.
The following discussion is based on the law in effect on the date of this
Prospectus and Proxy Statement. If changes are made to current law, the tax
consequences of the Merger may vary from those described in this summary.
Palmer & Dodge LLP, counsel to SWI, and Nixon, Hargrave, Devans & Doyle
LLP, counsel to PTI, have each delivered an opinion that the description of the
federal income tax consequences of the Merger contained in this section fairly
and accurately summarizes the material federal income tax consequences of the
Merger. These opinions, which are attached as Exhibits 8.1 and 8.2,
respectively, to the Registration Statement of which this Prospectus and Proxy
Statement is a part, are based on certain assumptions and subject to certain
limitations and qualifications, including the assumption that the Merger will be
implemented as described in this Prospectus and Proxy Statement and the Merger
Agreement. Neither this summary nor the opinions of counsel to SWI and PTI are
binding on the IRS, and no rulings have been or will be requested from the IRS
with respect to the Merger.
Tax Consequences of the Merger
Based upon and subject to the assumptions and limitations stated above, it
is the opinion of Palmer & Dodge LLP and Nixon, Hargrave, Devans & Doyle LLP
that the Merger will constitute a reorganization within the meaning of Section
368(a) of the Code and that the material federal income tax consequences of the
Merger will be as follows:
(i) no gain or loss will be recognized by PTI or SWI by reason of the
Merger;
(ii) no gain or loss will be recognized by PTI shareholders on account of
their receipt of SWI Common Stock as Initial Merger Consideration in exchange
for their PTI Common Stock;
(iii) PTI shareholders who receive cash in lieu of fractional shares of
SWI Common Stock will be treated as if the fractional shares were distributed as
part of the exchange and then redeemed by SWI; shareholders will recognize gain
or loss as a result of this deemed redemption in an amount equal to the
difference between the cash received and the portion of the basis in their PTI
Common Stock allocable to the fractional shares they are
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<PAGE> 57
deemed to have received; such gain or loss will be capital gain or loss if a
shareholder held his or her PTI Common Stock as a capital asset at the Effective
Time;
(iv) in the event that Contingent Merger Consideration and Additional
Contingent Shares (together, "Contingent Shares") are issued, a portion of such
Contingent Shares will be considered a payment of interest under the "imputed
interest" rules of section 483 of the Code, and PTI shareholders will recognize
ordinary income upon their receipt of such portion; no gain or loss will be
recognized by PTI shareholders on account of their receipt of the remaining
portion of the Contingent Shares in exchange for their PTI Common Stock;
(v) in the event that a payment of Transasia Consideration is made, a
portion of such payment will be considered a payment of interest under the
"imputed interest" rules of section 483 of the Code, and PTI shareholders will
recognize ordinary income upon their receipt of such portion; the remaining
portion of the Transasia Consideration will be treated as part of the
consideration received by PTI shareholders in exchange for their PTI Common
Stock, and the gain, if any, to a PTI shareholder upon such exchange will be
recognized, but not in an amount in excess of the non-interest portion of the
Transasia Consideration received; such gain will be capital gain if the PTI
Common Stock was held as a capital asset at the Effective Time, unless the
exchange has the effect of the distribution of a dividend; if the exchange has
the effect of the distribution of a dividend, then the amount of gain recognized
that is not in excess of each shareholder's ratable share of the undistributed
earnings and profits of PTI at the Effective Time will be treated as a dividend;
generally, a payment of Transasia Consideration to a PTI shareholder should not
be treated as having the effect of the distribution of a dividend;
(vi) the basis of the SWI Common Stock received by a PTI shareholder,
including fractional share interests, shares held in escrow and Contingent
Shares, if any (excluding Contingent Shares treated as interest), will be the
same as the basis of the PTI Common Stock exchanged therefor, decreased by the
amount of Transasia Consideration, if any, received (excluding Transasia
Consideration treated as interest) and increased by the amount of gain required
to be recognized by the shareholder; while not free from doubt, it is expected
that, until such time as it is possible to determine the actual number of
Contingent Shares, if any, to be issued, the interim basis of the SWI Common
Stock received in exchange for PTI Common Stock will be determined by assuming
that the maximum number of Contingent Shares (excluding Contingent Shares
treated as imputed interest) which could be issued will be issued; in addition,
no basis adjustments should be required with respect to the Transasia
Consideration, if any, to which shareholders may be entitled, until such
Transasia Consideration is received;
(vii) the holding period of the SWI Common Stock received by a PTI
shareholder (including fractional share interests and Contingent Shares, if any,
but not including the portion of any Contingent Shares treated as interest) will
include the period during which the PTI Common Stock surrendered in exchange
therefore was held, provided that the PTI Common Stock was held as a capital
asset at the Effective Time;
(viii) the portion of Contingent Shares, if any, treated as interest will
have a basis equal to the fair market value of such portion on the date it is
treated as having been received by a PTI shareholder and will have a holding
period beginning on such date; and
(ix) a PTI shareholder who exercises dissenters' rights with respect to
his or her shares will generally recognize gain or loss measured by the
difference between the shareholder's basis in his or her PTI Common Stock and
the amount of cash received, and such gain or loss will be capital gain or loss
if the PTI Common Stock was held as a capital asset at the Effective Time.
Consummation of the Merger is conditioned on the receipt of an opinion of
Nixon, Hargrave, Devans & Doyle LLP and of Palmer & Dodge LLP, each dated as of
the Effective Time, that the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Code. Delivery of these opinions will be based
on receipt by such counsel of representations by PTI and SWI substantially
similar to representations that the IRS customarily requires for advance rulings
on tax free acquisitive reorganizations and facts that are reasonably consistent
with facts existing at the Effective Time.
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DESCRIPTION OF SWI
The business of SWI is described in SWI's annual report on Form 10-K for
the fiscal year ended December 31, 1997, which is incorporated herein by
reference and included as Appendix C hereto. See "Incorporation of Certain
Documents By Reference."
SWI SHARE OWNERSHIP
The following table sets forth information with respect to (i) all persons
who are known to SWI to be the beneficial owner of more than five percent of the
outstanding SWI Common Stock, (ii) all directors of SWI, (iii) each of the
executive officers of SWI named in the Summary Compensation Table filed as part
of the Company's Proxy Statement dated March 31, 1998 (the "Named Executive
Officers") and (iv) all directors and executive officers of SWI as a group. The
information set forth below is based solely on information furnished by each
stockholder as contained in filings made by such person with the Commission, and
is as of May 31, 1998 unless otherwise indicated.
<TABLE>
<CAPTION>
Shares of SWI Common Percentage of SWI
Name Stock Beneficially Owned(1) Common Stock Outstanding(1)
---- --------------------------- ---------------------------
<S> <C> <C>
Employee Stock Ownership Plan .................... 2,572,334 (2) 20.1%
FMR Corp. ........................................ 1,667,600 (3) 13.0
Employee Investment Plan ......................... 1,471,205 (4) 11.5
Frank J.A. Cilluffo .............................. 725,971 (5)(8) 5.7
H. Kerner Smith .................................. 139,632 (6)(7) 1.1
John P. Merrill, Jr .............................. 7,576 (8) *
Bernard W. Reznicek .............................. 7,645 (8) *
Robert C. Wiesel ................................. 30,262 (6)(9) *
Kent F. Hansen ................................... 5,471 (8) *
J. Angus McKee ................................... 6,193 (8) *
Peter M. Wood .................................... 5,776 (8) *
David N. McCammon ................................ 5,658 (8) *
Donna F. Bethell ................................. 5,071 (8) *
Elvin R. Heiberg III ............................. 5,071 (8) *
Edward J. Walsh .................................. 21,710 (6)(9) *
Daniel P. Levy ................................... 6,019 (6)(9) *
Thomas L. Langford ............................... 7,000 (6)(9) *
All directors and executive officers
as a group (17 persons)(10) ...................... 993,247 7.6
</TABLE>
- ----------
* Percentage is less than 1% of the total number of outstanding shares of
SWI Common Stock.
(1) The number of shares beneficially owned by each director or executive
officer is determined under rules of the Securities and Exchange
Commission, and the information is not necessarily indicative of
beneficial ownership for any other purpose. Under such rules, beneficial
ownership includes any shares as to which the individual has the sole or
shared voting power or investment power and also any shares which the
individual has the right to acquire within 60 days of May 31, 1998 through
the exercise of any stock option or other right. Unless otherwise
indicated, each person has sole investment and voting power (or shares
such power with his or her spouse) with respect to the shares set forth in
the table. The inclusion therein of any shares deemed beneficially owned
does not constitute an admission of beneficial ownership of such shares.
The number of shares deemed outstanding includes shares outstanding as of
May 31, 1998, plus any shares subject to issuance upon exercise of options
held by the person in question that are currently exercisable or
exercisable within 60 days after May 31, 1998.
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<PAGE> 59
(2) Pursuant to the Employee Stock Ownership Plan of Stone & Webster,
Incorporated and Participating Subsidiaries (the "ESOP"), shares allocated
to the accounts of participants are voted as the participants direct, and
allocated shares as to which participants have not given directions and
all unallocated shares are voted in the proportions the allocated shares
are voted by the participants. Shares held under the ESOP may not be
transferred by the trustee of that plan, other than to meet distribution
requirements of the ESOP or in connection with a statutory
reclassification of the Corporation's Common Stock or a statutory merger,
consolidation or sale of assets or in certain limited circumstances, upon
the direction of the participants. As of March 16, 1998, the Payroll-based
Employee Stock Ownership Plan (PAYSOP) trust (which was merged into, but
held in a separate account within, the ESOP trust effective as of January
1, 1995) held 66,118 shares (approximately 0.5%) of Common Stock. Shares
allocated to the accounts of participants from the PAYSOP are voted as the
participants direct, and allocated shares as to which no participant
directions are given will not be voted. Shares held are as of March 16,
1998.
(3) FMR Corp., reporting for itself, and Edward C. Johnson 3d and Abigail P.
Johnson have furnished information to the Corporation which disclosed that
as of December 31, 1997 they and affiliated entities exercised investment
discretion with respect to 1,667,600 shares which were owned by their
accounts and investment advisory clients.
(4) The Committee (the "Plan Committee") under the Employee Investment Plan of
Stone & Webster, Incorporated and Participating Subsidiaries (the
"Employee Investment Plan") may be considered beneficial owner of the
shares held under the Employee Investment Plan by reason of its shared
voting power over such shares. The Employee Investment Plan provides that
shares allocated to the investment accounts of participants will be voted
as the participants direct, and shares as to which participants have not
given directions will be voted in accordance with the direction of the
Plan Committee. The Plan Committee is presently composed of Donna F.
Bethell, Chairman, J. Angus McKee, H. Kerner Smith and Peter M. Wood, a
majority of whom are non-employee Directors of the Corporation and each of
whom has a mailing address at the Corporation. Shares held are as of March
16, 1998.
(5) Frank J.A. Cilluffo, a Director of the Corporation, reporting for himself
and Cilluffo Associates, L.P., Zenith Associates, L.P., Frank and Irja
Cilluffo Foundation, and Edward C. Meyer, has furnished information to the
Corporation which disclosed that as of March 16, 1998, such individuals
and entities beneficially owned, taken together, 721,871 shares. Mr.
Cilluffo disclaims beneficial ownership of the 615,200 shares held by
Cilluffo Associates, L.P. and the 105,800 shares held by Zenith
Associates, L.P. except to the extent of his pecuniary interest in the
securities. He also disclaims beneficial ownership of 10,000 shares held
by the Frank and Irja Cilluffo Foundation which are not included in the
total above. Mr. Cilluffo also has options to purchase 4,000 shares issued
under the Corporation's 1995 Stock Option Plan which are currently
exercisable or will be exercisable within 60 days following May 31, 1998.
(6) Includes (i) shares allocated under the Employee Investment Plan and which
are subject to its terms and provisions with respect to termination and
withdrawal and, in limited circumstances, to forfeiture, and held as of
December 31, 1997 by Putnam Fiduciary Trust Company, trustee under the
plan (with respect to such shares, voting power and investment power are
determined in accordance with the provisions of the plan); (ii) shares
allocated under the ESOP and which are subject to its terms with respect
to forfeiture and held as of December 31, 1997 by The Chase Manhattan
Bank, N.A., trustee under the plan; (iii) shares allocated under the
PAYSOP and which are subject to its terms and held as of December 31, 1997
by The Chase Manhattan Bank, N.A., trustee; and (iv) shares awarded under
the Corporation's Restricted Stock Plan and which are subject to its terms
with respect to forfeiture. Shares held in accounts of employees in the
Employee Investment Plan, ESOP and PAYSOP, including Messrs. Smith, Walsh,
Wiesel, Langford and Levy, are voted by the trustees of such plans in
accordance with the instructions of the employees; in the absence of such
instructions, such shares are voted by the trustees in accordance with the
terms of such plans.
(7) Shares shown include: 100,000 shares issuable upon exercise of stock
options issued under the Corporation's 1995 Stock Option Plan which are
exercisable during the ten year term of the options granted on February
12, 1996; and 18,500 of the 37,000 shares issuable upon exercise of stock
options issued April 16, 1996 and 10,000 of the 40,000 shares issuable
upon exercise of stock options issued April 21, 1997, each for ten year
terms, under the Corporation's 1995 Stock Option Plan which vest 25% on
each of the first four anniversaries of the dates of grant. Under the
Rules of the Commission, such shares issuable under currently exercisable
options are considered to be beneficially owned for the purpose of this
Registration Statement. For the purpose of calculating percentage
ownership, such shares were also considered to be outstanding.
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(8) Shares shown include 4,000 shares issuable upon exercise of stock options
issued to each non-employee Director under SWI's 1995 Stock Option Plan
which are currently exercisable or will be exercisable within 60 days
following May 31, 1998.
(9) Shares shown include shares issuable upon exercise of stock options issued
to Executive Officers under SWI's 1995 Stock Option Plan which are
currently exercisable or will be exercisable within 60 days including: Mr.
Wiesel , 24,000, Mr. Walsh , 19,000, Mr. Langford , 5,000 and Mr. Levy,
3,750.
(10) Includes shares allocated under the Employee Investment Plan, the ESOP and
the PAYSOP, and shares issuable with respect to options granted under the
1995 Stock Option Plan which are currently exercisable. The nature of
beneficial ownership for said outstanding shares was sole voting and
investment power, except (i) as referred to in footnotes (5) through (9)
above, and (ii) with respect to 4,413 shares held under the Employee
Investment Plan where voting power was shared.
DESCRIPTION OF SWI CAPITAL STOCK
General Description
The Restated Certificate of Incorporation, as amended, of SWI (the "SWI
Certificate") authorizes the issuance of 2,000,000 shares of Preferred Stock, no
par value, and 40,000,000 shares of SWI Common Stock, $1 par value per share. At
May 31, 1998, there were 12,793,584 shares SWI Common Stock outstanding. There
are no shares of Preferred Stock outstanding. Should Preferred Stock be issued
in the future, holders thereof will have preferential rights over holders of SWI
Common Stock with respect to dividends, liquidation and certain other matters
and may be entitled to vote under certain circumstances.
The following description summarizes certain provisions of the SWI
Certificate relating to SWI Common Stock, SWI Preferred Stock, SWI Series A
Junior Participating Preferred Stock and Rights to Purchase Series A Junior
Participating Preferred Stock. For a full description, reference is made to the
SWI Certificate which is an exhibit to the Registration Statement of which this
Prospectus and Proxy Statement is a part. For a description of the Rights, see
"The Merger -- Contingent Consideration."
Description of SWI Common Stock
Dividend Rights
Subject to the preferential rights of holders of Preferred Stock should
any Preferred Stock be issued in the future, holders of SWI Common Stock are
entitled to receive such dividends as may be declared by the Board of Directors
out of funds legally available therefor.
Voting Rights and Other Matters
Subject to the voting rights of holders of Preferred Stock should
Preferred Stock be issued in the future, holders of SWI Common Stock exclusively
possess voting power for all purposes. The voting rights are non-cumulative.
The directors of SWI are divided into three classes with the number of
directors fixed by or in accordance with the SWI By-laws divided equally so far
as possible among the classes. At each annual election, one class of directors
is elected by vote of a majority of SWI's outstanding voting stock for a term of
three years. Special voting provisions apply to any change in the number of
directors, to the filling of vacancies on the SWI Board when not filled by the
remaining directors and to the removal of directors without cause under certain
circumstances. In addition, with certain exceptions, the SWI Certificate
requires the affirmative vote of two-thirds of SWI's outstanding voting stock to
authorize specified corporate transactions (including certain mergers, sale of
substantially all of SWI's assets and the like) involving SWI, or any subsidiary
of SWI, and any owner of 5% or more of SWI's outstanding voting stock. The
foregoing special voting provisions may only be changed upon a specified vote of
the directors and/or stockholders of SWI.
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In addition to the provisions referred to in the preceding paragraph, the
SWI Certificate contains provisions pertaining to so-called "front-end loaded"
tender offers and similar transactions where an initial acquisition of a
substantial portion of the outstanding stock of a company is followed by a
second step transaction (such as a merger) in which the shares held by the
stockholders who did not participate in the first transaction are to be acquired
at a lower price. These provisions require that a second step transaction
initiated by a holder of at least 10% of the outstanding voting stock of SWI be
approved by 80% of all outstanding voting stock and a majority of the publicly
held voting stock (i.e., not including the 10% holder's shares). Neither SWI and
its subsidiaries nor any trustee or Committee under any employee pension, stock
ownership, savings or similar employee benefit plan is considered a 10% holder.
The aforementioned votes will not be required where the purchase of SWI's shares
by the 10% holder in the second step transaction is for consideration equal to
or greater than the highest price previously paid by the 10% holder to acquire
shares of a class or an amount bearing the same or a greater percentage
relationship to the then market price of shares of any class of which the 10%
holder has previously acquired shares as the highest price per share paid by the
10% holder in the earlier transaction(s) by which the 10% holder achieved that
status, bears to the lower of the market price of shares of such class of shares
immediately prior to the public disclosure of, or the commencement of, such
earlier transaction(s). The consideration must be payable either in cash or in
the same form of consideration given for the majority of the shares of the class
previously acquired by the 10% holder. Any amendment of the provisions described
in this paragraph requires the approval of 80% of all outstanding voting stock
and a majority of the publicly held voting stock (i.e., not including the shares
held by the 10% holder). The SWI Certificate also requires the Board of
Directors, when evaluating a merger, reorganization, tender offer or other
similar proposal, to consider all relevant factors, including the social, legal
and economic effects of the transaction as well as alternative measures of SWI's
value.
Liquidation Rights
Subject to the preferential rights of holders of Preferred Stock should
any Preferred Stock be issued in the future, in the event of any liquidation,
dissolution or winding up of SWI, or any reduction of its capital resulting in
any distribution of its assets to its stockholders, the holders of SWI Common
Stock are entitled to receive, pro rata, all the remaining assets of SWI
available for distribution to its stockholders.
Pre-emptive Rights
No holder of shares of SWI Common Stock has preferential, pre-emptive or
other rights to subscribe for or purchase any stock of SWI of any class, or
securities convertible into stock.
Liability for Future Calls or Assessments
All outstanding shares of SWI Common Stock are fully paid and
non-assessable.
Limitations on Rights of Common Stock
See "-- Description of SWI Preferred Stock" below for a description of the
limitations that would be placed on the SWI Common Stock by the rights of the
SWI Preferred Stock, should any SWI Preferred Stock be issued in the future. See
" -- Description of SWI Series A Junior Participating Preferred Stock, Rights to
Purchase Series A Junior Participating Preferred Stock and the Rights" below for
a description of the provisions that would have the effect of delaying,
deferring or preventing a change of control of SWI in the event of an
extraordinary corporate transaction.
Description of SWI Preferred Stock
Preferred Stock may be issued from time to time in one or more series and
the SWI Board, without further approval of the shareholders, is authorized to
fix the dividend rights and terms, conversion rights, voting rights, redemption
rights and terms, liquidation preferences, sinking or purchase fund or agreement
and any other rights, preferences, privileges and restrictions applicable to
each such series of Preferred Stock. The purpose of authorizing the SWI Board to
determine such rights and preferences is to eliminate delays associated with a
shareholder vote on specific issuances. The issuance of Preferred Stock, while
providing flexibility in connection
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with possible acquisitions and other corporate purposes, could, among other
things, adversely affect the voting power of holders of SWI Common Stock and,
under certain circumstances, make it more difficult for a third party to gain
control of SWI.
SWI's Certificate authorizes the issuance of 2,000,000 shares of Preferred
Stock. At May 31, 1998 no shares of Preferred Stock had been issued.
Description of SWI Series A Junior Participating Preferred Stock, Rights to
Purchase Series A Junior Participating Preferred Stock and the Rights to be
Issued in the Merger
The descriptions of SWI's Series A Junior Participating Preferred Stock
and Rights to Purchase Series A Junior Participating Preferred Stock are
contained in SWI's Registration Statements filed under Section 12 of the
Exchange Act, which are incorporated herein by reference and attached as
Appendix E hereto. See "Incorporation of Certain Documents by Reference." See
"The Merger -- Contingent Consideration" for a description of the Rights to be
issued to the Participating Holders in connection with the Merger.
DESCRIPTION OF PTI
General
PTI was founded in 1969 to serve the analytical engineering needs of the
electric power industry in the areas of power system analysis, design, and
operation. PTI was the first independent company established to provide
analytical studies in connection with large electricity transmission expansion
projects. PTI's initial role was to provide impartial, reliable studies to
assist electric utilities in analyzing line and substation designs and equipment
specifications prepared by architect/engineering firms and equipment
manufacturers, to reduce the dependence of electric utilities on their suppliers
and enable them to contract more effectively. Following the contracting phase,
PTI assists electric utilities with evaluating and interpreting manufacturers'
designs and analysis to insure conformity with the contract specifications. Over
the years, the scope of the services that PTI provides has grown such that PTI's
core business areas are now consulting services, software products, educational
programs, and special hardware products.
Consulting Services
Consulting services represent the core technology base of the company.
PTI's consulting services span the entire range of activities related to utility
and industrial power system engineering and are provided in four areas of
technology: system planning and operations ("SPO"), transmission and
distribution ("T&D") and generation.
System Planning and Operations
PTI's SPO Department prepares power system performance studies which cover
all aspects of system performance including load flow, short circuit, transient
and dynamic stability, equivalencing, system component modeling, voltage
stability, interchange limits, load rejection, AC and DC transmission,
application of flexible AC transmission systems ("FACTS"), subsynchronous
resonance, relay protection, series and shunt compensation, and SVC application
studies. The studies conducted by the SPO group are often an important part of,
or a precursor to, projects leading to major investments such as independent
power plant location, transmission network expansion, and addition of power flow
control equipment such as FACTS.
PTI believes that its PSS/E software, including optimal power flow and
extended term stability, is the industry standard for use in conducting power
system performance studies, and is used by virtually all of the major utilities
around the world. PTI has contributed to the design of the majority of major
grid systems in the United States and overseas. PTI is also recognized as a
leader in the areas of international interconnections, national power system
audits, preparation of master plans, reliability analysis, and training and
upgrading planning capabilities of major utilities.
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<PAGE> 63
PTI's SPO group has developed a number of other innovations that are
beneficial to the electric industry. These include innovative applications of
optimal power flow calculations, frequency domain analysis which provides a
wealth of information compared to older eigenvalue methods, and the field
measurements of generator parameters theory which led to PTI's Dynamic System
Monitor hardware product.
Transmission and Distribution
PTI's T&D group assists its customers in transmission design. PTI has
developed an extensive knowledge base by conducting research projects relating
to compact transmission, conventional and unconventional transmission designs,
compact transmission at higher voltages, innovative insulation designs using
ceramic or synthetic components, optimum design of conductors in various
materials including covered conductors at transmission voltages, real-time
ratings of transmission lines, and generic design concepts offering good visual
appearance and optimum environmental performance. PTI has also contributed
significantly in establishing standards for electric and magnetic field limits.
Transmission design projects are often performed as part of larger
projects leading to line and substation construction, and PTI has teamed with
many architectural and engineering companies in such projects. Other types of
projects include problem analysis and resolution, such as failed equipment
investigations, and preparing designs to improve economic and power quality
performance of delivery systems. PTI has extensive system-based experience in
alternative dispersed generation technologies and the integration of these
technologies for improved system performance.
The T&D group also has developed engineering software for use in
transmission system design and assessment. For example, this group has been a
prime developer for the EPRI Transmission Line Workstation, the EPRI Underground
Transmission Workstation, the EPRI FAULT Underground Cable Fault Location Expert
System, and the EPRI Substation Design Workstation. Other software has been
developed on client projects and then commercialized, such as the Transmission
Lightning Protection program.
Generation
PTI's generation group offers technology and services in key areas of
power generation. PTI provides owners' engineering services, financial screening
and economic analysis, plant performance monitoring and condition assessment,
plant performance and acceptance testing, feasibility studies, new technology
evaluations and performance monitoring software systems to clients world-wide.
The generation group has developed two software applications: (a) dpmSuite
- - a suite of thermal hydraulic analysis engines, interface MS Excel
spreadsheets, archive, and man-machine interface ("MMI") for data analysis and
viewing, consisting of dpm testbook, dpmPASS (Performance Analysis Spreadsheet
Series) and dpmMonitor, and (b) dpmEMS - an Energy Management System which is a
thermal hydraulic real-time analysis system including a real time optimization
and dispatch. The generation group has also developed capabilities in on-line
client/server local area network ("LAN") system activities. These include
turnkey systems for the power generation industry, the refinery industry, the
pulp and paper industries, and the steel industry.
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Competitive Power Market Solutions
PTI has addressed the needs of the evolving deregulated electric power
industry by forming the Competitive Power Market Solutions ("CPMS") group in
1995. The process of deregulation and the resulting changes in the electric
power industry have created opportunities for PTI to provide new products and
services. The CPMS group has developed specialized software and techniques to
assess transmission access issues, generator site selection and parallel flow
analyses. CPMS clients include generating companies, reliability councils,
independent system operators and transmission providers. Software developed by
the CPMS group has been identified by a number of utilities and power pools as
representing an important advancement in parallel flow calculations and
transmission capability, and they have adopted PTI's Managing and Utilizing
System Transmission ("MUST") software as the calculation tool for meeting
Federal Energy Regulatory Commission ("FERC") requirements for posting of
available transmission capacity ("ATC") on the Open Access Same-Time Information
System ("OASIS"). The MUST software has also been designated by North American
Electric Reliability Council ("NERC") as the tool for calculating the interim
interchange distribution calculations (iIDC) for the eastern interconnection.
Software Products
PTI maintains and continually develops a library of power system related
software programs. These software programs cover the spectrum from transmission
planning through economic analysis, to real-time modeling for training
simulators. PTI also creates software for third party applications, such as
system control center programs. Programs for general use are established as
software products and supported on a wide range of computers, while specialized
programs are available on PTI's in-house computers for use in client projects.
PTI's software products are a vital and strategic element in its overall
business, and are synergistic with many of its other business areas. The
original impetus for software development at PTI was the desire to create tools
to facilitate the research and projects undertaken by PTI's consulting services
personnel. As consulting clients requested access to the same advanced software
tools being used by PTI, this quickly led to the development of PTI's commercial
software products business.
PTI's flagship product, PSS/E, is used by virtually all of the major
utilities and industries and is the reference tool for most major industry
studies. PSS/E customers include: transmission companies, utilities, large
industrials, regulators, reliability councils, consultants, universities and
power marketers.
Education/Training
PTI provides educational programs in power system engineering throughout
the world. Educational and training programs account for approximately 10% of
PTI's annual revenues. PTI offers courses on more than seventy topics dealing
with all aspects of power generation, transmission, distribution and industrial
power systems. Each year approximately forty of the courses are offered for open
enrollment at PTI's offices in Schenectady and in other major U.S. cities. An
additional ten to twelve courses are conducted each year on-site for specific
clients. While the continued push toward total deregulation in the industry has
reduced the demand for conventionally scheduled courses, the demand for
specialized courses conducted on-site for individual clients has increased.
The courses offered by PTI have enabled it to establish relationships with
many clients and potential clients through the attendance of their personnel at
PTI courses. Because more than 1,000 participants enroll in PTI's continuing
education programs every year (all of whom are exposed to other PTI products and
services), PTI's educational programs provide an important marketing mechanism
for PTI's consulting services and software products. In addition to having
strategic importance to long term marketing, the education group has been
operating at a profit for many years because of its ability to cost-effectively
leverage PTI's pre-existing technology and experience.
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<PAGE> 65
Specialty Hardware
PTI has developed several specialized hardware products including: large
special purpose simulators, controls for generators, instrumentation systems,
and industrial load shedding systems. While PTI offers standard products, it
also develops and manufactures specialized systems and equipment for either
one-of-a-kind or multiple applications. PTI's design and manufacturing
capability ranges from model components for transient network analyzers and DC
simulators to microprocessor-based control and instrumentation systems. PTI
maintains an advanced development shop, a light manufacturing and assembly area,
and a staging area for system inspections and debugging.
PTI presently makes three hardware products: the SS/1 Power System
Stabilizer and the Dynamic System Monitor, both of which are used in power
generation and transmission systems, and the LD/1 Load Shedding System,
currently used in industrial power systems. PTI also continues to support a
discontinued, earlier product, the transient network analyzer or TNA.
Operations
PTI operates offices in the United States and has subsidiaries around the
world, providing important geographical diversity and coverage. Approximately
45% of PTI's business is from customers outside the United States. PTI's
headquarters and primary office is in Schenectady, New York. PTI has regional
offices in California and Pennsylvania, and has employees who work out of their
homes in Idaho and Iowa. Power Technologies Limited ("PTL"), a wholly-owned
subsidiary of PTI formed in 1990, has an office located near Manchester, England
which serves the United Kingdom, Ireland, and Western and Central Europe. In
1995, PTI began operating in Russia through a wholly-owned subsidiary known as
Power Technology Development Company, Inc. This subsidiary formerly conducted
business through Russian engineers who acted as independent contractors but is
not presently conducting business. PTI also maintains an office in Brisbane,
Australia which was established in 1996 and serves Australia and New Zealand.
During 1997, PTI established Power Technologies South Asia Pvt. Ltd., a
wholly-owned subsidiary of PTI which maintains an office in Delhi and offers
PTI's services and products in India.
In addition to its offices and subsidiaries, PTI operates in a number of
foreign jurisdictions through joint ventures and sales representatives. In 1995,
PTI commenced operations in Asia through a joint venture named PTI Asia SDN BHD
("PTI Asia"), headquartered in Kuala Lumpur, in which it owns a forty-nine
percent interest. In 1997 PTI entered into a joint venture based in South
Africa, PTI-NET Africa, in which it owns a 50% interest, and which focuses on
serving the Southern African region with an initial emphasis on serving Southern
African Power Pool members. PTI presently has sales representative in the
following countries: New Zealand (specific software), Egypt, Spain, Brazil,
Argentina, Peru, Pakistan, China, Mexico, Colombia, Indonesia (through
PTI-Asia), China, Norway, Israel, Japan and Saudi Arabia. PTI's sales
representatives are usually assigned their resident country as an exclusive
territory and are compensated with commissions based on sales of services and
products sold directly by PTI. PTI also has informal representative arrangements
in Turkey, Greece and Ecuador.
PTI recently disposed of its approximately 27% interest in Hydropower
Technologies, Inc., a joint venture with a Norwegian company designed to bring
Scandinavian engineering skills in the hydroelectric power industry to the
United States. This joint venture is in the process of being dissolved. Also, in
connection with the Merger, PTI will dispose of its approximately 14% interest
in Power Technologies International, Inc. ("PTII"), a domestic international
sales corporation (DISC) which has been owned by PTI and its shareholders. PTII
historically has been operated as a DISC and paid a commission by PTI, which has
been distributed as a dividend to PTII shareholders. The commission paid to PTII
is determined in accordance with a commission agreement between PTI and PTII
which was structured to conform to IRS regulations governing DISCs. For
financial reporting purposes, PTII has been a consolidated subsidiary of PTI.
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<PAGE> 66
Employees and Consultants
PTI presently has approximately 115 employees, approximately 81 of whom
are engineering or computer science professionals. Approximately 76 of PTI's
engineering and computer science professionals are located at its Schenectady
headquarters and there are one or more of such professionals at each of its
offices or subsidiaries (except Power Technology Development Company, Inc.). The
majority of PTI's engineering staff are active members of professional societies
such as IEEE and CIGRE. Many are officers of, or lead technical groups in, these
organizations and are Fellows in IEEE. In addition to its employees, PTI
maintains its Technology Assessment Group (TAG) -- a group of approximately 200
experts in scientific and technological disciplines who are under contract with
PTI and are available to work on specialized projects.
Directors and Officers
The directors and officers of PTI are as follows:
<TABLE>
<CAPTION>
Name Office
---- ------
<S> <C>
Lionel O. Barthold Director and Chairman of the Board of Directors
Steven J. Balser Director and President
Ian S. Grant Director and Executive Vice President
Mary A. Sager Director and Treasurer
Gordon B. Hirschman Director and Secretary
Dale A. Douglass Director
F.S. Prabhakara Director
</TABLE>
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PTI MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The following is PTI management's discussion and analysis of certain
significant factors that have affected the financial condition and results of
operations of PTI (including its subsidiaries) for the periods indicated.
Effective January 1, 1998, PTI began to prepare its financial statements
in accordance with GAAP. The results discussed below are based on year-end
results for 1995, 1996, and 1997 as restated on a consolidated basis according
to GAAP. The internal financial information PTI has relating to the operating
profit and loss of its various business operations is different in some respects
than the financial information included in this Prospectus and Proxy Statement
because PTI's financial statements have not historically been prepared on a GAAP
basis; however, PTI has provided certain general information about the financial
performance of its respective business operations because it is necessary to
understand the condition of PTI's business as a whole. PTI's financial
statements for 1997 were audited; however, its financial statements for 1995 and
1996 have not been audited.
The following discussion and analysis should be read in conjunction with
PTI's financial statements appearing elsewhere in the Prospectus and Proxy
Statement.
Results of Operations
Three Months Ended March 31, 1998 Compared With Three Months Ended March 31,
1997
PTI's net sales of $3,612,893 for the quarter ended March 31, 1998 were
6.7% lower than its net sales of $3,871,499 for the quarter ended March 31,
1997. The higher sales level in the first quarter of 1997 was primarily
attributable to projects during that period which had high pass-through material
components and to higher billings for educational programs. PTI's operating
expenses of $4,067,081 for the first quarter of 1998 were 8.2% lower than its
operating expenses of $4,431,892 for the first quarter of 1997 despite
extraordinary Merger related expenses of approximately $140,000 in 1998.
Operating expenses in the first quarter of 1998 were lower primarily as a result
of lower project material costs, reduced investment in PTI's products under
development, reduced interest expenses and offsetting rental income. Because the
difference in operating expenses was greater than the difference in net sales,
PTI's loss from operations and net loss for the first quarter of 1998 was lower
than its loss from operations and net loss for the first quarter of 1997. It is
typical for PTI to have a loss from operations and a net loss for the first
quarter of the year due to lower software sales during that period and reduced
services billing because of vacations and holidays in December and early
January.
Year Ended December 31, 1997 Compared with December 31, 1996
Net Sales
PTI's net sales increased by 7.3% to $18,855,000 in 1997 from $17,565,000
in 1996. Domestic sales, which had been falling in 1996, stabilized in 1997.
PTI's international sales increased by 10.6% to $7,803,000 in 1997 from
$7,056,000 in 1996. Sales to EPRI, PTI's largest client, increased by
approximately 18% over 1996 levels, and sales to Niagara Mohawk and the New York
Power Authority increased, making those clients two of PTI's largest ten clients
again and reflecting the improved domestic market. Support maintenance revenue
during 1997 increased by $400,000 compared to 1996 levels as a result of a
policy change implemented in late 1996 requiring customers to purchase annual
calendar-year contracts to retain continuity of service.
Operating Expenses
PTI's operating expenses increased by 8.0% to $18,360,000 in 1997 (97.4%
of sales) from $17,004,000 in 1996 (96.8% of sales). The increase in operating
expenses resulted from a number of factors including: additional expenses
associated with the increase in sales, a contingent contribution of $348,000 to
PTI's ESOP in contemplation of the Merger, expenses associated with certain
projects which were a greater percentage of the
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<PAGE> 68
contract price than is typical, a $319,000 increase in bad debt expenses which
were reserved for, an accrual of $38,000 which will be paid in 1998 in
connection with the settlement of PTI's environmental obligations relating to a
site located in Malta, New York and internal and external transaction expenses
incurred in connection with the proposed Merger. Excluding the contingent ESOP
contribution and the external Merger-related transaction costs, PTI's operating
expenses would only have increased by $950,000 or 5.6% and would have
represented 95.2% of sales. Such a decline in the percentage of sales
represented by operating expenses reflects a decrease of $450,000 in staffing
costs resulting from PTI's ability to utilize permanent staff more efficiently
and to leverage outside contractor labor where possible.
The project-related expenses contributing to increased operating expenses
resulted primarily from two projects which contained significant hardware
components with respect to which PTI did not receive a mark-up. The largest bad
debt expense related to PTI's (TTPC) Perlis project which was delayed and
perhaps jeopardized by currency problems in Malaysia or the "Asian Crisis." PTI
decided to recognize the future risk of payment of this major account receivable
by incurring a bad debt charge of $322,000. Future charges may also be incurred
if this account is never collected in full. The expenses associated with the
Merger included $58,000 of external legal and accounting fees and at least
$22,000 of incremental internal expenses. A number of these expenses such as the
expense associated with the Malta site settlement, the contingent ESOP
contribution and the transaction expenses associated with the Merger are
non-recurring.
The increase in PTI's operating expenses were offset somewhat because of a
decrease in the amount PTI invested in its TOPS product, a new software product
under development, from $226,000 in 1996 compared to only $135,000 in 1997. PTI
received no significant revenue return on this investment during either year.
Other Expenses
PTI's other expenses consist primarily of interest on its borrowings and
increased slightly during 1997 because PTI had greater borrowings during 1997
than 1996 and the interest rates paid on such borrowings increased. Other
expenses were offset in 1997 by approximately $19,000 of rental income from the
rental of a portion of its 1473 Erie Boulevard facility to an outside firm
beginning in November 1997 under a lease having a term three years. Annual net
lease income is estimated at $115,000 per year, but only two months of income
were realized in 1997.
Income Tax
The effective income tax rate for 1997 was 25.6% of net income compared to
a rate of 39.6% for 1996. The lower rate for 1997 was due primarily to the
increased level of foreign tax credits generated in 1997 and the overall benefit
of use of the lower graduated rates in 1997.
Year Ended December 31, 1996 Compared with December 31, 1995
Net Sales
PTI's net sales decreased by 1.6% to $17,565,000 in 1996 compared to
$17,855,000 in 1995. The lower sales continued a trend which began in 1995
caused by a significant decline in domestic business led by a 60% reduction of
business for EPRI in 1995 compared to 1994. While EPRI maintained its position
as PTI's largest client, there was a further reduction in EPRI revenue in 1996
of 18%. On a broader front, the trend in declining domestic sales continued into
1996 as pending deregulation of the U.S. utility industry produced delays in or
cancellation of many long-term planning and expansion projects. In spite of the
shift in emphasis towards international work, international sales declined to
$7,056,000 in 1996 compared to $8,315,000 in 1995. International sales were
dominated by a number of large projects in Southeast Asia which created certain
additional risks to PTI's business as a result of the economic instability of
the region. See "Risk Factors - Risks Relating to PTI - Risks Associated with
International Operations."
A 12.5% increase in software sales from 1995 to 1996 reflected the
significant software sales included as components of many of the large,
international projects. The increase in software sales offset the significant
decline
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in revenues from consulting services and other segments. Billable time
percentage increased to 52.4% in 1996 compared to of 49.7% in 1995 due to a
reduction of hourly billable staff from 47 professionals in 1995 to 43
professionals in 1996 without a corresponding reduction in work-load.
Operating Expenses
PTI's operating expenses decreased by 3.7% to $17,004,000 in 1996 (96.8%
of sales) compared to $17,650,000 in 1995 (98.9% of sales). The reduction in
operating expenses and in the percentage of sales represented by operating
expenses are attributable to cost-cutting measures implemented by PTI in
response to declining sales. PTI instituted overhead staff and benefit
reductions in 1996 which were designed to save $400,000. PTI continued a cost
reduction program which it started in 1995 and which reduced PTI's operating
expenses by $900,000 in 1995 compared to 1994. These cost-cutting measures and
the deferral of certain discretionary expenses enabled PTI to realize a total
reduction in operating expenses of $646,000 in 1996 compared to 1995.
The benefits of PTI's cost-cutting measures were offset somewhat by a bad
debt charge of $278,000 incurred in 1996 due to problems in Malaysia which
created questions as to whether certain of PTI's accounts receivable would be
collected. PTI also reduced the amount it invested in its TOPS product to
$226,000 in 1996 compared to $358,000 in 1995. PTI received no significant
revenue return on its investment in its TOPS product during either year.
Other Expenses
PTI's other expenses increased only slightly to $311,000 in 1996 from
$293,000 in 1995 due to fluctuations in the amount borrowed by PTI and changes
in interest rates.
Income Taxes
The effective income tax rate for 1996 was 39.6%. The company experienced
an operating loss in 1995 with tax benefits realized at a rate of 72% of the
loss incurred. The tax benefit rate for 1995 was higher than normal statutory
rates as a result of the benefit of foreign tax credits coupled with a domestic
net operating loss.
Liquidity
PTI has experienced periods of limited liquidity over the past several
years; however, PTI's cash flow difficulties were most severe in 1995 and 1996
and its cash flow situation improved in 1997 and is continuing to improve. PTI's
cash position was significantly weakened by a decline in sales in 1995 of
$1,294,000 compared to 1994 (resulting in a loss of $25,000), coupled with net
stock repurchases of $523,000 in 1995 and aggravated by a lag between the
decline in sales and a corresponding reduction in operating costs. The full
impact of these items was delayed from 1995 until 1996 by a decrease in accounts
receivable of $791,000 during 1995.
The cash flow situation worsened during 1996 as PTI's accounts receivable
balance increased by $318,000 and costs and revenue recognized in excess of
billings increased by $1,164,000 despite a decline in sales of $290,000. PTI had
to delay its payment of the 1995 pension contribution until September 1996
whereas the contribution for 1994 was made in March 1995. In July 1996, the
Company was forced to apply for a $1,000,000 mortgage on its 1482 Erie Boulevard
property, and a $600,000 bridge loan was used to fund the pension payment in
September and to provide additional working capital until the mortgage loan was
completed and funded.
In response to its liquidity situation, PTI implemented cost-cutting
measures in 1995 and a program restricting stock repurchases in 1996. The stock
repurchase program limited share repurchases plus any interest on notes held by
selling shareholders to $100,000 per year. Previously, PTI repurchased all
shares that were offered for sale whether by terminating employees or continuing
employees.
Liquidity continued to be a major concern early in 1997 due to the
carryover of cash problems from 1996 and the need to finance increasing
operating expenses resulting from increased sales. The cash position of PTI
significantly improved during 1997 due to an increase in sales of $1,290,000
with an $80,000 decrease in accounts
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receivable and a $670,000 decrease in costs and revenue recognized in excess of
billings. PTI continued its cost control initiatives in 1997 and, while no
further benefits and overhead reductions were made in 1997, non-project related
operating expenses were carefully controlled (however PTI incurred non-project
transaction expenses in connection with the Merger). While PTI recognized only
$73,000 of net income during 1997, a number of significant expenses incurred
during 1997 will not be paid until 1998 as reflected by an increase in accounts
payable of $343,000. Primarily as a result of these factors, total cash provided
by operating activities during 1997 was $1,481,000.
In addition to increased cash provided by operating activities during
1997, the sale of stock and exercise of stock options by employees in 1997
provided cash of $674,000 which substantially reduced the deficit of cash
experienced early in 1997. Many of the shares that were sold were sold under
Guideline 28 Employee Stock Purchase Plan which was implemented by PTI's board
of directors in April 1997 and made 25,000 shares of PTI Class A Common Stock
available for sale to full-time employees. All 25,000 shares were purchased late
in 1997 after the announcement of the proposed Merger and such shares may not
have been sold had the Merger not been anticipated.
PTI's liquidity improved in the first quarter of 1998 with an increase in
cash of $694,000. The net increase in cash resulted primarily from a reduction
in accounts receivable of $659,000, deferral of software support fees of
$727,400, and cost and revenue recognition in excess of billings of $380,000,
offset by a reduction in accounts payable of $580,300, deferred taxes of
$269,000, and net loss for the quarter of $337,000.
PTI's liquidity for the remainder of 1998 will be impacted by a number of
significant cash payments that will be due for expenses accrued in prior years
including $138,000 for the Malta settlement, $450,000 for the payment of accrued
benefits under PTI's termination bonus plan and the termination of such plan,
$348,000 for the contribution to the ESOP and $253,000 for accrued 1997 pension
and profit sharing contributions. In addition, PTI's profit sharing contribution
for 1998, yet to be determined, will be payable in 1998.
Capital Resources
At the end of 1997, the Company had a $2,000,000 line of credit secured by
eligible accounts, of which $1,830,000 would be available for borrowing based on
the accounts receivable at the end of 1997. The amounts borrowed under this line
of credit were $895,000 and $400,000 at the end of 1996 and 1995, respectively.
PTI had cash of $571,000 at the end of 1997, and positive cash flow during the
first quarter of 1998 has increased the cash balance to $773,000. The Company
has no capital resources other than the line of credit and cash reserves.
At the end of 1997, PTI had long-term obligations with an aggregate
outstanding balance of $2,231,000, which obligations are secured by mortgages on
PTI's buildings. In addition, PTI leases computer and other equipment and
currently has lease commitments of $363,000 in 1998, $245,000 in 1999, and
$154,000 in 2000. PTI's lease expenses for 1997 were $315,000. PTI has no plans
for significant capital spending in 1998.
PTI believes that its current cash reserves and its line of credit will be
adequate for the foreseeable future to satisfy its capital resource needs in the
conduct of its business as presently conducted.
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PTI SHARE OWNERSHIP
The following table sets forth information with respect to (i) executive
officers and directors of PTI, individually and collectively as a group and (ii)
all persons who are known to PTI to be beneficial owners of more than five
percent of any class of the outstanding PTI Common Stock as of July ___, 1998.
As of the Record Date, there were [247,080.58] shares of PTI Class A Common
Stock outstanding, [49,704.49] shares of PTI Class B Common Stock outstanding,
and [22,100] shares of PTI Class C Common Stock outstanding.
<TABLE>
<CAPTION>
Shares of PTI Common Stock Percentage of PTI Common Stock
Beneficially Owned Outstanding
------------------ -----------
Name Class A Class B Class C(1) Aggregate Class A Class B Class C(1) Aggregate
---- ------- ------- ---------- --------- ------- ------- ---------- ---------
Executive Officers and Directors:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lionel O. Barthold 57,764.41 -- 50.91 57,815.32 23.4% -- * 18.1%
Steven J. Balser 15,557.52 971.15(2) 98.91 16,627.58 6.3 2.0% * 5.2
Ian S. Grant 18,515.00 -- 89.26 18,604.26 7.5 -- * 5.8
Mary A. Sager 5,005.93 -- 50.63 5,056.56 2.0 -- * 1.6
Gordon B. Hirschman 2,570.12 -- 43.66 2,613.78 1.0 -- * *
Dale A. Douglass 1,762.18(3) -- 57.16 1,819.34 * -- * *
F.S. Prabhakara 1,765.00 -- 55.08 1,820.08 * -- * *
As a group 102,940.16(3) 971.15(2) 445.61 104,356.92 41.7% 2.0% 2.0% 32.7%
(8 persons)
5% Beneficial Owners
The PTI ESOP -- -- 22,100 22,100 -- -- 100% 6.9%
Donald N. Ewart -- 10,368.24 -- 10,368.24 -- 20.9% -- 3.3
Stephen R. Lambert -- 8,500.00(4) 47.11 8,547.11 -- 17.1 * 2.7
Hyde M. Merrill -- 7,783.00 60.00 7,843.00 -- 15.7 * 2.5
Harrison K. Clark -- 7,065.00 -- 7,065.00 -- 14.2 -- 2.2
Stephen F. Mauser -- 5,500.00 68.93 5,568.93 -- 11.1 * 1.7
</TABLE>
- ------------------
* Percentage is less than 1% of the aggregate number of outstanding shares.
(1) All of the outstanding shares of PTI Class C Common Stock are held of
record by the PTI ESOP. The number of shares and percentages in the table
(other than with respect to the ESOP) reflect the shares of PTI Class C
Common Stock in which the above individuals have an interest as a
participant in the ESOP.
(2) Consists of an aggregate of 971.15 shares of PTI Class B Common Stock
owned by Mr. Balser's spouse and minor child.
(3) Includes 560 shares of PTI Class A Common Stock which are owned by Mr.
Douglass as trustee for Asa A. Douglass.
(4) Includes 2,500 shares of PTI Class B Common Stock owned by Mr. Lambert's
spouse.
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COMPARISON OF RIGHTS OF HOLDERS OF SWI COMMON STOCK
AND PTI COMMON STOCK
General
PTI is incorporated under the laws of the State of New York and SWI is
incorporated under the laws of the State of Delaware. Shareholders of PTI, whose
rights are currently governed by the NYBCL, the PTI Certificate of
Incorporation, as amended (the "PTI Certificate") and the PTI By-laws, will,
upon consummation of the Merger, become shareholders of SWI and their rights
will be governed by the DGCL, the SWI Certificate and the SWI By-laws.
The Merger will effect several changes in the rights of shareholders as a
result of differences between the NYBCL and the DGCL and differences between the
provisions of the PTI and SWI Certificates and By-laws. The provisions of the
NYBCL and DGCL differ in numerous respects, although recent amendments to the
NYBCL reduced certain of these differences. Summarized below are certain of the
principal differences between the NYBCL and the DGCL affecting the rights of
shareholders as well as a summary of the impact of certain provisions of the PTI
and SWI Certificates and By-laws. The summary is not intended to be relied upon
as an exhaustive list or a detailed description of the provisions discussed and
is qualified in the entirety by the respective corporate codes of the States of
New York and Delaware and by the PTI and SWI Certificates and By-laws.
Dividends
Delaware law places less restrictions on the funds out of which a
corporation can declare and pay a dividend than does New York law. Under New
York law, dividends may be paid only out of surplus. Under Delaware law, a
corporation may, unless otherwise restricted by its certificate of
incorporation, declare and pay dividends out of surplus, or if no surplus
exists, out of net profits for the fiscal year in which the dividend is declared
and/or the preceding fiscal year (provided that the amount of capital of the
corporation is not less than the aggregate amount of the capital represented by
the issued and outstanding stock of all classes having a preference upon the
distribution of assets). The SWI Certificate contains no restrictive provisions
related to dividends.
Vote Required for Certain Transactions; Removal of Directors
The NYBCL requires that, with respect to corporations in existence on
February 23, 1998, certain mergers, consolidations, dissolutions and sales of
all or substantially all of the assets not in the ordinary course of business be
approved by the holders of two-thirds of the outstanding stock entitled to vote
thereon, unless the certificate of incorporation of such corporation includes a
provision permitting approval by a majority of all outstanding shares. The PTI
Certificate does not contain such a provision; therefore, the affirmative vote
of the holders of two-thirds of PTI voting stock is required to approve the
Merger. Under the DGCL, such transactions require approval by the holders of a
majority of the outstanding stock entitled to vote thereon, unless otherwise
expressly provided in the certificate of incorporation, and a vote of the
shareholders of the surviving corporation is not necessary where, in the case of
a merger, (i) no amendment of its certificate of incorporation is effected, (ii)
each share of its stock outstanding immediately prior to the Effective Time is
to be an identical outstanding or treasury share of the surviving corporation
after the Effective Time, and (iii) the merger results in no more than a 20%
increase in its outstanding common stock.
Pursuant to the SWI By-laws, a special meeting of SWI's stockholders can
be called by the Chairman of the Board, the President, the Chairman of the
Executive Committee or the Board of Directors. SWI directors can be removed with
cause by the approval of the holders of a majority of outstanding shares of SWI
entitled to vote or without cause by the approval of two-thirds of SWI's
directors followed by majority stockholder approval. All vacancies (including
vacancies resulting from an increase in the number of directors) will be filled
by SWI's Board of Directors, except for vacancies resulting from the removal of
a director which are filled by the stockholders simultaneously with the removal.
Amendments to the By-law relating to the filling of vacancies requires approval
of the holders of two-thirds of the outstanding shares of SWI entitled to vote;
other amendments to the SWI By-laws require approval of the holders of a
majority of the outstanding shares of SWI entitled to vote.
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<PAGE> 73
Pursuant to the PTI By-laws, a special meeting of shareholders can be
called only by or at the direction of the Board of Directors. The PTI By-laws
provide that PTI's directors may be removed with or without cause by its
shareholders (a majority of votes present at a shareholders' meeting at which a
quorum is present) or by its Board of Directors. Vacancies may be filled by a
regular vote of the shareholders or, except in the case of vacancies resulting
from an increase in the number of directors, by a regular vote of the Board of
Directors.
Dissenters' Rights of Appraisal
Dissenting shareholders have the right to obtain the fair value of their
shares (so called "appraisal rights") in more circumstances under New York law
than under Delaware law. Under Delaware law, a shareholder is entitled to
appraisal rights in the event of certain mergers or consolidations, but not in
the event of a sale, lease, or exchange of all or substantially all of a
corporation's assets or the adoption of an amendment to its certificate of
incorporation, unless such rights are granted in the corporation's certificate
of incorporation. The SWI Certificate does not grant such rights. Under New York
law, a properly dissenting shareholder is entitled to receive the appraised
value of his or her shares when the corporation votes: (i) to sell, lease, or
exchange all or substantially all of its assets, (ii) to adopt an amendment to
its certificate of incorporation which adversely affects the rights of the
shareholder, or (iii) to merge or consolidate.
The availability of appraisal rights to shareholders of PTI who dissent
with respect to the Merger is discussed under "The PTI Annual Meeting -
Dissenters' Rights."
"Anti-Takeover" Provisions
The Certificates and Bylaws of both SWI and PTI contain provisions that
could discourage potential takeover attempts and prevent shareholders from
changing the company's management, including provisions authorizing the Board of
Directors to issue shares of preferred stock in series, and restricting the
ability of shareholders to call a special meeting of shareholders.
The New York Business Combination Statute provides greater anti-takeover
protection than the Delaware Business Combination statute. While the New York
statute provides that, if a person acquires 20% or more of the outstanding
voting stock of a New York corporation without the approval of its board of
directors (an "interested shareholder") such person may not engage in certain
transactions with the corporation for a period of five years, the Delaware
statute lowers the 20% ownership threshold to 15% and the five year period to
three years. Both the New York and Delaware statutes include certain exceptions
to this prohibition; for example, if the board of directors approves the
acquisition of stock or the transaction prior to the time that the person
becomes an interested shareholder. The PTI Board has approved the Merger
pursuant to the New York Business Combination statute, and SWI is currently
subject to the Delaware Business Combination statute.
Corporate Action by Written Consent without a Shareholders' Meeting
The NYBCL permits corporate action without a shareholders' meeting upon
the unanimous written consent of holders of all outstanding shares entitled to
vote on such action or, if the certificate of incorporation so provides, by the
written consent of holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize the proposed corporate
action at a meeting at which all shares entitled to vote thereon were present
and voted. The PTI Certificate does not provide for shareholder action by
written consent. The DGCL provides that, unless the certificate of incorporation
provides otherwise, any action required or permitted to be taken at an annual or
special meeting may be taken without a meeting of shareholders upon the written
consent of holders of outstanding stock having not less than the minimum number
of votes that would be necessary to authorize the proposed corporate action at a
meeting at which all shares entitled to vote thereon were present and voted. The
SWI Certificate requires that any action taken by the shareholders be effected
at an annual or special meeting and prohibits shareholder action by written
consent without a meeting.
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<PAGE> 74
Classification of the Board of Directors
The NYBCL permits a classified board with as many as four classes (with
each class to be as nearly equal in number as possible), and the DGCL permits a
classified board of directors with as many as three classes. Neither the NYBCL
nor the DGCL specify any minimum number of directors required in each class. The
PTI By-laws provide for two classes of directors, while the SWI By-laws provide
for three classes of directors.
Number of Directors
Under both the NYBCL and the DGCL, a corporation may have as few as one
director, while neither statute sets an upper limit on the number of directors.
Under the NYBCL, the number of directors may be fixed by the by-laws, or by
action of the shareholders or the board of directors (under the specific
provisions of the by-laws adopted by the shareholders), and the number of
directors may be increased or decreased by amendment of the by-laws, or by
action of the shareholders or of the board of directors (under the specific
provisions of a by-law adopted by the shareholders), subject to certain
limitations. Under the DGCL, the number of directors may be fixed in the by-laws
or in the certificate of incorporation, but if fixed in the certificate of
incorporation, may be changed only by amendment of the certificate of
incorporation. If the certificate of incorporation is silent as to the number of
directors, the board of directors may fix or change the authorized number of
directors pursuant to a provision of the by-laws. The SWI By-laws provide that
the number of directors will be ten, but such number can be increased or
decreased to no less than three by a two-thirds vote of the entire SWI Board of
Directors or by the vote of the holders of two-thirds of outstanding shares of
SWI entitled to vote.
Issuance to Officers, Directors and Employees of Rights or Options to Purchase
Shares
The NYBCL requires the affirmative vote of a majority of votes cast at a
meeting of shareholders at which a quorum is present in order to issue to
officers, directors or employees options or rights to purchase stock. The DGCL
does not require stockholder approval of such transactions. However, SWI is
subject to various other applicable legal requirements, such as rules of the
Securities and Exchange Commission and the NYSE which may make stockholder
approval of certain rights or option plans and grants thereunder necessary or
desirable in certain circumstances.
Loans to Directors
Under the DGCL, loans may be made to employees or officers, even those who
are also directors, if the Board of Directors finds that the loan may benefit
the corporation. The NYBCL permits loans or guarantees to directors if the board
determines that the loan or guarantee benefits the corporation and the
certificate of incorporation expressly authorizes the board to make such
determination; otherwise, such loans must be authorized by an affirmative vote
of shareholders (excluding, for this purpose, shares of the director who is the
proposed borrower).
Inspection of Shareholders List
Shareholders have broader rights of inspection under Delaware law than
under New York law. The NYBCL provides a right of inspection, upon at least five
days' written demand, to (i) any person who has been a shareholder of record for
at least six months immediately preceding the demand or (ii) any person holding,
or authorized in writing by the holders of, at least 5% of any class of
outstanding shares. The corporation has certain rights calculated to assure
itself that the demand for inspection is not for a purpose that is in the
interest of a business or object other than the business of the corporation. The
new amendments to the NYBCL allow a shareholder meeting the above qualifications
to inspect the shareholders list for any purpose reasonably related to such
person's interest as a shareholder.
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<PAGE> 75
The DGCL permits a stockholder to inspect the shareholders list for any
purpose reasonably related to such person's interest as a stockholder. In
addition, for a period of at least ten days prior to each stockholders meeting,
a list of stockholders entitled to vote at the meeting shall be open for
examination by any stockholder for any purpose germane to the meeting.
Indemnification of Officers and Directors; Limitation of Liability
Both New York and Delaware law generally permit indemnification, or
reimbursement, of directors and officers for expenses, judgements, fines and
amounts paid in settlement of claims incurred by them by reason of their
position with the corporation, if the director or officer has acted in good
faith and with the reasonable belief that his or her conduct was in the best
interest of the corporation.
The NYBCL and DGCL provisions regarding indemnification by a corporation
of its directors and officers provide that indemnification may be made in
connection with actions brought by or in the right of the corporation (a
"derivative action") except where the director or officer is adjudged to be
liable to the corporation, in which case indemnification is allowed if, and only
to the extent that, an appropriate court determines that in view of all the
circumstances such director or officer is fairly and reasonably entitled to such
indemnification. The NYBCL additionally provides that indemnification may not be
made in connection with derivative actions where a claim is settled or otherwise
disposed of unless, and only to the extent that, an appropriate court determines
that in view of all the circumstances such director or officer is fairly and
reasonably entitled to such indemnification.
The NYBCL and DGCL also provide that the indemnification and advancement
of expenses granted pursuant to, or provided by, such laws is not exclusive of
any other rights to which a director or officer may be entitled. The NYBCL
additionally provides that no indemnification may be made to or on behalf of any
director or officer for liability arising from actions taken in bad faith,
intentional wrongdoing, or where an improper personal benefit was derived. The
DGCL contains no such express limitation.
The NYBCL and the DGCL both permit a corporation's certificate of
incorporation to limit the liability of the directors of the corporation to the
corporation and the shareholders of the corporation for certain breaches of
fiduciary duty, subject to certain limitations. The PTI Board of Directors has
authorized an amendment to the PTI Certificate to so limit the liability of the
directors of PTI and has recommended that the shareholders of PTI approve such
amendment at the PTI Annual Meeting. If the amendment is approved and
implemented, it will relate only to acts or omissions occurring after the PTI
Certificate is amended. The SWI Certificate allows for indemnification of
officers and directors to the full extent permitted by Delaware law, and
contains a provision authorizing indemnification of directors for certain
breaches of fiduciary duty.
Voting Rights
The PTI Certificate provides that the holders of the Class B Common Stock
of PTI shall not have voting powers for any purpose except as required by law.
Following the Merger, each of the holders of PTI Common Stock, including Class B
Common Stock, will own SWI Common Stock, which will entitle them to one vote for
each share of SWI Common Stock owned. See "- Shareholder Rights Plan" below for
additional information regarding the voting rights of SWI Common Stock and how
they may be impacted by SWI's Shareholder Rights Plan.
Transfer Restrictions
The holders of shares of PTI Class A Common Stock and Class B Common Stock
are subject to the PTI Master Shareholders Agreement, which contains certain
transfer restrictions and grants PTI the right to purchase such shares under
certain circumstances. The Master Shareholders Agreement also grants the PTI
shareholders certain pre-emptive rights. The shares of SWI Common Stock that
will be received by the PTI shareholders in connection with the Merger will not
be subject to any such transfer restrictions or repurchase rights and will not
be entitled to any pre-emptive rights.
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<PAGE> 76
Shareholder Rights Plan
PTI does not have a shareholder rights plan.
In August 1996, the Board of Directors of SWI approved a Shareholder
Rights Plan and declared a dividend of one preferred share purchase right (a
"Right") for each outstanding share of SWI Common Stock. The dividend was paid
to the holders of record of SWI Common Stock on September 12, 1996. Each Right
entitles the holder to purchase from SWI one one-hundredth of a share of Series
A Junior Participating Preferred Stock of SWI at a price of $125 per one
one-hundredth of a Preferred Share, subject to adjustment (the "Purchase
Price"). The description and terms of the Rights are set forth in a Rights
Agreement dated as of August 15, 1996. The Rights will expire on August 15,
2006, unless extended or unless the Rights are earlier redeemed or exchanged by
SWI.
The Rights are not exercisable until the earlier to occur of: (i) 10 days
following a public announcement that a person or group of affiliated or
associated persons (an "Acquiring Person") has acquired beneficial ownership of
15 percent or more of the outstanding shares of SWI Common Stock, or (ii) 10
business days (or such later date decided by the Board of Directors) following
the commencement of, or announcement of an intention to make, a tender offer or
exchange offer for 15 percent or more of the outstanding shares of SWI Common
Stock. In such event, each holder (other than such Acquiring Person) of a Right
will have the right to receive upon exercise of the Right that number of shares
of SWI Common Stock having a market value of two times the Purchase Price. In
the event that SWI is acquired or 50 percent or more of its assets are sold
after a person or group has become an Acquiring Person, each holder of a Right,
upon exercise thereof, will have the right to receive that number of shares of
common stock of the acquiring company which will have a market value of two
times the then existing Purchase Price.
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<PAGE> 77
LEGAL OPINIONS
The validity of the SWI Common Stock to be issued in connection with the
Merger will be passed upon for SWI by Palmer & Dodge LLP, Boston, Massachusetts,
counsel for SWI. Palmer & Dodge LLP is acting as counsel for SWI in connection
with certain legal matters relating to the Merger and the transactions
contemplated thereby.
Nixon, Hargrave, Devans & Doyle LLP is acting as counsel for PTI in
connection with certain legal matters relating to the Merger and the
transactions contemplated thereby.
EXPERTS
The consolidated financial statements as of December 31, 1997 and 1996 and
for each of the years in the three-year period ended December 31, 1997
incorporated by reference from SWI's Annual Report to Shareholders into SWI's
Annual Report on Form 10-K for the year ended December 31, 1997, have been
incorporated by reference in this Prospectus and Proxy Statement in reliance on
the report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
The consolidated financial statements of PTI as of December 31, 1997 and
for the year ended December 31, 1997 included in this Prospectus and Proxy
Statement, have been audited by Marvin and Company, P.C., independent
accountants, as set forth in their report appearing elsewhere herein, and are
included in reliance upon such report given under the authority of such firm as
experts in accounting and auditing. Representatives of Marvin and Company, P.C.
are expected to attend the PTI Annual Meeting to respond to appropriate
questions and will have the opportunity to make a statement if they desire.
SOLICITATION COMPENSATION
PTI will bear the cost of solicitation of proxies. In addition to the use
of mails, proxies may be solicited by officers and employees of PTI in person or
by telephone, telegram or other means of communication.
OTHER MATTERS
PTI knows of no other business that will be presented for action by the
shareholders at the PTI Annual Meeting. If other business is properly presented
for consideration at the PTI Annual Meeting, the enclosed proxy authorizes the
person named therein to vote the shares in his or her discretion.
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<PAGE> 78
INDEX TO FINANCIAL STATEMENTS OF PTI
Page
----
PTI Financial Statements
Financial Statements for three month periods ending March 31, 1998
and March 31, 1997
Consolidated Balance Sheets............................................FS-3
Consolidated Statements of Income (Loss) and Retained Earnings.........FS-5
Summary of Significant Accounting Policies.............................FS-6
Financial Statement for period ending December 31, 1997
Independent Accountants' Report........................................FS-9
Consolidated Balance Sheet............................................FS-10
Consolidated Statement of Income (Loss) and Retained Earnings.........FS-12
Consolidated Statement of Changes In Stockholders' Equity.............FS-13
Consolidated Statement of Cash Flows..................................FS-14
Notes to Consolidated Financial Statements............................FS-15
Financial Statement for periods ending December 31, 1996 and
December 31, 1995
Consolidated Balance Sheets.............................................FS-25
Consolidated Statements of Income (Loss) and Retained Earnings..........FS-27
Consolidated Statements of Changes In Stockholders' Equity..............FS-28
Consolidated Statements of Cash Flows...................................FS-30
Notes to Consolidated Financial Statements..............................FS-31
FS-1
<PAGE> 79
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED FINANCIAL STATEMENTS FOR THE THREE-MONTH PERIODS ENDED
MARCH 31, 1998 AND MARCH 31, 1997
FS-2
<PAGE> 80
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND 1997
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Current Assets
Cash $ 1,265,455 $ 19,555
Receivables, net of allowance of $781,128 and $558,770 4,233,564 3,675,848
Costs and revenue recognized in excess of billings 1,609,466 2,910,454
Inventory 83,795 41,897
Deferred income taxes 768,400 160,000
Other 141,555 170,263
----------- -----------
Total Current Assets 8,102,235 6,978,017
----------- -----------
Property and Equipment
Land 369,023 369,023
Buildings and improvements 5,185,220 4,905,235
Computers and hardware 4,105,445 4,158,241
Furniture and fixtures 1,542,755 1,529,035
Test site equipment 34,610 34,610
Vehicles 56,903 --
----------- -----------
Total 11,293,956 10,996,144
Less accumulated depreciation 7,683,866 7,263,740
----------- -----------
Net Property and Equipment 3,610,090 3,732,404
----------- -----------
Other Assets
Deferred taxes 125,800 286,800
Investment in and due from affiliates 664,264 775,834
Financing costs, net of amortization of $50,460 and $42,606 10,362 18,216
----------- -----------
Total Other Assets
800,426 1,080,850
----------- -----------
TOTAL ASSETS $12,512,751 $11,791,271
=========== ===========
</TABLE>
FS-3
<PAGE> 81
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND 1997
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Current Liabilities
Current installments of long-term debt $ 354,028 $ 349,457
Line-oFS-credit payable -- 1,000,000
Accounts payable 1,082,990 1,024,439
Accrued expenses 1,743,618 1,251,561
Billings in excess of costs and revenues 474,192 --
Deferred support revenue 917,400 471,359
Customer deposits 194,655 364,530
Income taxes payable 267,108 --
----------- -----------
Total Current Liabilities 5,033,991 4,461,346
----------- -----------
Other Liabilities
Long-term debt, excluding current installments 1,782,713 2,109,460
Guarantee of ESOP loan -- 373,163
Deferred benefits -- 430,310
----------- -----------
Total Other Liabilities 1,782,713 2,912,933
----------- -----------
Stockholders' Equity
Capital stock 134,352 134,352
Capital in excess of par value of common stock 3,200,987 2,531,227
Reduction for ESOP loan guarantee -- (373,163)
Retained earnings 8,323,091 8,096,707
----------- -----------
Total 11,658,430 10,389,123
Less common stock in Treasury, at cost 5,962,383 5,972,131
----------- -----------
Total Stockholders' Equity 5,696,047 4,416,992
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $12,512,751 $11,791,271
=========== ===========
</TABLE>
FS-4
<PAGE> 82
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND RETAINED EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1 9 9 8 1 9 9 7
------- -------
% to % to
Dollars Sales Dollars Sales
------- ----- ------- -----
<S> <C> <C> <C> <C>
Net Sales $3,612,893 100.0 $3,871,499 100.0
Operating Expenses 4,067,081 112.6 4,431,829 114.5
---------- ----- ----------
Loss From Operations (454,188) (12.6) (560,330) (14.5)
Other Income and (Expenses) (32,539) (0.9) (46,152) (1.2)
---------- ----- ---------- -----
Loss Before Income Taxes (486,727) (13.5) (606,482) (15.7)
Provision For Income Taxes (150,129) (4.2) (116,373) (3.0)
---------- ----- ---------- -----
NET LOSS (336,598) (9.3) (490,109) (12.7)
===== =====
Retained Earnings, Beginning of Period 8,659,689 8,586,816
---------- ----------
Retained Earnings, End of Period $8,323,091 $8,096,707
========== ==========
</TABLE>
FS-5
<PAGE> 83
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidated Financial Statements
The consolidated financial statements include Power Technologies, Inc. (PTI) and
its wholly owned subsidiaries, Power Technologies Limited (PTL), Power
Technology Development Corp. (PTDC) and PT Southeast Asia; and its affiliated
company, Power Technologies International, Inc. (PTII). The consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information. Accordingly, they do
not include all of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments considered necessary for a fair presentation have
been included and all material intercompany indebtedness and transactions have
been eliminated.
Investments in Affiliates
PTI owns approximately 27% of Hydropower Technologies, Inc. (HTI), 49% of PTI
Asia, and 50% of PTI-Net. PTI's investment in these companies is recorded using
the equity method.
Nature of Operations
The Company provides engineering consulting services, develops computer software
for use by utility companies, develops and conducts educational courses and
assembles computer hardware. Approximately 45% of the Company's revenue is
generated from sales and services to foreign customers, a significant portion of
which are located in Asia.
Foreign Currency Translation
Assets and liabilities of subsidiaries and operations outside the United States
are translated into U.S. dollars at current exchange rates, while income
statement items are translated at average monthly exchange rates. Gains or
losses on such translations are accumulated in a separate component of
Stockholders' Equity and are excluded from net income. Transaction gains and
losses, which were not material, resulting from the settlement of receivables or
payables, or the conversion of currency, are included in the determination of
net income.
Revenue Recognition
Long-Term Contracts
The Company recognizes engineering revenue on a percentage-of-completion
method, primarily based on contract costs incurred compared with total
estimated costs. (Contract costs include both direct and indirect costs.)
When the Company is contractually responsible for materials, equipment and
subcontractor costs, these items are included in revenue and cost of
revenue. Revisions to total estimated contract costs or losses, if any,
are recognized in the period in which they are determined. Contract change
orders in excess of agreed contract prices are included in contract value
when approved by the client.
Revenue recognized in excess of amounts billed is classified as a current
asset. Accounts receivable include amounts representing retainages under
long-term contracts which are due within one year. The Company anticipates
that substantially all of its costs and revenue recognized in excess of
billings will be billed and collected over the next twelve months and
there were no significant amounts included in accounts receivable or costs
and revenue recognized in excess of billings under contracts for claims
subject to uncertainty as to their ultimate realization other than as
provided for in the allowance for uncollectible accounts. Billings in
excess of costs and revenue recognized are classified as a current
liability.
Software and Hardware Sales and Education
Revenue is generally recognized when the product is shipped. Revenue from
education courses is recognized when the course is taught.
FS-6
<PAGE> 84
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
Support and Update Fees
Revenue for software support, maintenance, and program updates is
recognized ratably over the support period, generally one year.
Allowance for Uncollectible Accounts
The Company establishes an allowance for uncollectible accounts based on a
periodic review of the status of accounts receivable. Those invoices or
accounts which are determined to be in jeopardy of being uncollected are
included in the allowance.
Use of 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 the disclosure of
contingent assets and liabilities and the reported revenues and expenses.
Significant estimates used in preparing these financial statements include those
assumed in determining the collectibility of accounts receivable and amounts due
from unconsolidated subsidiaries, earned revenue on long-term contracts and
contingencies. It is at least reasonably possible that the significant estimates
used will change within the next year.
Property, Equipment and Depreciation
Property and equipment are stated at cost. Depreciation of buildings is provided
using the straight-line method over a period of 31.5 to 33 years. Depreciation
of property improvements and equipment is provided using the declining balance
method at various rates over estimated useful lives which range from 3 to 15
years. The same depreciation method is used for both financial reporting and tax
purposes.
Income Taxes
Deferred income taxes are recognized in accordance with SFAS No. 109. Under
these provisions, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under SFAS
No. 109, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Tax credits are taken into income as reductions of the income tax provision in
the year in which they are allowed for tax purposes. Tax credit carryforwards
are considered in the calculation of deferred tax assets.
Amortization
Financing costs are amortized on a straight-line basis over the life of the
related loans.
FS-7
<PAGE> 85
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
AUDITED FINANCIAL STATEMENTS FOR THE PERIOD ENDED
DECEMBER 31, 1997
FS-8
<PAGE> 86
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders of
Power Technologies, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Power
Technologies, Inc., (a New York State Corporation) and Subsidiaries as of
December 31, 1997, and the related consolidated statements of income and
retained earnings, changes in shareholders' equity and cash flows for the year
then ended. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our 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 consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated 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 financial statements referred to above present
fairly, in all material respects, the financial position of Power Technologies,
Inc. and Subsidiaries as of December 31, 1997, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ Marvin and Company, P.C.
- --------------------------------
MARVIN AND COMPANY, P.C.
March 25, 1998 (except for footnote 11, for which the date is April 20, 1998)
FS-9
<PAGE> 87
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
ASSETS
<TABLE>
<S> <C>
Current Assets
Cash $ 571,053
Receivables, net of allowance of $860,515 4,893,439
Costs and revenue recognized in excess of billings 1,586,446
Inventory 83,795
Deferred income taxes (Note 4) 317,400
Other 140,632
-----------
Total Current Assets 7,592,765
-----------
Property and Equipment
Land 369,023
Buildings and improvements 5,185,220
Computers and hardware 4,123,351
Furniture and fixtures 1,532,091
Test site equipment 34,610
Vehicle 35,200
-----------
Total 11,279,495
Less accumulated depreciation 7,595,855
-----------
Net Property and Equipment 3,683,640
-----------
Other Assets
Deferred income taxes (Note 4) 137,900
Investment in and due from affiliates 512,142
Financing costs, net of amortization of $50,460 11,573
-----------
Total Other Assets 661,615
-----------
TOTAL ASSETS $11,938,020
===========
</TABLE>
See accompanying notes to consolidated financial statements.
FS-10
<PAGE> 88
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C>
Current Liabilities
Current installments of long-term debt (Note 3) $ 374,492
Accounts payable 1,663,248
Accrued expenses (Note 2) 1,534,065
Billings in excess of costs and revenues 71,350
Deferred support revenue 190,000
Customer deposits 135,124
Income taxes payable 98,430
-----------
Total Current Liabilities 4,066,709
-----------
Other Liabilities
Long-term debt, excluding current installments (Note 3) 1,856,499
-----------
Stockholders' Equity (Note 5)
Capital Stock PTI:
Class A - $.10 par value, 1,500,000 shares authorized,
984,844 shares issued, 252,660 shares outstanding 98,484
Class B - $.10 par value, 500,000 shares authorized,
158,856 shares issued, 41,921 shares outstanding 16,336
Class C - $.10 par value, 500,000 shares authorized,
22,100 shares issued and outstanding 2,210
Capital Stock PTII:
$.10 par value, 1,000,000 shares authorized,
761,960 shares issued, 310,014 shares outstanding 17,322
Capital in excess of par value of common stock 3,200,987
Retained earnings 8,659,689
Equity adjustment from foreign currency translation (12,819)
-----------
Total 11,982,209
Less common stock in Treasury, at cost 5,967,397
-----------
Total Stockholders' Equity 6,014,812
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $11,938,020
===========
</TABLE>
See accompanying notes to consolidated financial statements.
FS-11
<PAGE> 89
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (LOSS) AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
% To
Dollars Sales
------- -----
<S> <C> <C>
Net Sales $18,855,291 100.0
Operating Expenses 18,359,676 97.4
----------- -----
Income From Operations 495,615 2.6
Other Income and (Expenses) (397,996) (2.1)
----------- -----
Income Before Income Taxes 97,619 0.5
Provision For Income Taxes (Note 4) 24,746 0.1
----------- ----
NET INCOME 72,873 0.4
====
Retained Earnings, Beginning of Year 8,586,816
-----------
Retained Earnings, End of Year $ 8,659,689
===========
</TABLE>
See accompanying notes to consolidated financial statements.
FS-12
<PAGE> 90
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Balances Stock Sale of Balances
at Acquired for Stock from Net Other at
12/31/96 Treasury Treasury Income Changes 12/31/97
-------- -------- -------- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C>
Common Stock
PTI Class A $ 102,080 $ -- $ -- $ -- $ (3,596) $ 98,484
PTI Class B 12,740 -- -- -- 3,596 16,336
PTI Class C 2,210 -- -- -- -- 2,210
PTII (net of stock owned by
PTI) 17,322 -- -- -- -- 17,322
----------- ----------- ----------- ----------- ----------- -----------
Total $ 134,352 $ -- $ -- $ -- $ -- $ 134,352
=========== =========== =========== =========== =========== ===========
Capital in Excess of Par
PTI Class A $ 2,500,984 $ -- $ 669,760 $ -- $ -- $ 3,170,744
PTI Class B 10,353 -- -- -- -- 10,353
PTI Class C 19,890 -- -- -- -- 19,890
PTII -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total $ 2,531,227 $ -- $ 669,760 $ -- $ -- $ 3,200,987
=========== =========== =========== =========== =========== ===========
Retained Earnings
PTI $ 8,577,928 $ -- $ -- $ 72,926 $ -- $ 8,650,854
PTII 8,888 -- -- (53) -- 8,835
----------- ----------- ----------- ----------- ----------- -----------
Total $ 8,586,816 $ -- $ -- $ 72,873 $ -- $ 8,659,689
=========== =========== =========== =========== =========== ===========
Treasury Stock
PTI Class A $(5,681,210) $ (24,890) $ 4,830 $ -- $ -- $(5,701,270)
PTI Class B (242,626) -- -- -- -- (242,626)
PTII (23,403) (98) -- -- -- (23,501)
----------- ----------- ----------- ----------- ----------- -----------
Total $(5,947,239) $ (24,988) $ 4,830 $ -- $ -- $(5,967,397)
=========== =========== =========== =========== =========== ===========
Equity Adjustment From
Foreign Currency
Translation $ 3,655 $ -- $ -- $ -- $ (16,474) $ (12,819)
=========== =========== =========== =========== =========== ===========
Reduction for ESOP Loan
Guarantee $ (380,364) $ -- $ -- $ -- $ 380,364 $ --
=========== =========== =========== =========== =========== ===========
Total Stockholders' Equity $ 4,928,447 $ (24,988) $ 674,590 $ 72,873 $ 363,890 $ 6,014,812
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
FS-13
<PAGE> 91
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Cash Flows From Operating Activities
Net income $ 72,873
Adjustments to reconcile net income to net cash provided by operations:
Equity adjustment from foreign currency translation (16,474)
Equity in losses of affiliates 92,285
Depreciation 408,148
Amortization 8,858
Deferred income taxes (134,800)
(Increase) decrease in assets:
Receivables 80,042
Costs and revenue recognized in excess of billings (net) 670,271
Inventory (41,898)
Other 21,506
Increase (decrease) in liabilities:
Accounts payable 343,100
Accrued expenses 41,898
Deferred support revenue 47,500
Customer deposits (210,144)
Income taxes payable 97,750
-----------
Net Cash Provided By Operating Activities 1,480,915
-----------
Cash Flows From Investing Activities
Investment in and advances to affiliates (248,365)
Capital expenditures (174,100)
-----------
Net Cash Used By Investing Activities (422,465)
-----------
Cash Flows From Financing Activities
Payments of note payable (895,000)
Payments of long-term debt (394,062)
Proceeds from sale of Treasury stock 674,492
Common stock acquired for Treasury (24,890)
-----------
Net Cash Used By Financing Activities (639,460)
-----------
Net Increase in Cash 418,990
Cash, Beginning of Year 152,063
-----------
Cash, End of Year $ 571,053
===========
Supplemental Disclosure of Cash Flow Information:
Interest Paid $ 258,800
===========
Income Taxes Paid $ 62,000
===========
</TABLE>
See accompanying notes to consolidated financial statements.
FS-14
<PAGE> 92
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidated Financial Statements
The consolidated financial statements include Power Technologies, Inc.
(PTI) and its wholly owned subsidiaries, Power Technologies Limited (PTL),
Power Technology Development Corp. (PTDC) and PT Southeast Asia; and its
affiliated company, Power Technologies International, Inc. (PTII). All
material intercompany indebtedness and transactions have been eliminated.
Investments in Affiliates
PTI owns approximately 27% of Hydropower Technologies, Inc. (HTI), 49% of
PTI Asia, and 50% of PTI-Net. PTI's investment in these companies is
recorded using the equity method.
Nature of Operations
The Company provides engineering consulting services, develops computer
software for use by utility companies, develops and conducts educational
courses and assembles computer hardware. Approximately 45% of the
Company's revenue is generated from sales and services to foreign
customers, a significant portion of which are located in Asia.
Foreign Currency Translation
Assets and liabilities of subsidiaries and operations outside the United
States are translated into U.S. dollars at current exchange rates, while
income statement items are translated at average monthly exchange rates.
Gains or losses on such translations are accumulated in a separate
component of Stockholders' Equity and are excluded from net income.
Transaction gains and losses, which were not material, resulting from the
settlement of receivables or payables, or the conversion of currency, are
included in the determination of net income.
Revenue Recognition
Long-Term Contracts
The Company recognizes engineering revenue on a
percentage-of-completion method, primarily based on contract costs
incurred compared with total estimated costs. (Contract costs
include both direct and indirect costs.) When the Company is
contractually responsible for materials, equipment and subcontractor
costs, these items are included in revenue and cost of revenue.
Revisions to total estimated contract costs or losses, if any, are
recognized in the period in which they are determined. Contract
change orders in excess of agreed contract prices are included in
contract value when approved by the client.
Revenue recognized in excess of amounts billed is classified as a
current asset. Accounts receivable include amounts representing
retainages under long-term contracts which are due within one year.
The Company anticipates that substantially all of its costs and
revenue recognized in excess of billings will be billed and
collected over the next twelve months and there were no significant
amounts included in accounts receivable or costs and revenue
recognized in excess of billings under contracts for claims subject
to uncertainty as to their ultimate realization other than
FS-15
<PAGE> 93
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
as provided for in the allowance for uncollectible accounts.
Billings in excess of costs and revenue recognized are classified as
a current liability.
Software and Hardware Sales and Education
Revenue is generally recognized when the product is shipped. Revenue
from education courses is recognized when the course is taught.
Support and Update Fees
Revenue for software support, maintenance, and program updates is
recognized ratably over the support period, generally one year.
Allowance for Uncollectible Accounts
The Company establishes an allowance for uncollectible accounts
based on a periodic review of the status of accounts receivable.
Those invoices or accounts which are determined to be in jeopardy of
being uncollected are included in the allowance.
Use of 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
the disclosure of contingent assets and liabilities and the reported
revenues and expenses. Significant estimates used in preparing these
financial statements include those assumed in determining the
collectibility of accounts receivable and amounts due from unconsolidated
subsidiaries, earned revenue on long-term contracts and contingencies. It
is at least reasonably possible that the significant estimates used will
change within the next year.
Property, Equipment and Depreciation
Property and equipment are stated at cost. Depreciation of buildings is
provided using the straight-line method over a period of 31.5 to 33 years.
Depreciation of property improvements and equipment is provided using the
declining balance method at various rates over estimated useful lives
which range from 3 to 15 years. The same depreciation method is used for
both financial reporting and tax purposes.
Income Taxes
Deferred income taxes are recognized in accordance with SFAS No. 109.
Under these provisions, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be
recovered or settled. Under SFAS No. 109, the effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
FS-16
<PAGE> 94
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
Tax credits are taken into income as reductions of the income tax
provision in the year in which they are allowed for tax purposes. Tax
credit carryforwards are considered in the calculation of deferred tax
assets.
Amortization
Financing costs are amortized on a straight-line basis over the life of
the related loans.
2. ACCRUED EXPENSES
<TABLE>
<S> <C>
Termination bonus (Note 7) $ 419,060
ESOP contribution 347,921
Pension and profit sharing 229,936
Unused vacation 186,788
Reserve for litigation settlements 288,580
Other 61,780
----------
Total Accrued Expenses $1,534,065
==========
</TABLE>
3. NOTES PAYABLE AND LONG-TERM DEBT
<TABLE>
<S> <C>
Short-Term
Line-of-credit (A) $ --
==========
Long-Term
Chase Manhattan Bank
IDA Bond payable, 8.66%, due 12/06 (B) $ 780,000
IDA Bond payable, 8.09%, due 12/98 (B) 88,572
Mortgage payable, due 10/04 (C) 934,662
Notes payable-employees/former employees,
interest 8.5%, maturing 1999 164,037
Note payable-former stockholder, 9%, due 10/05 (D) 195,503
Note payable-former stockholder, 8.75%, due 1/00 (D) 38,683
Other 29,534
----------
Total 2,230,991
Less current installments 374,492
----------
Net Long-Term Debt $1,856,499
==========
</TABLE>
(A) PTI has available a secured line of credit of up to $2.0 million under an
agreement expiring June 30, 1998. Advances, bearing interest at lower of
prime or LIBOR + 1.5%, are secured by accounts receivable and other assets
and are guaranteed by PTL. A compensating balance requirement of $100,000
and other drawdown restrictions apply to this debt.
(B) Secured by assignment of mortgage of land and building, accounts
receivable, and other assets. In addition, the Company must meet several
covenants related to working capital and financial position. At December
31, 1997, one covenant was not met; the bank has since waived compliance
with that covenant at December 31, 1997.
FS-17
<PAGE> 95
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
3. NOTES PAYABLE AND LONG-TERM DEBT - (CONTINUED)
(C) Secured by first mortgage on building located at 1482 Erie Boulevard,
Schenectady, New York. Interest at LIBOR + 1.75% (8.7% at December 31,
1997). Guaranteed by subsidiaries and affiliates. In addition, PTI must
meet certain financial and other covenants, which include limits on the
repurchase of PTI stock for the treasury.
(D) Secured by second mortgage on building located at 1473 Erie Boulevard,
Schenectady, New York.
Interest expense for 1997 was $262,714.
Principal payments of long-term debt in each of the next five years and
thereafter are as follows:
<TABLE>
<S> <C>
1998 $ 374,492
1999 354,301
2000 272,687
2001 260,738
2002 236,979
2003 and thereafter 731,794
----------
Total $2,230,991
==========
</TABLE>
Letters of Credit:
The Company has several letters of credit totaling approximately $151,000
outstanding at December 31, 1997, which expire through September 30, 1999.
4. INCOME TAXES
Provision for Income Taxes
<TABLE>
<S> <C>
Current:
Federal $ 53,550
State 45,200
Foreign 60,796
---------
Total Current Provision 159,546
Deferred:
Federal and State (134,800)
---------
Provision For Income Taxes $ 24,746
=========
</TABLE>
The following is an analysis of the difference between the United States
statutory income tax rate and the Company's effective income tax rate:
FS-18
<PAGE> 96
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
4. INCOME TAXES - (CONTINUED)
<TABLE>
<S> <C>
United States statutory income tax rate: 34.0%
Increase (decrease) resulting from:
Surtax exemption (12.2)
State income taxes, net of United States tax effect 5.3
Meals and entertainment 30.7
Foreign tax credits (30.0)
Other 2.5
------
Effective Income Tax Rate: 25.3%
======
</TABLE>
Deferred Tax Assets
Financial accounting presentation requirements and tax basis regulations
result in differences between the basis of certain assets and liabilities
for financial reporting purposes and tax purposes. The tax effects of
these differences, to the extent they are temporary, are recorded as
deferred tax assets and liabilities under SFAS 109, and consist of the
following:
<TABLE>
<S> <C>
Current Assets:
Accrued termination benefits $ 167,600
Deferred compensation 49,100
Accrued vacation 74,700
Reserve for bad debts, less related contingent expenses 319,400
Reserve for litigation settlement 60,000
Deferred support revenue 76,000
---------
746,800
---------
Current Liabilities:
Inventory (49,900)
Percent of completion calculation for contracts in process (379,500)
---------
(429,400)
---------
Net Current Deferred Tax Assets $ 317,400
=========
Long-term Assets:
Deferred compensation $ 32,000
Unrealized losses on investment in affiliates 105,900
---------
Total Long-Term Deferred Tax Assets $ 137,900
=========
</TABLE>
FS-19
<PAGE> 97
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
5. STOCKHOLDERS' EQUITY
PTI
Capital stock consists of the following:
<TABLE>
<S> <C>
Common stock, Class A (voting), $.10 par value, 1,500,000
shares authorized:
Shares issued 984,844
Shares held in Treasury 732,184
---------
Shares outstanding 252,660
=========
Common stock, Class B (non-voting), $.10 par value, 500,000
shares authorized:
Shares issued 158,856
Shares held in Treasury 116,935
---------
Shares outstanding 41,921
=========
Common stock, Class C (voting), $.10 par value, 500,000
shares authorized:
Shares issued and outstanding 22,100
=========
</TABLE>
PTII
Capital stock consists of the following:
Common stock, $.10 par value for shares issued after 11/91, no par prior
to 11/91,
1,000,000 shares authorized:
<TABLE>
<S> <C>
Shares issued 761,960
Shares held in Treasury 451,946
---------
Shares outstanding (including 46,700 shares owned by PTI) 310,014
=========
</TABLE>
6. PENSION AND PROFIT SHARING PLANS
Profit Sharing Plan
Power Technologies, Inc. has a qualified profit sharing plan for the
benefit of its employees. The Plan may be terminated at any time at the
option of the Company. The Company modified the Plan in 1996 to include a
401(k) component, whereby participants may contribute up to 7% of their
salary. The Company will make annual contributions, which may range from
1% to 15% of compensation, as determined by the Board of Directors. The
Company contribution for 1997 is $59,226.
Pension Plan
The Company also has a defined contribution pension plan covering
substantially all of its employees. Employer contributions for eligible
participants in 1997 is 3% of qualifying salaries. The contribution for
1997 is $181,587.
FS-20
<PAGE> 98
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
6. PENSION AND PROFIT SHARING PLANS - (CONTINUED)
Employee Stock Ownership Plan
The Company established an ESOP effective January 1, 1995 covering
substantially all employees.
During 1995, the Plan acquired 22,100 shares of Power Technologies, Inc.
common stock for $430,066, financed by a note payable to the former
stockholder. The note bears interest at 9% and is due in biweekly
installments through 2005. The note allows for advance payment by PTI. The
balance at December 31, 1997 was $347,921. The Company has guaranteed the
note.
In 1997, the Board of Directors authorized the Company to make an
additional contribution for the Plan year ended December 31, 1997
sufficient to pay the remaining debt of the ESOP, contingent on the
proposed merger (see Note 11) being consummated by August 1, 1998. The
Company has included the balance of the ESOP note as accrued expense and
profit sharing (ESOP) expense at December 31, 1997.
Contributions to the ESOP are determined by the Company's management, but
the Company must fund the ESOP in an amount at least equal to the annual
principal and interest due on the ESOP note.
The total contribution for 1997 was $417,572, including interest of
$37,208.
7. TERMINATION BONUS PLAN
The Company has a nonqualified termination bonus plan which includes
substantially all full time employees. Under the Plan, employees accrue
three days for each completed year of service with the Company, to a
maximum of thirty days. Upon termination as an employee, participants are
entitled to be paid a "termination bonus" equal to the number of days
accrued multiplied by their daily rate of pay. Effective January 1, 1997,
the Board of Directors agreed to "freeze" the Plan so that no additional
days accrued. On December 28, 1997, the Board of Directors froze the daily
rates used to determine the accrued bonus.
It is the intent of the Company to terminate the Plan and pay accrued
benefits upon consummation of the merger agreement (See Note 11). As such,
the entire balance at December 31, 1997 is included in accrued
liabilities.
FS-21
<PAGE> 99
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
8. LEASE COMMITMENTS
The Company has entered into several leases for office space and for
computer equipment under agreements accounted for as operating leases.
Certain computer equipment is leased under an open ended agreement with
Oliver-Allen Corp; the term of each lease, once accepted, is three years.
The maximum that can be leased each year is $300,000.
Future commitments for leases are as follows:
<TABLE>
<CAPTION>
Computer
Facilities Equipment Total
---------- --------- -----
<S> <C> <C> <C>
1998 $35,000 $327,700 $362,700
1999 9,000 235,500 244,500
2000 -- 154,200 154,200
</TABLE>
Rental expense in 1997 for the leases referred to above is approximately
$315,000.
9. CONCENTRATIONS
Cash in Excess of Insured Limits
The Company's concentration of credit risk consists of cash deposits in
excess of federally insured limits. The amounts subject to credit risk are
approximately $ 210,000 at December 31, 1997.
Currency Exchange Risk
Amounts, in US dollars, for which the Company is exposed to changes in
foreign currency rates, is as follows:
<TABLE>
<S> <C>
Cash in bank - Australia $ 93,900
Receivables and uncompleted contracts payable in foreign currency 859,500
</TABLE>
10. CONTINGENCIES
The Company is a defendant in a lawsuit filed late in 1993 by a customer
alleging detrimental conflict of interest. The plaintiff is seeking
reimbursement for damages of $450,000, essentially a forfeiture of all
fees paid to the company for consulting services in conjunction with the
project in question. The case has not progressed to a point where the
likelihood of either a favorable or unfavorable outcome, or estimated
range of potential loss, can be reasonably estimated. Any settlement would
not be covered by insurance. The Company has included $150,000 in accrued
expenses at December 31, 1997 as a reserve against potential losses in
this case.
FS-22
<PAGE> 100
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
10. CONTINGENCIES - (CONTINUED)
The Company has been identified as a "potentially responsible party" at an
EPA "superfund site" in Malta, New York. In September 1997, the Company
entered into a Consent Decree relating to the site. Pursuant to Appendix I
of the Decree, PTI's initial payment into the Site Trust Fund will be
$138,580. Once the initial payment is made, the Company shall have no
further obligation to make additional payments to the Fund. However, there
are certain circumstances under which the government and third parties may
subsequently assert claims against PTI with respect to the site. The
Company has included its "initial payment" in accrued expenses at December
31, 1997.
11. PROPOSED MERGER
The Company is presently negotiating a transaction whereby Stone &
Webster, Incorporated ("SWI") would acquire the Company through the merger
of a wholly-owned subsidiary of SWI into the Company. As presently
contemplated, the shareholders of the Company will receive common stock of
SWI having a value, at the time of the closing, of approximately
$9,000,000 (of which shares having a value of approximately $1,000,000
will be placed in escrow until January 15, 2000 to satisfy certain
indemnification obligations). In addition, the shareholders of the Company
may receive additional shares of SWI stock in 2003 based on the earnings
of the Company for the five calendar years starting January 1, 1998. The
maximum amount of such consideration is $8,000,000, and the number of
shares of SWI common stock which are eventually issued will be based on
the stock price used in connection with the initial closing of the merger.
Finally, the shareholders may receive additional cash consideration in
2003 if certain types of revenues are generated by the Company's
"Transasia" project. The Merger Agreement relating to the transaction has
been executed, and the closing of the transaction is subject to certain
conditions. As a result, the merger may not be consummated.
FS-23
<PAGE> 101
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED FINANCIAL STATEMENTS FOR THE PERIOD ENDED
DECEMBER 31, 1996 AND DECEMBER 31, 1995
FS-24
<PAGE> 102
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 and 1995
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Current Assets
Cash $ 152,063 $ 196,205
Receivables, net of allowance of $558,770 and $237,000 4,973,481 4,655,050
Costs and revenue recognized in excess of billings 2,185,367 1,021,124
Inventory 41,897 20,249
Deferred income taxes (Note 3) 150,200 247,300
Other 162,138 83,703
----------- -----------
Total Current Assets 7,665,146 6,223,631
----------- -----------
Property and Equipment
Land 369,023 369,023
Buildings and improvements 5,163,310 5,161,412
Computers and hardware 4,004,668 3,859,396
Furniture and fixtures 1,504,673 1,504,673
Test site equipment 34,610 34,610
Vehicle 29,111 29,111
----------- -----------
Total 11,105,395 10,958,225
Less accumulated depreciation 7,187,707 6,672,796
----------- -----------
Net Property and Equipment 3,917,688 4,285,429
----------- -----------
Other Assets
Deferred income taxes (Note 3) 170,300 177,000
Investment in and due from unconsolidated subsidiaries 356,062 96,588
Financing costs, net of amortization of $41,602 and $34,396 20,431 13,764
Total Other Assets 546,793 287,352
----------- -----------
TOTAL ASSETS $12,129,627 $10,796,412
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
FS-25
<PAGE> 103
R
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Current Liabilities
Note payable (Note 2) $ 895,000 $ 400,000
Current installments of long-term debt (Note 2) 430,390 350,589
Accounts payable 1,320,148 1,057,586
Accrued expenses 1,061,857 1,207,779
Billings in excess of costs and revenues -- --
Deferred support revenue 142,500 113,000
Customer deposits 345,268 320,847
Income taxes payable 680 4,994
------------ ------------
Total Current Liabilities 4,195,843 3,454,795
------------ ------------
Other Liabilities
Long-term debt, excluding current installments (Note 2) 2,194,663 1,598,376
Guarantee of ESOP loan (Note 6) 380,364 410,020
Deferred benefits 430,310 485,239
------------ ------------
Total Other Liabilities 3,005,337 2,493,635
------------ ------------
Stockholders' Equity (Note 4)
Capital Stock PTI:
Class A - $.10 par value, 1,500,000 shares
authorized, 1,020,800 shares issued,
257,668 and 258,880 shares outstanding 102,080 102,080
Class B - $.10 par value, 500,000 shares
authorized, 122,900 shares issued, 5,965
shares outstanding 12,740 12,740
Class C - $.10 par value, 500,000 shares
authorized, 22,100 shares issued and
outstanding 2,210 2,210
Capital Stock PTII:
$.10 par value, 1,000,000 shares authorized,
761,960 shares issued, 310,014 and 311,110
shares outstanding 17,322 17,322
Capital in excess of par value of common stock 2,531,227 2,248,790
Reduction for ESOP loan guarantee (Note 6) (380,364) (410,020)
Retained earnings 8,586,816 8,435,797
Equity adjustment from foreign currency translation 3,655 6
------------ ------------
Total 10,875,686 10,408,925
Less common stock in Treasury, at cost 5,947,239 5,560,943
------------ ------------
Total Stockholders' Equity 4,928,447 4,847,982
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 12,129,627 $ 10,796,412
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
FS-26
<PAGE> 104
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1 9 9 6 1 9 9 5
------- -------
% to % to
Dollars Sales Dollars Sales
------- ----- ------- -----
<S> <C> <C> <C> <C>
Net Sales $ 17,564,662 100.0 $ 17,854,549 100.0
Operating Expenses 17,003,841 96.8 17,650,104 98.9
------------ ----- ------------ -----
Income From Operations 560,821 3.2 204,445 1.1
Other Income and (Expenses) (310,725) (1.8) (293,030) (1.6)
------------ ----- ------------ -----
Income Before Income Taxes 250,096 1.4 (88,585) (0.5)
Provision For (Benefit From) Income Taxes
(Note 3) 99,077 0.6 (63,997) (0.4)
------------ ----- ------------ -----
NET INCOME (LOSS) 151,019 0.8 (24,588) (0.1)
===== =====
Retained Earnings, Beginning of Year 8,435,797 8,460,385
------------ -----------
Retained Earnings, End of Year $ 8,586,816 $ 8,435,797
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
FS-27
<PAGE> 105
R
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Balances Stock Sale of Balances
at Acquired for Stock from Net Other at
12/31/95 Treasury Treasury Income Changes 12/31/96
-------- -------- -------- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C>
Common Stock
PTI Class A $ 102,080 $ -- $ -- $ -- $ -- $ 102,080
PTI Class B 12,740 -- -- -- -- 12,740
PTI Class C 2,210 -- -- -- -- 2,210
PTII (net of stock
owned by PTI) 17,322 -- -- -- 17,322
----------- --------------- ---------- ------------ --------------- -----------
Total $ 134,352 $ -- $ -- $ -- $ -- $ 134,352
=========== =============== ========== ============ =============== ===========
Capital in Excess of Par
PTI Class A $ 2,218,547 $ -- $ 282,437 $ -- $ -- $ 2,500,984
PTI Class B 10,353 -- -- -- -- 10,353
PTI Class C 19,890 -- -- -- -- 19,890
PTII -- -- -- -- -- --
----------- --------------- ---------- ------------ --------------- -----------
Total $ 2,248,790 $ -- $ 282,437 $ -- $ -- $ 2,531,227
=========== =============== ========== ============ =============== ===========
Retained Earnings
PTI $ 8,426,852 $ -- $ -- $ 151,072 $ -- $ 8,577,924
PTII 8,945 -- -- (53) -- 8,892
----------- --------------- ---------- ------------ --------------- -----------
Total $ 8,435,797 $ -- $ -- $ 151,019 $ -- $ 8,586,816
=========== =============== ========== ============ =============== ===========
Treasury Stock
PTI Class A $(5,295,564) $ (388,114) $ 2,468 $ -- $ -- $(5,681,210)
PTI Class B (242,626) -- -- -- -- (242,626)
PTII (22,753) (650) -- -- -- (23,403)
----------- --------------- ---------- ------------ --------------- -----------
Total $(5,560,943) $ (388,764) $ 2,468 $ -- $ -- $(5,947,239)
=========== =============== ========== ============ =============== ===========
Equity Adjustment From
Foreign Currency
Translation $ 6 $ -- $ -- $ -- $ 3,649 $ 3,655
=========== =============== ========== ============ =============== ===========
Reduction for ESOP
Loan Guarantee $ (410,020) $ -- $ -- $ -- $ 29,656 $ (380,364)
=========== =============== ========== ============ =============== ===========
Total Stockholders' Equity $ 4,847,982 $ (388,764) $ 284,905 $ 151,019 $ 33,305 $ 4,928,447
=========== =============== ========== ============ =============== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-28
<PAGE> 106
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Balances Stock Sale of Balances
at Acquired for Stock from Net Other at
12/31/94 Treasury Treasury Income Changes 12/31/95
-------- -------- -------- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C>
Common Stock
PTI Class A $ 104,290 $ -- $ -- $ -- $ (2,210) $ 102,080
PTI Class B 12,740 -- -- -- -- 12,740
PTI Class C -- -- -- -- 2,210 2,210
PTII (net of stock owned by PTI) 17,322 -- -- -- -- 17,322
----------- ------------ ----------- --------- ----------- -----------
Total $ 134,352 $ -- $ -- $ -- $ -- $ 134,352
=========== ============ =========== ========= =========== ===========
Capital in Excess of Par
PTI Class A $ 2,088,393 $ -- $ 150,044 $ -- $ (19,890) $ 2,218,547
PTI Class B 10,353 -- -- -- -- 10,353
PTI Class C -- -- -- -- 19,890 19,890
PTII -- -- -- -- -- --
----------- ------------ ----------- --------- ----------- -----------
Total $ 2,098,746 $ -- $ 150,044 $ -- $ -- $ 2,248,790
=========== ============ =========== ========= =========== ===========
Retained Earnings
PTI $ 8,451,392 $ -- $ -- $ (24,540) $ -- $ 8,426,852
PTII 8,993 -- -- (48) -- 8,945
----------- ------------ ----------- --------- ----------- -----------
Total $ 8,460,385 $ -- $ -- $ (24,588) $ -- $ 8,435,797
=========== ============ =========== ========= =========== ===========
Treasury Stock
PTI Class A $(4,345,983) $ (951,156) $ 1,575 $ -- $ -- $(5,295,564)
PTI Class B (242,626) -- -- -- -- (242,626)
PTII (22,751) (2) -- -- -- (22,753)
----------- ------------ ----------- --------- ----------- -----------
Total $(4,611,360) $ (951,158) $ 1,575 $ -- $ -- $(5,560,943)
=========== ============ =========== ========= =========== ===========
Equity Adjustment From
Foreign Currency
Translation $ (2,414) $ -- $ -- $ -- $ 2,420 $ 6
=========== ============ =========== ========= =========== ===========
Reduction for ESOP Loan
Guarantee $ -- $ -- $ -- $ -- $ (410,020) $ (410,020)
=========== ============ =========== ========= =========== ===========
Total Stockholders' Equity $ 6,079,709 $ (951,158) $ 151,619 $ (24,588) $ (407,600) $ 4,847,982
=========== ============ =========== ========= =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-29
<PAGE> 107
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash Flows From Operating Activities
Net income (loss) $ 151,019 $ (24,588)
Adjustments to reconcile net income (loss) to net cash provided
by operations:
Equity adjustment from foreign currency translation 3,649 6
Equity in (income) losses of affiliates 21,085 23,821
Depreciation 514,910 641,572
Amortization 7,206 6,876
Deferred benefits (54,929) (46,254)
Deferred taxes 103,800 (61,300)
Loss on sale/disposal of property and equipment -- 25,696
(Increase) decrease in assets:
Receivables (318,431) 791,490
Costs and revenue recognized in excess of billings (1,164,243) 131,076
Inventory (21,648) (10,124)
Other (78,435) (7,703)
Increase (decrease) in liabilities:
Accounts payable 262,562 (37,178)
Accrued expenses (145,922) 80,594
Billings in excess of costs and revenues -- --
Deferred support revenue 29,500 (7,000)
Customer deposits 24,421 102,665
Income taxes payable (4,314) (384,120)
----------- -----------
Net Cash Provided (Used) By Operating Activities (669,770) 1,225,529
----------- -----------
Cash Flows From Investing Activities
Investment in and due from affiliates (280,559) (9,126)
Capital expenditures (147,169) (304,663)
----------- -----------
Net Cash Used By Investing Activities (427,728) (313,789)
----------- -----------
Cash Flows From Financing Activities
Net proceeds (payment) of note payable 495,000 (125,000)
Payment of long-term debt (350,590) (418,544)
Proceeds of long-term debt 1,014,569 61,950
Loan costs (13,873) --
Proceeds from reissuance of Treasury stock 285,364 151,619
Common stock acquired for Treasury (377,114) (674,504)
----------- -----------
Net Cash Provided (Used) By Financing Activities 1,053,356 (1,004,479)
----------- -----------
Net Decrease in Cash (44,142) (92,739)
Cash, Beginning of Year 196,205 288,944
----------- -----------
Cash, End of Year $ 152,063 $ 196,205
=========== ===========
Schedule of Non-Cash Investing and Financing Transactions:
Debt incurred to acquire Treasury stock $ 12,109 $ 276,654
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 262,400 $ 268,800
=========== ===========
Income taxes paid $ 33,200 $ 493,500
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-30
<PAGE> 108
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidated Financial Statements
The consolidated financial statements include Power Technologies, Inc.
(PTI) and its wholly owned subsidiaries, Power Technologies Limited (PTL)
and Power Technology Development Corp. (PTDC); and its affiliated company,
Power Technologies International, Inc. (PTII). All material intercompany
indebtedness and transactions have been eliminated.
Investments in Affiliates
PTI owns approximately 27% of Hydropower Technologies, Inc. (HTI) and 49%
of PTI Asia. PTI's investment in these companies is recorded using the
equity method.
Nature of Operations
The Company provides engineering consulting services, develops computer
software for use by utility companies, develops and conducts educational
courses and assembles computer hardware. Approximately 45% of the
Company's revenue is generated from sales and services to foreign
customers, a significant portion of which are located in Asia.
Foreign Currency Translation
Assets and liabilities of subsidiaries and operations outside the United
States are translated into U.S. dollars at current exchange rates, while
income statement items are translated at average monthly exchange rates.
Gains or losses on such translations are accumulated in a separate
component of Stockholders' Equity and are excluded from net income.
Transaction gains and losses, which were not material, resulting from the
settlement of receivables or payables, or the conversion of currency, are
included in the determination of net income.
Revenue Recognition
Long-Term Contracts
The Company recognizes engineering revenue on a percentage-of-
completion method, primarily based on contract costs incurred
compared with total estimated costs. Contract costs include both
direct and indirect costs. When the Company is contractually
responsible for materials, equipment and subcontractor costs, these
items are included in revenue and cost of revenue. Revisions to
total estimated contract costs or losses, if any, are recognized in
the period in which they are determined. Contract change orders in
excess of agreed contract prices are included in revenue when
approved by the client.
Revenue recognized in excess of amounts billed is classified as a
current asset. Accounts receivable include amounts representing
retainages under long-term contracts which are due within one year.
The Company anticipates that substantially all of its costs and
revenue recognized in excess of billings will be billed and
collected over the next twelve months and there were no significant
amounts included in accounts receivable or costs and revenue
recognized in excess of billings under contracts for claims subject
to uncertainty as to their ultimate realization. Billings in excess
of costs and revenue recognized are classified as a current
liability.
FS-31
<PAGE> 109
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
Software and Hardware Sales and Education
Revenue is generally recognized when the product is shipped. Revenue
from education courses is recognized when the course is taught.
Revenue Recognition
Support and Update Fees
Revenue for software support, maintenance, and program updates is
recognized ratably over the support period, generally one year.
Allowance for Uncollectible Accounts
The Company establishes an allowance for uncollectible accounts
based on a periodic review of the status of accounts receivable.
Those invoices or accounts which are determined to be in jeopardy of
being collected are included in the allowance.
Use of 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
the disclosure of contingent assets and liabilities and the reported
revenues and expenses. Significant estimates used in preparing these
financial statements include those assumed in determining the
collectibility of accounts receivable and amounts due from unconsolidated
subsidiaries, earned revenue on long-term contracts and contingencies. It
is at least reasonably possible that the significant estimates used will
change within the next year.
Property, Equipment and Depreciation
Property and equipment are stated at cost. Depreciation of buildings is
provided using the straight-line method over a period of 31.5 to 33 years.
Depreciation of property improvements and equipment is provided using the
declining balance method at various rates over estimated useful lives
which range from 3 to 15 years. The same depreciation method is used for
both financial reporting and tax purposes.
Income Taxes
Deferred income taxes are recognized in accordance with SFAS No. 109.
Under these provisions, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be
recovered or settled. Under SFAS No. 109, the effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
Tax credits are taken into income as reductions of the income tax
provision in the year in which they are allowed for tax purposes. Tax
credit carryforwards are considered in the calculation of deferred tax
assets.
FS-32
<PAGE> 110
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
Amortization
Financing costs are amortized on a straight-line basis over the life of
the related loans.
2. NOTES PAYABLE AND LONG-TERM DEBT
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Short-Term
Line-of-credit (A) $ 895,000 $ 400,000
========== ==========
Long-Term
Chase Manhattan Bank
IDA Bond payable, 8.66% until 12/96, prime plus 1/2%
until maturity date of 12/06 (B) $ 866,667 $ 953,333
IDA Bond payable, 8.09%, due 12/98 (B) 177,143 265,714
Mortgage payable, due 10/04 (C) 994,974 --
Notes payable-employees/former employees, interest 8.5%,
maturing 1999 292,635 440,771
Note payable-former stockholder, 9%, due 10/05 (D) 212,090 227,197
Note payable-former stockholder, 8.75%, due 1/00 (D) 61,950 61,950
Other 19,594 --
---------- ----------
Total 2,625,053 1,948,965
Less current installments 430,390 350,589
---------- ----------
Net Long-Term Debt $2,194,663 $1,598,376
========== ==========
</TABLE>
(A) PTI has available a secured line of credit of up to $2.0 million under an
agreement expiring June 30, 1997. Advances, bearing interest at lower of
prime or LIBOR + 1.5% (8% at December 31, 1996), are secured by accounts
receivable and other assets, and are guaranteed by PTL. A compensating
balance requirement of $100,000 and other drawdown restrictions apply to
this debt.
(B) Secured by assignment of mortgage of land and building, accounts
receivable, and other assets. In addition, PTI must meet several covenants
related to working capital and financial position.
(C) Secured by first mortgage on building located at 1482 Erie Boulevard,
Schenectady, New York. Interest at LIBOR + 1.75%. Guaranteed by
subsidiaries and affiliates. In addition, PTI must meet certain financial
and other covenants, which include limits on the repurchase of PTI stock
for the treasury.
(D) Secured by second mortgage on building located at 1473 Erie Boulevard,
Schenectady, New York.
Interest expense for 1996 and 1995 was $225,559 and $273,576,
respectively.
FS-33
<PAGE> 111
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
2. NOTES PAYABLE AND LONG-TERM DEBT - (CONTINUED)
Principal payments of long-term debt in each of the next five years and
thereafter are as follows:
<TABLE>
<S> <C>
1997 $ 430,390
1998 351,697
1999 340,766
2000 272,687
2001 260,738
2002 and thereafter 968,775
----------
Total $2,625,053
==========
</TABLE>
3. PROVISION FOR (BENEFIT FROM) INCOME TAXES
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Current:
Federal $(33,666) $(114,503)
State 13,469 (10,543)
Foreign 15,474 102,252
-------- ---------
Total Current Provision (4,723) (22,794)
Deferred:
Federal and State 103,800 (41,203)
-------- ---------
Provision For (Benefit From) Income Taxes $ 99,077 $ (63,997)
======== =========
</TABLE>
The following reconciles the 1996 and 1995 tax provisions with the
expected provision obtained by applying statutory rates to pretax income:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Expected tax provision (benefit) at 34% $ 85,000 $ (30,000)
State income taxes, net of Federal benefit 14,800 (4,100)
Prior year State taxes -- (17,500)
ISO compensation (3,600) (28,100)
Meals and entertainment 12,000 18,500
Other (9,123) (2,797)
-------- ---------
Provision For (Benefit From) Income Taxes $ 99,077 $ (63,997)
======== =========
</TABLE>
FS-34
<PAGE> 112
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
3. PROVISION FOR (BENEFIT FROM) INCOME TAXES - (CONTINUED)
Deferred Tax Assets
Financial accounting presentation requirements and tax basis regulations
result in differences between the basis of certain assets and liabilities
for financial reporting purposes and tax purposes. The tax effects of
these differences, to the extent they are temporary, are recorded as
deferred tax assets and liabilities under SFAS 109, and consist of the
following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Current Assets:
Accrued termination benefits $172,100 $194,100
Deferred compensation 20,000 28,400
Accrued vacation 69,100 94,600
Reserve for bad debts, less related contingent expenses198,700 91,300
Reserve for litigation settlement 60,000 60,000
Deferred support revenue 57,000 45,200
Foreign tax credit carryforward 31,000 --
-------- --------
607,900 513,600
-------- --------
Current Liabilities:
Inventory 26,200 13,800
Percent of completion calculation for contracts in process 431,500 252,500
-------- --------
457,700 266,300
-------- --------
Net Current Deferred Tax Assets $150,200 $247,300
======== ========
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred Tax Assets
Long-Term Assets:
Deferred compensation $ 79,900 $ 99,800
Unrealized losses on subsidiary investments 90,400 77,200
-------- --------
Total Long-Term Deferred Tax Asset $170,300 $177,000
======== ========
</TABLE>
FS-35
<PAGE> 113
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
4. STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
PTI
Capital stock consists of the following:
Common stock, Class A (voting),
$.10 par value, 1,500,000 shares authorized:
Shares issued 1,020,800 1,020,800
Shares held in Treasury 763,132 761,920
--------- ---------
Shares outstanding 257,668 258,880
========= =========
Common stock, Class B (non-voting), $.10 par value, 500,000 shares
authorized:
Shares issued 122,900 122,900
Shares held in Treasury 116,935 116,935
--------- ---------
Shares outstanding 5,965 5,965
========= =========
Common stock, Class C (voting), $.10 par value, 500,000 shares
authorized:
Shares issued and outstanding 22,100 22,100
========= =========
<CAPTION>
1996 1995
---- ----
PTII
Capital stock consists of the following:
Common stock, $.10 par value for shares issued after
11/91, no par prior to 11/91, 1,000,000 shares authorized:
Shares issued 761,960 761,960
Shares outstanding (including 46,700 shares owned by
PTI) 310,014 311,110
--------- ---------
Shares held in Treasury 451,946 450,850
========= =========
</TABLE>
5. STOCK OPTIONS
In December 1984, the Board of Directors approved an Incentive Stock
Option Plan, which provides for the granting of stock options to full-time
employees. In August 1987, March 1989 and July 1991, the Board approved a
plan providing for additional options. The option price is equal to the
fair market value at the time the option is granted. Options will expire
on January 1 of the fifth year following the year of granting, but will
automatically terminate upon notification of intent to terminate
employment. On exercising an option to purchase PTI stock, the employee
receives the right to buy one share of PTII stock at fair market value for
every share of PTI stock purchased.
FS-36
<PAGE> 114
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
5. STOCK OPTIONS - (CONTINUED)
Information regarding the Company's stock option plan is summarized below:
<TABLE>
<CAPTION>
Number
------
<S> <C>
Outstanding at December 31, 1995 24,750
Exercised (18,246)
Terminated (6,504)
-------
Outstanding at December 31, 1996 --
=======
</TABLE>
6. PENSION AND PROFIT SHARING PLANS
Profit Sharing Plan
PTI has a qualified profit sharing plan for the benefit of its employees.
The Plan may be terminated at any time at the option of the Company. The
Company modified the Plan in 1996 to include a 401(k) component, whereby
participants may contribute up to 7% of their salary. The Company will
make annual contributions, which may range from 1% to 15% of compensation,
as determined by the Board of Directors. The Company contribution accrued
for 1996 and 1995 were $66,762 and $72,447, respectively.
Pension Plan
The Company also has a defined contribution pension plan covering
substantially all of its employees. Employer contributions for eligible
participants in 1996 is 8% of qualifying salaries for the first nine
months of 1996. Employer contributions for eligible participants in 1995
is 8% of qualifying salaries. The contributions accrued for the Plan in
1996 and 1995 were $400,612 and $580,621, respectively.
Employee Stock Ownership Plan
The Company established an ESOP effective beginning January 1, 1995
covering substantially all employees.
During 1995, the Plan acquired 22,100 shares of Power Technologies, Inc.
common stock for $430,066, financed by a note payable to the former
stockholder. The note bears interest at 9% and is due in biweekly
installments through 2005. The note allows for advance payment by PTI. The
balances at December 31, 1996 and 1995 were $380,364 and $410,020,
respectively. The Company has guaranteed the note and, accordingly, the
liability is included in the accompanying balance sheets with a
corresponding amount shown as a reduction to stockholders' equity.
Contributions to the ESOP are determined by the Company's management, but
the Company must fund the ESOP in an amount at least equal to the annual
principal and interest due on the ESOP note.
The total contribution for 1996 was $67,154, including interest of
$37,499. The contribution for 1995 was $48,467 including interest of
$28,421.
FS-37
<PAGE> 115
POWER TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
7. LEASE COMMITMENTS
Facilities
The Company has entered into several leases for office space. Future
commitments for facilities leases are as follows:
<TABLE>
<S> <C>
1997 $23,166
1998 22,566
1999 15,411
</TABLE>
Computer Equipment
The Company has entered into an open ended lease agreement with
Oliver-Allen Corp. to lease computer equipment. The term of each lease,
once accepted, is three years. The maximum that can be leased each year is
$300,000. At December 31, 1996, future commitments for equipment leased
under this agreement is as follows:
<TABLE>
<S> <C>
1997 $132,800
1998 132,800
1999 68,300
</TABLE>
8. CONTINGENCIES
The Company is a defendant in a lawsuit filed late in 1993 by a customer
alleging detrimental conflict of interest. The plaintiff is seeking
reimbursement for damages of $450,000, essentially a forfeiture of all
fees paid to the company for consulting services in conjunction with the
project in question. The case has not progressed to a point where the
likelihood of either a favorable or unfavorable outcome, or estimated
range of potential loss, can be reasonably estimated. Any settlement would
not be covered by insurance. The Company has included $150,000 in accrued
expenses at December 31, 1996 and 1995 as a reserve against potential
losses in this case.
The Company has been identified as a "potentially responsible party" at an
EPA "superfund site" in Malta, New York. The Company has established a
reserve of $100,000, included in accrued expenses at December 31, 1996, to
cover potential costs related to this litigation.
FS-38
<PAGE> 116
APPENDIX B
SECTION 623 OF THE NEW YORK BUSINESS CORPORATION LAW
ss. 623. Procedure to enforce shareholder's right to receive payment for shares.
(a) A shareholder intending to enforce his right under a section of this
chapter to receive payment for his shares if the proposed corporate action
referred to therein is taken shall file with the corporation, before the meeting
of shareholders at which the action is submitted to a vote, or at such meeting
but before the vote, written objection to the action. The objection shall
include a notice of his election to dissent, his name and residence address, the
number and classes of shares as to which he dissents and a demand for payment of
the fair value of his shares if the action is taken. Such objection is not
required from any shareholder to whom the corporation did not give notice of
such meeting in accordance with this chapter or where the proposed action is
authorized by written consent of shareholders without a meeting.
(b) Within ten days after the shareholders' authorization date, which term
as used in this section means the date on which the shareholders' vote
authorizing such action was taken, or the date on which such consent without a
meeting was obtained from the requisite shareholders, the corporation shall give
written notice of such authorization or consent by registered mail to each
shareholder who filed written objection or from whom written objection was not
required, excepting any shareholder who voted for or consented in writing to the
proposed action and who thereby is deemed to have elected not to enforce his
right to receive payment for his shares.
(c) Within twenty days after the giving of notice to him, any shareholder
from whom written objection was not required and who elects to dissent shall
file with the corporation a written notice of such election, stating his name
and residence address, the number and classes of shares as to which he dissents
and a demand for payment of the fair value of his shares. Any shareholder who
elects to dissent from a merger under section 905 (Merger of subsidiary
corporation) or paragraph (c) of section 907 (Merger or consolidation of
domestic and foreign corporations) or from a share exchange under paragraph (g)
of Section 913 (Share exchanges) shall file a written notice of such election to
dissent within twenty days after the giving to him of a copy of the plan of
merger or exchange or an outline of the material features thereof under section
905 or 913.
(d) A shareholder may not dissent as to less than all of the shares, as to
which he has a right to dissent, held by him of record, that he owns
beneficially. A nominee or fiduciary may not dissent on behalf of any beneficial
owner as to less than all of the shares of such owner, as to which such nominee
or fiduciary has a right to dissent, held of record by such nominee or
fiduciary.
(e) Upon consummation of the corporate action, the shareholder shall cease
to have any of the rights of a shareholder except the right to be paid the fair
value of his shares and any other rights under this section. A notice of
election may be withdrawn by the shareholder at any time prior to his acceptance
in writing of an offer made by the corporation, as provided in paragraph (g),
but in no case later than sixty days from the date of consummation of the
corporate action except that if the corporation fails to make a timely offer, as
provided in paragraph (g), the time for withdrawing a notice of election shall
be extended until sixty days from the date an offer is made. Upon expiration of
such time, withdrawal of a notice of election shall require the written consent
of the corporation. In order to be effective, withdrawal of a notice of election
must be accompanied by the return to the corporation of any advance payment made
to the shareholder as provided in paragraph (g). If a notice of election is
withdrawn, or the corporate action is rescinded, or a court shall determine that
the shareholder is not entitled to receive payment for his shares, or the
shareholder shall otherwise lose his dissenters' rights, he shall not have the
right to receive payment for his shares and he shall be reinstated to all his
rights as a shareholder as of the consummation of the corporate action,
including any intervening preemptive rights and the right to payment of any
intervening dividend or other distribution or, if any such rights have expired
of any such dividend or distribution other than in cash has been completed, in
lieu thereof, at the election of the corporation, the fair value thereof in cash
as determined by the board as of the time of such expiration or completion, but
without prejudice otherwise to any corporate proceedings that may have been
taken in the interim.
<PAGE> 117
(f) At the time of filing the notice of election to dissent or within one
month thereafter the shareholder of shares represented by certificates shall
submit the certificates representing his shares to the corporation, or to its
transfer agent, which shall forthwith note conspicuously thereon that a notice
of election has been filed and shall return the certificates to the shareholder
or other person who submitted them on his behalf. Any shareholder of shares
represented by certificates who fails to submit his certificates for such
notation as herein specified shall, at the option of the corporation exercised
by written notice to him within forty-five days from the date of filing of such
notice of election to dissent, lose his dissenter's rights unless a court, for
good cause shown, shall otherwise direct. Upon transfer of a certificate bearing
such notation, each new certificate issued therefor shall bear a similar
notation together with the name of the original dissenting holder or the shares
and a transferee shall acquire no rights in the corporation except those which
the original dissenting shareholder had at the time of transfer.
(g) Within fifteen days after the expiration of the period within which
shareholders may file their notices of election to dissent, or within fifteen
days after the proposed corporate action is consummated, whichever is later (but
in no case later than ninety days from the shareholders' authorization date),
the corporation or, in the case of a merger or consolidation, the surviving or
new corporation, shall make a written offer by registered mail to each
shareholder who has filed such notice of election to pay for his shares at a
specified price which the corporation considers to be their fair value. Such
offer shall be accompanied by a statement setting forth the aggregate number of
shares with respect to which notices of election to dissent have been received
and the aggregate number of holders of such shares. If the corporate action has
been consummated, such offer shall also be accompanied by (1) advance payment to
each such shareholder who has submitted the certificates representing his shares
to the corporation, as provided in paragraph (f), of an amount equal to eighty
percent of the amount of such offer, or (2) as to each shareholder who has not
yet submitted his certificates a statement that advance payment to him of an
amount equal to eighty percent of the amount of such offer will be made by the
corporation promptly upon submission of his certificates. If the corporate
action has not been consummated at the time of the making of the offer, such
advance payment or statement as to advance payment shall be sent to each
shareholder entitled thereto forthwith upon consummation of the corporate
action. Every advance payment or statement as to advance payment shall include
advice to the shareholder to the effect that acceptance of such payment does not
constitute a waiver of any dissenters' rights. If the corporate action has not
been consummated upon the expiration of the ninety day period after the
shareholders' authorization date, the offer may be conditioned upon the
consummation of such action. Such offer shall be made at the same price per
share to all dissenting shareholders of the same class, or if divided into
series, of the same series and shall be accompanied by a balance sheet of the
corporation whose shares the dissenting shareholder holds as of the latest
available date, which shall not be earlier than twelve months before the making
of such offer, and a profit and loss statement or statements for not less than a
twelve-month period ended on the date of such balance sheet or, if the
corporation was not in existence throughout such twelve month period, for the
portion thereof during which it was in existence. Notwithstanding the foregoing,
the corporation shall not be required to furnish a balance sheet or profit and
loss statement or statements to any shareholder to whom such balance sheet or
profit and loss statement or statements were previously furnished, nor if in
connection with obtaining the shareholders' authorization for or consent to the
proposed corporate action the shareholders were furnished with a proxy or
information statement, which included financial statements, pursuant to
Regulation 14A or Regulation 14C of the United States Securities and Exchange
Commission. If within thirty days after the making of such offer, the
corporation making the offer and any shareholder agree upon the price to be paid
for his shares, payment therefor shall be made within sixty days after the
making of such offer or the consummation of the proposed corporation action,
whichever is later, upon the surrender of the certificates for any such shares
represented by certificates.
(h) The following procedure shall apply if the corporation fails to make
such offer within such period of fifteen days, or if it makes the offer and any
dissenting shareholder or shareholders fail to agree with it within the period
of thirty days thereafter upon the price to be paid for their shares:
(1) The corporation shall, within twenty days after the expiration
of whichever is applicable of the two periods last mentioned, institute a
special proceeding in the supreme court in the judicial district in which the
office of the corporation is located to determine the rights of dissenting
shareholders and to fix the fair value of their shares. If, in the case of
merger or consolidation, the surviving or new corporation is a foreign
corporation without an office in this state, such proceeding shall be brought in
the county where the office of the domestic corporation, whose shares are to be
valued, was located.
<PAGE> 118
(2) If the corporation fails to institute such proceeding within
such period of twenty days, any dissenting shareholder may institute such
proceeding for the same purpose not later than thirty days after the expiration
of such twenty day period. If such proceeding is not instituted within such
thirty day period, all dissenter's rights shall be lost unless the supreme
court, for good cause shown, shall otherwise direct.
(3) All dissenting shareholders, excepting those who, as provided in
paragraph (g), have agreed with the corporation upon the price to be paid for
their shares, shall be made parties to such proceeding, which shall have the
effect of an action quasi in rem against their shares. The corporation shall
serve a copy of the petition in such proceeding upon each dissenting shareholder
who is a resident of this state in the manner provided by law for the service of
a summons, and upon each nonresident dissenting shareholder either by registered
mail and publication, or in such other manner as is permitted by law. The
jurisdiction of the court shall be plenary and exclusive.
(4) The court shall determine whether each dissenting shareholder,
as to whom the corporation requests the court to make such determination, is
entitled to receive payment for his shares. If the corporation does not request
any such determination or if the court finds that any dissenting shareholder is
so entitled, it shall proceed to fix the value of the shares, which, for the
purposes of this section, shall be the fair value as of the close of business on
the day prior to the shareholders' authorization date. In fixing the fair value
of the shares, the court shall consider the nature of the transaction giving
rise to the shareholders' right to receive payment for shares and its effects on
the corporation and its shareholders, the concepts and methods then customary in
the relevant securities and financial markets for determining fair value of
shares of a corporation engaging in a similar transaction under comparable
circumstances and all other relevant factors. The court shall determine the fair
value of the shares without a jury and without referral to an appraiser or
referee. Upon application by the corporation or by any shareholder who is a
party to the proceeding, the court may, in its discretion, permit pretrial
disclosure, including, but not limited to, disclosure of any expert's reports
relating to the fair value of the shares whether or not intended for use at the
trial in the proceeding and notwithstanding subdivision (d) of section 3101 of
the civil practice laws and rules.
(5) The final order in the proceeding shall be entered against the
corporation in favor of each dissenting shareholder who is a party to the
proceeding and is entitled thereto for the value of his shares so determined.
(6) The final order shall include an allowance for interest at such
rate as the court finds to be equitable, from the date the corporate action was
consummated to the date of payment. In determining the rate of interest, the
court shall consider all relevant factors, including the rate of interest which
the corporation would have had to pay to borrow money during the pendency of the
proceeding. If the court finds that the refusal of any shareholder to accept the
corporate offer of payment for his shares was arbitrary, vexatious or otherwise
not in good faith, no interest shall be allowed to him.
(7) Each party to such proceeding shall bear its own costs and
expenses, including the fees and expenses of its counsel and of any experts
employed by it. Notwithstanding the foregoing, the court may, in its discretion,
apportion and assess all or any part of the costs, expenses and fees incurred by
the corporation against any or all of the dissenting shareholders who are
parties to the proceeding, including any who have withdrawn their notices of
election as provided in paragraph (e), if the court finds that their refusal to
accept the corporate offer was arbitrary, vexatious or otherwise not in good
faith. The court may, in its discretion, apportion and assess all or any part of
the costs, expenses and fees incurred by any or all of the dissenting
shareholders who are parties to the proceeding against the corporation if the
court finds any of the following: (A) that the fair value of the shares as
determined materially exceeds the amount which the corporation offered to pay;
(B) that no offer or required advance payment was made by the corporation; (C)
that the corporation failed to institute the special proceeding within the
period specified therefor; or (D) that the action of the corporation in
complying with its obligations as provided in this section was arbitrary,
vexatious or otherwise not in good faith. In making any determination as
provided in clause (A), the court may consider the dollar amount or the
percentage, or both, by which the fair value of the shares as determined exceeds
the corporate offer.
<PAGE> 119
(8) Within sixty days after final determination of the proceeding,
the corporation shall pay to each dissenting shareholder the amount found to be
due him, upon surrender of the certificates for any such shares represented by
certificates.
(i) Shares acquired by the corporation upon the payment of the agreed
value therefor or of the amount due under the final order, as provided in this
section, shall become treasury shares or be cancelled as provided in section 515
(Reacquired shares), except that, in the case of a merger or consolidation, they
may be held and disposed of as the plan of merger or consolidation may otherwise
provide.
(j) No payment shall be made to a dissenting shareholder under this
section at a time when the corporation is insolvent or when such payment would
make it insolvent. In such event, the dissenting shareholder shall, at his
option:
(1) Withdraw his notice of election, which shall in such event be
deemed withdrawn with the written consent of the corporation; or
(2) Retain his status as a claimant against the corporation and, if
it is liquidated, be subordinated to the rights of creditors of the corporation,
but have rights superior to the non-dissenting shareholders, and if it is not
liquidated, retain his right to be paid for his shares, which right the
corporation shall be obliged to satisfy when the restrictions of this paragraph
do not apply.
(3) The dissenting shareholder shall exercise such option under
subparagraph (1) or (2) by written notice filed with the corporation within
thirty days after the corporation has given him written notice that payment for
his shares cannot be made because of the restrictions of this paragraph. If the
dissenting shareholder fails to exercise such option as provided, the
corporation shall exercise the option by written notice given to him within
twenty days after the expiration of such period of thirty days.
(k) The enforcement by a shareholder of his right to receive payment for
his shares in the manner provided herein shall exclude the enforcement by such
shareholder of any other right to which he might otherwise be entitled by virtue
of share ownership, except as provided in paragraph (e), and except that this
section shall not exclude the right of such shareholder to bring or maintain an
appropriate action to obtain relief on the ground that such corporation action
will be or is unlawful or fraudulent as to him.
(l) Except as otherwise expressly provided in this section, any notice to
be given by a corporation to a shareholder under this section shall be given in
the manner provided in section 605 (Notice of meetings of shareholders).
(m) This section shall not apply to foreign corporations except as
provided in subparagraph (e)(2) of section 907 (Merger or consolidation of
domestic and foreign corporations). (Last amended by L. 1986, Ch. 117, ss. 3.)
<PAGE> 120
Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
Subject to Completion, Dated June 29, 1998
PROSPECTUS
STONE & WEBSTER, INCORPORATED
__________ SHARES OF COMMON STOCK, PAR VALUE $1.00 PER SHARE
This Prospectus relates to _________ shares (the "Shares") of the common
stock, par value $1.00 per share (the "Common Stock"), of Stone & Webster,
Incorporated (the "Company"), that may be issued from time to time in connection
with future business combinations, acquisitions and mergers. In general, the
terms of such combinations, acquisitions and mergers will be determined by
direct negotiations between representatives of the Company and the owners or
principal executives of the companies or other entities to be so combined,
acquired or merged or the assets of which are to be so acquired, and the factors
taken into account will include, among other things, the established quality of
management, earning power, cash flow, growth potential, facilities and locations
of the companies or other entities to be acquired or merged, and the market
value of the Common Stock.
The Common Stock is listed on the New York Stock Exchange (the "NYSE")
under the symbol "SW." The closing price of the Common Stock as reported in the
NYSE Composite Transactions on June 25, 1998 was $38.25 per share.
------------------------
See "RISK FACTORS" beginning on page 3 for certain information that should be
considered by prospective investors in deciding whether or not to purchase
shares of Common Stock offered hereby.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The Date of this Prospectus is __________ __, 1998.
<PAGE> 121
TABLE OF CONTENTS
AVAILABLE INFORMATION...................................................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................ 1
NOTE REGARDING FORWARD-LOOKING STATEMENTS.................................. 2
RISK FACTORS............................................................... 3
General Business; Competition.............................................. 3
Backlog.................................................................... 3
Uncertainty Regarding Client Relationships................................. 3
Size and Uncertainty of Timing of Contracts................................ 3
Uncertainty Regarding International Nature of Business..................... 4
Risk of Technological Changes.............................................. 4
Risks Due to Fixed, Maximum or Unit Priced Contracts....................... 4
Contract Performance Risk.................................................. 5
Uncertainties in Government Contracts...................................... 5
Environmental, Safety and Health Risks..................................... 5
Potential Liability for Services Relating to Toxic and Hazardous Materials
and the Ability to Insure Such Risks..................................... 5
Other Impact of Environmental Regulation................................... 6
Litigation Risks........................................................... 6
Attraction and Retention of Professional Personnel......................... 7
Availability of Additional Acquisition Targets............................. 7
THE COMPANY................................................................ 7
SECURITIES COVERED BY THIS PROSPECTUS...................................... 7
DESCRIPTION OF CAPITAL STOCK............................................... 8
General Description........................................................ 8
Description of Common Stock................................................ 8
Description of Preferred Stock
Description of Series A Junior Participating Preferred Stock and Rights to
Purchase Series A Junior Participating Preferred Stock................... 9
LEGAL OPINION.............................................................. 10
EXPERTS.................................................................... 10
i
<PAGE> 122
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files periodic reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Reports, proxy and
information statements filed pursuant to Sections 14(a) and 14(c) of the
Exchange Act and other information filed with the Commission can be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and
at the following Regional Offices of the Commission: Midwest Regional Office,
500 West Madison Avenue, Suite 1400, Chicago, Illinois 60661; and Northeast
Regional Office, 7 World Trade Center, 13th Floor, 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 450 Fifth Street,
N.W., Judiciary Plaza, Washington, D.C. 20549 or without charge at the
Commission's World Wide Web site (http://www.sec.gov), and can also be inspected
at the offices of the NYSE, 20 Broad Street, New York, New York 10005.
This Prospectus and the accompanying Prospectus Supplement, if any, does
not contain all of the information set forth in the Registration Statement and
the exhibits thereto, certain parts of which are omitted in accordance with the
rules and regulations of the Commission. Statements made in this Prospectus as
to the contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference. The
Registration Statement and any amendments thereto, including exhibits filed or
incorporated by reference as a part thereof, are available for inspection and
copying at the Commission's offices as described above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the
Commission (File No. 1-1228) under the Exchange Act are incorporated by
reference herein.
(1) The Company's annual report on Form 10-K for the fiscal year ended
December 31, 1997, filed with the Commission on March 30, 1998.
(2) The Company's quarterly report on Form 10-Q for the quarter ended
March 31, 1998, filed with the Commission on May 12, 1998.
(3) All other reports filed pursuant to Section 13(a) or 15(d) of the
Exchange Act since the end of the fiscal period covered by the
annual report referred to in (1) above.
(4) The descriptions of the Company's Series A Junior Participating
Preferred Stock and Rights to Purchase Series A Junior Participating
Preferred Stock contained in its Registration Statement on Form 8-A
filed with the Commission on August 16, 1996 and amended by Form
8-A/A filed with the Commission on September 24, 1996.
(5) The Company's annual report on Form 11-K for the fiscal year ended
December 31, 1997, filed with the Commission on June 26, 1998.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering made pursuant to this Prospectus shall be deemed to
be incorporated by reference in this Prospectus and to be a part hereof from the
date of filing such documents.
Any statement contained in a document incorporated or deemed to be
incorporated herein by reference shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein (or in any
other subsequently filed document which also is or is deemed to be incorporated
herein by reference) modifies
1
<PAGE> 123
or supersedes such statement. Any statement so modified or superseded shall not
be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
This Prospectus incorporates certain documents by reference that are not
presented herein or delivered herewith. The Company undertakes to provide copies
of such documents (other than exhibits to such documents unless such exhibits
are specifically incorporated by reference), without charge, to any person,
including any beneficial owner, to whom this Prospectus is delivered, upon
written or oral request to the attention of the Corporate Secretary, Stone &
Webster, Incorporated, 245 Summer Street, 8th Floor, Boston, Massachusetts 02210
(telephone (617/589-5111). In order to ensure delivery of the documents, such
requests should be made by at least ten business days before the date at which a
final investment decision must be made.
No person is authorized to give any information or make any representation
not contained in this Prospectus, and, if given or made, such information or
representation should not be relied upon as having been authorized. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy the securities offered by this Prospectus in any jurisdiction where, or to
or from any person to whom, it is unlawful to make such offer or solicitation of
an offer. Neither the delivery of this Prospectus nor any distribution of the
securities offered pursuant to this Prospectus shall create an implication that
there has been no change in the affairs of the Company since the date of this
Prospectus or that the information in this Prospectus or in the documents
incorporated herein by reference is correct as of any time after the dates
hereof or thereof.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain of the information contained in this Prospectus, including
documents incorporated by reference, and the Prospectus Supplement, if any, may
contain "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of
the Exchange Act. There are a number of important factors that could cause
actual results to differ materially from those indicated by such forward-looking
statements. Such factors include but are not limited to those set forth in this
Prospectus under the heading "Risk Factors."
2
<PAGE> 124
RISK FACTORS
The following risk factors, in addition to other information contained or
incorporated by reference in this Prospectus and the Prospectus Supplement, if
any, should be considered carefully by prospective investors in evaluating the
Company and its business before deciding to purchase the Common Stock offered
hereby.
General Business; Competition
The Company is principally engaged, through its subsidiaries, in providing
engineering, construction and consulting services. The principal business
activities of the Company in the engineering, construction and consulting
services areas are highly competitive, with competition from a large number of
well-established, well-financed concerns, both privately and publicly held.
Inasmuch as the Company is primarily a service organization, it competes in its
areas of interest by providing services of the highest quality. The Company
believes it occupies a strong competitive position, but is unable to estimate
with reasonable accuracy its competitive position in the engineering,
construction and consulting services industry. The markets served by the
engineering, construction and consulting businesses of the Company are likewise
highly competitive and, for the most part, require substantial resources and
particularly highly skilled and experienced technical personnel. A large number
of multi-national companies are also competing in the markets served by the
Company's subsidiaries. Intense competition in the engineering, construction and
consulting businesses is expected to continue, presenting the Company with
significant challenges in its ability to maintain strong growth rates while
maintaining and improving acceptable profit margins.
Backlog
The dollar amount of the Company's backlog as stated at any given time is
not necessarily indicative of the future earnings of the Company related to the
performance of such work. Clients frequently revise the scope of the services
for which they have contracted with subsidiaries of the Company, especially on
projects subject to regulatory approval or which require environmental
permitting/licensing. Scope increases and decreases of substantial magnitude are
commonplace on such projects and directly affect the Company's backlog. In
addition, delays, suspensions and cancellations of projects included within the
Company's backlog may occur. Recently, the Trans-Pacific Petrochemical Indotama
("TPPI") project in Indonesia, which represents approximately $500 million of
the Company's current backlog of approximately $2.5 billion, was suspended. A
prolonged suspension or cancellation of the TPPI project, or the delay,
suspension or cancellation of other projects included in the Company's backlog,
could have a material adverse effect on the Company's business or results of
operations.
Uncertainty Regarding Client Relationships
Although the Company's subsidiaries in the engineering, construction and
consulting services business have numerous clients and the Company historically
has not had a continuing dependence on any single client, one or a few clients
has in the past and may in the future contribute a substantial portion of the
Company's consolidated revenues in any one year, or over a period of several
consecutive years, due to the size of major engineering and construction
projects. The unexpected loss of business from any one of such customers could
have a material adverse effect on the Company's business or results of
operations.
Size and Uncertainty of Timing of Contracts
The Company's contract award prospects include a number of large-scale
domestic and international projects. The large size and uncertain timing of
these projects can create variability in the Company's contract award pattern.
Consequently, future contract award trends are difficult to predict with
certainty. In addition, the timing of receipt of revenue by the Company from
engineering and construction projects can be affected by a number of factors
outside the control of the Company and its subsidiaries. Frequently, the
subsidiary's services on a project take place over extended periods of time, and
are subject to unavoidable delays from weather conditions, unavailability of
material and equipment from vendors, changes in the scope of services requested
by
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<PAGE> 125
clients, or labor disruptions. Uncertainty of the timing of contract execution
and performance can also present difficulties in matching workforce size with
contract needs. In some cases, the Company must maintain and bear the cost of
maintaining the availability of a workforce larger than called for under
existing contracts in anticipation of future workforce needs in connection with
the execution and performance of contracts not yet received, which may
ultimately be delayed, modified or canceled.
Uncertainty Regarding International Nature of Business
A significant portion of the Company's business services are and are
expected to continue to be performed for clients located outside of the United
States. During 1997, services performed for and products sold to clients outside
the U.S. accounted for approximately 50.2% of the Company's total revenues. The
Company's international operations and offices in foreign countries give rise to
political and economic uncertainties relating to, among other things, U.S. and
foreign trade restrictions; foreign government stability; foreign economic
stability; tariffs; export controls; government regulation (including the
Foreign Corrupt Practices Act); patent and trademark availability, protection
and registration; foreign exchange restrictions which limit the repatriation of
investments and earnings therefrom; changes in taxation or international tax
treaties; military action and other hostilities or confiscation of property. The
Company attempts to hedge against such risks, where possible, using contractual
protection and insurance coverage. However, there can be no assurance that such
measures will be effective in reducing the risks associated with international
operations.
The Company's revenues from the Asian region have created a particular
risk resulting from the Asian financial crisis. Projects in which the Company is
involved, including the TPPI project, have been suspended or delayed, and
perhaps jeopardized, by such crisis. The Company may experience decreases in
demand for its products and services as a result of the continuation of
financial instability in Asia which could have a material adverse effect on the
Company's business and results of operations.
The Company is subject to currency exchange risks to the extent that its
purchases and sales occur outside the U.S. and to the extent that it is unable
to denominate its purchases or sales in U.S. dollars, or otherwise shift to its
customers or suppliers, the risks of currency exchange rate fluctuations. The
Company attempts to hedge against currency risks, where possible, by using
foreign exchange contracts and avoiding concentrations of credit risk. However,
there can be no assurance that such measures will be effective in reducing the
risks associated with international operations.
Risk of Technological Changes
The Company believes that it has a leading position in technology
associated with the design and construction of plants which produce ethylene,
which it protects and develops with patent registrations, license restrictions,
and a research and development program. This technology position is subject to
the risk that others may develop competing processes which could affect the
Company's pre-eminent position.
Risks Due to Fixed, Maximum or Unit Priced Contracts
An increasing number of the Company's contracts for the provision of
engineering and construction services are fixed, maximum or unit price
contracts. Under fixed, maximum or unit price contracts, the Company's
subsidiaries agree to perform the contract for a fixed price and as a result,
benefit from costs savings, but are unable to recover for any cost overruns.
Under fixed price incentive contracts, the Company shares with the customer any
savings up to a negotiated ceiling price and carries some or all of the burden
of costs exceeding the negotiated ceiling price. Contract prices are established
based in part on cost estimates which are subject to a number of assumptions,
such as assumptions regarding future economic conditions. If in the future these
estimates prove inaccurate, or circumstances change, cost overruns can occur and
can cause a material adverse effect on the Company's business and results of
operations.
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Contract Performance Risk
In certain circumstances, the Company or its subsidiaries guarantee
facility completion by a scheduled acceptance date or achievement of certain
acceptance and performance testing levels. Failure to meet any such schedule or
performance requirements could result in additional costs and the amount of such
additional costs could exceed project profit margins. Performance problems for
existing and future contracts, whether fixed, maximum or unit priced, could
cause actual results of operations to differ materially from those anticipated
by the Company.
Uncertainties in Government Contracts
Several of the Company's subsidiaries' significant contracts are contracts
with agencies of the U.S. Government. Generally, Government contracts are
subject to oversight audits by Government representatives, to profit and cost
controls and limitations, and to provisions permitting modification or
termination, in whole or in part, without prior notice at the Government's
convenience and with payment of compensation only for work done and commitments
made at the time of termination. In the event of termination, the Company
generally will receive some allowance for profit on the work performed. In some
cases, Government contracts are subject to the uncertainties surrounding
congressional appropriations or agency funding. Government business is subject
to specific procurement regulations and a variety of socio-economic and other
requirements. Failure to comply with such regulations and requirements could
lead to suspension or debarment, for cause, from future Government contracting
or subcontracting for a period of time. Among the causes for debarment are
violations of various statutes, including those related to employment practices,
the protection of the environment, the accuracy of records and the recording of
costs.
Environmental, Safety and Health Risks
It is impossible to predict the full impact of future legislative or
regulatory developments relating to environmental protection and occupational
health and safety issues on the Company's operations, because the standards to
be met, as well as the technology and length of time available to meet those
standards, continue to develop and change. The Company's business is primarily
that of a professional service provider. Therefore, although regulations and
statutes which relate to manufacturing and other non-service operations are not
likely to adversely impact the Company's business directly, they may adversely
impact the Company's subsidiaries' clients, causing a decrease in demand for the
Company's services.
Potential Liability for Services Relating to Toxic and Hazardous Materials and
the Ability to Insure Such Risks
The Company's engineering and consulting services involve professional
judgments about the nature of soil and water conditions and other physical
conditions, including the extent to which toxic and hazardous materials are
present, and about the probable effect of procedures to mitigate problems or
otherwise impact those conditions. If those judgments and the recommendations
based upon them do not result in the anticipated consequences, losses to the
Company's subsidiaries' clients can occur for which such clients may seek to
hold the Company liable. In addition, projects often involve nuclear, hazardous
and/or highly regulated material, the improper characterization, handling, or
disposal of which could constitute violations of federal, state or local
statutes, and result in criminal and civil liabilities.
The Company and its subsidiaries attempt to insure against risks for
professional liability, workers compensation, and general and automobile claims
up to certain policy limits. There can be no assurance that the dollar amount of
the Company's liabilities, if any, will not exceed the insurance coverage
limits. In addition, there can be no assurance that environmental impairment
insurance coverage will continue to be available in the insurance market.
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Other Impact of Environmental Regulation
Much of the Company's subsidiaries' business is generated either directly
or indirectly as a result of federal and state laws, regulations and programs
related to environmental issues. United States regulatory enforcement has
fluctuated, and one of the key environmental laws, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), has
not yet received congressional reauthorization. Accordingly, changes of
environmental laws and regulations, or changes in governmental policies
regarding the funding, implementation or enforcement of such programs, could
have a material adverse effect on the Company's business. In addition, such laws
and regulations often subject the Company's subsidiaries to stringent regulation
in the conduct of their operations. The principal federal environmental
legislation affecting the Environmental/Infrastructure Division of the Company's
principal engineering subsidiary and its clients include: the National
Environmental Policy Act of 1969 ("NEPA"), the Resource Conservation and
Recovery Act of 1976 ("RCRA"), the Clean Air Act, the Federal Water Pollution
Control Act, and the Superfund Amendments and Reauthorization Act of 1986
("SARA"). It is possible that additional laws and regulations may be adopted
which could have significant impact on the Company and the clients of its
subsidiaries.
Although the liabilities imposed by CERCLA, as amended by SARA, (and other
environmental legislation) are usually more directly related to the Company's
clients, they could, under certain circumstances, give rise to liability on the
part of the Company as a result of its subsidiaries efforts in completing client
assignments that involve transportation or disposal of contaminated samples or
other hazardous materials belonging to its clients or arising from certain
historic activities as discussed below under Litigation Risks. Liabilities
imposed by CERCLA can be joint and several where other parties are involved.
Litigation Risks
The Company and certain subsidiaries have been named as defendants, along
with others, in legal actions claiming damages in connection with engineering
and construction projects and other matters. Most of the legal actions involve
claims for personal injury or property damage which occur from time to time in
connection with services performed relating to project or construction sites and
other actions that arise in the normal course of business, including
employment-related claims and contractual disputes. Such contractual disputes
normally involve claims relating to the performance of equipment design or other
engineering services or project construction services provided by subsidiaries
of the Company.
The Company and certain of its subsidiaries have possible liabilities
relating to environmental pollution. While no governmental authority has sought
redress from the Company or its subsidiaries (except in the case of one
subsidiary in connection with claims made with respect to clients of that
subsidiary) nor has the Company been determined to be a Potentially Responsible
Party by the federal or any state or local governmental authority, some
information has been requested from the Company with regard to environmental
matters, and there can be no assurance that the Company will not be named as a
party in such matters. Based on presently known facts and existing laws and
regulations, the Company believes that it has valid legal defenses and that the
costs associated with such matters, including legal costs, should be mitigated
by the presence of other entities which may be Potentially Responsible Parties,
by contractual indemnities, and by insurance coverage, but there can be no
assurance that such defenses will prevail, that the presence of such mitigating
factors will prove adequate or that the Company will not be held liable in
connection with such matters in amounts that would have a material adverse
effect on the Company's business and results of operations.
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Attraction and Retention of Professional Personnel
The Company's ability to attract and retain qualified engineers,
scientists and other professionals, either through direct hiring or acquisition
of other firms employing such professionals, will be an important factor in
determining the Company's future success. The market for these professionals is
competitive, and there can be no assurance that the Company and its subsidiaries
will be successful in its efforts to attract and retain such professionals.
Availability of Additional Acquisition Targets
The Company's ongoing acquisition program is an element of its growth
strategy for expanding its services. Consequently, the future growth of the
Company depends in part upon the successful continuation of its acquisition
program. The Company may encounter substantial competition in its efforts to
acquire companies or entities which meet its acquisition criteria. There can be
no assurance that the Company will succeed in locating or acquiring appropriate
acquisition candidates at price levels and on terms and conditions that the
Company considers appropriate.
THE COMPANY
The business of the Company is described in the Company's most recent
Annual Report on Form 10-K, which is incorporated herein by reference. See
"Incorporation of Certain Documents by Reference."
SECURITIES COVERED BY THIS PROSPECTUS
The shares of Common Stock covered by this Prospectus consist of _________
shares which may be issued or delivered from time to time in connection with
future business combinations, mergers and acquisitions. The consideration for
such combinations, mergers and acquisitions may consist of cash, assumption of
liabilities, evidences of debt, Common Stock or a combination thereof. In
general, the terms of such combinations, mergers and acquisitions will be
determined by direct negotiations between representatives of the Company and the
owners or principal executives of the companies or other entities to be so
combined, acquired or merged or the assets of which are to be acquired, and the
factors taken into account will include, among other things, the established
quality of management, earning power, cash flow, growth potential, facilities
and locations of the companies or other entities to be acquired or merged, and
the market value of the Common Stock. It is anticipated that the shares of the
Common Stock issued or delivered in connection therewith will be valued at a
price reasonably related to the market value of the Common Stock either at the
time the terms of the combination, acquisition or merger are tentatively agreed
upon, or at or about the time or times such shares are issued or delivered.
Persons who directly or indirectly control, are controlled by, or are
under common control with, companies or other entities which are acquired by or
merged or combined with the Company may be deemed to be engaged in a
distribution of securities, and therefore underwriters of securities within the
meaning of Section 2(11) of the Securities Act, if such persons offer or sell
any Shares covered by this Prospectus other than in accordance with the
provisions of paragraph (d) of Rule 145 under the Securities Act or pursuant to
an effective registration statement. Rule 145(d) provides that such persons will
not be deemed to be underwriters if (a) among other things, (i) the Company has
complied with certain reporting requirements of the Exchange Act, (ii) the
amounts of such shares sold fall within certain volume limitations, (iii) such
shares are sold only in brokers' transactions within the meaning of Section 4(4)
of the Securities Act or in a manner otherwise permitted by Rule 144 under the
Securities Act, (iv) such persons do not solicit or arrange for the solicitation
of orders to buy such shares in anticipation of or in connection with the sale
thereof, and (v) such persons do not make any payments in connection with the
offer or sale thereof to any persons other than the brokers executing the orders
to sell such shares; (b) such persons are not affiliates of the Company and have
been the beneficial owners of the Shares for at least one year, and the Company
has complied with certain reporting requirements of the Exchange Act; or (c)
such persons are not, and have not been for at least three months, affiliates of
the Company and have been the beneficial owners of the Shares for at least two
years.
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DESCRIPTION OF CAPITAL STOCK
General Description
The Restated Certificate of Incorporation, as amended, of the Company (the
"Restated Certificate") authorizes the issuance of 2,000,000 shares of Preferred
Stock, no par value, and 40,000,000 shares of Common Stock, $1.00 par value per
share. At May 31, 1998, there were 12,793,584 shares of Common Stock
outstanding. There are no shares of Preferred Stock outstanding. Should
Preferred Stock be issued in the future, holders thereof will have preferential
rights over holders of Common Stock with respect to dividends, liquidation and
certain other matters and may be entitled to vote under certain circumstances.
The following description summarizes certain provisions of the Restated
Certificate relating to the Common Stock, Preferred Stock, Series A Junior
Participating Preferred Stock and Rights to Purchase Series A Junior
Participating Preferred Stock. For a full description, reference is made to the
Restated Certificate which is an exhibit to the Registration Statement of which
this Prospectus is a part.
Description of Common Stock
Dividends Rights
Subject to the preferential rights of holders of Preferred Stock should
any Preferred Stock be issued in the future, holders of Common Stock are
entitled to receive such dividends as may be declared by the Board of Directors
out of funds legally available therefor.
Voting Rights and Other Matters
Subject to the voting rights of holders of Preferred Stock should
Preferred Stock be issued in the future, holders of the Common Stock exclusively
possess voting power for all purposes. The voting rights are non-cumulative.
The directors of the Company are divided into three classes with the
number of directors fixed by or in accordance with the By-laws divided equally
so far as possible among the classes. At each annual election, one class of
directors is elected by vote of a majority of the Company's outstanding voting
stock for a term of three years. Special voting provisions apply to any change
in the number of directors, to the filling of vacancies on the Board of
Directors when not filled by the remaining directors and to the removal of
directors without cause under certain circumstances. In addition, with certain
exceptions, the Restated Certificate requires the affirmative vote of two-thirds
of the Company's outstanding voting stock to authorize specified corporate
transactions (including certain mergers, sale of substantially all of the
Company's assets and the like) involving the Company, or any subsidiary of the
Company, and any owner of 5% or more of the Company's outstanding voting stock.
The foregoing special voting provisions may only be changed upon a specified
vote of the directors and/or stockholders of the Company.
In addition to the provisions referred to in the preceding paragraph, the
Restated Certificate contains provisions pertaining to so-called "front-end
loaded" tender offers and similar transactions where an initial acquisition of a
substantial portion of the outstanding stock of a company is followed by a
second step transaction (such as a merger) in which the shares held by the
stockholders who did not participate in the first transaction are to be acquired
at a lower price. These provisions require that a second step transaction
initiated by a holder of at least 10% of the outstanding voting stock of the
Company be approved by 80% of all outstanding voting stock and a majority of the
publicly held voting stock (i.e., not including the 10% holder's shares).
Neither the Company and its subsidiaries nor any trustee or Committee under any
employee pension, stock ownership, savings or similar employee benefit plan is
considered a 10% holder. The aforementioned votes will not be required where the
purchase of the Company's shares by the 10% holder in the second step
transaction is for consideration equal to or greater than the highest price
previously paid by the 10% holder to acquire shares of a class or an amount
bearing the same or a greater percentage relationship to the then market price
of shares of any class of which the 10% holder has previously acquired shares as
the highest price per share paid by the 10% holder in the earlier transaction(s)
by which the 10% holder achieved that status, bears to the lower of the market
price of shares of such
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class of shares immediately prior to the public disclosure of, or the
commencement of, such earlier transaction(s). The consideration must be payable
either in cash or in the same form of consideration given for the majority of
the shares of the class previously acquired by the 10% holder. Any amendment of
the provisions described in this paragraph requires the approval of 80% of all
outstanding voting stock and a majority of the publicly held voting stock (i.e.,
not including the shares held by the 10% holder). The Restated Certificate also
requires the Board of Directors, when evaluating a merger, reorganization,
tender offer or other similar proposal, to consider all relevant factors,
including the social, legal and economic effects of the transaction as well as
alternative measures of the Company's value.
Liquidation Rights
Subject to the preferential rights of holders of Preferred Stock should
any Preferred Stock be issued in the future, in the event of any liquidation,
dissolution or winding up of the Company, or any reduction of its capital
resulting in any distribution of its assets to its stockholders, the holders of
Common Stock are entitled to receive, pro rata, all the remaining assets of the
Company available for distribution to its stockholders.
Pre-emptive Rights
No holder of shares of Common Stock has preferential, pre-emptive or other
rights to subscribe for or purchase any stock of the Company of any class, or
securities convertible into stock.
Liability for Future Calls or Assessments
All outstanding shares of Common Stock are fully paid and non-assessable.
Limitations on Rights of Common Stock
See " -- Description of Preferred Stock" below for a description of the
limitations that would be placed on the Common Stock by the rights of the
Preferred Stock, should any Preferred Stock be issued in the future. See " --
Description of Series A Junior Participating Preferred Stock and Rights to
Purchase Series A Junior Participating Preferred Stock" below for a description
of the provisions that would have the effect of delaying, deferring or
preventing a change of control of the Company in the event of an extraordinary
corporate transaction.
Description of Preferred Stock
Preferred Stock may be issued from time to time in one or more series and
the Company's board of directors (the "Board"), without further approval of the
shareholders, is authorized to fix the dividend rights and terms, conversion
rights, voting rights, redemption rights and terms, liquidation preferences,
sinking or purchase fund or agreement and any other rights, preferences,
privileges and restrictions applicable to each such series of Preferred Stock.
The purpose of authorizing the Board to determine such rights and preferences is
to eliminate delays associated with a shareholder vote on specific issuances.
The issuance of Preferred Stock, while providing flexibility in connection with
possible acquisitions and other corporate purposes, could, among other things,
adversely affect the voting power of holders of Common Stock and, under certain
circumstances, make it more difficult for a third party to gain control of the
Company.
The Restated Certificate authorizes the issuance of 2,000,000 shares of
Preferred Stock. At May 31, 1998 no shares of Preferred Stock had been issued.
Description of Series A Junior Participating Preferred Stock and Rights to
Purchase Series A Junior Participating Preferred Stock
The descriptions of the Series A Junior Participating Preferred Stock and
the Rights to Purchase Series A Junior Participating Preferred Stock are
contained in the Company's Registration Statements filed under Section 12 of the
Exchange Act, which are incorporated herein by reference. See "Incorporation of
Certain Documents by Reference."
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LEGAL OPINION
The validity of the Shares offered hereby will be passed upon by Palmer &
Dodge LLP, Boston, Massachusetts, counsel for the Company.
EXPERTS
The consolidated financial statements as of December 31, 1997 and 1996 and
for each of the years in the three-year period ended December 31, 1997
incorporated by reference from the Company's Annual Report to Shareholders into
the Company's Annual Report on Form 10-K for the year ended December 31,
1997, have been incorporated by reference in this Prospectus in reliance on the
report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Section 145 of the DGCL grants the Company the power to indemnify each
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative by reason of the fact that he is or
was a director, officer, employee or agent of the Company, or is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgements, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful, provided, however, no
indemnification shall be made in connection with any proceeding brought by or in
the right of the Company where the person involved is adjudged to be liable to
the Company except to the extent approved by a court.
Paragraph 14 of Article Sixth of the Company's Restated Certificate of
Incorporation as amended (the "Restated Certificate") provides that the Company
shall indemnify each director, officer, employee and agent of the Company, his
or her, heirs, executors, administrators and all other persons whom the Company
is authorized to indemnify under the provisions of the DGCL, to the fullest
extent permitted by law, (a) against all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him or her in connection with any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Company), or in connection with
any appeal therein or otherwise, and (b) against all expenses (including
attorneys' fees) actually and reasonably incurred by him or her in connection
with the defense or settlement of any action or suit by or in the right of the
Company, or in connection with any appeal therein, or otherwise.
Pursuant to Section 102(b)(7) of the DGCLs, Paragraph 15 of Article Sixth
of the Company's Restated Certificate eliminates a director's personal liability
for monetary damages to the Company and its stockholders for breaches of
fiduciary duty as a director, except in circumstances involving a breach of a
director's duty of loyalty to the Company or its stockholders, acts or omissions
not in good faith, intentional misconduct, knowing violations of the law, the
unlawful payment of dividends or repurchase of stock, or a transaction from
which the director derived an improper personal benefit.
The Company has purchased form the American International Group a
Directors and Officers Liability and Company Reimbursement policy under which
the directors and officers of the Company and its subsidiaries are insured
against loss arising from any claim made against them by reason of any wrongful
act in their respective capacities as directors and officers.
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Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits
Number Exhibits
------ --------
2 Agreement and Plan of Merger among Stone & Webster,
Incorporated, Stone & Webster Management Consultants, Inc.,
Stone & Webster Acquisition Corp., Power Technologies, Inc.
and the Principal Shareholders of Power Technologies, Inc.
named therein, dated as of April 20, 1998 (filed herewith).
Pursuant to Item 601(b)(2) of Regulation S-K, the schedules
referred to in the Merger Agreement are omitted. The
Registrant hereby undertakes to furnish supplementary a copy
of any omitted schedule to the Commission upon request.
3 Articles of Incorporation and By-laws:
(i) The Restated Certificate of Incorporation of Registrant,
as amended (filed herewith).
(ii) The By-laws of Registrant, as amended (filed herewith).
4 Instruments defining the rights of security holders, including
indentures:
(i) As of December 31, 1997, Registrant and its subsidiaries
had outstanding long-term debt (excluding current portion)
totaling approximately $22,510,000 principally in connection
with mortgages relating to real property for a subsidiary's
office building, and in connection with capitalized lease
commitments for the acquisition of certain computer equipment.
None of these agreements is filed herewith because the amount
of indebtedness authorized under each such agreement does not
exceed 10 percent of the total assets of the Registrant and
its subsidiaries on a consolidated basis; the Registrant
hereby undertakes to furnish copies of such agreements to the
Commission upon request.
* (ii) Rights Agreement, dated as of August 15, 1996, between
Stone & Webster, Incorporated and ChaseMellon Shareholder
Services, L.L.C., which includes the form of Right Certificate
as Exhibit A and the Summary of Rights to Purchase Common
Shares as Exhibit B (incorporated by reference to Exhibit 1.1
to Registrant's Registration Statement on Form 8-A filed on
August 16, 1996.)
5 Opinion of Palmer & Dodge LLP (filed herewith).
8.1 Opinion of Palmer & Dodge LLP as to certain federal income tax
matters (filed herewith).
8.2 Opinion of Nixon, Hargrave, Devans & Doyle LLP as to certain
federal income tax matters (filed herewith).
10 Material Contracts:
* (a) 1997 Stock Plan for Non-employee Directors of Stone &
Webster, Incorporated (incorporated by reference to Exhibit
10(c) to Registrant's Form 10-K for the fiscal year ended
December 31, 1996).
(b) Form of agreements between Registrant and Named Executive
Officers of Registrant, dated as of August 31, 1995 and
subsequent dates, relating to certain employment arrangements
that would become operable only in the event of a "change of
control" (as defined in the form of agreement) (filed
herewith).
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* (c) The following forms of agreements with H. Kerner Smith
relating to employment with Registrant as Chairman, President
and Chief Executive Officer are incorporated by reference to
Exhibit 10(e) to the Registrant's Form 10-K for the fiscal
year ended December 31, 1995: a form of Employment Agreement
filed therewith as Exhibit 10(e)(i); a form of Change of
Control Employment Agreement filed therewith as Exhibit
10(e)(ii); and a form of Stock Option Grant filed therewith as
Exhibit 10(e)(iii). An Amendment dated January 15, 1997 to the
Employment Agreement (10)(e)(i) is incorporated by reference
to Exhibit 10(e)(iv) of Registrant's Form 10-K for the fiscal
year ended December 31, 1996.
* (d) Non-employee Director Deferral Plan (incorporated by
reference to Exhibit 10(f) to Registrant's Form 10-K for the
fiscal year ended December 31, 1997).
* (e) Annual Incentive Compensation Plan, as approved at the
Registrant's 1998 Annual Meeting of Shareholders on May 14,
1998 (incorporated by reference to Exhibit 10(g) to
Registrant's Form 10-K for the fiscal year ended December 31,
1997).
(f) Long-Term Incentive Compensation Plan, as approved and
amended at the Registrant's 1998 Annual Meeting of
Shareholders on May 14, 1998 (filed herewith).
13* (i) 1997 Annual Report to Shareholders for the fiscal year
ended December 31, 1997 (Financial Section) (incorporated by
reference to Exhibit 13(i) to Registrant's Form 10-K for the
fiscal year ended December 31, 1997).
* (ii) Report of Independent Accountants (incorporated by
reference to Exhibit 13(iii) to Registrant's Form 10-K for the
fiscal year ended December 31, 1997).
21* Subsidiaries of the Registrant (incorporated by reference to
Exhibit 21 to Registrant's Form 10-K for the fiscal year ended
December 31, 1997).
23.1 Consent of Coopers & Lybrand L.L.P., independent accountants
to Stone & Webster, Incorporated (filed herewith).
23.2 Consent of Marvin and Company, P.C., independent accountants
to Power Technologies, Inc. (filed herewith).
23.3 Consents of Palmer & Dodge LLP (contained in Exhibits 5 and
8.1).
23.4 Consent of Nixon, Hargrave, Devans & Doyle LLP (contained in
Exhibit 8.2).
24 Power of Attorney (included in the signature page hereto).
99.1 Power Technologies, Inc. Proxy and Voting Instructions Form
(filed herewith).
99.2 Form of Shareholders' Committee Agreement (to be filed by
amendment).
- ----------
* Indicates exhibit previously filed with the Securities and Exchange Commission
and incorporated herein by reference. Exhibits filed with periodic reports of
Stone & Webster, Incorporated were filed under Commission File No. 1-1228.
(b) Financial Statement Schedules
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(i) Financial Statement Schedules have been previously filed as part
of Registrant's Form 10-K for the fiscal year ended December 31, 1997.
Item 22. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the Registration
Statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities which remain unsold at the termination of the offering.
(4) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by reference
in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(5) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the effective
date of the Registration Statement through the date of responding to the
request.
(6) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the Registration Statement when it became
effective.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-4
<PAGE> 136
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the city of Boston, Commonwealth of
Massachusetts, on June 29, 1998.
STONE & WEBSTER, INCORPORATED
By: /s/ H. Kerner Smith
------------------------------------
H. Kerner Smith, Chairman, President
and Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned officers and directors of Stone & Webster,
Incorporated, hereby severally constitute and appoint H. Kerner Smith and James
P. Jones, and each of them singly, our true and lawful attorneys, with full
power to them in any and all capacities, to sign any amendments to this
Registration Statement on Form S-4 (including Pre- and Post-Effective
Amendments), and any related Rule 462(b) registration statement or amendment
thereto, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact may do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities indicated
and on June 29, 1998.
Signature Title
/s/ H. Kerner Smith Chairman, President and Chief
- -------------------------- Executive Officer
H. Kerner Smith (Principal Executive Officer)
/s/ Thomas L. Langford Executive Vice President
- -------------------------- (Duly Authorized Officer and Chief Financial
Thomas L. Langford Officer)
/s/ Daniel P. Levy Vice President and Controller
- -------------------------- (Duly Authorized Officer and Principal
Daniel P. Levy Accounting Officer)
/s/ Donna F. Bethell Director
- --------------------------
Donna F. Bethell
Director
- --------------------------
Frank J.A. Cilluffo
/s/ Elvin R. Heiberg III Director
- --------------------------
Elvin R. Heiberg III
<PAGE> 137
/s/ Kent F. Hansen Director
- --------------------------
Kent F. Hansen
/s/ David N. McCammon Director
- --------------------------
David N. McCammon
/s/ J. Angus McKee Director
- --------------------------
J. Angus McKee
/s/ John P. Merrill, Jr. Director
- --------------------------
John P. Merrill, Jr.
/s/ Bernard W. Reznicek Director
- --------------------------
Bernard W. Reznicek
/s/ Peter M. Wood Director
- --------------------------
Peter M. Wood
<PAGE> 138
EXHIBIT INDEX
Exhibit
Number Description of Exhibits
------ -----------------------
2 Agreement and Plan of Merger among Stone & Webster,
Incorporated, Stone & Webster Management Consultants, Inc.,
Stone & Webster Acquisition Corp., Power Technologies, Inc.
and the Principal Shareholders of Power Technologies, Inc.
named therein, dated as of April 20, 1998 (filed herewith).
Pursuant to Item 601(b)(2) of Regulation S-K, the schedules
referred to in the Merger Agreement are omitted. The
Registrant hereby undertakes to furnish supplementary a copy
of any omitted schedule to the Commission upon request.
3 Articles of Incorporation and By-laws:
(i) The Restated Certificate of Incorporation of Registrant,
as amended (filed herewith).
(ii) The By-laws of Registrant, as amended (filed herewith).
4 Instruments defining the rights of security holders, including
indentures:
(i) As of December 31, 1997, Registrant and its subsidiaries
had outstanding long-term debt (excluding current portion)
totaling approximately $22,510,000 principally in connection
with mortgages relating to real property for a subsidiary's
office building, and in connection with capitalized lease
commitments for the acquisition of certain computer equipment.
None of these agreements is filed herewith because the amount
of indebtedness authorized under each such agreement does not
exceed 10 percent of the total assets of the Registrant and
its subsidiaries on a consolidated basis; the Registrant
hereby undertakes to furnish copies of such agreements to the
Commission upon request.
(ii) Rights Agreement, dated as of August 15, 1996, between
Stone & Webster, Incorporated and ChaseMellon Shareholder
Services, L.L.C., which includes the form of Right Certificate
as Exhibit A and the Summary of Rights to Purchase Common
Shares as Exhibit B (incorporated by reference to Exhibit 1.1
to Registrant's Registration Statement on Form 8-A filed on
August 16, 1996.)
5 Opinion of Palmer & Dodge LLP (filed herewith).
8.1 Opinion of Palmer & Dodge LLP as to certain federal income tax
matters (filed herewith).
8.2 Opinion of Nixon, Hargrave, Devans & Doyle LLP as to certain
federal income tax matters (filed herewith).
10 Material Contracts:
* (a) 1997 Stock Plan for Non-employee Directors of Stone &
Webster, Incorporated (incorporated by reference to Exhibit
10(c) to Registrant's Form 10-K for the fiscal year ended
December 31, 1996).
(b) Form of agreements between Registrant and Named Executive
Officers of Registrant, dated as of August 31, 1995 and
subsequent dates, relating to certain employment arrangements
that would become operable only in the event of a "change of
control" (as defined in the form of agreement) (filed
herewith).
<PAGE> 139
* (c) The following forms of agreements with H. Kerner Smith
relating to employment with Registrant as Chairman, President
and Chief Executive Officer are incorporated by reference to
Exhibit 10(e) to the Registrant's Form 10-K for the fiscal
year ended December 31, 1995: a form of Employment Agreement
filed therewith as Exhibit 10(e)(i); a form of Change of
Control Employment Agreement filed therewith as Exhibit
10(e)(ii); and a form of Stock Option Grant filed therewith as
Exhibit 10(e)(iii). An Amendment dated January 15, 1997 to the
Employment Agreement (10)(e)(i) is incorporated by reference
to Exhibit 10(e)(iv) of Registrant's Form 10-K for the fiscal
year ended December 31, 1996.
* (d) Non-employee Director Deferral Plan (incorporated by
reference to Exhibit 10(f) to Registrant's Form 10-K for the
fiscal year ended December 31, 1997).
* (e) Annual Incentive Compensation Plan, as approved at the
Registrant's 1998 Annual Meeting of Shareholders on May 14,
1998 (incorporated by reference to Exhibit 10(g) to
Registrant's Form 10-K for the fiscal year ended December 31,
1997).
(f) Long-Term Incentive Compensation Plan, as approved and
amended at the Registrant's 1998 Annual Meeting of
Shareholders on May 14, 1998 (filed herewith).
13* (i) 1997 Annual Report to Shareholders for the fiscal year
ended December 31, 1997 (Financial Section) (incorporated by
reference to Exhibit 13(i) to Registrant's Form 10-K for the
fiscal year ended December 31, 1997).
* (ii) Report of Independent Accountants (incorporated by
reference to Exhibit 13(iii) to Registrant's Form 10-K for the
fiscal year ended December 31, 1997).
21* Subsidiaries of the Registrant (incorporated by reference to
Exhibit 21 to Registrant's Form 10-K for the fiscal year ended
December 31, 1997).
23.1 Consent of Coopers & Lybrand L.L.P., independent accountants
to Stone & Webster, Incorporated (filed herewith).
23.2 Consent of Marvin and Company, P.C., independent accountants
to Power Technologies, Inc. (filed herewith).
23.3 Consents of Palmer & Dodge LLP (contained in Exhibits 5 and
8.1).
23.4 Consent of Nixon, Hargrave, Devans & Doyle LLP (contained in
Exhibit 8.2).
24 Power of Attorney (included in the signature page hereto).
99.1 Power Technologies, Inc. Proxy and Voting Instructions Form
(filed herewith).
99.2 Form of Shareholders' Committee Agreement (to be filed by
amendment).
- ----------
* Indicates exhibit previously filed with the Securities and Exchange Commission
and incorporated herein by reference. Exhibits filed with periodic reports of
Stone & Webster, Incorporated were filed under Commission File No. 1-1228.
<PAGE> 1
Exhibit (2)
AGREEMENT AND PLAN OF MERGER
AMONG
STONE & WEBSTER, INCORPORATED
STONE & WEBSTER MANAGEMENT CONSULTANTS, INC.,
STONE & WEBSTER ACQUISITION CORP.,
POWER TECHNOLOGIES, INC.
AND
THE PRINCIPAL SHAREHOLDERS
OF POWER TECHNOLOGIES, INC.
NAMED HEREIN
-----------------------------
Dated as of April 20, 1998
-----------------------------
====================================
<PAGE> 2
TABLE OF CONTENTS
Page
SECTION 1 - THE MERGER..................................................... 1
1.1 The Merger................................................... 1
1.2 Effective Time............................................... 1
1.3 Effects of the Merger........................................ 1
1.4 Certificate of Incorporation and Bylaws...................... 2
1.5 Directors and Officers....................................... 2
1.6 Conversion of Stock.......................................... 2
1.7 Exchange of Certificates..................................... 4
1.8 Dissenting Shares............................................ 5
1.9 Transfer of Surviving Corporation Shares by SWI to SW........ 6
1.10 Contingent Merger Consideration.............................. 6
1.11 Additional Contingent Shares................................. 10
1.12 Fractional Shares............................................ 10
1.13 Transasia Consideration...................................... 10
SECTION 2 - REPRESENTATIONS AND WARRANTIES OF PTI.......................... 11
2.1 Organization and Qualification............................... 11
2.2 Capitalization............................................... 12
2.3 Authority to Execute and Perform Agreements.................. 12
2.4 Subsidiaries and Other Affiliates............................ 12
2.5 Charter and By-laws; Books and Records....................... 12
2.6 Financial Statements......................................... 13
2.7 Receivables.................................................. 13
2.8 Absence of Undisclosed Liabilities........................... 13
2.9 No Material Adverse Change................................... 13
2.10 Tax Matters.................................................. 14
2.11 Compliance with Laws......................................... 15
2.12 Consents; No Breach.......................................... 15
2.13 Actions and Proceedings...................................... 16
2.14 Contracts and Other Agreements............................... 16
2.15 Real Property; Leases........................................ 17
2.16 Tangible Property............................................ 18
2.17 Intellectual Property........................................ 18
2.18 Title to Assets; Liens....................................... 18
2.19 Customers.................................................... 18
2.20 Employee Benefit Plans....................................... 18
2.21 Employee Relations........................................... 19
2.22 Relationships with Affiliates................................ 19
2.23 Insurance.................................................... 19
2.24 Banking Relationships........................................ 20
2.25 Brokerage.................................................... 20
2.26 Hazardous Materials.......................................... 20
2.27 Year 2000.................................................... 20
2.28 Full Disclosure.............................................. 21
2.29 Statements; Proxy Statement/Prospectus....................... 21
SECTION 3 - REPRESENTATIONS AND WARRANTIES OF THE PRINCIPAL
SHAREHOLDERS............................................................... 21
3.1 Authority to Execute and Perform Agreements.................. 21
(1)
<PAGE> 3
3.2 No Breach.................................................... 21
3.3 Title to Shares.............................................. 21
3.4 Accuracy of PTI Representations and Warranties............... 22
SECTION 4 - REPRESENTATIONS AND WARRANTIES OF SWI.......................... 22
4.1 Organization................................................. 22
4.2 Authority to Execute and Perform Agreement................... 22
4.3 Capitalization............................................... 22
4.4 SEC Reports.................................................. 23
4.5 Financial Statements......................................... 23
4.6 No Material Adverse Change................................... 23
4.7 Actions and Proceedings...................................... 23
4.8 No Breach.................................................... 23
4.9 Brokerage.................................................... 24
4.10 Full Disclosure.............................................. 24
SECTION 5 - COVENANTS AND AGREEMENTS....................................... 24
5.1 Conduct of Business.......................................... 24
5.2 Corporate Examinations and Investigations.................... 25
5.3 Expenses..................................................... 26
5.4 Authorization from Others.................................... 26
5.5 Consummation of Agreement.................................... 26
5.6 Further Assurances........................................... 26
5.7 Securities Law Matters....................................... 26
5.8 Listing of SWI Common Stock.................................. 27
5.9 Shareholder Meeting.......................................... 27
5.10 Public Announcements and Confidentiality..................... 27
5.11 Affiliate Letters............................................ 28
5.12 No Solicitation.............................................. 28
5.13 Filings Under HSR Act........................................ 28
5.14 Voting of PTI Stock.......................................... 28
5.15 SWI SEC Filings.............................................. 28
5.16 Benefits..................................................... 28
5.17 Availability of Working Capital.............................. 29
5.18 Conduct of the Surviving Corporation......................... 29
5.19 Indemnification of Directors and Officers.................... 29
5.20 Compliance with Covenants.................................... 29
5.21 Tax-Free Reorganization...................................... 29
5.22 Appointment Agreements....................................... 29
SECTION 6 - CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF EACH PARTY TO CONSUMMATE THE MERGER..................................... 29
6.1 Approvals.................................................... 29
6.2 HSR Act...................................................... 30
6.3 Absence of Order............................................. 30
6.4 New York Stock Exchange Listing.............................. 30
6.5 Effectiveness of Registration Statement...................... 30
SECTION 7 - CONDITIONS PRECEDENT TO THE OBLIGATION OF
SWI AND SWAC TO CONSUMMATE THE MERGER...................................... 30
7.1 Representations, Warranties and Covenants.................... 30
7.2 Affiliate Letters............................................ 30
7.3 Opinion of Counsel to PTI.................................... 30
7.4 Merger Documents............................................. 30
(2)
<PAGE> 4
7.5 Employment Agreements........................................ 30
7.6 Continuation of Employees.................................... 30
7.7 Termination of PTI Money Purchase Pension Plan and Trust
and 401(K) Profit Sharing Plan .............................. 30
7.8 Redemption of Shares of PTII Held by PTI..................... 31
7.9 Dissenting Shares............................................ 31
7.10 Escrow Agreement............................................. 31
7.11 Bank Accounts................................................ 31
7.12 Tax Opinion.................................................. 31
7.13 Certificates................................................. 31
7.14 Options...................................................... 31
7.15 Ratification by SWI's Board of Directors..................... 31
SECTION 8 - CONDITIONS PRECEDENT TO THE OBLIGATION OF
PTI AND THE PRINCIPAL SHAREHOLDERS TO CONSUMMATE THE
MERGER..................................................................... 31
8.1 Representations, Warranties and Covenants.................... 31
8.2 Opinion of Counsel to SWI.................................... 31
8.3 Escrow Agreement............................................. 32
8.4 Tax Opinion.................................................. 32
8.5 Certificates................................................. 32
SECTION 9 - TERMINATION.................................................... 32
9.1 Termination.................................................. 32
9.2 Effect of Termination........................................ 33
9.3 Termination Fee.............................................. 33
SECTION 10 - INDEMNIFICATION............................................... 34
10.1 Survival..................................................... 34
10.2 Obligation of PTI and the Shareholders to Indemnify.......... 34
10.3 Obligation of SWI to Indemnify............................... 36
10.4 Limitations on Indemnification............................... 36
10.5 Notice and Defense of Claims................................. 37
SECTION 11 - MISCELLANEOUS................................................. 38
11.1 Notices...................................................... 38
11.2 Entire Agreement............................................. 39
11.3 Amendment.................................................... 39
11.4 Waiver....................................................... 39
11.5 Governing Law................................................ 39
11.6 Binding Effect; No Assignment................................ 39
11.7 Variations in Pronouns....................................... 39
11.8 Counterparts................................................. 39
11.9 Disclosure Schedules......................................... 39
EXHIBITS
A Form of Escrow Agreement
B Form of Affiliate Letter
C Schedule of Benefits
DISCLOSURE SCHEDULES
PTI Disclosure Schedule
(3)
<PAGE> 5
Disclosure Schedule of Principal Shareholders
SWI Disclosure Schedule
(4)
<PAGE> 6
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER dated as of April 20, 1998 (this
"Agreement") is among Stone & Webster, Incorporated ("SWI"), a Delaware
corporation, Stone & Webster Acquisition Corp. ("SWAC"), a Delaware corporation
and a wholly-owned subsidiary of SWI, Stone & Webster Management Consultants,
Inc. ("SW"), a New York corporation, Power Technologies, Inc. ("PTI"), a New
York corporation and the shareholders of PTI identified on the signature pages
hereto. The parties wish to effect the acquisition of PTI by SWI through a
merger of SWAC into PTI on the terms and conditions hereof. This Agreement is
intended to be a "plan of reorganization" within the meaning of ss.368(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
Accordingly, in consideration of the mutual representations, warranties
and covenants contained herein, the parties hereto agree as follows:
SECTION 1 - THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions hereof, and
in accordance with the New York Business Corporation Law (the "NYBCL") and the
General Corporation Law of the State of Delaware (the "DGCL"), SWAC shall be
merged with and into PTI (the "Merger"). The Merger shall occur at the Effective
Time (as defined herein). Following the Merger, PTI shall continue as the
surviving corporation (the "Surviving Corporation") and the separate corporate
existence of SWAC shall cease. The total consideration to be paid in connection
with the Merger shall consist of the Initial Merger Consideration and, to the
extent that each is to be paid in accordance with the terms hereof, the
Contingent Merger Consideration, the Additional Contingent Shares and the
Transasia Consideration.
1.2 Effective Time. As soon as practicable after satisfaction or waiver of
all conditions to the Merger, the parties shall cause a Certificate of Merger to
be filed in accordance with Section 907 of the NYBCL and a Certificate of Merger
to be filed in accordance with Section 252 of the DGCL (the Certificates of
Merger as appropriate for each state are referred to herein collectively as the
"Merger Documents") and shall take all such further actions as may be required
by law to make the Merger effective. The Merger shall be effective at such time
as the Merger Documents are filed, as appropriate, by the Department of State of
the State of New York in accordance with the NYBCL and with the Secretary of
State of the State of Delaware in accordance with the DGCL or at such later time
as is specified in such documents (the "Effective Time"). Immediately prior to
the filing of the Merger Documents, a closing (the "Closing") will be held at
the offices of Palmer & Dodge LLP, One Beacon Street, Boston, Massachusetts (or
such other place as the parties may agree) for the purpose of confirming
satisfaction or waiver of all conditions to the Merger. The Closing shall take
place within three business days after the last to occur of:
(a) the approval of the Merger by the shareholders of PTI pursuant
to Section 5.9;
(b) the expiration or termination of any waiting period or extension
thereof applicable to the Merger under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act");
(c) the declaration of effectiveness of the Registration Statement
on Form S-4 to be filed by SWI covering the Initial Merger Consideration, as
defined herein, pursuant to Section 5.7; or
(d) the satisfaction or waiver of each of the other conditions
specified in Sections 6, 7 and 8 hereof;
or on such other date as the parties may agree, but not later than September 1,
1998. The date on which the Closing occurs is referred to herein as the "Closing
Date".
1.3 Effects of the Merger. The Merger shall have the effects set forth in
Section 906 of the NYBCL
- 1 -
<PAGE> 7
and Section 259 of the DGCL.
1.4 Certificate of Incorporation and Bylaws. The Certificate of
Incorporation and Bylaws of PTI, in each case as in effect immediately prior to
the Effective Time shall be the Certificate of Incorporation and Bylaws of the
Surviving Corporation immediately after the Effective Time.
1.5 Directors and Officers. The directors and officers of SWAC immediately
prior to the Effective Time shall be the directors and officers of the Surviving
Corporation immediately after the Effective Time, except that the President of
PTI immediately prior to the Effective Time shall be the President and a
director of the Surviving Corporation immediately after the Effective Time, each
such officer and director to hold office in accordance with their respective
terms.
1.6 Conversion of Stock.
(a) For purposes of this Agreement:
(i) "SWI Common Stock" means shares of common stock, $1.00 par
value, of SWI.
(ii) "Closing Market Value" means either (X) the average of
the closing prices of SWI Common Stock as reported by the New York Stock
Exchange for the thirty (30) trading days ending on the third trading day prior
to the Closing Date or (Y) if SWI or PTI elect to use a Closing Market Value
different than such amount pursuant to Section 9.1(g) or (h), the amount so
elected to be used by SWI or PTI. The Closing Market Value shall be adjusted, as
necessary, to reflect any nontaxable stock split, reverse stock split, stock
dividend or stock combination affecting the SWI Common Stock as a class
occurring before or after the Effective Time and the amounts in Section 9.1(g)
and (h) shall be adjusted as necessary if any such event occurs before the
Effective Time.
(iii) "PTI Stock" means all shares of Class A Common Stock of
PTI, $.10 par value per share, Class B Common Stock of PTI, $.10 par value per
share, and Class C Common Stock of PTI, $.10 par value per share.
(iv) "Dissenting Shares" means all shares of PTI Stock held by
shareholders of PTI who properly exercise dissenters rights with respect thereto
in accordance with the NYBCL and who do not subsequently waive, revoke or
otherwise rescind such rights pursuant to the NYBCL either before or after the
Effective Time.
(v) "Participating Shares" means all shares of PTI Stock
outstanding at the Effective Time except Dissenting Shares, shares of PTI Stock
held at the Effective Time by PTI as treasury stock or shares of PTI Stock held
at the Effective Time by a Subsidiary of PTI.
(vi) "Participating Holders" means the holders of
Participating Shares immediately before the Effective Time (including the
holders of Dissenting Shares immediately before the Effective Time if such
Dissenting Shares later become Participating Shares) or their respective
successors or assigns.
(vii) "Participation Percentage" means the quotient of the
number of Participating Shares divided by the sum of the Participating Shares
plus the Dissenting Shares.
(viii) "Proportionate Interest" means, with respect to each
Participating Holder, the quotient of the Participating Shares held by such
holder divided by the aggregate number of Participating Shares.
(ix) "Initial Merger Consideration" means the number of shares
of SWI Common Stock equal to (X) the lesser of 1.5 times the stockholders equity
of PTI at December 31, 1997 as reflected in the Audited Financial Statements of
PTI (as defined in Section 2.6) or $9,000,000, (Y) divided by the Closing Market
- 2 -
<PAGE> 8
Value, and (Z) multiplied by the Participation Percentage. The Initial Merger
Consideration shall consist of (A) the "Initial Escrow Shares," which are the
number of shares (rounded to the nearest whole number of shares) of SWI Common
Stock equal to $1,000,000 divided by the Closing Market Value and multiplied by
the greater of (a) the Participation Percentage and (b) ninety-five percent
(95%), (B) the "Fund Shares" which are the number of shares (rounded to the
nearest whole number of shares) of SWI Common Stock equal to $250,000 divided by
the Closing Market Value, and (C) the "Delivered Shares" which are the Initial
Merger Consideration minus the Initial Escrow Shares and the Fund Shares.
(x) "Contingent Merger Consideration" means the number of
shares of SWI Common Stock equal to the amount obtained by dividing (X) by (Y)
and multiplying the resulting quotient by (Z) where: (X) is the difference
between (a) $8,000,000 and (b) the aggregate amount of all Unsatisfied Claims
and related expenses withheld or deposited into escrow by SWI in accordance with
Section 10.2; (Y) is the Closing Market Value; and (Z) is the Participation
Percentage; provided, however, that in no event shall the aggregate Closing
Market Value of the Shares of SWI Common Stock payable to Participating Holders
as Contingent Merger Consideration exceed the aggregate Closing Market Value of
the Initial Merger Consideration. In the event that the amount of Contingent
Merger Consideration initially calculated in accordance with this Section
1.6(a)(x) would cause the aggregate Closing Market Value of the shares of SWI
Common Stock payable as Contingent Merger Consideration to exceed the aggregate
Closing Market Value of the Initial Merger Consideration, the number of shares
of SWI Common Stock otherwise issuable as Contingent Merger Consideration shall
be reduced to the maximum number which would not cause the aggregate Closing
Market Value of the Contingent Merger Consideration to exceed that of the
Initial Merger Consideration.
(xi) "Additional Contingent Shares" means the number of shares
of SWI Common Stock equal to the (X) Additional Contingent Share Value divided
by (Y) the Additional Contingent Share Market Value.
As used in this Section 1.6(a)(xi), the Additional Contingent Share
Value ("ACSV") shall be determined according to the following formula:
ACSV = .50 x (T(L) - S(I) x (V(F) - Closing Market Value))
where:
T(L) = the aggregate amount of the "Individual Tax Liability", if any, of
all Participating Holders who furnish their tax returns to SWI's
independent auditors in accordance with Section 1.11; as used
herein, the "Individual Tax Liability" of each Participating
Holder who furnishes his/her tax return to SWI in accordance with
Section 1.11 is the amount, as reasonably estimated by SWI's
independent auditors based on the tax returns provided by such
Participating Holder, by which such Participating Holder's federal
and state income tax liability for 2002 would have increased if
the amount of imputed interest received by such Participating
Holder as a result of the distribution of the Contingent Merger
Consideration had been included in such Participating Holder's
income for 2002.
S(I) = the number of shares comprising the Contingent Merger
Consideration; and
V(F) = the greater of (i) the closing price of SWI Common Stock as
reported by the New York Stock Exchange for the day that the
Contingent Merger Consideration, if any, is distributed to the
Participating Holders and (ii) the Closing Market Value.
provided, that in no event shall ACSV be greater than $500,000 or less
than zero.
As used in this Section 1.6(a)(xi), the Additional Contingent Share
Market Value shall be the average of the closing prices of SWI Common Stock as
reported by the New York Stock Exchange for the ten (10) trading days ending on
the third trading day prior to the day that the Additional Contingent Shares, if
any, are
- 3 -
<PAGE> 9
distributed to the Participating Holders.
(xii) "Escrow Agreement" means the Escrow Agreement among SWI,
PTI, the Shareholders' Representative (as defined in Section 8.5) and The Chase
Manhattan Bank, as escrow agent (the "Escrow Agent") in the form attached hereto
as Exhibit A.
(b) At the Effective Time, by virtue of the Merger and without any
action on the part of SWI or PTI:
(i) All shares of PTI Stock shall no longer be outstanding,
shall automatically be canceled and retired, and shall cease to exist;
(ii) All outstanding shares of SWAC shall automatically be
converted into the same number of shares of Class A Common Stock of the
Surviving Corporation;
(iii) The Participating Shares shall be converted into and
become the right (V) to receive the Delivered Shares, (W) to receive the Initial
Escrow Shares, to the extent that they become payable to the Participating
Holders pursuant to the Escrow Agreement, (X) to receive the Contingent Merger
Consideration, to the extent that it becomes payable to the Participating
Holders pursuant to Section 1.10 of this Agreement, (Y) to receive the
Additional Contingent Shares, to the extent that they become payable to the
Participating Holders pursuant to Section 1.11 of this Agreement (collectively,
the "Merger Consideration"), (Z) to receive the Transasia Consideration, to the
extent that it becomes payable to the Participating Holders pursuant to Section
1.13 of this Agreement; and the Participating Holders shall have the right to
the benefits of and to enforce the covenants and indemnification obligations of
SWI, SW and SWAC under this Agreement;
(iv) All SWI Common Stock constituting the Initial Merger
Consideration shall be deemed to have been issued as of the Effective Time;
(v) All shares of PTI Stock held at the Effective Time by PTI
as treasury stock or by a subsidiary of PTI shall be canceled and no payment
shall be made with respect thereto; and
(vi) Holders of Dissenting Shares shall cease to have any
shareholder rights with respect to their Dissenting Shares except the right to
be paid the fair value of their Dissenting Shares and any other rights under
Section 623 of the NYBCL.
1.7 Exchange of Certificates.
(a) SWI shall authorize one or more persons who are reasonably
acceptable to PTI to act as Exchange Agent hereunder (the "Exchange Agent"). At
the Effective Time, SWI or SWAC shall deposit with the Exchange Agent
certificates representing the Delivered Shares, registered in the names of the
Participating Holders and allocated among such holders in accordance with their
respective Proportionate Interests, together with any cash that will be paid in
lieu of fractional shares pursuant to Section 1.12. At the Effective Time, SWI
or SWAC shall deposit with the Escrow Agent a certificate representing the
Initial Escrow Shares registered in the name of the Escrow Agent for the benefit
of the Participating Holders. At the Effective Time, SWI or SWAC shall deposit
with a person designated by PTI a certificate representing the Fund Shares
registered in the name of such person for the benefit of the Participating
Holders.
(b) As soon as practicable after the Effective Time, SWI shall cause
the Exchange Agent to mail to each Participating Holder instructions for
surrendering his or her certificates representing PTI Stock in exchange for a
certificate representing SWI Common Stock. Upon surrender by a Participating
Holder of one or more PTI Stock certificates representing all Participating
Shares held by such holder to the Exchange Agent (or to such other agent or
agents as may be appointed by SWI), such holder will be entitled to receive a
certificate representing the number of whole shares of SWI Common Stock equal to
the number of Delivered Shares multiplied by such holder's Proportionate
Interest together with payment of cash in lieu of any fractional share.
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<PAGE> 10
Until surrendered as contemplated by this Section, each certificate representing
PTI Stock shall be deemed at any time after the Effective Time to represent only
the right to receive upon such surrender the Merger Consideration which the
holder thereof has the right to receive in respect of such certificate pursuant
to the provisions of this Section 1.7(b), certain dividends or other
distributions in accordance with Section 1.7(c), and cash in lieu of any
fractional share of SWI Common Stock in accordance with Section 1.12. No
interest shall be paid or will accrue on any cash payable to Participating
Holders pursuant to the provisions of this Section 1.7.
(c) All dividends or other distributions with a record date after
the Effective Time payable with respect to Delivered Shares represented by
certificates held by the Exchange Agent as of the payment date of such dividend
or distribution shall be paid to the Exchange Agent for the benefit of the
Participating Holder entitled to such Delivered Shares. Following the surrender
of any certificate representing PTI Stock to the Exchange Agent, the Exchange
Agent shall pay the amount of any such dividends or distributions to the holder
of the Participating Shares when the certificate representing the Delivered
Shares is delivered to such holder pursuant to Section 1.7(b).
(d) If any certificate representing PTI Stock shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting by such person of a bond in such
reasonable and customary amount as the Surviving Corporation may direct as
indemnity against any claim that may be made against it with respect to such
certificate, the Exchange Agent shall issue in exchange for such lost, stolen or
destroyed certificate the applicable Delivered Shares and, if applicable, any
unpaid dividends and distributions deliverable in respect thereof and any cash
in lieu of fractional shares, in each case pursuant to this Section 1.7.
1.8 Dissenting Shares.
(a) Dissenting Shares shall not be converted into the right to
receive the Merger Consideration pursuant to Section 1.6(b)(iii) except to the
extent that such Dissenting Shares become Participating Shares after the
Effective Time, in which case such Dissenting Shares shall be treated in the
same manner that they would have had they been Participating Shares as of the
Effective Time. From and after the Effective Time, each holder of Dissenting
Shares shall have only the right to be paid the fair value of their Dissenting
Shares and any other rights under Section 623 of the NYBCL.
(b) PTI shall (i) give SWI prompt notice of any written demands
under Section 910 of the NYBCL with respect to any shares of capital stock of
PTI, any withdrawal of any such demands and any other instruments served
pursuant to the NYBCL and received by PTI and (ii) permit SWI to participate in
all negotiations and proceedings with respect to any Dissenting Shares. PTI
shall cooperate with SWI concerning, and shall not, except with the prior
written consent of SWI, voluntarily make any payments with respect to, or offer
to settle or settle, any such demands.
(c) Following the Merger, the Surviving Corporation shall, and SWI
shall cause the Surviving Corporation to, comply with the NYBCL to satisfy the
obligations of SWAC and PTI with respect to the Dissenting Shares.
(d) If, following the Effective Time, any Dissenting Shares become
Participating Shares, the Participating Percentage, Initial Merger
Consideration, Delivered Shares and Contingent Merger Consideration shall be
adjusted proportionately and SWI shall (i) deposit with the Exchange Agent
certificates representing the additional SWI Common Stock constituting the
Delivered Shares payable to such new Participating Holder(s), along with (X) any
dividends or other distributions payable following the Effective Time with
respect to such shares and (Y) any cash payable in lieu of fractional shares in
accordance with Section 1.12. As soon as practicable thereafter, SWI shall cause
the Exchange Agent to mail to the new Participating Holders certificates
representing the Delivered Shares to which the new Participating Holder(s) are
entitled (registered in the names of such new Participating Holder(s) and
allocated among them in accordance with their respective Proportionate
Interests) together with any dividends or distributions payable following the
Effective Time with respect to such Delivered Shares and any additional cash
necessary to pay any amounts due in lieu of fractional
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<PAGE> 11
shares. In addition, SWI shall deliver to the Escrow Agent an amended and
restated Schedule 1 to the Escrow Agreement setting forth the Proportionate
Interests of the Participating Holders as adjusted to reflect the participation
of the new Participating Holder(s).
1.9 Transfer of Surviving Corporation Shares by SWI to SW. Promptly
following the Effective Time, SWI shall transfer to SW all of the shares of the
Surviving Corporation held by SWI.
1.10 Contingent Merger Consideration.
(a) The Participating Holders shall be entitled to all of the
Contingent Merger Consideration if the Final Earnings Report, as defined below,
shows that the Final Cumulative Net Earnings for the Contingent Period (as
defined in Section 1.10(b)) is equal to or greater than $11,327,000 (the "Full
Payment Milestone"). If the Final Earnings Report shows that the Final
Cumulative Net Earnings for the Contingent Period is less than the Full Payment
Milestone but more than $3,960,000 (the "Minimum Payment Milestone"), then the
Participating Holders shall be entitled to a portion of the Contingent Merger
Consideration equal to the full Contingent Merger Consideration multiplied by a
fraction, the numerator of which shall be equal to the Final Cumulative Net
Earnings less the Minimum Payment Milestone and the denominator of which shall
be equal to $7,367,000 (the Full Payment Milestone less the Minimum Payment
Milestone). If the Final Earnings Report shows that the Final Cumulative Net
Earnings for the Contingent Period is less than the Minimum Payment Milestone,
then the Participating Holders will not be entitled to any portion of the
Contingent Merger Consideration.
(b) As promptly as possible following the end of each of the
calendar years (each, an "Audit Period") during the period from January 1, 1998
to December 31, 2002 (the "Contingent Period"), SWI shall cause an audit to be
conducted of the books and records of the Surviving Corporation as of the end of
such Audit Period and shall cause an income statement to be prepared for such
Audit Period in accordance with generally accepted accounting principles
consistently applied (the "Income Statements"). Promptly following the end of
each Audit Period, SWI's internal auditors under the supervision of SWI's
independent accountants (collectively, the "Auditors") shall determine and
report the net earnings of the Surviving Corporation for the Audit Period and
the cumulative net earnings of the Surviving Corporation from January 1, 1998
through the end of the most recently completed Audit Period (an "Earnings
Report") based on the Income Statements and reflecting any adjustments required
by Section 1.10(f) below. With respect to all Audit Periods other than the Audit
Period ending December 31, 2002, SWI and the Shareholders' Representative shall
have ninety (90) days after receipt of the Earnings Report and the accompanying
Income Statement for such Audit Period to assert any disagreements with any
items contained therein by giving written notice to the other. If such notice is
not given within such period, the amounts reflected in the Earnings Report shall
be final and binding on all parties except that any impact on a subsequent Audit
Period can be disputed in connection with the Earnings Report for such
subsequent Audit Period (but only to the extent of the impact on such subsequent
Audit Period). SWI and the Shareholders' Representative shall cooperate in good
faith to resolve any disputes as promptly as possible and the Earnings Report
for the applicable Audit Period shall be amended accordingly.
(c) SWI shall cause the Income Statement and Earnings Report for the
Audit Period ending December 31, 2002 to be delivered to the Shareholders'
Representative by February 28, 2003, and SWI and the Shareholders'
Representative shall have until 5:00 p.m. EST on March 15, 2003 to assert any
disagreements with any item in such Earnings Report and the accompanying Income
Statement by giving written notice to the other. If no disputes are properly
asserted with respect to such Earnings Report and there are no unresolved
disputes with respect to any prior Earnings Report, such Earnings Report shall
be the "Final Earnings Report" and the cumulative net earnings reported therein
shall be the "Final Cumulative Net Earnings".
(d) If the parties are unable to resolve any properly asserted
dispute (whether relating to the Audit Period ending December 31, 2002 or any
prior Audit Period) by March 31, 2003, an independent accounting firm of
national reputation (with no material relationship to SWI or the Shareholders'
Representative) shall be chosen by mutual agreement of SWI and the Shareholders'
Representative to resolve such disputes; provided however, that if SWI and the
Shareholders' Representative cannot agree on such a firm by April 5,
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<PAGE> 12
2003, SWI shall select such a firm and the Shareholders' Representative shall
select such a firm, such selections to be made within 2 business days
thereafter, and such firms shall, within 10 days after the selection of the last
of such firms, mutually select another such firm which shall be retained to
resolve such disputes; and provided further, that, if either SWI on the one
hand, or the Shareholders' Representative on the other hand, shall fail to
timely select a qualified firm, the firm selected by the other party shall be
retained to resolve such disputes (the firm ultimately selected to resolve any
such disputes is hereinafter referred to as the "Firm"). The Firm shall review
and resolve, in a manner consistent with Section 1.10(f) of this Agreement, the
disputed items and deliver a report of its conclusions to each of SWI and the
Shareholders' Representative on or before May 1, 2003, which report shall be
final and binding on all parties. If the report of the Firm indicates that a
correction should be made to the previously delivered Final Earnings Report,
such correction shall be made, and such Final Earnings Report, as corrected,
shall be the Final Earnings Report and the cumulative net earnings reported
therein shall be the Final Cumulative Net Earnings. SWI and the Shareholders'
Representative may at any time, whether or not a Firm has been retained, resolve
any disputes and agree on the content of the Final Earnings Report and Final
Cumulative Net Earnings. The fees of the Firm in connection with this review and
resolution of the disputes shall be paid by SWI; however, one-half of such costs
shall be deducted from the Contingent Merger Consideration to which the
Participating Holders would otherwise be entitled.
(e) During the period from the Closing until the determination of
the Final Cumulative Net Earnings, SWI and the Surviving Corporation shall give
the Auditors and the Firm such assistance and access to the assets and books and
records of the Surviving Corporation as the Auditors or Firm shall reasonably
request in order to enable the Auditors to prepare the Income Statements and the
Earnings Reports and to enable the Firm to resolve any disputes relating
thereto. During the period from the Closing until the determination of the Final
Cumulative Net Earnings, SWI and the Surviving Corporation shall, during regular
business and upon reasonable notice, give the Shareholders' Representative and
his or her representatives such assistance and access to the assets and books
and records of the Surviving Corporation as the Shareholders' Representative or
his or her representative shall reasonably request.
(f) For purposes of determining net earnings and cumulative net
earnings and reporting them in the Earnings Reports, the Earnings Reports shall
start with income net of all other expenses but before deducting tax expenses as
reported in the applicable Income Statement, subject to adjustment by the
Auditors or the Firm as appropriate ("Base Earnings"), which shall be:
(i) Increased by the amount of any costs or expenses included
in Base Earnings which were incurred by the Surviving Corporation for which SWI
actually received indemnification pursuant to this Agreement,
(ii) Increased by the amount of all costs and expenses
included in Base Earnings which were incurred by PTI and the Surviving
Corporation in connection with this Agreement and the transactions contemplated
hereby, including, without limitation, any amortization of goodwill by the
Surviving Corporation resulting from the transactions contemplated hereby, any
expenses incurred by the Surviving Corporation associated with imputed interest
related to the Contingent Merger Consideration and all legal and accounting fees
and disbursements in an aggregate amount not to exceed $400,000;
(iii) Increased by any loss or increase in costs and expenses
or decreased by any gain or any decrease in costs or expenses resulting from the
sale of real properties owned by PTI at the Effective Time and located at 1473
and 1482 Erie Boulevard, Schenectady, New York, including for determining costs,
without limitation, any legal and accounting fees and disbursements and any
other expenses associated with the sale of such properties, any loss on the sale
of such properties and the amount, if any, by which the rent paid to lease such
properties from the new owners or to utilize alternative properties exceeds the
depreciation that would have been recognized if such properties had not been
sold;
(iv) Increased by any costs and expenses (including, without
limitation, any additional funding requirements, interest incurred with respect
to such funding requirements, and legal and accounting fees and disbursements)
included in the Base Earnings incurred by PTI or the Surviving Corporation
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<PAGE> 13
solely as a result of the termination of any qualified pension or profit sharing
plan of PTI, including the PTI Employee Stock Ownership Plan, and the
termination of any PTI stock option plan (other than amounts paid directly to
option holders in connection with the termination of such plans or options) and
the liquidation and dissolution of Power Technologies International, Inc.;
(v) To the extent not otherwise accounted for by generally
accepted accounting principles, increased by any costs, expenses or losses which
are reimbursed by insurance or for which reserves were established prior to the
commencement of the Contingent Period;
(vi) Increased by any amount by which (X) amounts paid to
holders of Dissenting Shares together with any costs to fund expenses associated
with the satisfaction of PTI's or the Surviving Corporation's obligations under
the NYBCL with respect thereto, including without limitation all legal and
accounting fees and disbursements exceed (Y) the value of the Delivered Shares
(based on the Closing Market Value) which such Dissenting Holders would have
received if such Dissenting Holders were Participating Holders; provided,
however, that no such adjustment shall be made unless the amounts paid to
Dissenting Holders are reflected as an expense in the applicable Income
Statement(s) for the fiscal year(s) in which they were incurred;
(vii) Increased by any costs and expenses incurred by the
Surviving Corporation in connection with any environmental remediation;
provided, that no such adjustment shall be made for any costs and expenses
incurred in connection with environmental compliance in the ordinary course of
business as conducted by PTI prior to the Closing Date; and
(viii) Increased or decreased, as appropriate, to the extent
necessary during any Audit Period to adjust for changes in Base Earnings which
directly result from changes in generally accepted accounting principles during
any such Audit Period as compared to generally accepted accounting principles as
in effect as of the Effective Time.
In addition to the foregoing, the Base Earnings shall be adjusted at the
end of each Audit Period to mitigate any other effect of increases or decreases
in "operating expenses" and "interest expense and other income" resulting from
the Surviving Corporation operating as a subsidiary of SWI or SW as compared to
"operating expenses" and "interest expense and other income" that would have
been incurred by the Surviving Corporation if operated on a stand-alone basis,
or resulting from changes to the business of the Surviving Corporation imposed
by SWI or SW that were not contemplated when the projections included in tab 15
in the Offering Binder furnished by PTI to SW (the "PTI Projections") were
prepared, and which would not otherwise have been incurred by PTI, or which are
not offset by incremental revenues resulting from such changes. SWI and the
Shareholders' Representative shall cooperate in good faith to determine the
amount of such adjustments. A true, accurate and complete copy of the PTI
Projections is set forth in Section 1.10 of the PTI Disclosure Schedule.
(g) As soon as practicable following the determination of the Final
Cumulative Net Earnings pursuant to Section 1.10(c) or (d) above, as the case
may be, SWI shall deposit with the Exchange Agent certificates for SWI Common
Stock representing the Contingent Merger Consideration, registered in the names
of the Participating Holders and allocated among such holders in accordance with
their respective Proportionate Interests, together with any cash that will be
paid in lieu of fractional shares in accordance with Section 1.12. All shares of
SWI Common Stock issuable as Contingent Merger Consideration which constitute
imputed interest payments pursuant to Section 483 of the Internal Revenue Code,
as amended, shall be identified as interest payments by SWI and deposited with
the Exchange Agent as separate share certificates of shares of SWI Common Stock
(rounded up to the nearest whole share) registered in the names of the
Participating Holders and allocated among such holders in accordance with their
respective Proportionate Interests. Promptly thereafter, but in any event prior
to the fifth anniversary of the Closing Date, SWI shall cause the Exchange Agent
to mail to the Participating Holders certificates representing the portion of
the Contingent Merger Consideration to which the Participating Holders are
entitled (registered in the names of the Participating Holders and allocated
among them in accordance with their respective Proportionate Interests) together
with any additional cash necessary to pay any
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<PAGE> 14
amounts due in lieu of fractional shares.
(h) In the case of: (i) any transaction which constitutes a
reorganization within the meaning of Section 368(a)(1)(F) of the Code or (ii) a
recapitalization, reclassification or change of outstanding shares of SWI Common
Stock (other than (X) a change in par value, or from par value to no par value
or (Y) a stock split, reverse stock split, stock dividend or stock combination
resulting in an adjustment to the Closing Market Value pursuant to Section
1.6(a)(ii)) which results in the shares of SWI Common Stock outstanding
immediately prior to such event being converted into or exchanged for one or
more different classes or kinds of voting stock of SWI (each, a
"Reclassification Event"), each Participating Holder shall thereafter have the
right to receive at the time the Contingent Merger Consideration would otherwise
be paid, and SWI shall deliver to each Participating Holder, the kind and amount
of voting stock which would have been issued to such Participating Holder if the
Contingent Merger Consideration to which such Participating Holder is eventually
determined to be entitled, if any, had been issued immediately prior to such
Reclassification Event. As evidence of the kind and amount of voting stock which
shall be issuable as Contingent Merger Consideration after any Recapitalization
Event, SWI shall maintain in its records at its principal office a certificate
of any firm of independent public accountants (who may be the regular auditors
retained by SWI) identifying the Recapitalization Event and the computation used
to determine the amount of stock or other securities issuable as Contingent
Merger Consideration. The provisions of this paragraph (h) shall similarly apply
to subsequent Reclassification Events.
(i) In the case of: (i) a merger, consolidation or combination of
SWI with or into any other entity (other than a merger, consolidation or
combination of SWI with or into any other entity (X) in which SWI is the
surviving entity and SWI remains a publicly-traded company or (Y) which would
constitute a Reclassification Event) which would result in the shares of SWI
Common Stock outstanding immediately prior to such merger, consolidation or
combination being converted into or exchanged for capital stock or other
securities (other than voting stock of SWI), cash or other property; (ii) the
sale or disposition by SWI of all or substantially all of its assets; (iii) a
complete liquidation of SWI (each, an "Acceleration Event") or (iv) any other
transaction or event (other than a Reclassification Event) the consummation of
which would preclude the issuance of SWI Common Stock (or other voting stock of
SWI) as the Contingent Merger Consideration, the rights of the Participating
Holders to receive the Contingent Merger Consideration in accordance with
Section 1.10(g) shall be accelerated so that the Contingent Merger Consideration
shall be payable immediately prior to the record date for the vote of
stockholders of SWI required to authorize such Acceleration Event; provided,
that, for purposes of determining in accordance with Section 1.10(a) the amount
of the Contingent Merger Consideration payable upon the occurrence of an
Acceleration Event: (i) "Contingent Period" shall mean the period from January
1, 1998 through the end of the most recently completed Audit Period; (ii) "Final
Cumulative Net Earnings" shall mean the cumulative net earnings of the Surviving
Corporation set forth in the Earnings Report for the most recently completed
Audit Period; and (iii) the terms "Minimum Payment Milestone" and "Full Payment
Milestone" shall have the respective meanings set forth in the following table
for each applicable Audit Period set forth in such table:
<TABLE>
<CAPTION>
Audit Period
(Calendar Year Ended
December 31,) Full Payment Milestone Minimum Payment Milestone
------------- ---------------------- -------------------------
<S> <C> <C>
1998 $ 1,328,000 $ 792,000
1999 $ 3,091,000 $1,584,000
2000 $ 5,342,000 $2,376,000
2001 $ 8,068,000 $3,168,000
2002 $11,327,000 $3,960,000
</TABLE>
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<PAGE> 15
Any disputes arising in connection with the calculation of the final Cumulative
Net Earnings for purposes of this Section 1.10(i) shall be resolved as soon as
practicable in the manner described in Section 1.10(d).
(j) If any event of the nature described in paragraph (h) or (i)
above occurs which is not covered by Sections 1.6(a)(ii) or 1.10(h) or (i) and
which impairs the rights of the Participating Holders to receive the Contingent
Merger Consideration or reduces the economic value of the Contingent Merger
Consideration, SWI shall make an equitable adjustment in the application of such
provisions, in accordance with the intent and principles of such provisions, so
as to protect the rights of the Participating Holders to receive the Contingent
Merger Consideration and to preserve the economic value of the Contingent Merger
Consideration.
(k) The rights of the Participating Holders to receive the
Contingent Merger Consideration, if any, payable in accordance with this Section
1.10 and Additional Contingent Shares, if any, payable in accordance with
Section 1.12: (i) shall be personal to each such Participating Holder; (ii)
shall not be transferable, whether by sale, assignment, pledge or other
transfer, except by operation of law or by the laws of descent and distribution,
by any such Participating Holder or any person claiming under them and any such
purported assignment or transfer, if made, shall be void and of no effect; (iii)
shall not constitute or represent any equity or ownership interest in the
Surviving Corporation, SW or SWI and (iv) shall not entitle the holder of such
rights to any voting or dividend rights or any other rights common to
shareholders.
1.11 Additional Contingent Shares. SWI shall pay to the Participating
Holders who comply with the provisions of this Section 1.11, as part of the
Merger Consideration, the Additional Contingent Shares, if any, payable in
accordance with this Section. Each Participating Holder who provides to SWI's
independent auditors by August 30, 2003 a copy of his or her federal and
applicable state tax returns for 2002 as actually filed shall be entitled to
receive a portion of the Additional Contingent Shares, if any, as provided in
this Section. On February 1, 2003, SWI shall mail by priority mail to each
Participating Holder at his or her last known address, a statement setting forth
the name of its independent auditors and the address to which copies of the
Participating Holders' 2002 tax returns are to be sent. As soon as practicable
following the determination of the number of Additional Contingent Shares, if
any, payable pursuant to Section 1.6(a)(xi), SWI shall deposit with the Exchange
Agent certificates for SWI Common Stock representing the Additional Contingent
Shares registered in the names of the Participating Holders who have provided to
SWI's independent auditors copies of their actual tax returns for 2002 and
allocated among such holders pro rata in the proportion that their respective
Individual Tax Liability bears to TL, together with any cash that will be paid
in lieu of fractional shares in accordance with Section 1.12. Promptly
thereafter, SWI shall cause the Exchange Agent to mail to each Participating
Holder, a certificate representing the portion of the Additional Contingent
Shares to which such Participating Holder is entitled together with any
additional cash necessary to pay any amounts due in lieu of any fractional
share.
1.12 Fractional Shares. No certificates representing fractional shares of
SWI Common Stock shall be delivered to the Exchange Agent or Escrow Agent. No
fractional interest shall entitle any Participating Holder to vote or to any
rights as a security holder. In lieu of fractional shares, SWI or SWAC shall
deposit with the Exchange Agent or Escrow Agent, as applicable, and each
Participating Holder who would otherwise have been entitled to a fractional
share of SWI Common Stock will be entitled to receive, at the time when the
whole number of shares of SWI Common Stock to which he or she is entitled are
delivered to him or her, an amount in cash (without interest) in lieu thereof
determined by multiplying the fractional interest by the Closing Market Value
or, in the case of the Additional Contingent Shares, by the Additional
Contingent Share Market Value. SWI shall not be liable to any holder of shares
of PTI Stock for any cash in lieu of fractional interests delivered to a public
official pursuant to applicable escheat or abandoned property laws.
1.13 Transasia Consideration. SWI shall pay to the Participating Holders
on the date on which the certificates representing the Contingent Merger
Consideration are delivered to the Exchange Agent pursuant to Section 1.10(g)
(the "Contingent Payment Date") additional consideration (the "Transasia
Consideration") in an amount equal to the amount, if any, of the "Transasia
Payments" or any proceeds resulting from (i) the sale (which, if made, must be
made on a non-recourse basis only) of or (ii) other modification to the
Surviving Corporation's right to receive such payments (in each case, net of the
amount of any federal or state income tax, or excise tax based on income, and
any expenses incurred in collecting or administering such payments or proceeds),
which are received by PTI or the Surviving Corporation between January 1, 1998
and the date on
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<PAGE> 16
which the Contingent Merger Consideration is determined in accordance with
Section 1.10. In no event shall the Transasia Consideration exceed (a) twenty
percent (20%) of the sum of (i) the Delivered Shares multiplied by the lesser of
the Closing Market Value or the closing price of the SWI Common Stock as
reported by the New York Stock Exchange (the "Market Price") on the Effective
Date, (ii) the Initial Escrow Shares which are eventually distributed to the
Participating Holders pursuant to the Escrow Agreement multiplied by the lesser
of the Closing Market Value, the Market Price on the Effective Date or the
Market Price on the date such Initial Escrow Shares are delivered, (iii) the
shares of SWI Common Stock delivered to the Participating Holders as Contingent
Merger Consideration multiplied by the lesser of the Closing Market Price, the
Market Price on the Effective Date or the Market Price on the third trading day
prior to the Contingent Payment Date, and (iv) the amount of any cash paid in
lieu of fractional shares, minus (b) the amount of any cash and the value of any
consideration other than SWI Common Stock paid to the Participating Holders in
connection with the transaction including, without limitation, any cash payments
by SWI to satisfy its indemnification obligations under Section 10.3. As used
herein, the term "Transasia Payments" shall mean all amounts paid to PTI as
"development fees" or on account of PTI's "carried interest" (as such terms are
defined in Section 5.0 of the Transasia Transmission Cooperation Agreement dated
August 4, 1997 described below) in connection with the project (or any successor
to the project resulting from the restructuring or modification of such project)
contemplated by the Agreement of Understanding, dated March 5, 1997, among PTI,
Irkutskenergo and the ABB Development Team (as supplemented by an Appendix dated
July 14, 1997), the PTI Compensation and Support Agreement, dated May 29, 1997,
among PTI, Asea Brown Boveri Ltd., ABB Power Systems AB, and Asea Brown Boveri
Inc., and the Transmission Cooperation Agreement, dated August 4, 1997, among
PTI, Asea Brown Boveri Inc., Manitoba Hydroelectric Board and Walsh Automation
Inc. On the Contingent Payment Date, SWI shall deposit cash in the amount of the
Transasia Consideration with the Exchange Agent and shall cause the Exchange
Agent to distribute the Transasia Consideration pro rata to the Participating
Holders in accordance with their respective Proportionate Interests.
SECTION 2 - REPRESENTATIONS AND WARRANTIES OF PTI
Except as set forth on the disclosure schedule delivered to SWI and SW on
the date hereof (as amended or supplemented as of the Closing Date in accordance
with this Section 2, the "PTI Disclosure Schedule"), the section numbers of
which are numbered to correspond to the section numbers of this Agreement to
which they refer, PTI represents and warrants to SWI as set forth below. For
purposes of this Section 2, the phrase "to the knowledge of PTI" or similar
expression means the actual conscious knowledge of one or more of the following:
Steven J. Balser, Dale Hedman, Lionel O. Barthold, Ian S. Grant, Gordon
Hirschman, Lawrence Curran and Katherine Rose. Except for those representations
and warranties which speak as of a specific date (which shall continue to be
true and correct as of the date made on the Closing Date), all of the
representations and warranties of PTI set forth below shall be true and correct
as of the Closing Date with the same force and effect as though made on and as
of the Closing Date. On or before the Closing Date, PTI shall deliver to SWI and
SW an updated PTI Disclosure Schedule reflecting any changes or additions
required to be made to cause PTI's representations and warranties to be true and
correct on and as of the Closing Date (the "Updated PTI Disclosure Schedule").
To the extent that the Updated PTI Disclosure Schedule reflects any event, fact,
circumstance or condition (i) which was in existence on or as of the date hereof
or which arose subsequent to the date hereof and (ii) which was not reflected on
the PTI Disclosure Schedule delivered on the date hereof and (iii) which
represents a material adverse change in the business or financial condition of
PTI, then such event, fact, circumstance or condition shall constitute a failure
by PTI to satisfy the conditions set forth in Section 7.1 and shall constitute a
basis for termination of this Agreement by SWI in accordance with Section 9.1(i)
hereof.
2.1 Organization and Qualification. Each of PTI and its Subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the state or other jurisdiction of its incorporation and has full corporate
power and authority to own, lease and operate its assets, properties and
business and to carry on its business as now being and as heretofore conducted.
Each of PTI and its Subsidiaries is qualified or is otherwise authorized to
transact business as a foreign corporation in each jurisdiction (in the United
States and outside of the United States) in which such qualification or
authorization is required by law, all of which jurisdictions are identified in
Section 2.1 of the PTI Disclosure Schedule, except where the failure to be so
qualified or authorized to transact business would not have a material adverse
effect upon the business or
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financial condition of PTI, its Subsidiaries and PTI Affiliates, taken as a
whole (a "Material Adverse Effect"). As used in this Agreement, "Subsidiary"
means any corporation or other legal entity of which PTI owns, directly or
indirectly, 50% or more of the stock or other equity interest entitled to vote
for the election of directors or comparable controlling body.
2.2 Capitalization.
2.2.1 Outstanding Capital Stock. PTI's authorized capital stock
consists of 1,500,000 shares of Class A Common Stock, $.10 par value per share,
of which 257,330.07 shares are issued and outstanding on the date hereof,
500,000 shares of Class B Common Stock, $.10 par value per share, of which
35,638.41 shares are outstanding on the date hereof and 500,000 shares of Class
C Common Stock, $.10 par value per share, of which 22,100 shares are outstanding
on the date hereof (collectively, the "Shares"). Section 2.2 of the PTI
Disclosure Schedule sets forth the name of each shareholder of PTI as of the
date hereof and the number and class of Shares held by each such shareholder.
The Shares are duly authorized, validly issued, fully paid, and nonassessable
(except as provided in Section 630 of the NYBCL) and have been issued in
compliance with all charter documents of PTI and all applicable federal and
state laws. Except as set forth in this Section 2.2.1, no other capital stock of
PTI is authorized, issued or outstanding.
2.2.2 Options or Other Rights. Except as contemplated by this
Agreement, (i) no subscription, warrant, option, preemptive right, convertible
security or other right (contingent or otherwise) to purchase or acquire any
shares of capital stock or other security of PTI is authorized or outstanding,
(ii) there is no commitment or offer by PTI to issue or provide any such
subscription, warrant, option, preemptive right, convertible security or other
right or to issue or distribute to holders of any shares of its capital stock
any evidences of indebtedness or assets of PTI, (iii) PTI has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any shares of
its capital stock or any interest therein or to pay any dividend or make any
other distribution in respect thereof, (iv) there are no restrictions on the
transfer of PTI's capital stock other than those arising from securities laws,
and (v) there are no voting trusts, proxies or other agreements, instruments or
understandings with respect to outstanding shares of PTI's capital stock to
which PTI is a party.
2.3 Authority to Execute and Perform Agreements. PTI has the requisite
corporate power and authority to execute and deliver this Agreement and each
agreement, document and instrument required to be executed and delivered by PTI
pursuant to this Agreement to which it is a party ("PTI Closing Documents"), to
consummate the transactions contemplated hereby and thereby and to perform fully
its respective obligations hereunder and thereunder. The execution, delivery and
performance of this Agreement and each of the PTI Closing Documents and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of PTI. This Agreement
and each PTI Closing Document executed and delivered pursuant to this Agreement
constitutes, or when executed and delivered will constitute, valid and binding
obligations of PTI, as the case may be, enforceable in accordance with their
terms except as such enforceability may be limited by the application of general
principles of equity or by the effect of bankruptcy, insolvency, reorganization,
moratorium or similar laws generally affecting creditors' rights.
2.4 Subsidiaries and Other Affiliates. Except as set forth in Section 2.4
of the PTI Disclosure Schedule, PTI does not have any Subsidiary or directly or
indirectly own or have any investment in any of the capital stock of, or any
other interest in, and is not a party to a partnership or joint venture with,
any other person or entity (such persons or entities, together with any
Subsidiaries, are hereinafter collectively referred to as "PTI Affiliates"). All
issued and outstanding shares of each Subsidiary are owned directly by PTI free
and clear of any charges, liens, encumbrances, security interests or adverse
claims.
2.5 Charter and By-laws; Books and Records. PTI has heretofore delivered
or made available to SWI true and complete copies of the charter (certified by
the Secretary of State or comparable authority of its jurisdiction of
incorporation) and By-laws as in effect on the date hereof, and corporate minute
books of PTI and P.T.I. Asia SDN BHD ("PTI Asia"). Neither PTI nor PTI Asia is
in default in the performance, observation or fulfillment of either its charter
or By-laws. The minute books of PTI and PTI Asia contain true and complete
records of all meetings and consents in lieu of meetings of the Board of
Directors (and any committees thereof)
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and of the shareholders of PTI and PTI Asia prior to the date hereof, and
accurately reflect all transactions referred to in such minutes and consents in
lieu of meetings. The stock books of PTI and PTI Asia are true, complete and
correct.
2.6 Financial Statements. PTI has previously delivered to SW the reviewed
financial statements of PTI at and for the fiscal year ended December 31, 1996
(the "Reviewed Financial Statements"). PTI has also previously delivered to SW
the unaudited balance sheet of PTI and related statements of income and cash
flow at and for the 11-month period ended November 30, 1997 (the "Current
Financial Statements"). Prior to the Closing, PTI will deliver to SW (i) audited
financial statements of PTI at and for the fiscal year ended December 31, 1997
(the "Audited Financial Statements") and (ii) the unaudited balance sheet of PTI
and related statements of income and cash flow at and for the period ended on a
date not more than 45 days prior to the Closing Date (collectively with the
Audited Financial Statements, the "Updated Financial Statements"). All of the
foregoing are referred to collectively as the "PTI Financial Statements". The
PTI Financial Statements are (or, in the case of the Updated Financial
Statements will be) correct and complete in all material respects (except for
the Current Financial Statements), and have been (or, in the case of the Updated
Financial Statements will be) prepared from and in accordance with the books and
records of PTI, present (or will present) fairly, in all material respects, the
financial position and results of operation of PTI as of the date and for the
period indicated and, in the case of the Current Financial Statements and
Updated Financial Statements, are or will be, as applicable, certified as to
conformance with the foregoing by PTI's chief financial officer. The Updated
Financial Statements will be prepared in accordance with generally accepted
accounting principles applied consistently with past practices and will be so
certified by PTI's chief financial officer.
2.7 Receivables. Except to the extent that reserves have been established
and specifically identified in the Audited Financial Statements, all of the
accounts receivable shown on the Audited Financial Statements are collectable
and will be collected in the ordinary course of business.
2.8 Absence of Undisclosed Liabilities. As at December 31, 1996, PTI had
no material liabilities of any nature, whether accrued, absolute, contingent or
otherwise (including without limitation, liabilities as guarantor or otherwise
with respect to obligations of others or liabilities for taxes due or then
accrued or to become due), required to be reflected or disclosed in the December
31, 1996 balance sheet included in the Reviewed Financial Statements that were
not adequately reflected or reserved against on such balance sheet. PTI has no
such liabilities, except as and to the extent (i) adequately reflected or
reserved against in the December 31, 1996 balance sheet included in the Reviewed
Financial Statements, (ii) adequately reflected or reserved against in the
balance sheet included in the Current Financial Statements, (iii) when
delivered, adequately reflected or reserved against in the balance sheets
included in the Updated Financial Statements, or (iv) incurred subsequent to the
dates of such balance sheets in the ordinary course of business and not material
in amount, either individually or in the aggregate.
2.9 No Material Adverse Change. Since November 30, 1997, there has not
been:
(a) any material adverse change in the assets, liabilities,
condition (financial or otherwise), results of operation, business or, to the
knowledge of PTI, the prospects of PTI, any Subsidiary or PTI Asia or any
occurrence or circumstance which reasonably could be expected to result in such
a material adverse change, except for such changes arising as a result of
circumstances affecting generally companies operating in PTI's industry;
(b) any material change in the method of operating the business of
PTI, any Subsidiary or PTI Asia, in the manner of keeping the books, accounts or
records of PTI, any Subsidiary or PTI Asia, or in any accounting method or
practice of PTI, any Subsidiary or PTI Asia;
(c) any sale, lease, mortgage, pledge, encumbrance, abandonment or
disposition of, or agreement to sell, lease, mortgage, pledge, encumber, abandon
or dispose of, any assets or properties of PTI, any Subsidiary or PTI Asia,
other than non-material assets or property disposed of in the usual and ordinary
course of business;
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(d) any material transaction, commitment, contract or agreement
entered into by PTI, any Subsidiary or PTI Asia, or any relinquishment or
abandonment by PTI, any Subsidiary or PTI Asia of any material contract or
right, or any modification, waiver, amendment, release, recision, or termination
of any material term, condition or provision of any contract pertaining to PTI,
any Subsidiary or PTI Asia (other than any satisfaction by performance in
accordance with the terms thereof), other than in the usual and ordinary course
of business;
(e) any change in the relationships or conditions with employees,
suppliers, lenders, customers or governmental agencies that could reasonably be
anticipated to have a Material Adverse Effect;
(f) any new material obligation or liability of PTI, any Subsidiary
or PTI Asia for borrowed money;
(g) any acquisition by PTI, any Subsidiary or PTI Asia (other than
acquisitions of property or interests therein acquired in the ordinary course of
its business) of all or any part of the assets, properties, capital stock or
business of any other person or entity;
(h) any redemption or other acquisition by PTI, any Subsidiary or
PTI Asia of any of its capital stock or any declaration, setting aside or
payment of any dividend or distribution of any kind with respect to shares of
its capital stock;
(i) any loan or advance by PTI, any Subsidiary or PTI Asia to any
shareholder, officer, director or consultant, or any other loan or advance other
than in the ordinary course of business; or
(j) any new employment or consulting agreement entered into other
than in the ordinary course of business or terms consistent with prior
practices, any increase in compensation, bonus or other benefits payable or to
become payable by PTI, any Subsidiary or PTI Asia to any director, officer or
employee, other than regularly scheduled increases consistent with past practice
in the ordinary course of business, or any new grant of severance or termination
rights, or increase in rights or benefits payable under existing severance or
termination policies or agreements, to any director, officer or employee of PTI,
any Subsidiary or PTI Asia.
2.10 Tax Matters.
2.10.1 PTI is not and has not been a member of an affiliated group
of corporations filing a consolidated federal income tax return other than an
affiliated group consisting of PTI and its Subsidiaries. Each of PTI and each
Subsidiary has paid or caused to be paid or established appropriate reserves for
all federal, state, county, local, foreign and other taxes, as applicable,
including, without limitation, income taxes, estimated taxes, alternative
minimum taxes, excise taxes, sales taxes, use taxes, import duties, value-added
taxes, gross receipts taxes, franchise taxes, capital stock taxes, employment
and payroll-related taxes, withholding taxes, stamp taxes, transfer taxes,
windfall profit taxes, environmental taxes and property taxes, whether or not
measured in whole or in part by net income and all deficiencies, or other
additions to such taxes and interest, fines and penalties thereon (hereinafter,
"Taxes" or, individually, a "Tax") required to be paid by PTI and each
Subsidiary through the date hereof whether disputed or not. The Tax reserves and
the Tax provisions reflected on the balance sheet included in the Current
Financial Statements are adequate to cover any and all Tax liabilities of PTI in
respect of its assets, properties, business and operations for periods ended on
or prior to the date of such Current Financial Statements, and the Tax reserves
and Tax provisions reflected on the balance sheets included in the Updated
Financial Statements will be adequate, when delivered, to cover any and all Tax
liabilities of PTI in respect of its assets, properties, business and operations
for periods ended on or prior to the dates of such Updated Financial Statements.
There is no Tax deficiency or claim for additional Taxes or interest thereon or
penalties in connection therewith, asserted in writing or, to the best knowledge
of PTI, threatened in writing to be asserted against PTI or any Subsidiary by
any taxing authority.
2.10.2 Each of PTI and each Subsidiary has in accordance with
applicable law timely filed all
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material Tax reports or returns required to be filed by it through the date
hereof except where the failure to file such reports or returns could not
reasonably be expected to have a Material Adverse Effect. Each of the Tax
reports and returns filed by PTI and each Subsidiary correctly and accurately
reflects the amount of its Tax liability for such period and other required
information. There has not been any audit or other examination of any Tax return
filed by PTI or any Subsidiary and no audit or other examination of any Tax
return of PTI or any Subsidiary is in progress and neither PTI nor any
Subsidiary has been notified in writing by any Tax authority that any such audit
or other examination is contemplated or pending. Other than extensions to
September 15 with respect to the filing of federal tax returns, no extension of
time with respect to any date on which a Tax return was or is to be filed by PTI
is in force, and no waiver or agreement by PTI is in force for the extension of
time for the assessment or payment of any Tax. No claim has been made by an
authority in a jurisdiction where PTI or any Subsidiary does not file reports or
returns that PTI or any Subsidiary is or may be subject to taxation by that
jurisdiction. There are no encumbrances on any of the assets of PTI or any
Subsidiary that arose in connection with any failure (or alleged failure) to pay
any Taxes. Neither PTI nor any Subsidiary has any liability for the taxes of any
other person under any provision of state, local or foreign law, as a transferee
or successor, by contract, including any tax sharing agreement, or otherwise.
2.11 Compliance with Laws.
2.11.1 None of PTI, its ERISA Affiliates or the Plans, each as
defined in Section 2.20, are in violation in any material respect of any order,
judgment, injunction, award or decree, or any federal, state, local or foreign
law, ordinance or regulation or any other requirement of any governmental or
regulatory body, court or arbitrator, and each of them is in compliance in all
material respects with all of the foregoing that are applicable to it, its
business or its assets, except where any such violation or failure to comply
could not reasonably be expected to have a Material Adverse Effect. None of PTI,
its ERISA Affiliates or the Plans have received notice of, and there has not
been any citation, fine or penalty imposed or asserted in writing against any of
them for, any such violation or alleged violation that has not been fully
resolved.
2.11.2 Set forth in Section 2.11 of the PTI Disclosure Schedule is a
correct and complete list of all of the licenses, permits, certificates,
franchises, orders or approvals of any federal, state, local or foreign
governmental or regulatory body, that are material to the conduct of PTI's
business and the uses of its assets (collectively, "Permits"). Correct and
complete copies of such Permits have been delivered or made available by PTI to
SWI. PTI holds all Permits necessary to operate its business as presently
conducted except where failure to hold such Permits could not reasonably be
expected to have a Material Adverse Effect. Such Permits are in full force and
effect and the validity and effectiveness of such Permits will not be affected
by the transactions contemplated hereby. No violations are or have been recorded
with any governmental or regulatory body in respect of any Permit, no proceeding
is pending or, to the best knowledge of PTI, threatened to revoke or limit any
Permit, and PTI knows of no grounds for any such revocation or limitation.
2.12 Consents; No Breach. All consents, permits, authorizations, filings,
notices and approvals from any person or entity that are required pursuant to
applicable law, or any instrument, contract or other agreement required to be
disclosed by PTI pursuant to this Agreement to which PTI is a party or to which
PTI, any Subsidiary or PTI Asia or any of their assets or properties is bound or
subject or otherwise in connection with the execution, delivery and performance
of this Agreement by PTI are set forth in Section 2.12 of the PTI Disclosure
Schedule. Subject to any prior approval requirements set forth in Section 2.12
of the PTI Disclosure Schedule, the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
(i) violate any provision of the Certificate of Incorporation or By-laws of PTI;
(ii) violate, conflict with or result in the breach of any of the terms or
conditions of, result in a material modification of, or otherwise give any other
contracting party the right to terminate, or constitute (or with notice or lapse
of time or both constitute) a default under, any instrument, contract or other
agreement required to be disclosed by PTI pursuant to this Agreement to which
PTI is a party or to which PTI, any Subsidiary or PTI Asia or any of their
assets or properties is bound or subject; (iii) violate any statute, law or
regulation of any jurisdiction or any order, judgment, injunction, award or
decree of any court, arbitrator or governmental or regulatory body applicable to
or binding upon PTI, any Subsidiary or PTI Asia or their securities, properties,
assets or business; (iv) violate any Permit; (v) require any filing with, notice
to, or approval or consent of any foreign, federal, state, local or other
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governmental or regulatory body or any other person or entity; (vi) result in
the creation of any encumbrance on the assets or properties of PTI; or (vii)
give rise to any obligation to make any payment; in each case except where such
violation, encumbrance or obligation could not reasonably be expected, alone or
in the aggregate, to cause a Material Adverse Effect.
2.13 Actions and Proceedings. There are no outstanding orders, judgments,
injunctions, awards or decrees of any court, governmental or regulatory body or
arbitration tribunal against or involving PTI or any PTI Affiliate or any of
their securities, assets, or properties. There are no actions, suits or claims
or legal, judicial, administrative or arbitral proceedings or investigations
(whether or not the defense thereof or liabilities in respect thereof are
covered by insurance) pending or, to the best knowledge of PTI, threatened
against or involving PTI or any PTI Affiliate or any of their securities, assets
or properties.
2.14 Contracts and Other Agreements. Section 2.14 of the PTI Disclosure
Schedule sets forth a correct and complete list all of the following contracts
and other agreements to which PTI, any Subsidiary or PTI Asia is a party or by
or to which it or its assets or properties are bound or subject (but not
including any Agreements to which other PTI Affiliates may be a party to or
bound by unless PTI, any Subsidiary or PTI Asia is also a party or bound):
(a) contracts and other agreements with or for the benefit of any
current or former officer, director, shareholder, employee, consultant, agent or
other representative of PTI or any PTI Affiliate, and contracts and other
agreements for the payment of fees or other consideration to any entity in which
PTI or any PTI Affiliate has an interest;
(b) contracts and other agreements with any labor union or
association representing any employee of PTI or any PTI Affiliate or otherwise
providing for any form of collective bargaining;
(c) contracts and other agreements for the purchase or sale of
materials, supplies, equipment, merchandise or services that contain an
escalation, renegotiation or redetermination clause or that obligate PTI or any
PTI Affiliate to purchase all or substantially all of its requirements of a
particular product from a supplier, or for periodic minimum purchases of a
particular product from a supplier;
(d) contracts and other agreements for the sale of any of the assets
or properties of PTI or any PTI Affiliate other than in the ordinary course of
business or for the grant to any person of any options, rights of first refusal,
or preferential or similar rights to purchase any of such assets or properties;
(e) partnership or joint venture agreements (excluding one-time
contracts where PTI works with other vendors to provide necessary products or
services to a customer);
(f) contracts with agents or foreign representatives regarding the
sales or distribution of products or services of PTI or any PTI Affiliate;
(g) contracts or other agreements under which PTI or any PTI
Affiliate agrees to act as surety or guarantor for or to indemnify any party or,
except for real estate leases, to share the tax liability of any party;
(h) contracts, options, outstanding purchase orders and other
agreements for the purchase of any asset, tangible or intangible, other than for
the purchase of items for customers or purchases less than $25,000 in the
ordinary course of business;
(i) contracts and other agreements having an aggregate value of not
less than $250,000 that cannot by their terms be canceled by PTI or any PTI
Affiliate and any successor or assignee of PTI or any PTI Affiliate without
liability, premium or penalty on no less than thirty (30) days notice;
(j) contracts and other agreements with customers, suppliers or
other parties for the
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sharing of fees, the rebating of charges or other similar arrangements;
(k) contracts and other agreements containing obligations or
liabilities of any kind to holders of the securities of PTI or any PTI Affiliate
as such (including, without limitation, an obligation to register any of such
securities under any federal or state securities laws);
(l) contracts and other agreements containing covenants of PTI or
any PTI Affiliate not to compete in any line of business or with any person or
entity or covenants of any other person or entity not to compete with PTI or any
PTI Affiliate in any line of business, it being understood that this Section
2.14(l) shall not include confidentiality or secrecy agreements which do not
incorporate any covenant not to compete;
(m) contracts and other agreements relating to the acquisition by
PTI or any PTI Affiliate of any operating business or the capital stock of any
other person or entity;
(n) contracts and other agreements requiring the payment to any
party of a brokerage or sales commission or a finder's or referral fee;
(o) contracts, indentures, mortgages, promissory notes, debentures
loan agreements, guaranties, security agreements, pledge agreements, and other
agreements and instruments relating to the borrowing or lending of money or
securing any such liability;
(p) any agreement or series of related agreements requiring
aggregate payments by or to PTI or any PTI Affiliate of more than $25,000 on or
after December 31, 1997;
(q) contracts under which PTI or any PTI Affiliate will acquire or
has acquired ownership of, or license to, intangible property, including
software but excluding pre-packaged, "off-the-shelf" software; and
(r) any other material contract or other agreement whether or not
made in the ordinary course of business that has or would be reasonably expected
to have a material effect on business or prospects, condition, financial or
otherwise, of PTI or any PTI Affiliate, taken as a whole, or any of the assets
or properties of PTI or any PTI Affiliate.
There have been delivered or made available to SWI true and complete
copies of all of the contracts and other agreements (and all amendments, waivers
or other modifications thereto) set forth in Section 2.14 of the PTI Disclosure
Schedule. All of such contracts and other agreements are valid, subsisting, in
full force and effect, binding upon PTI and each Subsidiary and PTI Asia, as
applicable, and to the best knowledge of PTI, binding upon the other parties
thereto in accordance with their terms, neither PTI nor any Subsidiary nor PTI
Asia is in default under any of them, nor, to the best knowledge of PTI, is any
other party to any such contract or other agreement in default thereunder, nor
does any condition exist that constitutes or with notice or lapse of time or
both would constitute a default thereunder, except where any defect,
unenforceability, default or condition which could cause a default would not,
either singly or in the aggregate, reasonably be expected to cause a Material
Adverse Effect.
2.15 Real Property; Leases. Neither PTI nor any PTI Affiliate owns any
real property or any buildings or other structures or has any option or any
contractual obligation to purchase or acquire any interest in real property
except as set forth in Section 2.15 of the PTI Disclosure Schedule. Section 2.15
of the PTI Disclosure Schedule sets forth a correct and complete list of all
leases of real property to which PTI is a party (collectively, the "Leases").
True, correct and complete copies of the leases and all amendments,
modifications and supplemental agreements thereto have been delivered or made
available by PTI to SWI. The Leases are in full force and effect and to the best
knowledge of PTI, are binding and enforceable against each of the parties
thereto in accordance with their respective terms. To the best knowledge of PTI
no party to any Lease has given notice to any other party thereto claiming the
existence or occurrence of a breach or default thereunder and no condition
exists which constitutes, or with the passage of time or the giving of notice
would constitute, a breach or default thereunder, except where any default or
condition which could cause a default could not either singly or in
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the aggregate, reasonably be expected to cause a Material Adverse Effect upon
the business or financial condition of PTI.
2.16 Tangible Property. Set forth in Section 2.16 of the PTI Disclosure
Schedule is a correct and complete list reasonably describing the plant,
machinery, equipment, furniture, leasehold improvements, fixtures, vehicles,
structures, any related capitalized items and other tangible property material
to the business of PTI ("Tangible Property"). All such Tangible Property
presently used by PTI in connection with its business is in sufficient operating
condition and repair for its present and intended use, ordinary wear and tear
excepted, and to the best knowledge of PTI, PTI has not received notice that any
of its Tangible Property is in violation of any existing law or any building,
zoning, health, safety or other ordinance, code or regulation.
2.17 Intellectual Property. PTI owns or is licensed to use, or otherwise
has the unrestricted right to use all patents, trademarks, service marks, trade
names, logos, franchises, and copyrights, and all applications for any of the
foregoing, and all technology, inventions, trade secrets, know-how, computer
software and processes material to the conduct of its business as now conducted
(collectively, the "Proprietary Rights"). A correct and complete list of all
such Proprietary Rights, except for know-how, inventions, trade secrets,
technology and processes, and all applications therefor has been provided by PTI
to SWI. PTI does not have actual knowledge based on written notice of any claim
by any third party that the business of PTI as currently conducted infringes
upon the proprietary rights of others, nor has PTI received any notice or claim
from any third party of such infringement. PTI does not have actual knowledge of
any infringement by any third party on, or any competing claim of right to use
or own any of, the Proprietary Rights. PTI has the right to use, without
infringing the rights of others, all customer lists and, to the best of PTI's
knowledge, third party computer software material to the conduct of its
business.
2.18 Title to Assets; Liens. PTI owns outright, leases or rents, and has
good title to all of its material assets and properties, including, without
limitation, all of the assets and properties reflected on the balance sheet
included in the Current Financial Statements (and, when delivered, the balance
sheet included in the Updated Financial Statements), free and clear of any
encumbrance, except for (i) non-material assets and properties disposed of in
the ordinary course of business, (ii) liens or other encumbrances securing the
claims of materialmen, carriers, landlords and like persons, all of which are
not yet due and payable, (iii) liens for taxes not yet due and payable or for
taxes being contested in good faith by appropriate proceedings, or (iv)
encumbrances reflected on the balance sheet included in the Current Financial
Statements and, when delivered, the balance sheets included in the Updated
Financial Statements.
2.19 Customers. Section 2.19 of the PTI Disclosure Schedule sets forth the
names and addresses of PTI's ten (10) largest customers during 1995, 1996 and
1997 based on billings (collectively, the "Customers") and the ten (10) largest
executory contracts based on the total contract amounts, and PTI has provided
SWI with correct and complete copies or descriptions of such contracts. The
relationships of PTI with its current Customers are generally good commercial
working relationships. Except at the request of PTI, no Customer of PTI has
canceled or otherwise terminated or notified PTI in writing of its intention to
cancel or otherwise terminate its relationship with PTI during the prior three
years.
2.20 Employee Benefit Plans. Section 2.20 of the PTI Disclosure Schedule
sets forth a correct and complete list of all pension, profit sharing,
retirement, deferred compensation, welfare, insurance, disability, bonus,
vacation pay, severance pay and similar plans, programs or arrangements,
including without limitation all employee benefit plans as defined in Section 3
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")
with respect to which PTI is the "Plan Sponsor" within the meaning of Section
3(16)(b) of ERISA, or in which PTI participates (the "Plans") copies of which
have been previously furnished by PTI to SW. PTI has never maintained or
contributed to any "multiemployer plan" as defined in Section 4001(a)(3) of
ERISA, and PTI has not incurred any material liability under Sections 4062, 4063
or 4201 of ERISA. Each Plan which is intended to be qualified under either
Section 401(a) or 501(c)(9) of the Internal Revenue Code of 1986, as amended
(the "Code") is so qualified and has received a favorable determination letter
from the Internal Revenue Service. Each Plan has been administered in all
material respects in accordance with the terms of such Plan and the provisions
of any and all statutes, orders or governmental rules or regulations, including
without limitation
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<PAGE> 24
ERISA and the Code, and to the knowledge of PTI nothing has been done or omitted
to be done with respect to any Plan that would adversely affect the qualified
status of any plan intended to be qualified or result in any material liability
on the part of PTI including, without limitation, under Title I of ERISA or
Section 4975 of the Code. All reports, returns, notices and documents required
to be filed with respect to all Plans, including without limitation annual
reports on Form 5500, have been timely filed. No "reportable event" as defined
at Section 4043 of ERISA, other than any such event for which the thirty-day
notice period has been waived, has occurred with respect to any pension plan
subject to Title IV of ERISA, and no event has occurred requiring notices to be
provided under Section 4063(a) of ERISA. All contributions required by law or
the terms of any Plan have been made. With respect to all pension plans subject
to Title IV of ERISA, such plans have no unfunded benefit liabilities, all
contributions to such plans under the minimum funding requirements of Section
412 of the Code have been made and all premium payments to the Pension Benefit
Guaranty Corporation with respect to such plans have been made. All claims for
welfare benefits incurred by employees on or before the Closing are or will be
fully covered by third-party insurance policies or programs or, if not insured,
have been included, as appropriate, as liabilities on the balance sheets
included in the Updated Financial Statements. Except for continuation of health
coverage to the extent required under Section 4980B of the Code or as otherwise
set forth in this Agreement, there are no obligations under any Plan providing
benefits after termination of employment. Complete and correct copies of the
following documents with respect to each Plan (as applicable) have been
delivered to SW: (i) each relevant Plan document and subsequent amendment
thereto; (ii) each trust agreement, group annuity contract, insurance policy or
contract; (iii) each Form 5500 series annual report with each required schedule
and attachment for each of the three (3) most recent plan years; (iv) each
actuarial report for each of the three (3) most recent plan years; (v) each PBGC
Form 1 for each of the three (3) most recent plan years; (vi) the most recent
IRS determination letter; and (vii) the most recent summary plan description and
each summary of material modification thereto. For purposes of this Section
2.20, references to PTI include PTI and its ERISA Affiliates. An "ERISA
Affiliate" of PTI means any trade or business (whether or not incorporated) that
together with PTI would have been deemed a "single employer" within the meaning
of Section 4001(b) of ERISA or Section 414(m) of the Code at any time within the
five-year period ending on the Closing Date.
2.21 Employee Relations. PTI has approximately 120 full-time equivalent
employees and generally enjoys good employer-employee relations. None of PTI's
employees are represented by any labor union. PTI is not delinquent in payments
to any of its employees or consultants for any wages, salaries, commissions,
bonuses or other direct compensation for any services performed by them to the
date hereof or amounts required to be reimbursed to such employees or
consultants. Neither SWI, SW nor PTI will by reason of the Merger or anything
done prior to the Closing be liable to any PTI employees for severance pay or
any other payments (other than accrued salary, vacation or sick pay in
accordance with PTI's normal policies) in the event any such employees are
terminated. Correct and complete information as to all current directors,
officers, employees or consultants of PTI including, in each case, name, current
job title and annual rate of compensation has been provided by PTI to SWI.
2.22 Relationships with Affiliates. No officer or director of PTI has
directly or indirectly any interest in, (i) any property or assets of PTI or any
PTI Affiliate (except as a shareholder of PTI), (ii) any competitor or customer
of PTI or any PTI Affiliate, (iii) any supplier or lender to PTI or any PTI
Affiliate, or (iv) any party to any material contract or agreement with PTI or
any PTI Affiliate. For purposes of this Section, an "interest" shall mean being
an officer or director of an entity, owning 5% or more of the outstanding equity
interests of an entity or being a party to a contract with such entity.
2.23 Insurance. Section 2.23 of the PTI Disclosure Schedule sets forth a
correct and complete list of all policies or binders of fire, liability, product
liability, workmen's compensation, vehicular, directors' and officers' and other
insurance held by or on behalf of PTI specifying in each case the type and scope
of coverage, the amount of coverage, the premium, the insurer, the expiration
date and all claims made thereunder within the past three years. Such policies
and binders are in full force and effect, are reasonably believed to be adequate
for the businesses engaged in by PTI, are in conformity with the requirements of
all leases or other agreements to which PTI is a party and are valid and
enforceable in accordance with their terms. All premiums due under such policies
and binders have been paid, and PTI is not in default with respect to any
provision contained in any such policy or binder nor has PTI failed to give any
notice or present any claim under any such policy or binder in due
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<PAGE> 25
and timely fashion where such failure could reasonably be expected to have a
Material Adverse Effect. There are no outstanding unpaid claims under any such
policy or binder. PTI has not received notice of cancellation or non-renewal of,
or any material amendment to, or any material increase in deductibles or
premiums under, any such policy or binder. Correct and complete copies of
certificates of insurance with respect to all such policies and binders have
been provided by PTI to SWI.
2.24 Banking Relationships. Section 2.24 of the PTI Disclosure Schedule
sets forth (i) a correct and complete list of each bank, or similar financial
institution in which PTI maintains an account or safety deposit box, including
the name, number and location of each such account or safety deposit box, the
name of each person authorized to draw on such account or have access to such
safety deposit box, and the nature and scope of such authority and (ii) a
description of all loan agreements, lines of credit, and other credit facilities
maintained by PTI or any Subsidiary with banks or similar financial
institutions.
2.25 Brokerage. No broker, finder, agent or similar intermediary has acted
on behalf of PTI in connection with this Agreement or the transactions
contemplated hereby, and there are no brokerage commissions, finders fees or
similar fees or commissions payable in connection therewith based on any
agreement, arrangement or understanding with, or any action taken by PTI.
2.26 Hazardous Materials. PTI has not generated, used or handled any
Hazardous Materials (as defined below), nor has PTI treated, stored or disposed
of any Hazardous Materials at any site owned or leased at any time by PTI or
shipped any Hazardous Materials for treatment, storage or disposal at any other
site or facility. No other person has generated, used, handled, stored or
disposed of any Hazardous Materials at any site owned or premises leased by PTI
at any time or at any site in which PTI presently holds a mortgage or similar
interest, nor has there been or is there threatened any release of any Hazardous
Materials on or at any such site or premises. PTI does not presently own, hold
any mortgage or similar interest in, operate, lease or use, nor has it owned,
operated, leased, or used any site on which underground storage tanks are or
were located. Neither PTI, nor any other party under the control of PTI and for
whose conduct PTI may be responsible, has received any communication, written
or, to the knowledge of PTI, oral, from any party or governmental authority of
any actual or potential liability or obligation with respect to Hazardous
Materials. No lien has been imposed by any governmental agency on any property,
facility, machinery, or equipment owned, operated, leased or used by PTI or in
which PTI holds any mortgage, lien, or similar interest in connection with the
presence of any Hazardous Materials. For purposes of this Section 2.26,
"Hazardous Materials" shall mean and include any "hazardous waste" as defined in
either the United States Resource Conservation and Recovery Act or regulations
adopted pursuant to said Act, and also any "hazardous substances" or "hazardous
materials" as defined in the United States Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. ss.9601 et. seq., or "oil" as the term
is defined in the Oil Pollution Act of 1990, 33 U.S.C. ss.2701 et. seq. PTI has
provided to SWI copies of all documents, records and information in the
possession of or under the control of PTI concerning any environmental or health
and safety matter relevant to PTI, whether generated by PTI or others,
including, without limitation, environmental audits, environmental risk
assessments, site assessments, documentation regarding off-site disposal of
Hazardous Materials, spill control plans, and reports, correspondence, permits,
licenses, approvals, consents and other authorizations related to environmental
or health and safety matters issued by any governmental agency.
2.27 Year 2000. There are no modifications required to any of PTI's
computer hardware products or to any software products licensed by PTI or to any
third-party software products licensed to PTI and embedded in or licensed with
PTI software products (including any firmware associated with PTI's hardware
products) in order for such systems or software to contain no deficiencies
relating generally to formatting for entering dates (commonly referred to and
referred to herein as the "Year 2000 Problem"), except where any modifications
or deficiencies relating to a Year 2000 Problem would not, taken alone or in the
aggregate with any other such deficiency or modification, have a Material
Adverse Effect on PTI. The provisions of this Section 2.27 shall not apply to
any computers, peripherals and generally available commercial software products
purchased or licensed by PTI for internal use in the ordinary course of business
and not offered by PTI for resale or licensing to third parties.
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<PAGE> 26
2.28 Full Disclosure. All documents and other papers set forth on the PTI
Disclosure Schedule which are delivered by or on behalf of PTI in connection
with this Agreement and the transactions contemplated hereby are true, complete
and authentic. No representation, warranty or statement of PTI made in this
Agreement or in any Exhibit or the PTI Disclosure Schedule hereto or certificate
furnished to SWI or SW pursuant to this Agreement contains any untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements made, in light of the circumstance
under which they were made, not false or misleading.
2.29 Statements; Proxy Statement/Prospectus. The information to be
supplied by PTI for inclusion in the Registration Statement to be filed to
Section 5.7 shall not at the time the Registration Statement is filed with the
SEC and at the time it becomes effective under the Securities Act, 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 therein, in
light of the circumstances under which they were made, not misleading. The
information supplied by PTI for inclusion in the Proxy Statement to be sent to
the stockholders of PTI in connection with the meeting of PTI's stockholders to
consider the adoption of this Agreement and approval of the Merger (the "PTI
Stockholders' Meeting") shall not, on the date the Proxy Statement is first
mailed to PTI's stockholders and at the time of the PTI Stockholders' Meeting,
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
therein, in light of the circumstances under which they are made, not false or
misleading; or omit to state any material fact necessary to correct any
statement in any earlier written communication with respect to the solicitation
of proxies for the PTI Stockholders' Meeting which has become false or
misleading. If at any time prior to the Effective time, any event relating to
PTI or any of its affiliates, officers or directors should be discovered by PTI
which should be set forth in an amendment to the Registration Statement or a
supplement to the Proxy Statement, PTI shall promptly inform SWI.
Notwithstanding the foregoing, PTI makes no representation or warranty with
respect to any information supplied by SWI or SWAC that is contained in any of
the foregoing documents.
SECTION 3 - REPRESENTATIONS AND WARRANTIES OF THE PRINCIPAL SHAREHOLDERS
Except as set forth on the disclosure schedule delivered to SWI and SW on
the date hereof (the "Shareholder Disclosure Schedule"), the section numbers of
which are numbered to correspond to the section numbers of this Agreement to
which they refer, each of Lionel O. Barthold, Steven J. Balser and Ian S. Grant
(collectively, the "Principal Shareholders"), severally, represents and warrants
to SWI as to himself only as follows:
3.1 Authority to Execute and Perform Agreements. Each Principal
Shareholder has the full legal right and power and all authority and approvals
required to enter into, execute and deliver this Agreement and the Affiliate
Letter and to perform fully his respective obligations hereunder and thereunder.
This Agreement has been duly executed and delivered and is the valid and binding
obligation of each Principal Shareholder enforceable in accordance with its
terms and when executed and delivered pursuant hereto, the Affiliate Letter will
be the valid and binding obligation of each Principal Shareholder enforceable in
accordance with its terms, except in each case as such enforceability may be
limited by the application of general principles of equity or by the effect of
bankruptcy, insolvency, reorganization, moratorium or similar laws generally
affecting creditors' rights.
3.2 No Breach. The execution, delivery and performance of this Agreement
and the Affiliate Letter and the consummation of the transactions contemplated
hereby and thereby will not (i) violate any order, judgment, injunction, award
or decree of any court, arbitrator or governmental or regulatory body against,
or binding upon, the Principal Shareholder or upon the securities, properties or
assets of the Principal Shareholder; (ii) violate any statute, law or regulation
of any jurisdiction as such statute, law or regulation relates to the Principal
Shareholder; or (iii) require the approval or consent of any foreign, federal,
state, local or other governmental or regulatory body or the approval or consent
of any other person with respect to the Principal Shareholder.
3.3 Title to Shares. Each Principal Shareholder owns beneficially and of
record, free and clear of
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<PAGE> 27
any lien, claim or encumbrance, the shares of PTI Stock set forth opposite such
shareholder's name on Section 2.2 of the PTI Disclosure Schedule. There are no
shareholder agreements, voting trusts, proxies or other agreements or
understandings with respect to the outstanding shares of capital stock of PTI to
which any Principal Shareholder is a party.
3.4 Accuracy of PTI Representations and Warranties. To the knowledge of
each Principal Shareholder, the representations and warranties of PTI contained
herein, as modified by the PTI Disclosure Schedule, do not contain any untrue
statement of a material fact and, when taken together, do not omit to state any
material fact necessary to make such representations, warranties and statements,
in light of the circumstances under which they are made, not misleading. For
purposes of this Section 3.4, the knowledge of a Principal Shareholder shall
mean and be limited to the actual knowledge of that Principal Shareholder of
facts that could reasonably be expected to give rise to a breach of the
representation and warranty made by such Principal Shareholder in this Section
3.4.
SECTION 4 - REPRESENTATIONS AND WARRANTIES OF SWI
Except as set forth on the disclosure schedule delivered to PTI on the
date hereof (the "SWI Disclosure Schedule"), the section numbers of which are
numbered to correspond to the section numbers of this Agreement to which they
refer, SWI, SW and SWAC, jointly and severally, hereby make the following
representations and warranties:
4.1 Organization. Each of SWI, SW and SWAC is a corporation duly
organized, validly existing and in good standing under the laws of its state of
incorporation with full corporate power and authority to own, lease and operate
its assets and to carry on its business as now being and as heretofore
conducted.
4.2 Authority to Execute and Perform Agreement. SWI, SW and SWAC have the
corporate power and authority to enter into, execute and deliver this Agreement,
each agreement, document and instrument required to be executed by SWI, SW or
SWAC pursuant to this Agreement (the "SWI Closing Documents") to which any is a
party, to consummate the transactions contemplated hereby and thereby and to
perform fully its respective obligations hereunder and thereunder. The
execution, delivery and performance of this Agreement and each of the SWI
Closing Documents and the consummation of the transactions contemplated hereby
and thereby have been duly authorized by all necessary corporate action on the
part SW and SWAC and, subject to the ratification of this Agreement by the Board
of Directors of SWI, will be duly authorized by all necessary corporate action
on the part of SWI. This Agreement and each of the SWI Closing Documents has
been duly executed and delivered by SW and SWAC, as applicable, and constitutes
a valid and binding obligation of SW and SWAC, as applicable, and, subject to
the ratification of this Agreement by the Board of Directors of SWI, will
constitute a valid and binding obligation of SWI, enforceable in accordance with
its terms, except as such enforceability may be limited by the application of
general principles of equity or by the effect of bankruptcy, insolvency,
reorganization, moratorium or similar laws generally affecting creditors'
rights.
4.3 Capitalization. SWI is authorized to issue 40,000,000 shares of SWI
Common Stock, of which 12,822,513 shares were issued and outstanding as of
December 31, 1997, and 2,000,000 shares of preferred stock, no par value ("SWI
Preferred Stock"), issuable in series, none of which are outstanding. Except as
set forth in the SWI Disclosure Schedule, no other capital stock of SWI was
authorized or outstanding at December 31, 1997. As of December 31, 1997, except
as set forth in the SWI Disclosure Schedule, (i) no subscription, warrant,
option, preemptive right, convertible security or other right (contingent or
otherwise) to purchase or acquire any shares of capital stock or other security
of SWI is authorized or outstanding, (ii) there is no commitment or offer by SWI
to issue or provide any such subscription, warrant, option, preemptive right,
convertible security or other right or to issue or distribute to holders of any
shares of its capital stock any evidences of indebtedness or assets of SWI,
(iii) SWI has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any shares of its capital stock or any interest therein or to
pay any dividend or make any other distribution in respect thereof, (iv) there
are no restrictions on the transfer of SWI's capital stock other than those
arising from securities laws, and (v) there are no voting trusts, proxies or
other agreements,
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<PAGE> 28
instruments or understandings with respect to outstanding shares of SWI's
capital stock to which SWI is a party. The shares of SWI Common Stock issuable
as Merger Consideration will be duly authorized, validly issued, fully paid, and
nonassessable and will be issued in compliance with all charter documents of SWI
and all applicable federal and state laws.
4.4 SEC Reports. SWI has previously delivered to PTI all of the following
materials related to SWI (i) Annual Report on Form 10-K for the year ended
December 31, 1997 (the "SWI 10-K"), as filed with the Securities and Exchange
Commission ("SEC"), (ii) all proxy statements relating to SWI's meetings of
shareholders held since December 31, 1994 and (iii) all other periodic and
current reports filed by SWI with the SEC under the Securities Exchange Act of
1934 (the "Exchange Act") since December 31, 1994. As of their respective dates,
such reports complied in all material respects with applicable SEC requirements
and did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. SWI has timely filed with the SEC all reports required to be filed
under Sections 13, 14 or 15(d) of the Exchange Act since December 31, 1994.
4.5 Financial Statements. The consolidated financial statements contained
in the SWI 10-K have been prepared from, and are in accordance with, the books
and records of SWI, are correct and complete in all material respects, and
present fairly, in all material respects, the consolidated financial condition
and results of operations of SWI and its subsidiaries as of and for the periods
presented therein, all in conformity with generally accepted accounting
principles applied on a consistent basis, except as otherwise noted therein.
4.6 No Material Adverse Change. Since December 31, 1997, except as
disclosed in the SWI 10-K, there has not been any material adverse change in the
assets, liabilities, condition (financial or otherwise) results of operations,
business, or, to the knowledge of SWI, prospects of SWI and its subsidiaries,
except for such changes arising as a result of circumstances affecting generally
companies operating in SWI's industry, nor has there been any occurrence or
circumstance which reasonably could be expected to result in a material adverse
effect on the business or financial condition of SWI and its subsidiaries taken
as a whole.
4.7 Actions and Proceedings. Except as set forth in the SWI 10-K, there
are no actions, suits or claims or legal, judicial, administrative or
arbitration proceedings or investigations, (whether or not covered by insurance)
pending or, to the best knowledge of SWI, threatened against SWI or any other
corporation or legal entity of which SWI owns, directly or indirectly, 50% or
more of the stock or other equity interest entitled to vote for the election of
directors that individually or in the aggregate would have a material adverse
effect upon the transactions contemplated hereby or the business or financial
condition of SWI. To the best knowledge of SWI, there is no fact, event or
circumstance now in existence that reasonably could be expected to give rise to
any suit, action, claim, investigation or proceeding that individually or in the
aggregate would have a material adverse effect upon the transactions
contemplated hereby or the business or financial condition of SWI.
4.8 No Breach. Except for (a) the filing of a premerger notification form
pursuant to the HSR Act (b) the filing of the Merger Documents with the
Secretary of State of New York and with the Secretary of State of Delaware (c)
filings with various state blue sky authorities, (d) the filing with the New
York Stock Exchange of one or more applications for listing of the shares of SWI
Common Stock to be issued in the Merger, (e) the filing with the SEC and
becoming effective of one or more Registration Statements on Form S-4 (and the
filing and becoming effective of any required post-effective amendments thereto)
to register the shares of SWI Common Stock to be issued in the Merger and (f)
the ratification of this Agreement by the Board of Directors of SWI, the
execution, delivery and performance of this Agreement by SWI, SW and SWAC and
the Escrow Agreement by SWI and consummation by such parties of the transactions
contemplated hereby and thereby will not (i) violate any provision of the
Certificate of Incorporation or Bylaws of SWI, SW or SWAC; (ii) violate,
conflict with or result in the breach of any of the terms or conditions of,
result in modification of the effect of, or otherwise give any other contracting
party the right to terminate, or constitute (or with notice or lapse of time or
both constitute) a default under, any instrument, contract or other agreement to
which SWI, SW or SWAC is party or to which any of them or any of their assets or
properties is bound or subject; (iii) violate any law, ordinance or regulation
or any order, judgment, injunction, decree or requirement of any court,
arbitrator or governmental or regulatory
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<PAGE> 29
body applicable to SWI, SW or SWAC or by which any of their assets, properties,
securities or business is bound; (iv) violate any permit; (v) require any filing
with, notice to, or permit, consent or approval of, any governmental or
regulatory body or (vi) result in the creation of any lien or other encumbrance
on the assets or properties of SWI, SW or SWAC, excluding from the foregoing
clauses (ii), (iii), (iv) and (v) any exceptions to the foregoing that, in the
aggregate, would not have a material adverse effect on the business or financial
condition of SWI, SW or SWAC consummate the transactions contemplated hereby.
4.9 Brokerage. No broker, finder, agent or similar intermediary has acted
on behalf of SWI in connection with this Agreement or the transactions
contemplated hereby, and there are no brokerage commissions, finders fees or
similar fees or commissions payable in connection therewith based on any
agreement, arrangement or understanding with, or any action taken by SWI.
4.10 Full Disclosure. All documents and other papers delivered by or on
behalf of SWI in connection with this Agreement and the transactions
contemplated hereby are true, complete and authentic. No representation,
warranty or statement of SWI made in this Agreement or in any Exhibit or the SWI
Disclosure Schedule hereto or in any document, statement or certificate
furnished to PTI pursuant to this Agreement contains any untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements made, in light of the circumstance under which
they were made, not false or misleading.
SECTION 5 - COVENANTS AND AGREEMENTS
The parties covenant and agree as follows:
5.1 Conduct of Business. Except with the prior written consent of SW and
except as otherwise contemplated herein, during the period from the date hereof
to the Closing Date, PTI shall observe the following covenants:
(a) Affirmative Covenants Pending Closing. PTI will, will cause all
Subsidiaries, and use commercially reasonable efforts to cause all other PTI
Affiliates to:
(i) Preservation of Personnel. Use reasonable efforts to
preserve intact their business organizations and keep available the services of
present employees, in each case in accordance with past practice, it being
understood that termination of employees with poor performance ratings shall not
constitute a violation of this covenant;
(ii) Insurance. Use reasonable efforts to keep in effect
casualty, general commercial liability, worker's compensation and other
insurance policies in coverage amounts not less than those in effect at the date
of this Agreement;
(iii) Preservation of the Business; Maintenance of Properties,
Contracts. Use reasonable efforts to preserve their businesses, advertise,
promote and market their services, keep their properties intact, preserve their
goodwill, and maintain all physical properties in good operating condition;
(iv) Intellectual Property Rights. Use reasonable efforts to
preserve and protect the Proprietary Rights; and
(v) Ordinary Course of Business. Operate their businesses
diligently and solely in the ordinary course.
(b) Negative Covenants Pending Closing. PTI will not, will cause any
Subsidiary not to and shall use commercially reasonable efforts to cause any
other PTI Affiliate not to:
(i) Disposition of Assets. Sell or transfer, or mortgage,
pledge or create or
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<PAGE> 30
permit to be created any lien or encumbrance on, any of their assets, other than
(i) sales or transfers in the ordinary course of business and liens or
encumbrances existing under arrangements disclosed herein or permitted under
Section 2.14 and (ii) the disposition by PTI of the shares of Hydropower
Technologies, Inc. held by PTI on terms no less favorable to PTI than those
previously described to SWI as the basis on which PTI contemplates disposing of
such shares;
(ii) Liabilities. (A) Incur any obligation or liability other
than in the ordinary course of PTI's or the PTI Affiliates' business, (B) incur
any indebtedness for borrowed money other than under existing credit facilities
or (C) enter into any contracts or commitments involving payments by PTI or the
PTI Affiliates of $50,000 or more, other than purchase orders or commitments for
inventory materials, supplies and items for customers in the ordinary course of
business;
(iii) Compensation. (A) Change the compensation or fringe
benefits of any officer, director, employee or consultant, except for ordinary
merit increases for employees (other than officers) based on periodic reviews in
accordance with past practices, or (B) enter into or modify any Plan or any
employment, severance or other agreement with any officer, director, employee or
consultant of PTI or any PTI Affiliate; provided, however, that this Section
5.1(b)(iii) shall not preclude the termination by PTI of its Termination Bonus
Plan and payment by PTI of benefits under such plan which were accrued as of the
date of and reflected in the Audited Financial Statements;
(iv) Capital Stock. (A) Grant or accelerate the exercisability
of, any option, warrant or other right to purchase, or to convert any obligation
into, shares of its capital stock, except that PTI may accelerate the
exercisability of options to purchase Common Stock of PTI issued to certain PTI
employees and outstanding on the date hereof, (B) declare or pay any dividend or
other distribution with respect to any shares of its capital stock or (C) issue
any shares of its capital stock, except (i) upon the exercise of options
outstanding on the date hereof or as contemplated by the PTI Disclosure Schedule
or (ii) in exchange for shares of PTI's Class C Common Stock surrendered in
exchange for shares of Class A Common Stock upon the termination of the PTI
Employee Stock Ownership Plan;
(v) Charter and Bylaws. Amend the charter or Bylaws of PTI or
any PTI Affiliate, other than (A) to add a provision to PTI's Certificate of
Incorporation to exculpate the directors of PTI for breaches of fiduciary duty
to the fullest extent permitted under New York law and to the extent consistent
with SWI's internal policies (B) to add a provision to PTI's By-laws providing
for indemnification of PTI's officers and directors to the fullest extent
permitted under New York law and to the extent consistent with SWI's internal
policies;
(vi) Acquisitions. Make any material acquisition of property
other than in the ordinary course of PTI's or the PTI Affiliates' business; or
(vii) License Agreements. Enter into or modify any license,
technology development or technology transfer agreement with any other person or
entity, (other than software license agreements between PTI and its customers in
the ordinary course of its business on PTI's standard form as previously
furnished to SW involving payments of less than $200,000).
5.2 Corporate Examinations and Investigations. Prior to the Effective
Time, SW shall be entitled, through its employees and representatives, to have
such access to the assets, properties, business, books, records and operations
of PTI and PTI Affiliates as SW shall reasonably request in connection with SW's
investigation of PTI and PTI Affiliates with respect to the transaction
contemplated hereby. Any such investigation and examination shall be conducted
at reasonable times and PTI shall cooperate fully therein. No investigation by
SW shall diminish or obviate any of the representations, warranties, covenants
or agreements of PTI or the Principal Shareholders contained in this Agreement.
Notwithstanding the foregoing, if on the Closing Date SW has actual, conscious
knowledge that any representation or warranty made by PTI or any Principal
Shareholder under this Agreement is false in any material respect and fails to
disclose such knowledge to PTI or such Principal Shareholder on or before the
Closing Date, then, unless PTI or such Principal Shareholder is also in
possession of
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such knowledge on or before the Closing Date, SWI shall be deemed to have waived
any breach by PTI or such Principal Shareholder arising out of such
representation or warranty being false in a material respect as of the Closing
Date. In order that SW may have full opportunity to make such investigation, PTI
shall furnish the representatives of SW during such period with all such
information and copies of such documents concerning the affairs of PTI and PTI
Affiliates as such representatives may reasonably request and cause its
officers, employees, consultants, agents, accountants and attorneys to cooperate
fully with such representatives in connection with such investigation. SWI and
SW shall also keep confidential and shall not use in any manner any information
or documents obtained from PTI or its representatives concerning PTI's assets,
properties, business and operations, unless readily ascertainable from public
information, already known or subsequently developed by SWI or SW independently,
received from a third party not under an obligation to keep such information
confidential or otherwise required by law. If this Agreement terminates, all
copies of any documents obtained from PTI or its representatives will be
returned, except that one copy thereof may be retained by counsel to the party
returning such documents in order to evidence compliance hereunder. The
obligations set forth in the previous two sentences of this Section 5.2 shall
survive the termination of this Agreement.
5.3 Expenses.
(a) Subject to Section 9.3, if the Merger is not consummated, each
of PTI and SWI shall bear its respective expenses incurred in connection with
this Agreement and the transactions contemplated hereby.
(b) Whether or not the Merger is consummated, each Principal
Shareholder shall bear his own expenses incurred in connection with this
Agreement and the transactions contemplated hereby.
5.4 Authorization from Others. Prior to the Closing Date, the parties
shall use all reasonable efforts to obtain all authorizations, consents and
permits required to permit the consummation of the transactions contemplated by
this Agreement, including without limitation all consents required from third
parties who have contractual relationships with PTI.
5.5 Consummation of Agreement. Each party shall use all reasonable efforts
to perform and fulfill all conditions and obligations to be performed and
fulfilled by it under this Agreement and to ensure that to the extent within its
control or capable of influence by it, no breach of any of the respective
representations, warranties and agreements hereunder occurs or exists on or
prior to the Effective Time, all to the end that the transactions contemplated
by this Agreement shall be fully carried out in a timely fashion.
5.6 Further Assurances. Each of the parties shall execute such documents,
further instruments of transfer and assignment and other papers and take such
further actions as may be reasonably required or desirable to carry out the
provisions hereof and the transactions contemplated hereby.
5.7 Securities Law Matters.
(a) The parties shall cooperate in the preparation and filing with
the SEC of a Registration Statement on Form S-4 (or any other such form required
by the SEC) (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act") covering the shares of SWI Common Stock
comprising the Initial Merger Consideration and such other components of the
Merger Consideration as SWI shall reasonably determine to be appropriate (the
"Registered Consideration") as soon as practicable following the date hereof and
will use all reasonable efforts to have such Registration Statement filed by May
29, 1998 and declared and maintained effective, as soon as practicable following
the date hereof. Prior to the Effective Time, SWI shall use all reasonable
efforts to qualify the shares of SWI Common Stock to be issued in the Merger
under the securities or "blue sky" laws of every state of the United States
necessary to offer and issue the Registered Consideration to the Participating
Holders at the Closing, except any such state with respect to which counsel for
SWI has determined that such qualification is not required under the securities
or "blue sky" laws of such state, and except that in no event shall SWI be
obligated to qualify as a foreign corporation or to execute a general consent to
service of process in any state in which it has not previously so qualified or
has not previously so consented.
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(b) If any Contingent Merger Consideration is required to be
distributed pursuant to Section 1.10 hereof, the parties shall cooperate in the
preparation and filing with the SEC, if necessary to effect their registration
under the Securities Act, of a Registration Statement on Form S-4 (or any other
such form required by the SEC) or a post-effective amendment to a preexisting
Registration Statement on Form S-4 (each such Registration Statement or
post-effective amendment hereinafter referred to as a "Contingent Registration
Statement") covering the shares of SWI Common Stock comprising the Contingent
Merger Consideration and Additional Contingent Shares, if any, to be distributed
as soon as practicable following the date of the final determination of the
amount of the Contingent Merger Consideration pursuant to Section 1.10 and the
Additional Contingent Merger Consideration, if any, pursuant to Section 1.11,
and will use all reasonable efforts to have such Contingent Registration
Statement filed, if necessary, within sixty (60) days following such
determination and declared and maintained effective, as soon as practicable
following the date that such Contingent Registration Statement is filed. Prior
to the distribution of the Contingent Merger Consideration, SWI shall use all
reasonable efforts to qualify the shares of SWI Common Stock to be issued as
Contingent Merger Consideration and Additional Contingent Shares, if any, under
the securities or "blue sky" laws of every state of the United States necessary
to offer and issue the Contingent Merger Consideration and Additional Contingent
Shares, if any, to the Participating Holders, except any such state with respect
to which counsel for SWI has determined that such qualification is not required
under the securities or "blue sky" laws of such state, and except that in no
event shall SWI be obligated to qualify as a foreign corporation or to execute a
general consent to service of process in any state in which it has not
previously so qualified or has not previously so consented.
5.8 Listing of SWI Common Stock. SWI shall cause the shares of SWI Common
Stock constituting the Initial Merger Consideration and, when and if necessary,
the Contingent Merger Consideration and Additional Contingent Shares, if any, to
be approved for listing on the New York Stock Exchange upon notice of issuance.
5.9 Shareholder Meeting. PTI, acting through its Board of Directors,
shall, in accordance with applicable law and its charter and Bylaws:
(a) as soon as practicable after the date hereof (and after the
Prospectus from the Registration Statement is available for circulation) duly
hold a meeting of its shareholders for the purpose of considering and acting on
this Agreement or solicit written consents from its shareholders approving this
Agreement and obtaining any such other approval required under the NYBCL for the
consummation of the transactions contemplated hereby;
(b) subject to the duties of the Board of Directors under applicable
law as advised in writing by independent legal counsel, include in the Proxy
Statement or Information Statement to be delivered to the shareholders of PTI
soliciting their approval of this Agreement and the transactions contemplated
hereby (the "Proxy Statement") the recommendation of its Board of Directors that
shareholders of PTI vote in favor of the adoption of this Agreement; and
(c) use all reasonable efforts (A) to obtain and furnish the
information required to be included by it in the Proxy Statement, (B) to cause
the Proxy Statement to be mailed to its shareholders at the earliest practicable
time after the date hereof (and after the Prospectus from the Registration
Statement is available for circulation), and (C) to obtain the necessary
approvals by its shareholders of this Agreement, the Merger and the transactions
contemplated hereby.
5.10 Public Announcements and Confidentiality. Any press release or other
information to the press or any third party with respect to this Agreement or
the transactions contemplated hereby shall require the prior approval of SWI and
PTI, which approval shall not be unreasonably withheld, provided that a party
shall not be prevented from making such disclosure as it shall be advised by
counsel is required by law. PTI and the Principal Shareholders shall also keep
confidential and shall not use in any manner any information or documents
obtained from SWI, SW or their representatives concerning SWI's or SW's assets,
properties, business and operations, unless readily ascertainable from public
information, already known or subsequently developed by PTI or the Principal
Shareholders independently, received from a third party not under an obligation
to keep such information confidential or otherwise required by law. If this
Agreement terminates all copies of any documents
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obtained from SWI, SW or their representatives will be returned, except that one
copy thereof may be retained by counsel to the party returning such documents in
order to evidence compliance hereunder. The obligations set forth in the
previous two sentences of this Section 5.10 shall survive termination of this
Agreement.
5.11 Affiliate Letters. Prior to the Closing Date, PTI shall identify to
SWI all persons who, at the time of the vote of PTI's shareholders on the
Merger, PTI believes may be "affiliates" of PTI within the meaning of Rule 145
under the Securities Act. PTI shall use all reasonable efforts to provide SWI
with such information as SWI shall reasonably request for purposes of making its
own determination of persons who may be deemed to be affiliates of PTI. PTI
shall use all reasonable efforts to deliver to SWI prior to the Closing Date a
letter from each of the affiliates specified by SWI in substantially the form
attached hereto as Exhibit B (an "Affiliate Letter") and each Principal
Shareholder who is identified as an affiliate by PTI and SWI has delivered, or
agrees to deliver to SWI prior to the Closing Date, an Affiliate Letter.
5.12 No Solicitation. PTI and the Principal Shareholders will not (i)
solicit, initiate or encourage discussions with any person, other than SWI,
relating to the possible acquisition of PTI or all or a material portion of the
assets or capital stock of PTI or any merger or other business combination with
PTI or (ii) except to the extent reasonably required by fiduciary obligations
under applicable law as advised in writing by independent legal counsel,
participate in any negotiations regarding, or furnish to any other person
information with respect to, any effort or attempt by any other person to do or
to seek any such transaction. PTI and the Principal Shareholders agree to inform
SWI in reasonable detail within one business day of their receipt of any offer,
proposal or inquiry relating to any such transaction.
5.13 Filings Under HSR Act. As soon as practicable, each of SWI and PTI
shall file with the Federal Trade Commission (the "FTC") and the Antitrust
Division of the Department of Justice (the "Antitrust Division") a premerger
notification form and any supplemental information (other than privileged
information) which may be requested in connection therewith pursuant to the HSR
Act, which filings and supplemental information will comply in all material
respects with the requirements of the HSR Act. Each of PTI and SWI shall
cooperate fully with the other in connection with the preparation of such
filings and shall use best efforts to respond to any requests for supplemental
information from the FTC or the Antitrust Division and to obtain early
termination of any waiting period applicable to the Merger under the HSR Act.
Any and all filing fees required to be paid in connection with the premerger
notification pursuant to the HSR Act shall be borne and paid by SWI.
5.14 Voting of PTI Stock. Until this Agreement has been terminated under
Section 9.1, each Principal Shareholder and each of the other members of the
Board of Directors of PTI who are signatories to this Agreement agrees to vote
all shares of PTI Stock held by him or her in favor of the approval of this
Agreement and the transactions contemplated hereby and not to exercise any
dissenters rights he or she may have under Section 910 of the NYBCL. Each
Principal Shareholder and each of the other members of the Board of Directors of
PTI who are signatories to this Agreement hereby grants to SWI for a period
commencing on the date hereof and continuing so long as this Agreement is in
effect an irrevocable proxy, which is coupled with an interest, to vote such
shares of PTI Stock held by him or her to approve this Agreement and the
transaction contemplated hereby.
5.15 SWI SEC Filings. Until the Closing Date, SWI shall furnish PTI with a
copy of each periodic or current report filed by SWI under the Exchange Act
promptly after filing the same. All filings made by SWI after the date hereof
pursuant to the Exchange Act will be made in a timely fashion, will comply as to
form in all material respects with the applicable provisions of the Exchange Act
and the rules and regulations thereunder and will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading.
5.16 Benefits. Employees of PTI who continue to be employees of the
Surviving Corporation following the Merger shall receive the benefits described
in Exhibit C hereto, subject to any changes by SWI or SW in benefits made
generally available to employees of SWI or SW.
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5.17 Availability of Working Capital. SW shall, either directly or through
SWI or an affiliate of SWI, make available to the Surviving Corporation working
capital on the following terms: (i) working capital shall be available to the
Surviving Corporation in such amounts as shall be reasonably necessary for the
Surviving Corporation to conduct its business as contemplated by the PTI
Projections and bearing interest at a rate equal to the three month LIBOR plus
50 basis points, as published in The Wall Street Journal, such rate to be set at
the first day of each calendar quarter and applied to the balance outstanding
from time to time or at such other rate and on such other terms as SWI generally
makes capital available to its subsidiaries and (ii) amounts requested by the
Surviving Corporation in annual capital budget requests will be made available
to the Surviving Corporation at the discretion of SW and on such terms as SW
shall determine in its sole discretion.
5.18 Conduct of the Surviving Corporation. During the period from the
Closing Date until the end of the Contingent Period, SW and SWI shall cause the
Surviving Corporation to be operated as a separate entity and consistent with
the treatment of all other subsidiaries of SWI. SWI and SW shall use reasonable
commercial efforts and cooperate with the management and employees of the
Surviving Corporation to maximize the revenues and earnings of the Surviving
Corporation during the Contingent Period and to assist the Surviving Corporation
to exploit business opportunities and synergies presented by the operations of
SWI, SW and their affiliates. The President of the Surviving Corporation will
manage the Surviving Corporation substantially in the manner consistent with
past practice and in accordance with SWI required business practice.
Extraordinary matters, as well as capital expenditures and commitments not
provided in the annual budget previously reviewed and approved by the Board of
Directors of the Surviving Corporation would require approval of such Board of
Directors and SWI's Board of Directors, if necessary.
5.19 Indemnification of Directors and Officers. After the Effective Time,
the Surviving Corporation shall indemnify and hold harmless each former director
and officer of PTI with respect to actions taken or omitted to be taken prior to
the Effective Time, to the fullest extent permitted by New York law.
5.20 Compliance with Covenants. PTI and the Principal Shareholders shall
use reasonable best efforts to (i) ensure that PTI has performed and complied
with all covenants and agreements of PTI required to be performed or complied
with by PTI during the period from the date hereof through the Closing Date and
(ii) ensure that all representations and warranties of PTI continue to be true
and correct on and as of the Closing Date with the same force and effect as
though made on and as of the Closing Date.
5.21 Tax-Free Reorganization. Except as contemplated by Section 1.10(i),
none of the parties will knowingly take any action prior to the Closing Date
that would cause the Merger to fail to qualify as a reorganization within the
meaning of Section 368(a) of the Code. Each of the parties shall report the
Merger for income tax purposes as a reorganization within the meaning of Section
368(a) of the Code (and any comparable state or local tax statute). Each of SWI
and PTI shall execute and deliver a certificate, in forms satisfactory to the
counsel of both SWI and PTI, signed by officers of SWI and PTI, respectively,
setting forth factual representations and covenants that will serve as a basis
for the tax opinions required pursuant to Sections 7.12 and 8.4 of this
Agreement, and such representations shall survive the Closing.
5.22 Appointment Agreements. PTI shall use reasonable efforts to cause
each Participating Holder (other than the holders of PTI Stock which are
Dissenting Shares as of the Effective Time) to execute and deliver to PTI an
Appointment Agreement in a form reasonably acceptable to SWI naming a
representative of the Participating Holders (the "Shareholders'
Representative").
SECTION 6 - CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF EACH PARTY TO CONSUMMATE THE MERGER
The respective obligations of each party to consummate the Merger shall be
subject to the satisfaction or waiver, at or before the Effective Time, of each
of the following conditions:
6.1 Approvals. All required approvals of the shareholders of PTI and all
consents and approvals
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referred to in Sections 2.12, 3.2 and 4.8 of this Agreement or in the
corresponding sections of each party's Disclosure Schedule, shall have been
obtained; provided, however, that if SWI waives the obtaining of any consent
from a contracting party set forth in Section 2.12 or 3.2 of the PTI Disclosure
Schedule, such consent shall not be a condition to PTI's obligation to
consummate the Merger.
6.2 HSR Act. Any waiting period applicable to the Merger under the HSR Act
shall have expired or terminated.
6.3 Absence of Order. No restraining order or injunction of any court
which prevents consummation of the Merger shall be in effect.
6.4 New York Stock Exchange Listing. The shares of SWI Common Stock to be
issued in the Merger shall have been listed on the New York Stock Exchange.
6.5 Effectiveness of Registration Statement. The Registration Statement
shall have been declared effective by the SEC and there shall not be any stop
order in effect with respect to the Registration Statement.
SECTION 7 - CONDITIONS PRECEDENT TO THE OBLIGATION OF
SWI AND SWAC TO CONSUMMATE THE MERGER
The obligation of SWI and SWAC to consummate the Merger is subject to the
satisfaction or waiver by SWI, at or before the Effective Time, of the following
conditions:
7.1 Representations, Warranties and Covenants. The representations and
warranties of PTI and the Principal Shareholders contained in this Agreement
shall be true and correct in all material respects on and as of the Effective
Time with the same force and effect as though made on and as of the Effective
Time (with such exceptions as may be permitted under or contemplated by this
Agreement or the PTI Disclosure Schedule). PTI and the Principal Shareholders
shall have performed and complied in all material respects with all covenants
and agreements required by this Agreement to be performed or complied with by
them on or prior to the Effective Time. Each of PTI and the Principal
Shareholders shall have delivered to SWI a certificate, dated the Closing Date,
to the foregoing effect, as applicable.
7.2 Affiliate Letters. SWI shall have received the Affiliate Letters
referred to in Section 5.11.
7.3 Opinion of Counsel to PTI. SWI shall have received an opinion of
Nixon, Hargrave, Devans & Doyle LLP, counsel to PTI, dated the Closing Date and
in form and substance reasonably acceptable to SWI.
7.4 Merger Documents. PTI shall have executed and delivered the Merger
Documents referred to in Section 1.2.
7.5 Employment Agreements. SW (either through a subsidiary or through PTI)
shall have entered into an employment and non-competition agreement with each of
Steven Balser, Ian Grant, Gordon Hirschman, James V. Mitsche, John D. Mountford,
David J. Lawrence and Timothy G. Schmehl in form and substance reasonably
satisfactory to the parties thereto.
7.6 Continuation of Employees. SW shall have reached understandings
reasonably satisfactory to it with not fewer than seven (7) of the following key
employees of PTI to continue their respective employment with the Surviving
Corporation after the Closing Date, on terms acceptable to such individuals and
SW: Ricardo Austria, John Willis, Laurie Oppel, Lawrence Curran, Cheryl Warren,
Timothy Laskowski, Douglas Welsh, Joanne Starron, Phillip Barker and F.S.
Prabhakara.
7.7 Termination of PTI Money Purchase Pension Plan and Trust and 401(K)
Profit Sharing Plan. PTI shall have terminated the PTI Money Purchase Pension
Plan and Trust and the 401(k) Profit Sharing Plan of
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PTI.
7.8 Redemption of Shares of PTII Held by PTI. PTII shall have duly
redeemed all of its shares held by PTI.
7.9 Dissenting Shares. The Dissenting Shares of Common Stock shall not
exceed five percent (5%) of the shares of Common Stock issued and outstanding on
the Closing Date.
7.10 Escrow Agreement. The Escrow Agreement, substantially in the form
attached hereto as Exhibit A, shall have been executed and delivered by all
parties thereto.
7.11 Bank Accounts. PTI shall have delivered to SWI documentation
necessary to change the authorized signatories for PTI's bank and brokerage
accounts as specified by SWI.
7.12 Tax Opinion. SWI shall have received an opinion of Palmer & Dodge
LLP, counsel to SWI, dated the Closing Date, substantially to the effect that,
on the basis of the facts and representations set forth in such opinion, or set
forth in writing elsewhere and referred to therein, for federal income tax
purposes the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code. For purposes of such opinion, Palmer & Dodge LLP
shall assume that, with respect to corporate law matters, the provisions of the
NYBCL are identical to those of the DGCL and that, with respect to all other
matters, the provisions of the laws of the State of New York are identical to
those of the Commonwealth of Massachusetts.
7.13 Certificates. PTI shall have furnished SWI with such certificates of
public officials as may be reasonably requested by SWI.
7.14 Options. PTI shall have arranged for the surrender of any options to
purchase or acquire Common Stock of PTI outstanding on the date hereof which
have not been exercised prior to the Effective Time and shall have duly canceled
such options.
7.15 Ratification by SWI's Board of Directors. SWI's Board of Directors
shall have ratified the execution and delivery of this Agreement by SWI.
SECTION 8 - CONDITIONS PRECEDENT TO THE OBLIGATION OF
PTI AND THE PRINCIPAL SHAREHOLDERS TO CONSUMMATE THE
MERGER
The obligation of PTI and the Principal Shareholders to consummate the
Merger is subject to the satisfaction or waiver by them, at or before the
Effective Time, of the following conditions:
8.1 Representations, Warranties and Covenants. The representations and
warranties of SWI, SW and SWAC contained in this Agreement shall be true and
correct in all material respects on and as of the Effective Time with the same
force and effect as though made on and as of the Effective Time (with such
exceptions as may be permitted under or contemplated by this Agreement). SWI
shall have performed and complied in all material respects with all covenants
and agreements required by this Agreement to be performed or complied with by it
on or prior to the Effective Time. SWI shall have delivered to PTI a
certificate, dated the Effective Time, to the foregoing effect.
8.2 Opinion of Counsel to SWI. PTI and the Principal Stockholders shall
have received an opinion of Palmer & Dodge LLP, counsel to SWI, SW and SWAC
dated the Closing Date and in form and substance reasonably acceptable to PTI.
For purposes of such opinion, Palmer & Dodge LLP shall assume that with respect
to corporate law matters the provisions of the NYBCL are identical to those of
the DGCL and that with respect to all other matters the provisions of the laws
of the State of New York are identical to those of the Commonwealth of
Massachusetts; provided, however, that with regard to the opinions relating to
the legal authority of and due
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authorization of this Agreement by SW, Palmer & Dodge may rely exclusively on an
opinion as to such matters and in a form and substance satisfactory to PTI to be
issued by an attorney employed by SWI who is a member of the New York bar.
8.3 Escrow Agreement. The Escrow Agreement, substantially in the form
attached hereto as Exhibit A, shall have been executed and delivered by all
parties thereto.
8.4 Tax Opinion. PTI shall have received an opinion of Nixon, Hargrave,
Devans & Doyle LLP, counsel to PTI, addressed to PTI and its shareholders and
dated the Closing Date, substantially to the effect that, on the basis of facts
and representations set forth in such opinion, or set forth in writing elsewhere
and referred to therein, for federal income tax purposes the Merger will
constitute a reorganization within the meaning of Section 368(a) of the Code;
provided, however, that in the event that counsel is unable or unwilling to
deliver such opinion, then this condition shall be deemed satisfied if such
opinion is delivered by Palmer & Dodge LLP, in which case such opinion shall be
based on the same assumptions set forth in Section 7.12.
8.5 Certificates. SWI shall have furnished PTI with such certificates of
public officials as may be reasonably requested by PTI.
SECTION 9 - TERMINATION
9.1 Termination. This Agreement may be terminated at any time on or prior
to the Closing Date or the time specified in subsections (g), (h) and (i) below,
whether prior to or after approval by PTI's shareholders, as follows:
(a) by PTI or SWI if, without fault of the terminating party, the
Closing Date shall not have occurred on or before September 1, 1998, which date
may be extended by mutual consent of the parties;
(b) by PTI if any representation or warranty of SWI made herein was
not true and correct in all material respects when made or SWI has materially
breached any covenant contained herein and has not cured such breach within
thirty (30) business days of receipt of written notice from PTI or by the
Closing Date, whichever occurs first;
(c) by SWI if any representation or warranty made herein by PTI or a
Principal Shareholder was not true and correct in all material respects when
made or PTI or any Principal Shareholder has materially breached any covenant
contained herein and has not cured such breach within thirty (30) business days
of receipt of written notice from SWI or by the Closing Date, whichever occurs
first;
(d) by PTI or SWI if any court of competent jurisdiction or
governmental body shall have issued an order, decree or ruling or taken any
other action restraining, enjoining or otherwise prohibiting the Merger and such
order, decree or ruling shall have become final and nonappealable;
(e) by PTI or SWI if the PTI shareholders vote and fail to approve
the Merger as required by New York law (unless such shareholder vote shall not
be obtained at a time when PTI shall otherwise have a right to terminate this
Agreement pursuant to subsection (a), (b), (d) or (g) of this Section 9.1, in
which case PTI may terminate this Agreement under one of those subsections);
(f) by SWI if PTI's Board of Directors (i) fails to include in the
Proxy or Information Statement its recommendation that PTI shareholders vote in
favor of the adoption of this Agreement, (ii) withdraws its recommendation that
shareholders vote in favor (other than in connection with exercising PTI's
rights to terminate this Agreement pursuant to subsection (a), (b), (d) or (g)
of this Section 9.1) of the adoption of this Agreement or (iii) adopts
resolutions approving or otherwise authorizes an Acquisition Transaction (as
defined in Section 9.3) prior to termination of this Agreement;
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(g) by PTI, by 5:00 p.m. Boston time on the second business day
prior to the Closing Date, if the Closing Market Value is greater than $60.00;
provided that SWI may negate such termination by notifying PTI prior to 5:00
p.m. Boston time on the day prior to the Closing Date of its election to use
$60.00 as the Closing Market Value;
(h) by SWI, by 5:00 p.m. Boston time on the second business day
prior to the Closing Date, if the Closing Market Value is less than $35.00;
provided that PTI may negate such termination by notifying SWI prior to 5:00
p.m. Boston time on the day prior to the Closing Date of its election to use
$35.00 as the Closing Market Value; or
(i) by SWI, if the Updated PTI Disclosure Schedule reflects any
event, fact, circumstance or condition (i) which was in existence on or as of
the date hereof or which arose subsequent to the date hereof, (ii) which was not
reflected on the PTI Disclosure Schedule delivered on the date hereof, and (iii)
which represents a material adverse change in the business or financial
condition of PTI.
(j) at any time with the written consent of SWI and PTI.
9.2 Effect of Termination. If this Agreement is terminated as provided in
Section 9.1, this Agreement shall forthwith become void and have no effect,
without liability on the part of any party, its directors, officers or
shareholders, other than the provisions of this Section 9.2, Section 5.2
relating to confidentiality, Section 5.3 relating to expenses, Section 5.10
relating to publicity and confidentiality to the extent provided therein and
Section 9.3. Nothing contained in this Section 9.2 shall relieve any party from
liability for any breach of this Agreement occurring before such termination.
9.3 Termination Fee.
(a) In order to induce SWI to enter into this Agreement and to
reimburse SWI for its costs and expenses related to entering into this Agreement
and preparing for the consummation of the transactions contemplated by this
Agreement, PTI will make a cash payment to SWI of $300,000 if and only if:
(i) SWI or PTI has terminated this Agreement pursuant to
Section 9.1(e) and prior to such termination or within twelve (12) months
thereafter, (A) PTI or a Principal Shareholder shall have entered into an
agreement to engage in an Acquisition Transaction with any person other than SWI
or (B) the Board of Directors of PTI shall have approved an Acquisition
Transaction or recommended that shareholders of PTI approve or accept any
Acquisition Transaction with any person other than SWI;
(ii) SWI has terminated this Agreement pursuant to 9.1(c) as a
result of any material representation or warranty made herein by PTI or a
Principal Shareholder not being true and correct in all material respects when
made or PTI or any Principal Shareholder materially breaching any material
covenant contained herein and not curing such breach within thirty (30) business
days of receipt of written notice from SWI or by the Closing Date, whichever
occurs first; or
(iii) SWI has terminated this Agreement pursuant to Section
9.1(f) and prior to such termination or within twelve (12) months thereafter,
(A) PTI or a Principal Shareholder shall have entered into an agreement to
engage in an Acquisition Transaction (as defined in subsection (c) below) with
any person other than SWI or (B) the Board of Directors of PTI shall have
approved an Acquisition Transaction or recommended that shareholders of PTI
approve or accept any Acquisition Transaction with any person other than SWI.
(b) Any payment required by subsection (a) above will be payable by
wire transfer of immediately available funds to an account designated by SWI
five business days after demand therefor. Any such payment shall constitute
liquidated damages for loss of the benefit of this Agreement and full
reimbursement for the expenses incurred by SWI.
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(c) For purposes of this Section 9, "Acquisition Transaction" shall
mean (i) a merger or other business combination involving PTI, other than a
merger effected solely to change PTI's state of incorporation, (ii) a sale,
lease or other disposition of 50% or more of the consolidated assets of PTI and
its Subsidiaries in a single transaction or series of transactions, (iii) the
issuance by PTI of securities representing 50% or more of the voting power of
PTI in any single transaction or series of transactions (iv) an underwritten
public offering of PTI Common Stock which results in the PTI Common Stock being
traded on an exchange or on the Nasdaq market or (v) any other transaction or
acquisition which effects a change of control of PTI.
SECTION 10 - INDEMNIFICATION
10.1 Survival. Notwithstanding any right of any party to fully investigate
the affairs of the other party and notwithstanding any knowledge of facts
determined or determinable by such party pursuant to such investigation or right
of investigation, each party has the right to rely fully upon the
representations, warranties, covenants and agreements of each other party in
this Agreement or in any certificate, financial statement or other document
delivered by any party pursuant hereto. Notwithstanding the foregoing, if on the
Closing Date SW has actual, conscious knowledge that any representation or
warranty made by PTI or any Principal Shareholder under this Agreement is false
in any material respect and fails to disclose such knowledge to PTI or such
Principal Shareholder on or before the Closing Date, then, unless PTI or such
Principal Shareholder is also in possession of such knowledge on or before the
Closing Date, SWI shall be deemed to have waived any breach by PTI or such
Principal Shareholder arising out of such representation or warranty being false
in a material respect as of the Closing Date. All representations, warranties,
covenants and agreements of each party shall survive the execution and delivery
hereof and the Closing hereunder, subject to the limitations set forth in
Section 10.4. No person shall have a right to recover against any party (or any
officer, director, shareholder, employee or agent of a party) for any inaccuracy
in, or breach of, any representation or warranty, or covenant to the extent that
such covenant is required to be performed or complied with prior to the Closing
Date, contained herein or in any certificate or other instrument delivered
pursuant hereto other than through the exercise of the indemnification rights
set forth in Section 10.2 and 10.3, which shall constitute the sole and
exclusive remedy after the Closing Date for any breach by a party of any
representation, warranty or pre-closing covenant contained herein or in any
certificate or other instrument delivered pursuant hereto. Notwithstanding
anything to the contrary contained in this Agreement, the sole and exclusive
remedy for any environmental matter shall be the indemnification rights, if any,
under Section 10.2 resulting from any breach of the representations and
warranties contained in Section 2.26.
10.2 Obligation of PTI and the Shareholders to Indemnify.
(a) Subsequent to the Effective Time, the holders of PTI Stock
outstanding immediately prior to the Effective Time, shall, to the extent of
their interest in the shares held pursuant to the Escrow Agreement, jointly and
severally, indemnify and hold harmless SWI (and its respective directors,
officers, employees, agents, affiliates and assigns) from and against all
losses, liabilities, damages, deficiencies, costs or expenses, including
interest and penalties imposed or assessed by any judicial or administrative
body and reasonable attorneys' fees, whether or not arising out of third-party
claims, and including all amounts paid in investigation, defense or settlement
of any actions or claims or proceedings related to the foregoing pursuant to
this Section 10 (determined as provided in Section 10.2(c) below, "Losses")
based upon, arising out of or otherwise in respect of any inaccuracy in, or
breach of, any representation, warranty or covenant of PTI contained herein or
in any certificate delivered pursuant hereto or resulting from the redemption by
PTI on or after the date hereof of any Shares pursuant to any Share Repurchase
Agreements between PTI and shareholders of PTI; provided, however, that with
respect to any Losses based upon or arising out of a breach of or inaccuracy in
the representations and warranties set forth in Section 2.26, Losses shall only
consist of:
(i) Losses relating to Hazardous Materials generated, used,
handled, treated, stored or disposed or released by PTI
at any site owned or premises leased by PTI, or relating
to underground storage tanks located at such sites or
premises;
(ii) Losses relating to off-site shipments of Hazardous
Materials from any site
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<PAGE> 40
owned by or premises leased by PTI, for the purpose of
treatment, storage or disposal;
(iii) Losses relating to conditions of which PTI had knowledge
as of the Closing Date and which were not disclosed in
the PTI Disclosure Schedule;
(iv) Losses relating to the site known as Parcel 344 -
Schenectady Industrial Development Corporation located
at 344 Knott Street, Schenectady, New York; and
(v) Losses not described in clauses (i), (ii) and (iii)
above which arise as a result of conditions (X) revealed
by means other than (A) any environmental investigations
conducted by or on behalf of SWI which are not required
under any applicable law(s), regulation(s) or order(s)
of a governmental authority, or (B) any environmental
investigations conducted by any third party which SWI,
SW or the Surviving Corporation is not required to
permit under any applicable law(s), regulation(s) or
order(s) of a governmental authority and (Y) required by
any applicable law(s), regulation(s) or order(s) of a
governmental authority to be reported and remediated.
Notwithstanding the foregoing, "Losses" shall also include the amount of any
costs and expenses of the Participating Holders arising as a result of the
indemnification of the Escrow Agent by the Participating Holders under the
Escrow Agreement which are paid by SWI in accordance with Sections 6(a) and 13
of the Escrow Agreement.
(b) Subsequent to the Effective Time, each Principal Shareholder
shall indemnify and hold harmless SWI (and its directors, officers, employees,
agents, affiliates and assigns) from and against all Losses based upon, arising
out of or otherwise in respect of any inaccuracy in, or breach of, any
representation, warranty or covenant of such Principal Shareholder contained
herein or in any certificate delivered pursuant hereto.
(c) As used herein, the term Losses shall mean in each instance the
actual amount of such Losses. As used herein, the term "Unsatisfied Claims"
shall mean the amount by which Losses for which SWI is entitled to
indemnification under this Section 10 shall exceed the aggregate of Losses
satisfied from shares held pursuant to the Escrow Agreement in accordance with
Section 10.4(c) provided that the amount of Unsatisfied Claims shall not exceed
$1,000,000. SWI shall notify the Shareholders' Representative in writing of each
such Unsatisfied Claim, including a brief description of the nature and amount
thereof. In the event that the amount subject to the Unsatisfied Claim is
unliquidated, SWI shall make a good faith estimate of the amount of the
Unsatisfied Claim and the amount of any out-of-pocket expenditures and legal
expenses incurred by SWI or which it anticipates that it will incur in
connection with such Unsatisfied Claim, for purposes of determining the number
of shares of SWI Common Stock, if any, to be withheld by SWI from the shares
payable as Contingent Merger Consideration if such Unsatisfied Claim is not
resolved or otherwise adjudicated prior to the date that the Contingent Merger
Consideration is paid. SWI may withhold the applicable number of shares
otherwise payable to the Participating Holders as Contingent Merger
Consideration with respect to an Unsatisfied Claim or related out-of-pocket and
legal expenses until the earliest of: (i) the date such Unsatisfied Claim has
been resolved as evidenced by a written instrument signed by the Shareholders'
Representative and SWI agreeing to the withholding of such shares or a portion
thereof; (ii) with respect to disputed Unsatisfied Claims, the date such dispute
shall have been adjudicated in accordance with the arbitration procedures
described below. If, within sixty (60) days after the submission of the
Unsatisfied Claim to the Shareholders' Representative, (i) SWI has not received
written notice executed by the Shareholders' Representative accepting and
agreeing to the withholding of the number of shares withheld or sought to be
withheld by SWI on account of such Unsatisfied Claim or (ii) SWI and the
Shareholders' Representative have not otherwise agreed by written instrument
signed by both parties agreeing as to the number of shares withheld or sought to
be withheld by SWI on account of such Unsatisfied Claim, the Unsatisfied Claim
shall be referred to an arbitrator chosen by agreement of the Shareholders'
Representative and SWI. If no agreement is reached regarding selection of the
arbitrator within thirty (30) days
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<PAGE> 41
after written request from either party to the other, SWI or the Shareholders'
Representative may submit the matter in dispute to the American Arbitration
Association, to be settled by arbitration in Albany, New York in accordance with
the commercial arbitration rules of such Association. SWI and the Shareholders'
Representative agree to act in good faith to mutually select an arbitrator. The
fees and expenses of any arbitration shall be borne by the Participating Holders
and SWI in such proportions as shall be determined by the arbitrator, or if
there is no such determination, then such fees and expenses shall be borne
equally by the Participating Holders and SWI. The determination of the
arbitrator as to the amount, if any, of the Unsatisfied Claim and related
expenses that is properly allowable shall be conclusive and binding upon the
parties hereto and judgment may be entered thereon in any court having
jurisdiction thereof. SWI shall have the right following the receipt of the
arbitration award determination, as and to the extent allowed, to withhold from
the number of shares of SWI Common Stock payable as Contingent Merger
Consideration a number of shares having an aggregate Closing Market Value equal
to the amount of such Unsatisfied Claim and related expenses. Any other shares
of SWI Common Stock being withheld with respect to such Unsatisfied Claim shall
be promptly distributed following the receipt of such arbitration award
determination, if any. The amount of any Unsatisfied Claim and related expenses
shall be rounded to the nearest whole number of shares. Notwithstanding the
foregoing, in the event that any Unsatisfied Claim is not liquidated (i.e. the
amount of such claim cannot be readily ascertained) or any disputed Unsatisfied
Claim is not resolved on or before the fifth anniversary of the Closing Date, as
the case may be, a number of shares of SWI Common Stock having an aggregate
Closing Market Value equal to the amount of such unliquidated or disputed
Unsatisfied Claim(s) and related expenses shall be deducted from the number of
shares of SWI Common Stock distributed to the Participating Holders as
Contingent Merger Consideration and deposited into escrow for the purpose of
satisfying such Unsatisfied Claim(s) and expenses. The escrow established for
purposes of this Section 10.2(c) shall provide for customary terms and
conditions and shall include provisions relating to the voting and payment of
dividends substantially similar to those set forth in the Escrow Agreement. As
soon as practicable following the resolution of all such unliquidated or
disputed Unsatisfied Claims(s), as the case may be, and the return to SWI of any
shares of SWI Common Stock necessary to satisfy Unsatisfied Claims resolved in
SWI's favor, the shares of SWI Common Stock, if any, remaining in escrow
following the resolution of such Unsatisfied Claims, the return of such shares
to SWI and the payment of all related expenses, shall be distributed to the
Participating Holders in accordance with their respective Proportionate
Interests.
10.3 Obligation of SWI to Indemnify. Subsequent to the Effective Time, SWI
agrees to indemnify and hold harmless the holders of PTI Stock outstanding
immediately prior to the Effective Time (and their respective directors,
officers, employees, agents, affiliates and assigns) from and against any Losses
based upon, arising out of or otherwise in respect of any inaccuracy in, or
breach of, any representation, warranty or covenant of SW, SWI or SWAC contained
herein or in any certificate delivered pursuant hereto.
10.4 Limitations on Indemnification. Notwithstanding the foregoing, the
right to indemnification under this Section 10 shall be subject to the following
terms:
(a) No indemnification shall be payable pursuant to Section 10.2 or
Section 10.3 unless and until the aggregate amount of all Losses under each such
Section exceeds $100,000.
(b) No indemnification shall be payable pursuant to Section 10.2 on
account of any breach of or inaccuracy in any representation or warranty
contained in Section 2.17 except to the extent that the aggregate Losses
incurred with respect to such claims exceed $25,000.
(c) No indemnification shall be payable pursuant to Section 10.2 or
Section 10.3 after January 15, 2003 with respect to the representations and
warranties contained in Section 2.26 and January 15, 2000 with respect to all
other representations and warranties (as applicable, the "Expiration Date"),
except with respect to (i) claims made prior to the Expiration Date, but not
resolved by the Expiration Date and (ii) claims arising out of Losses incurred
as a result of costs and expenses of the Participating Holders for
indemnification of the Escrow Agent which are paid by SWI in accordance with
Sections 6(a) and 13 of the Escrow Agreement. Any Losses arising out of claims
made on or before January 15, 2000 in respect of the representations and
warranties contained in Section 2.26 shall first be satisfied from Shares held
pursuant to the Escrow Agreement and, only if and to the extent that such Shares
have been exhausted, shall any such claim be deemed an
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<PAGE> 42
Unsatisfied Claim to be satisfied from the Contingent Merger Consideration in
accordance with Section 1.6(a)(x). Notwithstanding the foregoing, in the event
that the right to receive the Contingent Merger Consideration is accelerated in
accordance with Section 1.10(i), no indemnification shall be payable pursuant to
Section 10.2 or 10.3 on account of Losses arising out of any breach of or any
inaccuracy in any representation or warranty contained in Section 2 or Section 3
occurring after the date on which the Contingent Merger Consideration is paid.
Subject to the foregoing, the representations and warranties contained herein or
in any certificate delivered pursuant hereto shall expire at the close of
business on the applicable Expiration Date or, in the event that the right to
receive the Contingent Merger Consideration is paid in accordance with Section
1.10(i), the date on which the Contingent Merger Consideration is paid.
(d) All indemnification claims under Section 10.2 shall be satisfied
in full from (i) the shares held pursuant to the Escrow Agreement and (ii)
shares otherwise payable as Contingent Merger Consideration in accordance with
the provisions of such Section 10.2, and no person shall have any right to
recover directly from any person who was a holder of PTI Stock immediately prior
to the Effective Time. Without limitation of the foregoing, the maximum
liability of any former holder of PTI Stock for any breach of a representation,
warranty or covenant of PTI shall be limited to those shares in which such
holder has an interest that are held pursuant to the Escrow Agreement. In the
case of inaccuracy or breach of a Principal Shareholder representation or
warranty, SWI may recover from the shares held pursuant to the Escrow Agreement
only that portion allocable to the Principal Shareholder responsible for the
inaccuracy or breach. The shares held pursuant to the Escrow Agreement that are
allocable to a Principal Shareholder shall be used first to satisfy
indemnification claims pursuant to Section 10.2(a) and any excess after all
claims pursuant to Section 10.2(a) have been satisfied shall be used to satisfy
indemnification claims pursuant to Section 10.2(b).
(e) SWI shall not be liable for any amount in excess of 10% of the
Merger Consideration paid by it (valued based on the Closing Market Value),
except for breaches of or failure by SW or SWI to perform any covenant required
to be performed by SW, SWI or the Surviving Corporation subsequent to the
Closing Date.
(f) The limitations of Sections 10.4(a), (d) and (e) (other than the
last two sentences of Section 10.4(d)) shall not apply in the case of a
fraudulent or intentional misrepresentation or breach by any party, but no
person shall be liable for any such misrepresentation or breach by any other
person (except to the extent of its share of the shares held under the Escrow
Agreement if such misrepresentation or breach is by PTI) and no Principal
Shareholder shall be liable for more than the Merger Consideration received by
such Principal Shareholder.
(g) In determining the amount of any indemnity, there shall be taken
into account any tax benefit, insurance proceeds or other similar recovery or
offset realized, directly or indirectly, by the party to be indemnified.
10.5 Notice and Defense of Claims. Promptly after receipt of notice or
otherwise becoming aware of any claim, liability or expense for which a party
seeks indemnification or claim against the shares of SWI Common Stock held under
Escrow Agreement, such party shall give written notice thereof to the
indemnifying party (or, in the case of a claim against the shares of SWI Common
Stock held under Escrow Agreement, to the Shareholders' Representative), but
such notification shall not be a condition to indemnification hereunder except
to the extent of actual prejudice to the indemnifying party. The notice shall
state the information then available regarding the amount and nature of such
claim, liability or expense and shall specify the provision or provisions of
this Agreement under which the liability or obligation is asserted. If within 30
days after receiving such notice the indemnifying party or Shareholders'
Representative gives written notice to the indemnified party stating that it
intends to defend against such claim, liability or expense at its own cost and
expense, then defense of such matter, including selection of counsel (subject to
the consent of the indemnified party which consent shall not be unreasonably
withheld), shall be by the indemnifying party and the indemnified party shall
make no payment on such claim, liability or expense as long as the indemnifying
party is conducting a good faith and diligent defense. Notwithstanding the
foregoing, the indemnified party shall at all times have the right to fully
participate in such defense at its own expense directly or through counsel;
provided, however, if the named parties to the action or
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<PAGE> 43
proceeding include both the indemnifying party and the indemnified party and
representation of both parties by the same counsel would be inappropriate under
applicable standards of professional conduct, the expense of separate counsel
for the indemnified party shall be paid by the indemnifying party. If no such
notice of intent to dispute and defend is given by the indemnifying party or
Shareholders' Representative, or if such diligent good faith defense is not
being or ceases to be conducted, the indemnified party shall, at the expense of
the indemnifying party or from the shares of SWI Common Stock held under the
Escrow Agreement, undertake the defense of such claim, liability or expense with
counsel selected by the indemnified party, and shall have the right to
compromise or settle the same only with the consent of the indemnifying party,
which consent shall not be unreasonably withheld. The indemnified party shall
make available all information and assistance that the indemnifying party or
Shareholders' Representative may reasonably request and shall cooperate with the
indemnifying party in such defense.
SECTION 11 - MISCELLANEOUS
11.1 Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be deemed given when so delivered in
person, by overnight courier, by facsimile transmission (with receipt confirmed
by telephone or by automatic transmission report) or two business days after
being sent by registered or certified mail (postage prepaid, return receipt
requested), as follows:
(a) if to SWI, SW or SWAC to:
Stone & Webster Management Consultants, Inc.
245 Summer Street
Boston, Massachusetts 02210
Attention: President
Tel: (617) 589-1930
FAX: (617) 589-1372
with a copy to:
Palmer & Dodge LLP
One Beacon Street
Boston, Massachusetts 02108
Attention: Steven N. Farber, Esq.
Tel: (617) 573-0234
FAX: (617) 227-4420
(b) if to PTI or the Principal Shareholders, to:
Power Technologies, Inc.
1482 Erie Boulevard
Schenectady, New York 12301
Attention: President
Tel:
FAX:
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<PAGE> 44
with a copy to:
Nixon, Hargrave, Devans & Doyle LLP
Clinton Square
P.O. Box 1051
Rochester, New York 14603
(14604 for overnight delivery)
Attention: Roger W. Byrd, Esq.
Tel: (216) 263-1687
FAX: (216) 263-1600
Any party may by notice given in accordance with this Section 11.1 to the other
parties designate another address or person for receipt of notices hereunder.
11.2 Entire Agreement. This Agreement contains the entire agreement among
the parties with respect to the Merger and related transactions, and supersedes
all prior agreements, written or oral, with respect thereto other than the
Confidentiality Agreement between PTI and SW dated September 8, 1997, and SWI
and SWAC agree to be bound by the terms of such Confidentiality Agreement.
11.3 Amendment. This Agreement may not be amended except by an instrument
signed by each party hereto.
11.4 Waiver. At any time prior to the Effective Time, any party hereto
may, (a) extend the time for the performance of any of the obligations or other
acts of any other party hereto or (b) waive compliance with any of the
agreements of any other party or any conditions to its own obligations, in each
case only to the extent such obligations, agreements and conditions are intended
for its benefit; provided that any such extension or waiver shall be binding
upon a party only if such extension or waiver is set forth in a writing executed
by such party.
11.5 Governing Law. This Agreement is governed by the laws of the State of
New York without regard to its conflict of law provisions.
11.6 Binding Effect; No Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
permitted assigns. This Agreement is not assignable without the prior written
consent of the other parties hereto.
11.7 Variations in Pronouns. All pronouns and any variations thereof refer
to the masculine, feminine or neuter, singular or plural, as the context may
require.
11.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
11.9 Disclosure Schedules. The Disclosure Schedules are a part of this
Agreement as if fully set forth herein.
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<PAGE> 45
IN WITNESS WHEREOF, the parties have executed this Agreement under seal as
of the date first stated above.
SWI'S OBLIGATIONS UNDER THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON THE RATIFICATION OF THIS AGREEMENT BY
THE BOARD OF DIRECTORS OF SWI. THIS AGREEMENT IS
SCHEDULED TO BE SUBMITTED TO SWI'S BOARD OF DIRECTORS AT
A MEETING SCHEDULED FOR APRIL 21, 1998 AND, IF RATIFIED,
AN OFFICER OF SWI WILL EXECUTE AND DELIVER TO PTI A
CERTIFICATE TO SUCH EFFECT.
STONE & WEBSTER, INCORPORATED
By /s/ Thomas L. Langford
-----------------------------------
Thomas L. Langford
President
STONE & WEBSTER ACQUISITION CORP.
By /s/ Robert T. McWhinney, Jr.
-----------------------------------
Robert T. McWhinney, Jr.
President
STONE & WEBSTER MANAGEMENT CONSULTANTS, INC.
By /s/ Robert T. McWhinney, Jr.
-----------------------------------
Robert T. McWhinney, Jr.
President and Chief Executive Officer
POWER TECHNOLOGIES, INC.
By /s/ Steven J. Balser
-----------------------------------
Steven J. Balser
President
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<PAGE> 46
THE PRINCIPAL SHAREHOLDERS:
/s/ Seven J. Balser
--------------------------------------
Steven J. Balser
Address: ___________________________
___________________________
___________________________
/s/ Lionel O. Barthold
--------------------------------------
Lionel O. Barthold
Address: ___________________________
___________________________
___________________________
/s/ Ian S. Grant
--------------------------------------
Ian S. Grant
Address: ___________________________
___________________________
___________________________
OTHER DIRECTORS OF PTI:
By executing this Agreement, the undersigned hereby
agree to be bound by the provisions of Section 5.14 of
this Agreement:
/s/ Dale Douglass
--------------------------------------
Dale Douglass
Address: ___________________________
___________________________
___________________________
/s/ Gordon B. Hirschman
--------------------------------------
Gordon B. Hirschman
Address: ___________________________
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<PAGE> 47
___________________________
___________________________
/s/ F.S. Prabhakara
--------------------------------------
F.S. Prabhakara
Address: ___________________________
___________________________
___________________________
/s/ Mary Sager
--------------------------------------
Mary Sager
Address: ___________________________
___________________________
___________________________
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<PAGE> 48
GLOSSARY OF DEFINED TERMS
"ACSV" shall have the meaning set forth as Section 1.6(a)(xi).
"Additional Contingent Share Market Value" shall have the meaning set forth in
Section 1.6(a)(xi).
"Additional Contingent Share Value" shall have the meaning set forth in Section
1.6(a)(xi).
"Additional Contingent Shares" shall have the meaning set forth in Section
1.6(a)(xi).
"Acquisition Transaction" shall have the meaning set forth in Section 9.3(c).
"affiliates" shall have the meaning set forth in Section 5.11.
"Affiliate Letter" shall have the meaning set forth in Section 5.11.
"Agreement" shall mean Agreement and Plan of Merger.
"Antitrust Division" shall have the meaning set forth in Section 5.13.
"Auditors" shall have the meaning set forth in Section 1.10(b).
"Audited Financial Statements" shall have the meaning set forth in Section 2.6.
"Audit Period" shall have the meaning set forth in Section 1.10(b).
"Base Earnings" shall have the meaning set forth in Section 1.10(f).
"blue sky" shall have the meaning set forth in Section 5.7(a).
"Closing" shall have the meaning set forth in Section 1.2.
"Closing Date" shall have the meaning set forth in Section 1.2(d).
"Closing Market Value" shall have the meaning set forth in Section 1.6(a)(ii).
"Code" shall have the meaning set forth in Section 2.20.
"Contingent Merger Consideration" shall have the meaning set forth in Section
1.6(a)(x).
"Contingent Payment Date" shall have the meaning set forth in Section 1.13.
"Contingent Period" shall have the meaning set forth in Section 1.10(b).
"Contingent Registration Statement" shall have the meaning set forth in Section
5.7(b).
"Current Financial Statements" shall have the meaning set forth in Section 2.6.
"Customers" shall have the meaning set forth in Section 2.19.
"DGCL" shall have the meaning set forth in Section 1.1.
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<PAGE> 49
"Delivered Shares" shall have the meaning set forth in Section 1.6(a)(ix).
"Dilution Event" shall have the meaning set forth in Section 1.10(h).
"Dissenting Shares" shall have the meaning set forth in Section 1.6(a)(iv).
"Earnings Report" shall have the meaning set forth in Section 1.10(b).
"Effective Time" shall have the meaning set forth in Section 1.2.
"ERISA" shall have the meaning set forth in Section 2.20.
"ERISA Affiliate" shall have the meaning set forth in Section 2.20
"Escrow Agent" shall have the meaning set forth in Section 1.6(a)(xii).
"Escrow Agreement" shall have the meaning set forth in Section 1.6(a)(xii).
"Exchange Act" shall have the meaning set forth in Section 4.4.
"Exchange Agent" shall have the meaning set forth in Section 1.7(a).
"Expiration Date" shall have the meaning set forth in Section 10.4(b).
"Final Earnings Report" shall have the meaning set forth in Section 1.10(c).
"Final Cumulative Net Earnings" shall have the meaning set forth in Section
1.10(c).
"Firm" shall have the meaning set forth in Section 1.10(d).
"FTC" shall have the meaning set forth in Section 5.13.
"Full Payment Milestone" shall have the meaning set forth in Section 1.10(a).
"Fund Shares" shall have the meaning set forth in Section 1.6(a)(ix).
"Hazardous Materials" shall have the meaning set forth in Section 2.26.
"HSR Act" shall have the meaning set forth in Section 1.2(b).
"Income Statements" shall have the meaning set forth in Section 1.10(b).
"Individual Tax Liability" shall have the meaning set forth in Section
1.6(a)(xi).
"Initial Escrow Shares," shall have the meaning set forth in Section 1.6(a)(ix).
"Initial Merger Consideration" shall have the meaning set forth in Section
1.6(a)(ix).
"Interest" shall have the meaning set forth in Section 2.22.
"Leases" shall have the meaning set forth in Section 2.15.
"Losses" shall have the meaning set forth in Section 10.2(a).
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<PAGE> 50
"Material Adverse Effect" shall have the meaning set forth in Section 2.1.
"Merger" shall have the meaning set forth in Section 1.1.
"Merger Consideration" shall have the meaning set forth in Section 1.6(b)(iii).
"Merger Documents" shall have the meaning set forth in Section 1.2.
"Minimum Payment Milestone" shall have the meaning set forth in Section 1.10(a).
"NYBCL" shall have the meaning set forth in Section 1.1.
"Participating Holders" shall have the meaning set forth in Section 1.6(a)(vi).
"Participation Percentage" shall have the meaning set forth in Section
1.6(a)(vii).
"Participating Shares" shall have the meaning set forth in Section 1.6(a)(v).
"Permits" shall have the meaning set forth in Section 2.11.2
"Plan Sponsor" shall have the meaning set forth in Section 2.20
"Plans" shall have the meaning set forth in Section 2.20.
"Principal Shareholders" shall have the meaning set forth in the first paragraph
of Section 3.
"Proportionate Interest" shall have the meaning set forth in Section
1.6(a)(viii).
"Proprietary Rights" shall have the meaning set forth in Section 2.17.
"Proxy Statement" shall have the meaning set forth in Section 5.9(b).
"PTI" shall mean Power Technologies, Inc.
"PTI Affiliates" shall have the meaning set forth in Section 2.4.
"PTI Asia" shall have the meaning set forth in Section 2.5.
"PTI Closing Documents" shall have the meaning set forth in Section 2.3.
"PTI Disclosure Schedule" shall have the meaning set forth in Section 2.
"PTI Financial Statements" shall have the meaning set forth in Section 2.6.
"PTII" shall have the meaning set forth in Section 5.21.
"PTI Projections" shall have the meaning set forth in Section 1.9(f).
"PTI Stock" shall have the meaning set forth in Section 1.6(a)(iii).
"PTI Stockholders' Meeting" shall have the meaning set forth in Section 2.29.
"Registered Consideration" shall have the meaning set forth in Section 5.7(a).
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<PAGE> 51
"Registration Statement" shall have the meaning set forth in Section 5.7(a).
"Reviewed Financial Statements" shall have the meaning set forth in Section 2.6.
"Securities Act" shall have the meaning set forth in Section 5.7(a).
"SEC" shall have the meaning set forth in Section 4.4.
"Shareholder Disclosure Schedule" shall have the meaning set forth in Section 3.
"Shareholders' Representative" shall have the meaning set forth in Section 8.5.
"Shares" shall have the meaning set forth in Section 2.2.1.
"Subsidiary" shall have the meaning set forth in Section 2.1.
"Surviving Corporation" shall have the meaning set forth in Section 1.1.
"SWAC" shall mean Stone & Webster Acquisition Corp.
"SWI 10-K" shall have the meaning set forth in Section 4.4.
"SWI 10-Qs" shall have the meaning set forth in Section 4.5.
"SW" shall mean Stone and Webster Management Consultants, Inc.
"SWI" shall mean Stone and Webster, Incorporated.
"SWI Common Stock" shall have the meaning set forth in Section 1.6(a)(i).
"SW Closing Documents" shall have the meaning set forth in Section 4.2.
"SWI Disclosure Schedule" shall have the meaning set forth in Section 4.
"SWI Preferred Stock" shall have the meaning set forth in Section 4.3.
"Tangible Property" shall have the meaning set forth in Section 2.16.
"Taxes" shall have the meaning set forth in Section 2.10.1.
"Transasia Consideration" shall have the meaning set forth in Section 1.13.
"Transasia Payments" shall have the meaning set forth in Section 1.13.
"Unsatisfied Claims" shall have the meaning set forth in Section 10.2(c).
"Updated Disclosure Schedule" shall have the meaning set forth in the first
paragraph of Section 2.
"Updated Financial Statements" shall have the meaning set forth in Section 2.6.
"Year 2000 Problem" shall have the meaning set forth in Section 2.27.
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<PAGE> 52
EXHIBIT A
ESCROW AGREEMENT
This ESCROW AGREEMENT dated _____________, 1998 is among Stone & Webster,
Incorporated ("SWI"), a Delaware corporation, __________, as the representative
of the shareholders (the "Shareholders' Representative") of Power Technologies,
Inc. ("PTI"), a New York corporation, and The Chase Manhattan Bank, as escrow
agent (the "Escrow Agent").
PRELIMINARY STATEMENT
Pursuant to an Agreement and Plan of Merger dated as of April 20, 1998
(the "Merger Agreement"), by and among SWI, Stone & Webster Acquisition Corp.
("SWAC"), Stone & Webster Management Consultants, Inc., PTI, and certain
shareholders and directors of PTI, SWI is acquiring PTI through the merger of
PTI with SWAC, a wholly-owned subsidiary of SWI. Capitalized terms used herein
and not otherwise defined have the meanings assigned to them in the Merger
Agreement.
The Participating Holders, jointly and severally, have agreed to indemnify
SWI as provided in Section 10 of the Merger Agreement through the deposit of
_______________ shares of SWI Common Stock (the "Escrow Shares") pursuant to
Section 1.7(a) of the Merger Agreement. A list of all Participating Holders as
of the Effective Time and their Proportionate Interests in the Escrow Shares is
attached hereto as Schedule 1, and shall be amended and restated from time to
time as necessary to reflect the addition of holders of Dissenting Shares who
elect to become Participating Holders after the Effective Time.
The parties hereto agree as follows:
1. Establishment of Escrow; Additional Participating Holders. SWI has
delivered to the Escrow Agent and the Escrow Agent acknowledges receipt of the
Escrow Shares in the form of a stock certificate representing the Escrow Shares.
The Escrow Shares shall be held in escrow in the name of the Escrow Agent or its
nominee, subject to the terms and conditions set forth herein. Unless and until
the Escrow Shares are returned to SWI or delivered to the Participating Holders
pursuant to the terms of this Agreement, the Escrow Agent shall vote the Escrow
Shares in accordance with the written instructions of the Shareholders'
Representative. In the event that any Dissenting Holder becomes a Participating
Holder on or after _____________________, 1998 (the "Effective Time"), SWI shall
promptly deliver an amended and restated Schedule 1 to this Agreement setting
forth the Proportionate Interests of the Participating Holders as adjusted to
reflect the participation of the new Participating Holder(s).
2. Amounts Earned on Escrow Shares; Tax Matters. From time to time upon
the request of the Shareholders' Representative, any amounts earned on the
Escrow Shares (dividends or other distributions) shall be distributed to the
Participating Holders pro rata in accordance with their respective Proportionate
Interests set forth on Schedule 1 as in effect at the time of such distribution.
The Shareholders' Representative, SWI and PTI agree that to the extent permitted
by applicable law, including Section 468B(g) of the Internal Revenue Code of
1986, as amended (the "Code"), the Participating Holders will include all
amounts earned on the Escrow Shares in their gross income for federal, state and
local income tax (collectively, "income tax") purposes and pay any income tax
resulting therefrom.
<PAGE> 53
3. Claims Against Escrow Shares.
(a) At any time or times prior to the Expiration Date (as defined
below) SWI may make claims against the Escrow Shares for amounts due for
indemnification under Section 10 of the Merger Agreement (each such claim is
hereinafter referred to as a "Claim"). SWI shall notify the Shareholders'
Representative and the Escrow Agent in writing of each such Claim, including a
brief description of the amount and nature of such Claim. Each such notice
delivered to the Escrow Agent by SWI shall contain a representation from SWI to
the effect that SWI has delivered a copy of such notice to the Shareholders'
Representative prior to or simultaneously with its delivery to the Escrow Agent.
In the event that the amount subject to the claim is unliquidated, SWI shall
make a good faith estimate as to the amount of the claim for purposes of
determining the number of Escrow Shares, if any, to be withheld by the Escrow
Agent if such claim is not resolved or otherwise adjudicated by the Expiration
Date. No distribution of the Escrow Shares shall be made by the Escrow Agent to
SWI or to the Participating Holders of the Set Aside Amount (as defined in
Section 3(b) below) with respect to each Claim until either: (i) such Claim has
been resolved as evidenced by a written notice executed by SWI and the
Shareholders' Representative instructing the Escrow Agent as to the distribution
of such Set Aside Amount or portion thereof; or (ii) with respect to disputed
Claims, such dispute shall have been adjudicated in accordance with the
arbitration procedures described in Section 3(c) below. The Escrow Agent shall
effect such payment of Escrow Shares to SWI by surrendering such Escrow Shares
to SWI's transfer agent (ChaseMellon Shareholder Services, L.L.C., 85 Challenger
Road, Ridgefield Park, NJ 07660) for cancellation upon receipt by the Escrow
Agent of a copy of a letter from SWI to its transfer agent, irrevocably
instructing such transfer agent to issue a new certificate or certificates to
the Escrow Agent for the remaining Escrow Shares, after giving effect to such
payment. If the amount of a Claim exceeds the aggregate value of the Escrow
Shares, the Escrow Agent shall have no liability or responsibility for any
deficiency. The value per share of the Escrow Shares for purposes of this
Agreement shall be $_______ (the "Closing Market Value").
(b) Upon the submission of a Claim to the Escrow Agent by SWI, the
Escrow Agent shall set aside a portion of the Escrow Shares equal to the amount
of the Claim as set forth in the notice of the Claim (the "Set Aside Amount").
In the event SWI notifies the Escrow Agent in writing that it has made
out-of-pocket expenditures or anticipates that it will incur legal expenses in
connection with any disputed Claim with respect to which it is entitled to be
indemnified under the Merger Agreement, a portion of the Escrow Shares equal to
such incurred or anticipated expenditures shall also be set aside and added to
and become a part of the Set Aside Amount; provided, that in the event that it
shall be agreed (as evidenced by a written notice executed by SWI and the
Shareholders' Representative as described in paragraph (a) above) or determined
through an arbitration proceeding described in paragraph (c) below that SWI is
not entitled to indemnification with respect to such Claim, such shares shall be
released from the Set Aside Amount.
(c) If the Escrow Agent has not received written notice executed by
SWI and the Shareholders' Representative within sixty (60) days after the
submission of the Claim to the Escrow Agent by SWI to the effect that the Claim
has been resolved, the Claim shall be referred to an arbitrator chosen by
agreement of the Shareholders' Representative and SWI. If no agreement is
reached regarding selection of the arbitrator within thirty (30) days after
written request from either party to the other, SWI or the Shareholders'
Representative may submit the matter in dispute to the American Arbitration
Association, to be settled by arbitration in Albany, New York in accordance with
the commercial arbitration rules of such Association. SWI and the Shareholders'
Representative agree to act in good faith to mutually select an arbitrator. The
fees and expenses of any arbitration shall be borne by the Participating Holders
and SWI in such proportions as shall be determined by the arbitrator, or if
there is no such determination, then such fees and expenses shall be borne
equally by the Participating Holders and SWI. In no event shall the Escrow Agent
be responsible for any fees or expenses of any party to any arbitration
proceeding. The determination of the arbitrator as to the amount, if any, of the
Claim that is properly allowable shall be conclusive and binding upon the
parties hereto and judgment may be entered thereon in any court having
jurisdiction thereof. The Escrow Agent shall make payment of such Claim, as and
to the extent allowed, to SWI out of the Set Aside Amount within three (3)
business days following its receipt of a copy of the arbitration award
determination, or as soon as practicable thereafter.
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<PAGE> 54
4. Value of Escrow Shares. The Escrow Agent may rely conclusively on a per
share value of $_____ (the "Closing Market Value") for the purpose of
determining the amount of shares required to pay a Claim. All Claims paid out of
the Escrow Shares shall be rounded to the nearest whole share. Under no
circumstances shall the Participating Holders or the Shareholders'
Representative have any right to substitute other property for the Escrow Shares
or to change the per share value stated herein.
5. Termination.
(a) This Agreement shall terminate on January 15, 2000 (the
"Expiration Date") provided that there are no outstanding Claims as to which the
Escrow Agent has received notice pursuant to Section 3 hereof on or prior to the
Expiration Date; otherwise this Agreement shall continue in effect until the
resolution of all such Claims. SWI shall provide the Escrow Agent with
reasonable advance notice of the expected Expiration Date and shall confirm the
occurrence of such as soon as practicable thereafter.
(b) On the Expiration Date or as soon thereafter as is practicable,
the Escrow Agent shall distribute to the Participating Holders the Escrow Shares
less (i) the amount of any then existing Set Aside Amounts and (ii) Escrow
Shares having an aggregate Closing Market Value equal to the amount specified in
any notice of a Claim delivered to the Escrow Agent on or within 30 days prior
to the Expiration Date with respect to which no Set Aside Amount has yet been
established and the Escrow Agent has not otherwise been instructed by SWI and
the Shareholders' Representative. At such time thereafter as any remaining Claim
hereunder has been resolved and the Escrow Agent has received a written notice
executed by SWI and the Shareholders' Representative to that effect (or a copy
of an arbitration award pursuant to Section 3(c) to that effect) and any amounts
to be distributed to SWI in connection therewith have been so distributed, the
Escrow Agent shall distribute any portion of the remaining Escrow Shares set
aside with respect to such Claim to the Participating Holders. Upon the
resolution of all outstanding Claims hereunder, the Escrow Agent shall
distribute the remaining amount, if any, of the Escrow Shares to the
Participating Holders, and this Agreement shall terminate. Notwithstanding the
foregoing, the Escrow Agent shall withhold from shares which Steven J. Balser,
Lionel O. Barthold and Ian S. Grant (each a "Principal Shareholder") would
otherwise be entitled to receive as part of such Principal Shareholder's pro
rata distribution hereunder any shares which may be withheld from such Principal
Shareholder on account of any pending Claim which is identified by SWI as
arising out of any claimed inaccuracy or breach of a representation or warranty
of such Principal Shareholder under the Merger Agreement, which Claim shall be
settled in accordance with the procedures described in Section 3; provided,
however, that following the resolution of such Claim, such shares which are not
used to satisfy indemnification requirements shall be distributed to the
applicable Principal Shareholder in the manner described above.
(c) All distributions to the Participating Holders shall be made pro
rata in accordance with their respective Proportionate Interests set forth on
Schedule 1 as in effect at the time of such distribution. SWI shall not be
required to issue certificates for fractional shares in any distribution of
Escrow Shares pursuant to this Agreement; but rather shall pay to the Escrow
Agent for distribution to the Participating Holders an amount in cash (without
interest) determined by SWI by multiplying each Participating Holder's
fractional interest by the Closing Market Value. The Escrow Agent shall effect
such distributions of Escrow Shares as it is required to make to the
Participating Holders under this Agreement by surrendering such Escrow Shares to
SWI's stock transfer agent for cancellation upon receipt by the Escrow Agent of
a copy of a letter from SWI to its transfer agent, irrevocably instructing such
transfer agent to issue the applicable number of Escrow Shares pro rata to the
Participating Holders in accordance with their respective Proportionate
Interests set forth on Schedule 1 as in effect at the time of such distribution.
(d) In the event that any Claim is not resolved on or before one
month prior to the fifth anniversary of the Effective Time, any Escrow Shares
then held by the Escrow Agent pursuant to this Agreement shall be distributed to
the Participating Holders as soon as practicable by the Escrow Agent, but in any
event no less than one week prior to the fifth anniversary of the Effective
Time.
6. The Escrow Agent.
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(a) Notwithstanding anything herein to the contrary, the Escrow
Agent shall promptly dispose of all or any part of the Escrow Shares as directed
by a writing jointly signed by the Shareholders' Representative and SWI. All
fees and expenses to which the Escrow Agent is entitled in connection with its
execution and performance of this Agreement (which are set forth on Schedule 2
hereto) shall be borne by SWI. In the administration of the escrow account
hereunder, the Escrow Agent may execute any of its powers or perform any of its
duties hereunder directly or through agents or attorneys and may consult with
counsel, accountants and other skilled persons to be selected in good faith and
retained by it. The Escrow Agent shall not be liable for any act or omission to
act under this Agreement, including any and all claims made against the Escrow
Agent as a result of its holding the Escrow Shares in its own name, unless a
court of competent jurisdiction determines that the Escrow Agent's gross
negligence or willful misconduct was the primary cause of any loss to the
parties hereto. The Escrow Agent shall not be liable for, and SWI and the
Participating Holders shall jointly and severally indemnify the Escrow Agent for
and hold it harmless against, any losses, liability, expense or claims
(including reasonable out of pocket expenses) arising out of any action by the
Escrow Agent taken or omitted in good faith hereunder or upon the advice of
counsel, accountants or other skilled professionals engaged by the Escrow Agent;
provided, however, that the liability of each Participating Holder on account of
such indemnification shall not exceed his or her Proportionate Interest in the
Escrow Shares. Notwithstanding anything to the contrary in this Agreement, in no
event shall the Escrow Agent be liable for special, indirect or consequential
damages of any kind whatsoever (including but not limited to lost profits), even
if the Escrow Agent has been advised of the likelihood of such loss or damage
and regardless of the form of action. The Escrow Agent may decline to act and
shall not be liable for failure to act if in doubt as to its duties under this
Agreement. The Escrow Agent may act upon any instrument or signature believed by
it to be genuine and may assume that any person purporting to give any notice or
instruction hereunder, reasonably believed by it to be authorized, has been duly
authorized to do so and the Escrow Agent shall not incur any liability for
following the instructions herein contained or expressly provided for or written
instructions given by parties hereto. The Escrow Agent's duties shall be
determined only with reference to this Agreement and applicable laws, and the
Escrow Agent is not charged with knowledge of or any duties or responsibilities
in connection with any other document or agreement, including, but not limited
to, the Merger Agreement.
(b) The Escrow Agent shall have the right at any time to resign
hereunder by giving written notice of its resignation to the parties hereto, at
the addresses set forth herein or at such other address as the parties shall
provide, at least thirty (30) days prior to the date specified for such
resignation to take effect. In such event SWI and the Shareholders'
Representative shall jointly appoint a successor escrow agent within said thirty
(30) days; if SWI and the Shareholders' Representative do not designate a
successor escrow agent within such period, the Escrow Agent may appoint a
successor escrow agent. Upon the effective date of such resignation, the Escrow
Shares together with all cash and other property then held by the Escrow Agent
hereunder shall be delivered by it to such successor escrow agent or as
otherwise shall be designated in writing by SWI and the Shareholders'
Representative.
(c) In the event that the Escrow Agent should at any time be
confronted with inconsistent or conflicting claims or demands by the parties
hereto, the Escrow Agent shall have the right to interplead said parties in any
court of competent jurisdiction in the State of New York or Commonwealth of
Massachusetts and request that such court determine the respective rights of
such parties with respect to this Agreement and, upon doing so, the Escrow Agent
shall be released from any obligations or liability to either party as a
consequence of any such claims or demands.
(d) The Escrow Agent may execute any of its powers or
responsibilities hereunder and exercise any rights hereunder, either directly or
by or through its agents or attorneys. Nothing in this Agreement shall be deemed
to impose upon the Escrow Agent any duty to qualify to do business or to act as
fiduciary or otherwise in any jurisdiction other than the State of New York. The
Escrow Agent shall not be responsible for and shall not be under a duty to
examine, inquire into or pass upon the validity, binding effect, execution or
sufficiency of this Agreement or of any amendment or supplement hereto.
(e) Any corporation into which the Escrow Agent in its individual
capacity may be merged or converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or
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<PAGE> 56
consolidation to which the Escrow Agent in its individual capacity shall be a
party, or any corporation to which substantially all of the corporate trust
business of the Escrow Agent in its individual capacity may be transferred,
shall be the Escrow Agent under this Agreement without further act.
7. Shareholders' Representative.
(a) Except as expressly provided herein, the rights, duties,
obligations, status and successorship of the Shareholders' Representative shall
be determined as provided in the Appointment Agreements among the Shareholders'
Representative and the Participating Holders and in the form contemplated by the
Merger Agreement (the "Appointment Agreements"). Notwithstanding the foregoing,
in the event of any conflict or inconsistency between the provisions of this
Agreement and the Appointment Agreement, the provisions of the Appointment
Agreement shall govern. All decisions of the Shareholders' Representative
pursuant to this Agreement shall be binding upon the Participating Holders. The
Shareholders' Representative shall keep the Participating Holders reasonably
informed of his or her decisions of a material nature.
(b) The Shareholders' Representative is authorized to take any
action deemed by him appropriate or necessary to carry out the provisions of,
and to determine the rights of the Participating Holders under this Agreement.
The Shareholders' Representative shall promptly notify the Escrow Agent of any
change in the address of any Participating Holder or any transfer (by operation
of law or otherwise) of the right of any Participating Holder to receive Escrow
Shares hereunder. The Shareholders' Representative shall serve as the agent of
the Participating Holders for all purposes related to this Agreement, including
without limitation service of process upon the Participating Holders. By his or
her execution of this Agreement, the Shareholders' Representative accepts and
agrees to diligently discharge the duties and responsibilities of the
Shareholders' Representative set forth in this Agreement. The authorization and
designation of the Shareholders' Representative under this Section 7(b) shall be
binding upon the successors and assigns of each Participating Shareholder. SWI
and the Escrow Agent shall be entitled to rely upon such authorization and
designation and shall be fully protected in dealing with the Shareholders'
Representative, and shall have no duty to inquire into the authority of any
person reasonably believed by any of them to be the Shareholders'
Representative.
(c) The Shareholders' Representative (i) shall be entitled to treat
as genuine any letter or other document furnished to him or her by SWI or the
Escrow Agent and believed by him or her to be genuine and have been signed and
presented by the proper party or parties; and (ii) shall be reimbursed for
counsel fees and other out-of-pocket expenses incurred by the Shareholders'
Representative in connection with this Agreement out of the net proceeds from
the sale of Escrow Shares by the Escrow Agent as provided in paragraph (d)
below.
(d) The Shareholders' Representative shall not be entitled to any
compensation for services hereunder. To the extent the Shareholders'
Representative shall incur out-of-pocket costs in the performance of his duties
hereunder, the Shareholders' Representative shall be authorized to direct the
Escrow Agent to distribute to the Shareholders' Representative for sale in the
open market that number of Escrow Shares sufficient to generate net proceeds to
reimburse the Shareholders' Representative for such out-of-pocket costs;
provided, however, that the aggregate Closing Market Value of all Escrow Shares
distributed to the Shareholders' Representative and sold for such purpose to pay
expenses incurred with respect to defending claims pursuant to Section 10.5 of
the Merger Agreement shall not exceed 12% of the aggregate Closing Market
Value of all of the Escrow Shares and the aggregate Closing Market Value of all
Escrow Shares distributed to the Shareholder Representative and sold to pay any
other expenses incurred by the Shareholder Representative (together with any
Escrow Shares sold to pay the arbitration expenses of the Participating Holders
in accordance with Section 7(e)) shall not exceed 3% of the aggregate Closing
Market Value of all the Escrow Shares (collectively, the "Reimbursement
Shares"). In the event that the aggregate Claims and Set Aside Amounts exceed or
would exceed 85% of the Closing Market Value of all the Escrow Shares, the
Reimbursement Shares shall be held and distributed to the Shareholders'
Representative first, to the extent necessary to reimburse the Shareholders'
Representative as contemplated by this Section, and second, any remaining
Reimbursement Shares may be used to satisfy indemnification Claims of SWI or
held as a Set Aside Amount until all claims are satisfied or the Escrow Shares
are exhausted. At the direction of the Shareholders' Representative to
distribute Escrow Shares pursuant to this Section and the submission to the
Escrow Agent of documentation of the expenses incurred, the Escrow
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<PAGE> 57
Agent shall effect payment of such shares to the Shareholders' Representative by
surrendering such Escrow Shares to SWI's transfer agent and instructing the
transfer agent and to issue a certificate for the number of shares requested by
the Shareholders' Representative registered in the name of the Shareholders'
Representative and to issue a replacement certificate for the remaining Escrow
Shares to the Escrow Agent.
(e) To the extent that the Participating Holders are obligated to
pay arbitration expenses pursuant to Section 3(c), the Shareholders'
Representative shall be authorized to, and shall, direct the Escrow Agent to
distribute to the Shareholders' Representative for sale in the open market, that
number of Escrow Shares sufficient to generate net proceeds that will satisfy
such obligations; provided, however, the number of Escrow Shares distributed to
the Shareholders' Representative and sold for such purpose shall be subject to
the limitation set forth in Section 7(d) above. At the direction of the
Shareholders' Representative to distribute Escrow Shares pursuant to this
Section and the submission to the Escrow Agent of documentation of the expenses
incurred, the Escrow Agent shall effect payment of such shares to the
Shareholders' Representative by surrendering such Escrow Shares to SWI's
transfer agent and instructing the transfer agent to issue a certificate for the
number of shares requested by the Shareholders' Representative registered in the
name of the Shareholders' Representative and to issue a replacement certificate
for the remaining Escrow Shares to the Escrow Agent.
The Escrow Agent shall have no duty to determine, nor to verify any
calculations or limitations set forth in Section 7(d) above, and shall rely on
the Shareholders' Representative's request for shares to be within the
guidelines set forth herein.
(f) Notwithstanding anything to the contrary in this Agreement, the
Shareholders' Representative shall not have any personal liability to SWI, the
Escrow Agent or any other person as a result of this Agreement, except for any
liability (other than for a Claim itself or for any obligation of the
Participating Holders to pay expenses or indemnify the Escrow Agent, for which
the Shareholders' Representative shall not be liable) resulting from the gross
negligence or willful misconduct of the Shareholders' Representative.
8. Governing Law. This Agreement is governed by the laws of the State of
New York without regard to its conflict of law provisions, and shall inure to
the benefit of and be binding upon the successors, assigns, heirs and personal
representatives of the parties hereto.
9. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
documents together shall be considered one and the same document.
10. Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be deemed given when so delivered in
person, by overnight courier, by facsimile transmission (with receipt confirmed
by telephone or by automatic transmission report) or two business days after
being sent by registered or certified mail (postage prepaid, return receipt
requested), as follows, except with respect to the Escrow Agent as to which any
notice or communication shall be deemed to have been given on the date received
by the Escrow Agent:
TO SWI:
Stone & Webster Management Consultants, Inc.
245 Summer Street
Boston, Massachusetts 02210
Attention: President
Tel: (617) 589-1930
FAX: (617) 589-1372
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with a copy to:
Palmer & Dodge LLP
One Beacon Street
Boston, Massachusetts 02108
Attention: Steven N. Farber, Esq.
Tel: (617) 573-0234
FAX: (617) 227-4420
TO THE SHAREHOLDERS' REPRESENTATIVE:
Telephone:
Fax:
With a copy to:
Telephone:
Fax:
TO ESCROW AGENT:
The Chase Manhattan Bank
450 West 33rd Street
New York, New York 10001
Attention: Escrow Administration, 15th Floor
Tel: (212) 946-3290
Fax: (212) 946-8156
Addresses may be changed by written notice given pursuant to this section. Any
notice given hereunder may be given on behalf of any party by his counsel or
other authorized representative.
11. Amendments and Waivers. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived (either generally or
in a particular instance and either retroactively or prospectively), with the
written consent of SWI, the Shareholders' Representative and the Escrow Agent
or, in the case of a waiver, by the party waiving such rights. No waivers of or
exceptions to any term, condition, or provision of this Agreement, in any one or
more instances, shall be deemed to be, or construed as, a further or continuing
waiver of any such term, condition, or provision.
12. No Assignment. Neither this Agreement nor any right or interest
hereunder may be assigned in whole or in part by any party without the prior
written consent of the other parties.
13. Attorney's Fees and Expenses of Dispute Resolution. In the event of
any litigation among the parties hereto (including, without limitation, any
arbitration proceeding described in Section 3(c) above), the prevailing party in
such litigation or proceeding (based on the relative merits of their respective
positions) shall be entitled to recover all costs incurred in connection
therewith, including, without limitation, reasonable attorneys
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fees, provided that the costs of any arbitration proceeding shall be allocated
in the manner set forth in Section 3(c). In the event that either SWI or the
Participating Holders are obligated to pay the costs and expenses of the adverse
party in any such proceeding, a number of Escrow Shares having an aggregate
Closing Market Value equal to the amount of such expenses shall, to extent that
any Escrow Shares would otherwise be distributed to such party upon the
termination of the escrow, be deducted from the number of Escrow Shares which
would otherwise be distributed to such party and distributed to the party
entitled to payment of such expenses. SWI and the Participating Holders agree to
bear the costs and expenses arising as a result of the indemnification of the
Escrow Agent in accordance with Section 6(a) hereof in connection with any
litigation or arbitration proceeding in proportion to the relative merits of
their respective positions as determined in such litigation or arbitration
proceeding.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement under
seal as of the date first stated above.
STONE & WEBSTER, INCORPORATED
By:
---------------------------------------
Name:
------------------------------------
Title:
------------------------------------
SHAREHOLDERS' REPRESENTATIVE
------------------------------------------
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THE CHASE MANHATTAN BANK
as Escrow Agent
By:
---------------------------------------
Name:
------------------------------------
Title:
------------------------------------
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Schedule 1
Name, Address and Proportionate Interests of the Participating Holders
See attached pages.
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Schedule 2
Fees
1. Annual Administrative Fee - $5,000 per year or portion thereof
2. Legal Fees - As incurred, (initial legal document review waived)
3. $7.50 per check issued
4. $7.50 per stock certificate issued to a Participating Holder
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EXHIBIT B
AFFILIATE LETTER
_________________, 1998
Stone & Webster, Incorporated
245 Summer Street
Boston, Massachusetts 02210
Stone & Webster Management Consultants, Inc.
245 Summer Street
Boston, Massachusetts 02210
Ladies and Gentlemen:
Pursuant to the Agreement and Plan of Merger dated as of April 20, 1998
(the "Agreement") among Stone & Webster Management Consultants, Inc. ("SW"), a
New York corporation, Stone & Webster, Incorporated, a Delaware corporation, SW
Acquisition Corp. ("SWAC"), a Delaware corporation and Power Technologies, Inc.
("PTI"), a New York corporation, and certain shareholders of PTI, providing for
the merger of PTI into SWAC, a subsidiary of SW formed for the purpose of the
merger (the "Merger"), the undersigned will receive shares of common stock,
$1.00 par value, of Stone & Webster, Incorporated (the "SWI Shares") in exchange
for the shares of capital stock of PTI (the "PTI Stock") owned by the
undersigned in accordance with Section 1 of the Agreement. The undersigned has
been advised that as of the date the Agreement is submitted to the shareholders
of PTI for adoption, the undersigned may be an "affiliate" of PTI, as that term
is defined for purposes of paragraph (c) of Rule 145 of the Securities and
Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "Act"), although nothing contained herein shall be construed as an
admission of such fact.
A. In connection therewith, the undersigned represents, warrants and agrees
that:
1. Except as provided for in the Agreement, the undersigned has not, and
to the knowledge of the undersigned, the other shareholders of PTI have not
received any extraordinary distributions with respect to their PTI Stock in
contemplation of or in connection with the Merger, and to the knowledge of the
undersigned no such extraordinary distributions will be made prior to the
Merger. The undersigned has not engaged and has no current plan or intention to
engage in a Sale (as defined below) of the undersigned's PTI Stock, in
contemplation of or in connection with the Merger and for consideration other
than SWI Shares, to or with PTI or SWI or any corporation connected through
stock ownership with SWI or PTI, and to the knowledge of the undersigned, the
other shareholders of PTI have not engaged and have no plan (written or oral) to
engage in such a Sale of their PTI Stock. The undersigned has no plan or
intention, and the undersigned knows of no plan (written or oral) of the other
shareholders of PTI to engage in a Sale of the SWI Shares to be received in the
Merger, for consideration other than stock of SWI, to or with SWI or any
corporation connected through stock ownership with SWI. For these purposes, a
Sale is any sale, exchange, transfer or other transaction that reduces the risk
of ownership of the shares, and a Sale to a partnership shall be treated as a
Sale to each partner of the partnership, in proportion to that partner's
interest in the partnership.
2. The undersigned shall not engage in any Sale of the SWI Shares in
violation of the registration requirements of the Act or the rules and
regulations of the SEC thereunder.
3. The undersigned has been advised that if the undersigned is in fact an
"affiliate" of PTI at the time the Agreement was submitted for a vote of the
shareholders of PTI and the distribution by the undersigned of the SWI Shares
has not been registered under the Act, Rule 145 under the Act will restrict the
undersigned's sales of SWI Shares received in the Merger. The undersigned will
not sell or otherwise dispose of any SWI Shares, except pursuant to Rule 145(d)
under the Act, an effective registration statement under the Act or exemption
from the registration requirements under the Act (provided that the undersigned
may make bona fide gifts or distributions (including, if the undersigned is a
partnership, to its partners) without consideration, or transfers by operation
of
<PAGE> 64
law, so long as any donee or transferee agrees not to sell, transfer or
otherwise dispose of SWI Shares except as provided herein).
4. The undersigned has carefully read this letter and the Agreement and
has discussed the requirements of each and the limitations upon the disposition
of the SWI Shares received by the undersigned, to the extent deemed necessary,
with the undersigned's counsel.
B. The undersigned understands and agrees that:
1. Neither SW nor SWI is under any further obligation to register the
sale, transfer or other disposition of the SWI Shares or, except as provided in
paragraph C.1. below, to take any action necessary in order to make an exemption
from registration available.
2. Stop transfer instructions will be given to the transfer agent of SWI
with respect to the SWI Shares, and there will be placed on the certificate
representing such stock, or any certificates delivered in substitution or
exchange therefor, a legend stating in substance:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION TO
WHICH RULE 145 UNDER THE SECURITIES ACT OF 1933 (THE "ACT") APPLIES. THE
SECURITIES REPRESENTED BY THIS CERTIFICATE MAY ONLY BE TRANSFERRED IN ACCORDANCE
WITH RULE 145(d) OR AN EFFECTIVE REGISTRATION STATEMENT OR EXEMPTION FROM
REGISTRATION UNDER THE ACT."
3. Unless the transfer by the undersigned of the SWI Shares is a sale made
in conformity with the provisions of Rule 145(d), or made pursuant to a
registration statement under the Act, SWI reserves the right to put an
appropriate legend on the certificates issued to a transferee.
4. This agreement shall be binding upon and enforceable against
administrators, executors, representatives, heirs, legatees, devisees and
successors of the undersigned and any pledgee holding SWI Shares as collateral.
C. SWI represents and agrees as follows:
1. For so long as and to the extent necessary to permit the undersigned to
sell the SWI Shares pursuant to Rule 145 and, to the extent applicable, Rule 144
under the Act, SWI shall use its best efforts to file, on a timely basis, all
reports and data required to be filed with the SEC by it pursuant to Section 13
of the Securities Exchange Act of 1934 (the "1934 Act") so long as it is subject
to such requirement, furnish to the undersigned upon request a written statement
as to whether SWI has complied with such reporting requirements during the 12
months preceding any proposed sale under Rule 145 and otherwise use its
reasonable best efforts to permit such sales pursuant to Rule 145 and Rule 144.
SWI has filed all reports required to be filed with the SEC under Section 13 of
the 1934 Act during the preceding 12 months.
2. SWI agrees that the stop transfer instructions and legends referred to
in Paragraph B.2 hereof shall be terminated or removed if the undersigned shall
have delivered to SWI a copy of a letter from the staff of the SEC, an opinion
of counsel in form and substance satisfactory to SWI or other evidence
satisfactory to SWI, to the effect that such instructions and legends are not
required for the purposes of the Act.
D. This letter agreement is governed by and shall be construed in
accordance with the laws of the Commonwealth of Massachusetts.
Very truly yours,
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<PAGE> 65
--------------------------------------
Name:
Address:
Accepted this day of
, 1998
STONE & WEBSTER MANAGEMENT CONSULTANTS, INC.
By
-------------------------------
Title:
STONE & WEBSTER, INCORPORATED
By
-------------------------------
Title:
-3-
<PAGE> 66
EXHIBIT C
Schedule of Benefits
SW offers a broad package of standard benefits to its employees on a
nondiscriminating basis. The benefit package is made available to employees
immediately upon commencing employment. Eligibility and/or level of benefit for
some of the programs is dependent on service time with the company. For those
program plans that require a contribution from employees, such contribution is
also applied in a consistent and non-discriminatory manner.
During the period between the Effective Time of the Merger and June 30, 1999,
the President of the Surviving Corporation will evaluate each employee's total
compensation package and make appropriate adjustments, taking into account all
relevant factors, including, without limitation, changes in the value of
employee benefits resulting from the Merger.
To the extent that the benefits policy of PTI differs from the benefits policy
of SW, the following Schedule sets forth the basis upon which exceptional
consideration will be extended to employees of the Surviving Corporation for the
purposes of integrating the benefits policies of PTI and SW.
1.0 Health Insurance
1.1 Subsequent to the Effective Time and for the balance of the 1998
plan year, the existing PTI Health Insurance program will be
maintained.
1.2 For the plan year beginning in 1999, SW will establish a "Capital
District" local service level under its standard program to support
effective service delivery comparable to existing service delivery.
1.3 Starting in January 1999, for those PTI employees who were enrolled
in the PTI Health Insurance Plan and elect to enroll in the SW
Health Insurance Plan, quarterly payments will be made for two (2)
quarters to account for differences in employer contributions
between the plans. Such payments will, together with the payments
described in Sections 2.3 and 5.3 below, be referred to as "Interim
Payments".
1.4 No Interim Payments will be extended to part-time employees of PTI.
1.5 New hires to the Surviving Corporation after the Effective Time who
elect coverage under the company plan will be enrolled directly in
the SW Health Insurance Plan.
2.0 Dental Coverage
2.1 Subsequent to the Effective Time, and for the balance of the 1998
plan year, the existing PTI Dental Program will be maintained.
2.2 For the Plan year beginning in 1999, the PTI Dental program will be
replaced with the SW Dental program.
2.3 Starting in January 1999, for those PTI employees who were enrolled
in the PTI Dental Program, and elect to enroll in SW Dental Program,
quarterly payments will be made for two (2) quarters to account for
differences in employer contributions between the plans. Such
payments will also be referred to as "Interim Payments".
<PAGE> 67
2.4 No Interim Payments will be extended to part-time employees of PTI.
2.5 New hires to the company after the effective time, who elect
coverage under company plan, will be enrolled directly in the SW
Plan.
3.0 Life Insurance
3.1 Subsequent to the Effective Time, the PTI Life Insurance program
will be replaced by the SW Life Insurance program.
3.2 For all PTI employees of record at the Effective Time who continue
as employees of the Surviving Corporation, optional additional
coverage in the amount of 0.5 x Salary (Option 1) will be provided
at no additional cost to the Employee until the end of the second
quarter of 1999.
4.0 Short Term Disability
4.1 PTI employees of record at the Effective Time will receive credit
for PTI service for purposes of determining participation and
benefit calculation.
5.0 Long Term Disability
5.1 Subsequent to the Effective Time and for the balance of the 1998
plan year, the existing PTI LTD program will be maintained.
5.2 For the Plan year beginning in 1999, the PTI LTD program will be
replaced with the SW LTD program.
5.3 Starting in January 1999, for those PTI full-time employees who
elect to be enrolled in the SW LTD program, quarterly payments will
be made for two (2) quarters to account for differences in employer
contributions between the plans. Such payments will also be referred
to as "Interim Payments".
6.0 Vacation
6.1 PTI service credit will be applied toward SW vacation policy.
6.2 For those PTI employees with a vacation benefit under PTI's existing
vacation plan that exceeds the scheduled benefit under the SW
vacation plan based on service time, such PTI employees will be
entitled their annual vacation allowance for up to three (3) weeks
of vacation benefit.
6.3 For those PTI employees who experience a reduction in vacation time
as a result of converting to the SW vacation plan, no Interim
Payments will be made.
7.0 Termination Bonus
7.1 The PTI Termination Bonus Plan will be eliminated as of the
Effective Time.
8.0 Severance Benefit
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<PAGE> 68
8.1 PTI service credit will be credited toward the SW Severance Benefit.
9.0 Absence Time
9.1 Exempt employees: PTI service credit will be applied toward
determining STD supplement.
9.2 Non-exempt employees: Carry over a limited number of hours for
casual absence time, remaining accrued but untaken sick days will be
placed in a STD bank for use in STD episodes.
10.0 Dependent Care & Medical Flexible Spending Account (flex plan)
10.1 Subsequent to the Effective Time and for the balance of the 1998
plan year, the existing PTI Flex Plan will be maintained.
10.2 For the plan year beginning in 1999, PTI employees will be eligible
to participation in the SW Dependent Care Flex Plan.
10.3 If offered, for the plan year beginning 1999, PTI employees will be
eligible to participate in the SW Medical Reimbursement Flex Plan.
However, no such plan currently exists and may not be available for
the plan year beginning 1999.
11.0 Money Purchase Plan
No such equivalent SW plan option exists
12.0 401(k) Plan
12.1 Carry over eligible PTI service into SW 401 (k) plan for vesting
purposes only.
12.2 New plan participants who were PTI employees at the Effective Time
will be eligible to make immediate contributions.
13.0 ESOP
13.1 Carry over eligible PTI service into SW ESOP plan for vesting
purposes only.
14.0 Employee Retirement Plan
14.1 Carry over eligible PTI service into SW Retirement Plan for vesting
purposes only.
-3-
<PAGE> 1
EXHIBIT 3(i)
RESTATED CERTIFICATE OF INCORPORATION
OF
STONE & WEBSTER, INCORPORATED
AS AMENDED EFFECTIVE
MAY 10, 1990
<PAGE> 2
RESTATED CERTIFICATE OF INCORPORATION
OF
STONE & WEBSTER, INCORPORATED
First: The name of the Corporation is STONE & WEBSTER, INCORPORATED
(hereinafter referred to as the Corporation).
Second: The registered office of the Corporation is to be located at No.
100 West Tenth Street, City of Wilmington, County of New Castle, State of
Delaware. The name of its registered agent at such address is The Corporation
Trust Company.
Third: The nature of the business and purposes to be conducted or promoted
by the Corporation are to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State of
Delaware.
Fourth: The total number of shares which the Corporation shall have
authority to issue is Forty-Two Million (42,000,000) shares, of which Two
Million (2,000,000) shares without par value are to be Preferred Stock
(hereinafter called the "Preferred Stock") and Forty Million (40,000,000) shares
of the par value of $1 per share are to be Common Stock (hereinafter called the
"Common Stock").
Shares of stock of the Corporation, whether with or without par value, of
any class or classes hereby or hereafter authorized, may be issued by the
Corporation from time to time for such consideration permitted by law as may be
fixed from time to time by the Board of Directors. Said Board shall have
authority as provided by statute to determine that only a part of the
consideration which shall be received by the Corporation for any of the shares
of its stock which it shall issue from time to time shall be capital.
A statement of the designations of the different classes of stock of the
Corporation and of the powers, preferences and rights, and the qualifications,
limitations or restrictions thereof, in respect of the different classes of
stock of the Corporation, the fixing of which by the Certificate of
Incorporation is desired, and of the authority conferred upon the Board of
Directors to fix by resolution or resolutions any thereof in connection with the
creation of one or more series of the Preferred Stock and the limitation of
variations between or among such series, is as follows:
Division A. Preferred Stock
1. Series. (a) The Preferred Stock may be issued from time to time in
one or more series as herein provided. Each such series shall be
designated so as to distinguish the shares thereof from the shares
of all other series and shall have such voting powers, full, special
or limited, or no voting powers, and such designations, preferences
and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, as shall be
stated and expressed in the Certificate of Incorporation or any
amendment thereto or in the resolution or resolutions providing for
the issue of such stock adopted by the Board of Directors pursuant
to authority expressly vested in it by the provisions of the
Certificate of Incorporation. The shares of Preferred Stock of all
series shall be of equal rank and all shares of any particular
series of the Preferred Stock shall be identical, except that, if
the dividends thereon are cumulative, the date or dates from which
they shall be cumulative may differ. The terms of any series of
Preferred Stock may vary from the terms of any other series of
Preferred Stock to the full extent now or hereafter permitted by the
laws of the State of Delaware, and the terms of each series shall be
fixed, prior to the issuance thereof, in the manner provided in
subparagraph (b) of this paragraph. Without limiting the generality
of the foregoing, shares of Preferred Stock of different series may,
subject to any applicable provision of law, vary in respect of the
following terms:
2
<PAGE> 3
(i) the distinctive designation of such series and the number of
shares of such series;
(ii) the rate or rates at which shares of such series shall be
entitled to receive dividends, the conditions upon the payment of
such dividends, the times of payment of such dividends, the
relationship and preference, if any, of such dividends to dividends
payable on shares of any other class or classes of stock, and
whether such dividends shall be cumulative or non-cumulative, and,
if cumulative, the date or dates from which such dividends shall be
cumulative;
(iii) if shares of such series are subject to redemption, the time
or times and the price or prices at which, and the terms and
conditions on which, such shares shall be redeemable;
(iv) the preference of the shares of such series over shares of
junior stock (as hereinafter defined) as to both dividends and
assets in the event of any voluntary or involuntary liquidation or
dissolution or winding up or distribution of assets of the
Corporation;
(v) the obligation, if any, of the Corporation to purchase, redeem
or retire shares of such series and/or to maintain a fund for such
purpose, and the amount or amounts to be payable from time to time
for such purpose or into such fund, the number of shares to be
purchased, redeemed or retired and the other terms and conditions of
any such obligation;
(vi) the voting rights, if any, full, special or limited, to be
given the shares of such series, including without limiting the
generality of the foregoing, the right, if any, as a series or in
conjunction with other series or classes, to elect one or more
members of the Board of Directors either generally or at certain
times or under certain circumstances, and restrictions, if any, on
particular corporate acts without a specified vote or consent of
holders of such shares (such as, among others, restrictions on
modifying the terms of such series of the Preferred Stock,
authorizing or issuing additional shares of Preferred Stock or
creating any class of stock ranking prior to or on a parity with the
Preferred Stock as to dividends or assets);
(vii) the right, if any, to exchange or convert the shares of such
series into shares of any other class or classes, or of any other
series of the same or any other class or classes of stock of the
Corporation, and if so convertible or exchangeable, the conversion
price or prices, or the rates of exchange, and the adjustments, if
any, at which such conversion or exchange may be made; and
(viii) any other preferences, and relative, participating, optional
or other special rights, and qualifications, limitations or
restrictions thereof.
The term "junior stock" as used in this Article Fourth with respect to the
Preferred Stock means the Common Stock, as well as any other class of stock of
the Corporation at any time ranking junior to the Preferred Stock as to
dividends or assets.
(b) Authority is hereby expressly granted to and vested in the Board
of Directors at any time or from time to time to issue the Preferred
Stock as Preferred Stock of any series and, in connection with the
creation of each such series, so far as not inconsistent with the
provisions of this Article Fourth applicable to all series of
Preferred Stock, to fix, by resolution or resolutions providing for
the issue of shares thereof the authorized number of shares of such
series, which number may be increased (unless otherwise provided by
the Board of Directors in creating such series) or decreased (but
not below the number of shares thereof then outstanding) from time
to time by like action of the Board of Directors, the voting powers
of such series and the designations, rights, preferences, and
relative, participating, optional or
3
<PAGE> 4
other special rights, and the qualifications, limitations or
restrictions thereof, of such series.
2. Dividends. The holders of Preferred Stock of each series shall be
entitled to receive, but only when and as declared by the Board of
Directors, out of the assets of the Corporation legally available
for dividends, cash dividends at the rate for such series, on such
conditions and at such times as shall be fixed as herein provided,
before any sum or sums shall be set aside for or applied to the
purchase or redemption of Preferred Stock of any series or the
purchase, redemption or other acquisition for value of any junior
stock and before any dividend (other than a dividend in shares of
Common Stock) shall be paid or declared, or any other distribution
shall be ordered or made, upon any junior stock. All dividends
declared upon the Preferred Stock of the respective series
outstanding shall be declared pro rata so that the amounts of
dividends declared per share on the Preferred Stock of different
series shall in all cases bear to each other the same ratio that the
respective dividend rights per share of such respective series bear
to each other.
3. Preference on Liquidation. (a) In the event of any voluntary or
involuntary liquidation or dissolution or winding up of the
Corporation, the Preferred Stock of all series shall be preferred
over all junior stocks as to both dividends and assets and the
holders of Preferred Stock of each series shall be entitled to
receive, out of the assets of the Corporation available for
distribution to its stockholders, whether from capital, surplus or
earnings, such amount as shall be fixed as herein provided, before
any distribution of such assets shall be made to the holders of
junior stocks; and in the event of any such distribution of assets,
the holders of the junior stocks shall be entitled, to the exclusion
of the holders of Preferred Stock of all series, to share in all
assets of the Corporation then remaining as hereinafter in this
Article Fourth provided. If upon any voluntary or involuntary
liquidation or dissolution or winding up of the Corporation, the
amounts payable as aforesaid on or in respect of the Preferred Stock
of all series are not paid in full, the holders of shares of
Preferred Stock of all series shall be entitled, to the exclusion of
holders of the junior stocks, to share ratably in any distribution
of assets according to the respective amounts which would be payable
in respect of the shares held by them, respectively, upon such
distribution if all amounts payable on or in respect of the
Preferred Stock of all series were paid in full.
(b) A merger or consolidation of the Corporation with or into any
other corporation or a sale or conveyance of all or any part of the
assets of the Corporation (which shall not in fact result in the
liquidation of the Corporation and the distribution of assets to
stockholders) shall not be deemed to be a voluntary or involuntary
liquidation or dissolution or winding up of the Corporation within
the meaning of this paragraph 3.
4. Redemption and Purchase. The Preferred Stock of all series, or of
any series thereof, or any part of any series thereof, at any time
outstanding, may be redeemed by the Corporation, at its election
expressed by resolution of the Board of Directors, subject to any
limitation contained in the resolution or resolutions providing for
the issue of Preferred Stock of such series adopted by the Board of
Directors as herein provided, at any time or from time to time, upon
not less than thirty (30) days' previous notice in writing to the
holders of record of the Preferred Stock to be redeemed, given by
mail in such manner as may be prescribed by resolution or
resolutions of the Board of Directors, at the then applicable
redemption price fixed as herein provided; provided, however, that
Preferred Stock of any series may be redeemed only after dividends
upon the Preferred Stock of all series then outstanding, at the rate
for each such series and on such conditions as shall have been fixed
as herein provided, shall have been paid, or declared and set aside
for payment. If less than all of the Preferred Stock of any series
at the time outstanding is to be redeemed, the redemption may be
made either by lot or pro rata in such manner as may be prescribed
by resolution of the Board of
4
<PAGE> 5
Directors. From and after the date fixed in any such notice as the
date of redemption (unless default shall be made by the Corporation
in providing moneys for the payment of the redemption price pursuant
to such notice), or, if the Corporation shall so elect, from and
after a date (hereinafter called the "date of deposit" and which
shall be prior to the date fixed as the date of redemption) on which
the Corporation shall provide moneys for the payment of the
redemption price by depositing the amount thereof for the account of
the holders of Preferred Stock entitled thereto with a bank or trust
company doing business in the Borough of Manhattan, in the City of
New York, and having capital and surplus of at least Five Million
Dollars ($5,000,000) pursuant to notice of such election included in
the notice of redemption specifying the date on which such deposits
will be made, all dividends on the Preferred Stock thereby called
for redemption shall cease to accrue and all rights of the holders
thereof as stockholders of the Corporation, except the right to
receive the redemption price as hereinafter provided and, in the
case of such deposits, any conversion or exchange rights not
theretofore expired, shall cease and terminate. Such conversion or
exchange rights, however, shall cease and terminate upon the date
fixed for redemption or upon any earlier date fixed in the
resolution or resolutions providing for the issue of Preferred Stock
of such series adopted by the Board of Directors as herein provided.
After the deposit of such amount with such bank or trust company,
the respective holders of record of the Preferred Stock to be
redeemed shall be entitled to receive the redemption price at any
time upon surrender to such bank or trust company of the
certificates for the shares to be redeemed. Any moneys so deposited
which shall remain unclaimed by the holders of such Preferred Stock
at the end of six (6) years after the redemption date, together with
any interest thereon which shall be allowed by the bank or trust
company with which the deposit shall have been made, shall be paid
by such bank or trust company to the Corporation.
The Corporation shall also have power, at any time or from time to time,
to purchase, either at public or private sale or pursuant to any sinking or
purchase fund or agreement, the whole or any part of the Preferred Stock or of
any series thereof upon the best terms believed reasonably obtainable or
provided for in any such sinking or purchase fund or agreement, but in no event
at a price in respect of any shares of Preferred Stock greater than the then
current redemption price thereof. Any redemption or purchase of Preferred Stock
may be effected by payment out of the net profits or surplus of the Corporation
or by the application of capital, all to the extent and in the manner at the
time permitted by the laws of the State of Delaware, except that no redemption
or purchase of less than all the Preferred Stock may be effected by the
Corporation at any time when dividends on the Preferred Stock are in arrears.
Subject to such limitations, if any, as may be provided in the resolution
or resolutions providing for the issue of Preferred Stock of any series adopted
by the Board of Directors as herein provided, shares of Preferred Stock
purchased, redeemed or otherwise acquired by the Corporation (excepting shares
of such Stock acquired on the conversion or exchange thereof into or for other
shares of the Corporation) (a) shall, upon the filing by the Corporation of a
certificate pursuant to the laws of the State of Delaware reducing its capital
in respect of such shares, have the status of authorized and unissued shares of
Preferred Stock and may be reissued by the Corporation at any time as shares of
any series of Preferred Stock and (b) shall, unless and until a certificate with
respect thereto is filed as aforesaid, constitute treasury stock; and shares of
Preferred Stock acquired on the conversion or exchange thereof into or for other
shares of the Corporation shall, after such conversion or exchange, have the
status of authorized and unissued shares of Preferred Stock and may be reissued
by the Corporation at any time as shares of any Preferred Stock.
5. Voting Rights. The holders of the Preferred Stock shall have no
voting rights of any kind except as required by law and except for
such voting rights, if any, full, special or limited, as may be
given to shares of any one or more series of Preferred Stock in the
resolution or resolutions providing for the issue thereof adopted by
the Board of Directors as herein provided.
5
<PAGE> 6
Division B. Common Stock
6. Dividends. After dividends upon the Preferred Stock of all series
then outstanding shall have been paid, or declared and set apart for
payment, as contemplated in paragraph 2 of this Article Fourth, and
after payment of any amounts required to be applied or set aside in
respect of any sinking or purchase fund for each series of Preferred
Stock then outstanding and entitled to the benefit of a sinking or
purchase fund shall have been made or provided for, then, and not
otherwise, the holders of Common Stock shall be entitled to receive,
to the exclusion of holders of Preferred Stock of all series, such
dividends as may from time to time be declared by the Board of
Directors.
7. Purchases. Subject to any applicable provisions of paragraph 2 of
this Article Fourth or to any limitations provided for in connection
with any sinking or purchase fund for any series of the Preferred
Stock or with any other terms of such series, the Corporation may at
any time or from time to time purchase shares of its Common Stock in
any manner now or hereafter permitted by law, publicly or privately,
or pursuant to any agreement.
8. Distribution of Assets. In the event that the Corporation shall be
liquidated, dissolved or wound up, after there shall have been paid
to or set aside for the holders of the Preferred Stock of all series
then outstanding the full preferential amounts to which they are
respectively entitled under the provisions of paragraph 3 of this
Article Fourth, the holders of the Common Stock shall be entitled to
receive pro rata and to the exclusion of the Preferred Stock of all
series, all of the remaining assets of the Corporation available for
distribution to its stockholders.
9. Voting Rights. Subject to the voting rights of the Preferred Stock
provided for or contemplated in paragraph 5 of this Article Fourth,
the holders of shares of Common Stock shall exclusively possess the
voting power of the Corporation for all purposes.
Fifth: The private property of the stockholders of this Corporation shall
not be subject to the payment of corporate debts to any extent whatever.
Sixth: The following provisions are inserted for the management of the
business and for the conduct of the affairs of this Corporation and for
regulating the powers of this Corporation and its directors and stockholders:
(1) The number of directors which shall constitute the whole Board shall
be such as from time to time shall be fixed by the by-laws, but in
no case shall the Board be less than three. No director shall be
elected by stockholders except by the vote of a majority of all
votes entitled to be cast in such election by all of the outstanding
shares of all classes of capital stock of the Corporation. The
directors of the Corporation shall be divided into three classes,
the number of directors fixed by the by-laws being divided equally
so far as possible among the three classes. The term of office of
one-third of the directors elected at the 1972 annual meeting of the
stockholders shall expire at the annual meeting next ensuing, the
term of one-third of the directors shall expire one year thereafter
and the term of one-third of the directors shall expire two years
thereafter, and at each annual election after the 1972 annual
meeting, the directors shall be elected for a full term of three
years to succeed those whose terms then expire. In case of any
increase in the number of directors, the additional directors shall
be distributed among the several classes as nearly equally as is
possible. Any such additional directors shall be elected, and
(subject to paragraph (2) of this Article Sixth) any vacancies in
the Board shall be filled, by the directors or stockholders at the
time having voting power as may be prescribed in the by-laws of the
Corporation, subject to any applicable provisions of law. The
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directors need not be stockholders, and the election of directors
need not be by written ballot.
(2) Any director may be removed from office, but only for cause, at a
meeting called for the purpose and by the affirmative approval of
holders of shares of capital stock of the Corporation entitled to
cast at least a majority of the votes at the time entitled to be
cast generally in the election of directors by all of the
outstanding shares of all classes of capital stock of the
Corporation, considered for the purposes of this paragraph (2) of
Article Sixth as one class; provided, however, that if the Board of
Directors, by vote of two-thirds of all the directors then in
office, shall have recommended removal of a director, then
stockholders may remove such director from office by the foregoing
procedure without cause. If any director shall be removed pursuant
to this paragraph (2), then the stockholders of the Corporation may,
at the meeting at which such removal is effected, elect his
successor.
(3) The Board of Directors may by resolution or resolutions, passed by a
majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the
Corporation, which, to the extent provided in said resolution or
resolutions or in the by-laws of the Corporation, shall have and may
exercise the powers of the Board in the management of the business
and affairs of the Corporation and may have the power to authorize
the seal of the Corporation to be affixed to all papers which may
require it; but no such committee shall have the power or authority
in reference to amending the certificate of incorporation, adopting
an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all
of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a
dissolution, or amending the by-laws of the Corporation; and, unless
the resolution or resolutions or the by-laws of the Corporation
expressly so provide, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of
stock. Such committee or committees shall have such name or names as
may be stated in said by-laws or as may be determined from time to
time by resolution adopted by the Board.
(4) The Board of Directors shall have power to make, amend or repeal the
by-laws of the Corporation except as otherwise provided in a by-law
adopted by the incorporators or stockholders at the time having
voting power; but by-laws so made or amended by the directors may be
amended or repealed by such stockholders.
(5) The Board of Directors shall have authority from time to time to set
apart out of any assets of the Corporation otherwise available for
dividends a reserve or reserves as working capital or for any other
proper purpose or purposes, and to abolish or add to any such
reserve or reserves from time to time as said Board may deem to be
in the interests of the Corporation; and said Board shall likewise
have power to determine in its discretion what part of the assets of
the Corporation available for dividends in excess of such reserve or
reserves shall be declared in dividends and paid to the stockholders
of the Corporation.
(6) No holder of stock, or of rights or options to purchase stock, of
the Corporation of any class shall, as such, have any preemptive or
preferential right of subscription to any shares of stock, or rights
or options to purchase stock, of the Corporation of any class,
whether now or hereafter authorized, or to any obligations
convertible into stock or into rights or options to purchase stock
of the Corporation (including any notes, bonds or other evidences of
indebtedness to which are attached or with which are issued warrants
or other rights to purchase any stock of the Corporation), issued or
sold, or any right of subscription to any thereof other than such,
if any, as the Board of Directors in its discretion may from time to
time determine pursuant to the authority conferred by this
Certificate. Shares of stock, rights or options to purchase stock,
or obligations convertible into stock or into rights or options to
purchase stock, of the Corporation may from time to time be issued
and sold to such parties,
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whether stockholders or others, as the Board of Directors in its
discretion may determine.
(7) A director of the Corporation shall not in the absence of fraud be
disqualified by his office from dealing or contracting with the
Corporation either as a vendor, purchaser or otherwise, nor in the
absence of fraud shall any transaction or contract of the
Corporation be void or voidable or affected by reason of the fact
that any director, or any firm of which any director is a member, or
any corporation of which any director is an officer, director or
stockholder, is in any way interested in such transaction or
contract, provided that at the meeting of the Board of Directors or
of a committee thereof having authority in the premises, authorizing
or confirming said contract or transaction, the existence of an
interest of such director, firm or corporation is disclosed or made
known and there shall be present a quorum of the Board of Directors
or of directors constituting such committee, and such contract or
transaction shall be approved by a majority of such quorum, which
majority shall consist of directors not so interested or connected.
A general notice spread upon the minutes of the Board of Directors
or of any committee thereof that a director is a member of any firm
or an officer, director or stockholder of any corporation and is to
be regarded as interested in any subsequent transaction with such
firm or corporation, shall be a sufficient disclosure under the
foregoing provision, and after such general notice it shall not be
necessary to give any special notice relating to any particular
transaction with such firm or corporation. Nor shall any director be
liable to account to the Corporation for any profit realized by him
from or through any such transaction or contract of the Corporation
ratified or approved as aforesaid, by reason of the fact that he or
any firm of which he is a member, or any corporation of which he is
a stockholder, director or officer, was interested in such
transaction or contract. Directors so interested may be counted when
present at meetings of the Board of Directors or of such committee
for the purpose of determining the existence of a quorum. Any
contract, transaction or act of the Corporation or of the Board of
Directors or of any committee thereof (whether or not approved or
ratified as hereinbefore provided) which shall be ratified by a
majority in interest of a quorum of the stockholders having voting
power at any annual meeting or any special meeting called for such
purpose, or approved in writing by a majority in interest of the
stockholders having voting power without a meeting, shall be as
valid and as binding as though ratified by every stockholder of the
Corporation.
(8) The Corporation shall have the power to purchase, hold, sell and
transfer shares of its own stock; provided that, except as otherwise
permitted by law, it shall not use its funds or property for the
purchase of its own shares of stock when such use would cause any
impairment of the capital of the Corporation; and provided further
that shares of its own stock belonging (a) to the Corporation or (b)
to another corporation, if a majority of the shares entitled to vote
in the election of directors of such other corporation is held
directly or indirectly by the Corporation, shall neither be entitled
to vote nor counted for quorum purposes.
(9) The Board of Directors shall have power from time to time to
determine to what extent and at what times and places and under what
conditions and regulations the accounts and books of the
Corporation, or any of them, shall be open to the inspection of the
stockholders; and no stockholder shall have any right to inspect any
account or book or document of the Corporation, except as conferred
by the laws of the State of Delaware, unless and until authorized so
to do by resolution of the Board of Directors or of the stockholders
of the Corporation.
(10) The Board of Directors shall have power from time to time to
establish in favor of the officers and/or employees of the
Corporation and the officers and/or employees of any company which
may be a subsidiary of or affiliated with the Corporation (including
officers and employees who may be Directors of the Corporation
and/or any such subsidiary or affiliated company)
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<PAGE> 9
any plan of profit sharing or other plan providing for any payment
for services rendered to the Corporation or such subsidiary or
affiliated company out of or based upon the net profits of the
Corporation and/or any such subsidiary or affiliated company.
(11) Without assent or other action of the stockholders of the
Corporation, the Board of Directors may consent to the dissolution
or merger or consolidation of any other corporation or corporations
or the sale, merger, mortgage, pledge or other disposition of all or
any part of the assets of any corporation or corporations, the stock
of which corporation or corporations so to be dissolved, merged or
consolidated or whose assets are so to be sold, mortgaged, pledged
or otherwise disposed of, is owned in whole or in part by the
Corporation; provided, however, that without the consent of the
holders of a majority in amount of the stock outstanding, the Board
of Directors shall not consent to the sale of the stock owned by the
Corporation in any corporation which has as a part of its corporate
title at the time of such sale the words "Stone & Webster" either
alone or in combination with other words, to such an extent as to
reduce the stock owned by the Corporation in such corporation below
the voting control thereof; and provided further, that without such
consent the Board of Directors shall not consent to any merger or
dissolution or other corporate transaction the effect of which would
be to release from the control of the Corporation any corporation
which has in its corporate title at the time the words "Stone &
Webster" either alone or in combination with other words.
(12) Except as otherwise provided in the by-laws, the stockholders of the
Corporation and the Board of Directors may hold their meetings and
have an office or offices outside of the State of Delaware, and,
subject to the provisions of the laws of said State, may keep the
books of the Corporation outside of said State at such places as
may, from time to time, be designated by the Board of Directors.
(13) Any action required to be taken, or which may be taken, by the
stockholders of the Corporation must be effected at an annual or
special meeting of stockholders of the Corporation and may not be
effected by any consent in writing by such stockholders.
(14) The Corporation shall indemnify each director, officer, employee and
agent of the Corporation, his heirs, executors, administrators and
all other persons whom the Corporation is authorized to indemnify
under the provisions of the General Corporation Law of the State of
Delaware, to the fullest extent permitted by law, (a) against all
expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in
connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation), or in
connection with any appeal therein, or otherwise, and (b) against
all expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of any
action or suit by or in the right of the Corporation, or in
connection with any appeal therein, or otherwise; and no provision
hereof is intended to be construed as limiting, prohibiting, denying
or abrogating any of the general or specific powers or rights
conferred under the General Corporation Law of the State of Delaware
upon the Corporation to furnish, or upon any court to award, such
indemnification, or indemnification as otherwise authorized pursuant
to the General Corporation Law of the State of Delaware or any other
law now or hereafter in effect.
(15) Without limiting the generality of the foregoing, no director shall
be personally liable to the Corporation or its stockholders for
monetary damages for any breach of fiduciary duty by such director
as a director. Notwithstanding the foregoing sentence, a director
shall be liable to the extent provided by applicable law (i) for
breach of the Director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which
involve
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intentional misconduct or a knowing violation of law, (iii) pursuant
to Section 174 of the Delaware General Corporation Law or (iv) for
any transaction from which the director derived an improper personal
benefit. No amendment to or repeal of this paragraph 15 shall apply
to or have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to any acts or
omissions of such director occurring prior to such amendment.
Seventh: A. Except as otherwise expressly provided in paragraph D of this
Article Seventh, and notwithstanding the provisions of paragraphs (7) and (11)
of Article Sixth:
(1) any merger or consolidation of the Corporation or any subsidiary of
the Corporation with or into any other corporation;
(2) any sale, lease, exchange or other disposition of all or any
substantial part of the assets of the Corporation or any subsidiary
of the Corporation to or with any other corporation, person or other
entity;
(3) any issuance or transfer by the Corporation or any subsidiary of the
Corporation of any of its securities to any other corporation,
person or other entity in exchange for assets or securities or a
combination thereof (except assets or securities or a combination
thereof so acquired in a single transaction or a series of related
transactions having an aggregate fair market value of less than
$3,000,000 and except for any exchange offer made pro rata to all of
the holders of any class or classes of securities of the Corporation
or any subsidiary of the Corporation or to all holders of less than
a specified amount of any such class or classes of securities);
(4) any issuance or transfer by the Corporation or any subsidiary of the
Corporation of any of its securities to any other corporation,
person or other entity for cash (except pursuant to an offer or
distribution made pro rata to all of the holders of any class or
classes of securities of the Corporation or any subsidiary of the
Corporation); or
(5) any loan, sale of any asset upon deferred payment terms, or other
extension of credit, by the Corporation or any subsidiary of the
Corporation to, or any other payment by the Corporation or any
subsidiary of the Corporation not made in the ordinary course of its
business to, any other corporation, person or other entity, or any
purchase from any other corporation, person or other entity by the
Corporation or any subsidiary of the Corporation of securities
issued by such other corporation, person or other entity;
either directly or indirectly, shall not be effected by the Corporation, or
approved by the Corporation as the stockholder of any subsidiary of the
Corporation, unless authorized by the affirmative approval of holders of shares
of capital stock of the Corporation entitled to cast at least two-thirds of the
votes at the time entitled to be cast generally in the election of directors by
all of the outstanding shares of all classes of capital stock of the
Corporation, considered for the purposes of this Article Seventh as one class,
if, at the time of the stockholder vote on any such transaction or immediately
prior to the consummation of any such transaction, such other corporation,
person or other entity is the beneficial owner, directly or indirectly, of
either 5% or more of the outstanding shares of Common Stock of the Corporation
or of shares of capital stock of the Corporation entitled to cast 5% or more of
the votes at the time entitled to be cast generally in the election of directors
by all of the outstanding shares of all classes of capital stock of the
Corporation, considered for the purposes of this Article Seventh as one class
(any such other corporation, person or other entity being hereinafter referred
to as a "5% Holder"). Such affirmative vote shall be required notwithstanding
the fact that no vote may be required, or that some lesser percentage may be
specified, by law or in any agreement with any national securities exchange.
B. Except as otherwise expressly provided in paragraphs C and D of this
Article Seventh, and notwithstanding the provisions of paragraph (7) of Article
Sixth, none of the following transactions (hereinafter
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called "Second Step Transactions"), namely:
(1) any merger or consolidation of the Corporation with or into any
person, corporation, or other entity, which is the beneficial owner,
directly or indirectly, of either 10% or more of the outstanding
shares of Common Stock of the Corporation or of shares of capital
stock of the Corporation entitled to cast 10% or more of the votes
at the time entitled to be cast generally in the election of
directors by all of the outstanding shares of all classes of capital
stock of the Corporation, considered for this purpose as one class
(hereinafter called a "10% Holder");
(2) any sale, lease, exchange or other disposition of all or
substantially all of the assets of the Corporation to or with a 10%
Holder;
(3) any issuance or transfer by the Corporation or any subsidiary of the
Corporation of any shares of any class of stock of the Corporation,
shares of which are owned by a 10% Holder (each such class being
hereinafter called a "Protected Class") to any 10% Holder, with or
without consideration, except for any distribution of shares of such
Class made pro rata to all of the holders of shares of such Class;
or
(4) any other transaction or series of transactions which has the effect
of eliminating or diluting the voting rights, preferences, or
relative participating, optional, or other special rights of the
shares of a Protected Class, directly or indirectly (by issuance of
shares of the Protected Class, shares of any other class having
rights or preferences either prior or equal to those of the
Protected Class (other than shares of a non-voting,
non-participating, non- convertible class or series of stock)),
reclassification of outstanding shares, or otherwise);
shall be effected, either directly or indirectly, by the Corporation, or
approved by the Corporation as the stockholder of any subsidiary of the
Corporation, unless authorized by the affirmative approval of holders of both:
(x) shares of capital stock of the Corporation entitled to cast at
least 80% of the votes at the time entitled to be cast
generally in the election of directors by all of the
outstanding shares of all classes of capital stock of the
Corporation, considered for this purpose as one class; and
(y) shares of the capital stock of the Corporation (excluding
shares beneficially owned by a 10% Holder) entitled to cast at
least a majority of the votes at the time entitled to be cast
generally in the election of directors by all of the
outstanding shares of all classes of capital stock of the
Corporation (excluding shares beneficially owned by a 10%
Holder), considered for this purpose as one class.
Such affirmative vote shall (i) be required notwithstanding the fact that no
vote may be required, or that some lesser percentage may be specified, by law or
in any agreement with any national securities exchange and (ii) be effective
only if taken following distribution to all Stockholders entitled to vote of a
proxy statement responsive to the requirements of the Securities Exchange Act of
1934, as amended, relating to the Second Step Transaction and containing an
opinion by an independent investment banking firm with respect to the fairness
of the Second Step Transaction to the Stockholders (other than any 10% Holder).
C. The provisions of paragraph B of this Article Seventh shall not apply
to any Second Step Transaction, and such Second Step Transaction shall require
only such affirmative vote as is required by law or by any other provision of
this Restated Certificate of Incorporation, if all of the following conditions
are met with respect to all shares of stock of each Protected Class (other than
those beneficially owned by any 10% Holder), namely:
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(1) The consideration to be received by holders of stock of the
Protected Class shall be in cash or in the same form as the 10%
Holder has previously paid for shares of such Protected Class. If
the 10% Holder has paid for shares of such stock with varying types
of consideration, the consideration to be received by holders of
stock of such Protected Class shall be either cash or the form used
to acquire the largest number of shares of such Class previously
acquired by the 10% Holder.
(2) Such Second Step Transaction shall involve, or be accompanied by an
offer for, the acquisition of all outstanding shares of the
Protected Class (other than those beneficially owned by any 10%
Holder) for a consideration having a Fair Market Value, as defined
in subparagraph (3) below, as of the date of the consummation of the
Second Step Transaction at least equal to the higher of:
(a) the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid
by the 10% Holder for any share of stock of such Protected
Class previously acquired by it; and
(b) a price per share equal to the Fair Market Value per share of
stock of such Protected Class on the date of the first public
disclosure of the proposed Second Step Transaction
(hereinafter called the "Announcement Date") multiplied by the
ratio of (1) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by the 10% Holder for any shares of stock of such
Protected Class acquired by it in the transaction or
transactions by which it became a 10% Holder, to (2) the lower
of the Fair Market Value per share of stock of such Protected
Class immediately prior to the first public disclosure of such
transaction(s), or the commencement of such transaction(s).
A Second Step Transaction which would not otherwise involve any acquisition of
shares of the Protected Class shall be accompanied by a purchase of all such
shares (other than those beneficially owned by any 10% Holder) complying with
the requirements of this paragraph C in order to be entitled to the exception
provided by this paragraph C.
(3) The term "Fair Market Value" as used in this paragraph C means: (i)
in the case of cash, the dollar amount thereof; (ii) in the case of
stock, the highest closing sale price during the 30-day period
immediately preceding the date in question of a share of such stock
on the Composite Tape for New York Stock Exchange- Listed Stocks,
or, if such stock is not quoted on the Composite Tape, on the New
York Stock Exchange, or, if such stock is not listed on such
Exchange, on the principal United States securities exchange
registered under the Securities Exchange Act of 1934 on which such
stock is listed, or, if such stock is not listed on any such
exchange, the highest closing bid quotation with respect to a share
of such stock during the 30- day period preceding the date in
question on the National Association of Securities Dealers, Inc.
Automated Quotations System or any system then in use, or if no such
quotations are available, the fair market value on the date in
question of a share of such stock as determined by the Board of
Directors of the Corporation in good faith; (iii) in the case of
property other than cash or stock, the fair market value of such
property on the date in question as determined in good faith by the
Board of Directors of the Corporation; and (iv) in any Second Step
Transaction in which the Corporation survives, the consideration
received by stockholders shall include the shares of any class
retained by the holders of such shares.
(4) After such 10% Holder has become a 10% Holder and prior to the
consummation of such Second Step Transaction, except as approved by
the Board of Directors of the Corporation (which approval shall be
effective only if given by a vote of two-thirds of all of the
Directors
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of the Corporation then in office, and only if, subsequent to the
time said 10% Holder became such, no person shall have been elected
by stockholders as a director of the Corporation in opposition to
the recommendation of management of the Corporation for whose
election any shares beneficially owned by such 10% Holder were
voted):
(a) there shall have been no reduction in the annual rate of
dividends on shares of such Protected Class in effect at the
time the 10% Holder became such and there shall have been no
failure to declare or pay dividends on such shares on the
regular declaration and payment dates;
(b) such 10% Holder shall not have become the beneficial owner of
any additional shares of such Protected Class at a price lower
than that required under subparagraph (2) above, except as
part of the transaction(s) which resulted in such 10% Holder
becoming such; and
(c) after such 10% Holder has become such, it shall not have
received the benefit, directly or indirectly (except as a
stockholder, pro rata with other stockholders), of any loans,
advances, guarantees, pledges or other financial assistance or
any tax credits or other tax advantages provided by the
Corporation, whether in anticipation of or in connection with
such Second Step Transaction, or otherwise.
None of the provisions of this paragraph C or any other paragraph of this
Article Seventh shall be deemed to relieve any 5% or 10% Holder of any fiduciary
or other obligations imposed by law.
D. The provisions of this Article Seventh shall not apply to any
transaction (i) with a corporate 5% or 10% Holder if shares of capital stock of
such corporate 5% or 10% Holder entitled to cast at least a majority of the
votes at the time entitled to be cast generally in the election of directors by
all of the outstanding shares of all classes of capital stock of such corporate
5% or 10% Holder, considered for this purpose as one class, are owned
beneficially by the Corporation and/or one or more of the subsidiaries of the
Corporation; (ii) with any pension or savings plan fund or other program for the
benefit of employees of the Corporation or any subsidiary of the Corporation; or
(iii) with a 5% Holder to which paragraph A of this Article Seventh is
applicable, if the Board of Directors of the Corporation shall by resolution
have approved, by vote of two-thirds of all of the directors of the Corporation
then in office, such transaction at any time prior to the consummation thereof
if subsequent to the time said 5% Holder became a 5% Holder no person shall have
been elected by stockholders as a director of the Corporation in opposition to
the recommendation of management of the Corporation for whose election any
shares beneficially owned by said 5% Holder were voted.
E. For the purposes of this Article Seventh, a corporation, person or
other entity shall be deemed to be the beneficial owner of any shares of stock
of the Corporation (i) which it has the right to vote or to acquire pursuant to
any agreement, or upon exercise of conversion rights, warrants or options, or
otherwise, or (ii) which are beneficially owned, directly or indirectly
(including shares deemed owned through application of clause (i) above), by any
other corporation, person or other entity (x) with which it or any of its
"affiliates" or "associates" (as defined below) has any agreement, arrangement
or understanding for the purpose of acquiring, holding, voting or disposing of
stock of the Corporation or (y) which is its "affiliate" or "associate" or (iii)
which have been disposed of within one year of the consummation of the Second
Step Transaction involved. For the purposes of this Article Seventh, (1) the
outstanding shares of any class of capital stock of the Corporation shall
include shares deemed owned through the application of clauses (i) and (ii) of
this paragraph E but shall not include any other shares which may be issuable
pursuant to any agreement, or upon exercise of conversion rights, warrants or
options, or otherwise, (2) an "affiliate" of, or a person "affiliated" with, a
specified person, is a person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the person specified, and (3) the term "associate" used to indicate a
relationship with any person, means (i) any corporation or organization (other
than the Corporation or
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a majority-owned subsidiary of the Corporation) of which such person is an
officer or partner or is, directly or indirectly, the beneficial owner of 10
percent or more of any class of equity securities, (ii) any trust or other
estate in which such person has a substantial beneficial interest or as to which
such person serves as trustee or in a similar fiduciary capacity, and (iii) any
relative or spouse of such person, or any relative of such spouse, who has the
same home as such person or who is a director or officer of the Corporation or
any of its affiliates.
F. The Board of Directors of the Corporation, when evaluating any merger,
reorganization, tender offer or other similar proposal, shall in connection with
the exercise of its judgment as to what is in the best interest of the
Corporation and its stockholders, give due consideration to the following:
(1) the consideration to be received by the Corporation or its
stockholders in connection with such transaction in relation
not only to the then- current market price for the outstanding
capital stock of the Corporation, but also to the market price
for the capital stock of the Corporation over a period of
years, the estimated price that might be achieved in a
negotiated sale of the Corporation as a whole or in part
through orderly liquidation, the value of the Corporation as
an independent entity, the premiums over market price for the
securities of other corporations in similar transactions and
current political, economic and other factors bearing on
securities prices and the Corporation's financial condition;
(2) the character, integrity and business philosophy of the other
party or parties to the transactions and the management of
such party or parties;
(3) the business and financial conditions and earnings prospects
of the other party or parties to the transactions, including,
but not limited to, debt service and other existing or likely
financial obligations of such party or parties, the intention
of the other party or parties to the transaction regarding the
use of the assets of the Corporation to finance the
acquisition and the possible effect of such conditions upon
the Corporation and its subsidiaries and the other elements of
the communities in which the Corporation and its subsidiaries
operate or are located;
(4) the projected social, legal and economic effects of the
proposed action or transaction upon the Corporation or its
subsidiaries, its employees, suppliers, customers and others
in similar relationships with the Corporation, and upon the
communities in which the Corporation and its subsidiaries do
business;
(5) the general desirability of the continuance of the Corporation
as an independent entity;
(6) the impact on the national interest, where applicable; and
(7) such other factors as the Directors may deem relevant.
G. The Board of Directors of the Corporation shall have full power and
authority to interpret, construe and apply the provisions of this Article
Seventh, including, without limiting the generality of the foregoing, to
determine for the purposes of this Article Seventh, on the basis of information
then known to it, whether (i) any corporation, person or other entity is a 5% or
10% Holder, including all determinations to be made under paragraph E of this
Article Seventh, and in making such determinations shall be entitled, in the
absence of evidence to the contrary (which neither it nor the management of the
Corporation shall be under any duty to obtain by investigation or otherwise) to
rely upon the report of any officer or transfer agent as to the ownership
indicated by the stock record books of the Corporation and to assume in the
absence of evidence to the contrary (which neither it nor the management of the
corporation shall be under any duty to obtain by investigation or otherwise) the
absence of any beneficial ownership arising by virtue of the provisions of
paragraph E of this Article Seventh, (ii) any proposed sale, lease, exchange or
other disposition of part of the
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assets of the Corporation or any subsidiary of the Corporation involves a
substantial part of the assets of the Corporation or such subsidiary, and (iii)
assets or securities, or a combination thereof, to be acquired in exchange for
securities of the Corporation or any subsidiary of the Corporation, have an
aggregate fair market value of less than $3,000,000 and whether the same are
proposed to be acquired in a single transaction or a series of related
transactions, and (iv) any payment to a 5% or 10% Holder is in the ordinary
course of business. Any such interpretation, construction, application or
determination by the Board shall be conclusive and binding for all purposes of
this Article Seventh.
Eighth: A. In addition to any other requirements for amendments to this
Certificate, no amendment to this Certificate shall amend, alter, change or
repeal any of the provisions of paragraph (1), (2) or (13) of Article Sixth or
this first paragraph of Article Eighth, unless the amendment effecting such
amendment, alteration, change or repeal shall have received the affirmative
approval of holders of shares of capital stock of the Corporation entitled to
cast at least two-thirds of the votes at the time entitled to be cast generally
in the election of directors by all of the outstanding shares of all classes of
capital stock of the Corporation, considered for the purposes of this first
paragraph of Article Eighth as one class; provided that only the affirmative
approval of holders of shares of capital stock of the Corporation entitled to
cast at least a majority of the votes at the time entitled to be cast generally
in the election of directors by all of the outstanding shares of all classes of
capital stock of the Corporation, considered for the purposes of this first
paragraph of Article Eighth as one class, shall be required if such amendment is
approved by resolution adopted by a vote of two-thirds of all the directors of
the Corporation at the time in office.
B. In addition to any other requirements for amendments to this
Certificate, no amendment to this Certificate shall amend, alter, change or
repeal any of the provisions of paragraph A, or paragraphs D, E or G insofar as
applicable to transactions specified in said paragraph A, of Article Seventh or
this second paragraph of Article Eighth, unless,
(1) if one or more 5% Holders is in existence, the amendment
effecting such amendment, alteration, change or repeal shall
have received the affirmative approval of holders of shares of
capital stock of the Corporation entitled to cast at least
two-thirds of the votes at the time entitled to be cast
generally in the election of directors by all of the
outstanding shares of all classes of capital stock of the
Corporation, considered for the purposes of this second
paragraph of Article Eighth as one class; provided that only
the affirmative approval of holders of shares of capital stock
of the Corporation entitled to cast at least a majority of the
votes at the time entitled to be cast generally in the
election of directors by all of the outstanding shares of all
classes of capital stock of the Corporation, considered for
the purposes of this second paragraph of Article Eighth as one
class, shall be required if such amendment is approved by
resolution adopted by a vote of two-thirds of all the
directors of the Corporation at the time in office and if no
person shall have been elected by stockholders, subsequent to
the time such 5% Holder(s) became 5% Holder(s), as a director
of the Corporation in opposition to the recommendation of
management of the Corporation for whose election any shares
beneficially owned by any such 5% Holder was voted;
(2) if no 5% Holder is in existence, the amendment effecting such
amendment, alteration, change or repeal shall have received
the affirmative approval of holders of shares of capital stock
of the Corporation entitled to cast at least two- thirds of
the votes at the time entitled to be cast generally in the
election of directors by all of the outstanding shares of all
classes of capital stock of the Corporation, considered for
the purposes of this second paragraph of Article Eighth as one
class; provided that only the affirmative approval of holders
of shares of capital stock of the Corporation entitled to cast
at least a majority of the votes at the time entitled to be
cast generally in the election of directors by all of the
outstanding shares of all classes of capital stock of the
Corporation, considered for the purposes of this second
paragraph of Article
15
<PAGE> 16
Eighth as one class, shall be required if such amendment is
approved by resolution adopted by a vote of two-thirds of all
the directors of the Corporation at the time in office.
For the purposes of this second paragraph of Article Eighth (i) any pension or
savings plan fund or other program for the benefit of employees of the
Corporation or any subsidiary of the Corporation, or (ii) any corporation if
shares of capital stock of such corporation entitled to cast at least a majority
of the votes at the time entitled to be cast generally in the election of
directors by all of the outstanding shares of all classes of capital stock of
such corporation, considered for the purpose as one class, are owned
beneficially by the Corporation and/or one or more of the subsidiaries of the
Corporation, shall not be considered a 5% Holder regardless of the number of
shares of capital stock of the Corporation it holds.
C. In addition to any other requirements for amendments to this
Certificate, no amendment to this Certificate shall amend, alter, change or
repeal any of the provisions of paragraphs B or C, or paragraphs D, E or G
insofar as applicable to transactions specified in said paragraphs B and C, of
Article Seventh or this paragraph C of Article Eighth, unless, (1) if one or
more 10% Holders is in existence, the amendment effecting such amendment,
alteration, change or repeal shall have been approved by the vote specified in
clauses (x) and (y) of paragraph B of Article Seventh; or (2) if no 10% Holder
is in existence, the amendment effecting such amendment, alteration, change or
repeal shall have been approved by such vote as is then required under the
Delaware General Corporation Law. For the purposes of this paragraph C of
Article Eighth, none of the entities described in clauses (i) and (ii) of
paragraph B above shall be considered a 10% Holder regardless of the number of
shares of capital stock of the Corporation it holds.
Ninth: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate in the manner now or
hereafter prescribed by law, and all rights conferred on stockholders hereunder
are granted subject to this provision.
16
<PAGE> 17
CERTIFICATE OF DESIGNATION
of
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
STONE & WEBSTER, INCORPORATED
(Pursuant to Section 151 of the
Delaware General Corporation Law)
-------------------------------
Stone & Webster, Incorporated, a corporation organized and existing
under the General Corporation Law of the State of Delaware (hereinafter called
the "Corporation"), hereby certifies that the following resolution was adopted
by the Board of Directors of the Corporation as required by Section 151 of the
General Corporation Law at a meeting duly called and held on August 15, 1996:
"RESOLVED, that pursuant to the authority granted to and vested in
the Board of Directors of the Corporation in accordance with the provisions of
its Certificate of Incorporation, the Board of Directors hereby creates a series
of Preferred Stock, without par value, of the Corporation and hereby states the
designation and number of shares, and fixes the relative rights, preferences and
limitations thereof (in addition to the provisions set forth in the Certificate
of Incorporation of the Corporation, which are applicable to the Preferred Stock
of all classes and series), as set forth in the Certificate of Designation
comprising Annex A hereto," which Annex A reads in its entirety as follows:
Series A Junior Participating Preferred Stock:
Section 1. Designation and Amount. The shares of such series shall
be designated as "Series A Junior Participating Preferred Stock" (the "Series A
Preferred Stock") and the number of shares constituting the Series A Preferred
Stock shall be 400,000. Such number of shares may be increased or decreased by
resolution of the Board of Directors; provided, that no decrease shall reduce
the number of shares of Series A Preferred Stock to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Corporation
convertible into Series A Preferred Stock.
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of any series
of Preferred Stock (or any similar stock) ranking prior and superior to
the Series A Preferred Stock with respect to dividends, the holders of
shares of Series A Preferred Stock, in preference to the holders of Common
Stock, par value $1 per share (the "Common Stock"), of the Corporation,
and of any other junior stock, shall be entitled to receive, when, as and
if declared by the Board of Directors out of funds legally available for
the purpose, quarterly dividends payable in cash on the first day of
March, June, September and December in each year (each such date being
referred to herein as a "Quarterly Dividend Payment Date"), commencing on
the first Quarterly Dividend Payment Date after the first issuance of a
share or fraction of a share of Series A Preferred Stock, in an amount per
share (rounded to the nearest cent) equal to the greater of (a) $1 or (b)
subject to the provision for adjustment hereinafter set forth, 100 times
the aggregate per share amount of all cash dividends, and 100 times the
aggregate per share amount (payable in kind) of all non-cash dividends or
other distributions, other than a dividend payable
<PAGE> 18
in shares of Common Stock or a subdivision of the outstanding shares of
Common Stock (by reclassification or otherwise), declared on the Common
Stock since the immediately preceding Quarterly Dividend Payment Date or,
with respect to the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series A Preferred Stock.
In the event the Corporation shall at any time declare or pay any dividend
on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of
Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the amount to which holders
of shares of Series A Preferred Stock were entitled immediately prior to
such event under clause (b) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the
number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
Series A Preferred Stock as provided in paragraph (A) of this Section
immediately after it declares a dividend or distribution on the Common
Stock (other than a dividend payable in shares of Common Stock); provided
that, in the event no dividend or distribution shall have been declared on
the Common Stock during the period between any Quarterly Dividend Payment
Date and the next subsequent Quarterly Dividend Payment Date, a dividend
of $1-per share on the Series A Preferred Stock shall nevertheless be
payable on such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment
Date next preceding the date of issue of such shares, unless the date of
issue of such shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such shares shall begin
to accrue from the date of issue of such shares, or unless the date of
issue is a Quarterly Dividend Payment Date or is a date after the record
date for the determination of holders of shares of Series A Preferred
Stock entitled to receive a quarterly dividend and before such Quarterly
Dividend Payment Date, in either of which events such dividends shall
begin to accrue and be cumulative from such Quarterly Dividend Payment
Date. Accrued but unpaid dividends shall not bear interest. Dividends paid
on the shares of Series A Preferred Stock in an amount less than the total
amount of such dividends at the time accrued and payable on such shares
shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a record
date for the determination of holders of shares of Series A Preferred
Stock entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be not more than 60 days prior to the
date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Preferred Stock shall entitle the holder thereof to
100 votes on all matters submitted to a vote of the stockholders of the
Corporation. In the event the Corporation shall at any time declare or pay
any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by payment
of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the number of votes per
share to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event shall be adjusted by multiplying such
number by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
2
<PAGE> 19
(B) Except as otherwise provided herein, in any other Certificate of
Designations creating a series of Preferred Stock or any similar stock, or
by law, the holders of shares of Series A Preferred Stock and the holders
of shares of Common Stock and any other capital stock of the Corporation
having general voting rights shall vote together as one class on all
matters submitted to a vote of stockholders of the Corporation.
(C) Except as set forth herein, or as otherwise provided by law,
holders of Series A Preferred Stock shall have no special voting rights
and their consent shall not be required (except to the extent they are
entitled to vote with holders of Common Stock as set forth herein) for
taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred
Stock outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends, or make any other distributions,
on any shares of stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the Series A
Preferred Stock;
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity (either as
to dividends or upon liquidation, dissolution or winding up) with
the Series A Preferred Stock, except dividends paid ratably on the
Series A Preferred Stock and all such parity stock on which
dividends are payable or in arrears in proportion to the total
amounts to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the
Series A Preferred Stock, provided that the Corporation may at any
time redeem, purchase or otherwise acquire shares of any such junior
stock in exchange for shares of any stock of the Corporation ranking
junior (either as to dividends or upon dissolution, liquidation or
winding up) to the Series A Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration
any shares of Series A Preferred Stock, or any shares of stock
ranking on a parity with the Series A Preferred Stock, except in
accordance with a purchase offer made in writing or by publication
(as determined by the Board of Directors) to all holders of such
shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and
classes, shall determine in good faith will result in fair and
equitable treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares
of stock of the Corporation unless the Corporation could, under paragraph
(A) of this Section 4, purchase or otherwise acquire such shares at such
time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and
3
<PAGE> 20
restrictions on issuance set forth herein, in the Restated Certificate of
Incorporation, or in any other Certificate of Designation creating a series of
Preferred Stock or any similar stock or as otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made (1) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock unless, prior thereto, the holders of shares of Series A
Preferred Stock shall have received $100 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment, provided that the holders of shares of Series A
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to holders of shares of
Common Stock, or (2) to the holders of shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with the
Series A Preferred Stock, except distributions made ratably on the Series A
Preferred Stock and all such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. In the event the Corporation shall at any time
declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the aggregate amount to which
holders of shares of Series A Preferred Stock were entitled immediately prior to
such event under the proviso in clause (1) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share of
Series A Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation s`all at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series A Preferred Stock
shall not be redeemable.
Section 9. Rank. The Series A Preferred Stock shall rank, with
respect to the payment of dividends and the distribution of assets, junior to
all series of any other class of the Corporation's Preferred Stock.
Section 10. Amendment. The Restated Certificate of Incorporation of
the Corporation shall not be amended in any manner which would materially alter
or change the powers, preferences or special rights of the Series A Preferred
Stock so as to affect them adversely without the affirmative vote of the holders
of at least two-thirds of the outstanding shares of Series A Preferred Stock,
voting together as a single class.
4
<PAGE> 21
IN WITNESS WHEREOF, this Certificate of Designation is executed on
behalf of the Corporation by its President this 12th day of September, 1996.
/s/ H. Kerner Smith
-------------------------------
President and Chief
Executive Officer
H. Kerner Smith
Attest:
/s/ Peter F. Durning
-----------------------------
Secretary
Peter F. Durning
5
<PAGE> 1
EXHIBIT 3(ii)
BY-LAWS
OF
STONE & WEBSTER, INCORPORATED
AS AMENDED EFFECTIVE
May 14, 1998
<PAGE> 2
BY-LAWS
OF
STONE & WEBSTER,
INCORPORATED
-----------------
ARTICLE I
Name
The name of the corporation (hereinafter referred to as this
Corporation) is Stone & Webster, Incorporated.
ARTICLE II
Stockholders' Meetings
Meetings of the stockholders may be held in such locations within or
without the State of Delaware as shall be designated by the Board of Directors
or set forth in the notice of such meeting.
ARTICLE III
Annual Stockholders' Meeting
The Annual Meeting of the stockholders of this Corporation shall be
held at the time set forth in the notice of such meeting on the second Thursday
in May in each year if not a legal holiday, and if a legal holiday, then at the
time set forth in said notice on the next succeeding Thursday not a legal
holiday. In the event that such Annual Meeting is omitted by oversight or
otherwise on the date herein provided for, the Directors shall cause a meeting
in lieu thereof to be held as soon thereafter as conveniently may be, and any
business transacted or elections held at such meeting shall be as valid as if
transacted or held at the Annual Meeting. Such subsequent meeting shall be
called in the same manner as provided for Special Stockholders' Meetings.
ARTICLE IV
Special Stockholders' Meetings
Special Meetings of the stockholders of this Corporation shall be
held whenever called in the manner required by law for purposes as to which
there are special statutory provisions and for other purposes whenever called by
the Chairman of the Board of Directors or by the President or by the Chairman of
the Executive Committee or by vote of the Board of Directors.
ARTICLE V
Notice of Stockholders' Meetings
Notice of all stockholders' meetings stating the time and place,
and, in the case of Special Meetings, the objects for which such meetings are
called, shall be given by the Chairman of the Board of Directors or the
President or the Chairman of the Executive Committee or a Vice-President or the
Secretary or an Assistant
- 2 -
<PAGE> 3
Secretary, by mail, to each stockholder of record having voting power in respect
of the business to be transacted thereat, at his or her registered address at
least ten (10) days prior to the date of the meeting, and the person giving such
notice shall make affidavit in relation thereto.
Any meeting at which all stockholders having voting power in respect
of the business to be transacted thereat are present, either in person, or by
proxy, or of which those not present shall at any time waive or have waived
notice in writing, shall be a legal meeting for the transaction of business,
notwithstanding that notice has not been given as hereinbefore provided.
ARTICLE VI
Waiver of Notices
Whenever any notice whatever is required to be given by these
By-laws, or the Restated Certificate of Incorporation of this Corporation, or
any of the laws of the State of Delaware, a waiver thereof in writing, signed by
the person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
ARTICLE VII
Quorum at Stockholders' Meetings
At any meeting of the stockholders, a majority in interest of all
the capital stock issued and outstanding and entitled to vote, represented by
such stockholders of record in person or by proxy, shall constitute a quorum,
but a less interest may adjourn any meeting from time to time and the meeting
may be held as adjourned without further notice. When a quorum is present at any
meeting, a majority in interest of the stock entitled to vote represented
thereat shall decide any question brought before such meeting, unless the
question is one upon which by express provision of law or of the Restated
Certificate of Incorporation or of these By-laws a larger or different vote is
required, in which case such express provision shall govern and control the
decision of such question.
ARTICLE VIII
Proxy and Voting
Stockholders of record entitled to vote may vote at any meeting
either in person or by proxy in writing, which shall be filed with the Secretary
of the meeting before being voted. Such proxies shall entitle the holders
thereof to vote at any adjournment of such meeting, but shall not be valid after
the final adjournment thereof. Stockholders entitled to vote may also be
represented by a general power of attorney produced at any meeting until it is
revoked. No proxy or power of attorney shall be voted on after three years from
its date, unless said proxy or power of attorney provides for a longer period.
ARTICLE IX
Board of Directors
A Board of Directors shall be elected by ballot at the Annual
Meeting of the stockholders or at any meeting held in place thereof as
hereinbefore provided. No director shall be elected by stockholders except by
the vote of a majority of all votes entitled to be cast in such election by all
of the outstanding shares of all classes of capital stock of the Corporation.
The number of Directors of this Corporation shall be ten (10), but the number
may be increased or decreased at any time by amendment of these By-laws adopted
by vote of two-thirds of all of the Directors of this Corporation at the time in
office or by vote of at least two-thirds of the votes at the time entitled to be
cast generally in the election of directors by all of the outstanding shares of
all classes of capital stock of the Corporation, provided that the number of
Directors shall always be not less than three. Directors need not be
stockholders of this Corporation.
- 3 -
<PAGE> 4
The Directors of the Corporation shall be divided into three classes
with the number of Directors fixed by or in accordance with the By-laws divided
equally so far as possible among the three classes. Except as otherwise provided
in Article XXIII, following adoption of this By-law provision,
(a) one-third of the number of Directors shall be elected to serve
until the 1973 Annual Meeting of the stockholders,
(b) one-third of the number of Directors shall be elected to serve
until the 1974 Annual Meeting of the stockholders,
(c) one-third of the number of Directors shall be elected to serve
until the 1975 Annual Meeting of the stockholders,
and until their successors are duly elected and qualified. At each annual
election after the 1972 election, the successors to the Directors of each class
whose term shall expire in that year shall be elected to hold office for a term
of three years from the date of their election and until their successors are
duly elected and qualified. In case of any increase in the number of Directors,
the additional Directors shall be distributed among the several classes as
nearly equally as possible.
ARTICLE X
Power of Directors
The Board of Directors shall have the entire management of the
business of this Corporation. In the management and control of the property,
business and affairs of this Corporation, the Board of Directors is hereby
vested with all the powers possessed by this Corporation itself, so far as this
delegation of authority is not inconsistent with the laws of the State of
Delaware, with the Restated Certificate of Incorporation of this Corporation, or
with these By-laws. The Board of Directors shall have authority from time to
time to set apart out of any assets of this Corporation otherwise available for
dividends a reserve or reserves as working capital or for any other proper
purpose or purposes, and to abolish or add to any such reserve or reserves from
time to time as the Board may deem to be in the interests of this Corporation
and the Board shall likewise have power to determine in its discretion what part
of the assets of this Corporation available for dividends in excess of such
reserve or reserves shall be declared in dividends and paid to the stockholders
of this Corporation.
ARTICLE XI
Executive and Other Committees
The Board of Directors may designate by resolution passed by a
majority of the whole Board two or more of its number who shall constitute an
Executive Committee, which Committee shall, when the Board of Directors is not
in session, have and may, subject to any limitation imposed by the laws of the
State of Delaware, exercise any or all of the powers of the Board of Directors
in the management of the business and affairs of this Corporation, and have
power to authorize the seal of this Corporation to be affixed to all papers
which may require it. A Chairman of the Executive Committee (who shall preside
at the meetings of the Executive Committee, may call meetings thereof whenever
he deems it necessary and shall have such other powers and duties as the Board
of Directors shall designate from time to time) shall be appointed by the Board
of Directors at the time it designates members of the Executive Committee. The
Secretary of this Corporation, or, in his absence, an Assistant Secretary or any
other person designated by the Committee, shall act as Secretary of the
Committee. The Executive Committee, except as otherwise herein provided, shall
fix its own rules of procedure and shall keep a record of its acts and
proceedings and report the same from time to time to the Board of Directors. Any
vacancy in the Executive Committee shall be filled by the vote of the majority
of the whole Board of Directors. The Board of Directors may appoint one or more
of its members as ex-officio members of the Executive Committee, who shall have
the privilege of attending meetings of the Executive Committee, but who shall
not be entitled to vote upon any matters brought before the Executive Committee
and shall not be counted as a member of the Executive Committee for the purpose
of determining the number necessary to constitute a quorum, or for the purpose
of determining
- 4 -
<PAGE> 5
whether a quorum is present. Notice of meetings to ex-officio members shall not
be deemed to be required under law, the Restated Certificate of Incorporation or
these By-laws.
The Board of Directors likewise may appoint from their number or
from the stockholders other committees from time to time, the number (not less
than two) composing such committees and the powers conferred upon the same to be
determined by a vote of the Board of Directors.
ARTICLE XII
Directors' Meetings
Regular Meetings of the Board of Directors shall be held at such
places within or without the State of Delaware and at such times as the Board by
vote may determine from time to time, and if so determined no notice thereof
need be given. Special Meetings of the Board of Directors may be held at any
time or place either within or without the State of Delaware, whenever called by
the Chairman of the Board of Directors, the President, the Chairman of the
Executive Committee, a Vice-President, the Secretary, an Assistant Secretary or
three or more Directors, notice thereof being given to each Director by the
Secretary or an Assistant Secretary or officer calling the meeting, or at any
time or place without formal notice, provided all the Directors are present or
waive notice thereof as provided in Article VI hereof. Notice of Special
Meetings, stating the time and place thereof, shall be given by mailing the same
to each Director at his residence or business address at least two days before
the meeting, or by delivering the same to him personally or telephoning or
telegraphing the same to him at his residence or business address at least one
day before the meeting, unless, in case of exigency, the Chairman of the Board
of Directors or the President or the Chairman of the Executive Committee or in
their absence the Secretary shall prescribe a shorter notice to be given
personally or by telephoning or telegraphing each Director at his residence or
business address. Such Special Meetings shall be held at such times and places
as the notice thereof or waiver shall specify.
ARTICLE XIII
Quorum at Directors' Meetings
One-third of the number of Directors, but not less than four members
of the Board of Directors, shall constitute a quorum for the transaction of
business, but a less number may adjourn any meeting from time to time and the
meeting may be held as adjourned without further notice. When a quorum is
present at any meeting a majority of the members present thereat shall decide
any question brought before such meeting, except as otherwise provided by law,
by the Restated Certificate of Incorporation or by these By-laws.
ARTICLE XIV
Officers
The officers of this Corporation shall be a Chairman of the Board of
Directors, a President, one or more Vice-Presidents, a Secretary and a
Treasurer. The officers shall be elected by the Board of Directors at the first
meeting after the Annual Meeting of the stockholders, and a meeting may be held
without notice for this purpose immediately after the Annual Meeting of the
stockholders and at the same place.
ARTICLE XV
Eligibility of Officers
The Chairman of the Board of Directors and the President may, but
need not, be a stockholder but shall be a Director of this Corporation. The
Vice-Presidents, Secretary, Treasurer and such other officers as may be elected
or appointed may, but need not, be stockholders or Directors of this
Corporation. Any person may hold more than one office provided the duties
thereof can be consistently performed by the same person, provided, however,
that no one person shall, at the same time, hold the three offices of President
or Vice-President and
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<PAGE> 6
Secretary and Treasurer.
ARTICLE XVI
Additional Officers and Agents
The Board of Directors, at its discretion, may appoint a Corporate
Controller, one or more Assistant Corporate Controllers, one or more Assistant
Treasurers, and one or more Assistant Secretaries, and such other officers or
agents as it may deem advisable, and prescribe the duties thereof.
ARTICLE XVII
Chairman of the Board of Directors
The Chairman of the Board of Directors shall be the chief executive
officer of this Corporation, and, as such, shall have supervision of its
policies, business, and affairs, and such other powers and duties as are
commonly incident to the office of the chief executive officer. He shall preside
at the meetings of the Board of Directors and may call meetings of the Board of
Directors and of any committee thereof whenever he deems it necessary, and he
shall call to order and act as chairman of all meetings of the stockholders of
this Corporation. In addition, he shall have such other powers and duties as the
Board of Directors shall designate from time to time. The Chairman of the Board
of Directors, unless some other person is thereunto specifically authorized by
vote of the Board of Directors, shall have power to sign all certificates of
stock, bonds, deeds and contracts of this Corporation.
ARTICLE XVIII
President
The President shall have such powers and duties as are commonly
incident to his office. He shall also have such other powers and duties as the
Board of Directors or the Chairman of the Board of Directors shall designate
from time to time. He may call meetings of the Board of Directors and of any
committee thereof whenever he deems it necessary. The President, unless some
other person is thereunto specifically authorized by vote of the Board of
Directors, shall have power to sign all certificates of stock, bonds, deeds and
contracts of this Corporation.
ARTICLE XIX
Vice-Presidents
The Vice-Presidents shall each possess such powers and perform such
duties, in addition to those expressly provided herein, as the Board of
Directors may from time to time determine.
ARTICLE XX
Secretary
The Secretary shall keep accurate minutes of all meetings of the
stockholders, the Board of Directors and the Executive Committee, respectively,
shall perform all the duties commonly incident to his office, and shall perform
such other duties and have such other powers as the Board of Directors shall
designate from time to time. The Secretary shall have power, together with the
Chairman of the Board of Directors, the President or a Vice-President, to sign
certificates of stock of this Corporation. In his absence at any meeting an
Assistant Secretary or a Secretary Pro Tempore shall perform his duties thereat.
The Secretary, any Assistant Secretary and any Secretary Pro Tempore shall be
sworn to the faithful discharge of their duties.
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<PAGE> 7
ARTICLE XXI
Treasurer
The Treasurer, subject to the order of the Board of Directors, shall
have the care and custody of the moneys, funds, valuable papers and documents of
this Corporation (other than his own bond which shall be in the custody of the
President) and shall have and exercise, under the supervision of the Board of
Directors, all the powers and duties commonly incident to his office, and shall,
if required by the Board of Directors, give bond in such form and with such
sureties as it may require. He shall deposit all funds of this Corporation in
such bank or banks, trust company or trust companies or with such firm or firms
doing a banking business, as the Directors shall designate and shall have power
to borrow from time to time at his discretion moneys for the corporate needs of
this Corporation and cause to be issued as evidence thereof notes of this
Corporation. He may endorse for deposit or collection all checks, notes, et
cetera, payable to this Corporation or to its order, may accept drafts on behalf
of this Corporation, and, together with the President or a Vice-President, may
sign certificates of stock. All the property in his possession, shall be subject
at all times to the inspection and control of the Board of Directors. The
Treasurer shall be subject in every way to the order of the Board of Directors.
All checks, drafts, notes, bonds, or other obligations for the
payment of money shall be signed by the Treasurer and/or such other officer or
officers, agent or agents, as the Board of Directors shall by resolution direct.
The Board of Directors may, in its discretion, also provide by resolution for
countersignature or registration of checks, drafts, notes and/or bonds of this
Corporation. Checks for the total amount of any pay roll may be drawn in
accordance with the foregoing provisions and deposited in a special fund. Checks
upon this fund may be drawn by such person as the Treasurer shall designate and
need not be countersigned.
ARTICLE XXII
Corporate Controller
The Corporate Controller shall keep accurate books of account of
this Corporation's transactions which shall be the property of this Corporation,
subject at all times to the inspection and control of the Board of Directors,
shall perform all the duties commonly incident to the office, and shall perform
such other duties and have such other powers as the Board of Directors shall
designate from time to time.
ARTICLE XXIII
Resignations and Removals
Any Director, officer or agent of this Corporation may resign at any
time by giving written notice to the Board of Directors or to any elected
officer of this Corporation and any member of any committee may resign by giving
written notice either as aforesaid or to the committee of which he is a member
or the chairman thereof. Any such resignation shall take effect at the time
specified therein or, if the time be not specified, upon receipt thereof; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Any Director may be removed from office, but only for cause, at a
meeting called for the purpose and by the affirmative approval of holders of
shares of capital stock of the Corporation entitled to cast at least a majority
of the votes at the time entitled to be cast generally in the election of
directors by all of the outstanding shares of all classes of capital stock of
the Corporation, considered for the purposes of this paragraph of this Article
as one class; provided, however, that if the Board of Directors, by vote of
two-thirds of all the Directors then in office, shall have recommended removal
of a Director, then stockholders may remove such Director from office by the
foregoing procedure without cause. If any Director shall be removed pursuant to
this paragraph of this Article, then the stockholders of the Corporation may, at
the meeting at which such removal is effected, elect his successor.
The Board of Directors, by vote of not less than a majority of all
the Directors of the Corporation
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<PAGE> 8
at the time in office, may remove from office any officer, agent or member of
any committee, elected or appointed by it.
ARTICLE XXIV
Vacancies
If the office of any Director, one or more, becomes vacant by reason
of death, resignation, removal, disqualification or otherwise, then (except
where such vacancy results from removal and is filled by the stockholders as
provided in the Restated Certificate of Incorporation) the Directors at the time
in office may, by vote of a majority of the Directors then in office, elect a
successor or successors who shall hold office for the unexpired term, and even
if there be less than a quorum of the Directors at the time in office, said
Directors may by a majority vote elect a successor or successors who shall hold
office for the unexpired term. Vacancies in the Board of Directors may be filled
for an unexpired term by the stockholders having voting power at a meeting of
the stockholders called for that purpose, by the vote required in Article IX
hereof, unless such vacancy shall have been filled by the Directors in the
manner provided in this Article. Vacancies resulting from an increase in the
number of Directors shall be deemed to be vacancies to be filled in the manner
provided in this Article.
If the office of any officer or agent, one or more, becomes vacant
for any of the aforesaid reasons, the successor or successors shall be elected
or appointed by the Board of Directors.
This Article may not be amended or repealed except by the
affirmative approval of holders of shares of capital stock of the Corporation
entitled to cast at least two-thirds of the votes at the time entitled to be
cast generally in the election of directors by all of the outstanding shares of
all classes of capital stock of the Corporation, considered for the purposes of
this Article as one class, or by resolution adopted by a vote of two-thirds of
all the Directors of the Corporation at the time in office.
ARTICLE XXV
Capital Stock
The maximum amount of capital stock shall be as fixed in the
Restated Certificate of Incorporation or in any lawful amendments thereto from
time to time.
ARTICLE XXVI
Certificates of Stock
Every stockholder shall be entitled to a certificate or certificates
of the capital stock of this Corporation in such form as may be prescribed by
the Board of Directors, duly numbered and setting forth the number and kind of
shares. Such certificates shall be signed by the Chairman of the Board of
Directors, the President or a Vice-President and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary. The Board of
Directors may also appoint one or more Transfer Agents and/or Registrars for its
stock of any class or classes and may require stock certificates to be
countersigned by one or more of them. If certificates of capital stock of this
Corporation are manually signed by the Registrar, the signatures thereon of the
Transfer Agent and of the Chairman of the Board of Directors, or the President
or a Vice-President and the Treasurer or an Assistant Treasurer or the Secretary
or an Assistant Secretary, of this Corporation, may be facsimiles, engraved or
printed. Any provisions of these By-laws with reference to the signing of stock
certificates shall include in cases above permitted, such facsimile signatures.
In case any officer or officers who shall have signed, or whose facsimile
signature or signatures shall have been used on, any such certificate or
certificates, shall cease to be such officer or officers of this Corporation,
whether because of death, resignation or otherwise, before such certificate or
certificates shall have been delivered by this Corporation, such certificate or
certificates may nevertheless be adopted by the Board of Directors of this
Corporation and be issued and delivered as though the person or persons who
signed such certificate or certificates or whose facsimile signature or
signatures shall have been used thereon had not ceased to be such officer or
officers of this Corporation.
- 8 -
<PAGE> 9
ARTICLE XXVII
Transfer of Stock
Shares of stock may be transferred by delivery of the certificate
accompanied either by an assignment in writing on the back of the certificate or
by a written power of attorney to sell, assign and transfer the same on the
books of this Corporation, signed by the person appearing by the certificate to
be the owner of the shares represented thereby, and shall be transferable on the
books of this Corporation upon surrender thereof so assigned or endorsed. The
person registered on the books of this Corporation as the owner of any shares of
stock shall exclusively be entitled as the owner of such shares to receive
dividends and to vote as such owner, in respect thereof. It shall be the duty of
every stockholder to notify this Corporation of his post office address.
ARTICLE XXVIII
Transfer Books
The Board of Directors shall have power to close the stock transfer
books of this Corporation for a period not exceeding sixty (60) days preceding
the date of any meeting of stockholders or the date for payment of any dividend
or the date for the allotment of rights or the date when any change or
conversion or exchange of capital stock shall go into effect; provided, however,
that in lieu of closing the stock transfer books as aforesaid, the Board of
Directors may fix in advance a date, not exceeding sixty (60) days preceding the
date of any meeting of stockholders or the date for the payment of any dividend,
or the date for the allotment of rights, or the date when any change or
conversion or exchange of capital stock shall go into effect, as a record date
for the determination of the stockholders entitled to notice of, and to vote at,
any such meeting and any adjournment thereof, or entitled to receive payment of
any such dividend, or to any such allotment of rights, or to exercise the rights
in respect of any such change, conversion or exchange of capital stock, and in
such case only such stockholders as shall be stockholders of record on the date
so fixed shall be entitled to such notice of, and to vote at, such meeting and
any adjournment thereof, or to receive payment of such dividend, or to receive
such allotment of rights, or to exercise such rights, as the case may be,
notwithstanding any transfer of any stock on the books of this Corporation after
any such record date fixed as aforesaid. Except where the transfer books of the
Corporation shall have been closed or a date shall have been fixed as a record
date for the determination of the stockholders entitled to vote, as hereinbefore
provided, no share of stock shall be voted on at any election for Directors
which shall have been transferred on the books of the Corporation within twenty
(20) days next preceding such election of Directors.
ARTICLE XXIX
Loss of Certificates
In case of the loss, mutilation or destruction of a certificate of
stock, a duplicate certificate may be issued upon such terms as the Board of
Directors shall prescribe.
ARTICLE XXX
Seal
The seal of this Corporation shall consist of a flatfaced circular
die with the words and figures "Stone & Webster, Incorporated Corporate Seal
1929 Delaware" cut or engraved thereon.
ARTICLE XXI
Books and Records
Unless otherwise expressly required by the laws of Delaware, the
books and records of this Corporation may be kept outside of the State of
Delaware at such places as may be designated from time to time by the Board of
Directors.
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<PAGE> 10
ARTICLE XXXII
Voting of Stock Held
Unless otherwise provided in the Restated Certificate of
Incorporation of this Corporation or by resolution of the Board of Directors,
the Chairman of the Board of Directors or the President may from time to time
appoint an attorney or attorneys or agent or agents of this Corporation, in the
name and on behalf of this Corporation to cast the votes which this Corporation
may be entitled to cast as a stockholder or otherwise in any other corporation
or association, any of whose stock or securities may be held by this
Corporation, at meetings of the holders of the stock or other securities of such
other corporations or associations, or to consent in writing to any action by
any such other corporation or association, and may instruct the person or
persons so appointed as to the manner of casting such votes or giving such
consent, and may execute or cause to be executed on behalf of this Corporation
and under its corporate seal, or otherwise, such written proxies, consents,
waivers or other instruments as he may deem necessary or proper in the premises;
or the President, or his attorney or agent, may attend any meeting of the
holders of stock or other securities of any such other corporation or
association and thereat vote or exercise any or all other powers of this
Corporation as the holder of such stock or other securities of such other
corporation or association.
ARTICLE XXXIII
Amendments
Except as otherwise expressly provided in a By-law adopted by the
stockholders at the time having voting power, all By-laws of this Corporation
shall be subject to amendment or repeal, and new By-laws may be adopted, either
by the affirmative approval of holders of shares of capital stock of the
Corporation entitled to cast at least a majority of the votes at the time
entitled to be cast generally in the election of directors by all of the
outstanding shares of all classes of capital stock of the Corporation,
considered for the purposes of this Article as one class, given at an Annual
Meeting or at any Special Meeting, provided notice of the proposed amendment or
repeal or of the proposed new By-laws be included in the notice of such meeting,
or by the affirmative vote of a majority of all of the Directors of the
Corporation at the time in office given at a regular or special meeting of the
Board of Directors, provided notice of the proposed amendment or repeal or of
the proposed new By-laws be included in the notice of such meeting or waiver
thereof or all of the Directors at the time in office be present at such
meeting. Except as aforesaid, By-laws made or amended by the stockholders or by
the Board of Directors shall be subject to amendment or repeal by the
stockholders entitled to vote or by the Board of Directors.
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<PAGE> 1
EXHIBIT 5
PALMER & DODGE LLP
One Beacon Street, Boston, MA 02108-3190
Telephone: (617) 573-0100 Facsimile: (617) 227-4420
June 25, 1998
Stone & Webster, Incorporated
245 Summer Street
Boston, MA 02210
We are rendering this opinion in connection with the Registration
Statement on Form S-4 (the "Registration Statement") filed by Stone & Webster,
Incorporated (the "Company") with the Securities and Exchange Commission under
the Securities Act of 1933, as amended, on or about the date hereof. The
Registration Statement relates to (a) 3,000,000 shares of the Company's Common
Stock, $1.00 par value (the "Common Stock"), to be issued by the Company in
connection with (i) the merger of Stone & Webster Acquisition Corp. ("Merger
Sub"), a wholly-owned subsidiary of the Company, with and into Power
Technologies, Inc. ("PTI") (the "Merger") pursuant to an Agreement and Plan of
Merger dated as of April 20, 1998 (the "Merger Agreement") among the Company,
PTI and Merger Sub and (ii) from time to time in connection with future business
combinations, acquisitions and mergers and (b) rights to receive shares of
Common Stock as Contingent Merger Consideration and Additional Contingent Shares
(as defined in the Merger Agreement) pursuant to the Merger Agreement (the
"Rights").
The Registration Statement includes two prospectuses: (i) a prospectus and
proxy statement covering the shares of Common Stock and the Rights to be issued
by the Company in connection with the Merger and (ii) a "base" prospectus
covering the remaining shares of Common Stock that may be issued from time to
time by the Company under the Registration Statement pursuant to Rule 415 under
the Securities Act (the "Base Prospectus"). The Base Prospectus contemplates
that it will be supplemented in the future by one or more supplements to the
Base Prospectus (each a "Prospectus Supplement") setting forth the terms of any
business combination, acquisition or merger transaction in which shares of
Common Stock will be offered and sold pursuant to the Base Prospectus.
We have acted as your counsel in connection with the preparation of the
Registration Statement and are familiar with the proceedings taken and proposed
to be taken by the Company in connection with the authorization and issuance of
the shares of Common Stock and the Rights covered by the Registration Statement.
We have examined such documents as we consider necessary to render this opinion.
Based upon the foregoing, we are of the opinion that:
1. With respect to the shares of Common Stock to be issued in the Merger,
upon issuance in accordance with the Merger Agreement, such shares will be duly
authorized, validly issued, fully paid and nonassessable.
2. With respect to the Rights to be issued in the Merger, upon issuance in
accordance with the Merger Agreement, such Rights will be duly authorized,
validly issued, fully-paid and non-assessable.
<PAGE> 2
Stone & Webster, Incorporated
June 25, 1998
Page 2
3. With respect to the shares of Common Stock to be issued in connection
with future business combination, acquisition or merger transactions, (a) the
Company has the authority pursuant to its Restated Certificate of Incorporation,
as amended (the "Restated Certificate") to issue up to 40,000,000 shares of
Common Stock and (b) upon adoption by the Board of Directors of the Company of a
resolution in form and content as required by applicable law and upon issuance
and delivery of and payment for such shares in the manner contemplated by such
resolution and by the Registration Statement, the Base Prospectus and, when
prepared in final form, the applicable Prospectus Supplement or Prospectus
Supplements, such shares of Common Stock will be validly issued, fully paid and
nonassessable.
We hereby consent to the use of our name under the caption "Legal
Opinions" in the Registration Statement and to the filing of this opinion as an
exhibit to the Registration Statement.
Very truly yours,
/s/ Palmer & Dodge LLP
<PAGE> 1
EXHIBIT 8.1
PALMER & DODGE LLP
One Beacon Street, Boston, MA 02108-3190
Telephone: (617) 573-0100 Facsimile: (617) 227-4420
June 25, 1998
Stone & Webster, Incorporated
245 Summer Street
Boston, Massachusetts 02210
We have acted as counsel to Stone & Webster, Incorporated ("SWI"), a
Delaware corporation, in connection with the proposed merger (the "Merger") of
Stone & Webster Acquisition Corp. ("SWAC"), a Delaware corporation and a
wholly-owned subsidiary of SWI, with and into Power Technologies, Inc. ("PTI"),
pursuant to an Agreement and Plan of Merger (the "Merger Agreement"), dated as
of April 20, 1998, among SWI, SWAC, Stone & Webster Management Consultants,
Inc., a New York corporation, PTI, and the shareholders of PTI identified
therein. The Merger is described in the Registration Statement on Form S-4 (the
"Registration Statement") of which this exhibit is a part. This opinion is being
rendered pursuant to the requirements of Item 21(a) of Form S-4 under the
Securities Act of 1933, as amended.
In preparing this opinion, we have examined the Merger Agreement, the
Proxy Statement and Prospectus (the "Proxy Statement") included in the
Registration Statement and such other documents as we have deemed necessary or
appropriate. In addition, we have assumed that the Merger will be consummated in
accordance with the provisions of the Merger Agreement and the Proxy Statement
and that the statements concerning the Merger set forth in the Merger Agreement
and the Proxy Statement are true, correct and complete in all material respects
and will continue to be true correct and complete in all material respects as of
the Effective Time (as defined in the Merger Agreement). We also have assumed
that each of SWI and PTI will deliver to us, prior to the Effective Time,
letters (the "Representation Letters") containing representations substantially
similar to representations that the IRS customarily requires for advance rulings
on tax free acquisitive reorganizations and that such representations will be
true, correct and complete in all material respects as of the Effective Time.
Based upon and subject to the foregoing, the discussion contained in the
Proxy Statement under the heading "Certain Federal Income Tax Consequences,"
subject to the limitations and qualifications described therein, fairly and
accurately represents our opinion as to the material federal income consequences
of the Merger.
This opinion is being provided solely for use in connection with the
Registration Statement. We hereby consent to the use of our name under the
caption "Certain Federal Income Tax Consequences" in the Registration Statement
and to the filing of this opinion as an exhibit to the Registration Statement.
Very truly yours,
/s/ Palmer & Dodge LLP
<PAGE> 1
EXHIBIT 8.2
Nixon, Hargrave, Devans & Doyle LLP
Attorneys & Counselors at Law
Clinton Square
Post Office Box 1051
Rochester, New York 14603
June 25, 1998
Power Technologies, Inc.
1482 Erie Boulevard
Schenectady, New York 12301
Gentlemen:
You have requested our opinion as to certain federal income tax
consequences of the merger (the "Merger") of Stone & Webster Acquisition Corp.
("Merger Sub"), a wholly-owned subsidiary of Stone & Webster, Incorporated
("SWI"), with and into Power Technologies, Inc. ("PTI") pursuant to the
Agreement and Plan of Merger dated as of April 20, 1998, by and among SWI,
Merger Sub, PTI and the directors and certain shareholders of PTI (the
"Agreement"). This opinion is being furnished pursuant to the requirements of
Item 21(a) of Form S-4 under the Securities Act of 1933, as amended.
The opinions expressed herein are based solely upon current law, including
the Internal Revenue Code of 1986, as amended (the "Code"), applicable Treasury
Regulations promulgated or proposed thereunder, current positions of the
Internal Revenue Service contained in published Revenue Rulings and Revenue
Procedures, other current administrative positions of the Internal Revenue
Service, and existing judicial decisions, all of which are subject to change or
modification at any time.
In rendering the opinions set forth herein, we have examined copies of (i)
the Agreement; (ii) the Registration Statement on Form S-4 (the "Registration
Statement") to which this opinion is an exhibit; (iii) the Prospectus and Proxy
Statement of SWI and PTI included in the Registration Statement (the "Proxy
Statement"); and (iv) such other documents as we have deemed necessary or
appropriate.
Also, in rendering the opinions set forth herein, we have assumed (i) that
the Merger will be consummated in accordance with the terms of the Agreement and
the Proxy Statement; (ii) the statements concerning the Merger in the Agreement
and the Proxy Statement are true, correct and complete in all material respects
and will continue to be true and complete in all material respects as of the
Effective Time (as defined in the Agreement); (iii) each of SWI and PTI will
deliver to us, prior to the Effective Time, letters (the "Representation
Letters") containing representations that we consider necessary to render our
opinion as well as representations substantially similar to representations that
the Internal Revenue Service customarily requires for advance rulings on tax
free acquisitive reorganizations and that such representations will be true,
correct and complete in all material respects as of the Effective Time; (iv) the
genuineness of all signatures on documents we have examined; (v) the
authenticity of all documents submitted to us as originals; (vi) the conformity
to the original documents of all documents submitted to us as copies; (vii) the
authority and capacity of the individual or individuals who executed any such
documents on behalf of any person; (viii) the accuracy and completeness of all
documents made available to us; and (ix) the accuracy as to facts of all
representations, warranties and written statements provided to us. We have also
assumed that all of the parties have complied and will continue to comply with
their covenants relating to the Merger.
Based on and subject to the foregoing, it is our opinion that the Merger
will constitute a reorganization within the meaning of Section 368(a) of the
Code and that the discussion in the Proxy Statement under the caption
<PAGE> 2
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES--Tax Consequences of the Merger" fairly
summarizes the federal income tax considerations that are likely to be material
to holders of PTI Common Stock who are United States citizens or residents and
who are not subject to special treatment under tax laws.
This opinion is solely for your information and is not to be quoted in
whole or in part, summarized or otherwise referred to, nor is it to be filed
with or supplied to or relied upon by any governmental agency or other person
without our written consent (which consent we hereby grant with respect to the
filing of the Registration Statement). This opinion is as of the date hereof. We
disclaim any responsibility to update or supplement this opinion to reflect any
events or state of facts which may hereafter come to our attention or any
changes in statutes or regulations or any court decisions which may hereafter
occur.
Very truly yours,
/s/ Nixon, Hargrave, Devans & Doyle LLP
-2-
<PAGE> 3
CONSENT
We hereby consent to the reference to our firm name under the captions
"THE MERGER - Certain Federal Income Tax Consequences" and "LEGAL OPINIONS" and
to the inclusion of our tax opinion as an exhibit to the Registration Statement
of SWI on Form S-4.
/s/ Nixon, Hargrave, Devans & Doyle LLP
<PAGE> 1
EXHIBIT 10(b)
CHANGE OF CONTROL EMPLOYMENT AGREEMENT
AGREEMENT by and between STONE & WEBSTER, INCORPORATED*, a Delaware
corporation (the "Company"), and (the "Executive"), dated as of
April 21, 1998 (this "Agreement").
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined below) of the Company. The Board believes it is imperative to diminish
the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control and
to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of other
corporations.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions.
(a) The "Effective Date" shall mean the first date during the Change
of Control Period (as defined in Section 1(b) on which a Change of Control (as
defined in Section 2) occurs. Anything in this Agreement to the contrary
notwithstanding, if a Change of Control occurs and if the Executive's employment
with the Company is terminated prior to the date on which the Change of Control
occurs, and if it is reasonably demonstrated by the Executive that such
termination of employment (i) was at the request of a third party who has taken
steps reasonably calculated to effect a Change of Control or (ii) otherwise
arose in connection with or anticipation of a Change of Control, then for all
purposes of this Agreement the "Effective Date" shall mean the date immediately
prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing
on the date hereof and ending on the third anniversary of the date hereof;
provided, however, that commencing on the date one year after the date hereof,
and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Change of Control Period shall be
automatically extended so as to terminate three years from such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall give notice
to the Executive that the Change of Control Period shall not be so extended.
2. Change of Control.
For the purpose of this Agreement, a "Change of Control" shall mean:
(a) The beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act") by any individual, entity or group (within the meaning of Section 13(d)(3)
or 14(d)(2) of the Exchange Act) (a "Person") of 20% or more of either (i) the
then-outstanding shares of common stock of the Company (the "Outstanding Company
Common Stock") or (ii) the combined voting power of the then-outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however, that
for purposes of this subsection (a), the following accumulations and
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition or accumulation by the Company,
(iii) any acquisition or accumulation by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any
<PAGE> 2
corporation controlled by the Company, (iv) any acquisition or accumulation by
any corporation pursuant to a transaction which complies with clauses (i), (ii)
and (iii) of subsection (c) of this Section 2, or (v) the beneficial ownership
of 20% or more of either the Outstanding Company Common Stock or the Outstanding
Company Voting Securities by a Person if such beneficial ownership occurs solely
because (x) of a change in the aggregate number of shares of Outstanding Company
Common Stock or Outstanding Company Voting Securities since the last date on
which such Person acquired beneficial ownership of any Outstanding Company
Common Stock or Outstanding Company Voting Securities or (y) such Person
acquired such beneficial ownership in the good faith belief that such
acquisition would not cause such beneficial ownership to equal or exceed 20% of
the Outstanding Company Common Stock or Outstanding Company Voting Securities
then outstanding and such Person relied in good faith in computing the
percentage of its beneficial ownership on publicly filed reports or documents of
the Company which are inaccurate or out-of-date; or
(b) Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies by
or on behalf of a Person other than the Board; or
(c) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless, following such
Business Combination, (i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately prior
to such Business Combination beneficially own, directly or indirectly, more than
50% of, respectively, the then-outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be, (ii) no
Person (excluding any corporation resulting from such Business Combination or
any employee benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then-outstanding shares of common
stock, or the combined voting power of the then-outstanding voting securities
entitled to vote generally in the election of directors, as the case may be, of
the corporation resulting from such Business Combination, except to the extent
that such ownership existed prior to the Business Combination and (iii) at least
a majority of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
Notwithstanding clause (v) of subsection (a) of this Section 2, if any Person
whose beneficial ownership is not a Change of Control due to such clause (v)
does not reduce such Person's percentage of beneficial ownership of Outstanding
Company Common Stock or Outstanding Company Voting Securities to less than 20%
by the close of business on the fifth business day after notice from the Company
(the date of notice being the first day) that such Person's beneficial ownership
of Outstanding Company Common Stock or Outstanding Company Voting Securities
equals or exceeds 20%, such Person's beneficial ownership shall be a Change of
Control at the end of such five business day period (and such clause (v) shall
no longer apply); provided, however, that if such Person asserts in writing to
the Company by the end of such five business day period that a reduction in such
Person's percentage of beneficial ownership would subject such reduction to the
operation of Section 16(b) of the Exchange Act ("Section 16(b)") the period
during which the beneficial ownership of such Person must be reduced to less
than 20% so as
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<PAGE> 3
not to constitute a Change in Control shall be extended to the date that is the
third business day immediately following the date which is the earlier of (i)
six (6) months following the receipt by such Person of the notice from the
Company of beneficial ownership of 20% or more or (ii) the date upon which such
reduction would no longer be subject to Section 16(b). For purposes of this
definition, the determination whether any Person acted in "good faith" shall be
conclusively determined by the Board, acting by a vote of those directors of the
Company who, at such time, shall constitute the Incumbent Board.
3. Employment Period.
The Company hereby agrees to continue the Executive in its employ,
and the Executive hereby agrees to remain in the employ of the Company subject
to the terms and conditions of this Agreement, for the period commencing on the
Effective Date and ending on the third* anniversary of such date (the
"Employment Period").
4. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the Executive's position
(including status, offices, titles and reporting requirements), authority,
duties and responsibilities shall be at least commensurate in all material
respects with the most significant of those held, exercised and assigned
at any time during the 120-day period immediately preceding the Effective
Date and (B) the Executive's services shall be performed at the location
where the Executive was performing services immediately preceding the
Effective Date or any office or location less than 35 miles from such
location.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote reasonable attention and time during normal business
hours to the business and affairs of the Company and, to the extent
necessary to discharge the responsibilities assigned to the Executive
hereunder, to use the Executive's reasonable best efforts to perform
faithfully and efficiently such responsibilities. During the Employment
Period it shall not be a violation of this Agreement for the Executive to
(A) serve on corporate, civic or charitable boards or committees, (B)
deliver lectures, fulfill speaking engagements or teach at educational
institutions, (C) manage personal investments and (D) engage in activities
permitted under Section 2(d) of the Employment Agreement, so long as such
activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance
with this Agreement. It is expressly understood and agreed that to the
extent that any such activities have been conducted by the Executive prior
to the Effective Date, the continued conduct of such activities (or the
conduct of activities similar in nature and scope thereto) subsequent to
the Effective Date shall not thereafter be deemed to interfere with the
performance of the Executive's responsibilities to the Company.
(b) Compensation.
(i) Base Salary. During the Employment Period, the Executive shall
receive an annual base salary ("Annual Base Salary"), which shall be paid
at a monthly rate, at least equal to twelve times the highest monthly base
salary paid or payable, including any base salary which has been earned
but deferred, to the Executive by the Company and its affiliated companies
in respect of the twelve-month period immediately preceding the month in
which the Effective Date occurs. During the Employment Period, the Annual
Base Salary shall be reviewed no more than 12 months after the last salary
increase awarded to the Executive prior to the Effective Date and
thereafter at least annually. Any increase in Annual Base Salary shall not
serve to limit or reduce any other obligation to the Executive under this
Agreement. Annual Base Salary shall not be reduced after any such increase
and the term Annual Base Salary as utilized in this Agreement shall refer
to Annual Base Salary as so increased. As used in this Agreement, the term
"affiliated companies" shall include any company controlled by,
controlling or under common control with the Company.
*See attached schedule.
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<PAGE> 4
(ii) Annual Bonus. In addition to Annual Base Salary, the Executive
shall be awarded, for each fiscal year ending during the Employment
Period, an annual bonus (the "Annual Bonus") in cash at least equal to the
Executive's highest bonus under the Employment Agreement or the Company's
annual contingent (or incentive) compensation plans or any comparable
bonus under any predecessor or successor plan, for the last three full
fiscal years prior to the Effective Date (annualized in the event that the
Executive was not employed by the Company for the whole of such fiscal
year) (the "Recent Annual Bonus"). Each such Annual Bonus shall be paid no
later than the end of the third month of the fiscal year next following
the fiscal year for which the Annual Bonus is awarded, unless the
Executive shall elect to defer the receipt of such Annual Bonus.
(iii) Incentive, Savings and Retirement Plans. During the Employment
Period, the Executive shall be entitled to participate in all incentive,
savings and retirement plans, practices, policies and programs applicable
generally to other peer executives of the Company and its affiliated
companies (including, but not limited to, the Company's Restricted Stock
Plan, Employee Investment Plan, Employee Stock Ownership Plan,
Payroll-based Employee Stock Ownership Plan, Employee Retirement Plan,
Supplemental Retirement Plan and Stock Option Plan), but in no event shall
such plans, practices, policies and programs provide the Executive with
incentive opportunities (measured with respect to both regular and special
incentive opportunities, to the extent, if any, that such distinction is
applicable), savings opportunities and retirement benefit opportunities,
in each case, less favorable in the aggregate, than the most favorable of
those provided by the Company and its affiliated companies for the
Executive under such plans, practices, policies and programs as in effect
at any time during the 120-day period immediately preceding the Effective
Date or if more favorable to the Executive, those provided generally at
any time after the Effective Date to other peer executives of the Company
and its affiliated companies.
(iv) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be
eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company
and its affiliated companies (including, without limitation, medical,
prescription, dental, disability, employee life (and, if applicable,
supplemental term life insurance), group life, accidental death and travel
accident insurance plans and programs) to the extent applicable generally
to other peer executives of the Company and its affiliated companies, but
in no event shall such plans, practices, policies and programs provide the
Executive with benefits which are less favorable, in the aggregate, than
the most favorable of such plans, practices, policies and programs in
effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, those
provided generally at any time after the Effective Date to the other peer
executives of the Company and its affiliated companies.
(v) Expenses. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the most favorable policies,
practices and procedures of the Company and its affiliated companies in
effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
(vi) Fringe Benefits. During the Employment Period, the Executive
shall be entitled to fringe benefits, including, without limitation, tax
and financial planning services, payment of club dues, and, if applicable,
use of an automobile and payment of related expenses, in accordance with
the most favorable plans, practices, programs and policies of the Company
and its affiliated companies in effect for the Executive at any time
during the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies.
(vii) Office and Support Staff. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal
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<PAGE> 5
secretarial and other assistance, at least equal to the most favorable of
the foregoing provided to the Executive by the Company and its affiliated
companies at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as provided
generally at any time thereafter with respect to other peer executives of
the Company and its affiliated companies.
(viii) Vacation. During the Employment Period, the Executive shall
be entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated
companies as in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect generally at any time thereafter with respect
to other peer executives of the Company and its affiliated companies.
5. Termination of Employment.
(a) Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period. If the
Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 12(b) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive business days as a
result of incapacity due to mental or physical illness which is determined to be
total and permanent by a physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment
during the Employment Period for Cause. For purposes of this Agreement, "Cause"
shall mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its
affiliates (other than any such failure resulting from incapacity due to
physical or mental illness), after a written demand for substantial
performance is delivered to the Executive by the Board or the Chief
Executive Officer of the Company which specifically identifies the manner
in which the Board or Chief Executive Officer believes that the Executive
has not substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or
gross misconduct which is materially and demonstrably injurious to the
Company.
For purposes of this provision, no act or failure to act, on the
part of the Executive, shall be considered "willful" unless it is done, or
omitted to be done, by the Executive in bad faith or without reasonable belief
that the Executive's action or omission was in the best interests of the
Company. Any act, or failure to act, based upon authority given pursuant to a
resolution duly adopted by the Board (or, if applicable, upon the instructions
of the Chief Executive Officer or a senior officer of the Company) or based upon
the advice of counsel for the Company shall be conclusively presumed to be done,
or omitted to be done, by the Executive in good faith and in the best interests
of the Company. Anything in this Section 5(b) or elsewhere in this Agreement to
the contrary notwithstanding, the employment of the Executive shall in no event
be considered to have been terminated by the Company for Cause if termination of
the Executive's employment took place (a) as the result of bad judgment or
negligence on the part of the Executive, or (b) as the result of an act or
omission without the intent of gaining therefrom directly or indirectly a profit
to which the Executive was not legally entitled, or (c) because of an act or
omission believed by the Executive in good faith to have been in or not opposed
to the interests of the Company, or (d) for any act or omission in respect of
which a determination could properly be made that the Executive met the
applicable standard of conduct prescribed for indemnification or reimbursement
or payment of expenses under the By-laws of the Company or the laws of the State
of Delaware or the directors' and officers' liability insurance
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of the Company, in each case as in effect at the time of such act or omission,
or (e) as the result of an act or omission which occurred more than twelve
calendar months prior to the Executive's having been given notice of the
termination of the Executive's employment for such act or omission unless the
commission of such act or such omission could not at the time of such commission
or omission have been known to a member of the Board (other than the Executive,
if the Executive is then a member of the Board), in which case more than twelve
calendar months from the date that the commission of such act or such omission
was or could reasonably have been so known, or (f) as the result of a continuing
course of action which commenced and was or could reasonably have been known to
a member of the Board (other than the Executive) more than twelve calendar
months prior to notice having been given to the Executive of the termination of
the Executive's employment.
The cessation of employment of the Executive shall not be deemed to
be for Cause unless and until there shall have been delivered to the Executive a
copy of a resolution duly adopted by the affirmative vote of not less than three
quarters of the entire membership of the Board at a meeting of the Board called
and held for such purpose (after reasonable notice is provided to the Executive
and the Executive is given an opportunity, together with counsel, to be heard
before the Board), finding that, in the good faith opinion of the Board, the
Executive is guilty of the conduct described in subparagraph (i) or (ii) above,
and specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason.
(i) For purposes of this Agreement, "Good Reason" shall mean the
following involuntary circumstances:
A. the assignment to the Executive of any duties inconsistent in any
respect with the Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as contemplated
by Section 4(a) of this Agreement, or any other action by the Company which
results in a diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and inadvertent action not
taken in bad-faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Executive;
B. any failure by the Company to comply with any of the provisions
of Section 4(b) of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
C. the Company's requiring the Executive to be based at any office
or location other than as provided in Section 4(a)(i)(B) hereof or to relocate
his personal residence or the Company's requiring the Executive to travel on
Company business to a substantially greater extent than required immediately
prior to the Effective Date;
D. any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
E. any failure by the Company to comply with and satisfy Section
11(c) of this Agreement.
For purposes of this Section 5(c)(i), any good faith determination
of "Good Reason" made by the Executive shall be conclusive.
(ii) For purposes of this Agreement, "Good Reason" shall also mean
the following voluntary circumstance: anything in this Agreement to the contrary
notwithstanding, a termination by the Executive for any reason during the 30-day
period immediately following the first anniversary of the Effective Date shall
be deemed to be a termination for Good Reason for all purposes of this
Agreement.
(d) Notice of Termination. Any termination by the Company for Cause,
or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance
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<PAGE> 7
with Section 12(b) of this Agreement. For purposes of this Agreement, a "Notice
of Termination" means a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Executive's employment under the
provision so indicated and (iii) if the Date of Termination (as defined below)
is other than the date of receipt of such notice, specifies the termination date
(which date shall be not more than thirty days after the giving of such notice).
The failure by the Executive or the Company to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason or Cause shall not waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the Company, respectively,
from asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
(e) Date of Termination. "Date of Termination" (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the case
may be.
6. Obligations of the Company upon Termination.
(a) Good Reason; Other Than for Cause, Death or Disability. If,
during the Employment Period, the Company shall terminate the Executive's
employment other than for Cause or Disability or the Executive shall terminate
employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
A. the sum of (a) the Executive's Annual Base Salary through the
Date of Termination to the extent not theretofore paid, (b) the product of (x)
the higher of (I) the Recent Annual Bonus and (II) the Annual Bonus paid or
payable, including any bonus or portion thereof which has been earned but
deferred (and annualized for any fiscal year consisting of less than twelve full
months or during which the Executive was employed for less than twelve full
months), for the most recently completed fiscal year during the Employment
Period, if any (such higher amount being referred to as the "Highest Annual
Bonus") and (y) a fraction, the numerator of which is the number of days in the
current fiscal year through the Date of Termination, and the denominator of
which is 365 and (c) any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon) and any accrued
vacation pay, in each case to the extent not theretofore paid (the sum of the
amounts described in clauses (a), (b), and (c) shall be hereinafter referred to
as the "Accrued Obligations"); and
B. the amount equal to the product of (a) three* and (b) the sum of
(x) the Executive's Annual Base Salary and (y) the Highest Annual Bonus; and
C. an amount equal to the excess of (a) the actuarial equivalent of
the benefit under the Company's qualified defined benefit retirement plan (the
"Retirement Plan") (utilizing actuarial assumptions no less favorable to the
Executive than those in effect under the Company's Retirement Plan immediately
prior to the Effective Date), and any excess or supplemental retirement plan in
which the Executive participates pursuant to the Employment Agreement or
otherwise (together, the "SERP") which the Executive would receive if the
Executive's employment continued for three* years after the Date of Termination
assuming for this purpose that all accrued benefits are fully vested, and,
assuming that the Executive's compensation in each of the three* years is that
required by Section 4(b)(i) and Section 4(b)(ii), over (b) the actuarial
equivalent of the Executive's actual benefit (paid or payable), if any, under
the Retirement Plan and the SERP as of the Date of Termination;
(ii) for three* years after the Executive's Date of Termination, or
such longer period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Company shall continue benefits
*See attached schedule.
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to the Executive and/or the Executive's family at least equal to those which
would have been provided to them in accordance with the plans, programs,
practices and policies described in Section 4(b)(iv) of this Agreement as if the
Executive's employment had not been terminated or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies and their families,
provided, however, that if the Executive becomes reemployed with another
employer and is eligible to receive medical or other welfare benefits under
another employer-provided plan, the medical and other welfare benefits described
herein shall be secondary to those provided under such other plan during such
applicable period of eligibility. For purposes of determining eligibility (but
not the time of commencement of benefits) of the Executive for retiree benefits
pursuant to such plans, practices, programs and policies, the Executive shall be
considered to have remained employed until three* years after the Date of
Termination and to have retired on the last day of such period;
(iii) for three* years after the Executive's Date of Termination,
the Company shall, at its sole expense as incurred, provide the Executive with
outplacement services the scope and provider of which shall be selected by the
Executive in the Executive's sole discretion provided, however that the maximum
amount of expense to be incurred by the Company pursuant to this Section
6(a)(i)C in any one calendar year shall not exceed 10% of the Executive's Annual
Base Salary; and
(iv) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or benefits
required to be paid or provided or which the Executive is eligible to receive
under any plan, program, policy or practice or contract or agreement of the
Company and its affiliated companies.
(b) Death. If the Executive's employment is terminated by reason of
the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of any amounts or benefits required to be paid or
provided or which the Executive is eligible to receive under any plan, program,
policy, practice, contract or agreement of the Company or any of its affiliated
companies, including, without limitation, those amounts or benefits to be paid
or provided pursuant to the plans, programs, practices, policies, agreements or
contracts referred to in Section 4(b)(iii) or (iv) of this Agreement
(collectively, the "Other Benefits"). Accrued Obligations shall be paid to the
Executive's estate or beneficiary, as applicable, in a lump sum in cash within
30 days of the Date of Termination. With respect to the provision of Other
Benefits, the term "Other Benefits" as utilized in this Section 6(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and affiliated companies to the estates and
beneficiaries of peer executives of the Company and such affiliated companies
under such plans, programs, practices and policies relating to death benefits,
if any, as in effect with respect to other peer executives and their
beneficiaries at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive's estate and/or the
Executive's beneficiaries, as in effect on the date of the Executive's death
with respect to other peer executives of the Company and its affiliated
companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum
in cash within 30 days of the Date of Termination. With respect to the provision
of Other Benefits, the term "Other Benefits" as utilized in this Section 6(c)
shall include, and the Executive shall be entitled after the Disability
Effective Date to receive, disability and other benefits at least equal to the
most favorable of those generally provided by the Company and its affiliated
companies to disabled executives and/or their families in accordance with such
plans, programs, practices and policies relating to disability, if any, as in
effect generally with respect to other peer executives and their families at any
time during the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive and/or the Executive's family, as in effect at
any time thereafter generally with respect to other peer executives of the
Company and its affiliated companies and their families.
*See attached schedule.
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(d) Cause; Other than for Good Reason. If the Executive's employment
shall be terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive other than the obligation
to pay to the Executive (x) the Executive's Annual Base Salary through the Date
of Termination, (y) the amount of any compensation previously deferred by the
Executive, and (z) other benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination.
7. Nonexclusivity of Rights.
Nothing in this Agreement shall prevent or limit the Executive's
continuing or future participation in any plan, program, policy or practice
provided by the Company or any of its affiliated companies and for which the
Executive may qualify, nor, subject to Section 12(f), shall anything herein
limit or otherwise affect such rights as the Executive may have under any
contract or agreement with the Company or any of its affiliated companies.
Amounts which are vested benefits or which the Executive is otherwise entitled
to receive under any such plan, policy, practice or program of or any such
contract or agreement with the Company or any of its affiliated companies at or
subsequent to the Date of Termination shall be payable in accordance with such
plan, policy, practice or program or contract or agreement except as explicitly
modified by this Agreement.
8. Full Settlement.
(a) No Set-Off. Except as provided for in Section 6(a)(ii), the
Company's obligation to make the payments provided for in this Agreement and
otherwise to perform its obligations hereunder shall not be affected by any
set-off, counterclaim, recoupment, defense or other claim, right or action which
the Company may have against the Executive or others.
(b) No Mitigation Obligation. The Executive's benefits hereunder
shall be considered severance pay in consideration of the Executive's past
service, and pay in consideration of the Executive's continued service from the
date hereof and in no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and, except as
provided for in Section 6(a)(ii), such amounts shall not be reduced whether or
not the Executive obtains other employment.
(c) Expenses. In order that the purpose of this Agreement not be
frustrated, it is the intent of the Company that the Executive not be required
to incur the expenses associated with the enforcement of the Executive's rights
under this Agreement by litigation or other legal action because the cost and
expense thereof would substantially detract from the benefits intended to be
extended to the Executive hereunder, nor be bound to negotiate any settlement of
the Executive's rights hereunder under threat of incurring such expenses.
Accordingly, if following the Effective Date it should appear to the Executive
that the Company has failed to comply with any of its obligations under this
Agreement or, if at any time, in the event that the Company or any other person
takes any action to declare this Agreement void or unenforceable, or institutes
any litigation or other legal action designed to deny, diminish or to recover
from, the Executive the benefits intended to be provided to the Executive
hereunder, and that the Executive has complied with all of the Executive's
obligations under this Agreement, the Company irrevocably authorizes the
Executive from time to time to retain counsel of the Executive's choice at the
expense of the Company as provided in this Section 8(c), to represent the
Executive in connection with the initiation or defense of any litigation or
other legal action, whether by or against the Company or any director, officer,
stockholder or other person affiliated with the Company, in any jurisdiction.
Notwithstanding any existing or prior attorney-client relationship between the
Company and such counsel (other than a counsel acting on behalf of the Company
in connection with this Agreement), the Company irrevocably consents to the
Executive's entering into an attorney-client relationship with such counsel, and
in that connection the Company and the Executive agree that a confidential
relationship shall exist between the Executive and such counsel. The Company
agrees to pay as incurred, to the full extent permitted by law, all costs and
expenses which the Executive may reasonably incur as
9
<PAGE> 10
a result of any contest (regardless of the outcome thereof) by the Company, the
Executive or others of the validity or enforceability of, or liability under,
any provision of this Agreement or any guarantee of performance thereof
(including, without limitation, as a result of any contest by the Executive
about the amount of any payment pursuant to this Agreement), plus in each case
interest on any delayed payment at the applicable Federal rate provided for in
Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the
"Code"). Included within such costs and expenses shall be the reasonable fees
and expenses of counsel selected from time to time by the Executive as
hereinabove provided, which fees and expenses shall be paid or reimbursed to the
Executive by the Company on a regular, periodic basis upon presentation by the
Executive of a statement or statements prepared by such counsel in accordance
with its customary practices.
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment or distribution by the Company
to or for the benefit of the Executive (whether paid or payable or distributed
or distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by Coopers &
Lybrand LLP or such other certified public accounting firm as may be designated
by the Executive (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or such
earlier time as is requested by the Company. In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or group
effecting the Change of Control, the Executive shall appoint another nationally
recognized accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder). All
fees and expenses of the Accounting Firm shall be borne solely by the Company.
Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by
the Company to the Executive within five days of the receipt of the Accounting
Firm's determination. Any determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Gross-Up Payments which
will not have been made by the Company should have been made ("Underpayment"),
consistent with the calculations required to be made hereunder. In the event
that the Company exhausts its remedies pursuant to Section 9(c) and the
Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Company to or for the
benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than ten business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
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<PAGE> 11
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect
to such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively
to contest such claim, and
(iv) permit the Company to participate in any proceedings relating
to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 9(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 9(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 9(c) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the Executive
of an amount advanced by the Company pursuant to Section 9(c), a determination
is made that the Executive shall not be entitled to any refund with respect to
such claim and the Company does not notify the Executive in writing of its
intent to contest such denial of refund prior to the expiration of 30 days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
10. Confidential Information.
The Executive shall hold in a fiduciary capacity for the benefit of
the Company all secret or confidential information, knowledge or data relating
to the Company or any of its affiliated companies, and their respective
businesses, which shall have been obtained by the Executive during the
Executive's employment by the Company or any of its affiliated companies and
which shall not be or become public knowledge (other than by acts by the
Executive or representatives of the Executive in violation of this Agreement).
After termination of the Executive's employment with the Company, the Executive
shall not, without the prior written consent of the Company or as may otherwise
be required by law or legal process, communicate or divulge any such
information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 10 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
11. Successors.
11
<PAGE> 12
(a) This Agreement is personal to the Executive and without the
prior written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
12. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York, without reference to principles of
conflict of laws. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect. This Agreement may not be amended or
modified otherwise than by a written agreement executed by the parties hereto or
their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive
If to the Company: Stone & Webster, Incorporated
245 Summer Street
Boston, MA 02210
Attention: Chief Financial Officer
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 5(c)(i)A-E of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
(f) The Executive and the Company acknowledge that the employment of
the Executive by the Company is currently subject to the terms and conditions of
the Employment Agreement and, subject to Section 1(a) of this Agreement and the
Employment Agreement, the Executive's employment may be terminated by either the
Executive or the Company prior to the Effective Date, in which case the
Executive shall have no further rights under this Agreement. From and after the
Effective Date, except as otherwise specifically provided in any prior
12
<PAGE> 13
agreement, this Agreement shall supersede any other agreement between the
parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization from its Board of Directors, the Company
has caused these presents to be executed in its name on its behalf, all as of
the day and year first above written.
STONE & WEBSTER, INCORPORATED*
By:
-------------------------- --------------------------
Name:
Title:
* See attached schedule
13
<PAGE> 14
Schedule to Form of
Change of Control Employment Agreement
filed as Exhibit 10(b)
A. The following Named Executive Officers have entered into a Change of
Control Employment Agreement (the "Agreement") on this form:
(a) H. Kerner Smith
(b) Edward J. Walch
(c) Robert C. Wiesel
(d) Thomas L. Langford
(e) Daniel P. Levy
B. All terms of the individual Agreements are substantially identical except
that:
(a) Mr. Levy's Agreement provides for a "Change of Control Period'' and
"Employment Period" of two rather than three years and provides that
the benefits payable pursuant to Sections 6(a)(i)(C), 6(a)(ii) and
6(a)(iii) are calculated over a two year rather than a three year
period following the Date of Termination (as defined in the Agreement).
(b) Mr. Wiesel's Agreement is with Stone & Webster Engineering Corporation,
a wholly-owned subsidiary of Registrant, and is guaranteed by
Registrant.
14
<PAGE> 1
EXHIBIT 10(f)
Long-Term Incentive Compensation Plan
Contents
Article 1. Establishment, Objectives, and Duration
Article 2. Definitions
Article 3. Administration
Article 4. Shares Subject to the Plan and Maximum Awards
Article 5. Eligibility and Participation
Article 6. Stock Options
Article 7. Restricted Stock
Article 8. Performance Units and Performance Shares
Article 9. Performance Measures
Article 10. Beneficiary Designation
Article 11. Deferrals
Article 12. Rights of Employees/Directors
Article 13. Change in Control
Article 14. Amendment, Modification, and Termination
Article 15. Withholding
Article 16. Indemnification
Article 17. Successors
Article 18. Legal Construction
<PAGE> 2
LONG-TERM INCENTIVE COMPENSATION PLAN
Article 1. Establishment, Objectives, and Duration
1.1. Establishment of the Plan. Stone & Webster, Incorporated, a Delaware
corporation (hereinafter referred to as the "Company"), hereby establishes an
incentive compensation plan to be known as the "Stone & Webster, Incorporated
Long-Term Incentive Compensation Plan" (hereinafter referred to as the "Plan"),
as set forth in this document. The Plan is intended to replace the Company's
Restricted Stock Plan and 1995 Stock Option Plan (the "Old Plans") with respect
to future grants of equity-based incentive compensation. The Plan permits the
grant of Nonqualified Stock Options, Incentive Stock Options, Restricted Stock,
Performance Shares, and Performance Units.
Subject to approval by the Company's shareholders, the Plan shall become
effective as of January 1, 1998 (the "Effective Date") and shall remain in
effect as provided in Section 1.3 hereof.
1.2. Objectives of the Plan. The objectives of the Plan are to optimize the
profitability and growth of the Company through long-term incentives which are
consistent with the Company's goals and which link the personal interests of
Participants to those of the Company's shareholders; to provide Participants
with an incentive for excellence in individual performance; and to promote
teamwork among Participants. Awards generally are made in conjunction with
services performed by the Participant within the previous 12 months.
The Plan is further intended to provide flexibility to the Company in its
ability to motivate, attract, and retain the services of Participants who make
significant contributions to the Company's success and to allow Participants to
share in the success of the Company.
1.3. Duration of the Plan. The Plan shall commence on the Effective Date,
as described in Section 1.1 hereof, and shall remain in effect, subject to the
right of the Board of Directors to amend or terminate the Plan at any time
pursuant to Article 15 hereof, until all Shares subject to it shall have been
purchased or acquired according to the Plan's provisions. However, in no event
may an Award be granted under the Plan on or after December 15, 2007.
Article 2. Definitions
Whenever used in the Plan, the following terms shall have the meanings set
forth below, and when the meaning is intended, the initial letter of the word
shall be capitalized:
2.1. "Affiliate" shall have the meaning ascribed to such term in Rule 12b-2
of the General Rules and Regulations of the Exchange Act.
2.2. "Award" means, individually or collectively, a grant under this Plan
of Nonqualified Stock Options, Incentive Stock Options, Restricted Stock,
Performance Shares, or Performance Units.
2.3. "Award Agreement" means an agreement entered into by the Company and
each Participant setting forth the terms and provisions applicable to Awards
granted under this Plan.
2.4. "Beneficial Owner" or "Beneficial Ownership" shall have the meaning
ascribed to such term in Rule 13d-3 of the General Rules and Regulations under
the Exchange Act.
2.5. "Board" or "Board of Directors" means the Board of Directors of the
Company.
<PAGE> 3
2.6. "Change of Control" of the Company shall mean:
(a) The beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) by any Person of twenty
percent (20 percent) or more of either (i) the then-outstanding
shares of common stock of the Company (the "Outstanding Company
Common Stock") or (ii) the combined voting power of the
then-outstanding voting securities of the Company entitled to
vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that for purposes
of this subsection (a), the following accumulations and
acquisitions shall not constitute a Change of Control: (i) any
acquisition directly from the Company, (ii) any acquisition or
accumulation by the Company, (iii) any acquisition or
accumulation by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation
controlled by the Company, (iv) any acquisition or accumulation
by an corporation pursuant to a transaction which complies with
clauses (i), (ii), and (iii) of subsection (c) of this Section 2,
or (v) the beneficial ownership of twenty percent (20 percent) or
more of either the Outstanding Company Common Stock or the
Outstanding Company Voting Securities by a Person if such
beneficial ownership occurs solely because (x) of a change in the
aggregate number of shares of Outstanding Company Common Stock or
Outstanding Company Voting Securities since the last date on
which such Persons acquired beneficial ownership of any
Outstanding Company Common Stock or Outstanding Company Voting
Securities or (y) such Persons acquired such beneficial ownership
in the good faith belief that such acquisition would not cause
such beneficial ownership to equal or exceed twenty percent (20
percent) of the Outstanding Company Common Stock or Outstanding
Company Voting Securities then outstanding and such Person relied
in good faith in computing the percentage of its beneficial
ownership on publicly filed reports or documents of the Company
which are inaccurate or out-of-date; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual
becoming a director subsequent to the date hereof whose election,
or nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election
contest with respect to the election or removal of directors or
other actual or threatened solicitation of proxies by or on
behalf of a Person other than the Board; or
<PAGE> 4
(c) Consummation of a reorganization, merger, or consolidation or
sale or other disposition of all or substantially all of the
assets of the Company (a "Business Combination"), in each case,
unless, following such Business Combination, (i) all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own,
directly or indirectly, more than fifty percent (50 percent) of,
respectively, the then-outstanding shares of common stock and the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the
case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which
as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such
Business Combination of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (ii)
no Person (excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of
the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, twenty
percent (20 percent) or more of, respectively, the
then-outstanding shares of common stock, or the combined voting
power of the then-outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of
the corporation resulting from such Business Combination, except
to the extent that such ownership existed prior to the Business
Combination and (iii) at least a majority of the members of the
board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the
time of the execution of the initial agreement, or of the action
of the Board, providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
<PAGE> 5
Notwithstanding clause (v) of subsection (a) of this Section 2.6,
if any Person whose beneficial ownership is not a Change of
Control due to such clause (v) does not reduce such Person's
percentage of beneficial ownership of Outstanding Company Common
Stock or Outstanding Company Voting Securities to less than
twenty percent (20 percent) by the close of business on the fifth
business day after notice from the Company (the date of notice
being the first day) that such Person's beneficial ownership of
Outstanding Company Common Stock or Outstanding Company Voting
Securities equals or exceeds twenty percent (20 percent), such
Person's beneficial ownership shall be a Change of Control at the
end of such five (5) business day period (and such clause (v)
shall no longer apply); provided, however, that if such Person
asserts in writing to the Company by the end of such five (5)
business day period that a reduction in such Person's percentage
of beneficial ownership would subject such reduction to the
operation of Section 16(b) of the Exchange Act ("Section 16(b)")
the period during which the beneficial ownership of such Person
must be reduced to less than twenty percent (20 percent) so as
not to constitute a Change of Control shall be extended to the
date that is the third business day immediately following the
date which is the earlier of (i) six (6) months following the
receipt by such Person of the notice from the Company of
beneficial ownership of twenty percent (20 percent) or more or
(ii) the date upon which such reduction would no longer be
subject to Section 16(b). For purposes of this definition, the
determination whether any Person acted in "good faith" shall be
conclusively determined by the Board, acting by a vote of those
directors of the Company who, at such time, shall constitute the
Incumbent Board.
2.7. "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
2.8. "Committee" means the Compensation Committee or any other committee
appointed by the Board to administer Awards to Employees, as specified in
Article 3 herein. Any such Committee shall be comprised entirely of outside
Directors within the meaning of Code Section 162(m) and applicable
interpretative authority thereunder.
<PAGE> 6
2.9. "Company" means Stone & Webster, Incorporated, a Delaware corporation,
and any successor thereto as provided in Article 17 herein.
2.10. "Covered Employee" means a Participant who, as of the date of vesting
and/or payout of an Award, as applicable, is one of the group of "covered
employees," as defined in the regulations promulgated under Code Section 162(m),
or any successor statute.
2.11. "Director" means any individual who is a member of the Board of
Directors of the Company.
2.12. "Disability" shall have the meaning ascribed to such term in the
Participant's governing long-term disability plan, or if no such plan exists, at
the discretion of the Board.
2.13. "Effective Date" shall have the meaning ascribed to such term in
Section 1.1 hereof.
2.14. "Employee" means any employee of the Company or its Subsidiaries or
Affiliates. Directors who are employed by the Company shall be considered
Employees under this Plan.
2.15. "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor act thereto.
2.16. "Fair Market Value" at any date shall be the closing sale price on
the principal securities exchange on which the Shares are traded on the last
previous day on which a sale was reported.
2.17. "Incentive Stock Option" or "ISO" means an option to purchase Shares
granted under Article 6 herein and which is designated as an Incentive Stock
Option and which is intended to meet the requirements of Code Section 422.
2.18. "Insider" shall mean an individual who is, on the relevant date, an
officer, Director or ten percent (10 percent) beneficial owner of any class of
the Company's equity securities that is registered pursuant to Section 12 of the
Exchange Act, all as defined under Section 16 of the Exchange Act.
2.19. "Nonqualified Stock Option" or "NQSO" means an option to purchase
Shares granted under Article 6 herein and which is not intended to meet the
requirements of Code Section 422.
2.20. "Option" means an Incentive Stock Option or a Nonqualified Stock
Option, as described in Article 6 herein.
2.21. "Option Price" means the price at which a Share may be purchased by a
Participant pursuant to an Option.
<PAGE> 7
2.22. "Participant" means an Employee or Director who has been selected to
receive an Award or who has outstanding an Award granted under the Plan.
2.23. "Performance-Based Exception" means the performance-based exception
from the tax deductibility limitations of Code Section 162(m).
2.24. "Performance Share" means an Award granted to a Participant, as
described in Article 8 herein.
2.25. "Performance Unit" means an Award granted to a Participant, as
described in Article 8 herein.
2.26. "Period of Restriction" means the period during which the transfer of
Shares of Restricted Stock is limited in some way (based on the passage of time,
the achievement of performance goals, or upon the occurrence of other events as
determined by the Board, at its discretion), and the Shares are subject to a
substantial risk of forfeiture, as provided in Article 7 herein.
2.27. "Person" shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and
14(d) thereof, including a "group" as defined in Section 13(d) thereof.
2.28. "Restricted Stock" means an Award granted to a Participant pursuant
to Article 7 herein.
2.29. "Retirement" shall have the meaning ascribed to such term in the
Employee Retirement Plan of Stone & Webster, Incorporated and Participating
Subsidiaries.
2.30. "Shares" means the shares of common stock of the Company.
2.31. "Subsidiary" means (a) a corporation a majority of whose outstanding
stock entitled to elect a majority of its Board of Directors is at the time
owned by the party in question and/or by a subsidiary or subsidiaries of such a
party, and (b) a corporation a substantial amount of the stock of which the
Company or its Subsidiaries owns or has an option to acquire.
<PAGE> 8
Article 3. Administration
3.1. General. The Plan shall be administered by the Compensation Committee
of the Board, or by any other Committee appointed by the Board; provided,
however, that the administration of Awards granted to Directors who are not
Employees (Non-employee Directors) shall be reserved to the Board of Directors.
Any provisions in this Plan regarding administration of Awards by the Committee
shall be deemed to refer to the Board with respect to Awards granted to
Non-Employee Directors. Any Committee administering the Plan shall be comprised
entirely of "outside directors" within the meaning of Code Section 162(m) and
applicable interpretive authority thereunder. The members of the Committee shall
be appointed from time to time by, and shall serve at the discretion of, the
Board of Directors. The Committee shall have the authority to delegate
administrative duties to officers, Employees, or Directors of the Company.
3.2. Authority of the Committee. Except as limited by law or by the
Certificate of Incorporation or Bylaws of the Company, and subject to the
provisions herein, the Committee shall have full power to select Employees who
shall participate in the Plan; determine the sizes and types of Awards;
determine the terms and conditions of Awards in a manner consistent with the
Plan; construe and interpret the Plan and any agreement or instrument entered
into under the Plan; establish, amend, or waive rules and regulations for the
Plan's administration; and (subject to the provisions of Article 15 herein)
amend the terms and conditions of any outstanding Award as provided in the Plan.
Further, the Committee shall make all other determinations which may be
necessary or advisable for the administration of the Plan. As permitted by law
(and subject to Section 3.1 herein), the Committee may delegate its authority as
identified herein.
3.3. Decisions Binding. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders and
resolutions of the Board shall be final, conclusive and binding on all persons,
including the Company, its shareholders, Directors, Employees, Participants, and
their estates and beneficiaries.
<PAGE> 9
Article 4. Shares Subject to the Plan and Maximum Awards
4.1. Number of Shares Available for Grants. Subject to adjustment as
provided in Section 4.2 herein, the number of Shares hereby reserved for
issuance to Participants under the Plan shall be six hundred fifty thousand
(650,000) Shares, plus three hundred thirty thousand, seven hundred and
seventy-seven (330,777) Shares which have been previously reserved and
authorized but remaining available for grant under the Old Plans as of the
Effective Date. No more than three hundred thousand (300,000) Shares reserved
for issuance under the Plan may be granted in the form of Restricted Shares. The
Board shall determine the appropriate methodology for calculating the number of
shares issued pursuant to the Plan. Unless and until the Board determines that
an Award to a Covered Employee shall not be designed to comply with the
Performance-Based Exception, the following rules shall apply to grants of such
Awards under the Plan:
(a) Stock Options: The maximum aggregate number of Shares that may be
granted in the form of Stock Options pursuant to any Award
granted in any one fiscal year to any one Participant shall be
one hundred thousand (100,000).
(b) Restricted Stock: The maximum aggregate grant with respect to
Awards of Restricted Stock granted in any one fiscal year to any
one Participant shall be thirty-three thousand (33,000).
(c) Performance Shares: The maximum aggregate payout (determined as
of the end of the applicable performance period) with respect to
Awards of Performance Shares granted in any one fiscal year to
any one Participant shall be equal to the value of twenty-five
thousand (25,000) Shares.
(d) Performance Units: The maximum aggregate payout (determined as of
the end of the applicable performance period) with respect to
Awards of Performance Units granted in any one fiscal year to any
one Participant shall be equal to one million dollars
($1,000,000).
4.2. Adjustments in Authorized Shares. In the event of any change in
corporate capitalization, such as a stock split, or a corporate transaction,
such as any merger, consolidation, separation, including a spin-off, or other
distribution of stock or property of the Company, any reorganization (whether or
not such reorganization comes within the definition of such term in Code Section
368) or any partial or complete liquidation of the Company, such adjustment
shall be made in the number and class of Shares which may be delivered under
Section 4.1, in the number and class of and/or price of Shares subject to
outstanding Awards granted under the Plan, and in the Award limits set forth in
Section 4.1, as may be determined to be appropriate and equitable by the Board,
in its sole discretion, to prevent dilution or enlargement of rights; provided,
however, that the number of Shares subject to any Award shall always be a whole
number.
<PAGE> 10
Article 5. Eligibility and Participation
5.1. Eligibility. Persons eligible to participate in this Plan include all
Employees and Directors.
5.2. Actual Participation. Subject to the provisions of the Plan, the
Committee may, from time to time, select from all eligible Employees, those to
whom Awards shall be granted and shall determine the nature and amount of each
Award.
Article 6. Stock Options
6.1. Grant of Options. Subject to the terms and provisions of the Plan,
Options may be granted to Participants in such number, and upon such terms, and
at any time and from time to time as shall be determined by the Committee. A
nonqualified option to purchase 2,000 shares of Common Stock will be granted to
each Non-employee Director who is initially elected or appointed to the Board of
Directors after the Effective Date and prior to the expiration of the Plan,
effective on the date of his or her initial election or appointment (which date
shall be the date of grant for purposes hereof), and a nonqualified option to
purchase 1,000 shares of Common Stock will be granted annually, effective as of
the anniversary date of the Effective Date in each year after the Effective Date
until the expiration of the Plan, to each person who is a Non-employee Director
on each such anniversary date (which date shall be the date of grant for
purposes hereof). Options may provide for the grant of replacement stock options
if all or any portion of the exercise price or taxes incurred in connection with
the exercise, are paid by delivery (or, in the case of payment of taxes, by
withholding of shares) of other common shares of the Company.
6.2. Award Agreement. Each Option grant shall be evidenced by an Award
Agreement that shall specify the Option Price, the duration of the Option, the
number of Shares to which the Option pertains, and such other provisions as the
Committee shall determine. The Award Agreement also shall specify whether the
Option is intended to be an ISO within the meaning of Code Section 422, or an
NQSO whose grant is intended not to fall under the provisions of Code Section
422.
6.3. Option Price. The Option Price for each grant of an Option under this
Plan shall be at least equal to one hundred percent (100 percent) of the Fair
Market Value of a Share on the date the Option is granted.
6.4. Duration of Options. Each Option granted to a Participant shall expire
at such time as the Committee shall determine at the time of grant; provided,
however, that no Option shall be exercisable later than the tenth (10th)
anniversary date of its grant.
6.5. Exercise of Options. Options granted under this Article 6 shall be
exercisable at such times and be subject to such restrictions and conditions as
the Committee shall in each instance approve, which need not be the same for
each grant or for each Participant.
<PAGE> 11
6.6. Payment. Options granted under this Article 6 shall be exercised by
the delivery of a written notice of exercise to the Company, setting forth the
number of Shares with respect to which the Option is to be exercised,
accompanied by full payment for the Shares.
The Option Price upon exercise of any Option shall be payable to the
Company in full either: (a) in cash or its equivalent, or (b) by tendering
previously acquired Shares having an aggregate Fair Market Value at the time of
exercise equal to the total Option Price (provided that the Shares which are
tendered must have been held by the Participant for at least six (6) months
prior to their tender to satisfy the Option Price), or (c) by a combination of
(a) and (b).
The Committee also may allow cashless exercise as permitted under Federal
Reserve Board's Regulation T, subject to applicable securities law restrictions,
or by any other means which the Board determines to be consistent with the
Plan's purpose and applicable law.
Subject to any governing rules or regulations, as soon as practicable after
receipt of a written notification of exercise and full payment, the Company
shall deliver to the Participant, in the Participant's name, a statement setting
forth shares held in book entry form, or Share certificates in an appropriate
amount based upon the number of Shares purchased under the Option(s).
6.7. Restrictions on Share Transferability. The Committee may impose such
restrictions on any Shares acquired pursuant to the exercise of an Option
granted under this Article 6 as it may deem advisable, including, without
limitation, restrictions under applicable federal securities laws, under the
requirements of any stock exchange or market upon which such Shares are then
listed and/or traded, and under any blue sky or state securities laws applicable
to such Shares.
6.8. Termination of Emploment/Directorship. Each Participant's Option Award
Agreement shall set forth the extent to which the Participant shall have the
right to exercise the Option following termination of the Participant's
employment or directorship with the Company. Such provisions shall be determined
in the sole discretion of the Committee, shall be included in the Award
Agreement entered into with each Participant, need not be uniform among all
Options issued pursuant to this Article 6, and may reflect distinctions based on
the reasons for termination.
6.9. Nontransferability of Options.
(a) Incentive Stock Options. No ISO granted under the Plan may be
sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and
distribution. Further, all ISOs granted to a Participant under
the Plan shall be exercisable during his or her lifetime only by
such Participant.
<PAGE> 12
(b) Nonqualified Stock Options. Except as otherwise provided in a
Participant's Award Agreement, no NQSO granted under this Article
6 may be sold, transferred, pledged, assigned, or otherwise
alienated or hypothecated, other than by will or by the laws of
descent and distribution. Further, except as otherwise provided
in a Participant's Award Agreement, all NQSOs granted to a
Participant under this Article 6 shall be exercisable during his
or her lifetime only by such Participant.
Article 7. Restricted Stock
7.1. Grant of Restricted Stock. Subject to the terms and provisions of the
Plan, the Committee, at any time and from time to time, may grant Shares of
Restricted Stock to Participants in such amounts as the Committee shall
determine.
7.2. Restricted Stock Agreement. Each Restricted Stock grant shall be
evidenced by a Restricted Stock Award Agreement that shall specify the number
of Shares of Restricted Stock granted, the Period(s) of Restriction, which will
normally extend over not less than three (3) years from the date of grant, and
such other provisions as the Committee shall determine.
7.3. Transferability. Except as provided in this Article 7, the Shares of
Restricted Stock granted herein may not be sold, transferred, pledged, assigned,
or otherwise alienated or hypothecated until the end of the applicable Period of
Restriction established by the Committee and specified in the Restricted Stock
Award Agreement, or upon earlier satisfaction of any other conditions, as
specified by the Committee in its sole discretion and set forth in the
Restricted Stock Award Agreement. All rights with respect to the Restricted
Stock granted to a Participant under the Plan shall be available during his or
her lifetime only to such Participant.
7.4. Other Restrictions. Subject to Article 9 herein, the Committee shall
impose such other conditions and/or restrictions on any Shares of Restricted
Stock granted pursuant to the Plan as it may deem advisable including, without
limitation, a requirement that Participants pay a stipulated purchase price for
each Share of Restricted Stock, restrictions based upon the achievement of
specific performance goals (corporate, divisional, and/or individual),
time-based restrictions on vesting following the attainment of the performance
goals, and/or restrictions under applicable federal or state securities laws.
The Company may retain the certificates representing Shares of Restricted
Stock in the Company's possession or maintain such records in a book entry
system until such time as all conditions and/or restrictions applicable to such
Shares have been satisfied.
<PAGE> 13
Except as otherwise provided in this Article 7, Shares of Restricted Stock
covered by each Restricted Stock grant made under the Plan shall become freely
transferable by the Participant after the last day of the applicable Period of
Restriction subject to applicable securities laws.
7.5. Voting Rights. Participants holding Shares of Restricted Stock granted
hereunder may be granted the right to exercise full voting rights with respect
to those Shares during the Period of Restriction.
7.6. Dividends and Other Distributions. During the Period of Restriction,
Participants holding Shares of Restricted Stock granted hereunder may be
credited with regular cash dividends paid with respect to the underlying Shares
while they are so held. The Committee may apply any restrictions to the
dividends that the Committee deems appropriate. Without limiting the generality
of the preceding sentence, if the grant or vesting of Restricted Shares granted
to a Covered Employee is designed to comply with the requirements of the
Performance-Based Exception, the Committee may apply any restrictions it deems
appropriate to the payment of dividends declared with respect to such Restricted
Shares, such that the dividends and/or the Restricted Shares maintain
eligibility for the Performance-Based Exception.
7.7. Termination of Employment/Directorship. Each Restricted Stock Award
Agreement shall set forth the extent to which the restrictions on shares awarded
under such Agreement shall lapse following termination of the Participant's
employment with the Company. Such provisions shall be determined in the sole
discretion of the Committee, shall be included in the Award Agreement entered
into with each Participant, need not be uniform among all Shares of Restricted
Stock issued pursuant to the Plan, and may reflect distinctions based on the
reasons for termination; provided, however that, except in the cases of
terminations connected with a Change of Control and terminations by reason of
death or Disability, the lapse of restrictions on Shares of Restricted Stock
which qualify for the Performance-Based Exception and which are held by Covered
Employees shall occur at the time they otherwise would have, but for the
termination.
Article 8. Performance Units and Performance Shares
8.1. Grant of Performance Units/Shares. Subject to the terms of the Plan,
Performance Units and/or Performance Shares may be granted to Participants in
such amounts and upon such terms, and at any time and from time to time, as
shall be determined by the Committee, provided that no more than ten (10%)
percent of Performance Shares issuable under this Plan may be issued subject to
a Performance Period (as hereinafter defined) of less than one (1) year.
<PAGE> 14
8.2. Value of Performance Units/Shares. Each Performance Unit shall have an
initial value that is established by the Committee at the time of grant. Each
Performance Share shall have an initial value equal to the Fair Market Value of
a Share on the date of grant. The Committee shall set performance goals in its
discretion which, depending on the extent to which they are met, will determine
the number and/or value of Performance Units/Shares that will be paid out to the
Participant. For purposes of this Article 8, the time period during which the
performance goals must be met shall be called a "Performance Period."
8.3. Earning of Performance Units/Shares. Subject to the terms of this
Plan, after the applicable Performance Period has ended, the holder of
Performance Units/Shares shall be entitled to receive payout on the number and
value of Performance Units/Shares earned by the Participant over the Performance
Period, to be determined as a function of the extent to which the corresponding
performance goals have been achieved.
8.4. Form and Timing of Payment of Performance Units/Shares. Payment of
earned Performance Units/Shares shall be made in a single lump sum following the
close of the applicable Performance Period. Subject to the terms of this Plan,
the Committee, in its sole discretion, may pay earned Performance Units/Shares
in the form of cash or in Shares (or in a combination thereof) which have an
aggregate Fair Market Value equal to the value of the earned Performance
Units/Shares at the close of the applicable Performance Period. Such Shares may
be granted subject to any restrictions deemed appropriate by the Committee. The
determination of the Committee with respect to the form of payout of such Awards
shall be set forth in the Award Agreement pertaining to the grant of the Award.
At the discretion of the Committee, Participants may be entitled to receive
any dividends declared with respect to Shares which have been earned in
connection with grants of Performance Units and/or Performance Shares which have
been earned, but not yet distributed to Participants (such dividends shall be
subject to the same accrual, forfeiture, and payout restrictions as apply to
dividends earned with respect to Shares of Restricted Stock, as set forth in
Section 7.6 herein). In addition, Participants may, at the discretion of the
Committee, be entitled to exercise their voting rights with respect to such
Shares.
8.5. Termination of Employment/Directorship Due to Death, Disability, or
Retirement. Unless determined otherwise by the Committee and set forth in the
Participant's Award Agreement, in the event the employment or directorship of a
Participant is terminated by reason of death, Disability, or Retirement during a
Performance Period, the Participant or his legal representative shall receive a
payout of the Performance Units/Shares which is prorated, as specified by the
Committee in its discretion.
<PAGE> 15
Payment of earned Performance Units/Shares shall be made at a time
specified by the Committee in its sole discretion and set forth in the
Participant's Award Agreement. Notwithstanding the foregoing, with respect to
Covered Employees who retire during a Performance Period, payments shall be made
at the same time as payments are made to Participants who did not terminate
employment during the applicable Performance Period.
8.6. Termination of Employment/Directorship for Other Reasons. In the event
that a Participant's employment or directorship terminates for any reason other
than those reasons set forth in Section 8.5 herein, all Performance Units/Shares
shall be forfeited by the Participant to the Company unless determined otherwise
by the Committee, as set forth in the Participant's Award Agreement.
8.7. Nontransferability. Except as otherwise provided in a Participant's
Award Agreement, Performance Units/Shares may not be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated, other than by will or by the
laws of descent and distribution. Further, except as otherwise provided in a
Participant's Award Agreement, a Participant's rights under the Plan shall be
exercisable during the Participant's lifetime only by the Participant or the
Participant's legal representative.
Article 9. Performance Measures
Unless and until the Board proposes for shareholder vote and shareholders
approve a change in the general performance measures set forth in this Article
9, the attainment of which may determine the degree of payout and/or vesting
with respect to Awards to Covered Employees which are designed to qualify for
the Performance-Based Exception, the performance measure(s) to be used for
purposes of such grants shall be chosen from among:
(a) Earnings per share;
(b) Net income (before or after taxes);
(c) Return measures (including, but not limited to, return on assets,
capital, equity, or sales);
(d) Cash flow return on investments which equals net cash flows
divided by owners equity;
(e) Earnings before or after taxes;
(f) Gross revenues;
(g) Market-to-book value ratio;
<PAGE> 16
(h) Share price (including, but not limited to, growth measures and
total shareholder return);
(i) Working capital measures; and
(j) Economic value added.
Subject to the terms of the Plan, each of these measures shall be defined
by the Committee or Board on a corporation or subsidiary or business division
basis or in comparison with peer group performance, and may include or exclude
specified extraordinary items, as determined by the corporation's auditors.
The Committee shall have the discretion to adjust the determinations of the
degree of attainment of the pre-established performance goals; provided,
however, that Awards which are designed to qualify for the Performance-Based
Exception, and which are held by Covered Employee, may not be adjusted upward
(the Committee shall retain the discretion to adjust such Awards downward).
In the event that applicable tax and/or securities laws change to permit
Committee discretion to alter the governing performance measures without
obtaining shareholder approval of such changes, the Board shall have sole
discretion to make such changes without obtaining shareholder approval. In
addition, in the event that the Committee determines that it is advisable to
grant Awards which shall not qualify for the Performance-Based Exception, the
Committee may make such grants without satisfying the requirements of Code
Section 162(m).
Article 10. Beneficiary Designation
Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or successively) to
whom any benefit under the Plan is to be paid in case of his or her death before
he or she receives any or all of such benefit. Each such designation shall
revoke all prior designations by the same Participant, shall be in a form
prescribed by the Company, and will be effective only when filed by the
Participant in writing with the Company during the Participant's lifetime. In
the absence of any such designation, benefits remaining unpaid at the
Participant's death shall be paid to the Participant's estate.
Article 11. Deferrals
The Board may permit or require a Participant to defer such Participant's
receipt of the payment of cash or the delivery of Shares that would otherwise be
due to such Participant by virtue of the lapse or waiver of restrictions with
respect to Restricted Stock, or the satisfaction of any requirements or goals
with respect to Performance Units/Shares. If any such deferral election is
required or permitted, the Committee shall, in its sole discretion, establish
rules and procedures for such payment deferrals.
<PAGE> 17
Article 12. Rights of Employees/Directors
12.1. Employment. Nothing in the Plan shall interfere with or limit in any
way the right of the Company to terminate any Participant's employment at any
time, nor confer upon any Participant any right to continue in the employ of the
Company.
12.2. Participation. No Employee or Director shall have the right to be
selected to receive an Award under this Plan, or, having been so selected, to be
selected to receive a future Award.
Article 13. Change of Control
13.1. Treatment of Outstanding Awards. Upon the occurrence of a Change of
Control and notwithstanding the terms of the Award Agreement, unless otherwise
specifically prohibited under applicable laws, or by the rules and regulations
of any governing governmental agencies or national securities exchanges:
(a) Any and all Options granted hereunder shall become immediately
exercisable, and shall remain exercisable throughout their entire
term;
(b) Any restriction periods and restrictions imposed on Restricted
Shares which are not performance-based shall lapse;
(c) The target payout opportunities attainable under all outstanding
Awards of performance-based Restricted Stock, Performance Units
and Performance Shares shall be deemed to have been fully earned
for the entire Performance Period(s) as of the effective date of
the Change of Control. The vesting of all Awards denominated in
Shares shall be accelerated as of the effective date of the
Change of Control, and there shall be paid out to Participants
within thirty (30) days following the effective date of the
Change of Control a pro rata number of shares based upon an
assumed achievement of all relevant targeted performance goals
and upon the length of time within the Performance Period which
has elapsed prior to the Change of Control. Awards denominated in
cash shall be paid pro rata to participants in cash within thirty
(30) days following the effective date of the Change of Control,
with the proration determined as a function of the length of time
within the Performance Period which has elapsed prior to the
Change of Control, and based on an assumed achievement of all
relevant targeted performance goals.
<PAGE> 18
13.2. Termination, Amendment, and Modifications of Change-of-Control
Provisions. Notwithstanding any other provision of this Plan (but subject to the
limitations of Section 14.3 hereof) or any Award Agreement provision, the
provisions of this Article 13 may not be terminated, amended, or modified on or
after the date of a Change of Control to affect adversely any Award theretofore
granted under the Plan without the prior written consent of the Participant with
respect to said Participant's outstanding Awards; provided, however, the Board
may terminate, amend, or modify this Article 13 at any time and from time to
time prior to the date of a Change of Control.
13.3. Pooling of Interests Accounting. Notwithstanding any other provision
of the Plan to the contrary, in the event that the consummation of a Change of
Control is contingent on using pooling of interests accounting methodology, the
Board may take any action necessary to preserve the use of pooling of interests
accounting.
Article 14. Amendment, Modification, and Termination
14.1. Amendment, Modification, and Termination. Subject to the terms of the
Plan, the Board may at any time and from time to time, alter, amend, suspend or
terminate the Plan in whole or in part but no amendment which significantly
expands the benefits available for awards under this Plan shall be effective
unless and until the same is approved by the affirmative vote (in person or by
proxy) of the holders of a majority of the shares of Common Stock of the
Company present and entitled to vote at a meeting held to take such action at
which a quorum is present.
14.2. Adjustment of Awards Upon the Occurrence of Certain Unusual or
Nonrecurring Events. The Board may make adjustments in the terms and conditions
of, and the criteria included in, Awards in recognition of unusual or
nonrecurring events (including, without limitation, the events described in
Section 4.2 hereof) affecting the Company or the financial statements of the
Company or of changes in applicable laws, regulations, or accounting principles,
whenever the Board determines that such adjustments are appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan; provided that, unless the Board determines
otherwise at the time such adjustment is considered, no such adjustment shall be
authorized to the extent that such authority would be inconsistent with the
Plan's meeting the requirements of Section 162(m) of the Code, as from time to
time amended.
14.3. Awards Previously Granted. Notwithstanding any other provision of the
Plan to the contrary (but subject to Section 13.3 hereof), no termination,
amendment, or modification of the Plan shall adversely affect in any material
way any Award previously granted under the Plan, without the written consent of
the Participant holding such Award.
14.4. Compliance with Code Section 162(m). At all times when Code Section
162(m) is applicable, all Awards granted under this Plan shall comply with the
requirements of Code Section 162(m); provided, however, that in the event the
Board determines that such compliance is not desired with respect to any Award
or Awards available for grant under the Plan, then compliance with Code Section
162(m) will not be required. In addition, in the event that changes are made to
Code Section 162(m) to permit greater flexibility with respect to any Award or
Awards available under the Plan, the Board may, subject to this Article 14, make
any adjustments it deems appropriate.
<PAGE> 19
Article 15. Withholding
15.1. Tax Withholding. The Company shall have the power and the right to
deduct or withhold, or require a Participant to remit to the Company, an amount
sufficient to satisfy Federal, state, and local taxes, domestic or foreign,
required by law or regulation to be withheld with respect to any taxable event
arising as a result of this Plan.
15.2. Share Withholding. With respect to withholding required upon any
taxable event arising as a result of Share-based Awards granted hereunder,
Participants may elect, subject to the approval of the Board, to satisfy the
withholding requirement, in whole or in part, by having the Company withhold
Shares to satisfy their tax obligations. With respect to withholding required
upon the exercise of Options or upon the lapse of restrictions on Restricted
Stock, Participants may only elect to have Shares withheld having a Fair Market
Value on the date the tax is to be determined equal to the minimum statutory
total tax which could be imposed on the transaction. All elections shall be
irrevocable, made in writing, signed by the Participant, and shall be subject to
any restrictions or limitations that the Board, in its sole discretion, deems
appropriate.
Article 16. Indemnification
Each person who is or shall have been a member of the Committee, or of the
Board, shall be indemnified and held harmless by the Company against and from
any loss, cost, liability, or expense that may be imposed upon or reasonably
incurred by him or her in connection with or resulting from any claim, action,
suit, or proceeding to which he or she may be a party or in which he or she may
be involved by reason of any action taken or failure to act under the Plan and
against and from any and all amounts paid by him or her in settlement thereof,
with the Company's approval, or paid by him or her in satisfaction of any
judgment in any such action, suit, or proceeding against him or her, provided he
or she shall give the Company an opportunity, at its own expense, to handle and
defend the same before he or she undertakes to handle and defend it on his or
her own behalf. The foregoing right of indemnification shall not be exclusive of
any other rights of indemnification to which such persons may be entitled under
the Company's Articles of Incorporation or Bylaws, as a matter of law, or
otherwise, or any power that the Company may have to indemnify them or hold them
harmless.
Article 17. Successors
All obligations of the Company under the Plan with respect to Awards
granted hereunder shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation, or otherwise, of all or substantially all of the business
and/or assets of the Company.
<PAGE> 20
Article 18. Legal Construction
18.1. Gender and Number. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
18.2. Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
18.3. Requirements of Law. The granting of Awards and the issuance of
Shares under the Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
18.4. Securities Law Compliance. With respect to Insiders, transactions
under this Plan are intended to comply with all applicable conditions or Rule
16b-3 or its successors under the 1934 Act. To the extent any provision of the
plan or action by the Board fails to so comply, it shall be deemed null and
void, to the extent permitted by law and deemed advisable by the Board.
18.5. Governing Law. To the extent not preempted by federal law, the Plan,
and all agreements hereunder, shall be construed in accordance with and governed
by the laws of the state of Delaware.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration
Statement on Form S-4 of our report dated February 12, 1998, on our audits of
the consolidated financial statements of Stone & Webster, Incorporated as of
December 31, 1997 and 1996, and for each of the three years in the period ended
December 31, 1997.
We also consent to the reference to our firm under the captions "Experts"
and "Selected Financial Data".
/s/ COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
June 29, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF MARVIN AND COMPANY, P.C., INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 25, 1998 with respect to the consolidated
financial statements of Power Technologies, Inc. as of and for the year ended
December 31, 1997, and the use of our review report dated March 25, 1998 with
respect to the consolidated financial statements of Power Technologies, Inc. as
of and for the years ended December 31, 1996 and 1995, included in the joint
Prospectus and Proxy Statement of Stone & Webster, Incorporated and Power
Technologies, Inc. that is made part of the Registration Statement on Form S-4
of Stone & Webster, Incorporated for the registration of its shares of common
stock and certain rights relating to shares of its common stock and preferred
stock.
/s/ Marvin and Company, P.C.
Schenectady, New York
June 25, 1998
<PAGE> 1
EXHIBIT 99.1
POWER TECHNOLOGIES, INC.
REVOCABLE PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF SHAREHOLDERS JULY __, 1998
The undersigned hereby appoints Gordon B. Hirschman and Mary A. Sager, or each
of them, as Proxies with full power of substitution to represent the undersigned
and to vote all shares of Class A and Class B Common Stock of Power
Technologies, Inc. (the "Company") which the undersigned would be entitled to
vote at the 1998 Annual Meeting of Shareholders of the Company to be held on
July ___, 1998 and any adjournment thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR":
PROPOSAL ONE - To elect the following persons as directors to serve until the
2000 annual meeting of shareholders and until their successors have been elected
and have qualified: Dale A. Douglass, F.S. Prabhakara and Mary A. Sager.
FOR all nominees listed
(except as directed to the contrary below) |_|
WITHHOLD AUTHORITY
to vote for all nominees listed |_|
Instruction: To withhold authority to vote for any individual nominee, write
that nominee's name in the following space:_____________________________________
PROPOSAL TWO - To amend the Certificate of Incorporation of the Company to limit
the liability of the directors of the Company to the Company and the
shareholders of the Company for certain breaches of fiduciary duties.
For |_| Against |_| Abstain |_|
PROPOSAL THREE - To approve and adopt the Agreement and Plan of Merger (the
"Merger Agreement"), dated April 20, 1998 among the Company, the directors and
certain shareholders of the Company, Stone & Webster, Incorporated ("SWI"),
Stone & Webster Acquisition Corp. ("Merger Sub"), a wholly-owned subsidiary of
SWI, and Stone & Webster Management Consultants, Inc., and the transactions
contemplated thereby including the merger of the Merger Sub with and into the
Company as contemplated by the Merger Agreement, a copy of which has been
distributed to the shareholders of the Company.
For |_| Against |_| Abstain |_|
Upon receipt of this proxy when properly executed, the Proxies will vote the
shares of Class A and B Common Stock of the Company held by the undersigned in
the manner directed hereon. If no direction is made, such shares will be voted
"FOR" proposals 1, 2 and 3.
Please mark, sign and date this voting instruction card and return it using the
enclosed envelope.
Dated: ________________, 1998 [Name of Shareholder]
Signature:
--------------------------
Signature:
--------------------------
(Please sign as name appears at above. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.)
<PAGE> 2
POWER TECHNOLOGIES, INC.
REVOCABLE VOTING INSTRUCTION CARD
FOR ANNUAL MEETING OF SHAREHOLDERS JULY __, 1997
The undersigned hereby directs the trustee of the Power Technologies, Inc.
Employee Stock Ownership Plan (the "ESOP") to vote all shares of Class C Common
Stock of Power Technologies, Inc. (the "Company") which the ESOP is entitled to
vote at the 1998 Annual Meeting of Stockholders of the Company to be held on
July __, 1997 and any adjournment thereof and which are allocated to the account
of the undersigned pursuant to the ESOP in the manner set forth below:
PROPOSAL ONE - To elect the following persons as directors to serve until the
2000 annual meeting of shareholders and until their successors have been elected
and have qualified: Dale A. Douglass, F.S. Prabhakara and Mary A. Sager.
FOR all nominees listed
(except as directed to the contrary below) |_|
WITHHOLD AUTHORITY
to vote for all nominees listed |_|
Instruction: To withhold authority to vote for any individual nominee, write
that nominee's name in the following space:_____________________________________
PROPOSAL TWO - To amend the Certificate of Incorporation of the Company to limit
the liability of the directors of the Company to the Company and the
shareholders of the Company for certain breaches of fiduciary duties.
For |_| Against |_| Abstain |_|
PROPOSAL THREE - To approve and adopt the Agreement and Plan of Merger (the
"Merger Agreement"), dated April 20, 1998 among the Company, the directors and
certain shareholders of the Company, Stone & Webster, Incorporated ("SWI"),
Stone & Webster Acquisition Corp. ("Merger Sub"), a wholly-owned subsidiary of
SWI, and Stone & Webster Management Consultants, Inc., and the transactions
contemplated thereby including the merger of the Merger Sub with and into the
Company as contemplated by the Merger Agreement, a copy of which has been
distributed to the shareholders of the Company.
For |_| Against |_| Abstain |_|
Upon receipt of this voting instruction card when properly executed, the ESOP
trustee will vote the shares of Class C Common Stock of the Company allocated to
the account of the undersigned in the manner directed hereon. If no direction is
made, such shares will be voted "FOR" proposals 1, 2 and 3. Please mark, sign
and date this voting instruction card and return it using the enclosed envelope.
Dated: ________________, 1998 [Name of Shareholder]
Signature:
--------------------------
Signature:
--------------------------
(Please sign as name appears at above. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.)
