-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VHAGBkGpXsKuHrrjOQ/3px5lqdVRxMD2NBP5uN2gdlFNUWFLJEKHIikNe5kiJeWB Y4YQdV1OjIFYd+DFBT4Z8g== 0000950130-96-000829.txt : 19960314 0000950130-96-000829.hdr.sgml : 19960314 ACCESSION NUMBER: 0000950130-96-000829 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960313 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: EMCOR GROUP INC CENTRAL INDEX KEY: 0000105634 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRICAL WORK [1731] IRS NUMBER: 112125338 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-02315 FILM NUMBER: 96534330 BUSINESS ADDRESS: STREET 1: 101 MERRITT SEVEN CORPORATE PK CITY: NORWALK STATE: CT ZIP: 06851 BUSINESS PHONE: 2038497800 MAIL ADDRESS: STREET 1: 101 MERRITT SEVEN 7TH FLOOR CITY: NORWALK STATE: CT ZIP: 06851 FORMER COMPANY: FORMER CONFORMED NAME: JWP INC/DE/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: JAMAICA WATER PROPERTIES INC DATE OF NAME CHANGE: 19860518 FORMER COMPANY: FORMER CONFORMED NAME: WELSBACH CORP DATE OF NAME CHANGE: 19761119 10-K 1 FORM 10-K _____________________________________________________________________________ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 COMMISSION FILE NUMBER 0-2315 EMCOR GROUP, INC. - -------------------------------------------------------------------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 11-2125338 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) 101 MERRITT SEVEN CORPORATE PARK NORWALK, CONNECTICUT 06851-1060 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (203) 849-7800 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, PAR VALUE $.01 PER SHARE (Title of each class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filings pursuant to Item 405 Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge in definitive proxy or information statements incorporated be reference in Part III of this Form 10-K or any amendment to this Form 10-K. X --- Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes X No --- --- The aggregate market value of the Registrant's voting stock held by non-affiliates of the Registrant on February 29, 1996 was approximately $101,301,000. Number of shares of Common Stock outstanding as of the close of business on February 29, 1996: 9,424,706 shares. Part III incorporates certain information by reference from the Registrant's definitive proxy statement for the annual meeting of stockholders to be held on June 14, 1996, which proxy statement will be filed no later than 120 days after the close of the registrant's fiscal year ended December 31, 1995. TABLE OF CONTENTS PAGE PART I Item 1. Business General..................................................... 1 The Business................................................ 1 Businesses Held for Sale.................................... 3 Item 2. Properties.................................................... 4 Item 3. Legal Proceedings............................................. 6 Item 4. Submission of Matters to a Vote of Security Holders........... 8 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters......................................... 10 Item 6. Selected Financial Data....................................... 11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............... 13 Item 8. Financial Statements and Supplementary Data................... 21 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......................... 57 PART III Item 10. Directors and Executive Officers of the Registrant............ 58 Item 11. Executive Compensation........................................ 58 Item 12. Security Ownership of Certain Beneficial Owners and Management.............................................. 58 Item 13. Certain Relationships and Related Transactions................ 58 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K......................................... 59 PART I ITEM 1. BUSINESS General EMCOR Group, Inc. ("EMCOR" or the "Company") (formerly known as "JWP INC.") is a leader in mechanical and electrical construction and facilities management services. EMCOR, which conducts its business through subsidiaries, specializes in the design, integration, installation, start-up, testing, operation and maintenance of complex mechanical and electrical systems. In addition, certain of its subsidiaries operate and maintain mechanical and/or electrical systems for customers under contracts and provide other services to customers, at the customer's facilities, which services are commonly referred to as facilities management. Mechanical and electrical construction and facilities management services are provided to a broad range of commercial, industrial and institutional customers through offices located in major markets throughout the United States, Canada, the United Kingdom, the Middle East and Hong Kong. On December 15, 1994 (the "Effective Date"), the Company emerged from Chapter 11 of the United States Bankruptcy Code pursuant to its Third Amended Joint Plan of Reorganization dated August 9, 1994, as amended (the "Plan of Reorganization"), proposed by EMCOR and its subsidiary SellCo Corporation ("SellCo"). Under the Plan of Reorganization, pre-petition creditors of the Company (other than holders of subordinated debt) received, in addition to certain notes of EMCOR and SellCo, substantially all of the newly issued common stock of EMCOR (the "New Common Stock"). Pre-petition holders of the Company's subordinated debt, preferred stock, common stock and warrants of participation received warrants to purchase New Common Stock of EMCOR in exchange for their debt and equity interests. The Company, which employs approximately 12,000 people worldwide, provides (i) mechanical and electrical construction services directly to end-users (including corporations, municipalities and other governmental entities, owners, developers and tenants of buildings) and, indirectly, by acting as subcontractor, to construction managers, general contractors, systems and equipment suppliers and other subcontractors and (ii) facilities management services directly to end- users such as corporations, owners, property managers and tenants of buildings. EMCOR is a Delaware corporation, formed in 1987 to continue the business of its predecessor, a New York corporation with the name JWP INC. The Delaware corporation was also originally named JWP INC., but changed its name to EMCOR Group, Inc. on the Effective Date. The Company's executive offices are located at 101 Merritt Seven Corporate Park, Norwalk, Connecticut 06851-1060, and its telephone number at those offices is (203) 849-7800. The Business The Company specializes in complex mechanical and electrical systems. The broad scope of the Company's operations are more particularly described below. The Company's consolidated 1995 revenues of $1,588.7 million were derived exclusively from mechanical and electrical construction and facilities management services inasmuch as the results of operations for the year ended December 31, 1995 exclude the operating results of businesses held for sale, many of which were engaged in other business. The Company had total revenues of approximately $1,595.0 million, exclusive of $169.0 million attributable to businesses held for sale or sold, in 1994 as compared to approximately $1,840.1 million, exclusive of $354.6 million attributable to business held for sale or sold, in 1993. Mechanical and electrical construction services primarily involve the design, integration, installation, start-up, testing, operation and maintenance of (i) distribution systems for electrical power (including power cables, conduits, distribution panels, transformers, generators, uninterruptible power supply systems and related switch gear and control); (ii) lighting systems, including fixtures and controls; (iii) low-voltage systems, including fire alarm, security, communications and process control systems; (iv) heating, ventilation, air conditioning, refrigeration and clean-room process ventilation systems; and (v) plumbing, process and high purity piping systems. EMCOR believes its mechanical and electrical construction services business is the largest of its kind in the United States and Canada and one of the largest in the United Kingdom. 1 Mechanical and electrical construction services are principally of three types: (i) large installation projects, with contracts generally in the multi-million dollar range, in connection with construction of industrial, institutional and public works facilities and commercial buildings and fit-out of large blocks of space within commercial buildings; (ii) smaller installation projects typically involving fit-out, renovation and retrofit work; and (iii) testing and service of completed facilities. The Company's largest installation projects include those (i) for institutional use (such as water and wastewater treatment facilities, hospitals, correctional facilities, schools and research laboratories); (ii) for industrial use (such as pharmaceutical, semiconductor, steel, pulp and paper, chemical, and automotive manufacturing plants and oil refining and water and waste treatment facilities); (iii) for transportation systems (such as airports and transit systems); and (iv) for commercial use (such as office buildings, hotels and casinos, convention centers, shopping malls and resorts). These can be multi-year projects ranging in size up to, and occasionally in excess of, $50.0 million. Major projects are performed pursuant to contracts with owners, such as corporations and municipalities and other governmental entities, general contractors, construction managers, owners, developers and tenants of commercial properties. Institutional and public works projects are frequently long-term, complex projects requiring significant technical and management skills and financial strength to, among other things, obtain bid and performance bonds, which are often a condition to bidding for, and award of, contracts for such projects. Smaller projects, which are typically completed in less than a year, involve mechanical and electrical construction services in connection with the fit-out of space when an end-user or owner undertakes construction or modification of a facility to accommodate a specific use, such as a trading floor in a financial services business, a new production line in a manufacturing plant, a process modification in a refinery, or an office arrangement at an existing office building. These projects frequently require particular mechanical and electrical systems to meet special needs such as redundant power supply systems, special environmental controls, or high purity air systems. These projects are not typically dependent upon the new construction market; their demand is often prompted by the expiration of leases, changes in technology or changes in the customer's plant or office layout in the normal course of business. The Company also installs and maintains street, highway, bridge and tunnel lighting, traffic signals, computerized traffic control systems and signal and communication systems for mass transit systems in several metropolitan areas. In addition, in the United States, the Company operates sheet metal fabrication facilities which manufacture and install sheet metal systems for both its own mechanical construction operations and for unrelated mechanical contractors. The Company also maintains welding and pipe fabrication shops for its own mechanical operations. In addition to mechanical and electrical construction services, the Company provides facilities management services which principally includes the testing, operation, maintenance and service of mechanical and electrical installations of customers under contracts ranging from one to several years, which vary widely in scope. These services frequently require a number of the Company's employees being permanently assigned to, and located at, the customer's building or facility being serviced, occasionally on a 24 hour basis. In the United Kingdom, the Company also provides a wide range of services including building maintenance, housekeeping, reprographics and catering services to customers, in addition to operation and maintenance of mechanical and electrical systems. The facilities management business has expanded as customers seek to "outsource" services not specifically related to the core services or products its customers offer for sale. In addition, with the increase in privatization of government functions, particularly in the United Kingdom, private enterprise has been afforded the opportunity to operate, maintain, and often modernize and expand government facilities. Backlog. The Company had a backlog as of December 31, 1995 of approximately $1,060.7 million, exclusive of businesses sold or held for sale, compared with a backlog of approximately $1,046.4 million, exclusive of businesses sold or held for sale, as of December 31, 1994. Employees. The Company presently employs approximately 12,000 people, approximately 75% of whom are represented by various unions. The Company believes that its employee relations are generally satisfactory. Competition. The business in which the Company engages is extremely competitive. A majority of the Company's revenues are derived from jobs requiring competitive bids; however, an invitation to bid is often 2 conditioned upon prior experience, technical capability and financial strength. The Company competes with national, regional and local companies. The Company believes that, at present, it is the largest provider of mechanical and electrical construction and facilities management services in the United States and Canada and one of the largest in the United Kingdom. Segment information relating to the geographic areas in which the Company operates is included in Note Q to the consolidated financial statements. Businesses Held for Sale EMCOR is in the process of selling those of its subsidiaries generally not involved in mechanical and electrical construction and facilities management services. Its principal business held for sale is its water supply business conducted through its subsidiaries Jamaica Water Supply Company ("JWS") and Sea Cliff Water Company ("Sea Cliff"). The Company owns all of the common stock of JWS and all the capital stock of Sea Cliff (sometimes referred to herein collectively as the "Water Companies"). The Water Companies are regulated public utilities that own and operate water supply systems on Long Island, New York. JWS is the largest investor-owned water utility in New York State, supplying water to a densely populated residential area of approximately 40 square miles in the Borough of Queens in The City of New York and in southwestern Nassau County, an area with an aggregate population of approximately 650,000. Sea Cliff supplies water to a four square mile area on the north shore of western Nassau County with a population of approximately 20,000. The business of the Water Companies consists of the purification, distribution and sale of water for residential and commercial purposes including water used for fire sprinkler systems service and public protection fire service. The Company has entered into agreements to sell substantially all of the assets of JWS and has entered into an agreement to sell all of the capital stock of Sea Cliff. 3 ITEM 2.PROPERTIES The operations of the Company are conducted primarily in leased properties. The following table lists the major facilities: Approximate Lease Expiration Square Feet Date, Unless Owned ----------- ------------------ CORPORATE HEADQUARTERS 101 Merritt Seven Corporate Park 15,725 4/8/00 Norwalk, Connecticut OPERATING FACILITIES 1200 North Sickles Road 29,000 Owned Tempe, Arizona 3208 Landco Drive 49,875 4/30/96 Bakersfield, California 4462 Corporate Center Drive 41,400 12/31/00 Los Alamitos, California 4464 Alvarado Canyon Road 53,800 10/31/00 San Diego, California 9505 Chesapeake Drive 44,000 1/30/01 San Diego, California 345 Sheridan Boulevard 63,000 Owned Lakewood, Colorado 5697 New Peachtree Road 27,200 11/30/98 Atlanta, Georgia 2100 South York Road 77,700 1/09/00 Oak Brook, Illinois 2655 Garfield Road 34,600 7/08/96 Highland, Indiana 3555 W. Oquendo Road 100,000 11/30/98 Las Vegas, Nevada 111-01 14th Avenue 77,000 2/28/06 College Point, New York 30 N. MacQuesten Parkway 25,300 11/30/98 Mount Vernon, New York 111 West 19th Street 27,200 5/31/98 New York, New York 4 Approximate Lease Expiration Square Feet Date, Unless Owned ----------- ------------------ Two Penn Plaza New York, New York 57,200 2/01/06 165 Robertson Road Ottawa, Ontario, Canada 35,400 4/01/02 5550 Airline Road Houston, Texas 74,500 6/30/96 515 Norwood Road Houston, Texas 29,700 Month to Month Canary Wharf One Canada Square London, U.K 27,800 12/31/96 1574 South West Temple Salt Lake City, Utah 38,800 12/31/99 22930 Shaw Road Sterling, Virginia 32,600 7/31/99 109-D Executive Drive Sterling, Virginia 49,000 7/31/96 The Company believes that all of its property, plant and equipment is well maintained, in good operating condition and suitable for purposes for which they are used. See Note L to the consolidated financial statements for additional information regarding lease costs. The Company believes there will be no difficulty either in negotiating the renewal of its real property leases as they expire or in finding other satisfactory space. 5 ITEM 3. LEGAL PROCEEDINGS NEW YORK COUNTY DISTRICT ATTORNEY INVESTIGATIONS In February 1995 as part of an investigation by the New York County District Attorney's office into the business affairs of Herbert Construction Company ("Herbert"), a general contractor that does business with the Company's subsidiary, Forest Electric Corporation ("Forest"), a search warrant was executed at Forest's executive offices. At that time, the Company was informed that Forest and certain of its officers are targets of the continuing investigation. Neither the Company nor Forest has been advised of the precise nature of any suspected violation of law by Forest or its officers. On July 11, 1995, Ted Kohl, a principal of Herbert, and DPL Interiors, Inc., a company allegedly owned by Kohl were indicted by a New York County grand jury for grand larceny, fraud, repeated failure to file New York City Corporate Tax Returns and related money laundering charges. Kohl was also charged with filing false personal income and earnings tax returns, perjury and offering false instruments for filing with the New York City School Construction Authority. In a press release announcing the indictment, the Manhattan District Attorney said that the investigation disclosed that Mr. Kohl allegedly received more than $7.0 million in kickbacks from subcontractors through a scheme in which he allegedly inflated subcontracts on Herbert's construction contracts. At a press conference following the indictment, the District Attorney announced that the investigation is continuing, and he expects further indictments in the investigation. Forest performs electrical contracting services primarily in the New York City commercial market and is one of EMCOR's largest subsidiaries. DYNALECTRIC LITIGATION The Dynalectric Company, a subsidiary of the Company, ("Dynalectric") is a defendant in an action entitled Computran v. Dynalectric, et al., pending in ------------------------ ------- Superior Court of New Jersey, Bergen County, arising out of its participation in a joint venture. In the action, which was instituted in 1988, the plaintiff, Computran, a participant in, and a subcontractor to, the joint venture, alleges that Dynalectric wrongfully terminated its subcontract, fraudulently diverted funds due it, misappropriated its trade secrets and proprietary information, fraudulently induced it to enter into the joint venture and conspired with other defendants to commit certain acts in violation of the New Jersey Racketeering Influence and Corrupt Organization Act. Dynalectric believes that Computran's claims are without merit and intends to defend this matter vigorously. Dynalectric has filed counterclaims against Computran. Discovery is ongoing; no trial date is scheduled. LITIGATION REGARDING WARRANTS OF PARTICIPATION On September 26, 1994 certain holders of Warrants of Participation ("Warrants") that were issued pursuant to a Warrant Agreement dated June 15, 1969 by the Company's predecessor, Jamaica Water and Utilities, Inc. ("JWU"), commenced a declaratory judgment action against EMCOR's subsidiary Jamaica Water Securities Corp. ("JWSC") by filing a complaint in the Supreme Court of the State of New York, Westchester County, bearing the caption, Harold F. Scattergood, Jr., et ------------------------------ al, v. Jamaica Water Securities Corp. (Index No. 15992/94). On October 17, 1994, - ------------------------------------- an amended complaint was served adding additional plaintiffs. The plaintiffs sought a declaration that JWSC succeeded to the Company's obligations on the Warrants by reason of its 1977 acquisition of the Company's 96% stock interest in Jamaica Water Supply Company ("JWS"). The plaintiffs also claimed that certain events constituted a disposition of the assets of JWS which triggered the Warrants, obligating JWSC to issue shares of its own stock to plaintiffs. In the alternative, plaintiffs claimed that the December 31, 1994 expiration date of the Warrants should be extended for some indefinite period of time. By a Decision and Order, entered on June 22, 1995, the court granted the Company's motion to dismiss the plaintiffs' action holding that the assets of JWS had not been "disposed of" under the express terms of the Warrants prior to their stated expiration on December 31, 1994. The court also held that it lacked the power to rewrite the "clear and unambiguous provisions" of the Warrant Agreement to extend the December 31, 1994 deadline. The plaintiffs have appealed the court's decision. 6 CONDEMNATION PROCEEDING In September 1986, the State of New York enacted a law that requires The City of New York (the "City") to acquire by condemnation all of the property of JWS "constituting or relating to [its] water distribution system located in the City of New York" only in the event of a decision by a Supreme Court of the State of New York that the amount of compensation to be paid JWS for that system "shall be determined solely by the income capitalization method of valuation, based on the actual net income as allowed [to JWS] by the [New York State] public service commission". In addition, the law provides that if any court determines "that a method of compensation other than the income capitalization method be utilized, or if the proposed award is more than the [JWS] rate base of the [condemned] assets as utilized by the public service commission in setting rates", the City may withdraw the condemnation proceeding without prejudice or costs. In April 1988, the City instituted a proceeding in the Supreme Court of the State of New York, Queens County, pursuant to the 1986 statute. Subsequent to the trial, the Court requested that the parties address the constitutionality of the statute. After a joint post-hearing submission from JWS and the City contending that the statute was constitutional, the court, by decision dated June 21, 1993, dismissed the City's petition and held, inter alia, that "insofar as the legislature has directed this Court to make . . . a decision on valuation only prior to any taking through General City Law 20(2), that statute is unconstitutional", because such a decision would be advisory. Aware that a constitutional challenge to a nearly identical condemnation statute involving Saratoga County was pending in the appellate courts, neither JWS nor the City served a notice of entry of the dismissal order that would commence the period within which an appeal could be taken. On February 24, 1994, the New York Court of Appeals held the nearly-identical Saratoga County related statute to be constitutional. On April 6, 1994, a conference was held with the court pursuant to the City's request to reconsider its JWS decision in light of the Court of Appeals February 24, 1994 decision. At the April 6, 1994 conference, the court stated it would, as requested by the City, reconsider its June 21, 1993 decision. The court further stated that in the event it decided to withdraw its June 21, 1993 decision that it would then take the proceedings under further consideration. EMCOR cannot predict when or if the court will conduct further proceedings under the statute, what the decision of the court might be if it decides to value the JWS property, or the effect of the pending litigation on the ability to sell or the timing of the sale of JWS. However, as discussed above under Business - "Businesses Held for Sale", JWS and the City have entered into an agreement pursuant to which the City, by condemnation, would acquire JWS's New York City water distribution system. In addition, as discussed under Business - "Businesses Held for Sale", JWS and the Water Authority of Western Nassau County (the "Authority") have entered into an agreement (the "Nassau Agreement") pursuant to which the Authority, by condemnation, would acquire that portion of JWS' water distribution system which is located in Nassau County. Pursuant to the Nassau Agreement, the Authority has commenced a condemnation proceeding in the Supreme Court of the State of New York, Nassau County. In addition, the Company is involved in other legal proceedings and claims which have arisen in the ordinary course of business. 7 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) On November 17, 1995 the Registrant held an annual meeting of stockholders. (b) At the annual meeting all of the seven directors of the Company stood for re-election, and each of them was re-elected for the ensuing year. Each of Messrs. Stephen W. Bershad, David A.B. Brown, Thomas D. Cunningham, Albert Fried, Jr., Malcolm T. Hopkins, and Kevin C. Toner received 7,520,122 votes, and Mr. Frank T. MacInnis received 7,519,580 votes. The only votes withheld were the 542 which did not vote for Mr. MacInnis. There were no broker non-votes. (c) (i) At the annual meeting the stockholders also voted upon and approved the adoption of an amendment to the Company's Restated Certificate of Incorporation which amended Article Fourth thereof now (i) to authorize the Company to issue, in addition to its authorized shares of New Common Stock, 1,000,000 shares of Preferred Stock, in such series and with such designations, powers, preferences, and rights as may be fixed from time to time by the Board of Directors of the Company for each series and (ii) to delete (x) certain provisions specifying the voting, dividend and liquidation rights of holders of Common Stock, the substance of which are provided for in the General Corporation Law of the State of Delaware and are, accordingly, not required to be included in the Company's Restated Certificate of Incorporation, (y) certain provisions regarding a prohibition on the issuance of non-voting equity securities which were required to be included therein by Section 1123(a)(b) of the Bankruptcy Code in order for the Company's Plan of Reorganization to be confirmed by the Bankruptcy Court, but which management believes are no longer applicable to the Company following its emergence from Chapter 11, and (z) certain provisions which were necessary to extinguish and cancel the outstanding shares of pre-petition common stock and preferred stock in accordance with the Plan of Reorganization, but which are no longer required to be included in the Restated Certificate of Incorporation. 5,520,000 shares were voted in favor of adoption of the proposed amendment to the Restated Certificate of Incorporation, 982,550 shares were voted against adoption of the proposed amendment, and 264,130 shares abstained from voting thereon; there were 753,422 broker non-votes. (ii) In addition, the stockholders voted upon a proposal to approve the Company's 1994 Management Stock Option Plan (the "1994 Plan") which provides for the granting of incentive stock options and non-qualified stock options to key employees of the Company and its subsidiaries. 6,080,022 shares were voted in favor of approval of 1994 Plan, 436,973 shares were voted against approval of the 1994 Plan, and 261,132 shares abstained from voting thereon; there were 741,995 broker non-votes. (iii) The stockholders also voted upon a proposal to approve the Company's 1995 Non-Employee Directors' Non-Qualified Stock Option Plan (the "1995 Plan") which provides for automatic grants of non-qualified stock options to directors of the Company who are not also employees of the Company or a subsidiary, in consideration of the services of such directors to the Company. 6,243,590 shares were voted in favor of approval of the 1995 Plan, 273,805 shares were voted against approval of the 1995 Plan, and 260,732 shares abstained from voting thereon; there were 741,995 broker non-votes. (iv) The stockholders also voted upon a proposal to ratify the appointment by the Audit Committee of the Board of Directors of Arthur Andersen LLP, independent public accountants, as the Company's independent auditors for 1995. 7,516,321 shares were voted in favor of ratification, no shares were voted against ratification, and 3,801 shares abstained from voting thereon; there were no broker non-votes. 8 EXECUTIVE OFFICERS OF THE REGISTRANT Frank T. MacInnis, Age 49; Chairman of the Board, President and Chief Executive Officer of the Company since April 18, 1994. From April 1990 to April 1994 Mr. MacInnis served as President and Chief Executive Officer, and from August 1990 to April 1994 as Chairman of the Board of Comstock Group, Inc., a nationwide electrical contracting company. From 1986 to April 1990, Mr. MacInnis was Senior Vice President and Chief Financial Officer of Comstock Group Inc. In addition, from 1986 to April 1994 Mr. MacInnis was also President of Spie Group Inc., which owns or owned Comstock Group Inc., Spie Construction Inc., a Canadian pipeline construction company, and Spie Horizontal Drilling Inc., a U.S. company engaged in under the water drilling for pipelines and communications cable. Sheldon I. Cammaker, Age 56; Executive Vice President and General Counsel of the Company for more than the past five years. Leicle E. Chesser, Age 49; Executive Vice President and Chief Financial Officer of the Company since May 1994. From April 1990 to May 1994 Mr. Chesser served as Executive Vice President and Chief Financial Officer of Comstock Group, Inc. and from 1986 to May 1994 he was also Executive Vice President and Chief Financial Officer of Spie Group Inc. Jeffrey M. Levy, Age 43; Executive Vice President of the Company since November 1994, Senior Vice President of the Company from December 1993 to November 1994 and Chief Operating Officer of the Company since February 1994. From May 1992 to December 1993, Mr. Levy was President and Chief Executive Officer of the Company's subsidiary EMCOR Mechanical/Electrical Services (East) Inc. From January 1991 to May 1992 Mr. Levy served as Executive Vice President and Chief Operating Officer of Lehrer McGovern Bovis, Inc., a construction management and construction company. From December 1984 to December 1990 Mr. Levy was Vice President of Stone & Webster Engineering Corporation which is engaged in the design and construction of power, industrial and petrochemical facilities. Joseph A. Gallo, Age 44; Senior Vice President of the Company since April 1993, a Vice President of the Company from November 1991 to April 1993, and Treasurer of the Company for more than the past five years. Mark A. Pompa, Age 31; Vice President and Controller of the Company since September 1994. From June 1992 to September 1994, Mr. Pompa was an Audit and Business Advisory Manager of Arthur Andersen LLP, an accounting firm, and from June 1988 to June 1992 Mr. Pompa was a Senior Accountant at that firm. 9 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION The Company's New Common Stock has been traded on the Nasdaq National Market tier of the Nasdaq Stock Market under the symbol "EMCG" since December 28, 1995. From December 15, 1994, the Effective Date of the Company's Plan of Reorganization, through December 27, 1995 the New Common Stock was traded in the over-the-counter market. The following table sets forth the high and low bid quotations (as reported in the "pink sheets" of the National Quotation Bureau, Inc.) for the New Common Stock for each calendar quarter during the period from January 6, 1995, when bid quotations were first readily available, through December 27, 1995. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not represent actual transactions. For the period commencing December 28, 1995, when the New Common Stock began trading on the Nasdaq Stock Market, through December 31, 1995, the following table sets forth high and low sales prices for the New Common Stock. High Low ----- ----- 1995 ---- First Quarter (commencing January 6, 1995) 5 1/2 4 Second Quarter 7 3/4 4 1/2 Third Quarter 9 6 3/4 Fourth Quarter (through December 27, 1995) 9 3/8 7 December 28, 1995 through December 31, 1995 9 5/8 9 3/8 HOLDERS The number of holders of record of New Common Stock as of February 29, 1996 was 88 and the number of beneficial Stockholders was approximately 600 at that same date. DIVIDENDS The Company did not pay dividends on its pre-petition common stock during 1994 or on its New Common Stock during 1994 or 1995, and it does not anticipate that it will pay any dividends on the New Common Stock in the foreseeable future. The Company's working capital credit facility and its Series A Notes prohibit the payment of dividends on the New Common Stock; the Company's Series C Notes provide that dividends are limited to 50% of consolidated net income (as defined) for the period from the Effective Date to the most recently ended fiscal quarter. 10 ITEM 6. SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA) The following selected financial data has been derived from audited financial statements and should be read in conjunction with the consolidated financial statements, the related notes thereto and the reports of independent public accountants thereon, included elsewhere in this annual report on Form 10-K. The consolidated financial statements for the year ended December 31, 1992 were audited by Ernst & Young LLP whose report of independent public accountants thereon dated June 30, 1994 includes a disclaimer of opinion due to going concern considerations. A disclaimer of opinion due to going concern considerations nevertheless provides assurance that there were no limitations on the scope of the audit and that the accounting principles applied in the preparation of the consolidated financial statements are in conformity with generally accepted accounting principles. See Note A to the consolidated financial statements regarding the basis of presentation and the Company's emergence from bankruptcy.
INCOME STATEMENT DATA (a) (d) REORGANIZED COMPANY PREDECESSOR COMPANY YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, 1995 1994 1993 1992 1991 ------------ ---------- ---------- ---------- ---------- Revenues $1,588,744 $1,763,961 $2,194,735 $2,404,577 $2,318,112 Gross profit 143,147 156,372 151,177 243,854 344,551 Reorganization items -- 91,318 -- -- -- (Loss) income from continuing operations including reorganization items (10,853) (118,934) (113,991) (363,515) 4,712 Income (loss) from discontinued operations -- 10,216 (9,087) (253,230) 24,263 Extraordinary item - gain on debt discharge -- 413,249 -- -- -- Cumulative effect of change in method of accounting for: -Income taxes -- -- -- 4,315 -- -Post-employment benefits -- (2,100) -- -- -- ---------- ---------- ---------- ---------- ---------- Net (loss) income $ (10,853) $ 302,431 $ (123,078) $ (612,430) $ 28,975 ========== ========== ========== ========== ========== Supplemental net (loss) income per share (b): - continuing operations $(1.13) $(12.62) Discontinued operations -- 1.08 Extraordinary item - gain on debt discharge -- 43.85 Cumulative effect of change in method of accounting for: Post-employment benefits -- (0.22) ---------- ---------- Net (loss)income per share $(1.13) $32.09 ========== ==========
11 BALANCE SHEET DATA (d)
Reorganized Company Predecessor Company As of December 31, As of December 31, 1995 1994 1993 1992 1991 ---------- -------- ---------- ---------- ---------- Stockholders' equity (deficit)(c) $ 70,610 $ 81,130 $(302,262) $ (175,979) $ 456,136 Total assets 710,945 707,498 806,442 907,584 2,233,827 Net assets held for sale 61,969 55,401 Notes payable 14,665 4,803 172 6,452 110,600 Borrowings under working capital credit lines 25,000 40,000 -- -- -- 7% Senior Secured Notes 61,969 55,401 -- -- -- Long-term debt, including current maturities 68,831 61,290 4,465 6,040 463,071 Debt in default -- -- 501,007 501,007 -- Capital lease obligations 1,284 2,029 2,561 3,935 26,995 Redeemable preferred stock $ -- $ -- $ -- $ -- $5,242
(a) The income statement data for the year ended December 31, 1995 excludes the operating results of businesses held for sale since the operations of these businesses will only accrue to the benefit of holders of the notes issued by the Company's subsidiary SellCo Corporation after payment in full of the Company's Series A Notes and certain other obligations (See Note G and H to the consolidated financial statements). Income statement data has been reclassified for all periods presented prior to 1995 to reflect the Company's information services and water supply businesses as discontinued operations (See Note M to the consolidated financial statements). (b) Historical per share data for periods prior to December 31, 1994 have not been presented as it is not meaningful since the Company has been recapitalized and adopted Fresh-Start Accounting as of December 31, 1994. (c) No cash dividends on the Company's common stock have been paid during the past five years. (d) Selected financial data for periods as of and after the adoption of Fresh- Start Accounting are not comparable to selected financial data of periods presented prior to December 31, 1994 and have been separated by a black line. 12 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS JWP INC. emerged from Chapter 11 of the United States Bankruptcy Code on December 15, 1994 (the "Effective Date") and changed its name to EMCOR Group, Inc. ("EMCOR" or the "Company"). The Company reorganized pursuant to its Third Amended Joint Plan of Reorganization dated August 9, 1994, as amended (the "Plan of Reorganization"), and proposed by the Company and its subsidiary SellCo Corporation ("SellCo"). Under the Plan of Reorganization, pre-petition creditors of the Company (other than holders of subordinated debt) received certain notes of EMCOR and SellCo and substantially all of the newly issued shares of common stock of EMCOR (the "New Common Stock"). The pre-petition holders of the Company's subordinated debt, common and preferred stock and warrants of participation received warrants to purchase New Common Stock in exchange for their debt and equity interests. The Company's results of operations and financial condition as of and for the year ended December 31, 1995 reflect the adoption of the American Institute of Certified Public Accountants' Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"). The Company has accounted for its reorganization by using the principles of Fresh- Start Accounting as required by SOP 90-7. For accounting purposes, the Company assumed that the Plan of Reorganization was consummated on December 31, 1994. Under the principles of Fresh-Start Accounting, the Company's total net assets were recorded at their assumed reorganization value, with the reorganization value allocated to identifiable assets on the basis of their estimated fair value. The primary valuation methodology employed by the Company, with the assistance of its financial advisors to determine the reorganization value of the Company, was a net present value approach. The valuation was based on the Company's forecasts of unleveraged, after-tax cash flows calculated for each year over the four-year period from 1994 to 1997, capitalizing projected earnings before interest, taxes, depreciation and amortization at multiples ranging from 3 to 10 selected to value earnings and cash flows beyond 1997, and discounting the resulting amounts to present value at rates ranging from 10% to 30% selected to approximate the Company's projected weighted average cost of capital. The excess of reorganization value over the value of identifiable assets of $5.0 million is included in the Consolidated Balance Sheets as of December 31, 1995 and 1994 in Other Assets as "Miscellaneous" and is being amortized over 15 years. As a result of the implementation of Fresh-Start Accounting, the consolidated financial statements of the Company for periods subsequent to consummation of the Plan of Reorganization will not be comparable to the Company's consolidated financial statements for prior periods. Accordingly, a black line has been used to separate the consolidated financial statements of the Company after the consummation of the Plan of Reorganization from those of the Company prior to the consummation of the Plan of Reorganization. The operating results of businesses held for sale have been excluded from the consolidated financial statements for the year ended December 31, 1995 since the operations of these businesses will only accrue to the benefit of the holders of the notes issued by the Company's subsidiary SellCo after payment in full of the Company's Series A Notes and certain other obligations (See Note G and H to the consolidated financial statements) and the operating results substantially offset interest accrued on the Company's Series A Notes which interest has been recognized within the caption "Net assets held for sale" in the Consolidated Balance Sheet as of December 31, 1995. RESULTS OF OPERATIONS: YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994 Revenues for the years ended December 31, 1995 and 1994 were $1,588.7 million and $1,595.0 million, respectively, exclusive of $169.0 million attributable to businesses held for sale or sold in 1994. Net loss for the year ended December 31, 1995 was $10.9 million or $1.13 per share compared to net income of $302.4 million or $32.09 per share for the year ended 1994. Net income for 1994 includes an extraordinary item for the gain on debt discharge of $413.2 million as well as a charge for the required adoption of Financial Accounting Standards No. 112, "Employers' Accounting for Post-employment Benefits" ("SFAS 112") of $2.1 million. In addition, net income for 1994 includes charges for reorganization items totaling $91.3 million consisting of professional fees of $12.5 million and fresh-start adjustments of $78.8 million to record the Company's assets and liabilities at fair value in accordance with the adoption of Fresh-Start Accounting as prescribed by SOP 90-7. Net income for the year ended December 31, 1994 includes income from discontinued operations of $10.2 million as well as a loss of $13.7 million attributable to other businesses held for sale or sold. Loss from continuing operations before reorganization items, income taxes, extraordinary items and cumulative effect of accounting change was $9.9 and $27.9 million for the years ended December 31, 1995 and 13 1994, respectively. The 1995 loss includes $14.8 million of net interest expense associated with borrowings outstanding during 1995 under the Company's New Credit Agreements (hereafter defined) compared to $2.5 million in 1994 which amount excluded interest on debt in default which the Company ceased accruing in December 1993. In addition the 1995 loss includes a third quarter loss of $0.9 million associated with the disposition of a subsidiary engaged in the installation of industrial boilers. The 1994 loss reflects, among other things: a gain of $1.9 million for the settlement of a construction claim; a net gain of $1.2 million on the sale of certain businesses; a loss of $13.7 million attributable to other businesses held for sale or sold; a loss of $4.5 million due to the write-down of an investment; a loss of $10.8 million attributable to job write-downs and provisions for loss contingencies on certain industrial and municipal projects; a loss of $1.4 million for lender fees associated with the Company's new working capital and debtor-in-possession credit facilities; and a loss of $0.6 million for severance of certain employees. The losses associated with job write-downs in 1994 were primarily attributable to adverse weather conditions, inadequate estimating of job costs and labor problems. The Company generated operating income of $5.9 million for the year ended December 31, 1995 compared with an operating loss of $22.2 million for the year ended December 31, 1994, inclusive of $13.7 million of operating losses attributable to businesses held for sale or sold. The increase in operating income is attributable to: a $41.3 million reduction in selling, general and administrative ("SG&A") expenses, inclusive of $30.6 million of SG&A expenses attributable to businesses held for sale or sold, as a result of the implementation of the Company's cost reduction plans; an increase in gross profit in absolute dollars ($3.7 million) and as percentage of revenue attributable to successful completion and close out of lower margin pre- emergence contracts as well as higher profitability of post-emergence contracts completed or currently in process, exclusive of $16.9 million of gross profit attributable to businesses held for sale or sold in 1994. Professional fees associated with the bankruptcy proceeding are classified as "Reorganization Items" in the 1994 Consolidated Statement of Operations. Net interest expense for the year ended December 31, 1995 was $14.8 million compared to $2.5 million in the year earlier period. The Company ceased accruing interest on debt in default in December 1993 upon the filing of an involuntary bankruptcy petition against the Company. Accordingly, no interest expense on debt in default is included in the Consolidated Statement of Operations for the year ended December 31, 1994. MECHANICAL AND ELECTRICAL CONSTRUCTION SERVICES AND FACILITIES MANAGEMENT SERVICES Revenues of the mechanical and electrical construction and facilities management services business units for the year ended December 31, 1995 were $1,588.7 million compared to $1,595.0 million for the year ended December 31, 1994, exclusive of $169.0 million attributable to businesses held for sale or sold. Operating income of these business units (before deduction of general corporate and other expenses discussed below) for the year ended December 31, 1995 was $21.6 million compared to an operating loss of $6.4 million, inclusive of $13.7 million of operating loss attributable to businesses held for sale or sold, for the year ended December 31, 1994. In connection with the Company's restructuring plan adopted in connection with its Plan of Reorganization, certain mechanical and electrical business units have been sold or identified for sale. The operating results of these units are excluded from operating results for the year ended December 31, 1995. Revenues for the year ended December 31, 1995 relating to business units which the Company plans to retain remained substantially unchanged compared with the year earlier period. While 1995 revenues of business units operating in the Eastern United States and Central United Kingdom increased due to improved economic conditions, this increase was offset by decreased revenues in the Midwestern and Western regions of the United States, Canada, Northern and Southern parts of the United Kingdom due to, among other things, continuing poor market conditions and downsizing. Selling, general and administrative expenses, excluding general corporate and other expenses, for the years ended December 31, 1995 and 1994 were $121.6 million and $162.8 million, respectively. The 1994 SG&A expenses include $132.3 million attributable to the continuing electrical and mechanical construction and facilities management services companies. The decrease in SG&A expenses was attributable to cost cutting and downsizing. At December 31, 1995, the mechanical and electrical construction and facilities management services business backlog was approximately $1,060.7 million compared to approximately $1,046.4 million at December 31, 1994, exclusive of businesses sold or held for sale. The Company's backlog in the United States increased by $43.1 million between December 31, 1994 and December 31, 1995, whereas its backlog in Canada and the United Kingdom decreased by $18.3 million and $10.5 million, respectively, during that same period. The decline in 14 Canadian backlog is principally attributable to the downsizing of the Canadian operations, while the United Kingdom decline is attributable to poor market conditions. GENERAL CORPORATE AND OTHER EXPENSES General corporate expenses for the years ended December 31, 1995 and 1994 were $15.7 million and $28.3 million, respectively, inclusive of $12.5 million of legal and other professional fees incurred in connection with the Company's reorganization in 1994. The higher amount of general corporate expenses, exclusive of legal, consulting and other professional fees, in 1994 is attributable to debt issuance costs related to the Company's debtor-in- possession credit facility ("DIP Loan"), severance paid to terminated employees and insurance costs. NET ASSETS HELD FOR SALE The operating results of businesses held for sale, which included the Company's water supply business classified as discontinued operations prior to the consummation of the Plan of Reorganization, have been excluded from the consolidated financial statements for the year ended December 31, 1995 since the operation of these businesses will only accrue to the benefit of the holders of notes issued by SellCo after payment in full of the Company's Series A Notes and certain other obligations (See Note G and H to the consolidated financial statements). Businesses held for sale are recorded in the accompanying Consolidated Balance Sheets at the lower of cost or estimated net realizable value and are classified as current based on their estimated disposition dates. Agreements for the sale of substantially all the assets of the Company's principal water supply subsidiary, Jamaica Water Supply Company ("JWS"), have been executed and an agreement for the sale of all of the capital stock of Sea Cliff Water Company ("Sea Cliff"), the Company's other water supply subsidiary, has also been executed. RESULTS OF OPERATIONS: YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993 Revenues for the years ended December 31, 1994 and 1993 were $1,764.0 million and $2,194.7 million, respectively. Net income for the year ended December 31, 1994 was $302.4 million or $32.09 per share compared to a net loss of $123.1 million for the year ended 1993. Net income for 1994 includes an extraordinary item for the gain on debt discharge of $413.2 million as well as a charge for the required adoption of SFAS 112 of $2.1 million. In addition, net income for 1994 includes charges for reorganization items totaling $91.3 million consisting of professional fees of $12.5 million and fresh-start adjustments of $78.8 million to record the Company's assets and liabilities at fair value in accordance with the adoption of Fresh-Start Reporting as prescribed by SOP 90-7. Income from discontinued operations was $10.2 million for the year ended December 31, 1994 compared to a loss of $9.1 million for the year ended December 31, 1993. The loss from discontinued operations for the year ended December 31, 1993 reflects a charge of $8.1 million related to an adjustment in the carrying value of liabilities as a result of the bankruptcy filing under Chapter 7 of the U.S. Bankruptcy Code by the Company's subsidiary that formerly carried on the Company's U.S. information services business. The loss from discontinued operations in 1993 also includes a charge of $7.4 million to write down the net assets of the Company's water supply business to estimated net realizable value, as determined with the assistance of the Company's financial advisors, in connection with the Company's reinstatement of its plan of disposition in early 1994. Loss from continuing operations before reorganization items, income taxes, extraordinary items and cumulative effect of accounting change was $27.9 million for the year ended December 31, 1994. The loss includes: a gain of $1.9 million for the settlement of a construction claim; a net gain of $1.2 million on the sale of certain businesses; a loss of $4.5 million due to the write-down of an investment; a loss of $10.8 million attributable to job write-downs and provisions for loss contingencies on certain industrial and municipal projects; a loss of $1.4 million for lender fees associated with the Company's new working capital and debtor-in-possession credit facilities; and a loss of $0.6 million for severance of certain employees. The losses associated with job write-downs were primarily attributable to adverse weather conditions, inadequate estimating of job costs and labor problems. The loss from continuing operations before income taxes for the year ended December 31, 1993 was $114.7 million which includes $50.2 million of interest expense primarily for interest at default rates on debt in default. The Company ceased accruing interest on debt in default in December 1993 upon the filing of an involuntary bankruptcy petition against the Company. Accordingly, no interest expense on debt in default is 15 included in the Consolidated Statement of Operations for the year ended December 31, 1994. The Company incurred an operating loss of $22.2 million for the year ended December 31, 1994 compared with an operating loss of $65.5 million for the year ended December 31, 1993. The operating loss for 1993 includes a $38.5 million provision for estimated losses on uncompleted construction contracts and approximately $12.0 million of legal, consulting and other professional fees arising from shareholder litigation and debt restructuring efforts. Professional fees associated with the bankruptcy proceedings are classified as Reorganization Charges in the 1994 Consolidated Statement of Operations. MECHANICAL AND ELECTRICAL CONSTRUCTION SERVICES AND FACILITIES MANAGEMENT SERVICES Revenues of the mechanical and electrical construction and facilities management services business units for the year ended December 31, 1994 decreased by 19.6% to $1,764.0 million from $2,194.7 million for the year ended December 31, 1993. Operating losses of this business (before deduction of general corporate and other expenses discussed below) for the years ended December 31, 1994 and 1993 were $6.4 million and $39.1 million, respectively. In connection with the Company's restructuring plan, certain mechanical and electrical construction services business units have been sold or identified for sale. The operating results of these units are included in the operating results discussed herein. Revenues of the mechanical and electrical construction services units sold or held for sale for the years ended December 31, 1994 and 1993 were $169.0 million and $354.6 million, respectively. Such units incurred an operating loss of $13.7 million for the year ended December 31, 1994 compared to an operating loss of $13.8 million for 1993. The decrease in revenues for the year ended December 31, 1994 was partially attributable to the disposition of certain businesses held for sale and the downsizing of certain other businesses. Revenues for the year ended December 31, 1994 relating to businesses which the Company plans to retain decreased by approximately 13% when compared to 1993. This decrease resulted primarily from those business units operating in the Western and Midwestern United States and in Eastern Canada. In 1994 these units experienced difficulties in obtaining new construction contracts because of, among other things, continued poor market conditions and the inability of the Company's subsidiary Dynalectric Specialty Contractors, Inc. ("Dyn") and its subsidiaries to obtain surety bonds to secure new work because their surety bonding company ceased to engage, as of January 1, 1994, in the business of issuing surety bonds. Another surety bonding company began providing them with bonds in November 1994. The operating results for the years ended December 31, 1994 and 1993 reflect, among other things, the continued negative impact of the recession in the construction industry and oversupply in the commercial real estate market which caused intense competition for new commercial work. As a result of the reduction of work in the commercial real estate market, many of the Company's mechanical and electrical construction services business units pursued and secured work in the institutional and public works markets, typically for federal, state and municipal government agencies. This work was often characterized by lower margins and different contract practices than in the commercial real estate market. In addition, the continued recession in the construction industry resulted in lower margins on all available work than had been the case in previous years. Certain of these business units had limited experience in institutional and public works projects, and, as a result, incurred losses, particularly on certain large, long-term projects. Operating margins in 1994 and 1993 were also adversely affected by the continuing recessions in the United Kingdom and Canada. SG&A expenses, excluding general corporate and other expenses, for the years ended December 31, 1994 and 1993 were $162.8 million and $190.3 million, respectively. The amount of SG&A expenses for 1994 was lower than 1993 SG&A expenses as a result of the implementation of the Company's downsizing plans and the disposition of certain businesses. At December 31, 1994, the mechanical and electrical construction and facilities management services business backlog was approximately $1,145.3 million compared to approximately $1,045.4 million at December 31, 1993. Such backlog included $1,046.4 million at December 31, 1994 and $946.8 million at December 31, 1993 relating to companies which the Company intended to retain. The Company's backlog in the United States declined by $60.9 million between December 31, 1993 and December 31, 1994, whereas its backlog in the United Kingdom and Canada increased by $145.7 million and $22.5 million, respectively, during that same period. The Company's United Kingdom and Canadian subsidiaries received major long-term contracts during the second and third quarters of 1994. During the year ended December 31, 1994, the Company experienced a reduction in backlog in the Western region of the United States. The decline of backlog in the United States was attributable to the downsizing of the Company's operations, the Company's weakened financial condition which adversely affected its ability to obtain new surety bonds and contracts and the inability of Dyn and Dyn subsidiaries to obtain surety 16 bonds during most of 1994. In addition, during 1994 the Company's surety bonding companies reviewed and continue to review requests for surety bonds on a case- by-case basis. GENERAL CORPORATE AND OTHER EXPENSES General corporate expenses for the years ended December 31, 1994 and 1993 were $28.3 million, inclusive of legal and other professional fees of $12.5 million incurred in connection with the Company's reorganization in 1994, and $26.4 million, inclusive of $12.0 million related to legal, consulting and other professional fees arising from shareholder litigation, the debt restructuring and the restatement of the Company's 1991 and 1990 financial statements, respectively. The higher amount of general corporate expenses, exclusive of legal, consulting and other professional fees, in 1994 is attributable to debt issuance costs related to the Company's debtor-in-possession credit facility during its Chapter 11 proceeding and new working capital credit facility, severance paid to terminated employees and an increase in insurance costs. Net interest expense for the year ended December 31, 1994 was $2.5 million compared to $50.2 million in the year earlier period. The Company ceased accruing interest related to debt in default on December 21, 1993, the date on which an involuntary bankruptcy petition was filed against the Company. DISCONTINUED OPERATIONS In April 1992, the Company announced its intention to sell its water supply business. However, in July 1993, the Company's Board of Directors decided not to proceed with the sale due to the then pending rate related proceedings and litigation. In December 1993, JWS entered into an agreement that became effective on February 2, 1994, upon approval by the New York State Public Service Commission, with respect to rate related proceedings and litigation thereby eliminating significant uncertainties relating to the Company's water supply business. Accordingly, the Company reinstated its plan of divestiture in the first quarter of 1994 and retained investment bankers to assist in the sale of its water supply business. Agreements for the sale of substantially all the assets of JWS have been executed and an agreement for the sale of all of the capital stock of Sea Cliff has also been executed. The consolidated financial statements reflect the water supply business as a discontinued operation for all periods presented prior to 1995. In 1993 the Company sold substantially all of its information services businesses. Revenues and income from discontinued operations, excluding the $20.4 million loss from the sale of its information services businesses during 1993, for the years ended December 31, 1994 and 1993 were as follows (in thousands): 1994 1993 (UNAUDITED) ---------------------- Revenues: Water Supply $64,993 $ 66,755 Information Services -- 876,700 ------- -------- $64,993 $943,455 ======= ======== Net Income: Water Supply $10,216 $ 11,427 Information Services -- (164) ------- -------- $10,216 $ 11,263 ======= ======== The water supply business operating results are impacted by seasonal factors. Its revenues are generally higher in the second and third quarters which reflects the warmer weather conditions in the Northeast United States. LIQUIDITY AND CAPITAL RESOURCES The Company's consolidated cash balance increased by $0.5 million from $52.5 million at December 31, 1994 to $53.0 million at December 31, 1995. The December 31, 1995 cash balance includes $5.8 million in foreign bank accounts and $25.0 million borrowed under the New Credit Agreements referred to below as compared to $3.0 million and $40.0 million, respectively, at December 31, 1994. The bank accounts of the Company's foreign subsidiaries and Dyn and Dyn subsidiaries are only available to support their respective operations. 17 The positive cash flow provided by operations of approximately $10.7 million in 1995 was principally due to management of accounts receivable collections and of payments of vendors. Pursuant to the Plan of Reorganization, the Company and its wholly-owned subsidiary SellCo issued, or reserved for issuance, four series of notes (the "New Notes") and 9,424,083 shares of stock of the Company's New Common Stock (constituting 100% of outstanding shares as of the Effective Date) to pre- petition creditors of the Company, other than holders of the Company's pre- petition subordinated debt, in settlement of their pre-petition claims and to Belmont Capital Partners II, L.P. ("Belmont"), which provided a debtor-in- possession credit facility ("DIP Loan"), in payment of additional interest under the terms of the DIP Loan. The entire $11.9 million principal amount of Series B Notes, a series of the New Notes, and approximately $4.1 million principal amount of Series A Notes, a series of the New Notes, were redeemed on the Effective Date with the net cash proceeds derived from the sale of certain of the Company's subsidiaries, the stock of which would have been pledged as part of the collateral securing the Series B Notes had such subsidiaries not been sold (and an additional $600,000 of such proceeds were reserved for prepayment of certain of the Series A Notes which have been reserved for issuance in respect of disputed and unliquidated claims). It is contemplated that, subject to the rights of the lenders under the Company's New Credit Agreements, discussed below, to receive the first $15.0 million of proceeds of the sale of stock or assets of the Company's water supply subsidiaries, JWS and Sea Cliff (collectively, the "Water Companies"), the balance of the Series A Notes will be prepaid with the net cash proceeds (as defined) derived from the sale of subsidiaries of SellCo ("Net Sales Proceeds"), including the Water Companies, and five other non-core subsidiaries pledged as collateral for the Series A Notes (the "Other Non-Core Subsidiaries') and that the SellCo Notes, a series of the New Notes, will only be paid from and to the extent of any remaining Net Sales Proceeds of SellCo's subsidiaries and the proceeds of a $5.5 million promissory note issued by the Company to SellCo pursuant to the Plan of Reorganization (the "EMCOR Supplemental SellCo Note"). Interest on the EMCOR Supplemental SellCo Note is payable on maturity. On December 14, 1994, the Company and certain of its subsidiaries entered into two credit agreements (the "New Credit Agreements") with Belmont and other lenders providing the Company and certain of its subsidiaries with working capital facilities of up to an aggregate of $45.0 million which became available upon the Effective Date. The MES Credit Agreement, one of the New Credit Agreements, is among the Company, its subsidiary, MES Holdings Corporation ("MES"), substantially all of the U.S. subsidiaries of MES, as guarantors, and the lenders and provides the Company and MES with loans in an aggregate amount of up to $35.0 million. The Dyn Credit Agreement, the other New Credit Agreement is among the Company, Dyn, Dyn's subsidiaries, as guarantors, and the lenders and provides Dyn with loans in an aggregate amount of up to $10 million. All the loans bear interest on the principal amount thereof at the rate of 15% per annum and mature on June 14, 1996. The loans under the MES Credit Agreement are guaranteed by most of the U.S. subsidiaries of MES and are secured by, among other things, substantially all of the assets of the Company, MES and most of its U.S. subsidiaries, including their respective accounts receivable, inventories, general intangibles and equipment and the capital stock of the U.S. MES subsidiaries (as defined) (but not the stock of MES, Dyn, SellCo, SellCo's subsidiaries or the five Other Non- Core Companies) and the proceeds of the sale of stock or assets of the Water Companies to the extent of the first $15.0 million of such proceeds, subject to the rights to such proceeds of the lenders under the Dyn Credit Agreement. The Dyn loans are guaranteed by the Dyn subsidiaries and are secured by substantially all of the assets of Dyn and the Dyn subsidiaries, including their respective accounts receivable, inventories, general intangibles and equipment and the capital stock of Dyn and the Dyn subsidiaries and the proceeds of the sale of stock or assets of the Water Companies to the extent of the first $15.0 million of such proceeds, subject to the rights to such proceeds of the lenders under the MES Credit Agreement. The Dyn loans are also secured by the collateral securing the MES loans, subject to the rights to such collateral of the lenders under the MES Credit Agreement. The proceeds of the MES loans under the MES Credit Agreement were used to repay amounts outstanding under the DIP Loan and pay fees and expenses in connection with the MES Credit Agreement and the Plan of Reorganization and the balance is being used for the general working capital of MES, the MES subsidiaries and the Company. The proceeds of the Dyn loans were used to pay fees and expenses in connection with the Dyn Credit Agreement and is being used for the general working capital of Dyn and the Dyn subsidiaries. Each of the New Credit Agreements, which expire on June 14, 1996, contain various affirmative and negative covenants. The negative covenants limit the ability of the Company, MES, Dyn and their respective subsidiaries' to take certain actions without the lenders' approval. Such actions include, among other things: (i) merger or consolidation, (ii) incurrence of indebtedness, (iii) placing of liens upon their property, (iv) making of 18 loans, investments or guarantees and (v) transfer of assets. The negative covenants require MES, Dyn and their subsidiaries to maintain their backlogs and work-in-progress at not less than specified levels and to prevent their losses from operations from exceeding specified amounts in any month. The MES Credit Agreement also requires the Company, MES and its subsidiaries, and Dyn and its subsidiaries to maintain certain financial coverage ratios. Borrowings outstanding as of December 31, 1995 under the MES Credit Agreement and Dyn Credit Agreement were $25.0 million and $0, respectively. In June 1995, the Company's Canadian subsidiary, Comstock Canada Limited ("Comstock Canada"), entered into a credit agreement providing for an overdraft facility of up to Canadian $2.0 million. The facility is secured by certain assets of Comstock Canada and deposit instruments of a Canadian subsidiary of the Company. The facility provides for interest at the bank's prime rate (7.5% at December 31, 1995) plus .75% and expires on June 30, 1996. As of December 31, 1995, Comstock Canada had no borrowings outstanding under this credit facility. In September 1995, a number of the Company's United Kingdom subsidiaries renegotiated and renewed a demand credit facility with a United Kingdom bank for a credit line of Brit. Pound 17.1 million (approximately U.S. $26.6 million). The credit facility consists of the following components with the individual credit limits as indicated: an overdraft line of up to Brit. Pound 9.0 million (approximately U.S. $14.0 million); a facility for the issuance of guarantees, bond and indemnities of up to Brit. Pound7.3 million (approximately U.S. $11.3 million); and other credit facilities of up to Brit. Pound 0.8 million (approximately U.S. $1.3 million). The facility is secured by substantially all of the assets of the Company's principal United Kingdom subsidiaries. The overdraft facility provides for interest at the bank's base rate, as defined (6.5% as of December 31, 1995), plus 3% on the first Brit. Pound 5.0 million of borrowings and at the bank's base rate plus 4% for borrowings over Brit. Pound 5.0 million. This credit facility, as amended, expires June 30, 1996. As of December 31, 1995, the Company's United Kingdom subsidiaries had utilized approximately $23.0 million of the credit facilities as follows: approximately $13.4 million of borrowings under the overdraft line, approximately $8.3 million for the issuance of guarantees and approximately $1.3 million under other credit facilities. The Company is actively seeking to replace or extend its existing credit facilities that expire in 1996. On November 4, 1994, JWS and Sea Cliff entered into a credit agreement providing for a credit facility to JWS of $17.9 million and for a credit facility to Sea Cliff of $2.1 million at an interest rate based upon either prime rate, LIBOR plus 5/8% or bid rate, as those terms are defined in the credit agreement. These borrowings are reflected as current liabilities in the condensed consolidated balance sheet relating to discontinued operations (the water supply business) and other businesses held for sale which is presented in Note N to the consolidated financial statements. This credit agreement was extended from November 4, 1995 to May 3, 1996. During the period from November 4, 1995 to May 3, 1996, the Company's borrowings are limited to $12.0 million for JWS. JWS' obligations under the credit agreement become due and payable on the earlier of (a) May 3, 1996, (b) the tenth business day following any disposition by JWS outside the ordinary course of business of assets with an aggregate value in excess of $5,000,000. Sea Cliff's obligations under the credit agreement become due and payable on the earlier of (a) May 3, 1996 or (b) the tenth business day following any disposition by JWS outside the ordinary course of business of assets with an aggregate fair market value in excess of $5,000,000, (c) a distribution by JWS to its stockholders of the proceeds of such disposition, or (d) a disposition by Sea Cliff outside the ordinary course of business of assets with an aggregate fair market value in excess of $50,000. As reported in the Company's Report on Form 8-K, dated February 29, 1996, an aggregate majority of principal amount of the outstanding Series A Notes and an aggregate majority of principal amount of the outstanding Series C Notes, consented to the Company's proposed amendments to the Series A Indenture and Series C Indenture under which the Series A Notes and the Series C Notes, respectively, were issued. The amendments (i) will reduce the ratio required to be maintained by the Company and certain of its subsidiaries 19 under a Consolidated Fixed Charge Coverage Ratio (the "Ratio"), as defined, contained in each of the Indentures and (ii) will exclude from the Ratio calculation certain non-cash interest payments which are payable by the issuance of additional Series A Notes and Series C Notes. The Company has no significant plans or commitments for capital expenditures outside of those required for normal operations. Such expenditures are anticipated to be funded by cash generated through continuing operations. The Company believes that projected cash flow from operations combined with the available funds under the MES and Dyn Credit Agreements and any successor credit facility, will provide sufficient liquidity to meet the Company's operating, capital and scheduled debt service requirements through at least 1996. Factors supporting this belief include the terms of the New Notes, including the interest and amortization payment terms, and the contemplated prepayment of certain of the New Notes from the proceeds of sales of subsidiaries held for sale. CERTAIN INSURANCE MATTERS Since October 1992, neither the Company nor its indirect wholly-owned captive insurance subsidiary has been able to obtain additional letters of credit to secure their insurance obligations, and, as a result they have been required to make cash collateral deposits to an unrelated insurance company. The deposits totaled $30.8 million and $37.6 million as of December 31, 1995 and 1994, respectively, and are classified as a long-term asset in the accompanying Consolidated Balance Sheets under the caption "Insurance cash collateral" in Other Assets. The Company expects to continue to be required to post cash collateral or letters of credit for insurance claims. 20 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA EMCOR GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) REORGANIZED COMPANY DECEMBER 31, ----------------------- 1995 1994 -------- -------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 53,007 $ 52,505 Accounts receivable, less allowance for doubtful accounts of $14,892 and $19,820, respectively 435,974 438,958 Costs and estimated earnings in excess of billings on uncompleted contracts 65,551 52,347 Inventories 8,031 6,910 Prepaid expenses and other 8,365 8,115 Net assets held for sale 61,969 55,401 -------- -------- Total current assets 632,897 614,236 INVESTMENTS, NOTES AND OTHER LONG-TERM RECEIVABLES 4,684 6,122 PROPERTY, PLANT AND EQUIPMENT, NET 27,137 33,670 OTHER ASSETS: Insurance cash collateral 30,812 37,577 Funds held in escrow 8,271 8,649 Miscellaneous 7,144 7,244 -------- -------- 46,227 53,470 -------- -------- TOTAL ASSETS $710,945 $707,498 ======== ======== The accompanying notes to the consolidated financial statements are an integral part of these statements. 21 EMCOR GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) REORGANIZED COMPANY DECEMBER 31, ----------------------- 1995 1994 -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable $ 14,665 $ 4,803 Borrowings under working capital credit 25,000 40,000 lines Current maturities of long-term debt and capital lease obligations 1,875 2,089 7% Senior Secured Notes (Series A) 61,969 55,401 Accounts payable 224,002 219,564 Billings in excess of costs and estimated earnings on uncompleted contracts 113,590 115,567 Accrued payroll and benefits 38,928 38,914 Other accrued expenses and liabilities 45,445 45,660 -------- -------- Total current liabilities 525,474 521,998 LONG-TERM DEBT 68,240 61,230 OTHER LONG-TERM OBLIGATIONS 46,621 43,140 STOCKHOLDERS' EQUITY: Preferred Stock, $.10 par value, 1,000,000 shares -- -- authorized, zero issued and outstanding Common Stock, $.01 par value, 13,700,000 shares and 9,424,083 authorized, 9,424,706 shares issued and outstanding, respectively 94 94 Warrants 2,179 2,179 Capital surplus 78,863 78,857 Cumulative translation adjustment 327 -- Accumulated deficit (10,853) -- -------- -------- Total stockholders' equity 70,610 81,130 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $710,945 $707,498 ======== ======== The accompanying notes to the consolidated financial statements are an integral part of these statements. 22 EMCOR GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, (IN THOUSANDS, EXCEPT PER SHARE DATA)
REORGANIZED PREDECESSOR COMPANY COMPANY 1995 1994 1993 ----------- ---------- ---------- REVENUES $1,588,744 $1,763,961 $2,194,735 COSTS AND EXPENSES: Cost of sales 1,445,597 1,607,589 2,043,558 Selling, general and administrative 137,254 178,575 216,709 ---------- ---------- ---------- 1,582,851 1,786,164 2,260,267 ---------- ---------- ---------- OPERATING INCOME (LOSS) 5,893 (22,203) (65,532) Interest expense (17,453) (3,867) (51,075) Interest income 2,633 1,391 888 Net (loss) gain on businesses sold or (926) 1,183 1,028 held for sale Loss on investment -- (4,452) -- ---------- ---------- ---------- LOSS FROM CONTINUING OPERATIONS BEFORE REORGANIZATION ITEMS, INCOME TAXES, EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE (9,853) (27,948) (114,691) ---------- ---------- ---------- REORGANIZATION ITEMS: Professional fees -- (12,535) -- Fresh-start adjustments -- (78,783) -- ---------- ---------- ---------- -- (91,318) -- ---------- ---------- ---------- LOSS FROM CONTINUING OPERATIONS INCLUDING REORGANIZATION ITEMS, BEFORE INCOME TAXES, EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE (9,853) (119,266) (114,691) INCOME TAX PROVISION (BENEFIT) 1,000 (332) (700) ---------- ---------- ---------- LOSS FROM CONTINUING OPERATIONS INCLUDING REORGANIZATION ITEMS, BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE (10,853) (118,934) (113,991) ---------- ---------- ---------- DISCONTINUED OPERATIONS: Income from operations, net of income taxes -- 10,216 11,263 Loss from disposal of businesses, net of income taxes -- -- (20,350) ---------- ---------- ---------- Income (loss) from discontinued operations -- 10,216 (9,087) EXTRAORDINARY ITEM - GAIN ON DEBT DISCHARGE -- 413,249 -- CUMULATIVE EFFECT OF CHANGE IN METHOD OF ACCOUNTING FOR: Post-employment benefits -- (2,100) -- ---------- ---------- ---------- NET (LOSS) INCOME $ (10,853) $ 302,431 $ (123,078) ========== ========== ========== SUPPLEMENTAL (LOSS) INCOME PER COMMON SHARE AND COMMON SHARE EQUIVALENT(1): Continuing operations before extraordinary item $(1.13) $ (12.62) * Income from discontinued operations -- 1.08 * Extraordinary item -- 43.85 * Cumulative effect of change in method of accounting for post-employment benefits -- (0.22) * ---------- ---------- ---------- Net (Loss) Income $(1.13) $ 32.09 * ========== ========== ==========
(1) Historical per share data have not been presented prior to December 31, 1994 as it is not meaningful since the Company has been recapitalized and adopted Fresh-Start Reporting as of December 31, 1994. The accompanying notes to the consolidated financial statements are an integral part of these statements. 23 EMCOR GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, (IN THOUSANDS)
REORGANIZED COMPANY PREDECESSOR COMPANY 1995 1994 1993 ----------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income $(10,853) $ 302,431 $(123,078) Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: Depreciation and amortization 8,912 15,724 35,246 Net loss (gain) from businesses sold or held for sale 926 (1,183) (1,028) Provision for losses on accounts and -- -- 13,663 other receivables Write-down of investment -- 4,452 -- Stock compensation 6 -- 727 Deferred income taxes -- -- 4,138 Loss from disposal of discontinued operations -- -- 20,350 Cumulative effect of change in accounting for post-employment benefits -- 2,100 -- Non-cash interest expense 7,690 -- -- Other, net 465 -- 2,411 -------- --------- --------- 7,146 323,524 (47,571) Change in Operating Assets and Liabilities Excluding Effect of Businesses Disposed of and Acquired: Decrease in accounts receivable, net 2,635 9,172 41,286 (Increase) decrease in inventories and contracts in progress (16,320) (6,879) 35,292 Increase (decrease) in accounts payable and other accrued expenses and liabilities 5,312 22,703 (73,563) Changes in other assets and liabilities, net 11,928 (20,703) 17 Charges due to reorganization activities: Reorganization charges - professional fees -- 12,535 -- Reorganization charges - fresh-start adjustments -- 78,783 -- Gain on discharge of debt -- (413,249) -- -------- --------- --------- Net Cash Provided by (Used in) Operations $ 10,701 $ 5,886 $ (44,539) -------- --------- ---------
(continued) 24 EMCOR GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, (IN THOUSANDS)(CONTINUED)
REORGANIZED COMPANY PREDECESSOR COMPANY 1995 1994 1993 ----------- -------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from working capital credit lines $ -- $ 40,000 $ -- Payments of working capital credit lines (15,000) Proceeds from debtor-in-possession financing -- 30,000 -- Payment of debtor-in-possession financing -- (30,000) -- Cash deposited in trust account for funding of post-bankruptcy debt -- (15,940) -- Proceeds from long-term debt 180 -- 710 Payments of long-term debt and capital lease obligations (1,379) (1,430) (6,027) Repayment of Series B Notes and partial Series A Note repayment -- (16,054) -- Redemption of preferred stock of subsidiary company -- -- (500) Proceeds from notes payable 21,266 4,646 7,900 Payments of notes payable (11,404) (172) (27,169) Debt issuance costs -- (900) -- -------- -------- -------- Net Cash (Used in) Provided by Financing Activities (6,337) 10,150 (25,086) -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of businesses and 650 13,620 43,400 other assets Purchase of property, plant and (4,512) (4,164) (17,329) equipment Net disbursements for other investments -- (2,442) -- Change in cash balances of businesses held for sale or sold -- (10,079) (3,748) -------- -------- -------- Net Cash (Used in) Provided by Investing Activities (3,862) (3,065) 22,323 -------- -------- -------- Increase (Decrease) in Cash and Cash Equivalents 502 12,971 (47,302) Cash and Cash Equivalents at Beginning of Year 52,505 39,534 86,836 -------- -------- -------- Cash and Cash Equivalents at End of Year $ 53,007 $ 52,505 $ 39,534 ======== ======== ========
The accompanying notes to the consolidated financial statements are an integral part of these statements. 25 EMCOR GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (IN THOUSANDS)
Retained New Old Old Old Warrants Cumulative Earnings Stockholders' Common Preferred Common of New Capital Translation (Accumulated Equity Stock Stock Stock Participation Warrants Surplus Adjustments Deficit) (Deficit) ------ --------- ------ -------------- -------- ------- ----------- ------------ ------------- BALANCE, JANUARY 1, 1993 $ -- $ 21,250 $ 4,075 $ 576 $ -- $ 203,505 $ (3,930) $(401,455) $(175,979) Deferred compensation -- -- 9 -- -- 718 -- -- 727 Foreign currency translation adjustment -- -- -- -- -- -- (2,138) -- (2,138) Preferred stock dividends -- -- -- -- -- -- -- (1,806) (1,806) Other, net -- -- (12) -- -- 24 -- -- 12 Net loss -- -- -- -- -- -- -- (123,078) (123,078) ---- -------- ------- ----- ------ --------- ------- --------- --------- BALANCE, DECEMBER 31, 1993 -- 21,250 4,072 576 -- 204,247 (6,068) (526,339) (302,262) Foreign currency translation adjustment -- -- -- -- -- -- (173) -- (173) Exchange of preferred stock for common stock -- (345) 1 -- -- 344 -- -- -- Net income -- -- -- -- -- -- -- 302,431 302,431 Exchange of stock and fresh- start adjustments 94 (20,905) (4,073) (576) 2,179 (125,734) 6,241 223,908 81,134 ---- -------- ------- ----- ------ --------- ------- --------- --------- BALANCE, DECEMBER 31, 1994 94 -- -- -- 2,179 78,857 -- -- 81,130 Foreign currency translation adjustment -- -- -- -- -- -- 327 -- 327 Other -- -- -- -- -- 6 -- -- 6 Net loss -- -- -- -- -- -- -- (10,853) (10,853) ---- -------- ------- ----- ------ --------- ------- --------- --------- BALANCE, DECEMBER 31, 1995 $ 94 $ -- $ -- $ -- $2,179 $ 78,863 $ 327 $ (10,853) $ 70,610 ==== ======== ======= ===== ====== ========= ======= ========= =========
The accompanying notes to the consolidated financial statements are an integral part of these statements. 26 EMCOR GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A BASIS OF PRESENTATION JWP INC. emerged from Chapter 11 of the United States Bankruptcy Code on December 15, 1994 (the "Effective Date") and changed its name to EMCOR Group, Inc. ("EMCOR" or the "Company"). The Company reorganized pursuant to its Third Amended Joint Plan of Reorganization dated August 9, 1994, as amended and proposed by the Company and its subsidiary SellCo Corporation (the "Plan of Reorganization"). Under the Plan of Reorganization, pre-petition creditors of the Company (other than holders of subordinated debt) received certain notes of EMCOR and its subsidiary SellCo Corporation ("SellCo") and substantially all of the newly issued shares of common stock of EMCOR ("New Common Stock"). The pre- petition holders of the Company's subordinated debt, common and preferred stock and warrants of participation received warrants ("New Warrants") to purchase New Common Stock of EMCOR in exchange for their debt and equity interests. Pursuant to the Plan of Reorganization, on the Effective Date EMCOR issued or reserved for issuance to pre-petition creditors of EMCOR (other than holders of EMCOR's subordinated debentures and notes) in exchange for approximately $525.7 million of EMCOR senior bank and institutional indebtedness and substantially all other general unsecured claims, both allowed and disputed, against the Company, and to Belmont Capital Partners II, L.P. ("Belmont"), which provided a debtor-in-possession credit facility to the Company during its Chapter 11 proceeding, the following securities: (i) 9,424,083 shares of New Common Stock of the Company (constituting 100% of the issued or issuable shares as of the Effective Date); (ii) approximately $62.2 million principal amount of 7% Senior Secured Notes, Series A, due 1997 of the Company ("Series A Notes") issued on the Effective Date and up to a maximum of $8.8 million additional principal amount of Series A Notes which were reserved for issuance to holders of general unsecured claims and to Belmont upon resolution of disputed and unliquidated pre-petition general unsecured claims (assuming such claims are ultimately allowed in full); (iii) approximately $11.9 million principal amount of 7% Senior Secured Notes, Series B, due 1997 ("Series B Notes"); (iv) approximately $62.8 million principal amount of 11% Notes, Series C, due 2001, of the Company ("Series C Notes"); and (v) approximately $48.1 million principal amount of 12% Subordinated Contingent Payment Notes, due 2004, of SellCo (the "SellCo Notes"). The entire $11.9 million principal amount of Series B Notes and approximately $4.1 million principal amount of the Series A Notes issued on the Effective Date were immediately redeemed on that date at their face amount in accordance with their terms from the proceeds realized from the sale and liquidation of certain subsidiaries, the stock of which would have been pledged as part of the collateral securing the Series B Notes had such subsidiaries not been sold (and an additional $600,000 of such proceeds was reserved for redemption of certain of the Series A Notes reserved for disputed and unliquidated claims).The Company recorded the Series A Notes based upon an assumed total of $100.0 million of pre-petition general unsecured claims after settlement of disputed and unliquidated pre-petition general unsecured claims. From February 14, 1994 to the Effective Date, the Company was a debtor-in- possession under Chapter 11 of the U.S. Bankruptcy Code. The accompanying 1994 and 1993 consolidated financial statements were prepared on the basis of the principles prescribed by the American Institute of Certified Public Accountants' Statement of Position 90-7 "Financial Reporting by Entities in Reorganization under the Bankruptcy Code" ("SOP 90-7"). As a result, during 1994, the liabilities compromised in the bankruptcy proceeding were classified to "Pre- consent date bankruptcy claims subject to compromise". As of December 21, 1993, and through the Effective Date, the Company ceased to accrue interest on its debt in default. As of December 31, 1994, in accordance with SOP 90-7, the Company adopted Fresh-Start Accounting. As a result of the implementation of Fresh-Start Accounting, the financial statements of the Company for periods subsequent to consummation of the Plan of Reorganization are not comparable to the Company's consolidated financial statements for prior periods. Accordingly, a black line has been used to separate the consolidated financial statements of the Company after the consummation of the Plan of Reorganization from those of the Company prior to the consummation of the Plan of Reorganization. The operating results of businesses held for sale have been excluded from the consolidated financial statements for the year ended December 31, 1995 since the operations of these businesses will only accrue to the benefit of the holders of the notes issued by the Company's subsidiary SellCo after payment in full of the Company's Series A Notes and certain other obligations (See Note G and H) and the operating results substantially offset interest accrued on the Company's Series A Notes which interest has 27 been recognized within the caption "Net assets held for sale" in the Consolidated Balance Sheet as of December 31, 1995. Effective January 1, 1994, the Company adopted the provisions of Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Post- employment Benefits" ("SFAS 112"). See Note T. As indicated in Notes M and N, during its bankruptcy proceeding the Company developed and implemented a business restructuring plan which includes the sale of its water supply business and other non--core businesses. The net assets of businesses to be sold have been classified in the Consolidated Balance Sheets as of December 31, 1995 and 1994 as "Net assets held for sale" ("NAHFS"). In 1993, the Company sold substantially all of its information services businesses. Operating results for all periods presented prior to 1995 reflect the Company's information services and water supply businesses as discontinued operations. NOTE B NATURE OF OPERATIONS EMCOR is a multinational corporation involved in mechanical and electrical construction and facilities management services. EMCOR's subsidiaries specialize in the design, integration, installation, start-up, testing, operation and maintenance of (i) distribution systems for electrical power (including power cables, conduits, distribution panels, transformers, generators, uninterruptible power supply systems and related switch gear and control); (ii) lighting systems, including fixtures and controls; (iii) low-voltage systems, including fire alarm, security, communications and process control systems; (iv) heating, ventilation, air conditioning, refrigeration and clean-room process ventilation systems; and (v) plumbing, process and high purity piping systems. EMCOR's subsidiaries provide mechanical and electrical construction and facilities management services directly to end-users (including corporations, municipalities and other governmental entities, owners/developers, and tenants of buildings) and, indirectly, by acting as a subcontractor for construction managers, general contractors and other subcontractors. Mechanical and electrical construction services are principally either, large installation projects with contracts generally in the multi-million dollar range; smaller system installations involving renovation and retrofit work, and maintenance and service. In addition, certain of its subsidiaries operate and maintain mechanical and/or electrical systems for customers under contracts and provide other services to customers, at the customer's facilities, which services are commonly referred to as facilities management. Mechanical and electrical construction and facilities management services are provided to a broad range of commercial, industrial and institutional customers through offices located in major markets throughout the United States, Canada, the United Kingdom, the Middle East and Hong Kong. NOTE C SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company has implemented the recommended accounting for entities emerging from Chapter 11 reorganization set forth in SOP 90--7 (See Note A). PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Significant intercompany accounts and transactions have been eliminated. Reclassifications of prior year data have been made in the accompanying consolidated financial statements where appropriate to conform to the 1995 presentation. PRINCIPLES OF PREPARATION The preparation of financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions that effect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. REVENUE RECOGNITION Revenues on long-term contracts are recognized on the percentage-of-completion method. Percentage-of-completion for the mechanical contracting business is measured principally by the percentage of costs incurred and accrued to date for each contract to the estimated total costs for each contract at completion. Certain of the Company's electrical contracting business units measure percentage-of-completion by the percentage of labor costs incurred and accrued to date for each contract to the estimated labor costs for such contract, while others are on the cost to cost method. Revenues on facilities management services are recognized when the earnings process is complete. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. In forecasting ultimate profitability on certain contracts, estimated recoveries are included for work performed under customer change orders to contracts for which firm prices have not yet been negotiated. Due to 28 uncertainties inherent in the estimation process, it is reasonably possible that completion costs, including those arising from contract penalty provision and final contract settlements, will be revised in the near-term. Such revision to costs and income are recognized in the period in which the revisions are determined. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS Costs and estimated earnings in excess of billings on uncompleted contracts arise when revenues have been recorded but the amounts cannot be billed under the terms of the contracts. Such amounts are recoverable from customers upon various measures of performance, including achievement of certain milestones, completion of specified units or completion of the contract. Also included in costs and estimated earnings on uncompleted contracts are amounts the Company seeks or will seek to collect from customers or others for errors or changes in contract specifications or design, contract change orders in dispute or unapproved as to both scope and price, or other customer-related causes of unanticipated additional contract costs (pending change orders and claims). These amounts are recorded at their estimated net realizable value when realization is probable and can be reasonably estimated. No profit is recognized on the construction costs incurred in connection with these amounts. Pending change orders involve the use of estimates and it is reasonably possible that revisions to the estimated recoverable amounts of recorded pending change orders may be made in the near-term. Claims made by the Company involve negotiation and, in certain cases, litigation. The Company expenses such costs as incurred although it may seek to recover these costs as part of the claim. The Company believes that it has established legal bases for pursuing recovery of recorded claims, and it is management's intention to pursue and litigate these claims, if necessary, until a decision or settlement is reached. Claims also involve the use of estimates and it is reasonably possible that revisions to the estimated recoverable amounts of recorded claims may be made in the near-term. Claims against the Company are recognized when a loss is considered probable and amounts are reasonably determinable. Costs and estimated earnings on uncompleted contracts and related amounts billed as of December 31, 1995 and 1994 are as follows (in thousands): REORGANIZED COMPANY 1995 1994 ---------- ---------- Costs incurred on uncompleted contracts $2,528,864 $2,853,799 Estimated earnings 175,490 195,508 ---------- ---------- 2,704,354 3,049,307 Less billings to date 2,752,393 3,112,527 ---------- ---------- $ (48,039) $ (63,220) ========== ========== Such amounts are included in the accompanying Consolidated Balance Sheets at December 31, 1995 and 1994 under the following captions (in thousands): REORGANIZED COMPANY 1995 1994 ---------- ---------- Costs and estimated earnings in excess of billings on uncompleted contracts $ 65,551 $ 52,347 Billings in excess of costs and estimated earnings on uncompleted contracts (113,590) (115,567) ---------- ---------- $ (48,039) $ (63,220) ========== ========== Included in accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts are pending change orders and claims in the process of negotiation which aggregate approximately $47.4 million and $69.0 million at December 31, 1995 and 1994, respectively. Also included in accounts receivable are billed 29 receivables and retainage of approximately $25.8 million at December 31, 1995 related to contracts involving claims. Such amounts generally will not be paid by the customer to the Company until final resolution of the related claims. CLASSIFICATION OF CONTRACT AMOUNTS In accordance with industry practice, the Company classifies as current all assets and liabilities related to the performance of long-term contracts. The contracting cycle for certain long-term contracts may extend beyond one year and, accordingly, collection or payment of amounts related to these contracts may extend beyond one year. Accounts receivable at December 31, 1995 and 1994 include $64.8 million and $67.2 million, respectively, of retainage billed under terms of the contracts. The Company estimates that approximately 85% of retainage recorded at December 31, 1995 will be collected during 1996. RESTRICTED CASH In connection with the credit agreement of the Company's Canadian subsidiary, Comstock Canada Limited ("Comstock Canada"), approximately $1.4 million of cash and cash equivalents, included in the accompanying Consolidated Balance Sheet as of December 31, 1995 is security against draw downs on this credit facility. The Company is precluded from withdrawing portions of this amount if there are borrowings outstanding under the credit facility. Comstock Canada has no borrowings under this facility at December 31, 1995 and accordingly, the restricted amount has been classified as a current asset. As further described in Note G, under the Company's various revolving credit agreements, restrictions are placed on the transfer of assets, including cash and cash equivalents, between the Company and its foreign subsidiaries, as well as a certain domestic subsidiary. FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107, "Disclosure about Fair Value of Financial Instruments", requires disclosure of the year-end value of significant financial instruments, including long-term debt. At December 31, 1995, cash and cash equivalents, current long-term debt and long-term debt have fair values that approximate their carrying amounts. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is stated at cost. Depreciation is recorded principally using the straight--line method over estimated useful lives ranging from 3 to 40 years. Property, plant and equipment as of December 31, 1995 and 1994 consists of (in thousands): REORGANIZED COMPANY 1995 1994 ------- ------- Machinery and equipment $19,398 $18,069 Furniture and fixtures 3,802 3,334 Land, buildings and leasehold improvements 12,516 12,267 ------- ------- 35,716 33,670 Accumulated depreciation and amortization (8,579) -- ------- ------- $27,137 $33,670 ======= ======= 30 INVENTORIES Inventories, which consist primarily of construction materials, are stated at the lower of cost or market. Cost is determined by principally using average costs. NET ASSETS HELD FOR SALE NAHFS are stated at the lower of cost or estimated net realizable value and carried as current assets on the basis of their actual or expected disposition dates. REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCABLE TO IDENTIFIABLE ASSETS Reorganization value in excess of amounts allocable to identifiable assets totaling $5.0 million as of the Effective Date is being amortized on a straight--line basis over 15 years. This amount is classified as Other Assets under the caption "Miscellaneous" in the accompanying Consolidated Balance Sheets. FOREIGN OPERATIONS The financial statements and transactions of the Company's foreign subsidiaries are maintained in their functional currency and translated into U.S. dollars in accordance with Statement of Financial Accounting Standards No. 52. Translation adjustments have been accumulated as a separate component of stockholders' equity. SUPPLEMENTAL NET (LOSS) INCOME PER COMMON SHARE AND COMMON EQUIVALENT SHARE Per share data has not been presented for periods prior to the Effective Date as it is not meaningful since the Company has been recapitalized and adopted Fresh Start Reporting as of December 31, 1994. Supplemental net (loss) income per common share and common equivalent share data have been calculated based on the assumed issuance of the New Common Stock (9,424,083 shares) as of January 1, 1994 and the weighted average number of shares outstanding as of December 31, 1995 (9,580,418 shares). When dilutive, stock options and warrants are included in weighted average number of shares outstanding using the treasury stock method. STATEMENTS OF CASH FLOWS For purposes of the Consolidated Statements of Cash Flows, the Company considers all highly liquid instruments with original maturities of three months or less to be cash equivalents. INCOME TAXES The Company accounts for income taxes in accordance with the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires an asset and liability approach which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable for the period and the change during the period in deferred tax assets and liabilities. 31 NOTE D DEBTOR-IN-POSSESSION FINANCING In February 1994, the Company and most of its subsidiaries entered into an agreement with Belmont to provide for a debtor-in-possession credit facility to the Company (the "DIP Loan"). The agreement made available to the Company a credit facility of $35.0 million at an interest rate of 12% per annum during the Chapter 11 proceeding. Among other things, the agreement also provided that Belmont was to receive, as additional interest, a percentage of the securities to be issued under the Plan of Reorganization. The DIP Loan was secured by a first lien on substantially all of the assets of the Company and most of its subsidiaries. As of the Effective Date, the Company had drawn down $30.0 million under the DIP Loan. The Company received waivers of certain covenants under the DIP Loan dated April 27, 1994, May 6, 1994, August 2, 1994 and November 4, 1994. Pursuant to those waivers the Company was permitted by Belmont to draw on the line of credit. The DIP Loan was repaid on the Effective Date from borrowings under the MES Credit Agreement (as that term is hereafter defined)(See Note G). NOTE E REORGANIZATION ITEMS For the year ended December 31, 1994, the Company recorded $12.5 million of reorganization charges in the accompanying Consolidated Statement of Operations for various legal and other professional fees associated with its Chapter 11 proceeding. Such reorganization charges are expensed as incurred as prescribed by SOP 90-7. In addition, "Reorganization Items" in the accompanying Consolidated Statement of Operations for the year ended December 31, 1994 include fresh-start adjustments (see Note V) which reflect the net charge to state assets and liabilities at fair value. NOTE F EXTRAORDINARY ITEM -- DISCHARGE OF DEBT The Plan of Reorganization resulted in the discharge of pre--consent date liabilities totaling approximately $623.0 million. The value of securities distributed was $413.2 million, less allowed claims, and, accordingly, the resulting gain was recorded as an extraordinary item in 1994. NOTE G CURRENT DEBT MES CREDIT AGREEMENT On December 14, 1994, the Company and certain of its subsidiaries entered into a credit agreement (the "MES Credit Agreement") with Belmont, certain directors of the Company and/or their affiliates and other lenders (the "Lenders") providing the Company and MES Holdings Corporation ("MES"), a wholly--owned subsidiary of the Company, with revolving credit loans (the "MES Loans") of up to an aggregate amount of $35.0 million. The MES Loans are guaranteed by certain direct or indirect subsidiaries of MES (the "MES Subsidiaries") and are secured by, among other things, substantially all of the assets of the Company, MES and the U.S. MES Subsidiaries, including the proceeds of the sale of all of the assets of the Company, MES and the U.S. MES Subsidiaries and the proceeds of the sale of stock or assets of the Company's two water supply companies (the "Water Companies") to the extent of the first $15.0 million of such proceeds, subject to the rights to such proceeds of the Lenders under the Dyn Credit Agreement (as that term is hereafter defined). The MES Loans bear interest on the principal amount thereof at the rate of 15% per annum and mature on June 14, 1996. DYN CREDIT AGREEMENT On December 14, 1994, the Company, Dyn Specialty Contracting, Inc. ("Dyn"), a wholly--owned subsidiary of the Company, and Dyn's subsidiaries entered into a credit agreement (the "Dyn Credit Agreement") with the Lenders providing revolving credit loans (the "Dyn Loans") of up to an aggregate amount of $10.0 million. The Dyn Loans are guaranteed by the Dyn subsidiaries and are secured by substantially all of the assets of Dyn and the Dyn subsidiaries, including the proceeds of the sale of stock or assets of the Water Companies to the extent of the first $15.0 million of such proceeds, subject to the rights to such proceeds of the Lenders under the MES Credit Agreement. The Dyn Loans bear interest on the principal amount thereof at the rate of 15% per annum, and mature on June 14, 1996. 32 Borrowings under the MES and Dyn Credit Agreements (collectively, the "New Credit Agreements"), $25.0 million and $0 million, respectively, at December 31, 1995, are classified as Current Liabilities under the caption "Borrowings under working capital credit lines" in the accompanying Consolidated Balance Sheets. Albert Fried, Jr., a director of the Company, is Managing Partner of Albert Fried & Company, which agreed to loan up to $7.0 million as one of the lenders under the New Credit Agreements. Kevin C. Toner, a director of the Company, agreed to loan up to $1.0 million as one of the lenders under the New Credit Agreements. In addition, UBS Mortgage Finance Inc., an affiliate of UBS Securities Inc., Mr. Toner's former employer, agreed to loan up to $2.0 million as one of the Lenders under the New Credit Agreements. Borrowings outstanding as of December 31, 1995 related to the above individual lenders were $3.9 million, $0.6 and $1.1 million, respectively, under the New Credit Agreements. Each of the New Credit Agreements, contains various affirmative and negative covenants. The negative covenants limit the ability of the Company, MES, Dyn and their respective subsidiaries to take certain actions without the lenders' approval. Such actions include, among other things; (i) merger or consolidation, (ii) incurrence of indebtedness, (iii) placing of liens upon their property, (iv) making of loans, investments or guarantees and (v) transfer of assets. The negative covenants require MES, Dyn and their subsidiaries to maintain their backlogs and work-in-progress at not less than specified levels and to prevent their losses from operations from exceeding specified amounts in any month. The MES Credit Agreement also requires the Company, MES and its subsidiaries, and Dyn and its subsidiaries to maintain certain financial coverage ratios. SERIES A NOTES Pursuant to the Plan of Reorganization, on December 15, 1994 the Company issued or reserved for issuance approximately $62.2 million principal amount of Series A Notes and reserved for issuance up to a maximum of $8.8 million additional principal amount of Series A Notes upon resolution of disputed and unliquidated pre-petition general unsecured claims. A maximum of $7.2 million of Series A Notes are available as of December 31, 1995 for issuance. The Series A Notes are guaranteed by MES and SellCo. The terms of the Series A Notes require that the net proceeds realized from the sale of the stock or assets of the Company's subsidiaries be applied to the prepayment of the Series A Notes (subject to the rights of the lenders under the MES and Dyn Credit Agreements to receive proceeds from the sale of the stock or assets of the Company's mechanical and electrical subsidiaries and the first $15.0 million of proceeds of the sale of stock or assets of the Water Companies). The recorded amount includes the estimated amount of Series A Notes to be issued upon resolution of the disputed and unliquidated pre-petition general unsecured claims. The Company recorded the Series A Notes based upon an assumed total of $100.0 million of pre-- petition general unsecured claims after settlement of disputed and unliquidated pre-- petition general and unsecured claims. Approximately $4.7 million of the issued Series A Notes were redeemed prior to December 31, 1995. The Series A Notes have been recorded at a discount to the face amount to yield an estimated effective interest rate of 12%. The Series A Notes have been classified as a current liability based on the expected disposition of assets held for sale. Interest on the Series A Notes is payable semiannually by issuance of additional Series A Notes until maturity. The outstanding balance of the Series A Notes included in the Consolidated Balance Sheet as of December 31, 1995 is $62.0 million. On February 29, 1996, an aggregate majority of principal amount of the outstanding Series A Notes consented to the Company's proposed amendments to the Series A Indenture under which the Series A Notes were issued. The amendments (i) will reduce the ratio required to be maintained by the Company and certain of its subsidiaries under a Consolidated Fixed Charge Coverage Ratio (the "Ratio"), as defined, contained in the Indenture and (ii) will exclude from the Ratio calculation certain non-cash interest payments which are payable by the issuance of additional Series A Notes. FOREIGN BORROWINGS In June 1995, Comstock Canada entered into a credit agreement providing for an overdraft facility of up to Canadian $2.0 million. The facility is secured by certain assets of Comstock Canada and deposit instruments of a Canadian subsidiary of the Company. The facility provides for interest at the bank's prime rate (7.5% at 33 December 31, 1995) plus .75% and expires on June 30, 1996. As of December 31, 1995, Comstock Canada had no borrowings outstanding under this credit facility. Comstock Canada is negotiating the terms of an extension of the credit facility; however, there can be no assurance the credit facility will be extended or, if so, its terms. In September 1995, a number of the Company's United Kingdom subsidiaries renegotiated and renewed a demand credit facility with a United Kingdom bank for a credit line of Brit. Pound 17.1 million (approximately U.S. $26.6 million). The credit facility consists of the following components with the individual credit limits as indicated: an overdraft line of up to Brit. Pound 9.0 million (approximately U.S. $14.0 million); a facility for the issuance of guarantees, bond and indemnities of up to Brit. Pound 7.3 million (approximately U.S. $11.3 million); and other credit facilities of up to Brit. Pound 0.8 million (approximately U.S. $1.3 million). The facility is secured by substantially all of the assets of the Company's principal United Kingdom subsidiaries. The overdraft facility provides for interest at the bank's base rate, as defined (6.5% as of December 31, 1995), plus 3% on the first Brit. Pound 5.0 million of borrowings and at the bank's base rate plus 4% for borrowings over Brit. Pound 5.0 million. This credit facility, as amended, expires June 30, 1996. As of December 31, 1995, the Company's United Kingdom subsidiaries had utilized approximately $23.0 million of the credit facilities as follows: approximately $13.4 million of borrowings under the overdraft line, approximately $8.3 million for the issuance of guarantees and approximately $1.3 million under other credit facilities. The Company is actively seeking to replace or extend its existing credit facilities that expire in 1996. NOTE H LONG-TERM DEBT Long-Term Debt in the accompanying Consolidated Balance Sheets consists of the following amounts at December 31, 1995 and 1994(in thousands): REORGANIZED COMPANY 1995 1994 ------- -------- Series C Notes, original face value of $62,827 at 11.0%, discounted to a 14% effective rate, due 2001 $61,494 $53,450 Supplemental SellCo Note, original face value of $5,464 at 8.0%, discounted to a 14.0% effective rate, due 2004 4,112 4,112 Capitalized Lease Obligations at weighted average interest rates from 7.25% to 11.0%, payable in varying amounts through 2004 1,284 2,029 Other, at weighted average interest rates of approximately 10.75%, payable in varying amounts through 2012 3,225 3,728 ------- -------- 70,115 63,319 Less current maturities (1,875) (2,089) ------- -------- $68,240 $61,230 ======= ======== SERIES C NOTES Pursuant to the Plan of Reorganization, on December 15, 1994 the Company issued approximately $62.8 million principal amount of Series C Notes. Interest on the Series C Notes is payable semiannually by the issuance of additional Series C Notes for eighteen months from the Effective Date and thereafter is payable quarterly in cash. The Series C Notes are unsecured senior indebtedness of the Company but subordinate to (i) the Series A Notes and (ii) up to $100 million of working capital indebtedness of the Company or MES, and are guaranteed by MES subject to payment in full of the Series A Notes. The Series C Notes have been recorded at a discount to their face amount to yield an estimated effective interest rate of 14%. On February 29, 1996, an aggregate majority of principal amount of the outstanding Series C Notes consented to the Company's proposed amendments to the Series C Indenture under which the Series C Notes were issued. The amendments (i) will reduce the ratio required to be maintained by the Company and certain of its 34 subsidiaries under a Consolidated Fixed Charge Coverage Ratio (the "Ratio"), as defined, contained in the Indenture and (ii) will exclude from the Ratio calculation certain non-cash interest payments which are payable by the issuance of additional Series C Notes. SUPPLEMENTAL SELLCO NOTE Pursuant to the Plan of Reorganization, EMCOR issued to SellCo its 8% promissory note in the principal amount of approximately $5.5 million (the "Supplemental SellCo Note"). The note matures on the earlier of (i) December 15, 2004 or (ii) one day prior to the date on which the SellCo Notes are deemed canceled. If at any time after the fifth anniversary of the Effective Date and prior to the maturity date of the SellCo Notes the value of the consolidated assets of SellCo and its subsidiaries (excluding the Supplemental SellCo Note) is determined by independent appraisal to be less than $250,000, the balance of the SellCo Notes (not theretofore paid from net sales proceeds from the sale of the stock or assets of SellCo subsidiaries and the proceeds of the Supplemental SellCo Note which will have become due and payable) will be deemed canceled. Interest on the Supplemental SellCo Note is payable upon maturity. SERIES B NOTES Pursuant to the Plan of Reorganization, on December 15, 1994 the Company issued approximately $11.9 million principal amount of Series B Notes. The entire $11.9 million principal amount was immediately redeemed on that date at the face amount in accordance with the terms of the Series B Notes from the proceeds realized from the sale and liquidation of certain subsidiaries. SELLCO NOTES Pursuant to the Plan of Reorganization, on December 15, 1994, SellCo issued approximately $48.1 million principal amount of SellCo Notes. Interest is payable semiannually in additional SellCo Notes. Subject to the prior payment in full of the Series A Notes and establishment of a cash reserve for the payment of capital gains taxes arising from the sale of subsidiaries of SellCo and the rights of the lenders under the New Credit Agreements with respect to the first $15.0 million of such proceeds from the sale of the Water Companies, the SellCo Notes are mandatorily prepayable to the extent of net sales proceeds (as defined) from the sale of stock or assets of SellCo subsidiaries. Since the SellCo Notes will only be satisfied to the extent that assets of SellCo and its subsidiaries generate sufficient cash in excess of what is required to redeem the Series A Notes and to prepay a portion of indebtedness under the MES and Dyn Credit Agreements, the SellCo Notes have been netted in the caption "Net assets held for sale" in the accompanying Consolidated Balance Sheets at December 31, 1994. The holders of the SellCo Notes may only look to EMCOR to the extent of EMCOR's obligation to pay the Supplemental SellCo Note plus accrued interest. At this time, the Company cannot determine the amount of net sale proceeds, as defined, if any, from the sale of SellCo's subsidiaries that will be available to redeem SellCo Notes. OTHER LONG-TERM DEBT Other long-term debt consists primarily of loans for real estate, office equipment, automobiles and building improvements. As of December 31, 1995 and 1994, respectively, long--term debt, excluding current maturities, totaling $1.9 million and $2.2 million was owed by certain of the Company's subsidiaries. The aggregate amount of long--term debt maturing during the next five years is $0.3 million in 1996, $0.2 million in 1997 and 1998, $0.3 million in 1999 and $1.2 million thereafter. 35 NOTE I INCOME TAXES The Company files a consolidated federal income tax return including all U.S. subsidiaries. At December 31, 1995, the Company had a net operating loss carry-- forward ("NOL") for U.S. income tax purposes expiring in years 2007 through 2010 which approximates $225.0 million. In addition, the Company has a U.S. capital loss carryover of approximately $15.0 million expiring in years 1998 and 1999. However, a subsequent ownership change within two years from the Effective Date would reduce to zero the future NOL benefits under Internal Revenue Code Section 382(1)(5). As a result of the adoption of Fresh-Start Accounting, the tax benefit of any net operating loss carryforwards or net deductible temporary differences which existed as of the date of emergence from Chapter 11 will result in a charge to the tax provision (provision in lieu of income taxes) and are used first to reduce the reorganization value in excess of amounts allocable to identifiable assets and then is applied to capital surplus. SFAS 109 requires a valuation allowance against deferred tax assets if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company has provided a valuation allowance as of December 31, 1995 and 1994 of $97.2 million and $114.5 million, respectively, for the full amount of the tax benefit of its NOLs and other deferred tax assets. The income tax provision (benefit) relating to continuing operations for the years ended December 31, 1995, 1994 and 1993 consist of (in thousands): REORGANIZED COMPANY PREDECESSOR COMPANY ----------- ------------------- 1995 1994 1993 ------ ------ ------- Current: Federal $ -- $ -- $(4,138) State and local 925 1,000 1,000 Foreign 75 -- (1,700) ------ ------ ------- 1,000 1,000 (4,838) ------ ------ ------- Deferred: Federal -- -- 4,138 State and Local -- (1,332) -- ------ ------ ------- -- (1,332) 4,138 ------ ------ ------- $1,000 $ (332) $ (700) ====== ====== ======= 36 Factors accounting for the variation from U.S. statutory income tax rates relating to continuing operations for the years ended December 31, 1995, 1994 and 1993 are as follows (in thousands): REORGANIZED COMPANY PREDECESSOR COMPANY ----------- --------------------- 1995 1994 1993 ------- ------- -------- Federal income taxes at the statutory rate $(3,449) $(9,782) $(40,142) State and local income taxes, net of federal tax 650 650 650 Valuation allowance against deferred tax asset 3,799 8,800 38,792 ------- ------- -------- $ 1,000 $ (332) $ (700) ======= ======= ======== Factors accounting for the variation from U.S. statutory income tax rates relating to discontinued operations for the years ended December 31, 1994 and 1993, are as follows (in thousands): PREDECESSOR COMPANY ------------------- 1994 1993 ------- ------- Federal income taxes at the statutory rate $ 3,576 $(3,180) Valuation allowance against deferred tax asset (3,576) 3,180 ------- ------- $ -- $ -- ======= ======= The components of the net deferred income tax liability for the years ended December 31, 1995 and 1994 are as follows (1995 and 1994 net deferred income tax liability related to NAHFS have been netted against such caption) (in thousands): REORGANIZED COMPANY COMPANY ----------- ----------- 1995 1994 -------- --------- Deferred tax assets: Net operating loss carry-forward $ 91,987 $ 95,231 Excess of amounts expensed for financial statement purposes over amounts deducted for 42,593 46,522 income tax purposes Other 2,899 2,899 -------- --------- Total deferred tax asset 137,479 144,652 -------- --------- Deferred tax liabilities: Costs capitalized for financial statement purposes and deducted for income tax purposes 40,233 28,790 Foreign deferred tax liability -- 1,403 -------- --------- Total deferred tax liability 40,233 30,193 -------- --------- Net deferred tax asset before valuation allowance 97,246 114,459 Valuation allowance for net deferred tax asset (97,246) (114,459) -------- --------- Net deferred income tax liability $ -- $ -- ======== ========= 37 Loss before income taxes from continuing operations for the years ended December 31, 1995, 1994 and 1993 consists of the following (in thousands): REORGANIZED COMPANY PREDECESSOR COMPANY ----------- ---------------------- 1995 1994 1993 -------- -------- --------- United States $(10,063) $(10,897) $(106,672) Foreign 210 (17,051) (8,019) -------- -------- --------- $ (9,853) $(27,948) $(114,691) ======== ======== ========= Income (loss) before income taxes from discontinued operations for the years ended December 31, 1994 and 1993, consists of the following (in thousands): PREDECESSOR COMPANY -------------------- 1994 1993 ------- ------- United States $10,216 $(6,270) Foreign -- (2,817) ------- ------- $10,216 $(9,087) ======= ======= The above amounts applicable to discontinued operations in 1993 include a loss from disposal of businesses of $20.4 million. NOTE J CAPITAL STOCK AND WARRANTS AUTHORIZED CAPITAL STOCK As of December 31, 1995, the Company's Restated Certificate of Incorporation, as amended, provides that the total number of all classes of stock which the Company shall have authority to issue is 13,700,000 shares of New Common Stock, par value $.01 per share, and 1,000,000 shares of Preferred Stock (the "New Preferred Stock"), par value $.10 per share, issuable in series. As of February 29, 1996, 9,424,706 shares of New Common Stock had been issued and were outstanding. As of February 29, 1996, there were no issued or outstanding shares of Preferred Stock. 1994 MANAGEMENT STOCK OPTION PLAN In connection with the Plan of Reorganization the Company adopted a Management Stock Option Plan (the "1994 Plan"), which was approved by the stockholders of the Company. The aggregate number of shares of New Common Stock that may be issued pursuant to options under the 1994 Plan may not exceed 1,000,000. The maximum number of shares which may be the subject of options granted to any individual in any calendar year may not exceed 500,000 shares. Options may be granted by the Compensation Committee of the Board of Directors to eligible employees as incentive stock options or as non--qualified stock options. The exercise price of an incentive stock option and a non-qualified stock option must be at least equal to the fair market value of the New Common Stock on the date of grant; provided, however, that the exercise price for the initial grant of options with respect to 500,000 shares was required under the Plan of Reorganization to be equal to the average market price of New Common Stock over the 20 day trading period immediately preceding the date of issuance of the option; and provided, further, that if the average market price of New Common Stock for the applicable period could not be determined, the exercise price was to be determined by an investment advisor selected by the Compensation Committee. Notwithstanding the foregoing, the exercise price of any such option 38 which is an incentive stock option could not be less than the fair market value of the New Common Stock on the date of grant of the option. Options may not be exercised more than ten years after the date of grant. Options may be exercisable at such rate and times as may be fixed by the Compensation Committee of the Board of Directors on the date of grant; however, the rate at which the option first becomes exercisable may not be more rapid than 33-1/3% on each of the first, second and third anniversaries. APPROVAL OF 1995 NON-EMPLOYEE DIRECTORS' NON-QUALIFIED STOCK OPTION PLAN On March 20, 1995, the Company adopted the 1995 Non-Employee Directors' Non- Qualified Stock Option Plan (the "1995 Plan"), which was approved by stockholders of the Company. The 1995 Plan provides for automatic grants of non-qualified stock options to directors of the Company who are not also employees of the Company or a subsidiary. Pursuant to the 1995 Plan, each non-employee director on March 20, 1995 was granted an option to purchase 7,500 shares of New Common Stock at an exercise price of $5.125 per share and each non-employee director on November 17, 1995 was granted an option to purchase 3,000 shares of New Common Stock at an exercise price of $9.375 per share. Under the 1995 Plan, each person who is elected to serve as a non-employee director after March 20, 1995 (including those persons who were non-employee directors on March 20, 1995) is to be granted an option during each calendar year (beginning with 1995) to purchase 3,000 shares of New Common Stock on the date on which the Board of Directors holds its first meeting following the annual meeting of stockholders held during such calendar year; however, if, beginning with 1996, an annual stockholders' meeting does not occur within the period ending on the last day of the 16th month following the month in which the prior year's annual meeting was held, such option is to be granted on the last day of such 16th month. The aggregate number of shares of New Common Stock that may be issued pursuant to options under the 1995 Plan may not exceed 200,000. The exercise price of an option granted under the 1995 Plan is equal to the fair market value of the New Common Stock on the date of grant. Such options are fully exercisable as of the date of grant. However, no option may be exercised more than ten years after the date of grant. No options may be granted under the 1995 Plan after ten years following the date of its adoption. The Board of Directors may at any time withdraw or amend the 1995 Plan and may, with the consent of the affected holder of an outstanding option, at any time withdraw or amend the terms and conditions of outstanding options. Any amendment which would increase the number of shares issuable pursuant to options, change the class of persons who are eligible to be granted options or materially increase the benefits to participants in the 1995 Plan are subject to the approval of the stockholders of the Company. In addition, no amendment may be made more than once every six months to any provision of the 1995 Plan that specifies the directors to whom options may be granted, the timing of option grants, the number or purchase price of shares of New Common Stock that can be purchased under options or the time when options may be exercised, except any amendment that is necessary to conform with changes in the Internal Revenue Code or the Employee Retirement Income Security Act of 1974, as amended. The following table summarizes the Company's stock option activity since the Effective Date. Stock Options Average Price ------------- ------------- Balance, December 15, 1994 -- $ -- Activity -- -- Balance, December 31, 1994 -- -- Options granted 748,000 5.13 ------- Balance, December 31, 1995 748,000 $5.13 ======= ----- At December 31, 1995, no options were exercisable. 39 WARRANTS 1,450,000 shares of New Common Stock were reserved for issuance upon exercise of New Warrants (described below) issued pursuant to the Plan of Reorganization as described below. Pursuant to the Plan of Reorganization, the Company issued to the holders of $7,040,000 principal amount of its pre-petition 7-3/4% Convertible Subordinated Debentures, due 2012, and $9,600,000 principal amount of its pre-petition 12% Subordinated Notes due 1996, their pro rata share of each of two series of five- year warrants to purchase shares of New Common Stock, namely, 600,000 Series X Warrants and 600,000 Series Y Warrants (which together with the Series Z Warrants described below are referred to herein as the "New Warrants"), with an exercise price of $12.55 per share and $17.55 per share, respectively. In addition, the Company issued to pre-petition holders of other contingent and statutory subordinate claims and to holders of EMCOR's pre-petition common stock, preferred stock and warrants of participation, as well as to the plaintiffs in a stockholder class action lawsuit, their pro rata share of 250,000 Series Z Warrants to purchase shares of New Common Stock, which Series Z Warrants have an exercise price of $50 per share and must be exercised within two years of their issuance. In addition to the warrants issued above, approximately 28,000 Series X Warrants, 28,000 Series Y Warrants and 12,000 Series Z Warrants were issued to Belmont as a portion of additional interest under the DIP Loan. As of December 31, 1995, the number of X Warrants, Y Warrants and Z Warrants (collectively, the "New Warrants") issued and outstanding were 605,012, 605,012 and 169,459, respectively. NOTE K RETIREMENT PLANS A foreign subsidiary has a defined benefit pension plan covering substantially all eligible employees. The benefits under the plan are based on wages and years of service with the subsidiary. The Company's policy is to fund the minimum amount required by law. Net pension expense for the foreign defined benefit plan for the years ended December 31, 1995, 1994 and 1993 consists of the following components (in thousands): REORGANIZED COMPANY PREDECESSOR COMPANY ----------- ------------------- 1995 1994 1993 ------- ------- ------- Service costs--benefits earned $ 1,726 $ 1,725 $ 1,479 Interest on projected benefit 2,166 2,772 2,478 obligations Actual return on plan assets (4,214) 2,554 (7,955) Net amortization and deferral 1,866 (6,296) 5,129 ------- ------- ------- Net pension expense $ 1,544 $ 755 $ 1,131 ======= ======= ======= 40 The benefit obligations and funded status of the plan at December 31, 1995 and 1994 are as follows (in thousands): 1995 1994 ------- ------- Accumulated benefit obligations: Vested $25,000 $29,824 Non-Vested -- -- Impact of future salary increases 4,100 4,769 ------- ------- Projected benefit obligations 29,100 34,593 Plan assets at market value 29,300 33,997 ------- ------- Excess (deficiency) of plan assets over projected benefit obligations 200 (596) Unrecognized prior service cost 509 867 Unrecognized net (gain) loss from past experience different from that assumed and effect of changes in assumptions (578) 795 Unrecognized net (asset) from initial application of SFAS No. 87 (437) (759) ------- ------- (Accrued) prepaid pension $ (306) $ 307 ======= ======= The assumptions used as of December 31, 1995, 1994 and 1993 in determining the pension cost and liability shown above were as follows: 1995 1994 1993 ------------------- Discount rate 8.5% 9.0% 9.0% Rate of salary progressions 6.5% 7.0% 7.0% Rate of return on assets 10.0% 10.0% 10.0% The unrecognized net asset of the foreign plan is being amortized over 15 years. The plan assets are invested approximately 80% in equity securities and 20% in fixed income securities. The Company contributes to various union pension funds based upon wages paid to union employees of the mechanical and electrical construction and facilities management services business units. Such contributions approximated $35.1 million, $41.4 million and $45.5 million for the years ended December 31, 1995, 1994 and 1993, respectively. The Company has defined contribution retirement plans that cover its U.S. non-- union eligible employees. Contributions to these plans are based on a percentage of the employee's base compensation. The expense recognized for the years ended December 31, 1995, 1994 and 1993, relating to continuing operations for the defined contribution plans was $2.1 million, $6.9 million and $3.5 million, respectively. 41 NOTE L COMMITMENTS AND CONTINGENCIES The Company and its subsidiaries lease land, buildings and equipment under various leases. The leases frequently include renewal options and require the Company to pay for utilities, taxes, insurance and maintenance expenses. Future minimum payments, by year and in the aggregate, under capital leases, non-cancelable operating leases and related sub-leases with initial or remaining terms of one or more years relating to continuing operations at December 31, 1995 are as follows (in thousands): CAPITAL OPERATING LEASES LEASES SUB-LEASES ------- --------- ---------- Year 1 $ 521 $10,704 $ 2,373 Year 2 150 9,294 1,549 Year 3 101 6,679 1,186 Year 4 98 4,881 1,048 Year 5 98 3,502 1,019 Thereafter 316 10,099 5,562 ------ ------- ------- Total minimum lease payments 1,284 $45,159 $12,737 ======= ======= Amounts representing interest 269 ------ Present value of net minimum lease payments $1,015 ====== Rent expense relating to continuing operations for the years ended December 31, 1995, 1994 and 1993 was $17.5 million, $20.2 million and $21.5 million, respectively. Rent expense for the years ended December 31, 1995, 1994 and 1993 includes sub-lease rentals of $1.7 million, $1.4 million and $0.8 million, respectively. Rent expense relating to discontinued operations for the years ended December 31, 1994 and 1993 was $2.8 million and $7.5 million, respectively. The Company has employment agreements with certain of its executive officers and management personnel. These agreements generally continue until terminated by the executive or the Company and provide for salary continuation for a specified number of months under certain circumstances. Certain of the agreements provide the employees with certain additional rights after a change in control, as defined, of the Company occurs. NOTE M DISCONTINUED OPERATIONS In March 1993, the Company's Board of Directors approved the disposition of the Company's U.S. information services business. The Board of Directors had previously decided to sell the Company's overseas information services businesses. Accordingly, operating results of the information services businesses have been classified as discontinued operations. In August 1993, the Company sold substantially all of the assets of the principal subsidiary carrying on its U.S. information services ("IS Subsidiary") business at which time no material gain or loss was realized. Subsequent to the sale, the Company recorded a loss of $8.1 million in the third quarter of 1993 for uncertainties remaining at the time of sale including the elimination of non-cash charges, recognition of additional liabilities of the subsidiary and the disposition of certain of its lease obligations. Such amount is included in Loss from disposal of businesses, net of income taxes in the accompanying Consolidated Statements of Operations. Under the terms of the sales agreement, the purchaser assumed the debt and other liabilities relating to the ongoing operations of the business. The IS Subsidiary received warrants to buy up to 10% of the purchaser's common stock for a nominal amount. The Company assigned no value to these warrants. In October 1993, the IS Subsidiary filed a voluntary petition under Chapter 7 of the U.S. Bankruptcy Code. Additionally, in 1993 the Company recorded a loss of $1.5 million to further write-down the net assets of the IS Subsidiary to its estimated net realizable value based upon current market conditions and sold substantially all of the assets of its foreign information services businesses. The sale of its foreign information services businesses resulted in a loss of $3.3 million in 1993. Such amounts are included under the caption Loss from 42 disposal of businesses, net of income taxes in the accompanying Consolidated Statements of Operations. As of December 31, 1993, all of the information services businesses had been sold. Revenues of the information services businesses in 1993 were $876.7 million. In April 1992, the Company announced its intention to sell its water supply business. However, in July 1993 the Company's Board of Directors decided not to proceed with the sale due to uncertainties created by the then pending rate related proceedings and litigation. In December 1993, JWS entered into an agreement with respect to the rate related proceedings and litigation which was approved by the New York State Public Service Commission on February 2, 1994. Accordingly, in the first quarter of 1994 the Company reinstated its plan of disposition and a $7.4 million loss was recorded in 1993 to write-down the net assets of the water supply business to estimated net realizable value, as determined with the assistance of the Company's financial advisors. The financial statements for all periods presented prior to 1995 reflect the water supply business as discontinued operations. The assets of the water supply business consist primarily of utility plant and equipment which are located in Nassau and Queens Counties in the State of New York. The net assets of the water supply business are classified in the accompanying Consolidated Balance Sheets under the caption Net assets held for sale. Agreements for the sale of substantially all the assets of JWS have been executed and an agreement for the sale of all the capital stock of Sea Cliff has also been executed. Revenues of the water supply business were $65.0 million and $66.8 million for the years ended December 31, 1994 and 1993, respectively. Operating income of the water supply business was $14.3 million and $15.4 million for the years ended December 31, 1994 and 1993, respectively. Combined operating results of discontinued operations including both the information services and water supply business for the years ended December 31, 1994 and 1993 (in thousands): PREDECESSOR COMPANY ------------------- 1994 1993 ------- -------- Revenues $64,993 $943,455 Costs and expenses 50,725 917,872 ------- -------- Operating income 14,268 25,583 Interest expense (4,052) (14,320) ------- -------- Income before taxes 10,216 11,263 Provision for income taxes -- -- ------- -------- Income from discontinued operations $10,216 $ 11,263 ======= ======== As discussed above, in August 1993, the Company sold substantially all of its information services businesses. The operating results of discontinued operations in 1994 consists only of the water supply business. NOTE N BUSINESSES SOLD AND OTHER NET ASSETS HELD FOR SALE For the year ended December 31, 1994, the Company received cash proceeds of $13.6 million, from the sale of certain non-core businesses and other assets. The assets sold included the sale of the Company's telephone systems business, its minority ownership in an environmental business and other non-core businesses. 43 Revenues and operating losses of businesses sold and other net assets held for sale for the years ended December 31, 1994 and 1993 are as follows (in thousands): PREDECESSOR COMPANY ----------------------- DECEMBER 31, 1994 1993 -------- -------- Revenues $168,939 $257,910 Operating (loss) $(13,651) $(11,802) A condensed combined balance sheet relating to discontinued operations (the water supply business) and other net assets held for sale at December 31, 1995 is as follows (in thousands): Cash $ 5,082 Accounts receivable, net 26,107 Costs and estimated earnings in excess of billings 9,207 Inventories 1,158 Other current assets 1,451 -------- 43,005 Property, plant and equipment, net 156,236 Other assets 9,092 -------- $208,333 ======== Current maturities of long-term debt and capital lease obligations $ 12,613 Accounts payable 18,261 Billings in excess of costs and estimated earnings 5,856 Other accrued expenses 36,796 -------- 73,526 Long-term debt 42,789 Other long-term liabilities 30,049 Net assets held for sale 61,969 -------- $208,333 ======== NOTE O INSURANCE RESERVES The Company's insurance liability is determined actuarially based on claims filed and an estimate of claims incurred but not yet reported. The present value of such claims was determined at December 31, 1995 and 1994 using a 4% discount rate. The estimated current portion of the insurance liability was $4.9 million and $1.5 million at December 31, 1995 and 1994, respectively. Such amounts are included in Other accrued expenses and liabilities in the accompanying Consolidated Balance Sheets. The non-current portion of the insurance liability was $32.2 million and $29.9 million at December 31, 1995 and 1994, respectively. Such amounts are included in Other Long-Term Obligations. The undiscounted liability was approximately $42.3 million and $35.9 million at December 31, 1995 and 1994, respectively. Since October 1992, in order to secure these insurance obligations, the Company and its indirect wholly-owned captive insurance subsidiary has made cash collateral deposits to an unrelated insurance company. These deposits totaled $30.8 million and $37.6 million as of December 31, 1995 and 1994, respectively, and are classified as a long-term asset in the accompanying Consolidated Balance Sheets under the caption Insurance cash collateral in Other Assets. The Company is subject to regulation with respect to the handling of certain materials used in construction which are classified as hazardous or toxic by agencies at Federal, State and local levels. The Company's practice is to avoid participation in projects principally involving the remediation or removal of such materials. However, where remediation is a required part of contract performance, the Company believes it complies with all applicable regulations governing the discharge of material into the environment or otherwise relating to the protection of the environment. The Company believes that it maintains adequate insurance coverage for its current operations. 44 NOTE P ADDITIONAL CASH FLOW INFORMATION (IN THOUSANDS) REORGANIZED COMPANY PREDECESSOR COMPANY ------------ ------------------- DECEMBER 31, DECEMBER 31, 1995 1994 1993 ------------ ------ ------- Cash paid (refunded) during the year for: Interest $6,797 $7,250 $26,126 Income taxes 886 720 (2,177) Significant non--cash financing and investment transactions are as follows: Notes receivable and other assets received from sale of assets -- -- 10,875 Fixed assets acquired under capital lease obligations $ -- $ -- $ 46 NOTE Q SEGMENT INFORMATION The following presents information about continuing operations by geographic areas for the years ended December 31, 1995, 1994 and 1993 (in thousands):
NET (LOSS) GAIN ON OPERATING BUSINESSES NET ASSETS INCOME SOLD OR HELD IDENTIFIABLE HELD FOR REVENUES (LOSS) FOR SALE ASSETS SALE ---------- --------- ------------ ------------ ---------- 1995 United States $1,035,975 $ 4,847 $ (926) $ 447,790 $61,969 United Kingdom 379,691 2,383 -- 139,000 -- Canada 135,031 1,307 -- 41,376 -- Other 38,047 (2,644) -- 20,810 -- ---------- -------- ------ --------- ------- $1,588,744 $ 5,893 $ (926) $ 648,976 $61,969 ========== ======== ====== ========= ======= 1994 United States $1,334,537 $ (9,773) $1,183 $487,438 $55,401 United Kingdom 287,372 (5,274) -- 119,461 -- Canada 113,331 (6,966) -- 35,681 -- Other 28,721 (190) -- 12,588 -- ---------- -------- ------ -------- ------- $1,763,961 $(22,203) $1,183 $655,168 $55,401 ========== ======== ====== ======== ======= 1993 United States $1,692,470 $(57,906) $ 747 $572,468 $83,615 United Kingdom 293,507 (2,494) 511 102,784 -- Canada 180,633 (3,223) -- 38,066 -- Other 28,125 (1,909) (230) 9,509 -- ---------- -------- ------ -------- ------- $2,194,735 $(65,532) $1,028 $722,827 $83,615 ========== ======== ====== ======== =======
Other includes European locations outside the United Kingdom as well as the Far East and Middle East. 45 NOTE R SELECTED UNAUDITED QUARTERLY INFORMATION (IN THOUSANDS, EXCEPT PER SHARE DATA) 1995 QUARTERLY RESULTS MARCH 31 JUNE 30 SEPT 30 DEC 31 -------- ------- ------- ------ [S] [C] [C] [C] [C] Revenues $386,015 $381,562 $403,941 $417,226 Gross profit 31,867 31,934 38,709 40,637 Net (loss) income $ (6,959) $ (5,718) $ 593 $ 1,231 ======== ======== ======== ======== Net (loss) income per share $ (0.74) $ (0.61) $ 0.06 $ 0.13 ======== ======== ======== ======== 1994 QUARTERLY RESULTS MARCH 31 JUNE 30 SEPT 30 DEC 31 -------- -------- -------- -------- Revenues $435,554 $433,541 $444,355 $450,511 Gross profit 42,297 42,825 35,998 35,252 Reorganization items (3,600) (3,300) (3,200) (81,218) Loss from continuing operations including reorganization items, before extraordinary item, cumulative effect of accounting change (7,418) (6,289) (15,589) (89,638) Income from discontinued operations 1,144 2,683 5,559 830 Extraordinary item -- gain on debt discharge -- -- -- 413,249 Cumulative effect of change in method of accounting for post-employment benefits (2,100) -- -- -- -------- -------- -------- -------- Net (loss) income $ (8,374) $ (3,606) $(10,030) $324,441 ======== ======== ======== ======== Supplemental (loss) income per share: Continuing operations $ (0.79) $ (0.67) $ (1.65) $ (9.51) Discontinued operations 0.12 0.28 0.59 0.09 Extraordinary item -- gain on debt discharge -- -- -- 43.85 Cumulative effect of change in method of accounting for post- employment benefits (0.22) -- -- -- -------- -------- -------- -------- Net (loss) income per share $ (0.89) $ (0.39) $ (1.06) $ 34.43 ======== ======== ======== ======== The loss from continuing operations, including reorganization items in the fourth quarter of 1994, reflects $2.4 million of reorganization charges for various legal and professional fees associated with the Chapter 11 proceeding. In addition a charge of approximately $78.8 million was recorded to state assets and liabilities at fair value in accordance with the principles of Fresh--Start Accounting as required by SOP 90--7. All per share data has been restated to reflect the assumed issuance of New Common Stock as of January 1, 1994. NOTE S LEGAL PROCEEDINGS In September 1995, the Company reached a comprehensive settlement with the SEC relating to the matters underlying its previously announced accounting adjustments and write-offs for the fiscal year ended December 31, 1992, and the restatement of its net income for the fiscal year ended December 31, 1991. The settlement is the culmination of an investigation the SEC commenced in 1992. 46 The SEC allegations were contained in a Complaint filed September 21, 1995 in the United States District Court for the Southern District of New York, against the Company and four individuals, none of whom is currently employed by the Company, who served as officers and/or directors of JWP INC. and/or certain of its subsidiaries at various times in 1991 and 1992. Without admitting or denying any of those allegations, the Company entered into a formal Consent to the entry of a Final Judgment of Permanent Injunction, which was filed simultaneously with the Complaint. The Company consented to the entry of an order permanently enjoining the Company from, among other things, committing violations of various antifraud provisions of the federal securities laws, and failing to make and keep books and records which accurately reflect the Company's transactions and disposition of assets. The SEC's Complaint did not seek, nor does the Consent require, payment of any monetary penalties by the Company. In February 1995 as part of an investigation by the New York County District Attorney's office into the business affairs of Herbert Construction Company ("Herbert"), a general contractor that does business with the Company's subsidiary, Forest Electric Corporation ("Forest"), a search warrant was executed at Forest's executive offices. At that time, the Company was informed that Forest and certain of its officers are targets of the continuing investigation. Neither the Company nor Forest has been advised of the precise nature of any suspected violation of law by Forest or its officers. On July 11, 1995, Ted Kohl, a principal of Herbert, and DPL Interiors, Inc., a company allegedly owned by Kohl, were indicted by a New York County grand jury for grand larceny, fraud, repeated failure to file New York City Corporate Tax Returns and related money laundering charges. Kohl was also charged with filing false personal income and earnings tax returns, perjury and offering false instruments for filing with the New York City School Construction Authority. In a press release announcing the indictment, the Manhattan Direct Attorney said that the investigation disclosed that Mr. Kohl allegedly received more than $7 million in kickbacks from subcontractors through a scheme in which he allegedly inflated subcontracts on Herbert's construction contracts. At a press conference following the indictment, the District Attorney announced that the investigation is continuing, and he expects further indictments in the investigation. Forest performs electrical contracting services primarily in the New York City commercial market and is one of the largest of the Company's subsidiaries. The Dynalectric Company ("Dynalectric") is a defendant in an action entitled Computran v. Dynalectric, et. al., pending in Superior Court of New Jersey, - -------------------------------- Bergen County, arising out of its participation in a joint venture. In the action, which was instituted in 1988, the plaintiff, Computran, a participant in and a subcontractor to the joint venture, alleges that Dynalectric wrongfully terminated it from the subcontract, fraudulently diverted funds due it, misappropriated its trade secrets and proprietary information, fraudulently induced it to enter into the joint venture and conspired with other defendants to commit certain acts in violation of the New Jersey Racketeering Influence and Corrupt Organization Act. Dynalectric believes that Computran's claims are without merit and intends to defend this matter vigorously. Dynalectric has filed counterclaims against Computran. Discovery is ongoing, no trial date is scheduled. On September 26, 1994 certain holders of Warrants of Participation ("Warrants") that were issued pursuant to a Warrant Agreement dated June 15, 1969 by the Company's predecessor, Jamaica Water and Utilities, Inc. ("JWU"), commenced a declaratory judgment action against a subsidiary of the Company Jamaica Water Securities Corp. ("JWSC") by filing a complaint in the Supreme Court of the State of New York, Westchester County, bearing the caption, Harold F. --------- Scattergood Jr., et al. v. Jamaica Water Securities Corp. (Index No. 15992/94). - --------------------------------------------------------- On October 17, 1994, an amended complaint was served adding additional plaintiffs. The plaintiffs sought a declaration that JWSC succeeded to the Company's obligations on the Warrants by reason of its 1977 acquisition of the Company's 96% stock interest in JWS. The plaintiffs also claimed that certain events constituted a disposition of the assets of JWS which triggered the Warrants, obligating JWSC to issue shares of its own stock to plaintiffs. In the alternative, plaintiffs claimed that the December 31, 1994 expiration date of the Warrants should be extended for some indefinite period of time. By a Decision and Order, entered on June 22, 1995, the court granted the Company's motion to dismiss the plaintiffs' action holding that the assets of JWS had not been "disposed of" under the express terms of the Warrants prior to their stated expiration on December 31, 1994. The court also held that it lacked the power to rewrite the "clear and unambiguous provisions" of the Warrants Agreement to extend the December 31, 1994 deadline. The plaintiffs have appealed the court's decision. 47 In addition to the above, the Company is involved in other legal proceedings and claims, asserted by and against the Company, which have arisen in the ordinary course of business. The Company believes it has a number of valid defenses to these actions and the Company intends to vigorously defend or assert itself in these claims and does not believe that a significant liability will result. However, the Company cannot predict the outcome thereof or the impact that an adverse result of the matters discussed above will have upon the Company's financial position or results of operations. NOTE T ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS Effective January 1, 1994, the Company adopted the provisions of SFAS 112. This standard requires that the cost of benefits provided to former or inactive employees be recognized on an accrual basis of accounting. Previously the Company recognized such post--employment benefit costs (primarily short--term disability and severance costs) when paid. The cumulative effect of adopting SFAS 112 was to record a charge of $2.1 million as of January 1, 1994. Such amount has been reflected in the Consolidated Statements of Operations for the year ended December 31, 1994 under the caption "Cumulative Effect of Change in Method of Accounting for Post--employment Benefits". The adoption of SFAS 112 did not have a material effect on the 1994 loss before extraordinary item and cumulative effect of accounting changes. Effective January 1, 1993, the Company adopted the provisions of Statement of Financial Accounting Standards No. 106, Accounting For Post--retirement Benefits Other Than Pensions ("SFAS 106"). The actuarial present value of the accumulated post--retirement benefit obligations under SFAS 106 approximated $7.0 million as of December 31, 1993. Such amount relates to the Company's water supply business which is included in "Net assets held for sale" in the accompanying Consolidated Balance Sheets and Discontinued Operations in the accompanying Consolidated Statements of Operations. NOTE U OTHER During the third and fourth quarters of 1994, the Company wrote down its investment in Health Care International Ltd. ("HCI"), a Scottish hospital, due to its deteriorating financial condition. HCI was placed in receivership in November, 1994. NOTE V FRESH-START REPORTING The Company has accounted for its reorganization by using the principles of Fresh--Start Accounting as required by SOP 90--7. For accounting purposes, the Company assumed that the Plan of Reorganization was consummated on December 31, 1994. Under the principles of Fresh--Start Accounting, the Company's total net assets were recorded at their assumed reorganization value, with the reorganization value allocated to identifiable assets on the basis of their estimated fair value. Accordingly, the Company's accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts were reduced by approximately $11.6 million. In addition, its intangible assets of approximately $60.5 million were written off. The Company's accumulated stockholders' deficit of approximately $334.5 million, including its old common stock of $4.1 million, old Series A Preferred Stock of $20.9 million, and old warrants of participation of $0.6 million and cumulative translation adjustments of $6.2 million were eliminated. The excess of reorganization value over the value of identifiable assets is reported as "Reorganization value in excess of amounts allocable to identifiable assets" (the "Excess Reorganization Value"). The primary valuation methodology employed by the Company, with the assistance of its financial advisors to determine the reorganization value of the Company was a net present value approach. The valuation was based on the Company's forecasts of unleveraged, after--tax cash flows calculated for each year over the four--year period from 1994 to 1997, capitalizing projected earnings before interest, taxes, depreciation and amortization at multiples ranging from 3 to 10 selected to value earnings and cash flows beyond 1997, and discounting the resulting amounts to present value at rates ranging from 10% to 30% selected to approximate the Company's projected weighted average cost of capital. The above calculations resulted in an estimated reorganization value of approximately $81.1 million, of which the Excess Reorganization Value was $5.0 million. 48 As a result of the implementation of Fresh--Start Accounting, the consolidated financial statements of the Company after consummation of the Plan of Reorganization are not comparable to the Company's consolidated financial statements of prior periods, and have been separated by a black line. The effect of the Plan of Reorganization, including the discharge of debt, and the implementation of Fresh-Start Accounting on the Company's Consolidated Balance Sheet as of December 31, 1994 was as follows (in thousands):
ADJUSTMENTS TO RECORD PLAN OF REORGANIZATION ------------------------------------------------------------------- DEBT PRE-FRESH-START DISCHARGE FRESH-START BALANCE SHEET & FRESH-START BALANCE SHEET DECEMBER 31, EXCHANGE ADJUSTMENTS DECEMBER 31, 1994 OF STOCK (a) (f) 1994 --------------- ------------ ----------- ------------- CURRENT ASSETS: Cash and cash equivalents $ 52,505 $ -- $ -- $ 52,505 Accounts receivable, net 441,958 -- (3,000) 438,958 Costs and estimated earnings in excess of billings on uncompleted contracts 60,912 -- (8,565) 52,347 Inventories 6,910 -- -- 6,910 Prepaid expenses and other 8,115 -- -- 8,115 Net assets held for sale 83,113 -- (27,712)(g) 55,401 --------- ---- --------- -------- TOTAL CURRENT ASSETS 653,513 -- (39,277) 614,236 --------- ---- --------- -------- INVESTMENTS, NOTES, AND OTHER LONG TERM RECEIVABLES 6,122 -- -- 6,122 PROPERTY, PLANT AND EQUIPMENT, NET 33,670 -- -- 33,670 OTHER ASSETS: Excess of cost of acquired business over net assets 57,435 -- (57,435) -- Reorganization value in excess of amounts allocable to identifiable assets -- -- 5,000 5,000 Miscellaneous 51,595 -- (3,125) 48,470 --------- ---- --------- -------- 109,030 -- (55,560) 53,470 --------- ---- --------- -------- TOTAL ASSETS $ 802,335 $ -- $ (94,837) $707,498 ========= ==== ========= ========
(continued) 49
ADJUSTMENTS TO RECORD PLAN OF REORGANIZATION ------------------------------------------------------------------- DEBT PRE-FRESH-START DISCHARGE FRESH-START BALANCE SHEET & FRESH-START BALANCE SHEET DECEMBER 31, EXCHANGE ADJUSTMENTS DECEMBER 31, 1994 OF STOCK (a) (f) 1994 --------------- ------------ ----------- ------------- CURRENT LIABILITIES: Notes payable $ 4,803 $ -- $ -- $ 4,803 Borrowings under working capital credit line 40,000 -- -- 40,000 Current maturities of long term debt and capital lease obligations 2,627 (538)(b) -- 2,089 Series A Senior Notes -- 63,785 (b) (8,384)(g) 55,401 Accounts payable 219,564 -- -- 219,564 Billings in excess of costs and estimated earnings on uncompleted contracts 115,567 -- -- 115,567 Accrued expenses and other liabilities 84,574 -- -- 84,574 --------- ------- --------- -------- TOTAL CURRENT LIABILITIES 467,135 63,247 (8,384) 521,998 --------- ------- --------- -------- LONG TERM DEBT 3,667 68,292(b) (10,729) 61,230 --------- ------- --------- -------- OTHER LONG TERM OBLIGATIONS 43,140 -- -- 43,140 --------- ------- --------- -------- PRE-CONSENT DATE LIABILITIES SUBJECT TO COMPROMISE 622,859 (622,859)(b)(c) -- -- --------- ------- --------- -------- STOCKHOLDERS' (DEFICIT) EQUITY: Old Series A Preferred Stock 20,905 (20,905)(d) -- -- Old Common Stock 4,073 (4,073)(d) -- -- New Common Stock -- 94 (d) -- 94 Old Warrants of Participation 576 (576)(d) -- -- New Warrants -- -- 2,179 2,179 Capital Surplus 204,591 25,460 (151,194) 78,857 Cumulative translation adjustment (6,241) -- 6,241 -- (Deficit) (558,370) 491,320 (e) 67,050 -- --------- ------- --------- -------- TOTAL STOCKHOLDERS' (DEFICIT) EQUITY (334,466) 491,320 (75,724) 81,130 --------- ------- --------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY $ 802,335 $ -- $ (94,837) $707,498 ========= ======= ========= ========
(a) Reflects adjustments relating to discharge of debt and exchange of newly issued debt and equity securities pursuant to the Plan of Reorganization. 50 (b) Reflects the discharge of old debt and issuance of new debt under the Plan of Reorganization as follows (In thousands):
HISTORICAL RESTRUCTURE FRESH CARRYING DISCHARGE/ START AMOUNT EXCHANGE BALANCE* ---------- ----------- -------- Senior Notes Payable under Revolving Credit Facility $155,795 $(155,795) $ -- Senior Notes Payable under Various Indentures 328,572 (328,572) -- Subordinated Note Payable 9,600 (9,600) -- Convertible Subordinated Debentures 7,040 (7,040) -- -------- --------- ------- Total Debt in Default $501,007 $(501,007) -- ======== ========= ======= Other Senior Notes (included in current maturities of long--term debt) $ 538 $ (538) $ -- ======== ========= ======= New 7% Series A Senior Secured Notes $ -- $ 63,785(1) $63,785 ======== ========= ======= New 11% Series C Notes (included in long--term debt) $ -- $ 62,827 $62,827 ======== ========= ======= New 8% Supplemental SellCo Note (included in long-term debt) $ -- $ 5,464 $ 5,464 ======== ========= =======
* The pro forma adjustments to the recorded debt balances reflect the differences between the historical carrying amounts of the old debt securities and the face amount of the new debt securities issued pursuant to the Plan of Reorganization before fresh--start adjustments. (1) The amount of Series A Notes to be issued are based upon an assumed total of $100.0 million of pre-petition general unsecured claims after settlement of disputed and unliquidated pre-petition general unsecured claims. An additional $7.2 million of Series A Notes were available to be issued to holders of general unsecured claims calculated as follows (in millions): Authorized value of Series A Notes $71.0 Series A Notes issued or estimated to be issued 63.8 ----- Series A Notes available for issue $ 7.2 ===== (c) Reflects reduction of recorded amounts of accrued interest, insurance reserves, other impaired liabilities and unexpired leases rejected by the Company during its bankruptcy proceeding classified as pre--consent liabilities subject to compromise (in thousands):
LONG ACCOUNTS ACCRUED TERM PAYABLE EXPENSES LIABILITIES TOTAL -------- -------- ----------- -------- Accrued interest $ -- $43,315 $ -- $ 43,315 Insurance reserves -- 9,600 26,800 36,400 Amount due to JWP Information Services, Inc. -- 24,933 -- 24,933 Foreign debt guarantees -- 6,037 -- 6,037 Stock price guarantees -- 5,118 -- 5,118 Preferred dividends in arrears -- 2,257 -- 2,257 Unexpired leases -- -- 1,718 1,718 Directors' retirement benefits -- -- 975 975 Other impaired claims 400 699 -- 1,099 ---- ------- ------- -------- Total $400 $91,959 $29,493 $121,852 ==== ======= ======= ========
51 (d) Reflects the elimination of the recorded book value of old common stock, old preferred stock and warrants of participation upon consummation of the Plan of Reorganization and the issuance of 1,518,000 New Warrants and 9,424,083 shares of New Common Stock, $.01 par value. (e) The deficit was reduced by the net reduction in debt due to the discharge of old debt and issuance of new debt instruments at face value, as well as the reduction of recorded amounts of impaired liabilities as described in Note (c). Reconciliation to "Gain on debt discharge" shown in the Consolidated Statement of Operations (in thousands): $ 491,320 Equity adjustment to record plan of reorganization 14,951 Debt discount recorded as Fresh-start adjustment (81,130) Fair value of Equity securities issue recorded as fresh--start adjustment (11,892) Series B Notes which were paid on the --------- Effective Date $ 413,249 Gain on debt discharge ========= (f) To record the adjustments to state assets and liabilities at fair value and to eliminate the deficit in accumulated earnings against additional paid-- in capital. Reconciliation to "Fresh--start adjustments" shown in the Consolidated Statement of Operations (in thousands): $ 75,724 Equity adjustment to record plan of reorganization 14,951 Debt discount included in calculation of gain on debt discharge (11,892) Series B Notes which were paid on the --------- Effective Date $ 78,783 Fresh--start adjustments ========= (g) Amount includes approximately $4.1 million of principal reduction of Series A Notes on the Effective Date. 52 NOTE W PRO FORMA STATEMENT OF OPERATIONS The following unaudited Consolidated Pro Forma Statement of Operations reflects the financial results of the Company as if the reorganization had been effective January 1, 1994 (in thousands, except per share data):
OPERATIONS OTHER SOLD OR HELD PRO FORMA PRO FORMA HISTORICAL FOR SALE (a) ADJUSTMENTS REORGANIZED ---------- ------------ ----------- ----------- REVENUES $1,763,961 $(168,939) $ -- $1,595,022 ---------- --------- ------- ---------- COSTS AND EXPENSES: Cost of sales 1,607,589 (152,023) -- 1,455,566 Selling, general and administrative 178,575 (30,567) (3,646)(b) 144,362 ---------- --------- ------- ---------- 1,786,164 (182,590) (3,646) 1,599,928 ---------- --------- ------- ---------- OPERATING LOSS: (22,203) 13,651 3,646 (4,906) Interest expense, net (2,476) 120 (13,211)(c) (15,567) Net gain on businesses sold or held for sale 1,183 -- (1,183)(d) -- Loss on investment (4,452) -- -- (4,452) REORGANIZATION ITEMS: Professional fees (12,535) -- 12,535(e) -- Fresh--start adjustments (78,783) -- 78,783(e) -- ---------- --------- ------- ---------- (119,266) 13,771 80,570 (24,925) INCOME TAX BENEFIT (332) -- -- (332) ---------- --------- ------- ---------- (LOSS) FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE $ (118,934) $ 13,771 $80,570 $ (24,593) ========== ========= ======= ========== NET INCOME (LOSS) PER SHARE FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE $(12.62) $1.46 $ 8.55 $(2.61) ========== ========= ======= ==========
53 (a) Reflects adjustments to the Company's historical Consolidated Statement of Operations to eliminate revenues, cost and expenses and interest. (b) Reflects the following adjustments to selling, general and administrative expenses To eliminate amortization of goodwill and other intangibles $ 3,646 ======= (c) Reflects the following adjustments to interest expense, net: To record interest expense on 11% Series C Notes $ 7,745 based upon the pro forma discounted carrying value and assuming a discount rate of 14% To record interest expense on 8% SellCo 596 Supplemental Note (as that term is hereafter defined) based upon the pro forma discounted carrying value and assuming a discount rate of 14% To record interest expense on new working 4,500 capital credit facilities assuming an average of $30.0 million outstanding at 15%(f) To reverse interest on debtor-in-possession (2,030) credit facility To record debt issuance costs at closing 2,400 ------- $13,211 ======= Interest expense on the 7% Series A Notes and Series B Notes is not included as a component of interest expense as amounts will be paid from the net cash proceeds of sale of stock or assets of subsidiaries of SellCo and other net assets held for sale. Under the terms of the Series A Notes, interest expense would have been $6.8 million for the year ended December 31, 1994 (d) To eliminate net gain on sale of businesses $ 1,183 ======= (e) To eliminate various legal and other professional fees associated with the Chapter 11 proceeding and to record fair value adjustments in accordance with SOP 90-7. (f) The amount of borrowings under credit lines made available to the Company on the Effective Date is contingent upon the cash requirements of the Company. The following table reflects the impact of various borrowing levels on the proforma statement of operations:
PRO FORMA REORGANIZED - ------------------------------------------------------------------------------------------------------------------------- NET LOSS PER SHARE FROM CONTINUING OPERATIONS TOTAL NET INCOME (LOSS) FROM CONTINUING BEFORE EXTRAORDINARY BORROWING INTEREST OPERATIONS BEFORE EXTRAORDINARY ITEM ITEM AND CUMULATIVE LEVEL EXPENSE AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE EFFECT OF ACCOUNTING CHANGE - ---------- ------- ------------------------------------------ --------------------------- $35 million $16,317 ($25,343) ($2.69) 40 million 17,067 (26,093) (2.77) $45 million $17,817 ($26,843) ($2.85)
54 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of EMCOR Group, Inc. We have audited the accompanying Consolidated Balance Sheet of EMCOR Group, Inc. and its subsidiaries (the "Company") as of December 31, 1995, and the related Consolidated Statements of Operations, Cash Flows and Stockholders' Equity (Deficit) for the year then ended. These consolidated financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 1995, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as as whole. The schedule of Valuation and Qualifying Accounts is presented for purposes of complying with the Securities and Exchange Commissions rules and is not a required part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Stamford, Connecticut March 11, 1996 55 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of EMCOR Group, Inc. We have audited the accompanying Consolidated Balance Sheets of EMCOR Group, Inc. (formerly JWP INC.) and its subsidiaries (the "Company") as of December 31, 1994 and 1993, and the related Consolidated Statements of Operations, Stockholders' Equity (Deficit) and Cash Flows for the years then ended. Our audit also included the financial statement schedule for the year ended December 31, 1994 and 1993 listed in the Index at Item 14(a)(2). These financial statements and financial statement schedule are the responsibity of the Company's management. Our responsibility is to report on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our report dated July 8, 1994, we did not express an opinion on the 1993 consolidated financial statements due to the material uncertainties related to the Company's ability to continue as a going concern because the Company had experienced significant losses from operations for each of the years ended December 31, 1993 and 1992, had negative working capital and a deficit in stockholders' equity and because of the possible material effects of uncertainties related to the net realizable value of assets of discontinued operations, claims filed against the Company, and the possible consequences of the bankruptcy proceedings. As discussed in Note A to the consolidated financial statements, during December 1994 the Company emerged from Chapter 11 of the Federal Bankruptcy Code. The emergence from bankruptcy resulted in a significant reduction in debt, the obtaining of a new credit agreement and the valuing of the Company at its new reorganization value resulted in positive stockholders' equity versus a pre-emergence deficit of $324.0 million. Accordingly, our present opinion on the 1993 consolidated financial statements, as expressed herein, is different from our prior report on the 1993 consolidated financial statements. As discussed in Notes A and V to the consolidated financial statements, the Company emerged from Chapter 11 of the U.S. Bankruptcy Code on December 15, 1994. Accordingly, the accompanying financial statements have been prepared in accordance with the American Institute of Certified Public Accountants Statement of Position 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code. The Company accounted for the Reorganization as of December 31, 1994 and adopted Fresh-Start Reporting. As a result, the December 31, 1994 consolidated balance sheet is not comparable to prior periods since it presents the consolidated financial position of the reorganized entity. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 1994 and 1993 and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. As more fully described in Note S to the consolidated financial statements, the Company is involved with certain legal proceedings. The Company is presently unable to predict the outcome of these proceedings, and the impact, if any, that the ultimate resolution of such matters will have upon the Company and its consolidated financial statements. No provision for any liability that may result from the resolution of these uncertainties has been made in the accompanying consolidated financial statements. As discussed in Note T to the consolidated financial statements, the Company changed its method of accounting for post-employment benefits effective January 1, 1994. DELOITTE & TOUCHE LLP New York, New York March 17, 1995 56 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE On September 19, 1995 the Audit Committee of the Board of Directors of the Company appointed Arthur Andersen LLP as independent accountants for its fiscal year ending December 31, 1995 to replace Deloitte & Touche LLP effective with such appointment. Deloitte & Touche LLP's report, dated March 17, 1995, on the financial statements of the Company for its two most recent fiscal years ended December 31, 1994 did not contain an adverse opinion, disclaimer of opinion, or qualification as to uncertainty, audit scope, or accounting principles. However, in its report dated July 8, 1994 on the financial statements of the Company for its fiscal year ended December 31, 1993, Deloitte & Touche LLP did not express an opinion on the Company's 1993 consolidated financial statements due to then material uncertainties related to the Company's ability to continue as a going concern because the Company had experienced significant losses from operations for each of the years ended December 31, 1993 and 1992 and then had negative working capital and a deficit in stockholders' equity and because of the then possible material effects of uncertainties related to the net realizable value of assets of discontinued operations, claims filed against the Company, and the possible consequences of the Company's Chapter 11 proceeding. The Company's emergence from bankruptcy on December 15, 1994 resulted in a significant reduction in the Company's indebtedness, its obtaining of a new credit agreement and the valuing of the Company at a new reorganization value resulting in positive stockholders' equity permitting Deloitte & Touche LLP in its report dated March 17, 1995 to express an opinion on the 1993 consolidated financial statements as well as the 1994 consolidated financial statements. During the Company's two most recent fiscal years ended December 31, 1994 and the interim period from January 1, 1995 to September 22, 1995, the date on which the Company filed its Report on Form 8-K announcing the appointment of Arthur Andersen LLP, there were no disagreements with Deloitte & Touche LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which caused that firm to make reference to the subject matter of such disagreements in connection with its reports. During the Company's two most recent fiscal years ended December 31, 1994 and the interim period from January 1, 1995 to September 22, 1995, the date on which the Company filed its Report on Form 8-K announcing the appointment of Arthur Andersen LLP, there were no reportable events of the type described in paragraphs (A) through (D) of Item 304(a)(1)(v) of Regulations S-K under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. 57 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICES OF THE REGISTRANT The information required by Item 10 with respect to identification of directors is incorporated herein by reference to the material to be included under the caption "Election of Directors" in the Company's definitive proxy statement for its Annual Meeting of Stockholders, at which Directors are to be elected, which definitive proxy statement is to be filed not later than 120 days of the end of the Company's fiscal year ended December 31, 1995. The information called for by Item 10 with respect to "Executive Officers of the Registrant" is included in Part I under the caption "Executive Officers of the Registrant". ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 with respect to executive compensation is incorporated herein by reference to the material to be included in the Company's definitive proxy statement for its Annual Meeting of Stockholders, at which Directors are to be elected, which definitive proxy statement is to be filed not later than 120 days after the end of the Company's fiscal year ended December 31, 1995. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 12 with respect to certain beneficial owners and management is incorporated herein by reference to the material under the captions "Security Ownership of Certain Beneficial Owners" and "Security Ownership of Management" in the Company's definitive proxy statement for its Annual Meeting of Stockholders, at which Directors are to be elected, which definitive proxy statement is to be filed not later than 120 days after the end of the Company's fiscal year ended December 31, 1995. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item 13 with respect to certain transactions with management and directors is incorporated herein by reference to the material under the caption "Certain Relationships and Related Transactions" in the Company's definitive proxy statement for its Annual Meeting of Stockholders, at which Directors are to be elected, which definitive proxy statement is to be filed not later than 120 days after the end of the Company's fiscal year ended December 31, 1995. 58 PART IV ITEM 14.EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) The following consolidated financial statements of EMCOR Group, Inc. and subsidiaries are included in Part II, Item 8: Report of Independent Public Accountants Financial Statements: Consolidated Balance Sheets - December 31, 1995 and 1994 Consolidated Statements of Operations - Years Ended December 31, 1995, 1994 and 1993 Consolidated Statements of Cash Flows - Years Ended December 31, 1995, 1994 and 1993 Consolidated Statements of Stockholders' Equity (Deficit) - Years Ended December 31, 1995, 1994 and 1993 Notes to Consolidated Financial Statements (a)(2) The following financial statement schedules are included in this Form 10-K report: Schedule II - Valuation And Qualifying Accounts All other schedules are omitted because they are not required, are inapplicable, or the information is otherwise shown in the consolidated financial statements or notes thereto. (a)(3) The exhibits listed on the Exhibit Index following the consolidated financial statements hereof are filed herewith in response to this Item. (b) Reports on Form 8-K filed during the last quarter of 1995: Form 8-K dated November 13, 1995 reporting the financial statements of Dyn Specialty Contracting, Inc. and its subsidiaries. 59 SCHEDULE II EMCOR GROUP, INC. VALUATION AND QUALIFYING ACCOUNTS
Additions Balance at Charged To Beginning of Costs and Other Balance End Description Year Expenses Accounts Deductions (1) of Year ----------- ------------ --------- ---------- -------------- ----------- Allowance for doubtful accounts Year Ended December 31, 1995 $19,820 $ 2,538 $(3,553) $ (3,913) $14,892 Year Ended December 31, 1994 $31,170 $ 2,909 $(7,695) $ (6,564) $19,820 Year Ended December 31, 1993 $42,630 $13,663 $ (892) $(24,231) $31,170
(1) Deductions represent uncollectible balances of accounts receivable written off, net of recoveries. 60 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EMCOR GROUP, INC. --------------------------- (Registrant) Date: March 13, 1996 By Frank T. MacInnis --------------------------- FRANK T. MacINNIS Chairman of the Board of Directors, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on March 13, 1996. /s/Frank T. MacInnis* Chairman of the Board of - ------------------------ Directors, President and FRANK T. MacINNIS Chief Executive Officer /s/Stephen W. Bershad* Director - ------------------------ STEPHEN W. BERSHAD /s/David A.B. Brown* Director - ------------------------ DAVID A.B. BROWN /s/Thomas D. Cunningham* Director - ------------------------ THOMAS D. CUNNINGHAM /s/Albert Fried, Jr.* Director - ------------------------ ALBERT FRIED, JR /s/Malcolm T. Hopkins* Director - ------------------------ MALCOLM T. HOPKINS /s/Leicle E. Chesser Executive Vice President and - ------------------------ Chief Financial Officer LEICLE E. CHESSER /s/Mark A. Pompa Vice President and Controller - ------------------------ MARK A. POMPA * Constituting a majority of the members of the Board of Directors of EMCOR Group, Inc. EMCOR GROUP, INC. EXHIBIT INDEX
INCORPORATED BY REFERENCE TO, OR EXHIBIT NO DESCRIPTION PAGE NUMBER - ---------- ----------- ---------------- 2(a) Disclosure Statement and Exhibit 2(a) to the Third Amended Joint Plan Company's of Reorganization (the Registration "Plan of Reorganization") Statement on Form proposed by EMCOR Group, 10 as originally Inc. (formerly JWP INC.) filed March 17, (the "Company" or "EMCOR") 1995 (the "Form 10") and its subsidiary SellCo Corporation ("SellCo"), as approved for dissemination by the United States Bankruptcy Court, Southern District of New York (the "Bankruptcy Court"), on August 22, 1994 2(b) Modification to the Plan Exhibit 2(b) to of Reorganization dated Form 10 September 29, 1994 2(c) Second Modification to the Exhibit 2(c) to Plan of Reorganization Form 10 dated September 30, 1994 2(d) Confirmation Order of the Exhibit 2(d) to Bankruptcy Court dated Form 10 September 30, 1994 (the "Confirmation Order") confirming the Plan of Reorganization, as amended 2(e) Amendment to the Exhibit 2(e) to Confirmation Order dated Form 10 December 8, 1994 2(f) Post--confirmation Exhibit 2(f) to modification to the Plan Form 10 of Reorganization entered on December 13, 1994 2(g) Asset Acquisition Page Agreement dated as of February 9, 1996 between The City of New York, Jamaica Water Supply Company and EMCOR* 2(h) Asset Acquisition Page Agreement dated as of February 9, 1996 between Water Authority of Western Nassau County, Jamaica Water Supply Company and EMCOR* 3(a-1) Restated Certificate of Exhibit 3(a-5) Incorporation of EMCOR 3(a-2) Amendment dated November Page 28, 1995 to Restated Certificate of Incorpora- tion of EMCOR* 3(b) By-Laws Exhibit 3(b) to Form 10 4.1 Form of Credit Agreement Exhibit 4.14 to the dated as of February Company's Annual 14, 1994 among EMCOR Report on Form 10-K certain of its subsidiaries for fiscal year and Belmont Capital ended December 31, Partners II, L.P. 1992
* Filed Herewith
INCORPORATED BY REFERENCE TO, OR EXHIBIT NO DESCRIPTION PAGE NUMBER - ---------- ----------- ---------------- 4.2 Indenture, dated as of Exhibit 4.2 to Form December 15, 1994, among 10 EMCOR, its subsidiary MES Holdings Corporation ("MES") and SellCo, as guarantors, and IBJ Schroder Bank & Trust Company, as trustee, in respect of EMCOR's 7% Senior Secured Notes, Series A, Due 1977 4.3 Indenture, dated as of Exhibit 4.3 to Form December 15, 1994, 10 among EMCOR, MES, as guarantor, and Shawmut Bank Connecticut, National Association, as trustee, in respect of 11% Series C Notes, Due 2001 ("Series C Indenture") 4.4 First Supplemental Page Indenture dated as of January 28, 1995 to Series C Indenture* 4.5 Indenture, dated as of Exhibit 4.4 to Form December 15, 1994, between 10 SellCo and Shawmut Bank Connecticut, National Association, as trustee, in respect of SellCo's 12% Subordinated Contingent Payment Notes, Due 2004 10(a--1) First Mortgage Indenture Exhibit B-1 to JWS' ("Mortgage") dated Registration December 1, 1936 of a Statement on Form subsidiary of EMCOR S-1, No. 2-3995 Jamaica Water Supply Company ("JWS"), a subsidiary of the Company 10(a--2) Supplemental Indenture to Exhibit 1 to JWS' First Mortgage dated Annual Report on December 1, 1953 of JWS Form 10-K for fiscal year ended December 31, 1953 10(a--3) Supplemental Indenture to Exhibit 1 to JWS First Mortgage dated May Current Report on 1, 1962 of JWS Form 8-K for 10(a--4) Supplemental Indenture to Exhibit 4.21 to First Mortgage dated May JWS' Registration 1, 1970 to JWS Statement on Form S-1, No. 2-62590 10(a--5) Supplemental Indenture to Exhibit 4.22 to First Mortgage dated Form S--1, February 15, 1975 of JWS Registration Statement No. 2--62590 10(a--6) Supplemental Indenture to Exhibit 4.23 to Mortgage dated as of JWS' Registration January 1, 1978 Statement on Form S-1, Registration Statement No. 2-62590 10(a--7) Supplemental Indenture to Exhibit 10(a--7) to Mortgage dated as of April JWS' Registration 1, 1981 of JWS Statement on Form S--1 Registration Statement No. 2--86988 10(a--8) Supplemental Indenture to Exhibit 10(a--8) Mortgage dated as of to JWS' August 1, 1983 of JWS Registration Statement on Form S-1 Registration Statement No. 2-86988
* Filed Herewith
INCORPORATED BY REFERENCE TO, OR EXHIBIT NO DESCRIPTION PAGE NUMBER - ---------- ----------- ---------------- 10(a--9) Supplemental Indenture to Exhibit 10(a-9) to Mortgage dated as of the Company's December 1, 1984 Annual Report on 10--K for fiscal year ended December 31, 1985 10(b-1) Employment Agreement dated Exhibit 10(e) to as of September 14, 1987 the Company's between the Registrant and Annual Report on Sheldon I. Cammaker 10--K for fiscal year ended December 31, 1992 10(b-2) Amendment dated March 15, Exhibit 10(f) to 1988 to Employment the Company's Agreement dated as of Annual Report on September 14, 1987 between 10--K for fiscal Registrant and Sheldon I. year ended December Cammaker 31, 1992 10(c) Employment Agreement dated Exhibit 10(t) to as of April 8, 1994 the Company's between Registrant and Annual Report on Frank T. MacInnis 10--K for fiscal year ended December 31, 1992 10(d) 1994 Management Stock Exhibit 10(o) to Option Plan Form 10 10(e) 1995 Non-Employee Exhibit 10(p) to Directors' Non-Qualified Form 10 Stock Option Plan 10(f) Form of Indemnification Exhibit 10(q) to Agreement Form 10 10(g) Reliance Insurance Exhibit 10(r) to Companies' Underwriting Form 10 and Continuing Indemnity Agreement dated as of November 22, 1994, among the Company, Dyn Specialty Contracting, Inc. ("Dyn"), B&B Contracting & Supply Company ("B&B"), Dynalectric Company ("Dyn Co."), Dynalectric Company of Nevada ("Dyn-- Nevada"), Contra Costa Electric, Inc. ("Contra Costa"), Kirkwood Electric Co., Inc. ("Kirkwood") and Reliance Surety Company, Reliance Insurance Company, United Pacific Insurance Company, Reliance National Indemnity Company, Reliance National Insurance Company of New York and Reliance Insurance Company of Illinois 10(h) Form of Security Agreement Exhibit 10(s) to dated as of November 22, Form 10 1994 made by each of Dyn, B&B, Dyn Co., Dyn--Nevada, Contra Costa, and Kirkwood, in favor of and for the benefit of Reliance Surety Company, Reliance Insurance Company, United Pacific Insurance Company, Reliance National Indemnity Company and Reliance Insurance Company of Illinois 10(i) Pledge Agreement dated Exhibit 10(t) to November 22, 1994 between Form 10 the Company and Reliance Surety Company, Reliance Insurance Company, United Pacific Insurance Company, Reliance National Indemnity Company and Reliance Insurance Company of Illinois
INCORPORATED BY REFERENCE TO, OR EXHIBIT NO DESCRIPTION PAGE NUMBER - ---------- ----------- ---------------- 10(j) Pledge Agreement dated Exhibit 10(u) to November 22, 1994 between Form 10 Dyn and Reliance Surety Company, Reliance Insurance Company, United Pacific Insurance Company Reliance National Indemnity Company and Reliance Insurance Company of Illinois 10(k) Subordination Agreement Exhibit 10(v) to dated November 22, 1994 Form 10 among Dyn, Dyn Co., B&B, Dyn--Nevada, Contra Costa and Kirkwood and Reliance Surety Company, Reliance Insurance Company, United Pacific Insurance Company, Reliance National Indemnity Company and Reliance Insurance Company of Illinois 10(l) Credit Agreement dated Exhibit 10(w) to December 14, 1994 among Form 10 the Company, MES, certain direct and indirect subsidiaries of MES and Belmont Capital Partners II, L.P. and other lenders (collectively, the "Lenders") 10(m) Guarantor Security Exhibit 10(x) to Agreement dated December Form 10 14, 1994 by and among certain direct and indirect subsidiaries of MES, the Lenders and CoreStates Bank, N.A., as agent for the Lenders (the "Agent") 10(n) Pledge and Security Exhibit 10(y) to Agreement dated December Form 10 14, 1994 by and among the Company, MES, the Lenders and the Agent 10(o) Credit Agreement dated Exhibit 10(z) to December 14, 1994 among Form 10 the Company, Dyn, certain direct subsidiaries of Dyn and the Lenders 10(p) Guarantor Security Exhibit 10(aa) to Agreement dated December Form 10 14, 1994 by and among certain direct subsidiaries of Dyn, the Lenders and the Agent 10(q) Pledge and Security Exhibit 10(bb) to Agreement dated December Form 10 14, 1994 by and among the Company, Dyn, the Lenders and the Agent 11 Computation of Primary Page Earnings Per Common Share and Common Share Equivalent for the years ended December 31, 1995 and 1994* 21 List of Subsidiaries* Page 27 Financial Data Schedule* Page
* Filed Herewith Pursuant to Item 601(b)(4)(iii) of Regulation S--K, upon request of the Securities and Exchange Commission, the Registrant hereby undertakes to furnish a copy of any unfiled instrument which defines the rights of holders of long-- term debt of the Registrant's subsidiaries. EX-2.(G) 2 ASSET ACQUISITION AGREEMENT DATED 02/09/96 EXHIBIT 2 (g) ------------- ASSET ACQUISITION AGREEMENT between THE CITY OF NEW YORK, JAMAICA WATER SUPPLY COMPANY and EMCOR GROUP, INC. Dated February 9, 1996 ______________________________________________________________________________ [Conformed] Table of Contents ----------------- Page ---- ARTICLE I: ACQUISITION....................................... 2 1.1 Acquisition............................................. 3 1.2 Excluded Assets......................................... 3 1.3 Acquisition Price; Adjustments.......................... 3 1.4 Excluded Liabilities.................................... 14 1.5 Assignment of Contracts and Rights...................... 15 1.6 Apportionment of Expenses............................... 16 ARTICLE II: CLOSING.......................................... 17 2.1 The Closing............................................. 17 2.2 Deliveries by the City.................................. 18 2.3 Deliveries by JWS....................................... 18 2.4 Additional Transactions At or Following the Closing................................................ 18 2.5 Allocation of the Acquisition Price..................... 19 ARTICLE III: REPRESENTATIONS AND WARRANTIES.................. 19 3.1 Representations and Warranties of JWS and the Parent............................................. 19 (a) Due Organization.................................... 19 (b) Authorization and Validity of Agreement............. 20 (c) No Conflict; Consents............................... 20 (d) Title to Acquired Assets; Liens and Encumbrances....................................... 22 (e) Agreements and Contracts............................ 22 (f) Legal Proceedings................................... 23 (g) Government Licenses, Permits and Related Approvals.......................................... 23 (h) Conduct of the System in Compliance with Regulatory Requirements............................ 24 (i) Environmental Matters............................... 24 (j) Financial Statements................................ 25 (k) Absence of Certain Liabilities and Changes.......... 25 (l) Receivables......................................... 27 3.2 Representations and Warranties of the City.............. 28 (a) Due Organization and Power of the City.............. 28 (b) Authorization and Validity of Agreement............. 28 (c) No Conflict; Consents............................... 29 (d) Disclosure.......................................... 30 (e) Financing........................................... 31 -ii- Page ---- 3.3 Survival of Representations and Warranties.............. 31 3.4 Schedules............................................... 31 3.5 No Implied Representation............................... 31 ARTICLE IV: COVENANTS AND TRANSACTIONS PRIOR TO CLOSING...... 32 4.1 Access to Information Concerning Properties and Records; Confidentiality............................... 32 4.2 Conduct of the System Prior to the Closing Date......... 33 4.3 Shareholders' Meeting; Approval......................... 35 4.4 Cooperation............................................. 35 4.5 PSC Approval............................................ 36 4.6 DEC and Department of Health Approval................... 36 4.7 Condemnation Proceeding................................. 37 4.8 Non-Solicitation........................................ 38 4.9 Retained Employees...................................... 38 4.10 Compliance with WARN.................................... 39 4.11 Meter Leases............................................ 39 4.12 Further Actions......................................... 39 4.13 Nassau Agreement........................................ 39 ARTICLE V: CONDITIONS PRECEDENT.............................. 40 5.1 Conditions Precedent to Obligations of the Parties...... 40 (a) No Injunction....................................... 40 (b) Regulatory Approvals................................ 40 (c) Condemnation Proceeding............................. 40 5.2 Conditions Precedent to Obligation of the City.......... 41 (a) Accuracy of Representations and Warranties.......... 41 (b) Performance of Agreement............................ 41 (c) Certificate......................................... 41 (d) Burdensome Condition................................ 41 (e) No Action Pending................................... 42 5.3 Conditions Precedent to the Obligation of JWS and the Parent......................................... 42 (a) Accuracy of Representations and Warranties.......... 42 (b) Performance of Agreement............................ 42 (c) Certificate......................................... 42 (d) Shareholder Approval................................ 42 (e) Burdensome Condition................................ 42 (f) No Action Pending................................... 43 (g) Performance of Nassau Agreement..................... 43 -iii- Page ---- ARTICLE VI: TERMINATION AND ABANDONMENT...................... 43 6.1 General................................................. 43 6.2 Procedure Upon Termination.............................. 44 6.3 Survival of Certain Provisions.......................... 45 ARTICLE VII: POST-CLOSING COVENANTS AND TRANSACTIONS............................................ 45 7.1 Access to Books and Records............................. 45 7.2 Dissolution or Merger of JWS............................ 46 7.3 Certain Tax Matters..................................... 46 7.4 Deposits................................................ 47 ARTICLE VIII: ASSUMPTION OF CERTAIN OBLIGATIONS AND LIABILITIES; INDEMNIFICATION............................ 47 8.1 Assumption and Indemnification.......................... 48 8.2 Procedure............................................... 50 8.3 Payment................................................. 52 ARTICLE IX: MISCELLANEOUS.................................... 52 9.1 Certain Definitions..................................... 53 9.2 Fees and Expenses....................................... 53 9.3 Notices................................................. 54 9.4 Severability............................................ 56 9.5 Entire Agreement........................................ 56 9.6 Binding Effect; Benefit................................. 56 9.7 Assignability........................................... 56 9.8 Amendment and Modification; Waiver...................... 56 9.9 Public Announcements.................................... 57 9.10 Section Headings........................................ 58 9.11 Counterparts............................................ 58 9.12 Jurisdiction............................................ 58 9.13 GOVERNING LAW........................................... 58 -iv- ASSET ACQUISITION AGREEMENT ---------------------------- ASSET ACQUISITION AGREEMENT, dated February 9, 1996 (this "Agreement"), between Jamaica Water Supply Company, a New York corporation - ---------- ("JWS"), EMCOR Group, Inc., a Delaware corporation (the "Parent"), and The City ------ of New York (the "City"). WHEREAS, JWS is engaged in, among other things, the business of providing for the residential and commercial distribution and sale of water to service areas in Queens County, New York (the "Business"), through the operation and maintenance of a water system (hereinafter referred to as the "System"); and ------ WHEREAS, JWS desires to dispose of and the City desires to acquire certain of the assets related to the System, all as more fully set forth herein, on the terms and subject to the conditions set forth herein; and WHEREAS, as a condition and inducement to its willingness to enter into this Agreement and to consummate the transactions contemplated hereby, the City has required that JWS and the Parent agree to join in certain representations, warranties and indemnities as hereinafter set forth; WHEREAS, it is the desire of the parties hereto that the Closing (as defined in Section 2.1) of the transactions contemplated by this Agreement shall occur simultaneously with the closing of the transactions contemplated under the Asset Acquisition Agreement, dated February 9, 1996 (the "Nassau Agreement"), ---------------- between JWS, the Parent and the Water Authority of Western Nassau County (the "Water Authority"); NOW, THEREFORE, in consideration of the premises and of the mutual representations, warranties, covenants and agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I: ACQUISITION 1 Acquisition. On the terms and subject to the conditions of this ----------- Agreement, JWS consents to the acquisition by condemnation and the City agrees to acquire by condemnation all of JWS's right, title and interest in and to the System and the Business including, without limitation, those assets of JWS described on Schedule A hereto and subject to the terms of Schedule A relating to the System, or used in connection with the Business (the "Acquired Assets"), except as otherwise provided herein, free and clear of any mortgage, pledge, security interest, encumbrance, lien, claim or charge of any kind ("Lien"), other than Permitted Exceptions (as defined in Section 3.1(d)), (the acquisition of the Acquired Assets being referred to herein as the "Asset Acquisition"), provided that the Acquired Assets shall not include the assets described in Section 1.2. Schedule A may be amended from time to time pursuant to agreement between the City and the Water Authority to shift Acquired Assets from one acquiring public entity to the other, provided that neither JWS nor the Parent shall be responsible for any shift in Acquired Assets pursuant to such agreement between the City and the Water Authority, and provided further that the Acquisition Price (as defined in Section 1.3) shall under no circumstances be adjusted as a result of such a shift in assets. -2- 2 Excluded Assets. It is expressly understood and agreed that the --------------- Acquired Assets shall not include the following: (a) Cash and cash equivalents (including money on deposit in banks and other institutions) or similar type investments, such as certificates of deposit, Treasury bills and other marketable securities, and commercial paper, stocks, bonds and similar investments received by JWS prior to the Vesting Date (as defined in Section 5.1(c)); and (b) the assets of JWS listed on Schedule B hereto. 3 Acquisition Price; Adjustments. (a) In consideration of the ------------------------------ transfer and acquisition of the Acquired Assets hereunder, the City shall pay to JWS, in the manner set forth in Section 2.2, the amount of $148,000,000, (the "Acquisition Price") subject to adjustment as provided in Sections 1.3(b), 1.3(c) and 1.3(d), and other closing adjustments as described in Section 1.6. (b) The total amount to be paid by the City in the manner set forth in Section 2.2 at the Closing shall equal the Acquisition Price, plus $7,400,000, representing the agreed-upon price of water meters to be acquired by the City, less $1,800,000, representing the value of a computer system not to be acquired by the City, subject to adjustment as provided in Sections 1.3(c) and (d). (i) JWS shall, as soon as practicable following its 1995 fiscal year end and prior to the Closing, cause to be prepared, and deliver to the City, a statement (the "Projected Statement") setting forth: the estimated calculation ------------------- of (x) the book value (net of accumulated depreciation and amortization) of -3- the net utility plant of JWS relating to the System, plus (y) accounts receivable and accrued revenues attributable to the City of New York and customers located in Queens County (collectively, "Accounts Receivable") plus (z) 80.52% of the total value of materials and supplies of JWS (the sum of the amounts in clauses (x), (y), and (z) referred to as the "Book Value"), based on ---------- accounting procedures, practices and policies that have been consistently applied by JWS. The Projected Statement shall be prepared in accordance with generally accepted accounting principles and shall present the projected Book Value as of December 31, 1995 on the same basis as the calculations thereof which are attached hereto as Exhibit A. On or prior to the Closing Date, JWS shall also cause to be prepared and delivered to the City a statement (the "Preliminary Statement") setting forth the Book Value, in a manner consistent --------------------- with the calculations which are attached hereto as Exhibit A, as of the close of business of JWS on the Business Day (as defined in Section 9.1) immediately preceding the Closing Date. At the Closing, JWS shall also cause to be delivered to the City an opinion of Arthur Andersen LLP stating that the allocations of the net utility plant to Queens County and Nassau County (i) as of December 31, 1995, which appear on the Projected Statement, and (ii) as of the close of business on the Business Day immediately preceding the Closing Date, which appear on the Preliminary Statement, were arrived at using a methodology consistent with JWS's past practice of arriving at such allocations for cost of service studies with the New York State Public Service Commission since June, 1986. At the same time, JWS shall also cause to be prepared and delivered to the City a statement (the "Net Change Statement") setting forth the -------------------- -4- calculation of the Book Value as shown on the Preliminary Statement minus the Book Value as shown on the Projected Statement (such sum referred to hereinafter as the "Net Change"). If the Net Change as shown on the Net Change Statement is ---------- a positive number, then the amount payable on the Closing Date shall be increased by such amount. If the Net Change as shown on the Net Change Statement is a negative number, then the amount payable on the Closing Date shall be reduced by such amount. At the Closing, the City shall deliver to the Escrow Agent (as defined below) an amount of the Acquisition Price equal to $1,000,000 plus an amount equivalent to the aggregate amount of JWS's increase in rates attributable to customers located in Queens County (the "Rate Increase") for the period of January 1, 1996 through the Closing Date (the "Escrowed Sum"), which ------------ sum shall be applied to any reductions in the Acquisition Price resulting from application of this Section 1.3(c) or Section 1.3 (d), or to refund amounts payable to customers pursuant to rate adjustments by the New York Public Service Commission (the "PSC"), as described in Section 1.3(c)(v) . If the Acquisition Price is not reduced in accordance with this Section 1.3(c) or Section 1.3(d), or is reduced in an amount less than the Escrowed Sum, the balance of the Escrowed Sum after deduction of all reductions and all amounts owing pursuant to Section 1.3(c)(v) shall be paid to JWS, in addition to the amount owed to JWS, if any, as a result of an increase in the Acquisition Price pursuant to this Section 1.3(c), at the time set for payment pursuant to Section 1.3(c)(iv). On or prior to the Closing, the parties hereto shall have entered into an escrow agreement (the "Escrow Agreement") ---------------- -5- with a mutually acceptable third party (the "Escrow Agent") substantially in the ------------ form attached hereto as Exhibit B. (ii) Within 35 days after the Closing Date, or as soon as practicable thereafter, JWS shall cause to be prepared and delivered to the City a statement (the "Statement") setting forth the Book Value as of the close of business of --------- JWS on the Business Day immediately preceding the Closing Date. The Statement shall be prepared in accordance with generally accepted accounting principles and on the same basis as the calculations set forth on the Projected Statement and the Preliminary Statement. At the same time, JWS shall also cause to be prepared and delivered to the City a statement (the "Adjustment Statement") -------------------- setting forth the calculation of the difference between the Book Value as shown on the Statement minus the Book Value as shown on the Preliminary Statement (such sum referred to hereinafter as the "Adjustment Amount"). The Statement ----------------- and the Adjustment Statement shall be prepared in consultation with the City. The City shall provide JWS with access to the relevant books and records to the extent required to prepare the Statement and the Adjustment Statement. (iii) After receipt of the Statement and the Adjustment Statement, the City will have 14 days to review such statements together with the workpapers used in their preparation. Unless the City delivers written notice to JWS on or prior to the fourteenth day after its receipt of the Statement and the Adjustment Statement, the City will be deemed to have accepted and agreed to the Statement and the Adjustment Statement and such agreement will be final and binding. If the City so notifies JWS of -6- its objections to either the Statement or the Adjustment Statement, the City and JWS will, within fourteen days following the notice (the "Resolution Period"), ----------------- attempt to resolve their differences. Any resolution by the City and JWS during the Resolution Period as to any disputed amounts will be final, binding and conclusive. If the City and JWS do not resolve all disputed items by the end of the Resolution Period, then all items remaining in dispute will be submitted within fourteen days after the expiration of the Resolution Period to an independent accounting firm of national reputation mutually acceptable to the parties hereto (the "Neutral Auditor"). If, within such fourteen-day period --------------- referred to in the previous sentence, the City and JWS are unable to agree on the Neutral Auditor, then the City and JWS will each immediately request the American Arbitration Association to appoint the Neutral Auditor. All fees and expenses relating to the work, if any, to be performed by the Neutral Auditor will be borne equally by the City and JWS. The Neutral Auditor will deliver to the parties hereto a written determination (such determination to include a work sheet setting forth all material calculations used in arriving at such determination and to be based solely on information provided to the Neutral Auditor by JWS and the City) of the disputed items within 30 days of receipt of the disputed items, which determination will be final, binding and conclusive. The final, binding and conclusive Statement and Adjustment Statement, which either are agreed upon by the parties hereto or are delivered by the Neutral Auditor in accordance with this Section 1.3(c) will be the "Conclusive ---------- Statement" and the "Conclusive Adjustment Statement," respectively. - --------- ------------------------------- -7- (iv) If the Adjustment Amount as shown on the Conclusive Adjustment Statement is a negative number, then the Acquisition Price will be reduced by such amount, and the Escrow Agent shall be authorized, pursuant to the Escrow Agreement, to pay (x) to the City from the Escrowed Sum an amount in cash equal to such Adjustment Amount, plus interest accrued thereon in accordance with the Escrow Agreement and (y) to JWS the balance of the Escrowed Sum as determined in accordance with Section 1.3(c)(i), if any, plus accrued interest thereon in accordance with the Escrow Agreement. If the Adjustment Amount is a negative number, the absolute value of which exceeds the amount held by the Escrow Agent, then the entire Escrowed Sum, plus interest accrued thereon in accordance with the Escrow Agreement, shall be delivered to the City and JWS or the Parent will pay to the City the excess amount. If the Adjustment Amount as shown on the Conclusive Adjustment Statement is a positive number, then the Acquisition Price will be increased by such amount, and the City shall pay to JWS an amount in cash equal to such Adjustment Amount, and the Escrow Agent shall be authorized, pursuant to the Escrow Agreement, to pay to JWS the balance of the Escrowed Sum as determined in accordance with Section 1.3(c)(i), if any, plus accrued interest in accordance with the Escrow Agreement. All payments to be made pursuant to this Section 1.3(c) (iv) will be made on the second Business Day following the date on which the parties agree to, or the Neutral Auditor delivers, the Conclusive Statement and the Conclusive Adjustment Statement. Any payment required to be made by JWS or the City (other than payments from the Escrowed Sum) pursuant to this Section 1.3(c) (iv) shall bear interest from the -8- Closing Date through the date of payment at a rate of 6.0% per annum, and shall be payable by federal funds or wire transfer of immediately available funds to an account or accounts designated by the party entitled to receive such funds prior to the date when such payment is due. (v) If the PSC shall determine that the customers of JWS located in Queens County have overpaid JWS by reason of the Rate Increase, then the balance of the Escrowed Sum, to the extent available, shall be applied to refund such overpayments, it being understood that funds shall be released from the Escrow Account from time to time in order to permit JWS to make refund payments to customers located in Queens County at such times as are required by order of the PSC. Then, after all amounts determined to be owing by JWS to customers located in Queens County by reason of such PSC order have been paid, the Escrow Agent shall be authorized, pursuant to the Escrow Agreement, to pay to JWS the remaining balance held by the Escrow Agent (plus interest accrued thereon in accordance with the Escrow Agreement). If the amount held by the Escrow Agent is insufficient to pay such amounts, JWS and/or the Parent shall make all additional payments required by the PSC. 1.3(d). Adjustment for Avoided Severance Costs. (i) JWS shall, prior -------------------------------------- to the Closing cause to be prepared, and on the Closing Date deliver to the City, a statement (the "Preliminary Reduction Statement") setting forth the ------------------------------- calculation of the sum of (A) the amount of statutory interest accrued in accordance with Section 2.2(a), plus (B) the amount equal to 50% of the difference between (1) the total amount of all -9- severance payments ("Avoided Severance Payments") that JWS would have otherwise -------------------------- been obligated to pay to its non-bargaining unit employees, pursuant to its severance policy to be adopted after the date hereof, and to its bargaining unit employees pursuant to the effects bargaining agreement (the "Effects Bargaining ------------------ Agreement") to be entered into between JWS and the Utility Workers Union of - --------- America AFL-CIO, Local 374 (the "Union") in connection with the Asset Acquisition, each as of the Closing Date, but for the fact that such employees (such employees hereinafter referred to as "Offered Employees") were offered ----------------- employment by the City, to commence on and after the Closing Date, minus (2) the product of (x) 75 times (y) the average of the Avoided Severance Payments per Offered Employee (such sum of (A) and (B) referred to hereinafter as the "Reduction Amount"), as determined as of the close of business of JWS on the ---------------- Business Day immediately preceding the Closing Date. In any case where an Offered Employee has been offered employment by the City, on the one hand, and by the Water Authority or a third party under contract with the Water Authority to operate the Nassau System (a "Third-Party Contractor"), on the other hand, ---------------------- and either such offer independently would result in JWS's not being obligated to make severance payments to the Offered Employee, then the Preliminary Reduction Statement and the Reduction Statement (hereinafter defined) shall give effect to the severance payments so avoided only if the Offered Employee accepts such offer and is employed by the City after the Closing Date, unless the Offered ------ Employee accepts neither the offer of employment by the City, on the one hand, nor of the Water Authority or a Third-Party Contractor, on the other hand, in which event the Preliminary Reduction Statement and -10- the Reduction Statement shall give effect to 50% of the severance payments so avoided. The Preliminary Reduction Statement shall be prepared by Reduction Amount calculated on the Preliminary Reduction Statement. (ii) Within 35 days after the Closing, JWS shall cause to be prepared and delivered to the City a statement (the "Reduction Statement") setting forth ------------------- the calculation of the Reduction Amount, as of the close of business of JWS on the Business Day immediately preceding the Closing Date. At the same time, JWS shall also cause to be prepared and delivered to the City a statement (the "Net --- Reduction Statement") setting forth the calculation of the difference between - ------------------- the Reduction Amount as shown on the Reduction Statement minus the Reduction Amount as shown on the Preliminary Reduction Statement (such sum referred to hereinafter as the "Net Reduction Amount"). The Reduction Statement and the Net -------------------- Reduction Statement shall be prepared in consultation with the City. The City shall provide JWS with access to the relevant books and records to the extent required to prepare the Reduction Statement and the Net Reduction Statement. (iii) After receipt of the Reduction Statement and the Net Reduction Statement, the City will have 14 days to review such statements together with the workpapers used in their preparation. Unless the City delivers written notice to JWS on or prior to the fourteenth day after its receipt of the Reduction Statement and the Net Reduction Statement, the City will be deemed to have accepted and agreed to the Reduction Statement and the Net Reduction Statement and such agreement will be -11- final and binding. If the City so notifies JWS of its objections to either the Reduction Statement or the Net Reduction Statement, the City and JWS will, within fourteen days of the notice (the "Reduction Resolution Period") attempt --------------------------- to resolve their differences. Any resolution by the City and JWS during the Reduction Resolution Period will be final, binding and conclusive. If the City and JWS do not resolve all disputed items by the end of the Reduction Resolution Period, then all items remaining in dispute will be submitted within fourteen days after the expiration of the Reduction Resolution Period to the Neutral Auditor. If within such fourteen-day period referred to in the previous sentence, the City and JWS are unable to agree on the Neutral Auditor, then the City and JWS will each immediately request the American Arbitration Association to appoint the Neutral Auditor. All fees and expenses relating to the work, if any, to be performed by the Neutral Auditor will be borne equally by the City and JWS. The Neutral Auditor will deliver to the parties hereto a written determination (such determination to include a work sheet setting forth all material calculations used in arriving at such determination and to be based solely on information provided to the Neutral Auditor by JWS and the City) of the disputed items within 30 days of receipt of the disputed items, which determination will be final, binding, and conclusive. The final, binding and conclusive Reduction Statement and Net Reduction Statement, which either are agreed upon by the parties hereto or are delivered by the Neutral Auditor in accordance with this Section 1.3(d), will be the "Conclusive Reduction -------------------- Statement" and the "Conclusive Net Reduction Statement", respectively. - --------- ---------------------------------- -12- (iv) If the Net Reduction Amount as shown on the Conclusive Net Reduction Statement is a positive number, then the Acquisition Price will be reduced by such amount, and the Escrow Agent shall be authorized, pursuant to the Escrow Agreement, to pay (x) to the City from the Escrowed Sum an amount in cash equal to such Net Reduction Amount, plus interest accrued thereon in accordance with the Escrow Agreement and (y) to JWS the balance of the Escrowed Sum as determined in accordance with Section 1.3(c)(i), if any, plus accrued interest thereon in accordance with the Escrow Agreement. If the Net Reduction Amount as shown on the Conclusive Net Reduction Statement is a positive number that exceeds the amount held by the Escrow Agent, then the entire Escrowed Sum plus interest accrued thereon in accordance with the Escrow Agreement shall be delivered to the City and JWS or the Parent will pay to the City the excess amount. If the Net Reduction Amount as shown on the Conclusive Net Reduction Statement is a negative number, then the Acquisition Price shall be increased by the absolute value of such amount, and the City shall pay to JWS an amount in cash equal to the absolute value of the Net Reduction Amount as shown on the Conclusive Net Reduction Statement, and the Escrow Agent shall be authorized, pursuant to the Escrow Agreement, to pay to JWS the balance of the Escrowed Sum as determined in accordance with Section 1.3(c)(i), if any, plus accrued interest thereon in accordance with the Escrow Agreement. All payments to be made pursuant to this Section 1.3(d)(iv) will be made on the second Business Day following the date on which the City and JWS agree to, or the Neutral Auditor delivers, the Conclusive Reduction Statement and the Conclusive Net Reduction Statement. Any -13- payment required to be made by JWS or the City (other than from the Escrowed Sum) pursuant to this Section 1.3(d)(iv) shall bear interest from and including the Closing Date through the date of payment at a rate of 6.0% per annum, and shall be payable by wire transfer of immediately available funds to an account or accounts designated by the party entitled to receive such funds prior to the date when such payment is due. 1.4. Excluded Liabilities. Notwithstanding anything to the contrary -------- ----------- contained herein, the City shall not assume, become liable for, or agree to discharge any obligation or liability of JWS or the Parent including without limitation, (a) any current liabilities, accounts payable or trade liabilities, (b) any liability or obligation under, related to or arising from any Contract associated with the assets described in Section 1.2, provided, that the City shall, as of the Closing Date, assume all obligations of JWS that may arise after the Closing Date under the Contracts listed on Schedule 3.1(e)(i) hereto, (c) any liability or obligation of JWS to any former or current employee of JWS, (d) any obligation or liability of JWS arising from a violation of any law or governmental regulation, including without limitation violation of any Environmental Law (as defined in Section 3.1(i)), (e) any liabilities resulting from claims against JWS or the Parent arising prior to the Closing Date, (f) any other obligation or liability of JWS relating to the Acquired Assets for which the City would otherwise be responsible, to the extent amounts in respect thereof are recovered at any time by JWS or an Affiliate thereof pursuant to insurance policies in effect on the Closing Date, (g) any liability or obligation of JWS that would be classified as a long-term liability under generally accepted accounting practices and reflected on a balance sheet prepared in -14- accordance with generally accepted accounting principles, (h) any guaranty by JWS of any debt, obligation or dividend of any person or entity, (i) any liability or obligation of the Business to JWS or any of its Affiliates (except obligations of the City under this Agreement), or (j) any obligation of JWS to make refunds to its customers (all of the foregoing being hereinafter referred to as the "Excluded Liabilities"). 1.5 Assignment of Contracts and Rights. To the extent that ---------------------------------- assignment hereunder by JWS to the City of any Contract or license is not permitted or is not permitted without the consent of a third party, this Agreement shall not be deemed to constitute an undertaking to assign the same if such consent is not given or if such an undertaking otherwise would constitute a breach of, or cause a loss of benefits under, any such Contract or license, and the City shall not assume any obligation or liability thereunder. JWS shall use its best efforts to obtain any and all such consents required for assignment of any Contracts and licenses included in the Acquired Assets (without having to pay any consideration therefor). JWS shall advise the City promptly in writing with respect to any Contract or license which it knows or has reason to believe will not receive any required consent. Without in any way limiting JWS's obligation to seek to obtain all consents and waivers necessary for the acquisition by the City of any Contracts and licenses included in the Acquired Assets, if such consent is not obtained or if such assignment is not permitted irrespective of consent, JWS shall cooperate with the City in any reasonable arrangement designed to provide for the City the benefit under such Contract or license, as the case may be, including enforcement for the benefit of the -15- City of any or all rights of JWS against any other person arising out of breach or cancellation by such other person and including, if so requested by the City, acting as an agent on behalf of the City, or as the City shall otherwise reasonably require; and any transfer or assignment to the City by JWS of any property or property rights or any Contract or agreement that shall require the consent or approval of any third party, shall be made subject to such consent or approval being obtained. 1.6 Apportionment of Expenses and Hydrant Rentals. (a) All operating --------------------------------------------- expenses relating to the Business, including, without limitation, utilities and materials and supplies not included in the balance sheet of JWS, such as chemicals and gasoline, but excluding real estate rentals, (collectively, "Operating Expenses"), and all prepaid rental revenue in respect of water hydrants, shall be prorated between JWS and the City as of the close of business on the day immediately preceding the Closing Date, and the City and JWS shall each submit to the other an accounting thereof. To the extent practicable, any such apportionments shall be settled, as is appropriate under the circumstances, by a payment or credit between the parties within 35 days after the Closing. (b) Operating Expenses and Revenues. All Operating Expenses ------------------------------- attributable to the period through the close of business on the day immediately preceding the Closing Date shall be the obligation and paid for by JWS and all Operating Expenses attributable to the period from and after the close of business on the day immediately preceding the Closing Date shall be the obligation of and paid for by the City. Operating Expenses attributable to any period including and extending -16- beyond the Closing Date shall be prorated as of the close of business immediately preceding the Closing Date between JWS and the City. In the event that either party collects or receives any income, revenues or receipts to which the other party is entitled pursuant hereto, it shall hold such amounts in trust for the other and promptly pay such amounts to the other party. ARTICLE II: CLOSING (a) Unless this Agreement shall have been terminated and the transactions herein contemplated shall have been abandoned pursuant to Section 6.1 hereof, subject to the provisions of Article V, the closing with respect to the Asset Acquisition (the "Closing") shall take place at the offices of ------- Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York, at 10:00 a.m. on April 30, 1996 (or as soon as practicable thereafter as all of the conditions to Closing set forth in Article V hereof are satisfied or waived and all of the conditions to closing set forth in the Nassau Agreement are satisfied or waived), or such other place, time and date as the parties may agree. The actual time and date of the Closing are herein referred to as the "Closing ------- Date." The parties hereto agree to use their best efforts to cause the Closing - ---- Date to occur on or as soon as practicable after the Vesting Date consistent with the provisions of this Agreement. 2.2 Deliveries by the City. On the terms and subject to ---------------------- the conditions of this Agreement, at the Closing , the City shall deliver to JWS the following: -17- (a) The Acquisition Price, adjusted as provided in Sections 1.3(b), (c) and (d), with statutory interest thereon at a rate of 6% per annum from the Vesting Date to the Closing Date, less the Escrowed Sum, by federal funds or wire transfer of immediately available funds to an account or accounts of JWS designated by JWS by notice given to the City at least two Business Days prior to the Closing Date, as may be agreed between the parties; and (b) the executed Escrow Agreement in substantially the form attached hereto as Exhibit B; and (c) such other instruments or documents, in form and substance reasonably acceptable to JWS, as may be necessary to effect the Closing. 2.3 Deliveries by JWS. On the terms and subject to the ----------------- conditions of this Agreement, at the Closing on the Closing Date, JWS shall deliver to the City the following: (a) assignments, if any required, in form and substance reasonably acceptable to the City, assigning to the City all Contracts (as defined in Section 9.1) included in the Acquired Assets; and (b) such other instruments or documents, including but not limited to proof of payment of applicable New York Real Property Transfer Gains Tax, in form and substance reasonably acceptable to the City, as may be necessary to effect the Closing. 2.4 Additional Transactions At or Following the Closing. At any time --------------------------------------------------- and from time to time, at or after the Closing, the City and JWS and the Parent shall -18- cooperate with each other and execute and deliver, or cause to be executed and delivered, all such instruments, including instruments of assignment, transfer and conveyance and instruments of assumption, and take all such other actions as such party may reasonably be requested to take by the other party or parties hereto, consistent with the terms of this Agreement, in order to effectuate the provisions and purposes of this Agreement. 2.5 Allocation of the Acquisition Price. As soon as practicable ----------------------------------- following final determination of all acquisition price adjustments, the parties hereto shall enter into an agreement setting forth the manner in which the Acquisition Price, as adjusted, is allocated among the Acquired Assets. No party hereto shall take any position for federal or state income tax purposes which is inconsistent with such allocation, unless required to do so under applicable law. The parties hereto acknowledge that the City will not agree to an allocation of the Acquisition Price, as adjusted, which, under applicable federal tax laws and regulations, would restrict the average maturity of the tax exempt bonds to be issued by the New York City Municipal Water Finance Authority to finance this acquisition to less than thirty years. ARTICLE III: REPRESENTATIONS AND WARRANTIES 3.1 Representations and Warranties of JWS and the Parent. JWS and ---------------------------------------------------- the Parent, jointly and severally, represent and warrant to the City as follows: (a) Due Organization. Each of JWS and the Parent is a corporation ---------------- duly incorporated, validly existing and in good standing under the laws of the State of New York (in the case of JWS) and Delaware (in the case of the Parent) and each has -19- full corporate power and authority to own all of its properties and assets and to carry on its business as it is now being conducted. (b) Authorization and Validity of Agreement. Each of JWS and the --------------------------------------- Parent has all requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereunder. The execution, delivery and performance by JWS and the Parent of this Agreement and the consummation by JWS and the Parent of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action and no other corporate action on the part of JWS or the Parent is necessary to authorize the execution, delivery and performance of this Agreement and the consummation by JWS and the Parent of the transactions contemplated hereby (other than the approval and adoption of the Asset Acquisition and this Agreement by the holders of the outstanding shares of common stock (the "Common ------ Shares"), no par value, of JWS). This Agreement has been duly executed and - ------ delivered by JWS and the Parent and, assuming the due authorization, execution and delivery hereof by the City, is a valid and legally binding obligation of each, enforceable against it in accordance with its terms, except to the extent that its enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting creditors' rights generally and by general equity principles regardless of whether such enforceability is considered in a proceeding in equity or at law. (c) No Conflict; Consents. Except as set forth on Schedule 3.1(c) --------------------- hereto , the execution, delivery and performance by JWS and the Parent of this -20- Agreement and the consummation by JWS and the Parent of the transactions contemplated hereby: (i) will not violate, or result in the violation of, any provision of any law, rule, regulation, order, judgment or decree applicable to JWS or the Parent; (ii) will not require any consent, authorization or approval of, or filing with or notice to, any governmental or regulatory authority under any provision of any law applicable to JWS or the Parent, except for the approval of the PSC, and except for any consent, approval, filing or notice requirements which become applicable solely as a result of the specific regulatory status of the City or which the City is otherwise required to obtain; (iii) will not violate any provision of the respective certificates of incorporation or by-laws or other organizational documents of JWS or the Parent; and (iv) will not require any consent, approval or notice under, and will not conflict with, or result in the breach or termination of, or constitute a default under, or result in the acceleration of the performance by JWS or the Parent or the creation of any Lien under, any indenture, mortgage, deed of trust, lease, license, franchise, contract, agreement, warrant or other instrument to which JWS or any of its Affiliates or the Parent is a party or by which either of them, or any of their assets, are bound or encumbered, except with respect to clauses (i), (ii) and (iv) above for any consent, authorization, approval, filing or notice that would not, if not given or made, or any violation, conflict, breach, termination, default or acceleration which does not, and is not likely to, either impair the ability of JWS and the Parent to consummate the transactions contemplated hereby or have a Material Adverse Effect. -21- For purposes of this Agreement, "Material Adverse Effect" means any ----------------------- effect that is, either individually or together with other effects, materially adverse to the assets, properties, business, operations, or financial condition of the Business, taken as a whole. (d) Title to Acquired Assets; Liens and Encumbrances. Except as set ------------------------------------------------ forth on Schedule 3.1(d), as of the date of this Agreement, JWS has good, valid and, except for immaterial exceptions in the case of real property which exceptions have no material effect on the operation or function of the System or the Business and no material effect on the value of the System or the Business, or JWS's interest in the value of the real property acquired ("Permitted Exceptions"), marketable title to all the Acquired Assets (other than rights of way and easements) and all such Acquired Assets are free and clear of all Liens except (i) Liens that are eliminated on or prior to the Closing Date, (ii) statutory Liens arising or incurred in the ordinary course of business with respect to which the underlying obligations are not delinquent , or the validity of which is being contested in good faith by appropriate proceedings,(iii) Liens disclosed or reflected in the audited financial statements of JWS as of and for the year ended December 31, 1994 (the "Financial Statements"), and (iv) Liens which constitute valid leases or subleases from JWS to third parties as listed on Schedule 3.1(d). JWS will clear all Liens (including those set forth on Schedule 3.1(d) hereto) other than Permitted Exceptions prior to or contemporaneously with payment of the Acquisition Price and shall provide documentation of the discharge of said Liens at the Closing. -22- (e) Agreements and Contracts. Schedule 3.1(e) (i) hereto sets forth a ------------------------ list, as of the date hereof, of each written Contract included in the Acquired Assets that is material to the Business. Except as set forth in Schedule 3.1(e) (ii) hereto, each Contract listed on Schedule 3.1(e)(i) is a valid and binding agreement of JWS and is in full force and effect. Except as otherwise provided in Schedule 3.1(e) (ii) hereto, there has been no breach or default under any Contract listed on Schedule 3.1(e) (i) hereto except for breaches or defaults that have been cured or waived and breaches or defaults which could not reasonably be expected to have a Material Adverse Effect. (f) Legal Proceedings. There is no action, proceeding or, to the best ----------------- knowledge of JWS and the Parent, any governmental investigation currently pending against JWS which seeks to restrain or enjoin the consummation of the transactions contemplated by this Agreement. Except as described on Schedule 3.1(f) hereto, there is no action, proceeding or, to the best knowledge of JWS and the Parent, any governmental investigation currently pending against JWS or the Parent which could reasonably be expected to have a Material Adverse Effect. JWS is not in violation of any term of any judgment, decree, injunction or order entered by any court of competent jurisdiction and outstanding against it, which violation could reasonably be expected to have a Material Adverse Effect. (g) Government Licenses, Permits and Related Approvals. Schedule -------------------------------------------------- 3.1(g)(i) is a list, together with a brief description, of all licenses and permits material to the Business, issued or registered in the name of JWS. All licenses listed on Schedule 3.1(g)(i) are in full force and effect. Except as disclosed on Schedule 3.1(g)(ii) hereto, -23- the System and the Business are being conducted in compliance with all applicable laws, rules and regulations, except where the failure to so comply, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. JWS has all licenses, permits, certificates and other authorizations and approvals necessary for the operation of the System and conduct of the Business as presently operated and conducted under applicable laws, ordinances and regulations of any governmental authority, other than those the absence of which could not reasonably be expected to have a Material Adverse Effect. (h) Conduct of the System in Compliance with Regulatory Requirements. ---------------------------------------------------------------- JWS is in substantial compliance with each law, regulation, ordinance and code promulgated by any federal, state or local governmental authority applicable to the operation, conduct or ownership of the System (including, without limitation, any Environmental Laws), except where the failure to comply substantially with any such law, regulation, ordinance or code could not reasonably be expected to have a Material Adverse Effect. (i) Environmental Matters. Except as set forth in Schedule 3.1(i)(1), --------------------- there are no Environmental Liabilities (as defined below) relating to the Business or the Acquired Assets which would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. As used in this Agreement, "Environmental Laws" means any and all applicable federal, state, ------------------ local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, injunctions, orders or decrees regulating or imposing liability or standards of conduct concerning pollution, Hazardous Materials or -24- protection of the environment, in effect as of the date hereof. "Environmental ------------- Liabilities" means any and all liabilities, costs and expenses which (i) arise - ----------- under or are incurred pursuant to Environmental Laws and (ii) are based upon actions occurring or conditions existing on or prior to the Closing Date, provided that Environmental Liabilities shall not include conditions of water - -------- quality or the existence of Hazardous Materials in water at any well site of JWS listed on Schedule 3.1(i)(2) hereof or any conditions of water quality or the existence of Hazardous Materials in water, in any such case, that are not the result of any acts or omissions of JWS. "Hazardous Materials" means any ------------------- hazardous or toxic substances, materials or wastes, defined as such in or under any Environmental Laws, including, without limitation, asbestos, petroleum or petroleum products (including gasoline, crude oil or any fraction thereof), polychlorinated biphenyls, and ureaformaldehyde insulation. (j) Financial Statements. The Financial Statements have been prepared -------------------- in accordance with books and records of JWS and present fairly in all material respects the results of operations and the financial condition of JWS as of the date thereof. The unaudited financial statements of JWS, as of and for the nine months ended September 30, 1995, heretofore delivered to City, were prepared in the ordinary course of business of JWS in accordance with generally accepted accounting principles. The percentage allocation of "Net Utility Plant" and "Accounts Receivable" attributable to the Queens portion of JWS's water system to be set forth on the Projected Statement, the Preliminary Statement and the Statement will be arrived at using a methodology -25- consistent with JWS's past practice of arriving at such allocations for cost of service studies with the New York State Public Service Commission since June, 1986. (k) Absence of Certain Liabilities and Changes. Except (1) to the ------------------------------------------ extent reflected or reserved for in the September 30, 1995 Financial Statements and (2) for liabilities or obligations incurred in the ordinary course of business since September 30, 1995, there are no material obligations or liabilities of JWS, except liabilities disclosed herein or in the schedules hereto, and obligations and liabilities that could not reasonably be expected to have a Material Adverse Effect. Since September 30, 1995, JWS has operated its business in the ordinary course and there has not been, except as set forth in Schedule 3.1(k), (i) any transaction, occurrence or commitment (for capital expenditures or otherwise) that was not in the ordinary course of business; (ii) any material adverse change in the business, affairs or financial condition of JWS; (iii) any lease, sale, abandonment or transfer of, or the creation of any Lien (other than Permitted Exceptions) on any properties or assets material to the Business; (iv) a grant of, or an agreement to grant, any general increase other than pursuant to the Collective Bargaining Agreement (the "Collective Bargaining Agreement") between JWS and the Union, which was effective March, 1994 ("general increase", for purposes hereof, means an increase in any rates of salaries or compensation generally applicable to a class or group of employees of a company, but not including increases granted to individual employees for merit, length of services, change in position or responsibility or other reasons applicable to specific employees and not generally to a class or group) in any rate or rates of salaries or compensation to directors, officers or employees or -26- agents or, since September 30, 1995, any specific increase in the salary or compensation to any officer, agent or employee whose total salary and compensation after such increase would be at an annual rate in excess of $50,000; (v) any damage, destruction or loss to any asset or property which would have a Material Adverse Effect, whether or not covered by insurance; (vi) establishment of any new Plan or material modification or amendment or provision for material increases in any existing Plans, except pursuant to the Effects Bargaining Agreement, or in accordance with the terms of such Plans in effect prior to the date hereof (which modifications or increases, if any, are disclosed in Schedule 3.1(k)), or written interpretation or announcement by JWS under any Plan which would materially increase the expense of maintaining such Plan over the level of expense thereof for the fiscal year ended December 31, 1994; (vii) any claim, action, suit or proceeding commenced or, to the best knowledge of JWS, threatened against JWS, which, if adversely determined, could reasonably be expected to have a Material Adverse Effect; (viii) any grant by JWS of recognition to any labor organization (other than ongoing effects bargaining with a previously recognized union); and (ix) any occurrence, event or condition (including, without limitation, any strike or labor trouble) which could reasonably be expected to have a Material Adverse Effect. For purposes of this section, "Plan" means any plan, program, policy, fund, arrangement or agreement providing for benefits for employees of JWS including, without limitation, any "employee benefit plan" as that term is defined in Section 3(3) of the Employee Retirement Income Security Act (" ERISA"), all retirement, pension benefit, profit sharing, medical, dental, disability, vacation, hospitalization, -27- incentive, bonus, executive compensation, deferred compensation and any other similar material fringe or employee benefit plan, fund, program or arrangement, whether or not covered by ERISA, which is maintained by JWS for the benefit of, or relates to, any or all present or former employees or directors of JWS. (l) Receivables. All Accounts Receivable, whether billed or accrued, ----------- which either are reflected on the balance sheet dated September 30, 1995 (the "Balance Sheet") or which have arisen since the date of the Balance Sheet (as reflected on the books and records of JWS) have arisen in the ordinary course of business in connection with bona fide transactions. Allowances for bad debts have been reflected in the Balance Sheet with respect to the Accounts Receivable shown thereon, and with respect to Accounts Receivable acquired subsequent to the date of the Balance Sheet, allowances for bad debts have been set up on the books of JWS in a manner consistent with the policies used to establish the allowances reflected in the Balance Sheet. To the best knowledge of JWS and Parent, as of the date hereof, the Accounts Receivable are (or will be) fully collectible, net of the allowances referred to in the preceding sentence. 3.2 Representations and Warranties of the City. The City ------------------------------------------ represents and warrants to JWS as follows: (a) Due Organization and Power of the City. The City is a municipal -------------------------------------- corporation, duly established and validly existing under the constitution and laws of the State of New York and The City of New York and is authorized by the laws of the State of New York and The City of New York (i) to own all of its properties and assets and -28- carry on its business as it is now being conducted, (ii) to enter into this Agreement and perform its obligations hereunder and (iii) to acquire the Acquired Assets. (b) Authorization and Validity of Acquisitions. Pursuant to General ------------------------------------------ City Law (S) 20(2), the City is authorized and directed to acquire by condemnation, and to maintain and operate, all or part of the plants, properties and mains, pipes, facilities, easements, franchises and other real or personal property of JWS constituting or related to the water distribution system located in the City of New York, notwithstanding the fact that such property or part thereof was or is devoted to a public use. This acquisition is subject to conditions set forth in General City Law (S) 20(2). The City has all requisite power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereunder upon approval of the New York City Comptroller and the court in the Condemnation Proceeding (as defined in Section 4.7). The execution and delivery by the City of this Agreement have been duly authorized by all necessary action, and no other action on the part of the City, other than the approval of the Comptroller, as well as the approval of the court in the Condemnation Proceeding, is necessary to authorize the performance by the City of this Agreement and the consummation by it of the transactions contemplated hereby. This Agreement has been duly executed and delivered by the City and, assuming the due authorization, execution and delivery hereof by JWS and the Parent, is a valid and legally binding obligation of the City upon approval of the Comptroller and the court in the Condemnation Proceeding, enforceable against the City in accordance with its terms, except to the extent that enforceability may be limited by bankruptcy, insolvency, -29- reorganization, moratorium or other laws relating to or affecting creditors' rights generally and by general equity principles, regardless of whether such enforceability is considered in a proceeding in equity or at law. (i) will not violate, or result in the violation of, any provision of any law, rule, regulation, order, judgment or decree applicable to the City; (ii) will not require any consent, authorization or approval of, or filing or notice to, any governmental or regulatory authority under any provision of any law applicable to the City, except for the approval of the New York City Comptroller and possibly the approval of the New York State Department of Environmental Conservation and the New York State Department of Health, and except for any consent, approval, filing or notice requirements which become applicable solely as a result of the specific regulatory status of JWS or which JWS is otherwise required to obtain; and (iii) will not conflict with or violate any provision of the laws of the State of New York or The City of New York; (d) Disclosure. No Responsible Officer of the City has withheld from ---------- JWS or the Parent any information discovered in the course of the due diligence investigation of JWS and the Parent that would indicate that one or more of the representations and warranties of JWS and the Parent contained in this Agreement is inaccurate. For purposes of the foregoing, "Responsible Officer" means the New York City Department of Environmental Protection's ("DEP") Acting Chief Engineer, DEP's Deputy Commissioner for the Bureau of Management and Budget, DEP's Deputy Commissioner for the Bureau of Water and Energy Conservation, and DEP's General -30- Counsel. To the best knowledge of said Responsible Officers, no other employees of the City have discovered any such information. (e) Financing. The City has sufficient funds, or has the authority --------- without further administrative or legislative action (other than the approvals of the New York City Comptroller and the board of directors of the New York City Municipal Water Finance Authority necessary to the issuance of bonds) to obtain any required financing, in an aggregate amount not less than the amount necessary for the City to be able to consummate the Asset Acquisition on the Closing Date, which funds or financing will be available at the Closing to pay the Acquisition Price. The agreements or authorizations which govern such financing neither contain any condition nor are subject to any consent or approval which the City does not reasonably expect to obtain prior to the Closing Date. 3.3 Survival of Representations and Warranties. The respective ------------------------------------------ representations and warranties of JWS and the Parent and of the City contained in this Article III shall survive for two years from the Closing Date, provided that upon the termination of this Agreement pursuant to Section 6.1, the respective representations and warranties of JWS and the Parent and the City shall immediately terminate. 3.4 Schedules. Disclosure of any fact or item in any Schedule --------- hereto referenced by a particular paragraph or section in this Agreement shall, should the existence of the fact or item or its contents be relevant to any other paragraph or section, be deemed to be disclosed with respect to that other paragraph or section whether or not a specific cross reference appears. -31- 3.5 No Implied Representation. Notwithstanding anything contained in ------------------------- this Article III or any other provision of this Agreement, neither JWS nor the Parent is making any representation or warranty whatsoever, express or implied, other than those representations and warranties of JWS and the Parent expressly provided for in this Agreement or in any Schedule hereto. It is understood that any cost estimates, projections or other predictions which have been provided to the City are not and shall not be deemed to be representations or warranties of JWS or the Parent. The City acknowledges that there are uncertainties inherent in attempting to make such estimates, projections and other predictions, that the City is familiar with such uncertainties, that the City is taking full responsibility for making its own evaluation of the adequacy and accuracy of all estimates, projections and other predictions so furnished to it, and that the City shall have no claim against anyone with respect thereto. ARTICLE IV: COVENANTS AND TRANSACTIONS PRIOR TO CLOSING (a) During the period commencing on the date hereof and ending on the Closing Date, JWS shall, upon reasonable request, afford to the City, its counsel, accountants and other authorized representatives reasonable access during normal business hours to JWS employees and to the properties, books and records with respect to the Acquired Assets, in order that the City may have the opportunity to make such reasonable investigations as it shall desire to make of the Acquired Assets. JWS will furnish to the City such additional financial and operating data and -32- information as the City may from time to time reasonably request with respect to the Acquired Assets (b) During the period commencing on the date hereof and ending on the Closing Date, the City agrees to continue to observe and be bound by the terms of the June 21, 1995 confidentiality agreement between the parties; provided, however, that the City shall be permitted to disclose information to the public in connection with any public hearing that may be required pursuant to applicable law or regulations. 4.2 Conduct of the System Prior to the Closing Date. ------------------------------------------------ JWS agrees that, except as permitted, required or specifically contemplated by this Agreement or as otherwise consented to or approved in writing by the City, during the period commencing on the date hereof and ending at the Closing Date: (a) the System shall be conducted only in the ordinary course consistent with past practice; (b) JWS will not (i) dispose of or encumber, or agree to dispose of or encumber, any interest in the Acquired Assets other than (A) in the ordinary course of business, consistent with past practice, and (B) pursuant to the after-acquired property clause of an existing indenture or mortgage; (ii) acquire, or agree to acquire, any asset material to the System, taken as a whole, other than in the ordinary course of business, consistent with past practice; (iii) cancel any debts or waive any claims or rights, other than in the ordinary course of business, consistent with past practice; (iv) make any capital expenditure or commitment, other than (A) in the ordinary course of business, consistent with past practice,(B) pursuant to existing commitments or (C) which is not material to the System, taken as a whole, and, in any event, will not make any capital commitment or expenditure that is, individually, in excess of $100,000, except in the case of an emergency, without the prior written approval of the City, which approval shall not be unreasonably withheld or delayed, or (v) make any commitment or expenditure for office furniture and equipment, LAN and information systems, transportation equipment or tools and work equipment in excess of the amounts set forth in JWS's 1996 Construction Plan, Schedule 4.2(b) attached hereto, without the prior written approval of the City, which approval shall not be unreasonably withheld or delayed; -33- (c) JWS shall promptly notify the City in writing of, and furnish to City information reasonably requested by it with respect to, the occurrence of any event or the existence of any state of facts that would result in any of JWS's representations and warranties not being true; (d) JWS shall not alter in any material respect the terms on which services are provided and shall use all reasonable efforts to (i) maintain and preserve the Business,(ii) retain its present employees and agents provided, that JWS may terminate employees and agents in the ordinary course of business, and (iii) preserve and maintain its relationships with customers, suppliers and others until the Closing; provided, however, that JWS may, but shall not be required to, increase compensation, pay special bonuses, or otherwise modify benefits, all as set forth on Schedule 3.1(k); (e) JWS shall use all reasonable efforts to maintain in full force and effect all existing insurance and renewals thereof, and will give all notices and present all claims under all policies of insurance in a due and timely fashion; (f) JWS shall maintain its books, accounts and records in the usual, regular and ordinary manner, consistent with past practice, and make no material change in the accounting methods or practices with respect to the Business or the Acquired Assets, unless mandated by law, regulation or the PSC, in which case JWS will provide notice of such change to the City; (g) JWS shall not alter in any material respect its practices with respect to collection of Accounts Receivable and shall not sell, discount or dispose of Accounts Receivable (except that JWS may take appropriate action to increase its efforts to collect Accounts Receivable); (h) JWS, prior to undertaking any negotiation or discussion with any labor union as to recognition, labor contracts, or other matters of like import relating to the Business, other than ongoing effects bargaining with representatives of the Union, will first notify the City and furnish to the City such information relating thereto as the City may reasonably request. In no event shall JWS enter into any agreement or understanding that would have a material adverse impact on the Business with any union without the written consent of City; (i) JWS will not engage in any transaction with any of its Affiliates other than as contemplated by this Agreement or in the ordinary course of business on an arm's-length basis. (j) JWS agrees that all Queens data processing production functions must continue to be performed by the current information systems. This includes, but is not limited to, all Queens customer service, billing, collections, meter reading and field -34- work functions. If any Queens production functions are to be transferred to any new system application, including, but not limited to, the MUPS application, they must continue to function properly on the current system. (k) JWS agrees that the customer billing data, programs and equipment to be transferred under this Agreement for the purpose of operating the billing system shall function adequately and appropriately to serve their intended purposes, consistent with past practice. (l) JWS shall deliver to the City copies of its severance policy and the Effects Bargaining Agreement as soon as practicable after each document is adopted in final form. 4.3 Shareholders' Meeting; Approval. (a) JWS and the Parent ------------------------------- will take all action necessary in accordance with and subject to applicable law and JWS's certificate of incorporation and by-laws to convene a meeting of JWS's shareholders (the "Shareholders' Meeting") as soon as practicable after the date --------------------- of this Agreement to consider and vote upon the adoption and authorization of this Agreement and the Asset Acquisition. (b) At the Shareholders' Meeting, the Parent, as the sole shareholder of Jamaica Water Securities Corp. ("JW Securities"), shall cause the Common Shares held by JW Securities (which constitute 96.12% of the issued and outstanding Common Shares) to be voted in favor of adoption and authorization of this Agreement and the Asset Acquisition. 4.4 Cooperation. Subject to the provisions of Section 4.1(b), ----------- during the period commencing on the date hereof and ending at the Closing Date, upon such terms as may be agreed upon between the parties, JWS shall cooperate with the City -35- to assist the City so that the City can provide continuous, uninterrupted service to its customers subsequent to the Closing Date by: (a) providing the City's representatives access to JWS's sites, facilities and installations; (b) providing the City's representatives access to accounting and billing information; and (c) providing such information, data and technical assistance as is reasonably required by the City's representatives in order to accomplish the technical changes, staff acquisition and training as may be necessary to assure uninterrupted service; provided, however, that JWS shall not be required to disclose any - -------- confidential information relating to employees of JWS without the prior written approval of such employees. 4.5 PSC Approval. JWS and the Parent shall take all steps ------------ necessary or advisable to effectuate the approval of the PSC ("PSC approval"), if any is required, pursuant to any law, regulation or other authority and/or pursuant to the settlement agreement dated December 22, 1993 (the "PSC Settlement Agreement") between JWS, the PSC and certain other parties, for the transactions contemplated hereby. The City agrees that it shall, without undue delay (i) furnish JWS with all information requested by JWS that is reasonably necessary to assist JWS in effecting all necessary registrations and filings and submissions of information required to complete its application for PSC Approval, if any, and (ii) cooperate in complying with all orders -36- and requests of the PSC as are reasonably necessary to obtain PSC Approval, if any is required. 4.6 DEC and Department of Health Approval. The City shall ------------------------------------- promptly take all steps necessary to effectuate the approval of the New York State Department of Environmental Conservation ("DEC") and the New York State Department of Health, if any such approvals are required, for any permits that may be necessary for the transactions contemplated hereby. JWS agrees that it shall, without undue delay, (i) furnish the City with all information requested by the City that is reasonably necessary to assist the City in effecting all necessary registrations, filings and submissions of information required to complete its application for such approvals and permits, if any are required, and (ii) cooperate in complying with all orders and requests of the DEC or Department of Health as are reasonably necessary to obtain such approvals and permits, if any are required. 4.7 Condemnation Proceeding. Prior to the execution and ----------------------- submission to the Court of a stipulation of settlement providing for acquisition of the Acquired Assets, the City must obtain approval of such settlement from the Comptroller of the City of New York. After approval of the Comptroller, the City, JWS and the Parent agree that the parties shall file in the condemnation proceeding filed by the City and pending in Supreme Court, Queens County (the "Condemnation Proceeding") a stipulation and agreement of settlement in a form to be agreed on as to the value of the Acquired Assets. Such stipulation shall provide for the acquisition of the Acquired Assets by condemnation and for the Acquisition Price as the amount of just -37- compensation to be paid. The judgment of the court in accordance with the stipulation in the Condemnation Proceeding shall be final, binding and conclusive with respect to all terms, including the amount of the Acquisition Price, and neither party shall appeal such judgment. The parties hereto shall use their respective best efforts to assure that the Vesting Date shall occur on, or as close as possible to, the Vesting Date as defined in the Nassau Agreement. 4.8 Non-Solicitation. If this Agreement is terminated, the ---------------- City's Department of Environmental Protection will not, for a period of three years thereafter, without the prior written approval of JWS, encourage, entice or induce any Person who is an employee of JWS on the date hereof or at any time hereafter that precedes such termination, to terminate his or her employment with JWS, provided that the City shall not be prohibited from hiring any employee of JWS absent any such solicitation by the City , and that this section shall not apply in the case of a subsequent attempt by the City to acquire the property of JWS. The City agrees that any remedy at law for any breach by it of this Section 4.8 would be inadequate, and JWS would be entitled to injunctive relief in such a case. If it is ever held that the restriction placed on the City by this Section 4.8 is too onerous, the City agrees that any court of competent jurisdiction may impose lesser restrictions to the maximum extent permitted by law, and the City hereby consents and agrees that such scope may be judicially modified accordingly in any proceeding brought to enforce such restriction. 4.9 Retained Employees. Within a reasonable time, the City ------------------ shall provide JWS with a list (the "Employees List") containing the name of each -------------- employee -38- of JWS to whom the City will offer employment commencing on the Closing Date. The City shall include on the Employees List the job title and description, salary and benefits offered to each such employee. 4.10 Compliance with WARN. JWS shall give all notices, if any, -------------------- required by the Worker Adjustment and Retraining Notification Act of 1988. 4.11 Meter Leases. At or prior to the Closing, JWS shall obtain, ------------ and deliver to the City, a release from each of the lessors under its leases of water meters of any and all Liens with respect to said leases. 4.12 Further Actions. Subject to the terms and conditions --------------- hereof, each of the parties hereto agrees to use its best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement, including, but not limited to, using its best efforts: (i) to obtain any licenses, permits, consents, approvals, authorizations, qualifications and orders of governmental authorities as are required in connection with the consummation of the transactions contemplated hereby; (ii) to effect all necessary registrations and filings; (iii) to defend any lawsuits or other legal proceedings, whether judicial or administrative, whether brought derivatively or on behalf of third parties (including governmental agencies or officials), challenging this Agreement or the consummation of the transactions contemplated hereby; and (iv) to furnish to each other such information and assistance as is reasonably requested in connection with the foregoing. -39- 4.13. Nassau Agreement. Prior to the effectiveness of any amendment ------ --------- to the Nassau Agreement, other than with respect to the amount of the Acquisition Price to be paid for the assets to be acquired, which (i) grants rights and remedies to the Water Authority which are not granted to the City herein, (ii) imposes obligations on JWS or the Parent which are not imposed hereby or (iii) otherwise amends the Nassau Agreement so that the Water Authority is afforded the benefit of any term, condition or provision (including any provision relating to the manner of adjustment of the Acquisition Price to the extent applicable) not afforded to the City hereunder, the Parent shall give the City written notice describing such proposed amendment and shall offer to amend this Agreement to provide the City with the same benefits as are proposed to be provided to the Water Authority pursuant to such amendment. ARTICLE V: CONDITIONS PRECEDENT 5.1 Conditions Precedent to Obligations of the Parties. The -------------------------------------------------- respective obligations of the parties hereto are subject to the satisfaction (or waiver by each of the City and JWS and the Parent) at or prior to the Closing of each of the following conditions: (a) No Injunction. No preliminary or permanent injunction or ------------- other order issued by any court or by any governmental or regulatory body nor any statute, rule, regulation or executive order promulgated or enacted by any governmental authority which restrains, enjoins or otherwise prohibits the transactions contemplated hereby shall be in effect. (b) Regulatory Approvals. The approval of the PSC, if necessary, -------------------- all permits and approvals required by the DEC and the NYS Department of Health, if any, and all other regulatory approvals necessary -40- for the Asset Acquisition shall have been obtained and be in full force and effect, and all required waiting periods shall have expired or been terminated. (c) Condemnation Proceeding. Following the submission to the ----------------------- court and the filing of a stipulation of settlement as set forth in Section 4.7, and the filing of the decision of the court and the final judgment and final decree of the court in the amount of the Acquisition Price, subject to adjustment as provided in Section 1.3, an order of condemnation (the "Order of Condemnation") shall be entered and thereupon (the date of entry of such Order of Condemnation referred to as the "Vesting Date") title shall vest in the City pursuant to General City Law (S) 20(2). 5.2 Conditions Precedent to Obligation of the City. The ---------------------------------------------- obligations of the City to consummate the transactions contemplated by this Agreement are also subject to the satisfaction (or waiver by the City) at or prior to the Closing of each of the following additional conditions: (a) Accuracy of Representations and Warranties. The ------------------------------------------ representations and warranties of JWS and the Parent contained herein shall have been true and correct in all material respects on and as of the date hereof and (except to the extent such representations and warranties speak of an earlier date) shall continue to be true and correct as of the Closing Date, except as otherwise contemplated by this Agreement. (b) Performance of Agreement. Each of JWS and the Parent ------------------------ shall have performed and complied in all material respects with all obligations and agreements, and complied in all material respects with all covenants and conditions, contained in this Agreement to be performed or complied with by it prior to or on the Closing Date. (c) Certificate. The City shall have received (i) a ----------- certificate of JWS, dated the Closing Date, executed on behalf of JWS by its President or any Vice President to the effect that the conditions specified in paragraphs (a) and (b) above with respect to JWS have been fulfilled and (ii) a certificate of the Parent, dated the Closing Date, executed on behalf of the Parent by its President or any Vice President to the effect that the conditions specified in paragraphs (a) and (b) above with respect to the Parent have been fulfilled. -41- (d) Burdensome Condition. There shall not be any action -------------------- taken, or any statute, rule, regulation or order enacted, entered, enforced or deemed applicable to the Asset Acquisition , by any governmental or regulatory body which (i) imposes any condition or restriction upon the City which would materially adversely affect the economic or business benefits to the City of the transactions contemplated by this Agreement or (ii) would be reasonably likely to result in a material adverse effect with respect to the City. (e) No Action Pending. No action shall have been filed and ----------------- remain pending in any court which, in connection with this Agreement or any of the transactions contemplated hereby, seeks a judgment which if awarded would materially adversely affect the economic or business benefits to the City of the transactions contemplated by this Agreement. 5.3 Conditions Precedent to the Obligation of JWS and the ----------------------------------------------------- Parent. The obligations of JWS and the Parent to consummate the transactions - ------ contemplated by this Agreement are also subject to the satisfaction (or waiver by JWS and the Parent) at or prior to the Closing of each of the following additional conditions: (a) Accuracy of Representations and Warranties. The ------------------------------------------ representations and warranties of the City contained herein shall have been true and correct in all material respects on and as of the date hereof and (except to the extent such representations and warranties speak of an earlier date) shall continue to be true and correct as of the Closing Date, except as otherwise contemplated by this Agreement. (b) Performance of Agreement. The City shall have performed ------------------------ in all material respects all obligations and agreements, and complied in all material respects with all covenants and conditions, contained in this Agreement to be performed or complied with by it prior to or on the Closing Date. (c) Certificate. JWS and the Parent shall have received a ----------- certificate of the City, dated the Closing Date, executed on behalf of the City by its authorized officers, to the effect that the conditions specified in paragraphs (a) and (b) above have been fulfilled. (d) Shareholder Approval. The Asset Acquisition shall have -------------------- been approved by the affirmative vote of the holders of the -42- outstanding Common Shares entitled to vote at annual or special meetings of shareholders of JWS. (e) Burdensome Condition. There shall not be any action -------------------- taken, or any statute, rule, regulation or order enacted, entered, enforced or deemed applicable to the Asset Acquisition, by any governmental or regulatory body which (i) in connection with the grant of a regulatory approval or permit, imposes any condition or restriction upon the Parent or JWS which would materially adversely affect the economic or business benefits, to the Parent or JWS, of the transactions contemplated by this Agreement or (ii) in connection with the grant of a regulatory approval or permit or otherwise, would be reasonably likely to result in a material adverse effect with respect to JWS. (f) No Action Pending. No action shall have been filed and ----------------- remain pending in any court which, in connection with this Agreement or any of the transactions contemplated hereby, seeks a judgment which if awarded would materially adversely affect the economic or business benefits, to the Parent or JWS, of the transactions contemplated by this Agreement. (g) Performance of Nassau Agreement. All covenants and ------------------------------- conditions to closing contained in the Nassau Agreement shall have been satisfied (or waived by the Parent and JWS), it being expressly understood between the parties hereto that the Closing shall occur simultaneously with the closing of the transactions contemplated under the Nassau Agreement. ARTICLE VI: TERMINATION AND ABANDONMENT 6.1 General. This Agreement may be terminated and the transactions ------- contemplated hereby may be abandoned at any time, but not later than the Vesting Date: (a) by mutual written consent of the City, JWS, and the Parent; or (b) by any party upon written notice given to the other parties if the Vesting Date has not occurred by May 31, 1996; provided, -------- however, that if prior to the Vesting Date, any court of competent ------- jurisdiction or any governmental or regulatory body with jurisdiction over the subject hereof shall have issued an order, decree or ruling or taken any other action, or -43- if an action shall have been commenced seeking an order, decree or ruling, restraining, enjoining or otherwise prohibiting the transactions contemplated hereby, either the City or JWS, or both, shall have 30 days from the date of filing of such order, decree or ruling or the taking of such action, or the commencement of such action, to have such order, decree or ruling reversed or vacated, or such action dismissed; or (c) by either the City or JWS and the Parent, upon written notice given to the other party in the event of a breach or default in the performance by such other party of any representation or warranty, or a material breach of a covenant or agreement contained in this Agreement, provided that, in the case of a default in the performance of a covenant or agreement contained in this Agreement, such default has not been or cannot be cured within 30 days after written notice of such breach or default has been given by the terminating party to the breaching party and describing such breach or default in reasonable detail; or (d) by either the City, the Parent, or JWS, if any court of competent jurisdiction or any governmental or regulatory body with jurisdiction over the subject hereof shall have issued an order, decree or ruling or taken any other action restraining, enjoining or otherwise prohibiting the transactions contemplated hereby and such order, decree, ruling or other action shall have become final and nonappealable; or (e) if, at any time prior to the Vesting Date, any party to the Nassau Agreement terminates the Nassau Agreement in accordance with its terms, provided that upon such termination JWS and the Parent will make all reasonable attempts to secure another buyer ("Other Buyer") for the Nassau portion of JWS's business on terms reasonably comparable to those contained in the Nassau Agreement. In such a case, JWS and the Parent shall proceed with all transactions contemplated hereby contemporaneously with the sale to the Other Buyer. 6.2 Procedure Upon Termination. In the event of the termination and -------------------------- abandonment of this Agreement, written notice thereof specifying in sufficient detail the basis for such termination (including, in respect of any termination pursuant to Section 6.1(c), reasonably sufficient detail of the breaches of representation, warranty or covenant) shall promptly be given to the other party hereto and this Agreement shall -44- terminate and the transactions contemplated hereby shall be abandoned without further action by any of the parties hereto. Termination of this Agreement shall not preclude either party from suing the other party for breach of this Agreement; provided, however, that each of the parties hereto agrees that no such lawsuit for breach of this Agreement shall be brought against any officer, director or employee of any of the parties hereto. 6.3 Survival of Certain Provisions. The respective obligations of ------------------------------ the parties hereto pursuant to this Article VI and Sections 4.1(b), 4.8, and 9.2 hereof shall survive any termination of this Agreement. ARTICLE VII: POST-CLOSING COVENANTS AND TRANSACTIONS 7.1 Access to Books and Records. Following the Closing, the City --------------------------- will afford to JWS, the Parent, their respective counsel and accountants, during normal business hours, reasonable access to the books, records and other data pertaining to the System with respect to the period prior to the Closing Date to the extent that such access may be reasonably required by JWS or the Parent to facilitate (a) the preparation by JWS or the Parent of such tax returns as JWS or the Parent may be required to file with respect to the operations of the System or the Asset Acquisition or in connection with any audit, amended return, claim for refund or any proceeding with respect thereto, (b) the investigation, litigation and final disposition of any claims which may have been or may be made against JWS, and (c) the payment of any amount pursuant to Section 8.1(b) or the payment of any liabilities or obligations of JWS (including refunds, if any, to the former customers of JWS and the settlement of all obligations of JWS under the PSC Settlement Agreement). The City will not dispose of, -45- alter or destroy any such books, records and other data without giving 30 days' prior written notice to JWS and the Parent to permit JWS or the Parent, at its expense, to examine, duplicate, or repossess such records, files, documents and correspondence, or any portion thereof. 7.2 Dissolution or Merger of JWS. It is agreed and understood ---------------------------- between the parties hereto that after the Closing Date, the Parent and JWS will have the option to dissolve JWS, or to merge JWS with or into another corporation, and to discontinue JWS's corporate existence. It is also agreed and understood that all obligations of JWS hereunder are, whether or not expressly so stated, joint and several obligations of JWS and the Parent. It is also agreed and understood that JWS and the Parent will make all payments to former customers of JWS that are required pursuant to the PSC Settlement Agreement. (a) After the Closing Date, the City shall provide notice to JWS or the Parent in writing within 30 days after its receipt of any correspondence, notice, or other communication from a taxing authority or any representative thereof of any pending or threatened tax audits, or any pending or threatened judicial or administrative proceeding that involves taxes, for taxable periods for which JWS may have a liability under this Agreement, including tax accounting changes that may create a future liability, and furnish JWS or the Parent with copies of all correspondence received from any taxing authority in connection with any audit or information request with respect to any such taxable period for which JWS or the Parent may be liable to pay any taxes under this Agreement. -46- (b) Notwithstanding any provision of this Agreement to the contrary, with respect to any claim for refund, audit, examination, notice of deficiency or assessment or any judicial or administrative proceeding that involves taxes of JWS (other than a tax claim relating solely to taxes for a tax period subsequent to the Closing Date) (a "Tax Claim"), JWS shall control all --------- proceedings taken in connection with such Tax Claim. JWS and the City shall reasonably cooperate in contesting any Tax Claim of any jurisdiction other than the City, which cooperation shall include, without limitation, the retention and the provision upon reasonable request of records and information which are reasonably relevant to such Tax Claim, and making employees available on a mutually convenient basis to provide additional information or explanation of any material provided hereunder or to testify at proceedings relating to such Tax Claim. In no event shall the City settle or otherwise compromise any Tax Claim without JWS's or the Parent's prior written consent. (c) JWS shall be entitled to any refunds or credits of taxes attributable to JWS arising in any tax periods prior to the Closing Date. The City shall promptly notify and forward to JWS the amounts of any refunds, credits or benefits due to JWS hereunder within 10 Business Days after receipt thereof. (d) All transfer, documentary, sales, use, registration and other such taxes (including, but not limited to, all applicable real estate transfer or gains taxes) and fees (including any penalties, interest and addition to such taxes), if any, incurred in connection with the transactions contemplated hereby shall be the obligation of JWS and shall be paid at or prior to the Closing. -47- 7.4 Deposits. JWS and Parent agree that they will refund all customer -------- deposits which JWS is holding or credit such customer deposits against the corresponding customer accounts within 30 days after the Closing. ARTICLE VIII: ASSUMPTION OF CERTAIN OBLIGATIONS AND LIABILITIES; INDEMNIFICATION (a) The City hereby agrees to indemnify and hold, to the extent permitted by law, JWS, the Parent and their respective directors, officers, employees, agents and other Affiliates (collectively, the "JWS Indemnified Parties") ----------------------- harmless against and in respect of all losses, liabilities, damages, costs and expenses (including costs of suit and reasonable attorneys' fees), (collectively, "Liabilities"), incurred by any of them on or after the ----------- Closing Date arising from, in connection with or relating to the following: (i) the operation of the System and use or ownership of the Acquired Assets on or after the Closing Date; (ii) any Liability arising out of a claim for severance by any Offered Employee with respect to whom an adjustment to the Acquisition Price was made pursuant to Section 1.3(d), to the extent of the amount of said adjustment with respect to said Offered Employee; and (iii) any misrepresentation, breach or inaccuracy of any representation or warranty or failure to comply with any agreement, condition or covenant on the part of the City under this -48- Agreement; provided, however, that as a condition precedent ----------------- to any indemnification pursuant to this clause (iii), the City shall have received written notice of a claim from the JWS Indemnified Party pursuant to Section 8.2 within the applicable statute of limitations period, or, with respect to Liabilities relating to any misrepresentation, breach or inaccuracy of any representation or warranty, within the period specified in Section 3.3 hereof. (b) JWS, the Parent and SellCo Corporation, a Delaware corporation ("SellCo") hereby agree, jointly and severally, to indemnify and hold, to the extent permitted by law, the City, the New York City Water Board, and the New York City Municipal Water Finance Authority, and their respective directors, officers, employees, agents and other Affiliates (collectively, the "City ---- Indemnified Parties") harmless against and in respect of all Liabilities (as - ------------------- defined above) incurred by any of them on or after the Closing Date arising from, in connection with or relating to the following (it being expressly understood by the City that the indemnification provisions in this Section 8.1(b) shall not cover Liabilities, if any, that may arise as the result of a modification by the City in the operation of the System upon the separation of the Queens portion of the water distribution system from the Nassau portion): (i) the operation of the System and use or ownership of the Acquired Assets prior to the Closing Date; (ii) any liability of JWS; -49- (iii) any misrepresentation, breach or inaccuracy of any representation or warranty or failure to comply with any agreement, condition or covenant on the part of JWS or the Parent under this Agreement; provided, however, that as a condition ----------------- precedent to any indemnification pursuant to this clause (iii) JWS, the Parent, or SellCo, as the case may be, shall have received written notice of a claim from the City Indemnified Party pursuant to Section 8.2 within the applicable statute of limitations period, or, with respect to Liabilities relating to any misrepresentation, breach or inaccuracy of any representation or warranty, within the period specified in Section 3.3 hereof; or (iv) any Environmental Liabilities relating to the Business or the Acquired Assets, except for those disclosed on Schedule 3.1(i)(1) and (2) that did not result from acts or omissions of JWS or the Parent; provided, however, that JWS, the Parent and SellCo shall only be - -------- ------- obligated to indemnify, defend and hold the City Indemnified Parties harmless for Liabilities arising pursuant to this Section 8.1(b) in the event and to the extent that all such Liabilities for which indemnification may be sought hereunder shall exceed 0.65 of 1% of the aggregate amounts payable pursuant to Sections 1.3(a) and (b), prior to any adjustment. -50- (c) All Liabilities referred to in the foregoing paragraphs (a) and (b) are collectively referred to as "Indemnified Liabilities" and "Indemnified ----------------------- ----------- Party" shall mean either a JWS Indemnified Party or a City Indemnified Party. - ----- 8.2 Procedure. If any claim or demand by any Person is made against --------- an Indemnified Party, and if such Indemnified Party intends to seek indemnity with respect thereto under this Article VI, such Indemnified Party shall notify the indemnifying party in writing of such claim or demand, provided that the failure to notify the indemnifying party shall not relieve the indemnifying party from any liability which it may have hereunder unless it is actually prejudiced thereby. The indemnifying party shall have 30 days after receipt of such notice to undertake, conduct and control, through counsel of its own choosing and at its own expense, the settlement or defense thereof, and the Indemnified Party shall cooperate with the indemnifying party in connection therewith; provided that the Indemnified Party may participate at its own -------- expense in such settlement or defense through counsel chosen by such Indemnified Party. So long as the indemnifying party is reasonably contesting any such claim in good faith, the Indemnified Party shall not pay or settle any such claim. Notwithstanding the foregoing, the Indemnified Party shall have the right to pay or settle any such claim; provided that in such event it shall -------- waive any right to indemnity therefor by the indemnifying party. If the indemnifying party does not notify the Indemnified Party within 30 days after the receipt of the Indemnified Party's notice of a claim of indemnity hereunder that it elects to undertake the defense thereof, the Indemnified Party shall have the right to contest, settle or compromise the claim in its -51- sole discretion and shall not thereby waive any right to indemnity therefor pursuant to this Agreement. The indemnifying party shall not, except with the consent of the Indemnified Party, enter into any settlement that does not include as an unconditional term thereof the giving by the Person or Persons asserting such claim to all Indemnified Parties an unconditional release from all liability with respect to such claim or consent to entry of any judgment. Notwithstanding the foregoing, following the Closing, each Indemnified Party will afford to the indemnifying party and its counsel, accountants and other authorized representatives reasonable access during normal business hours to relevant properties, books and records (and permit the indemnifying party and its counsel, accountants and other authorized representatives to make copies of such books and records at their own expense), to the extent that such access may be reasonably required to facilitate the investigation, litigation and final disposition of any claim which may have been or may be made against any Indemnified Party relating to the System, the Acquired Assets or any of the transactions contemplated by this Agreement. The City Indemnified Parties shall hold any such confidential information in confidence on the same terms and subject to the same conditions as set forth in Section 4.1(b) hereof, and the JWS Indemnified Parties shall hold any such confidential information in confidence on the same terms and subject to the same conditions applicable to the City in Section 4.1(b) hereof. 8.3 Payment. On each occasion that an Indemnified Party shall be ------- entitled to indemnification or reimbursement under this Article VI, the indemnifying party shall, at each such time, promptly pay the amount of such indemnification or -52- reimbursement. If the Indemnified Party shall be entitled to indemnification under this Article VI and the indemnifying party shall not elect to control any legal proceeding in connection therewith, the indemnifying party shall pay upon request from time to time to the Indemnified Party an amount equal to the Indemnified Party's costs and expenses arising as a result of such proceeding which have not been previously reimbursed. ARTICLE IX: MISCELLANEOUS (a) As used in this Agreement, the term "Affiliate" when used with respect to --------- another Person shall mean any Person controlling, controlled by or under common control with such Person. (b) As used in this Agreement, the term "Business Day" means any day ------------ that is not a Saturday, Sunday or other day on which banks are required or authorized by law to be closed in New York, New York. (c) As used in this Agreement, the term "Contracts" means all --------- agreements, contracts, leases, purchase orders, arrangements, commitments and licenses that are related to the System or to which the Acquired Assets are subject. (d) As used in this Agreement, the term "Person" means and includes ------ any natural person, corporation, limited liability company, partnership, limited partnership, firm, joint venture, association, joint-stock company, trust, business trust, unincorporated organization, governmental or regulatory body, or other entity of whatever nature. 9.2 Fees and Expenses. (a) Whether or not the transactions ----------------- contemplated hereby are consummated, each of the parties hereto shall pay its own -53- fees and expenses incident to the negotiation, preparation and execution of this Agreement, including attorneys', accounts' and other advisors' fees and the fees and expenses of any broker, finder or agent retained by such party in connection with the transactions contemplated by this Agreement. (b) The parties respectively represent and warrant to each other that they have not employed or utilized the services of any broker, finder or investment banker in connection with this Agreement or the transactions contemplated by it, other than, in the case of JWS and the Parent, Bear, Stearns & Co. Inc. ("Bear Stearns"), and in the case of the City, PaineWebber Incorporated ("PaineWebber"), Peter Kind, and Andrew Collens. Attached as Schedule 9.2(b) is the acknowledgment of Bear Stearns relating to the City's non-responsibility for any fees of Bear Stearns in connection with this Agreement or the transactions contemplated hereunder, and the acknowledgments of PaineWebber, Peter Kind, and Andrew Collens relating to JWS's and the Parent's non-responsibility for any fees of PaineWebber, Peter Kind, or Andrew Collens in connection with this Agreement or the transactions contemplated hereunder. 9.3 Notices. All notices, requests, demands, waivers and other ------- communications required or permitted to be given under this Agreement shall be in writing delivered by hand, telex, facsimile or registered letter with return receipt requested and shall be deemed to have been duly given or made when delivered by hand, or, in the case of telex notice, when sent, answerback received, or, in the case of facsimile note or registered letter, when received by the addressee, addressed as follows: -54- (a) if to JWS, to it at: Jamaica Water Supply Company 410 Lakeville Rd. Lake Success, NY11042 Attention: Edward J. Haye Vice President, Corporate Secretary, and General Counsel with a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue, 28th Floor New York, New York 10017-3909 Attention: Vincent Pagano, Jr., Esq. (b) if to the Parent or to SellCo, to them at: EMCOR Group, Inc. 101 Merritt Seven, 7th Floor Norwalk, CT 06851 Attention: Sheldon I. Cammaker Executive Vice President and General Counsel with a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue, 28th Floor New York, New York 10017-3909 Attention: Vincent Pagano, Jr., Esq. (c) if to the City, to it at: Department of Environmental Protection 59-17 Junction Boulevard Corona, NY 11368 Attention: Steven F. Ostrega, Deputy Commissioner New York City Municipal Water Finance Authority 75 Park Place, 6th Floor New York, NY 10007 Attention: Mark Page, Executive Director -55- with a copy to: New York City Law Department 100 Church Street New York, NY 10007 Attention: Mary Richman, Assistant Corporation Counsel or to such other persons or addresses as any party shall specify as to itself by notice in writing to the other parties. 9.4 Severability. If any term or other provision of this ------------ Agreement is invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the fullest extent possible. 9.5 Entire Agreement. This Agreement (including the Schedules ---------------- hereto) constitutes the entire agreement between the parties hereto and supersedes all prior agreements and understandings, oral and written, between the parties hereto with respect to the subject matter hereof. 9.6 Binding Effect; Benefit. This Agreement shall inure to the ----------------------- benefit of and be binding upon the parties hereto and their respective successors and assigns. Nothing in this Agreement, expressed or implied, is intended to confer on any Person -56- other than the parties hereto or their respective successors and assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement. 9.7 Assignability. This Agreement shall not be assigned by any ------------- of the parties hereto without the prior written consent of the other parties. 9.8 Amendment and Modification; Waiver. This Agreement may not ---------------------------------- be amended, modified and supplemented except by a written instrument authorized and executed on behalf of the parties at any time prior to the Closing Date with respect to any of the terms contained herein. No waiver by any party of any of the provisions hereof shall be effective unless explicitly set forth in writing and executed by the party so waiving. Except as provided in the preceding sentence, no action taken pursuant to this Agreement, including without limitation, any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representations, warranties, covenants, or agreements contained herein, and in any documents delivered or to be delivered pursuant to this Agreement and in connection with the Closing hereunder. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any other or subsequent breach. 9.9 Public Announcements. Unless otherwise required by law or -------------------- any regulation or rule binding upon JWS or the Parent or the City, prior to the Closing, no news release or other public announcement pertaining to the transactions contemplated by this Agreement will be made by or on behalf of any party hereto without the prior written approval of the other parties (such consent not to be -57- unreasonably withheld or delayed). Where any announcement, communication or circular concerning the transactions referred to in this Agreement is required by law or any regulation or rule it shall be made by the relevant party after consultation, where reasonably practicable, with the other parties and taking into account the reasonable requirements (as to timing, contents and manner of making or dispatch of the announcement, communication or circular) of the other parties. 9.10 Section Headings. The section headings contained in this ---------------- Agreement are inserted for reference purposes only and shall not affect the meaning or interpretation of this Agreement. 9.11 Counterparts. This Agreement may be executed in any number ------------ of counterparts, each of which shall be deemed an original, and all of which together shall be deemed to be one and the same instrument. 9.12 Jurisdiction. Each of the parties hereto irrevocably and ------------ unconditionally consents to the exclusive jurisdiction of the courts of the State of New York and the United States District Courts located in the City and State of New York for any actions, claims or other proceedings arising out of or related to this Agreement, consents to service of process of such courts and agrees not to commence any such action, claim or other proceeding except in such courts. 9.13 GOVERNING LAW. THIS AGREEMENT AND THE LEGAL RELATIONS ------------- BETWEEN THE PARTIES HERETO SHALL BE GOVERNED BY AND -58- CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THEREOF. -59- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. JAMAICA WATER SUPPLY COMPANY By: /s/ Frank T. MacInnis ---------------------- Name: Frank T. MacInnis Title: Chairman of the Board EMCOR GROUP, INC. By: /s/ Frank T. MacInnis --------------------- Name: Frank T. MacInnis Title: Chairman of the Board THE CITY OF NEW YORK By: /s/ Peter J. Powers ------------------- Name: Peter J. Powers Title: First Deputy Mayor For purposes of Article VIII: SELLCO CORPORATION By: /s/ Frank T. MacInnis --------------------- Name: Frank T. MacInnis Title: Chairman of the Board -60- EX-2.(H) 3 ASSET ACQUISITION AGREEMENT DATED 02/09/96 EXHIBIT 2(H) ------------ ASSET ACQUISITION AGREEMENT between WATER AUTHORITY OF WESTERN NASSAU COUNTY, JAMAICA WATER SUPPLY COMPANY and EMCOR GROUP, INC. Dated as of February 9, 1996 Table of Contents -----------------
Page ---- ARTICLE I: ACQUISITION...................................................... 2 1.1 Acquisition............................................................ 2 1.2 Excluded Assets........................................................ 3 1.3 Acquisition Price; Lease Repayment Amount; Adjustments................. 3 1.4 Excluded Liabilities................................................... 16 1.5 Assignment of Contracts and Rights..................................... 17 1.6 Apportionment of Expenses.............................................. 18 ARTICLE II: CLOSING......................................................... 19 2.1 The Closing............................................................ 19 2.2 Deliveries by the Water Authority...................................... 20 2.3 Deliveries by JWS...................................................... 21 2.4 Additional Transactions At or Following the Closing.................... 21 2.5 Allocation of the Acquisition Price.................................... 22 ARTICLE III: REPRESENTATIONS AND WARRANTIES................................. 22 3.1. Representations and Warranties of JWS and the Parent................... 22 (a) Due Organization.................................................. 22 (b) Authorization and Validity of Agreement........................... 23 (c) No Conflict; Consents............................................. 24 (d) Title to Acquired Assets; Liens and Encumbrances.................. 25 (e) Agreements and Contracts.......................................... 26 (f) Legal Proceedings................................................. 26 (g) Government Licenses, Permits and Related Approvals................ 27 (h) Conduct of the Nassau System in Compliance with Regulatory Requirements ................................................. 27 (i) Environmental Matters............................................. 28 (j) Financial Statements.............................................. 29 (k) Absence of Certain Liabilities and Changes........................ 29 3.2 Representations and Warranties of the Water Authority.................. 31 (a) Due Organization and Power of the Water Authority................. 31 (b) Authorization and Validity of Agreement........................... 32 (c) No Conflict; Consents............................................. 33 (d) Disclosure........................................................ 34 (e) Financing......................................................... 34 3.3 Survival of Representations and Warranties............................. 35 3.4 Schedules.............................................................. 35 3.5 No Implied Representation.............................................. 35
-i- ARTICLE IV: COVENANTS AND TRANSACTIONS PRIOR TO CLOSING......................................................... 36 4.1 Access to Information Concerning Properties and Records; Confidentiality 36 4.2 Conduct of the Nassau System Prior to the Closing Date................. 37 4.3 Shareholders' Meeting; Approval........................................ 39 4.4 Cooperation............................................................ 39 4.5 PSC Approval........................................................... 40 4.6 DEC Approval........................................................... 41 4.7 Condemnation Proceeding................................................ 41 4.8 Non-Solicitation....................................................... 44 4.9 Business Plan.......................................................... 45 4.1 Retained Employees..................................................... 46 4.1 Compliance with WARN................................................... 46 4.1 Bond Issuance.......................................................... 46 4.1 JWS Capital Budget..................................................... 47 4.1 Customer Deposits...................................................... 47 4.1 Sublease Option........................................................ 47 4.1 Further Actions........................................................ 48 4.1 City Agreement......................................................... 48 ARTICLE V: CONDITIONS PRECEDENT............................................. 49 5.1 Conditions Precedent to Obligations of the Parties..................... 49 (a) No Injunction..................................................... 49 (b) Regulatory Approvals.............................................. 49 (c) Condemnation Proceeding........................................... 49 5.2 Conditions Precedent to Obligation of the Water Authority.............. 50 (a) Accuracy of Representations and Warranties........................ 50 (b) Performance of Agreement.......................................... 50 (c) Certificate....................................................... 50 (d) Bond Authorization and Sale....................................... 50 (e) Cooperation Agreement............................................. 51 (f) Burdensome Condition.............................................. 51 (g) No Action Pending................................................. 51 5.3 Conditions Precedent to the Obligation of JWS and the Parent........... 51 (a) Accuracy of Representations and Warranties........................ 51 (b) Performance of Agreement.......................................... 51 (c) Certificate....................................................... 52 (d) Shareholder Approval.............................................. 52 (e) Burdensome Condition.............................................. 52 (f) No Action Pending................................................. 52 (g) Performance of City Agreement..................................... 52 ARTICLE VI: TERMINATION AND ABANDONMENT..................................... 52
-ii- 6.1 General................................................................. 52 6.2 Procedure Upon Termination.............................................. 54 6.3 Survival of Certain Provisions.......................................... 55 ARTICLE VII: POST-CLOSING COVENANTS AND TRANSACTIONS.............................................. 55 7.1 Access to Books and Records............................................. 55 7.2 Collection of Accounts Receivable....................................... 56 7.3 Dissolution or Merger of JWS............................................ 59 7.4 Certain Tax Matters..................................................... 59 ARTICLE VIII: ASSUMPTION OF CERTAIN OBLIGATIONS AND LIABILITIES; INDEMNIFICATION.............................. 62 8.1 Assumption and Indemnification.......................................... 62 8.2 Procedure............................................................... 65 8.3 Payment................................................................. 66 ARTICLE IX: MISCELLANEOUS................................................... 67 9.1 Certain Definitions..................................................... 67 9.2 Fees and Expenses....................................................... 68 9.3 Notices................................................................. 69 9.4 Severability............................................................ 70 9.5 Entire Agreement........................................................ 70 9.6 Binding Effect; Benefit................................................. 71 9.7 Assignability........................................................... 71 9.8 Amendment and Modification; Waiver...................................... 71 9.9 Public Announcements.................................................... 72 9.1 Section Headings........................................................ 72 9.1 Counterparts............................................................ 72 9.1 Jurisdiction............................................................ 73 9.1 GOVERNING LAW........................................................... 73
-iii- ASSET ACQUISITION AGREEMENT, dated as of February __, 1996 (this "Agreement"), between Jamaica Water Supply Company, a New York corporation --------- ("JWS"), EMCOR Group, Inc., a Delaware corporation (the "Parent"), and the Water --- ------ Authority of Western Nassau County, a public authority of the State of New York (the "Water Authority"). --------------- WHEREAS, JWS is engaged in, among other things, the business of providing for the residential and commercial distribution of water to service areas in parts of western Nassau County, New York (the "Business") through the -------- operation and maintenance of a water distribution system similarly located in parts of western Nassau County, New York (hereinafter referred to as the "Nassau ------ System"); and - ------ WHEREAS, JWS desires to dispose of and the Water Authority desires to acquire certain of the assets related to the Nassau System, all as more fully set forth herein, on the terms and subject to the conditions set forth herein; and WHEREAS, as a condition and inducement to its willingness to enter into this Agreement and to consummate the transactions contemplated hereby, the Water Authority has required that JWS and the Parent agree to join in certain representations, warranties and indemnities as hereinafter set forth; 2 WHEREAS, it is the desire of the parties hereto that the Closing (as defined in Section 2.1 of the transactions contemplated by this Agreement shall occur simultaneously with the closing of the transactions contemplated under the Asset Acquisition Agreement, dated January __, 1996 (the "City Agreement"), -------------- between JWS, the Parent and The City of New York (the "City"); ---- NOW, THEREFORE, in consideration of the premises and of the mutual representations, warranties, covenants and agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: I ACQUISITION 1. Acquisition. On the terms and subject to the conditions of this ----------- Agreement, JWS consents to the acquisition by condemnation, and the Water Authority agrees to acquire by condemnation, all of JWS's right, title and interest in and to the assets of JWS described on Schedule A hereto, and subject to the terms of Schedule A, relating to the Nassau System, or used in connection with the Business (the "Acquired Assets"), except --------------- as otherwise provided herein, free and clear of any mortgage, pledge, security interest, encumbrance, lien, claim or charge of any kind ("Lien") (the acquisition of the Acquired Assets being ---- referred to herein 3 as the "Asset Acquisition"); provided, that the Acquired Assets ----------------- -------- shall not be free and clear of any Permitted Exceptions (as defined in Section 3.1(d)); and provided, further, that the -------- Acquired Assets shall not include the assets described in ------- Section 1.2. Schedule A may be amended from time to time pursuant to agreement between the Water Authority and the City to shift Acquired Assets from one acquiring public entity to the other; provided that neither JWS nor the Parent shall be responsible for any shift in Acquired Assets pursuant to such agreement between the Water Authority and the City; and provided -------- further, that the Acquisition Price shall under no circumstances be adjusted as a result of such shift of Assets. 2. Excluded Assets. It is expressly understood and agreed that --------------- Acquired Assets shall not the include the following: (a) Cash and cash equivalents (including money on deposit in banks and other institutions) or similar type investments, such as certificates of deposit, Treasury bills and other marketable securities, and commercial paper, stocks, bonds and similar investments received by JWS prior to the Closing Date (as defined in Section 5.1(c)); (b) Accounts receivable of JWS and accrued revenues of JWS on or prior to the close of business on the Closing Date (as defined in Section 2.1) (collectively, the "Accounts Receivable"); and ------------------- 4 (c) the assets of JWS listed on Schedule B hereto. 2. Acquisition Price; Lease Repayment Amount; Adjustments". (a) In ------------------------------------------------------ consideration of the transfer and acquisition of the Acquired Assets hereunder, the Water Authority shall pay to JWS in the manner set forth in Section 2.2 the amount of $23,230,000 (the "Acquisition Price"), ----------------- subject to adjustment as provided in Sections 1.3(b)(i) and (c) and Section 1.3(d)) (with respect to the purchase of all equipment under the Master Equipment Lease Agreement, dated August 6, 1982 (the "Wheelabrator Lease"), between JWS and Wheelabrator Financial ------------------ Corporation (a copy of which is attached hereto as Exhibit B-1) and the Master Lease Agreement, dated April 6, 1988 (the "Center Capital -------------- Lease"), between JWS and Center Capital Corporation (a copy of which is ----- attached hereto as Exhibit B-2) (the Wheelabrator Lease and the Center Capital Lease hereinafter referred to together as the "Meter Leases"). ------------ (a) (i) JWS shall, as soon as practicable following 1995 fiscal year end and prior to the Closing Date, cause to be prepared, and deliver to the Water Authority, a statement (the "December 31, 1995 Statement") setting forth, --------------------------- as of December 31, 1995, the calculation of (x) the book value (net of accumulated depreciation and amortization) of the net utility plant of the Nassau System plus (y) 19.48% of the total value of materials and supplies of JWS (the sum of the amounts in clauses (x) and (y) referred to as the "Book ---- Value"). The December 31, 1995 - ----- 5 Statement shall be prepared in accordance with generally accepted accounting principles and on the same basis as the calculations thereof which are attached hereto as Exhibit A, and the figures included in the December 31, 1995 Statement shall be derived from the audited financial statements of JWS as of and for the year ended December 31, 1995. Immediately prior to the Closing, JWS shall cause to be prepared, and deliver to the Water Authority, a statement (the "Preliminary Statement") setting forth the Book Value as of the close of --------------------- business of JWS on the Business Day (as defined in Section 9.1) immediately preceding the Closing Date. The Preliminary Statement shall be prepared in accordance with generally accepted accounting principles and on the same basis as the calculations thereof which are attached hereto as Exhibit A and the calculations thereof which are included in the December 31, 1995 Statement. At the Closing, JWS shall cause to be delivered to the Water Authority an opinion of Arthur Anderson LLP stating that the allocations of the net utility plant of JWS to Queens County and to the Nassau System (i) as of December 31, 1995, which appear on the December 31, 1995 Statement, and (ii) as of the close of business of JWS on the Business Day immediately preceding the Closing Date, which appear on the Preliminary Statement, were arrived at using a methodology consistent with JWS's past practice of arriving at such allocations for cost of service studies with the New York Public Service Commission (the "PSC") since June, --- 1996. Immediately prior to the Closing, JWS shall also cause to be prepared and 6 delivered to the Water Authority a statement (the "Net Change Statement") -------------------- setting forth the calculation of the Book Value as shown on the Preliminary Statement minus the Book Value as shown on the December 31, 1995 Statement (such sum referred to hereinafter as the "Net Change"). If the Net Change as shown on ---------- the Net Change Statement is a positive number, then the Acquisition Price payable on the Closing Date shall be increased by such amount. If the Net Change as shown on the Net Change Statement is a negative number, then the Acquisition Price shall be reduced by such amount. At the Closing, the Water Authority shall deliver to the Escrow Agent (as defined below) an amount of the Acquisition Price equal to $160,000 plus an amount equivalent to the aggregate amount of JWS's increase in rates attributable to customers of JWS located in Nassau County (the "Rate Increase") for the period of January 1, 1996 through the ------------- Closing Date (the "Escrowed Sum"), which sum shall be applied to any reductions ------------ in the Acquisition Price resulting from application of this Section 1.3(b) or Section 1.3(c), or to refund amounts payable to customers of JWS pursuant to rate adjustments by the PSC, as described in Section 1.3(b)(v). If the Acquisition Price is not reduced in accordance with this Section 1.3(b) or Section 1.3(c), or is reduced in an amount less than the Escrowed Sum, the balance of the Escrowed Sum after deduction of all reductions and all amounts owing pursuant to Section 1.3(b)(v) shall be paid to JWS, in addition to the amount owed to JWS, if any, as a result of an increase in the Acquisition Price pursuant to this 7 Section 1.3(b), at the time set for payment pursuant to Section 1.3(b)(iv). On or prior to the Closing, the parties hereto shall have entered into an escrow agreement (the "Escrow Agreement") with a mutually acceptable third party (the ---------------- "Escrow Agent") substantially in the form attached hereto as Exhibit C. ------------ (i) Within 35 days after the Closing Date, or as soon as practicable thereafter, JWS shall cause to be prepared and delivered to the Water Authority a statement, together with copies of supporting workpapers (the "Statement"), --------- setting forth the Book Value as of the close of business of JWS on the Business Day immediately preceding the Closing Date. The Statement shall be prepared in accordance with generally accepted accounting principles and on the same basis as the calculations thereof which are attached hereto as Exhibit A and the calculations thereof which are included in the December 31, 1995 Statement. At the same time, JWS shall also cause to be prepared and delivered to the Water Authority a statement, together with copies of supporting workpapers (the "Adjustment Statement"), setting forth the calculation of the difference between -------------------- the Book Value as shown on the Statement minus the Book Value as shown on the Preliminary Statement (such sum referred to hereinafter as the "Adjustment ---------- Amount"). The Statement and the Adjustment Statement shall be prepared in - ------ consultation with the Water Authority. The Water Authority shall provide JWS with access to the relevant books and records to the extent required to prepare the Statement and the Adjustment Statement. 8 (ii) After receipt of the Statement and the Adjustment Statement, the Water Authority will have 14 days to review such statements together with the workpapers used in their preparation. Unless the Water Authority delivers written notice to JWS on or prior to the fourteenth day after its receipt of the Statement and the Adjustment Statement, the Water Authority will be deemed to have accepted and agreed to the Statement and the Adjustment Statement and such agreement will be final and binding. If the Water Authority so notifies JWS of its objections to either the Statement or the Adjustment Statement, the Water Authority and JWS will, within fourteen days following the notice (the "Resolution Period"), attempt to resolve their differences. Any resolution by - ------------------ the Water Authority and JWS during the Resolution Period as to any disputed amounts will be final, binding and conclusive. If the Water Authority and JWS do not resolve all disputed items by the end of the Resolution Period, then all items remaining in dispute will be submitted within fourteen days after the expiration of the Resolution Period to an independent accounting firm of national reputation mutually acceptable to the parties hereto (the "Neutral ------- Auditor"). If within such fourteen-day period referred to in the previous - ------- sentence, the Water Authority and JWS are unable to agree on the Neutral Auditor, then the Water Authority and JWS will each immediately request the American Arbitration Association to appoint the Neutral Auditor. All fees and expenses relating to the work, if any, to be performed by the 9 Neutral Auditor will be borne equally by the Water Authority and JWS. The Neutral Auditor will deliver to the parties hereto a written determination (such determination to include a work sheet setting forth all material calculations used in arriving at such determination and to be based solely on information provided to the Neutral Auditor by JWS and the Water Authority) of the disputed items within 30 days of receipt of the disputed items, which determination will be final, binding and conclusive. The final, binding and conclusive Statement and Adjustment Statement, which either are agreed upon by the parties hereto or are delivered by the Neutral Auditor in accordance with this Section 1.3(b)(i) will be the "Conclusive Statement" and the "Conclusive Adjustment Statement," -------------------- ------------------------------- respectively. (iii) If the Adjustment Amount as shown on the Conclusive Adjustment Statement is a negative number, then the Acquisition Price will be reduced by such amount, and the Escrow Agent shall be authorized, pursuant to the Escrow Agreement, to pay (x) to the Water Authority from the Escrowed Sum an amount in cash equal to such Adjustment Amount, plus interest accrued thereon in accordance with the Escrow Agreement and (y) to JWS the balance of the Escrowed Sum as determined in accordance with Section 1.3(b)(i), if any, plus accrued interest in accordance with the Escrow Agreement. If the Adjustment Amount is a negative number, the absolute value of which exceeds the amount held by the Escrow Agent, then the entire Escrowed Sum, plus interest accrued thereon in accordance with the Escrow Agreement, 10 shall be delivered to the Water Authority, and JWS or the Parent will pay to the Water Authority the excess amount. If the Adjustment Amount as shown on the Conclusive Adjustment Statement is a positive number, then the Acquisition Price will be increased by such amount, and the Water Authority shall pay to JWS an amount in cash equal to such Adjustment Amount, and the Escrow Agent shall be authorized, pursuant to the Escrow Agreement, to pay to JWS the balance of the Escrowed Sum as determined in accordance with Section 1.3(b)(i), if any, plus accrued interest in accordance with the Escrow Agreement. All payments to be made pursuant to this Section 1.3(b)(iv) will be made on the second Business Day following the date on which the parties agree to, or the Neutral Auditor delivers, the Conclusive Statement and the Conclusive Adjustment Statement. Any payment required to be made by JWS or the Water Authority (other than payments from the Escrowed Sum) pursuant to this Section 1.3(b)(iv) shall bear interest from and including the Closing Date through the date of payment at a rate of 6.0% per annum, and shall be payable by wire transfer of immediately available funds to an account or accounts designated by the party entitled to receive such funds prior to the date when such payment is due. (v) If the PSC shall determine that the customers of JWS residing in Nassau County have overpaid JWS by reason of the Rate Increase, then the balance of the Escrowed Sum, to the extent available, shall be applied to refund such overpayments, it being understood that funds shall be released 11 from the Escrow Account from time to time in order to permit JWS to make refund payments to customers located in Nassau County at such times as are required by order of the PSC. Then, after all amounts determined to be owing by JWS to customers of JWS residing in Nassau County by reason of such PSC order have been paid, the Escrow Agent shall be authorized, pursuant to the Escrow Agreement, to pay to JWS the remaining balance held by the Escrow Agent (plus interest accrued thereon in accordance with the Escrow Agreement). If the amount held by the Escrow Agent is insufficient to pay such amounts, JWS and/or the Parent shall make all additional payments required by the PSC. 12 (b) (i) JWS shall, prior to the Closing, cause to be prepared, and on the Closing Date deliver to the Water Authority, a statement (the "Preliminary ----------- Reduction Statement") setting forth the calculation of the sum of (i) the amount - ------------------- of statutory interest accrued in accordance with Section 2.2(a), plus (ii) the total amount of all severance payments that JWS would have otherwise been obligated to pay, as determined by JWS, (A) to its nonbargaining unit employees pursuant to its severance policy to be adopted after the date hereof and (B) to its bargaining unit employees pursuant to the effects bargaining agreement (the "Effects Bargaining Agreement") to be entered into between JWS and the Utility ---------------------------- Workers Union of America AFL-CIO, Local 374 (the Union") in connection with the ----- Asset Acquisition, each as of the Closing Date, but for the fact that such employees (such employees hereinafter referred to as "Offered Employees") were ----------------- offered employment, to commence on and after the Closing Date, by either the Water Authority or a third-party under contract with the Water Authority to operate the Nassau System (a "Third-party Contractor"), as determined as of the ---------------------- close of business of JWS on the Business Day immediately preceding the Closing Date (such sum referred to hereinafter as the "Reduction Amount"). In any case ---------------- where an Offered Employee has been offered employment by either the Water Authority or a Third-party Contractor, on the one hand, and the City, on the other hand, and either such offer independently would result in JWS's not being obligated to make severance payments to the Offered Employee, then the Preliminary 13 Reduction Statement and the Reduction Statement shall give effect to the severance payments so avoided only if the Offered Employee accepts such offer and is employed by the Water Authority or the Third-Party Contractor on and after the Closing Date, unless the Offered Employee accepts neither the ------ offer of employment by the Water Authority or a Third-party Contractor, on the one hand, or the City, on the other hand, in which event the Preliminary Reduction Statement and the Reduction Statement shall give effect to 50% of the severance payments so avoided. The Acquisition Price payable on the Closing Date shall be reduced by the Reduction Amount as calculated on the Preliminary Reduction Statement. (i) Within 35 days after the Closing, JWS shall cause to be prepared and delivered to the Water Authority a statement (the "Reduction Statement") setting ------------------- forth the calculation of the Reduction Amount, as of the close of business of JWS on the Business Day immediately preceding the Closing Date. At the same time, JWS shall also cause to be prepared and delivered to the Water Authority a statement (the "Net Reduction Statement") setting forth the calculation of the ----------------------- difference between the Reduction Amount as shown on the Reduction Statement minus the Reduction Amount as show on the Preliminary Reduction Statement (such sum referred to hereinafter as the "Net Reduction Amount"). The Reduction -------------------- Statement and the Net Reduction Statement shall be prepared in consultation with the Water Authority. The Water Authority shall provide JWS with access to 14 the relevant books and records to the extent required to prepare the Reduction Statement and the Net Reduction Statement. (ii) After receipt of the Reduction Statement and the Net Reduction Statement, the Water Authority will have 14 days to review such statements together with the workpapers used in their preparation. Unless the Water Authority delivers written notice to JWS on or prior to the fourteenth day after its receipt of the Reduction Statement and the Net Reduction Statement, the Water Authority will be deemed to have accepted and agreed to the Reduction Statement and the Net Reduction Statement and such agreement will be final and binding. If the Water Authority so notifies JWS of its objections to either the Reduction Statement or the Net Reduction Statement, the Water Authority and JWS will, within fourteen days following the notice (the "Reduction Resolution -------------------- Period"), attempt to resolve their differences. Any resolution by the Water - ------ Authority and JWS during the Reduction Resolution Period as to any disputed amounts will be final, binding and conclusive. If the Water Authority and JWS do not resolve all disputed items by the end of the Reduction Resolution Period, then all items remaining in dispute will be submitted within fourteen days after the expiration of the Reduction Resolution Period to the Neutral Auditor. If within such fourteen-day period referred to in the previous sentence, the Water Authority and JWS are unable to agree on the Neutral Auditor, then the Water Authority and JWS will each immediately request the American Arbitration Association to 15 appoint the Neutral Auditor. All fees and expenses relating to the work, if any, to be performed by the Neutral Auditor will be borne equally by the Water Authority and JWS. The Neutral Auditor will deliver to the parties hereto a written determination (such determination to include a work sheet setting forth all material calculations used in arriving at such determination and to be based solely on information provided to the Neutral Auditor by JWS and the Water Authority) of the disputed items within 30 days of receipt of the disputed items, which determination will be final, binding and conclusive. The final, binding and conclusive Reduction Statement and Net Reduction Statement, which either are agreed upon by the parties hereto or are delivered by the Neutral Auditor in accordance with this Section 1.3(c), will be the "Conclusive ---------- Reduction Statement" and the "Conclusive Net Reduction Statement," respectively. - ------------------- ---------------------------------- (iii) If the Net Reduction Amount as shown on the Conclusive Net Reduction Statement is a positive number, then the Acquisition Price will be reduced by such amount, and the Escrow Agent shall be authorized, pursuant to the Escrow Agreement, to pay (x) to the Water Authority from the Escrowed Sum an amount in cash equal to such Net Reduction Amount, plus interest accrued thereon in accordance with the Escrow Agreement and (y) to JWS the balance of the Escrowed Sum as determined in accordance with Section 1.3(b)(i), if any, plus accrued interest thereon in accordance with the Escrow Agreement. If the Net Reduction Amount as shown on the Conclusive Net Reduction Statement is a 16 positive number that exceeds the amount held by the Escrow Agent, then the entire Escrowed Sum plus interest accrued thereon in accordance with the Escrow Agreement shall be delivered to the Water Authority, and JWS or the Parent will pay to the Water Authority the excess amount. If the Net Reduction Amount as shown on the Conclusive Net Reduction Statement is a negative number, then the Acquisition Price will be increased by the absolute value of such amount, and the Water Authority shall pay to JWS an amount in cash equal to the absolute value of the Net Reduction Amount as shown on the Conclusive Net Reduction Statement, and the Escrow Agent shall be authorized, pursuant to the Escrow Agreement, to pay to JWS the balance of the Escrowed Sum as determined in accordance with Section 1.3(b)(i), if any, plus accrued interest thereon in accordance with the Escrow Agreement. All payments to be made pursuant to this Section 1.3(c)(iv) will be made on the second Business Day following the date on which the Water Authority and JWS agree to, or the Neutral Auditor delivers, the Conclusive Reduction Statement and the Conclusive Net Reduction Statement. Any payment required to be made by JWS or the Water Authority (other than from the Escrowed Sum) pursuant to this Section 1.3(c)(iv) shall bear interest from and including the Closing Date through the date of payment at a rate of 6.0% per annum, and shall be payable by wire transfer of immediately available funds to an account or accounts designated by the party entitled to receive such funds prior to the date when such payment is due. 17 (c) JWS shall, immediately prior to the Closing, cause to be prepared, and on the Closing Date deliver to the Water Authority, a statement (the "Preliminary Lease Repurchase Statement") setting forth an allocation of - --------------------------------------- original capital cost and remaining principal balance with respect to water meters located in Nassau County subject to the Wheelabrator Lease (a copy of which is attached hereto as Exhibit B-1) and the Center Capital Lease (a copy of which is attached hereto as Exhibit B-2) consistent with the analysis prepared by JWS and annexed hereto as Exhibit B-3, determined as of the close of business of JWS on the Business Day immediately preceding the Closing Date (such sum referred to hereinafter as the "Lease Repurchase Amount"). The Preliminary ----------------------- Lease Repurchase Statement shall be prepared by JWS. The amount of the Lease Repurchase Amount attributable to the equipment under the Wheelabrator Lease shall be determined in accordance with the terms set forth in clause 4 of the Second Addendum to the Wheelabrator Lease providing for JWS's option to purchase the equipment under the Wheelabrator Lease for a purchase price in the amount of 102% of the principal outstanding under the Wheelabrator Lease, and the amount of the Lease Repurchase Amount attributable to the equipment under the Center Capital Lease shall be determined in accordance with the terms set forth in clause 5 of the Addendum to the Center Capital Lease providing for JWS's option to purchase the equipment under the Center Capital Lease for a purchase price in the amount of 102.5% of the principal outstanding under the Center Capital Lease. The 18 Acquisition Price payable on the Closing Date shall be increased by the Lease Repurchase Amount as shown on the Preliminary Lease Repurchase Statement. 3. Excluded Liabilities. Notwithstanding anything to the contrary -------------------- contained herein, the Water Authority shall not assume, become liable for, or agree to discharge any obligation or liability of JWS or the Parent, including without limitation, (a) any current liabilities, accounts payable or trade liabilities, (b) any liability or obligation under, related to or arising from any Contract associated with the assets described in Section 1.2, provided, that the Water Authority shall, as of the Closing Date, assume all obligations of JWS that may accrue after the Closing Date under the Contracts listed on Schedule 3.1(e)(i) hereto, (c) any liability or obligation of JWS to any former or current employee of JWS, (d) any obligation or liability of JWS arising from a violation of any law or governmental regulation, including without limitation violation of any Environmental Law (as defined in Section 3.1(i)), (e) any liabilities resulting from claims against JWS or the Parent arising prior to or after the Closing Date, (f) any liability or obligation of JWS that would be classified as a long-term liability under generally accepted accounting practices and reflected on a balance sheet prepared in accordance with generally accepted accounting principles, (g) any guaranty by JWS of any debt, obligation or dividend of any person or entity, (h) any liability or obligation of the Business to JWS 19 or any of its Affiliates (except obligations of the Water Authority under this Agreement) or (i) any obligation of JWS to make refunds to its customers (all of the foregoing being hereinafter referred to as the "Excluded Liabilities"). -------------------- 4. Assignment of Contracts and Rights. To the extent that assignment ---------------------------------- hereunder by JWS to the Water Authority of any Contract or license is not permitted or is not permitted without the consent of a third party, this Agreement shall not be deemed to constitute an undertaking to assign the same if such consent is not given or if such an undertaking otherwise would constitute a breach of, or cause a loss of benefits under, any such Contract or license, and the Water Authority shall not assume any obligation or liability thereunder. JWS shall use its best efforts to obtain any and all such consents required for assignment of any Contracts and licenses included in the Acquired Assets (without having to pay any consideration therefor). JWS shall advise the Water Authority promptly in writing with respect to any Contract or license which it knows or has reason to believe will not receive any required consent. Without in any way limiting JWS's obligation to seek to obtain all consents and waivers necessary for the acquisition by the Water Authority of any Contracts and licenses included in the Acquired Assets, if such consent is not obtained or if such assignment is not permitted irrespective of consent, JWS shall cooperate with the Water Authority in any reasonable 20 arrangement designed to provide for the Water Authority the benefit under such Contract or license, as the case may be, including enforcement for the benefit of the Water Authority of any or all rights of JWS against any other person arising out of breach or cancellation by such other person and including, if so requested by the Water Authority, acting as an agent on behalf of the Authority, or as the Water Authority shall otherwise reasonably require; and any transfer or assignment to the Water Authority by JWS of any property or property rights or any Contract or agreement that shall require the consent or approval of any third party, shall be made subject to such consent or approval being obtained. .5 Apportionment of Expenses. (a) All operating expenses associated with ------------------------- the Acquired Assets and the Business, except for rent associated with the leasehold interest at 410 Lakeville Road, and all rental revenue in respect of water hydrants (collectively, "Operating Expenses") shall be prorated between ------------------ JWS and the Water Authority as of the close of business on the day immediately preceding the Closing Date, and the Water Authority and JWS shall each submit to the other an accounting thereof. To the extent practicable, any such apportionments shall be settled, as is appropriate under the circumstances, by a payment or credit between the parties within 35 days after the Closing. (b) Operating Expenses and Revenues. All Operating Expenses ------------------------------- attributable to the period through the close 21 of business on the day immediately preceding the Closing Date shall be the obligation and paid for by JWS and all Operating Expenses attributable to the period from and after the close of business on the day immediately preceding the Closing Date shall be the obligation of and paid for by the Water Authority. Operating Expenses attributable to any period including and extending beyond the Closing Date shall be prorated as of the close of business immediately preceding the Closing Date between JWS and the Water Authority. In the event that either party collects or receives any income, revenues or receipts to which the other party is entitled pursuant hereto, it shall hold such amounts in trust for the other and promptly pay such amounts to the other party. ARTICLE II CLOSING 1. The Closing. Unless this Agreement shall have been terminated and the ----------- transactions herein contemplated shall have been abandoned pursuant to Section 6.1 hereof, subject to the provisions of this Agreement. provisions of Article V, the closing with respect to the Asset Acquisition (the "Closing") shall take ------- place at the offices of Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York, at 10:00 a.m. on April 30, 1996 (or as soon as practicable thereafter as all of the conditions to Closing set forth in Article V hereof are satisfied or waived and all of the conditions to closing set forth in the City Agreement are satisfied or waived), or such other place, time and date as 22 the parties may agree. The actual time and date of the Closing are herein referred to as the "Closing Date." The parties hereto agree to use their best efforts to cause the Closing Date to occur on or as soon as practicable after the Vesting Date consistent with the provisions of this Agreement. 2. Deliveries by the Water Authority. On the terms and subject to the --------------------------------- conditions of this Agreement, at the Closing on the Closing Date, the Water Authority shall deliver to JWS the following: (a) the Acquisition Price, adjusted as provided in Sections 1.3(b) and (c) and Section 1.3(d), with statutory interest thereon at a rate of 6% per annum from and including the Vesting Date to but not including the Closing Date, less the Escrowed Sum, by wire transfer of immediately available funds to an account or accounts of JWS designated by JWS by notice given to the Water Authority at least two Business Days prior to the Closing Date; and (b) the executed Escrow Agreement in substantially the form attached hereto as Exhibit C; and (c) such other instruments or documents, in form and substance reasonably acceptable to JWS, as may be necessary to effect the Closing. 3. Deliveries by JWS. On the terms and subject to the conditions of this ----------------- Agreement, at the Closing on the Closing Date, provided that title to the Acquired Assets has vested with the Water Authority pursuant to 23 the provisions relating to condemnation in Section 4.7, JWS shall deliver to the Water Authority the following: (a) assignments, if any required, in form and substance reasonably acceptable to the Water Authority, assigning to the Water Authority all Contracts (as defined in Section 9.1) included in the Acquired Assets; and (b) such other instruments or documents, including but not limited to proof of payment of applicable New York Real Property Transfer Gains Tax, in form and substance reasonably acceptable to the Water Authority, as may be necessary to effect the Closing. 4. Additional Transactions At or Following the Closing. At any time and --------------------------------------------------- from time to time, at or after the Closing, the Water Authority and JWS and the Parent shall cooperate with each other and execute and deliver, or cause to be executed and delivered, all such instruments, including instruments of assignment, transfer and conveyance and instruments of assumption, and take all such other actions as such party may reasonably be requested to take by the other party or parties hereto, consistent with the terms of this Agreement, in order to effectuate the provisions and purposes of this Agreement. 5. Allocation of the Acquisition Price. As soon as practicable following ----------------------------------- final determination of all adjustments to the Acquisition Price as provided for herein, the parties hereto shall enter into an 24 agreement setting forth the manner in which the Acquisition Price, as adjusted, is allocated among the Acquired Assets, it being expressly understood that this Section 2.5 shall not create any additional financial obligations on the part of any party hereto. No party hereto shall take any position for federal or state income tax purposes which is inconsistent with such allocation, unless required to do so under applicable law. The parties hereto acknowledge that the Water Authority will not agree to any allocation of the Acquisition Price, as adjusted, which under applicable federal tax laws and regulations, would restrict the average maturity of the tax exempt bonds to be issued by the Water Authority to finance the Asset Acquisition to less than thirty years. ARTICLE III REPRESENTATIONS AND WARRANTIES 1. Representations and Warranties of JWS and the Parent. JWS and the ---------------------------------------------------- Parent, jointly and severally, represent and warrant to the Water Authority as follows: (a) Due Organization. Each of JWS and the Parent is a corporation duly incorporated, validly existing and in good standing under the laws of the State of New York (in the case of JWS) and Delaware (in the case of the Parent) and each has full corporate power and authority to own 25 all of its properties and assets and to carry on its business as it is now being conducted. (b) Authorization and Validity of Agreement. Each of JWS and the Parent --------------------------------------- has all requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereunder. The execution, delivery and performance by JWS and the Parent of this Agreement and the consummation by JWS and the Parent of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action and no other corporate action on the part of JWS or the Parent is necessary to authorize the execution, delivery and performance of this Agreement and the consummation by JWS and the Parent of the transactions contemplated hereby (other than the approval and adoption of the Asset Acquisition and this Agreement by the holders of the outstanding shares of common stock (the "Common Shares"), no par value, of JWS). This Agreement has been duly executed and delivered by JWS and the Parent and, assuming the due authorization, execution and delivery hereof by the Water Authority, is a valid and legally binding obligation of each, enforceable against it in accordance with its terms, except to the extent that its enforceability may be limited by a bankruptcy filing after the date hereof or by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting creditors' rights generally and by general equity principles 26 regardless of whether such enforceability is considered in a proceeding in equity or at law. 27 (c) No Conflict; Consents. Except as set forth on Schedule 3.1(c) hereto, --------------------- the execution, delivery and performance by JWS and the Parent of this Agreement and the consummation by JWS and the Parent of the transactions contemplated hereby: (i) will not violate, or result in the violation of, any provision of any law, rule, regulation, order, judgment or decree applicable to JWS or the Parent; (ii) will not require any consent, authorization or approval of, or filing with or notice to, any governmental or regulatory authority under any provision of any law applicable to JWS or the Parent, except for the approval of the PSC, and except for any consent, approval, filing or notice requirements which become applicable solely as a result of the specific regulatory status of the Water Authority or which the Water Authority is otherwise required to obtain; (iii) will not violate any provision of the respective certificates of incorporation or by-laws or other organizational documents of JWS or the Parent; and (iv) will not require any consent, approval or notice under, and will not conflict with, or result in the breach or termination of, or constitute a default under, or result in the acceleration of the performance by JWS or the Parent or the creation of any Lien under, any indenture, mortgage, deed of trust, lease, license, franchise, contract, agreement, warrant or other instrument to which JWS or any of its Affiliates or the Parent is a party or by which either of them, or any of their assets, are bound or encumbered, except with respect to clauses (i), (ii) and 28 (iv) above for any consent, authorization, approval, filing or notice that would not, if not given or made, or any violation, conflict, breach, termination, default or acceleration which does not, and is not likely to, either impair the ability of JWS and the Parent to consummate the transactions contemplated hereby or have a Material Adverse Effect (as defined below). For purposes of this Agreement, "Material Adverse Effect" means any ----------------------- effect that is, either individually or together with other effects, materially adverse to the assets, properties, business, operations or financial condition of the Business, taken as a whole. (d) Title to Acquired Assets";" Liens and Encumbrances. Except as set forth -------------------------------------------------- on Schedule 3.1(d), as of the date of this Agreement, JWS and the Parent represent that JWS has good, valid and, except for immaterial exceptions in the case of real property which exceptions have no material effect on the operation or function of the Nassau System or the Business and no material effect on the value of the Nassau System or the Business or JWS's interest in the value of the real property acquired ("Permitted Exceptions"), marketable title to all the -------------------- Acquired Assets (other than rights of way and easements) and all such Acquired Assets are free and clear of all Liens except (i) Liens that are eliminated on or prior to the Closing Date, (ii) statutory Liens arising or incurred in the ordinary course of business with respect to which the underlying obligations are not delinquent or the validity of which is being 29 contested in good faith by appropriate proceedings, (iii) Liens disclosed or reflected in the audited financial statements of JWS as of and for the year ended December 31, 1994 (the "Financial Statements"), and (iv) Liens which -------------------- constitute valid leases or subleases from JWS to third parties as listed on Schedule 3.1(d). JWS will clear all Liens prior to or contemporaneously with payment of the Acquisition Price and shall provide documentation of the discharge of said Liens at the Closing; provided, however, that JWS shall not be -------- required to clear any Permitted Exceptions. (e) Agreements and Contracts. Schedule 3.1(e)(i) hereto sets forth a ------------------------ list, as of the date hereof, of each written Contract included in the Acquired Assets. JWS and the Parent represent that, except as set forth in Schedule 3.1(e)(ii) hereto, each Contract listed on Schedule 3.1(e)(i) is a valid and binding agreement of JWS and is in full force and effect. Except as otherwise provided in Schedule 3.1(e)(ii) hereto, there has been no breach or default under any Contract listed on Schedule 3.1(e)(i) hereto except for breaches or defaults that have been cured or waived and breaches or defaults which could not reasonably be expected to have a Material Adverse Effect. (f) Legal Proceedings. JWS and the Parent represent that there is no ----------------- action, proceeding or, to the best knowledge of JWS and the Parent, any governmental investigation currently pending against JWS which seeks to restrain or enjoin the consummation of the transactions 30 contemplated by this Agreement. Except as described on Schedule 3.1(f) hereto, there is no action, proceeding or, to the best knowledge of JWS and the Parent, any governmental investigation currently pending against JWS or the Parent which could reasonably be expected to have a Material Adverse Effect. JWS is not in violation of any term of any judgment, decree, injunction or order entered by any court of competent jurisdiction and outstanding against it, which violation would have a Material Adverse Effect. (g) Government Licenses, Permits and Related Approvals. Schedule 3.1(g)(i) -------------------------------------------------- hereto is a list, together with a brief description, of all licenses and permits material to the Business, issued or registered in the name of JWS. Except as set forth on Schedule 3.1(g)(ii) hereto, all licenses listed on Schedule 3.1(g)(i) are in full force and effect. Except as disclosed on Schedule 3.1(g)(ii) hereto, the Nassau System and the Business are being conducted in compliance with all applicable laws, rules and regulations, except where the failure to so comply, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. JWS and the Parent represent that JWS has all licenses, permits, certificates and other authorizations and approvals necessary for the operation of the Nassau System and conduct of the Business as presently operated and conducted under applicable laws, ordinances and regulations of any governmental authority, other 31 than those the absence of which could not reasonably be expected to have a Material Adverse Effect. (h) Conduct of the Nassau System in Compliance with Regulatory ---------------------------------------------------------- Requirements. JWS and the Parent represent that JWS is in substantial compliance - ------------ with each law, regulation, ordinance and code promulgated by any federal, state or local governmental authority applicable to the operation, conduct and ownership of the Nassau System (including, without limitation, any laws, regulations, ordinances or codes relating to the environment), except where the failure to comply substantially with any such law, regulation, ordinance or code could not reasonably be expected to have a Material Adverse Effect. (i) Environmental Matters. JWS and the Parent represent that, except as set --------------------- forth in Schedule 3.1(i)(1), there are no Environmental Liabilities (as defined below) relating to the Business or the Acquired Assets which would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. As used in this Agreement, "Environmental Laws" means any and all applicable ------------------ federal, state, local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, injunctions, orders or decrees regulating or imposing liability or standards of conduct concerning pollution, Hazardous Materials or protection of the environment, in effect as of the date hereof. "Environmental ------------- Liabilities" means any and all liabilities, costs and expense - ----------- 32 which (i) arise under or are incurred pursuant to Environmental Laws and (ii) are based upon actions occurring or conditions existing on or prior to the Closing Date; provided that Environmental Liabilities shall not include -------- conditions of water quality or the existence of Hazardous Materials in the water at any well site of JWS listed on Schedule 3.1(i)(2) hereof or any conditions of water quality or the existence of Hazardous Materials in the water that are not which (i) arise the result of any acts or omissions of JWS. "Hazardous --------- Materials" means any hazardous or toxic substances, materials or wastes, defined - --------- as such in or under any Environmental Laws, including, without limitation, asbestos, petroleum or petroleum products (including gasoline, crude oil or any fraction thereof), polychlorinated biphenyls, and urea-formaldehyde insulation. (j) Financial Statements. The Financial Statements have been prepared in -------------------- accordance with the books and records of JWS and present fairly in all material respects the results of operations and the financial condition of JWS as of the date thereof. The unaudited financial statements of JWS, as of and for the nine months ended September 30, 1995, heretofore delivered to the Water Authority, were prepared in the ordinary course of business of JWS in accordance with generally accepted accounting principles. The percentage allocations of the net utility plant of JWS attributable to the Nassau System to be set forth on the December 31, 1995 Statement, the Preliminary Statement and the Statement 33 will be arrived at using a methodology consistent with JWS's past practice of arriving at such allocations for cost of service studies with the PSC since June, 1986. (k) Absence of Certain Liabilities and Changes. Except (1) to the extent ------------------------------------------ reflected or reserved for in the September 30, 1995 financial statements of JWS and (2) for liabilities or obligations incurred in the ordinary course of business since September 30, 1995, there are no material obligations or liabilities of JWS, except liabilities disclosed herein or in the schedules hereto, and except obligations and liabilities that would not have a Material Adverse Effect. Since September 30, 1995, JWS has operated its business in the ordinary course and there has not been, except as set forth in Schedule 3.1(k), (i) any transaction, occurrence or commitment (for capital expenditures or otherwise) that was not in the ordinary course of business; (ii) any material adverse change in the business, affairs or financial condition of JWS; (iii) any lease, sale, abandonment or transfer of, or the creation of any Lien on any properties (other than Permitted Exceptions) or assets material to the Business; (iv) a grant of, or an agreement to grant, any general increase (other than pursuant to the Collective Bargaining Agreement (the "Collective Bargaining --------------------- Agreement") between JWS and the Union, which is effective March 30, 1994 through - --------- December 31, 1998) ("general increase," for purposes hereof, means an increase ---------------- in any rates of salaries or compensation generally applicable to a class or group 34 of employees of JWS, but not including increases granted to individual employees for merit, length of services, change in position or responsibility or other reasons applicable to specific employees and not generally to a class or group) in any rate or rates of salaries or compensation to directors, officers or employees or agents or, since September 30, 1995, any specific increase in the salary or compensation to any officer, agent or employee whose total salary and compensation after such increase would be at an annual rate in excess of $50,000; (v) any damage, destruction or loss to any asset or property which would have a Material Adverse Effect, whether or not covered by insurance; (vi) establishment of any new Plan or material modification or amendment or provision for material increases in any existing Plans, except pursuant to the Effects Bargaining Agreement, or in accordance with the terms of such Plans in effect prior to the date hereof (which modifications or increases, if any, are disclosed in Schedule 3.1(k)), or written interpretation or announcement by JWS under any Plan which would materially increase the expense of maintaining such Plan over the level of expense thereof for the fiscal year ended December 31, 1995; (vii) any claim, action, suit or proceeding commenced or, to the best knowledge of JWS, threatened against JWS, which, if adversely determined, would have a Material Adverse Effect; (viii) any grant by JWS of recognition to any labor organization, other than effects bargaining with representatives of the Union; and (ix) any occurrence, event or condition (including, without 35 limitation, any strike or labor trouble) which would have a Material Adverse Effect. For purposes of this section, "Plan" means any plan, program, policy, fund, arrangement or agreement providing for benefits for employees of JWS including, without limitation, any "employee benefit plan" as that term is defined in Section 3(3) of the Employee Retirement Income Security Act ("ERISA"), all retirement, pension benefit, profit sharing, medical, dental, ----- disability, vacation, hospitalization, incentive, bonus, executive compensation, deferred compensation and any other similar material fringe or employee benefit plan, fund, program or arrangement, whether or not covered by ERISA, which is maintained by JWS for the benefit of, or relates to, any or all present or former employees or directors of JWS. 2. Representations and Warranties of the Water Authority. The Water ----------------------------------------------------- Authority represents and warrants to JWS as follows: (a) Due Organization and Power of the Water Authority. The Water Authority ------------------------------------------------- is a public authority, duly established and validly existing under the constitution and laws of the State of New York and is authorized by Public Authorities Law, Section 1198-a, et seq., of the State of New York (the "Act") (i) to enter into this Agreement and perform its obligations hereunder and (ii) to acquire the Acquired Assets. (b) Authorization and Validity of Agreement. The Water Authority has all --------------------------------------- requisite 36 power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereunder, including the acquisition by condemnation, and the maintenance and operation, of all or part of the Nassau System and the Business. The execution, delivery and performance by the Water Authority of this Agreement and the consummation by it of the transactions contemplated hereby have been duly and validly authorized by adoption of a resolution at a public meeting of the Water Authority, and no other action on the part of the Water Authority, other than (i) the authorization and sale of one or more series of bonds in the aggregate amount of not less than the sum of (A) the Acquisition Price plus (B) the Lease Repurchase Amount plus (C) the total costs of the Water Authority incurred in issuing such bonds plus (D) the total estimated expenses of the Water Authority to be incurred in connection with the transactions contemplated by this Agreement plus (E) amounts necessary for reasonable and customary working capital and reserve funds, and (ii) the adoption of a resolution approving the acquisition of the assets by condemnation after public hearing, is necessary to authorize the execution, delivery and performance by the Water Authority of this Agreement and the consummation by it of the transactions contemplated hereby. This Agreement has been duly executed and delivered by the Water Authority and, assuming the due authorization, execution and delivery hereof by JWS and the Parent, is a valid and legally binding obligation of the Water Authority, enforceable against 37 the Water Authority in accordance with its terms, except to the extent that enforceability may be limited by a bankruptcy filing after the date hereof or by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting creditors' rights generally and by general equity principles, regardless of whether such enforceability is considered in a proceeding in equity or at law. (c) No Conflict; Consents. Except for any consent, approval, filing or --------------------- notice that would not, if not given or made, or any violation, conflict, breach, termination, default or acceleration which does not, impair the ability of the Water Authority to consummate the transactions contemplated hereby, the execution, delivery and performance by the Water Authority of this Agreement and the consummation by it of the transactions contemplated hereby: (i) will not violate, or result in the violation of, any provision of any law, rule, regulation, order, judgment or decree applicable to the Water Authority; (ii) will not require any consent, authorization or approval of, or filing or notice to, any governmental or regulatory authority under any provision of any law applicable to the Water Authority, except for the approval of the New York State Department of Environmental Conservation (the "DEC"), and except for any consent, approval, filing or notice requirements which become applicable solely as a result of the specific regulatory status of JWS or which JWS is otherwise required to obtain; (iii) will not conflict with or violate any 38 provision of the Act; and (iv) will not require any consent, approval or notice under, and will not conflict with, or result in the breach or termination of, or constitute a default under, or result in the acceleration of the performance by the Water Authority under, any indenture, mortgage, deed of trust, lease, license, franchise, contract, agreement or other instrument to which the Water Authority is a party or by which it or any of its assets is bound or encumbered. (d) Disclosure. The Water Authority has not withheld from JWS or the Parent ---------- any information discovered in the course of its due diligence investigation of JWS and the Parent that would indicate that one or more of the representations and warranties of JWS and the Parent contained in this Agreement is inaccurate. (e) Financing. The Water Authority has the authority without further --------- administrative or legislative action (other than the approval of its board of directors, after holding a public hearing, and, if the bonds are to be sold at private sale, the approval of the New York State Comptroller or the Director of the Division of Budget, as required by the Act) to obtain any required financing, in an aggregate amount not less than the amount necessary for the Water Authority to be able to consummate the Asset Acquisition on the Closing Date, which funds or financing will be available at the Closing to pay the Acquisition Price, as adjusted. The agreements or authorizations which govern such financing neither 39 contain any condition nor are subject to any consent or approval which the Water Authority does not reasonably expect to obtain prior to the Closing Date. 3. Survival of Representations and Warranties. The respective ------------------------------------------ representations and warranties of JWS and the Parent and the Water Authority contained in this Article III shall survive for two years from the Closing Date, provided that upon the termination of this Agreement pursuant to Section 6.1, the respective representations and warranties of JWS and the Parent and the Water Authority shall immediately terminate. 4. Schedules. Disclosure of any fact or item in any Schedule hereto --------- referenced by a particular paragraph or section in this Agreement shall, should the existence of the fact or item or its contents be relevant to any other paragraph or section, be deemed to be disclosed with respect to that other paragraph or section whether or not a specific cross reference appears. 5. No Implied Representation. Notwithstanding anything contained in this ------------------------- Article III or any other provision of this Agreement, neither JWS nor the Parent is making any representation or warranty whatsoever, express or implied, other than those representations and warranties of JWS and the Parent expressly provided for in this Agreement or in any Schedule hereto. It is understood that any cost estimates, projections or other predictions which have 40 been provided to the Water Authority are not and shall not be deemed to be representations or warranties of JWS or the Parent. The Water Authority acknowledges that there are uncertainties inherent in attempting to make such estimates, projections and other predictions, that the Water Authority is familiar with such uncertainties, that the Water Authority is taking full responsibility for making its own evaluation of the adequacy and accuracy of all estimates, projections and other predictions so furnished to it, and that the Water Authority shall have no claim against anyone with respect thereto. 41 ARTICLE IV COVENANTS AND TRANSACTIONS PRIOR TO CLOSING 1. Access to Information Concerning Properties and Records; -------------------------------------------------------- Confidentiality. (a) During the period commencing on the date hereof and ending - --------------- on the Closing Date, JWS shall, upon reasonable request, afford to the Water Authority, its counsel, accountants and other authorized representatives, including Merrill Lynch, reasonable access during normal business hours to employees of JWS and to the properties, books and records with respect to the Acquired Assets, in order that the Water Authority may have the opportunity to make such reasonable investigations as it shall desire to make of the Acquired Assets. JWS will furnish to the Water Authority such additional financial and operating data and information as the Water Authority may from time to time reasonably request with respect to the Acquired Assets. (a) During the period commencing on the date hereof and ending on the Closing Date, the Water Authority agrees to continue to observe, and be bound by, the terms of the confidentiality agreement, dated August 28, 1995, among the parties hereto; provided, however, that the Water Authority shall be permitted -------- ------- to disclose information governed by such confidentiality agreement but only to the extent that such information is required by law or regulation to be disclosed to the public in connection with a public hearing or public meeting. 42 2. Conduct of the Nassau System Prior to to the Closing Date. JWS agrees --------------------------------------------------------- that, except as permitted, required or specifically contemplated by this Agreement or as otherwise consented to or approved in writing by the Water Authority, during the period commencing on the date hereof and ending at the Closing Date: (a) the Nassau System shall be conducted only in the ordinary course consistent with past practice; (b) JWS will not (i) dispose of or encumber, or agree to dispose of or encumber, any interest in the Acquired Assets other than (A) in the ordinary course of business, consistent with past practice and (B) pursuant to after- acquired property clauses of existing indentures or mortgages (which shall be cleared as contemplated by Section 3.1(d); (ii) acquire, or agree to acquire, any asset material to the Nassau System, taken as a whole, other than in the ordinary course of business, consistent with past practice; (iii) cancel any debts or waive any claims or rights, other than in the ordinary course of business, consistent with past practice; (iv) make any capital expenditure or commitment, other than (A) in the ordinary course of business, consistent with past practice, (B) pursuant to existing commitments or (C) which is not material to the Nassau System, taken as a whole, and in any event, without the prior written approval of the Water Authority (which approval will not be unreasonably withheld or delayed), will not make any capital expenditure, except in the case of emergency repairs, that (x) individually is in excess of $100,000, (y) in the aggregate with all other capital expenditures subject to this clause (C) exceeds $400,000 or (z) in the aggregate with all other similar capital expenditures subject to this clause (C) would cause total capital expenditures for categories 391, 392 and 393 on the JWS 1996 Construction Plan by PSC Account to exceed the total provided therefor for Nassau County for 1996; and (c) JWS shall promptly notify the Water Authority in writing of, and furnish to the Water Authority information reasonably requested by it with respect to, the occurrence of any event or the existence of any state of facts that would result in any of JWS's representations and warranties not being true; (d) JWS shall not alter in any material respect the terms on which services are provided and shall use all reasonable efforts to (i) maintain and preserve the Business, (ii) retain its present employees and agents, provided, -------- that JWS may terminate employees and agents in the ordinary course of 43 business and (iii) preserve and maintain its relationships with customers, suppliers and others until the Closing; provided, however, that JWS may, but -------- ------- shall not be required to, increase compensation, pay special bonuses or otherwise modify benefits, as set forth on Schedule 3.1(k); (e) JWS shall use all reasonable effort to maintain in full force and effect all existing insurance and renewals thereof, and will give all notices and present all claims under all policies of insurance in a due and timely fashion; (f) JWS shall maintain all books, accounts and records in the usual, regular and ordinary manner, consistent with past practice, and make no material change in the accounting methods or practices with respect to the Business or the Acquired Assets, unless mandated by law, regulation or the PSC, in which case JWS will provide notice of such change to the Water Authority; (g) JWS shall not alter in any material respect its practices with respect to collection of Accounts Receivable and shall not sell, discount or dispose of Accounts Receivable (except that JWS may take appropriate action to increase its efforts to collect Accounts Receivable); (h) JWS, prior to undertaking any negotiation or discussion with any labor union as to recognition, labor contracts or other matters of like import relating to the Business (other than effects bargaining with representatives of the Union), will first notify the Water Authority and furnish to the Water Authority such information relating thereto as the Water Authority may reasonably request. In no event shall JWS enter into any agreement or understanding with any union that would have a material adverse economic impact on the Business, without the written consent of the Water Authority; (i) JWS will not engage in any transaction with any of its Affiliates other than as contemplated by this Agreement or in the ordinary course of business on an arm's-length basis; (j) JWS shall deliver to the Water Authority copies of its severance policy and the Effects Bargaining Agreement as soon as practicable after each document is adopted in final form. 3. Shareholders' Meeting; Approval. (a) JWS and the Parent will take ------------------------------- all action 44 necessary in accordance with and subject to applicable law and JWS's certificate of incorporation and by-laws to convene a meeting of JWS's shareholders (the "Shareholders' Meeting") as soon as practicable after the date --------------------- of this Agreement to consider and vote upon the adoption and authorization of this Agreement and the Asset Acquisition. (a) At the Shareholders' Meeting, the Parent, as the sole shareholder of Jamaica Water Securities Corp. ("JW Securities"), shall cause the Common ------------- Shares held by JW Securities (which constitute 96.12% of the issued and outstanding Common Shares) to be voted in favor of adoption and authorization of this Agreement and the Asset Acquisition. 4. Cooperation. Subject to the provisions of Section 4.1(b), during ----------- the period commencing on the date hereof and ending at the Closing Date, upon such terms as may be agreed upon between the parties with respect to times and dates of access to premises, JWS shall cooperate with the Water Authority to assist the Water Authority so that the Water Authority can provide continuous, uninterrupted service to its customers subsequent to the Closing Date by: (a) providing the Water Authority and the Water Authority's representatives access to JWS's sites, facilities and installations; (b) providing the Water Authority and the Water Authority's representatives access to accounting and billing information; and 45 (c) providing such information, data and technical assistance as is reasonably required by the Water Authority and the Water Authority's representatives in order to accomplish the technical changes, staff acquisition and training as may be necessary to assure uninterrupted service; provided, however, that JWS shall not be required to disclose any -------- ------- information relating to employees of JWS other than pursuant to the prior written approval of such employees. The provisions of this Section 4.4 shall also extend to the underwriters and their counsel in connection with the financing of the Asset Acquisition. .5 PSC Approval. JWS and the Parent shall take all steps necessary or ------------ advisable to effectuate the approval of the PSC ("PSC Approval"), if any ------------ required, pursuant to any law, regulation or other authority and/or pursuant to the settlement agreement dated December 22, 1993 (the "PSC Settlement -------------- Agreement") between JWS, the PSC and certain other parties, for the transactions - --------- contemplated hereby. The Water Authority agrees that it shall, without undue delay (i) furnish JWS with all information requested by JWS that is reasonably necessary to assist JWS in effecting all necessary registrations and filings and submissions of information required to complete its application for PSC Approval, if any, and (ii) cooperate in complying with all orders and requests of the PSC as are reasonably necessary to obtain PSC Approval, if any. 46 .6 DEC Approval. The Water Authority agrees that it ------------ shall promptly effect all necessary registrations and filings and submissions of information required to complete its applications to the DEC for any permits and approvals that may be necessary with respect to the Asset Acquisition and that it shall take all steps as may be required to obtain such permits and approvals as soon as practicable thereafter. JWS agrees that it shall, without undue delay, furnish the Water Authority with all information requested by the Water Authority that is reasonably necessary to assist the Water Authority in making all such registrations, filings and submissions required for any such permits and approvals. .7 Condemnation Proceeding. (a) The Water Authority shall promptly cause ----------------------- the publication of a notice of public hearing (the "Notice of Public Hearing") ------------------------ pursuant to the Eminent Domain Procedure Law of the State of New York ("EDPL"), ---- Section 202, for the purpose of conducting a public hearing (the "Public ------ Hearing") with respect to the Condemnation Proceeding (as defined below). If, - ------- during the period from the date hereof to the Closing Date, any Person shall commence any action seeking a judicial review of any determination or finding made by the Water Authority with respect to condemnation or the Public Hearing, to any court of competent jurisdiction, then JWS shall have the right to require that the transactions contemplated hereby be consummated without the use of the EDPL and no Condemnation Proceeding shall be filed 47 pursuant to Section 4.7(b), or if filed shall be discontinued, and the following additional deliveries shall be made pursuant to Section 2.3 hereof: (i) one or more bargain and sale deeds sufficient to convey title to those Acquired Assets consisting of real property, free of all Liens (subject to Permitted Exceptions), in customary form with covenant only against grantor's acts, duly executed and acknowledged by JWS and in proper form for recording; (ii) one or more bills of sale sufficient to convey title to those Acquired Assets consisting of personal property, with the following warranties: (A) that JWS is the sole and absolute owner of the property described in said bill of sale and has full right to transfer same; (B) that JWS is transferring title thereto free and clear of any liens, mortgages, debts or other encumbrances of whatsoever kind or nature; (C) that there are no judgments existing against JWS in any court, nor are there any replevins, attachments or executions related to the Acquired Assets issued against JWS now in force; and (D) that JWS has sufficient assets to pay all of its creditors; (i) an affidavit to the effect that JWS is not a "foreign person," as defined in Section 1445(f)(3) of the Internal Revenue Code; (ii) information sufficient to permit the Water Authority to complete Internal Revenue Service Form 1099 with respect to the transfer of the Acquired Assets; (iii) evidence of the amount of New York State Real Property Transfer Tax (the "Transfer Tax") payable with respect to the transfer of the Acquired ------------ Assets, together with funds sufficient to pay such Transfer Tax and the forms customarily completed by a transferor of real property with respect to such Transfer Tax; (iv) such additional instruments or documents that are customary and necessary to perfect a conveyance of the Acquired Assets, provided, that no such additional instruments or documents shall impose any liability or cost upon JWS or the 48 Parent that is a material addition to the liabilities and costs imposed on JWS and the Parent herein; and (v) with respect to all well plant sites listed on Schedule 3.1(g)(i) hereto, JWS shall give and the Water Authority shall accept such title as any title insurance company which is a member of the New York Board of Title Underwriters will be willing to approve and insure in accordance with their standard form of title policy, which title policy may be subject to Permitted Exceptions. (a) Unless JWS shall have exercised its right pursuant to the last sentence of Section 7.2(b), the Water Authority shall, on or prior to February 28, 1996, commence a proceeding (the "Condemnation Proceeding") by filing a ----------------------- petition in the Supreme Court of the State of New York, County of Nassau, pursuant to the EDPL Section 402 with respect to the Acquired Assets. Unless JWS shall have exercised its right pursuant to the last sentence of Section 7.2(b), the Water Authority, JWS and the Parent shall subsequently file in the Condemnation Proceeding a stipulation and agreement of settlement in a form to be agreed upon as to the value of the Acquired Assets in accordance with this Agreement. Such stipulation shall provide for the acquisition of the Acquired Assets by condemnation and for the Acquisition Price as the amount of just compensation to be paid. Nothing contained herein shall require any payment by the Water Authority for incidental expenses listed in Section 702 of the EDPL, provided that this provision shall not be deemed to modify the agreement in - -------- Section 7.4(e) hereof with respect to the payment of real property taxes by JWS, and nothing contained herein shall require the Water Authority to make any offer or 49 deposit under Section 303 of the EDPL. The Water Authority and JWS shall take all action to ensure that the court in the Condemnation Proceeding enter final judgment in the amount of the Acquisition Price. Such judgment of the court in accordance with the stipulation shall be final, binding and conclusive with respect to all terms, including the amount of the Acquisition Price, and neither party shall appeal such judgment; provided, however, that if the court -------- ------- shall not approve the stipulation as submitted by the parties then such stipulation shall be withdrawn, and the Water Authority shall withdraw its petition and terminate the Condemnation Proceeding, and the parties shall proceed to consummate the transactions contemplated hereby without the use of the EDPL. The parties hereto shall use their respective best efforts to assure that the Vesting Date shall occur on, or as close as possible to, the vesting date as defined in the City Agreement. .2 Non-Solication. Except if the Acquired Assets are acquired by the Water -------------- Authority pursuant to its powers under the Public Authorities Law and/or the EDPL, if this Agreement is terminated, the Water Authority will not, for a period of three years thereafter, without the prior written approval of JWS, directly or indirectly, in any manner solicit, encourage, entice or induce any Person who is an employee of JWS on the date hereof or at any time hereafter that precedes such termination, to terminate his or her employment with JWS, provided that the Water Authority shall not be 50 prohibited from hiring any employee of JWS absent any such solicitation by the Water Authority, and that this Section 4.8 shall not apply in the case of a subsequent attempt by the Water Authority to acquire the property of JWS. The Water Authority agrees that any remedy at law for any breach by it of this Section 4.8 would be inadequate, and JWS would be entitled to injunctive relief in such a case. If it is ever held that the restriction placed on the Water Authority by this Section 4.8 is too onerous, the Water Authority agrees that any court of competent jurisdiction may impose lesser restrictions to the maximum extent permitted by law, and the Water Authority hereby consents and agrees that such scope may be judicially modified accordingly in any proceeding brought to enforce such restriction. .3 Business Plan. On or prior to February 28, 1996, the Water Authority ------------- shall (i) advertise, or take other appropriate action, for the submission of bids or proposals by third parties for a contract providing for the operation of the Nassau System by a third party, or deliver to JWS a notice indicating that the Water Authority will not utilize a third party for the operation of the Nassau System; (ii) furnish to JWS the parameters (the "Bid or Proposal --------------- Parameters") established by the Water Authority pursuant to which it shall - ---------- accept bids or proposals from third parties as set forth in clause (i) unless the Water Authority shall have delivered to JWS a notice indicating that the Water Authority will not utilize 51 a third party for the operation of the Nassau System; and (iii) furnish to JWS a business plan (the "Business Plan") setting forth in reasonable detail the Water ------------- Authority's plans for operating the Nassau System after the Closing Date. On or prior to April 30, 1996, the Water Authority shall have executed a contract with a third party with respect to the operation of the Nassau System or established a final Business Plan for the operation of the Nassau System itself. .4 Retained Employees. Within a reasonable time, the Water Authority shall ------------------ provide JWS with a list (the "Retained Employees List") containing the name of ----------------------- each Offered Employee who has accepted an offer of employment and will be employed by the Water Authority or the Third-Party Contractor on and after the Closing Date (a "Retained Employee"). The Water Authority shall include on the Retained Employee List the terms and conditions under which each such Retained Employee will be offered employment, including the salary and benefits offered to each such Retained Employee. .5 Compliance with WARN. JWS shall give all notices, if any, required by -------------------- the Worker Adjustment and Retraining Notification Act of 1988 ("WARN"). ---- .6 Bond Issuance. The Water Authority shall take all reasonable actions to ------------- insure that, on or prior to the Closing Date, it shall have issued and sold bonds, the interest on which is excluded from gross income for federal income tax purposes, in an aggregate principal amount of 52 not less than the sum of (a) the Acquisition Price, plus (b) the Lease Repurchase Amount, plus (c) the total costs of the Water Authority incurred in issuing such bonds, plus (d) the total estimated expenses of the Water Authority to be incurred in connection with the transactions contemplated by this Agreement, plus (e) amounts necessary for reasonable and customary working capital and reserve funds. .7 JWS Capital Budget. At the request of the Water Authority, JWS shall ------------------ make its officers, employees and representatives available to discuss its plans for capital expenditures in 1996. .8 Meter Leases. (a) Within a reasonable period of time prior to the ------------ Closing Date, JWS and the Parent shall take all actions reasonably necessary to obtain a statement from the lessor under each of the Meter Leases as to the amount required for JWS to purchase all equipment under the respective Meter Leases, pursuant to JWS's option to make such purchase, and upon receipt of such statement, JWS shall deliver it to the Water Authority. (a) At the Closing, JWS shall obtain, and deliver to the Water Authority, a release from each of the lessors under the Meter Leases of the Lien with respect thereto. .9 Customer Deposits. JWS shall, no later than 30 days after the Closing ----------------- Date, provide a full credit to the account of, or mail a refund to, each customer who has given a deposit to JWS in connection with such 53 customer's water service in the full amount of the balance of any such deposit. .10 Sublease Option. By written notice given at least 15 days prior to the --------------- Closing Date, the Water Authority may request that JWS enter into a sublease with the Water Authority with respect to approximately 5,000 square feet of office space at its 410 Lakeville Road headquarters. If so requested, JWS agrees to enter into such a sublease for a 30-day term at a rent equivalent to the rent then paid by JWS for such space and on other customary commercial terms. .11 Further Actions. Subject to the terms and conditions hereof, each of --------------- the parties hereto agrees to use its best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement, including, but not limited to, using its best efforts: (i) to obtain any licenses, permits, consents, approvals, authorizations, qualifications and orders of governmental authorities as are required in connection with the consummation of the transactions contemplated hereby; (ii) to effect all necessary registrations and filings; (iii) to defend any lawsuits or other legal proceedings, whether judicial or administrative, whether brought derivatively or on behalf of third parties (including governmental agencies or officials), challenging this Agreement 54 or the consummation of the transactions contemplated hereby; and (iv) to furnish to each other such information and assistance as is reasonably requested in connection with the foregoing. .12 City Agreement. Prior to the effectiveness of any amendment to the -------------- City Agreement, other than an amendment with respect to the consideration to be paid for the assets to be acquired pursuant to the City Agreement, which (i) grants rights and remedies to the City which are not granted to the Water Authority herein, (ii) imposes obligations on JWS or the Parent which are not imposed hereby or (iii) otherwise amends the City Agreement so that the City is afforded the benefit of any term, condition or provision not afforded to the Water Authority hereunder, the Parent shall give the Water Authority written notice describing such proposed amendment and shall offer to amend this Agreement to provide the Water Authority with the same benefits as are proposed to be provided to the City pursuant to such amendment. ARTICLE II CONDITIONS PRECEDENT .1 Conditions Precedent to Obligations of the Parties Parties;. The respective obligations of the parties hereto are subject to the satisfaction (or waiver by each of JWS and the Parent and the Water Authority) at or prior to the Closing of each of the following conditions: (a) No Injunction. No preliminary or permanent injunction or other order ------------- issued by 55 any court or by any governmental or regulatory body nor any statute, rule, regulation or executive order promulgated or enacted by any governmental authority which restrains, enjoins or otherwise prohibits the transactions contemplated hereby shall be in effect. (b) Regulatory Approvals. The PSC Approval, if necessary, all permits and -------------------- approvals required by the DEC and all other regulatory approvals necessary for the Asset Acquisition shall have been obtained and be in full force and effect, and all required waiting periods shall have expired or been terminated. (c) Condemnation Proceeding. The parties hereto shall have filed in the ----------------------- Condemnation Proceeding a stipulation and agreement of settlement in a form to be agreed upon reflecting the terms of this Agreement, the court in such Condemnation Proceeding shall have entered its decision and the final judgment and final decree of the court in the amount of the Acquisition Price and an order of condemnation (the "Order of Condemnation") shall have been entered --------------------- vesting title in the Water Authority (the date of entry of the Order of Condemnation referred to as the "Vesting Date"); provided, however, that the ------------ -------- ------- Vesting Date shall not occur until the Water Authority has sold, issued and delivered its bonds to finance the Asset Acquisition. .2 Conditions Precedent to Obligation of the Water Authority. The --------------------------------------------------------- obligations of the Water Authority to consummate the transactions contemplated by this Agreement are also subject to the satisfaction (or waiver by the Water Authority) at or prior to the Closing of each of the following additional conditions: (a) Accuracy of Representations and Warranties. The representations and ------------------------------------------ warranties of JWS and the Parent contained herein shall have been true and correct in all material respects on and as of the date hereof and (except to the extent such representations and warranties speak of an earlier date) shall continue to be true and correct as of the Closing Date, except as otherwise contemplated by this Agreement. (b) Performance of Agreement. Each of JWS and the Parent shall have ------------------------ performed 56 and complied in all material respects with all obligations and agreements, and complied in all material respects with all covenants and conditions, contained in this Agreement to be performed or complied with by it prior to or on the Closing Date. (c) Certificate. The Water Authority shall have received (i) a certificate ----------- of JWS, dated the Closing Date, executed on behalf of JWS by its President or any Vice President to the effect that the conditions specified in paragraphs (a) and (b) above with respect to JWS have been fulfilled and (ii) a certificate of the Parent, dated the Closing Date, executed on behalf of the Parent by its President or any Vice President to the effect that the conditions specified in paragraphs (a) and (b) above with respect to the Parent have been fulfilled. (d) Bond Authorization and Sale. The Water Authority shall have issued and --------------------------- sold bonds, the interest on which is excluded from gross income for federal income tax purposes, in an aggregate principal amount of not less than the sum of (i) the Acquisition Price plus (ii) the Lease Repurchase Amount plus (iii) the total costs of the Water Authority incurred in issuing such bonds plus (iv) the total estimated expenses of the Water Authority to be incurred in connection with the transactions contemplated by this Agreement plus (v) amounts necessary for reasonable and customary working capital and reserve funds. (e) Cooperation Agreement. The Water Authority shall have entered into and --------------------- executed an agreement with the City providing for the cooperation between the Water Authority and the City in the operation, after the Closing Date, of the Nassau System and the utilization of the Acquired Assets and the assets of JWS acquired by the City pursuant to the City Agreement. (f) Burdensome Condition. There shall not be any action taken, or any -------------------- statute, rule, regulation or order enacted, entered, enforced or deemed applicable to the Asset Acquisition, by any governmental or regulatory body which, (i) imposes any condition or restriction upon the Water Authority which would materially adversely affect the economic or business benefits to the Water Authority, of the transactions contemplated by this Agreement or (ii) would be reasonably likely to result in a material adverse effect with respect to the Water Authority. (g) No Action Pending. No action shall have been filed and remain pending ----------------- in any 57 court which, in connection with this Agreement or any of the transactions contemplated hereby, seeks a judgment which if awarded would materially adversely affect the economic or business benefits to the Water Authority of the transactions contemplated by this Agreement. .3 Conditions Precedent to the Obligation of JWS and the Parent. The ------------------------------------------------------------ obligations of JWS and the Parent to consummate the transactions contemplated by this Agreement are also subject to the satisfaction (or waiver by JWS and the Parent) at or prior to the Closing of each of the following additional conditions: (a) Accuracy of Representations and Warranties. The representations and ------------------------------------------ warranties of the Water Authority contained herein shall have been true and correct in all material respects on and as of the date hereof and (except to the extent such representations and warranties speak of an earlier date) shall continue to be true and correct as of the Closing Date, except as otherwise contemplated by this Agreement. (b) Performance of Agreement. The Water Authority shall have performed in ------------------------ all material respects all obligations and agreements, and complied in all material respects with all covenants and conditions, contained in this Agreement to be performed or complied with by it prior to or on the Closing Date. (c) Certificate. JWS and the Parent shall have received a certificate of ----------- the Water Authority, dated the Closing Date, executed on behalf of the Water Authority by its Chairman, to the effect that the conditions specified in paragraphs (a) and (b) above have been fulfilled. (d) Shareholder Approval. The Asset Acquisition shall have been approved by the affirmative vote of the holders of the outstanding Common Shares entitled to vote at annual or special meetings of shareholders of JWS. (e) Burdensome Condition. There shall not be any action taken, or any -------------------- statute, rule, regulation or order enacted, entered, enforced or deemed applicable to the Asset Acquisition, by any governmental or regulatory body which, (i) in connection 58 with the grant of a regulatory approval or permit, imposes any condition or restriction upon the Parent or JWS which would materially adversely affect the economic or business benefits, to the Parent or JWS, of the transactions contemplated by this Agreement or (ii) in connection with the grant of a regulatory approval or permit or otherwise, would be reasonably likely to result in a material adverse effect with respect to JWS. (f) No Action Pending. No action shall have been filed and remain pending ----------------- in any court which, in connection with this Agreement or any of the transactions contemplated hereby, seeks a judgment which if awarded would materially adversely affect the economic or business benefits, to the Parent or JWS, of the transactions contemplated by this Agreement. (g) Performance of City Agreement. All covenants and conditions to closing ----------------------------- contained in the City Agreement shall have been satisfied (or waived by JWS and the Parent), it being expressly understood between the parties hereto that the Closing shall occur simultaneously with the closing of the transactions contemplated under the City Agreement. ARTICLE III TERMINATION AND ABANDONMENT .1 General. This Agreement may be terminated and the transactions ------- contemplated hereby may be abandoned at any time, but not later than the Vesting Date: (a) by mutual written consent of the Water Authority, JWS and the Parent; or (b) by any party upon written notice given to the other parties if the Vesting Date has not occurred by May 31, 1996; provided, however, -------- ------- that if prior to the Vesting Date, any court of competent jurisdiction or any governmental or regulatory body with jurisdiction over the subject hereof shall have issued an order, decree or ruling or taken any other action, or if an action shall have been commenced seeking an order, decree or ruling, restraining, enjoining or otherwise prohibiting the transactions contemplated hereby, either the Water Authority or JWS, or both, shall have 30 days from the date of filing of such order, decree or ruling or the taking of such action, or the 59 commencement of such action, to have such order, decree or ruling reversed or vacated, or such action dismissed; or (c) by either JWS, the Parent or the Water Authority upon written notice given to the other party in the event of a breach or default in the performance by such other party of any representation, warranty, covenant or agreement contained in this Agreement, which breach or default (i) is, either individually or in the aggregate, material in the context of the transactions contemplated hereby, and (ii) has not been, or cannot be, cured, (A) in the case of a representation or warranty contained in this Agreement, within 60 days after written notice of such breach or default has been given by the terminating party to the breaching party and describing such breach or default in reasonable detail, or (B) in the case of a covenant or agreement contained in this Agreement, within 30 days after written notice of such breach or default has been given by the terminating party to the breaching party and describing such breach or default in reasonable detail; or (d) by either JWS, the Parent or the Water Authority, if any court of competent jurisdiction or any governmental or regulatory body with jurisdiction over the subject hereof shall have issued an order, decree or ruling or taken any other action restraining, enjoining or otherwise prohibiting the transactions contemplated hereby and such order, decree, ruling or other action shall have become final and nonappealable; or (e) by JWS or the Parent, upon the occurrence of any one of the following: (i) if, on or prior to February 28, 1996, the Water Authority shall not have commenced the Condemnation Proceeding by filing a petition in the Supreme Court of the State of New York, County of Nassau, unless JWS shall have exercised its right pursuant to the last sentence of Section 7.2(b); (ii) if, on or prior to February 28, 1996, the Water Authority shall not have (a) advertised, or taken other appropriate action, for the submission of bids or proposals by third parties for a contract providing for the operation of the Nassau System, or delivered to JWS a notice indicating that the Water Authority will not utilize a third party for the operation of the Nassau System; (b) furnished to JWS the Bid or Proposal Parameters unless the Water Authority shall have delivered to JWS a notice indicating that the Water Authority will not utilize a third party for the operation of the Nassau System and 60 (c) furnished to JWS the Business Plan, all in accordance with Section 4.9 hereof; (iii) if, on or prior to April 30, 1996, the Water Authority shall not have executed a contract with a third party with respect to the operation of the Nassau System or established a final Business Plan for the operation of the Nassau System itself; or (iv) if, at any time prior to the Vesting Date, any party to the City Agreement terminates the City Agreement in accordance with its terms. .2 Procedure Upon Termination. In the event of the termination and -------------------------- abandonment of this Agreement, written notice thereof specifying in sufficient detail the basis for such termination (including, in respect of any termination pursuant to Section 6.1(c), reasonably sufficient detail of the material breaches of representation, warranty or covenant) shall promptly be given to the other party hereto and this Agreement shall terminate and the transactions contemplated hereby shall be abandoned without further action by any of the parties hereto. Termination of this Agreement shall not preclude any party from suing another party hereto for breach of this Agreement; provided, however, that -------- ------- each of the parties hereto agrees that no such lawsuit for breach of this Agreement shall be brought against any officer, director or employee of any of the parties hereto. .3 Survival of Certain Provisions. The respective obligations of the ------------------------------ parties hereto pursuant to this Article VI and Sections 4.1(b), 4.8 and 9.2 hereof shall survive any termination of this Agreement. 61 ARTICLE IV POST-CLOSING COVENANTS AND TRANSACTIONS .1 Access to Books and Records. Following the Closing, the Water Authority --------------------------- will afford to JWS, the Parent, their respective counsel and accountants, during normal business hours, reasonable access to the books, records and other data pertaining to the Nassau System to the extent that such access may be reasonably required by JWS or the Parent to facilitate (a) the preparation by JWS or the Parent of such tax returns as JWS or the Parent may be required to file with respect to the operations of the Nassau System or the Asset Acquisition or in connection with any audit, amended return, claim for refund or any proceeding with respect thereto, (b) the investigation, litigation and final disposition of any claims which may have been or may be made against JWS, (c) the payment of any amount pursuant to Section 8.1(b) or the payment of any liabilities or obligations of JWS (including refunds, if any, to the former customers of JWS and the settlement of all obligations of JWS under the PSC Settlement Agreement) and (d) the collection of the Accounts Receivable described in Section 7.2. The Water Authority will not dispose of, alter or destroy any such books, records and other data without giving 30 days' prior written notice to JWS and the Parent to permit JWS or the Parent, at its expense, to examine, duplicate, or repossess such records, files, documents and correspondence or any portion thereof. 62 .2 Collection of Accounts Receivable. (a) Subsequent to the Closing Date --------------------------------- and prior to the last calendar day of each of the ten months following the month in which the Closing Date occurs, the Water Authority shall use all reasonable efforts to collect the Accounts Receivable, as collection agent for JWS. The amounts so collected are referred to herein as the "Collected Receivables." --------------------- (a) The Water Authority shall, on the fifth Business Day of each month up to and including the eleventh month following the month in which the Closing Date occurs, deliver to JWS a sum in cash equal to the sum of the Collected Receivables collected by the Water Authority on or prior to the last calendar day of the immediately preceding month. All cash received by the Water Authority in respect of the Accounts Receivable which has not been remitted to JWS pursuant to this Section 7.2(c) shall be remitted to JWS promptly after its receipt by the Water Authority. Any payment made pursuant to this Section 7.2(c) by the Water Authority to JWS shall be made in United States currency. (b) The amount of Collected Receivables collected by the Water Authority on or prior to the last calendar day of each month up to and including the tenth month following the month in which the Closing Date occurs shall be certified by the Water Authority to JWS as of the last calendar day of each such month on or prior to the fifth calendar day of the following month. JWS shall have the right to review the basis for each 63 certification by the Water Authority pursuant to this Section 7.2(c) during the thirty-day period immediately following the receipt of such certificate. If, at the end of such thirty-day period, JWS shall object to any such certification or to the amount of the Collected Receivables reported by the Water Authority under this Section 7.2, stating the basis for such objection, the Water Authority and JWS shall use their best efforts to resolve each such objection. If the parties have not resolved any such objection prior to the sixty-day period immediately following the last payment date provided for in Section 7.2(b), the issue shall be determined by reference to an independent accounting firm of national reputation mutually acceptable to the parties hereto, whose decision (which shall be made within six days) shall be binding upon the parties hereto. If the parties are at any time unable to agree on such accounting firm, then each party will have the right to request the American Arbitration Association to appoint such accounting firm. Each party shall bear one-half the costs of said accountants' fees and disbursements. Any additional amount owing as a result of such accountants' determination shall be paid within five business days after such determination. (c) For purposes of determining the amount of Collected Receivables for all customers of JWS located in Nassau County, (i) any funds collected from a particular account debtor, or from its successors or assigns, during the period from the Closing Date through the last calendar day of the tenth month 64 following the month in which the Closing Date occurs shall be applied first to that portion of the outstanding Accounts Receivable of such debtor and shall be deemed collected for the benefit of JWS, until all Accounts Receivable with respect to such account debtor have been collected, and (ii) any other discharge of an Account Receivable of such account debtor by the Water Authority without JWS's consent shall be deemed to be a collection of such Account Receivable in the amount discharged. The Water Authority shall not be obligated to apply any amounts received to any Account Receivable representing amounts owed by a debtor under a deferred payment arrangement with JWS unless and until, and then only to the extent that, at the time of collection from such debtor amounts are due and owing to JWS from such debtor in accordance with the terms of such arrangement. The Water Authority agrees that it shall use all reasonable efforts in accordance with its normal collection procedures (without recourse to commencing or prosecuting any litigation) to collect the full amount of all Accounts Receivable. No credit shall be applied by or on behalf of the Water Authority to any Accounts Receivable due to JWS without the prior written consent of JWS. (d) For purposes of collecting the portion of Accounts Receivable representing revenues from customers earned by JWS but unbilled due to the Closing Date occurring prior to the end of the billing cycle applicable to such customers, the Water Authority shall, for each such customer, calculate the 65 amount of Accounts Receivable owed to JWS by multiplying (x) the fraction the numerator of which shall be the number of days accrued in such customer's billing cycle (up to and including the day immediately prior to the Closing Date) and the denominator of which shall be the total number of days in such customer's billing cycle, times (y) the total amount due under such customer's bill at the end of the relevant billing cycle. The Water Authority shall distribute bills to each such customer on behalf of JWS in the ordinary course and shall collect the amounts due on all such bills on behalf of JWS in accordance with the provisions of this Section 7.2. .3 Dissolution or Merger of JWS. (a) It is agreed and understood between ---------------------------- the parties hereto that after the Closing Date, the Parent and JWS will have the option to dissolve JWS, or to merge JWS with or into another corporation, and to discontinue JWS's corporate existence. (a) Notwithstanding the provisions of Section 7.3(a), it is agreed and understood that all obligations of JWS hereunder are, whether or not expressly so stated, joint and several obligations of JWS and the Parent. It is also agreed and understood that JWS and the Parent will make all payments to former customers of JWS that are required pursuant to the PSC Settlement Agreement. .4 Certain Tax Matters. (a) After the Closing Date, the Water Authority ------------------- shall provide 66 notice to JWS or the Parent in writing within 30 days after its receipt of any correspondence, notice, or other communication from a taxing authority or any representative thereof of any pending or threatened tax audits, or any pending or threatened judicial or administrative proceeding that involves taxes, for taxable periods for which JWS may have a liability under this Agreement, including tax accounting changes that may create a future liability, and furnish JWS or the Parent with copies of all correspondence received from any taxing authority in connection with any audit or information request with respect to any such taxable period for which JWS or the Parent may be liable to pay any taxes under this Agreement. (a) Notwithstanding any provision of this Agreement to the contrary, with respect to any claim for refund, audit, examination, notice of deficiency or assessment or any judicial or administrative proceeding that involves taxes of JWS (other than a tax claim relating solely to taxes for a tax period subsequent to the Closing Date) (a "Tax Claim"), JWS shall control all --------- proceedings taken in connection with such Tax Claim. JWS and the Water Authority shall reasonably cooperate in contesting any Tax Claim of any jurisdiction other than any taxing authority having jurisdiction in any service area covered by the Business, which cooperation shall include, without limitation, the retention and the provision upon reasonable request of records and information which are reasonably relevant to such Tax Claim, and making employees available on a mutually 67 convenient basis to provide additional information or explanation of any material provided hereunder or to testify at proceedings relating to such Tax Claim. In no event shall the Water Authority settle or otherwise compromise any Tax Claim without JWS's or the Parent's prior written consent. (b) JWS shall be entitled to any refunds or credits of taxes attributable to JWS arising in any tax periods prior to the Closing Date. The Water Authority shall promptly notify and forward to JWS the amounts of any refunds, credits or benefits due to JWS hereunder, less any reasonable expenses related thereto incurred by the Water Authority, within 10 Business Days after receipt thereof. (c) All transfer, documentary, sales, use, registration and other such taxes (including, but not limited to, all applicable real estate transfer or gains taxes) and fees (including any penalties, interest and addition to such taxes), if any, incurred in connection with the transactions contemplated hereby shall be the obligation of JWS and shall be paid at or before the Closing. (d) At or prior to the Closing, JWS shall pay all installments on real property taxes that are due and payable prior to the Closing Date on the real property included in the Acquired Assets. JWS shall not be responsible for the payment of any installments on real property taxes that are due and payable after the Closing Date. 68 ARTICLE V ASSUMPTION OF CERTAIN OBLIGATIONS AND LIABILITIES; INDEMNIFICATION .1 Assumption and Indemnification. (a) The Water Authority hereby ------------------------------ agrees to indemnify and hold, to the extent permitted by law, JWS, the Parent and their respective directors, officers, employees, agents and other Affiliates (collectively, the "JWS Indemnified Parties") harmless against and in respect ----------------------- of all losses, liabilities, damages, costs and expenses (including costs of suit and reasonable attorneys' fees and expenses) (collectively, "Liabilities"), ----------- incurred by any of them on or after the Closing Date arising from, in connection with or relating to the following: (i) the operation of the Nassau System and use or ownership of the Acquired Assets on or after the Closing Date; (ii) any Liability arising out of a claim for severance by any Offered Employee with respect to whom an adjustment to the Acquisition Price was made pursuant to Section 1.3(c), to the extent of the amount of said adjustment with respect to said Offered Employee; and (iii) any misrepresentation, breach or inaccuracy of any representation or warranty or failure to comply with any agreement, condition or covenant on the part of the Water Authority under this Agreement; provided, however, -------- ------- 69 that as a condition precedent to any indemnification pursuant to this clause (iii), the Water Authority shall have received written notice of a claim from the JWS Indemnified Party pursuant to Section 8.2 within the applicable statute of limitations period, or, with respect to Liabilities relating to any misrepresentation, breach or inaccuracy of any representation or warranty, within the period specified in Section 3.3 hereof. (b) JWS, the Parent and SellCo Corporation, a Delaware corporation ("SellCo"), hereby agree, jointly and severally, to indemnify and hold, to the - -------- extent permitted by law, the Water Authority and its directors, officers, employees, agents and other Affiliates (collectively, the "Water Authority --------------- Indemnified Parties") harmless against and in respect of all Liabilities - ------------------- incurred by any of them on or after the Closing Date arising from, in connection with or relating to the following (it being expressly understood by the Water Authority that the indemnification provisions in this Section 8.1(b) shall not cover Liabilities, if any, that may arise as the result of a modification by the Water Authority in the operation of the Nassau System upon the separation of the Queens portion of the water distribution system from the Nassau portion): (i) the operation of the Nassau System and use or ownership of the Acquired Assets prior to the Closing Date; (ii) any liability of JWS; 70 (iii) any misrepresentation, breach or inaccuracy of any representation or warranty or failure to comply with any agreement, condition or covenant on the part of JWS or the Parent under this Agreement; provided, however, that as a condition precedent to any -------- ------- indemnification pursuant to this clause (iii) JWS, the Parent or SellCo, as the case may be, shall have received written notice of a claim from the Water Authority Indemnified Party pursuant to Section 8.2 within the applicable statute of limitations period, or, with respect to Liabilities relating to any misrepresentation, breach or inaccuracy of any representation or warranty, within the period specified in Section 3.3 hereof; and (iv) any Environmental Liabilities relating to the Business or the Acquired Assets, except for those described on Schedules 3.1(i)(1) and (2); provided, however, that JWS, the Parent and SellCo shall only be obligated to - -------- ------- indemnify, defend and hold the Water Authority Indemnified Parties harmless for Liabilities arising pursuant to this Section 8.1(b) in the event and to the extent that all such Liabilities for which indemnification may be sought hereunder shall exceed 0.65 of 1% of the Acquisition Price (prior to any adjustments) plus the Lease Repurchase Amount. (a) All Liabilities referred to in the foregoing paragraphs (a) and (b) are collectively referred to as 71 "Indemnified Liabilities," and "Indemnified Party" shall mean either a JWS ----------------------- ----------------- Indemnified Party or a Water Authority Indemnified Party. 72 .2 Procedure. If any claim or demand by any Person is made against an --------- Indemnified Party, and if such Indemnified Party intends to seek indemnity with respect thereto under this Article VI, such Indemnified Party shall notify the indemnifying party in writing of such claim or demand, provided that the failure to notify the indemnifying party shall not relieve the indemnifying party from any liability which it may have hereunder unless it is actually prejudiced thereby. The indemnifying party shall have 30 days after receipt of such notice to undertake, conduct and control, through counsel of its own choosing and at its own expense, the settlement or defense thereof, and the Indemnified Party shall cooperate with the indemnifying party in connection therewith; provided -------- that the Indemnified Party may participate at its own expense in such settlement or defense through counsel chosen by such Indemnified Party. So long as the indemnifying party is reasonably contesting any such claim in good faith, the Indemnified Party shall not pay or settle any such claim. Notwithstanding the foregoing, the Indemnified Party shall have the right to pay or settle any such claim; provided that in such event it shall waive any right to indemnity -------- therefor by the indemnifying party. If the indemnifying party does not notify the Indemnified Party within 30 days after the receipt of the Indemnified Party's notice of a claim of indemnity hereunder that it elects to undertake the defense thereof, the Indemnified Party shall have the right to contest, settle or compromise the claim 73 in its sole discretion and shall not thereby waive any right to indemnity therefor pursuant to this Agreement. The indemnifying party shall not, except with the consent of the Indemnified Party, enter into any settlement that does not include as an unconditional term thereof the giving by the Person or Persons asserting such claim to all Indemnified Parties an unconditional release from all liability with respect to such claim or consent to entry of any judgment. Notwithstanding the foregoing, following the Closing, each Indemnified Party will afford to an indemnifying party and its counsel, accountants and other authorized representatives reasonable access during normal business hours to relevant properties, books and records (and permit the indemnifying party and its counsel, accountants and other authorized representatives to make copies of such books and records at their own expense), to the extent that such access may be reasonably required to facilitate the investigation, litigation and final disposition of any claim which may have been or may be made against any Indemnified Party relating to the Nassau System or the Acquired Assets or any of the transactions contemplated by this Agreement. The Water Authority Indemnified Parties shall hold any such confidential information in confidence on the same terms and subject to the same conditions as set forth in Section 4.1(b) hereof, and the JWS Indemnified Parties shall hold any such confidential information in confidence on the same terms and subject to the same conditions applicable to the Water Authority in Section 4.1(b) hereof. 74 .3 Payment. On each occasion that an Indemnified Party shall be entitled to indemnification or reimbursement under this Article VI, the indemnifying party shall, at each such time, promptly pay the amount of such indemnification or reimbursement. If the Indemnified Party shall be entitled to indemnification under this Article VI and the indemnifying party shall not elect to control any legal proceeding in connection therewith, the indemnifying party shall pay upon request from time to time to the Indemnified Party an amount equal to the Indemnified Party's costs and expenses arising as a result of such proceeding which have not been previously reimbursed. ARTICLE II MISCELLANEOUS .1 Certain Definitions. (a) As used in this Agreement, the term ------------------- "Affiliate" when used with respect to another Person shall mean any Person controlling, controlled by or under common control with such Person. (a) As used in this Agreement, the term "Business Day" means any day ------------ that is not a Saturday, Sunday or other day on which banks are required or authorized by law to be closed in New York, New York. (b) As used in this Agreement, the term "Contracts" means all --------- agreements, contracts, leases, purchase 75 orders, arrangements, commitments and licenses that are related to the Nassau System or to which the Acquired Assets are subject. (c) As used in this Agreement, the term "Person" means and includes ------ any natural person, corporation, limited liability company, partnership, limited partnership, firm, joint venture, association, joint-stock company, trust, business trust, unincorporated organization, governmental or regulatory body, or other entity of whatever nature. .2 Fees and Expenses. (a) Whether or not the transactions contemplated ----------------- hereby are consummated, each of the parties hereto shall pay its own fees and expenses incident to the negotiation, preparation and execution of this Agreement, including attorneys', accountants' and other advisors' fees and the fees and expenses of any broker, finder or agent retained by such party in connection with the transactions contemplated by this Agreement. (a) The parties respectively represent and warrant to each other that they have not employed or utilized the services of any broker, finder or investment banker in connection with this Agreement or the transactions contemplated by it, other than, in the case of JWS and the Parent, Bear, Stearns & Co. Inc. ("Bear, Stearns"), and in the case of the Water Authority, Merrill ------------- Lynch & Co. Attached as Schedule 9.2(b) is the acknowledgement of Bear, Stearns relating to the Water Authority's non-responsibility for any fees of Bear, Stearns in connection with this Agreement or the transactions contemplated 76 hereunder, and the acknowledgement of Merrill Lynch & Co. relating to JWS's and the Parent's non-responsibility for any fees of Merrill Lynch & Co. in connection with this Agreement or the transactions contemplated hereunder. .3 Notices. All notices, requests, demands, waivers and other ------- communications required or permitted to be given under this Agreement shall be in writing delivered by hand, telex, facsimile or registered letter with return receipt requested and shall be deemed to have been duly given or made when delivered by hand, or, in the case of telex notice, when sent, answerback received, or, in the case of facsimile note or registered letter, when received by the addressee, addressed as follows: (a) if to JWS, to it at: Jamaica Water Supply Company 410 Lakeville Road Lake Success, New York 11042 Attention: Edward J. Haye Vice President, General Counsel and Corporate Secretary with a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue, 28th Floor New York, New York 10017-3909 Attention: Vincent Pagano, Jr., Esq. (a) if to the Parent or to SellCo, to it at: EMCOR Group, Inc. 101 Merritt Seven, 7th Floor Norwalk, CT 06851 Attention: Sheldon I. Cammaker Executive Vice President and General Counsel 77 with a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue, 28th Floor New York, New York 10017-3909 Attention: Vincent Pagano, Jr., Esq. (a) if to the Water Authority, to it at: Water Authority of Western Nassau County 99 Tulip Avenue, Suite 305 Floral Park, New York 11001 Attention: Frank A. Tauches, Jr., Esq. Chairman with a copy to: Dominick M. Minerva, Esq. 107 South Central Avenue Valley Stream, New York 11580 or to such other persons or addresses as any party shall specify as to itself by notice in writing to the other parties. .1 Severability. If any term or other provision of this Agreement is ------------ invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the fullest extent possible. 78 .2 Entire Agreement. This Agreement (including the Schedules hereto) ---------------- constitutes the entire agreement between the parties hereto and supersedes all prior agreements and understandings, oral and written, between the parties hereto with respect to the subject matter hereof. .3 Binding Effect; Benefit. This Agreement shall be binding upon and inure ----------------------- solely to the benefit of each party hereto and their respective successors and assigns. Nothing in this Agreement, express or implied, is intended to or shall confer upon any Person, other than the parties hereto and their respective successors and assigns, any rights, benefits, remedies, obligations or liabilities of any nature whatsoever under or by reason of this Agreement. .4 Assignability. This Agreement shall not be assigned by any of the ------------- parties hereto without the prior written consent of the other parties. .5 Amendment and Modification; Waiver. This Agreement may not be amended, ---------------------------------- modified and supplemented except by a written instrument authorized and executed on behalf of the parties at any time prior to the Closing Date with respect to any of the terms contained herein. No waiver by any party of any of the provisions hereof shall be effective unless explicitly set forth in writing and executed by the party so waiving. Except as provided in the preceding sentence, no action taken pursuant to 79 this Agreement, including without limitation, any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representations, warranties, covenants, or agreements contained herein, and in any documents delivered or to be delivered pursuant to this Agreement and in connection with the Closing hereunder. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any other or subsequent breach. The parties hereby authorize their respective attorneys to agree in writing to any changes in dates and time periods provided for in this Agreement .6 Public Announcements. Unless otherwise required by law or any regulation -------------------- or rule binding upon JWS or the Parent or the Water Authority, prior to the Closing, no news release or other public announcement pertaining to the transactions contemplated by this Agreement will be made by or on behalf of any party hereto without the prior written approval of the other parties (such consent not to be unreasonably withheld or delayed). Where any announcement, communication or circular concerning the transactions referred to in this Agreement is required by law or any regulation or rule it shall be made by the relevant party after consultation, where reasonably practicable, with the other parties and taking into account the reasonable requirements (as to timing, contents and manner of making or dispatch of the announcement, communication or circular) of the other parties. 80 .7 Section Headings. This section headings contained in this Agreement are ---------------- inserted for reference purposes only and shall not affect the meaning or interpretation of this Agreement. 9.11 Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which shall be deemed to be an original, and all of which together shall be deemed to be one and the same instrument. .8 Jurisdiction. Each of the parties hereto irrevocably and ------------ unconditionally consents to the exclusive jurisdiction of the courts of the State of New York and the United States District Courts located in the State of New York for any actions, claims or other proceedings arising out of or relating to this Agreement, consents to service of process of such courts and agrees not to commence any such action, claim or other proceeding except in such courts. .9 GOVERNING LAW. THIS AGREEMENT AND THE LEGAL RELATIONS BETWEEN THE ------------- PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THEREOF. 81 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. JAMAICA WATER SUPPLY COMPANY /s/ Frank T. MacInnis By: ____________________________ Name: Frank T. MacInnis Title: President EMCOR GROUP, INC. /s/ Frank T. MacInnis By: ____________________________ Name: Frank T. MacInnis Title: Chairman of the Board, President and Chief Executive Officer. WATER AUTHORITY OF WESTERN NASSAU COUNTY /s/ Frank A. Tauches, Jr. By: ___________________________ Name: Frank A. Tauches, Jr. Title: Chairman APPROVED AS TO FORM FOR AND ON BEHALF OF THE WATER AUTHORITY OF WESTERN NASSAU COUNTY: /s/ Dominick M. Minerva, Esq. By: _____________________________ Name: Dominick M. Minerva, Esq. FOR PURPOSES OF SECTION 8.1 HEREOF: SELLCO CORPORATION /s/ Frank T. MacInnis By: ______________________________ Name: Frank T. MacInnis Title: President EX-3.(A-2) 4 AMEND. DTD. 11/28/95 TO RESTATED CERTIF OF INCORP EXHIBIT 3(a)(2) --------------- CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF EMCOR GROUP, INC. It is hereby certified that: 1. The name of the corporation (hereinafter referred to as the "Corporation") is EMCOR Group, Inc. 2. The restated certificate of incorporation of the Corporation is hereby amended by deleting Article FOURTH thereof and by substituting in lieu of said Article the following new Article: "FOURTH. The total number of shares of all classes of stock which the Corporation shall have the authority to issue is Fourteen Million Seven Hundred Thousand (14,700,000) shares, consisting of Thirteen Million Seven Hundred Thousand shares of Common Stock of a par value of $.01 per share and One Million (1,000,000) shares of Preferred Stock of a par value of $.10 per share in such series and with such voting powers, designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, as may be fixed from time to time by resolution or resolutions of the Board of Directors for each series." 3. The amendment of the restated certificate of incorporation herein certified has been duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. Executed on November 28, 1995 By: /s/ Frank T. MacInnis ----------------------- Frank T. MacInnis Chairman, President and Chief Executive Officer EX-4.4 5 FIRST SUPP INDENTURE DTD. 02/28/95 TO SER C INDENT EXHIBIT 4.4 ----------- FIRST SUPPLEMENTAL INDENTURE, dated as of June 28, 1995, among EMCOR Group, Inc., a Delaware corporation ("EMCOR"), MES Holdings Corporation, a Delaware corporation ("MES"), and Shawmut Bank Connecticut, National Association (the "Trustee"), as Trustee under the Indenture hereinafter referred to. WHEREAS, EMCOR, MES and the Trustee have previously entered into an Indenture dated as of December 15, 1994 (the "Indenture") relating to the 11% Series C Notes, Due 2001, of EMCOR (the "Notes"); WHEREAS, Section 9.02 of the Indenture provides that EMCOR and the Trustee may, with the written consent of the holders of at least a majority in aggregate principal amount of the outstanding Notes, amend the Indenture as provided herein; WHEREAS, the holders of not less than a majority in aggregate principal amount of the outstanding Notes have consented to this First Supplemental Indenture; and WHEREAS, all acts and things prescribed by law and by the respective Certificate of Incorporation and the By-laws (each as now in effect) of EMCOR necessary to make this First Supplemental Indenture a valid instrument legally binding on EMCOR for the purposes herein expressed, in accordance with its terms, have been duly done and performed. NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, EMCOR, MES and the Trustee hereby agree for the benefit of each other and the equal and ratable benefit of the holders of the Notes as follows: 1. Amendment of Article 4, Section 4.11. Paragraphs (a) and (b) of Section ------------------------------------ 4.11 of the Indenture are hereby amended to delete the Measurement Period of January 1, 1995 through June 30, 1995. 2. Construction. For all purposes of this First Supplemental Indenture, ------------ except as otherwise herein expressly provided or unless the context otherwise requires: (i) the terms and expressions used herein shall have the same meanings as corresponding terms and expressions used in the Indenture; and (ii) the words "herein", "hereof" and "hereby" and other words of similar import used in this First Supplemental Indenture refer to this First Supplemental Indenture as a whole and not to any particular Section hereof. 3. Trustee Acceptance. The Trustee accepts the amendment of the Indenture ------------------ effected by this First Supplemental Indenture and agrees to execute the trust created by the Indenture, as hereby amended, but only upon the terms and conditions set forth in the Indenture, as hereby amended, including the terms and provisions defining and limiting the liabilities and responsibilities of the Trustee, which terms and provisions shall in like manner define and limit its liabilities and responsibilities in the performance of the trust created by the Indenture, as hereby amended, and, without limiting the generality of the foregoing, the Trustee has no responsibility for the correctness of the recitals of fact herein contained which shall be taken as the statements of EMCOR and makes no representations as to the validity or sufficiency of this First Supplemental Indenture and shall incur no liability or responsibility in respect of the validity hereof. 4. Indenture Ratified. Except as expressly amended hereby, the Indenture is ------------------ in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. 5. Holders Bound. This First Supplemental Indenture shall form a part of the ------------- Indenture for all purposes, and every Holder of the Notes heretofore or hereafter authenticated and delivered shall be bound hereby. 6. Successors and Assigns. This First Supplemental Indenture shall be binding ---------------------- upon and inure to the benefit of the parties hereto and their respective successors and assigns. 7. Counterparts. This First Supplemental Indenture may be executed in any ------------ number of counterparts, each of which when so executed shall be deemed to be an original, and all of such counterparts shall together constitute one and the same instrument. 8. Governing Law. This First Supplemental Indenture shall be deemed to be a ------------- contract made under the laws of the State of New York and for all purposes shall be governed by and construed in accordance with such laws. IN WITNESS WHEREOF, EMCOR, MES and the Trustee have caused this First Supplemental Indenture to be signed and executed as of the day and year first above written. EMCOR GROUP, INC. /s/ Frank T. MacInnis By: _______________________ Name: Frank T. MacInnis Title: Chairman of the Board and President MES HOLDING CORPORATION /s/ Frank T. MacInnis By: _______________________ Name: Frank T. MacInnis Title: President SHAWMUT BANK CONNECTICUT NATIONAL ASSOCIATION /s/ Robert L. Reynolds By: _______________________ Name: Robert L. Reynolds Title: Vice President EX-11 6 COMPUTATION OF PRIMARY EARNINGS PER COMMON SHARE Exhibit 11 EMCOR Group, Inc. Schedule of Computation of Earnings Per Common Share and Common Equivalent Share (a) (Amounts in Thousands, Except Per Share Data)
YEARS ENDED DECEMBER 31, 1995 1994 ---------- ---------- PRIMARY - ---------------------------------------- Net (loss) income $ (10,853) $ 302,431 ========== ========== Weighted average number of common shares outstanding 9,424,201 9,424,083 Add - common equivalent shares (determined using the "treasury stock" method) representing shares issuable upon exercise of stock options 156,217 -- ---------- ---------- Weighted average number of shares used in calculation of primary income per common share and common equivalent share 9,580,418 9,424,083 ========== ========== Primary net (loss) income per common share and common equivalent share $ (1.13) $ 32.09 ========== ========== FULLY DILUTED - ---------------------------------------- Net (loss) income for primary income per common share and comon equivalent share $ (10,853) $ 302,431 ========== ========== Weighted average number of shares used in calculating primary income per common share and common equivalent share 9,580,418 9,424,083 Shares issuable upon exercise of stock options included in primary calculation above (156,217) -- Shares issuable upon exercise of stock options based on year-end market price 182,657 -- ---------- ---------- Weighted average number of shares used in calculation of fully diluted (loss) income per common share and common equivalent share 9,606,858 9,424,083 ========== ========== Fully diluted net (loss) income per common share and common equivalent share $ (1.13) $ 32.09 ========== ==========
(a) Historical per share data for periods prior to December 31, 1994 have not been presented as it is not meaningful since the Company has been recapitalized and adopted Fresh-Start Accounting as of December 31, 1994 (see Note A to the consolidated financial statements.) EX-21 7 LIST OF SIGNIFICANT SUBSIDIARIES EXHIBIT 21 LIST OF SIBNIFICANT SUBSIDIARIES Dyn Specialty Contracting, Inc. MES Holdings Corporation SellCo Corporation EMCOR Mechanical/Electrical Services, Inc. EMCOR International, Inc. EMCOR Mechanical/Electrical Services (East), Inc. EMCOR Mechanical/Electrical Services (MidWest), Inc. EMCOR Mechanical/Electrical Services (West), Inc. EMCOR Mechanical/Electrical Services (South), Inc. EMCOR (U.K.) Limited Drake & Scull Holdings Ltd. Drake & Scull Engineering Ltd. Drake & Scull Technical Services Inc. Drake & Scull Airport Services Ltd. Jamaica Water Supply Company Sea Cliff Water Company EX-27 8 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 53,007 0 450,866 14,892 8,031 632,897 35,716 8,579 720,945 527,877 0 0 0 95 70,516 710,945 1,588,744 1,588,744 1,445,597 1,582,891 0 831 14,820 (9,853) 1,000 (10,853) 0 0 0 (10,853) (1.13) (1.13)
-----END PRIVACY-ENHANCED MESSAGE-----