-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, DJec3phsfLs/OMOuj45StMVEqVTtbRrIx06SgsQ98i4n13ms0YCwle9WVxhQ6RW9 xIXvsTLJYSFcm8Jwssuc6g== 0000899681-94-000204.txt : 19941212 0000899681-94-000204.hdr.sgml : 19941212 ACCESSION NUMBER: 0000899681-94-000204 CONFORMED SUBMISSION TYPE: T-3/A PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 19941209 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: JWP INC/DE/ 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: T-3/A SEC ACT: 1939 Act SEC FILE NUMBER: 022-22187 FILM NUMBER: 94564053 BUSINESS ADDRESS: STREET 1: SIX INTERNATIONAL DRIVE CITY: RYE BROOK STATE: NY ZIP: 10573-1058 BUSINESS PHONE: 9149354000 MAIL ADDRESS: STREET 1: SIX INTERNATIONAL DRIVE CITY: RYE BROOK STATE: NY ZIP: 10573 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 T-3/A 1 SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 ----------- AMENDMENT NO. 1 TO FORM T-3 FOR APPLICATIONS FOR QUALIFICATION OF INDENTURES UNDER THE TRUST INDENTURE ACT OF 1939 ---------- (Name of applicant) (Address of Principal Executive Offices) JWP INC. Six International Drive Rye Brook, New York 10573 ------------ SECURITIES TO BE ISSUED UNDER THE INDENTURE TO BE QUALIFIED ----------------------------------------------------------- TITLE OF CLASS AMOUNT 7% Senior Secured Notes, Maximum of Series B, Due 1997 $11,357,000 Approximate date of proposed public offering: On or as soon as practicable after the Effective Date (as defined in the Plan) of the Plan. Name and address of agent for service: Sheldon I. Cammaker, Esq. General Counsel JWP INC. Six International Drive Rye Brook, New York 10573-1058 The applicant hereby amends this application for qualification on such date or dates as may be necessary to delay its effectiveness until (i) the 20th day after the filing of a further amendment which specifically states that it shall supersede this amendment, or (ii) such date as the Commission, acting pursuant to Section 307(c) of the Act, may determine upon the written request of the applicant. GENERAL 1. General Information. Furnish the following information as to the applicant: a. Form of organization: A corporation. b. State or other sovereign power under the laws of which organized: Delaware 2. Securities Act exemption applicable. State briefly the facts relied upon by the applicant as a basis for the claim that registration of the indenture securities under the Securities Act of 1933 is not required. On December 21, 1993 (the "Petition Date"), an involuntary petition for a reorganization under Chapter 11 of the United States Bankruptcy Code, 11 U.S.C. Section 101 et seq. (the "Bankruptcy Code") was filed against JWP INC. ("JWP") in the United States Bankruptcy Court for the Southern District of New York (the "Court"). On February 14, 1994 (the "Consent Date"), JWP filed a consent to the involuntary petition and an order for relief was entered. Under Sections 1107 and 1108 of the Bankruptcy Code, JWP continues to operate its businesses as a debtor-in-possession. On February 14, 1994, JWP together with its affiliate, SellCo Corporation ("SellCo"), a Delaware corporation, filed JWP's and SellCo's Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code (the "Initial Plan"). The Initial Plan was amended on July 1, 1994, on July 21, 1994, and on August 9, 1994 (the Initial Plan as so amended and revised being referred to herein as the "Plan"). At a hearing before the Court on August 22, 1994, the Court pursuant to Section 1125 of the Bankruptcy Code approved the Disclosure Statement for the Plan submitted to the Court (the "Disclosure Statement") as containing adequate information. On August 26, 1994, JWP and SellCo completed soliciting acceptances of the Plan from the claims against or interests in JWP entitled to vote on the Plan. A copy of the Disclosure Statement is attached as Exhibit T3E1 to this Form T-3; the Plan is attached as Exhibit 1 to the Disclosure Statement. Section 1145 of the Bankruptcy Code exempts the offer or sale of securities under a plan of reorganization from registration under the Securities Act of 1933 and state law. Under Section 1145, the issuance of securities is exempt from registration if three principal requirements are satisfied: (1) the securities are issued by a debtor, its successor, or an affiliate participating in a joint plan with the debtor, under a plan of reorganization; (2) the recipients of the securities hold a claim against the debtor or such affiliate, an interest in the debtor or such affiliate, or a claim for an administrative expense against the debtor or such affiliate; and (3) the securities are issued entirely in exchange for the recipients' claim against or interest in the debtor or such affiliate, or "principally" in such exchange and "partly" for cash or property. JWP believes that the issuance of the securities (the "Notes") under the indenture to be qualified to holders of various creditor classes under the Plan will satisfy all three conditions because; (a) the issuances are expressly contemplated under the Plan; (b) the recipients are holders of "Claims" against the debtors; and (c) the recipients would obtain the Notes in exchange for their prepetition claims. AFFILIATIONS 3. Affiliates. Furnish a list or diagram of all affiliates of the applicant and indicate the respective percentages of voting securities or other bases of control. As of September 28, 1994 The diagram attached as Annex 1 shows the applicant's direct and indirect subsidiaries. As of Effective Date The diagram attached as Annex 2 shows the applicant's direct and indirect subsidiaries proposed to be operating following the effectiveness of the Plan. MANAGEMENT AND CONTROL 4. Directors and executive officers. List the names and complete mailing addresses of all directors and executive officers of the applicant and all persons chosen to become directors or executive officers. Indicate all offices with the applicant held or to be held by each person named. As of September 28, 1994
Name Office Address Directors Frank T. MacInnis Director and c/o JWP Chairman of 6 International Drive the Board Rye Brook, NY 10573 Andrew T. Dwyer Director 532 Cantitoe Road Bedford, NY 10506 Innis O'Rourke Director The Knoll, RFD #1 Upper Brookville Oyster Bay, NY 11771 Craig C. Perry Director 3467 Pinestream Road, N.W. Atlanta, GA 30327 Edmund S. Twining, Jr. Director Post Office Box 121 Orlean, VA 22128 Officers Frank T. MacInnis President and c/o JWP Chief Executive 6 International Drive Officer Rye Brook, NY 10573 Sheldon I. Cammaker Executive Vice c/o JWP President and 6 International Drive General Counsel Rye Brook, NY 10573 Leicle E. Chesser Chief Financial Officer- c/o JWP Executive Vice President 6 International Drive Rye Brook, NY 10573 Jeffrey M. Levy Senior Vice President- c/o JWP Chief Operating Officer 6 International Drive Rye Brook, NY 10573 Joseph A. Gallo Senior Vice President c/o JWP and Treasurer 6 International Drive Rye Brook, NY 10573 Stephen H. Meyers Senior Vice c/o JWP President-Finance 6 International Drive Rye Brook, NY 10573 Joseph W. Barnett Corporate Secretary c/o JWP and Vice President 6 International Drive of Real Estate Rye Brook, NY 10573 Sidney R. Bernstein Vice President- c/o JWP Taxation 6 International Drive Rye Brook, NY 10573 Mark A. Pompa Vice President and c/o JWP Controller 6 International Drive Rye Brook, NY 10573 As of Effective Date Name Office Address Directors Frank T. MacInnis Director and Chairman c/o JWP of the Board 6 International Drive Rye Brook, NY 10573 Bart A. Brown, Jr. Director c/o JWP 6 International Drive Rye Brook, NY 10573 David A.B. Brown Director c/o JWP 6 International Drive Rye Brook, NY 10573 Richard F. Hamm, Jr. Director c/o JWP 6 International Drive Rye Brook, NY 10573 Malcom T. Hopkins Director c/o JWP 6 International Drive Rye Brook, NY 10573 Steven N. Wertheimer Director c/o JWP 6 International Drive Rye Brook, NY 10573 Todd Cunningham Director c/o JWP 6 International Drive Rye Brook, NY 10573 Officers Frank T. MacInnis President and Chief c/o JWP Executive Officer 6 International Drive Rye Brook, NY 10573 Sheldon I. Cammaker Executive Vice President c/o JWP and General Counsel 6 International Drive Rye Brook, NY 10573 Leicle E. Chesser Chief Financial Officer- c/o JWP Executive Vice President 6 International Drive Rye Brook, NY 10573 Jeffrey M. Levy Senior Vice President- c/o JWP Chief Operating Officer 6 International Drive Rye Brook, NY 10573 Joseph A. Gallo Senior Vice President c/o JWP and Treasurer 6 International Drive Rye Brook, NY 10573 Stephen H. Meyers Senior Vice c/o JWP President-Finance 6 International Drive Rye Brook, NY 10573 Joseph W. Barnett Corporate Secretary c/o JWP and Vice President 6 International Drive of Real Estate Rye Brook, NY 10573 Sidney R. Bernstein Vice President- c/o JWP Taxation 6 International Drive Rye Brook, NY 10573 Mark A. Pompa Vice President and c/o JWP Controller 6 International Drive Rye Brook, NY 10573
5. Principal owners of voting securities. Furnish the following information as to each person owning 10% or more of the voting securities of the applicant. Percentage of Name and Complete Title of Class Amount Voting Securities Mailing Address Owned Owned Owned As of September 28, 1994 There was no person owning 10% or more of the voting securities of the applicant. As of Effective Date To the best knowledge of the applicant based on current record ownership of holders of claims and interests entitled to receive common stock in reorganized JWP, there will be no person owning 10% or more of the voting securities of the applicant. UNDERWRITERS 6. Underwriters. Give the name and complete mailing address of (a) each person who, within three years prior to the date of filing the application, acted as an underwriter of any securities of the obligor which were outstanding on the date of filing the application, and (b) each proposed principal underwriter of the securities proposed to be offered. As to each person specified in (a) give the title of each class of securities underwritten. a. No person, within 3 years of the date hereof, acted as an underwriter of any of the securities of JWP that are outstanding on the date hereof. b. The securities proposed to be offered will be exchanged with certain holders of claims against JWP, as set forth in the Plan, without the assistance of any underwriter. CAPITAL SECURITIES 7. Capitalization. (a) Furnish the following information as to each authorized class of securities of the applicant. As of September 28, 1994
TITLE OF AMOUNT AMOUNT CLASS AUTHORIZED OUTSTANDING Common Stock, $0.10 par value 75,000,000 Shares 40,715,541 Shares Preferred Stock, $1 par value 25,000,000 Shares 418,100 Shares (designated as Series A) 7-3/4% Convertible 33,800,000 7,040,000 Subordinated Debentures 9.25% Senior Notes $ 40,000,000 $ 28,572,000 10.95% Senior Notes 30,000,000 30,000,000 10.25% Senior Notes 50,000,000 50,000,000 9.95% Senior Notes 60,000,000 60,000,000 10.35% Senior Notes 50,000,000 50,000,000 10.27% Senior Notes 20,000,000 20,000,000 Senior Serial Notes 25,000,000 25,000,000 9.56% Senior Notes 5,000,000 5,000,000 9.10% Senior Notes 60,000,000 60,000,000 12% Subordinated Notes 16,000,000 9,600,000
[FN] The applicant has 1,152,649 Warrants of Participation outstanding, which were distributed as a dividend to the holders of record of JWP Common Stock on June 30, 1969, on the basis of one Warrant of Participation for each share of JWP Common Stock then outstanding. The Warrants of Participation, which expire on December 31, 1994, entitle their holders to receive shares of JWP Common Stock in the event JWP's subsidiary, Jamaica Water Supply Company ("JWS"), disposes of all or any significant portion of its water distribution system or JWP disposes of any of the shares of JWS which it owns. The number of shares of JWP Common Stock to be issued, if any, will be determined according to a formula based upon the consideration received by JWP for the JWS assets or stock less reasonable expenses incurred and taxes to be paid in connection therewith, and will be distributed to holders of Warrants of Participation on a pro rata basis. In addition, the Company has stock options outstanding under its stock options plans. Under the 1986 Stock Option Plan, there are stock options outstanding for 258,347 shares with exercise prices ranging from $6.67 to $21.05. Under the 1991 Stock Option Plan, there are stock options outstanding for 457,007 shares with exercise prices ranging from $3.50 to $14.00. Under the 1992 Stock Option Plan, there are stock options outstanding for 1,104,032 shares with exercise prices ranging from $3.50 to $10.00. [FN] For the various Notes and Debentures listed above, the amounts set forth represent principal amount outstanding only and do not include accrued interest, overdue amounts, fees, penalties or other amounts. For a more detailed discussion of these securities see the Disclosure Statement. As of Effective Date For a description of the securities to be issued pursuant to the Plan, see the Disclosure Statement "IV. SUMMARY OF THE PLAN" and subpart A. thereof "A. PROPERTY TO BE DISTRIBUTED UNDER THE PLAN". (b) Give a brief outline of the voting rights of each class of voting securities referred to in paragraph (a) above. As of September 28, 1994 With respect to the voting rights of the common stock, each holder of a share of such common stock is entitled to one vote on all matters on which such shareholders are entitled to vote. The Series A Preferred Stock which is the only currently outstanding Preferred Stock has no voting rights whatsoever except (i) voting rights to which it may be entitled under the laws of the State of Delaware and (ii) whenever dividends payable on such Series A Preferred Stock have not been paid in an aggregate amount equal to or exceeding the amount of dividends payable thereon for six quarterly periods, the Series A Preferred Stock holders have the right to vote, as a class when considered with all other series of Preferred Stock with substantially [FN] Under the terms of the Plan, the applicant will issue Series X, Series Y and Series Z warrants to certain claimants as described therein. The Series X Warrants have an exercise price of $12.55 per share and must be exercised within five years of the Effective Date. The Series Y Warrants have an exercise price of $17.55 per share and must be exercised within five years of the Effective Date. The Series Z Warrants have an exercise price of $50.00 and must be exercised within two years of the Effective Date. similar voting rights, to elect one additional director, such voting right to continue until all accumulated dividends shall have been paid or declared and set apart for payment. As of Effective Date For a description of the voting rights of the securities to be issued pursuant to the Plan, see the Disclosure Statement "IV. SUMMARY OF THE PLAN" and subpart A. thereof "A. PROPERTY TO BE DISTRIBUTED UNDER THE PLAN". INDENTURE SECURITIES 8. Analysis of indenture provisions. Insert at this point the analysis of indenture provisions required under section 305(a)(2) of the Act. (a) Definition of Default: Withholding of Notice. The following events are defined in the indenture as "Events of Default": (i) any Obligor defaults in the payment of interest on any Security (including, without limitation, the issuance of Interest Deferral Securities) when the same becomes due and payable and the Default continues for a period of five days; (ii) any Obligor defaults in the payment of the principal of any Security when the same becomes due and payable at maturity, upon redemption or repurchase or otherwise; (iii) any Obligor fails to observe or perform any covenant, condition or agreement on the part of the Company to be observed or performed pursuant to the Intercreditor Agreement or pursuant to Sections 4.11, 4.15, 4.16, 4.17, 4.18, 4.25, 4.26, 4.28 or 4.29 of the indenture or pursuant to Article 3 or Article 5 of the indenture; (iv) any Obligor fails to comply with any of its other agreements or covenants in, or provisions of, the Securities, any Collateral Document, or this Indenture and the Default continues for the period and after the notice specified in Section 6.01(c); (v) any representation or warranty in Article 10 or in any Collateral Document shall have been incorrect in any material respect when made; (vi) (A) a default in the payment of principal, premium or interest when due occurs (whether by scheduled maturity, required prepayment, acceleration, demand or [FN] Capitalized terms used in this Section 8. "Analysis of Indenture Provisions." and not otherwise defined herein shall have the meaning ascribed to them in the indenture. otherwise) under any agreement, Guaranty, note, mortgage, indenture or instrument (other than the Securities) under which there may be issued or by which there may be secured or evidenced any Indebtedness of the Company or any of its Subsidiaries (other than the Rohr Indebtedness or Indebtedness of an Insignificant Subsidiary) in an amount or amounts in excess of $5,000,000 individually or $7,000,000 in the aggregate, (B) a default occurs under any such agreement, note, mortgage, indenture or instrument, the effect of which (1) results in the acceleration of such Indebtedness, or (2) permits the holder of such Indebtedness to accelerate, declare to be due and payable, or demand total or partial redemption, prepayment or repurchase of, all or any portion of such Indebtedness prior to its stated maturity, or (C) all or any portion of such Indebtedness is required to be prepaid, redeemed, purchased or defeased, or an offer to prepay, redeem, purchase or defease such Indebtedness is required to be made, in each case prior to the stated maturity thereof; (vii) a final judgment or final judgments for the payment of money are entered by a court or courts of competent jurisdiction against the Company or any of its Subsidiaries (other than an Insignificant Subsidiary or in respect of the Rohr Indebtedness) and such judgment or judgments remain undischarged for a period (during which execution shall not be effectively stayed) of 60 days, provided that any such judgment or judgments exceeds $1,000,000 individually or $1,500,000 in the aggregate; (viii) the Company or any of its Subsidiaries (other than an Insignificant Subsidiary) pursuant to or within the meaning of any Bankruptcy Law: (A) commences a voluntary case, (B) consents to the entry of an order for relief against it in an involuntary case, (C) consents to the appointment of a Custodian of it or for all or substantially all of its property, or (D) makes a general assignment for the benefit of its creditors, or (E) is unable to pay its debts as the same become due; or (ix) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is for relief against the Company or any Subsidiary of the Company (other than an Insignificant Subsidiary) in an involuntary case, (B) appoints a Custodian of the Company or any Subsidiary of the Company (other than an Insignificant Subsidiary) or for all or substantially all of its property, or (C) orders the liquidation of the Company or any Subsidiary of the Company (other than an Insignificant Subsidiary), and the order or decree remains unstayed and in effect for 60 days; or (x) the Liens on any of the Collateral granted or purported to be granted pursuant to any Collateral Document shall be or become unenforceable or invalid, or the priority thereof shall become diminished; or (xi) with respect to any Plan, (A) a prohibited transaction within the meaning of Section 4975 of the Code or Section 406 of ERISA occurs which in the reasonable determination of the Trustee could result in direct or indirect liability to the Company or any of its Subsidiaries; (B) with respect to any Title IV Plan, the filing of a notice to voluntarily terminate any such plan in a distress termination; (C) with respect to any Multiemployer Plan, the Company, any of its Subsidiaries or any ERISA Affiliate shall incur any Withdrawal Liability; (D) with respect to any Qualified Plan, the Company, any of its Subsidiaries or any ERISA Affiliate shall incur any accumulated funding deficiency or request a funding waiver from the IRS, and (E) with respect to any Title IV Plan or Multiemployer Plan which has an ERISA Event not described in clause (B), (C) or (D) hereof, which in the reasonable determination of the Trustee, there is a reasonable likelihood for termination of any such plan by the PBGC and for resulting liability of the Company, any of its Subsidiaries or any ERISA Affiliate, provided, however, that the events listed in clauses (A) through (E) hereof shall constitute Events of Default only if the liability, deficiency or waiver request of the Company, any of its Subsidiaries or any ERISA Affiliate, whether or not assessed, exceeds, individually or in the aggregate, $1,000,000; or (xii) the Guaranty pursuant to Article 11 hereof shall cease for any reason to be in full force and effect or either Guarantor, or any Person acting by or on behalf of either Guarantor, shall deny or disaffirm its obligations under such Guaranty. If an Event of Default (other than an Event of Default specified in clause (viii) or (ix) of Section 6.01(a)) occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in aggregate principal amount of the outstanding Securities may, and the Trustee upon the request of the Holders of not less than 25% in aggregate principal amount of the outstanding Securities shall, declare the principal amount of all the Securities, plus accrued interest, if any, to be due and payable immediately, by a notice in writing to the Company (and to the Obligors and the Trustee if given by the Holders), and upon any such declaration such principal amount, plus accrued interest, if any, shall become immediately due and payable in cash. (Section 6.02) If an Event of Default or Default occurs and is continuing and is known to the Trustee, the Trustee shall mail to Noteholders a notice of the Default or Event of Default within 90 days of such occurrence. Except in the case of a payment default with respect to the Notes, the Trustee may withhold such notice for so long as a committee of Trust Officers in good faith determines that withholding the notice is in the interests of such holders. (Section 7.05) (b) Authentication and Delivery: Application of Proceeds. Securities may be authenticated and delivered from time to time pursuant to the indenture and upon confirmation of the Plan to the Class 2 Old Note Holders, to holders of Class 3B Old Credit Agreement Debt (as each such Class is defined in the Plan), and to Belmont Capital Partners II, L.P. Authentication and delivery of Securities as described above shall be made upon written orders of the Company delivered to the Trustee. Securities will not be valid unless they are so authenticated by the Trustee. (Section 2.02) The Securities will be issued in exchange for claims as provided in the Plan, and accordingly, the issuance of the Securities will not result in proceeds to the applicant. (c) Release and Substitution of Property Subject to the Lien of the Indenture. The Obligors and the Trustee are not permitted, absent the consent of each Holder of the Notes affected, to release any Collateral consisting of the Capital Stock of MES Corporation or of SellCo. (Section 9.02(a)(viii)) In addition, release of the guaranty of the Notes by MES Corporation and SellCo is likewise prohibited without the consent of each Holder of the Notes affected. (Section 9.02(a)(ix)) Upon the receipt by the Company or any Software House Subsidiary of the proceeds of an Asset Sale or in respect of the capital stock or assets of any Software House Subsidiary (other than (i) Net Cash Proceeds used for the redemption of (A) the Notes pursuant to Section 3.08, or (B) Series A Notes pursuant to the Series A Indenture, and (ii) proceeds pledged to the Trustee pursuant to the Pledge Agreements), the Company shall execute such documents and take such further acts as are necessary so that the Trustee shall have a lien on such proceeds which lien shall be senior to the lien held by the Trustee acting on behalf of holders of (i) Series A Notes issued by the Company and (ii) the SellCo Subordinated Notes. (Section 10.01(b)) Upon the receipt by the Company or any of its Subsidiaries (other than a Software House Subsidiary) of the proceeds of an Asset Sale (other than of capital stock of any Software House subsidiary), the Company shall execute such documents and take such further acts as are necessary so that the Trustee will have a lien on such proceeds which lien (i) shall be subject to the lien held by the trustee acting on behalf of holders of the Series A Notes issued by the Company, and (ii) shall be senior to the lien held by the SellCo Subordinated Indenture Trustee acting on behalf of holders of the SellCo Subordinated Notes. (Section 10.01(c)) The Company and each Obligor are required to cause Section 314(d) of the Act relating to releases of collateral to be complied with which shall include delivery of certificates and/or opinions of Officers of the Company, or of independent persons, if required. (Section 10.02(d)) (d) Satisfaction and Discharge. The indenture shall cease to be of further effect other than with respect to: (i) each Obligor's compensation and indemnity obligations (Section 7.07), (ii) obligations of the Trustee and/or the Paying Agent to pay to the Company (A) excess money or securities (Section 8.03) and monies unclaimed after the requisite time period (Section 8.03), and (iii) obligations of the Obligors to pay unpaid Holders of Notes under Section 8.03 after the turnover to the Company by the Trustee and/or the Paying Agent of unclaimed monies; when all Notes authenticated and issued (other than lost, stolen, or destroyed Notes which have been replaced and/or paid) have been delivered to the Trustee for cancellation and each Obligor has paid all sums payable with respect thereto. (Section 8.01(a)) In addition, the obligations of the Obligors shall be terminated if each of the following is met: (i) the Company has irrevocably deposited in trust money or government securities maturing as to principal and interest in an amount sufficient to discharge principal, interest, and all other amounts payable under the indenture; (ii) the Obligors have delivered to the trustee an Officers' Certificate and Opinion of Counsel with respect to the satisfaction of all conditions precedent relating to the discharge and satisfaction of the indenture; (iii) no Default or Event of Default shall have occurred and be continuing on the date of deposit as a result of such deposit; (iv) the Obligors shall have delivered to the Trustee (A) a ruling directed to the Trustee from the IRS stating that income, gain, or loss will not be recognizable as a result of the deposit of funds as above described, or (B) an opinion of counsel (1) to the same effect as such IRS ruling, or (2) stating that the deposit of funds will not, after the passage of 90 days, be subject to the preference provisions of Section 547 of the Bankruptcy Code, or (3) stating that the Trustee will hold a valid and perfected security interest in such funds and will be entitled to receive adequate protection if such funds are used; (v) each Obligor has paid all sums then payable by such Obligor under the indenture and the Notes; and (vi) the deposit of monies by the Obligors and the exercise of the defeasance option shall not cause the Trustee to have a conflict of interest under Section 6.08 of the indenture or under the Trust Indenture Act with respect to other securities of the Company. (Section 8.01(b)) Notwithstanding the deposit of funds in accord with Section 8.01, the obligations of the Obligors shall, nevertheless, survive for a 90 day interim period following such deposit. In addition, following the end of such 90 day period, obligations of the Obligors under Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.10, 4.01, 4.02, 4.05, 4.17, 7.07, 7.08, 8.03, 8.04, and Article 11 shall survive until no Notes are outstanding, and thereafter only the obligations of the Obligors and the Trustee contained in Sections 7.07, 8.03, and 8.04 shall survive. (Section 8.01(c)) (e) Evidence of Compliance. (a) The Company shall deliver to the Trustee, within 105 days after the end of each fiscal year of the Company and within 60 days after the end of each Quarter commencing with the first Quarter commencing after the Issue Date, a certificate from the principal executive officer, the principal financial officer or the principal accounting officer stating that to the best of such officer's knowledge no Default or Event of Default has occurred, and setting forth in reasonable detail each of the calculations performed by the Company in respect of the covenants set forth in Sections 4.11, 4.15, 4.16, 4.18 and 4.28, or if a Default or Event of Default shall have occurred to the knowledge of such certifying person, describing all such Defaults and Events of Default and what action the Company is taking or proposes to take with respect thereto. (Section 4.04(a)) (b) The Company shall deliver to the Trustee, immediately upon any Officer having knowledge of (i) any Event of Default or (ii) the fact that any Indebtedness of the Company or any Subsidiary of the Company in an amount in excess of $500,00 has been or could be declared due and payable before its maturity because of the occurrence of any default (or any event, which with the giving of notice, or the lapse of time, or both, shall constitute such default) under such Indebtedness, or (iii) the occurrence of any event requiring the performance by the Company or any of its Subsidiaries under any Performance Guaranty, an Officers' Certificate specifying such Default or Event of Default or other event and what action the Company is taking or proposes to take with respect thereto. (Section 4.04(c)) 9. Other obligors. Give the name and complete mailing address of any person, other than the applicant, who is an obligor upon the indenture securities. Other obligors are the "Guarantors" (as defined in the indenture) which consist of SellCo and MES Corporation and their respective successors; their address is c/o JWP INC., Six International Drive, Rye Brook, New York 10573. CONTENTS Contents of application for qualification. This application for qualification comprises: a. Pages numbered 1 to 22, consecutively. b. The statement of eligibility and qualification of each trustee under the indenture to be qualified. c. The following exhibits in addition to those filed as a part of the statement of eligibility and qualification of each trustee. Exhibit T3A1. Certificate of Incorporation of JWP INC. filed with Delaware Secretary of State on March 31, 1987 (Incorporated by reference to applicant's Exhibit 3(a-1) to Annual Report on Form 10-K for fiscal year ended December 31, 1988) Exhibit T3A2. Agreement and Plan of Merger dated April 1, 1987 between JWP INC. (a New York corporation) into JWP INC. (a Delaware corporation) (Incorporated by reference to applicant's Exhibit (b) to Current Report on Form 8-K dated August 4, 1987) Exhibit T3A3. Certificate of Amendment of Certificate of Incorporation of JWP INC. filed by JWP INC. with Delaware Secretary of State on May 17, 1989 (Incorporated by reference to applicant's Exhibit (a-3) to Annual Report on Form 10-K for fiscal year ended December 31, 1989) Exhibit T3A4. Certificate of Designation with respect to $4.25 Convertible Exchangeable Preferred Stock, Series A ($1.00 par value) filed by JWP INC. with Delaware Secretary of State on August 5, 1991 (Incorporated by reference to applicant's Exhibit 4.1 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1991) Exhibit T3B By Laws of JWP INC. (Incorporated by reference to applicant's Exhibit 3(b) to Annual Report on Form 10-K for fiscal year ended December 31, 1988) Exhibit T3C Form of indenture including exhibits thereto Exhibit T3E1. Disclosure Statement and Third Amended Joint Plan of Reorganization Proposed by the Debtor and its Affiliate, SellCo Corporation as approved by the United States Bankruptcy Court, Southern District of New York, on August 22, 1994 Exhibit T3E2. Notice of (A) Solicitation of Votes to Accept or Reject the Debtor's Third Amended Plan of Reorganization and (B) Hearing to Consider Confirmation of the Debtor's Third Amended Plan of Reorganization Exhibit T3E3. Notification of Non-Voting Status Exhibit T3E4. Ballot (Old Note Creditors) Exhibit T3E5. Ballot (Old Credit Agreement Creditors) Exhibit T3E6. Ballot (Other Borrowed Money Ballot) Exhibit T3E7. Ballot (General Unsecured Creditor) Exhibit T3E8. Ballot (Subordinated Debt Claims) Exhibit T3E9. Ballot (Contingent and Statutory Subordinated Claims) Exhibit T3E10. Ballot (Old Preferred Stock) Exhibit T3E11. Ballot (Old Common Stock and Related Interests) Exhibit T3E12. Ballot (Shareholder Litigation) Exhibit T3E13. Ballot (Equity Interest-Warrants of Participation) Exhibit T3F See Cross Reference Sheet showing the location in the indenture of the provisions inserted therein pursuant to Section 310 through 318(a), inclusive, of the Trust Indenture Act of 1939 (See Exhibit T3C hereof) SIGNATURE Pursuant to the requirements of the Trust indenture Act of 1939, the applicant JWP INC., a corporation organized and existing under the laws of the State of Delaware, has duly caused the application to be signed on its behalf by the undersigned, thereunto duly authorized, and its seal to be hereunto affixed and attested, all in the Village of Rye Brook, and State of New York, on the 30th day of September, 1994. JWP INC. By:/s/ Frank T. MacInnis Title: Chairman of the Board, President and Chief Executive Officer Attest: By:/s/ Leicle E. Chesser Title: Executive Vice President and Chief Financial Officer /s/ Joseph W. Barnett Title: Secretary ANNEX 1 JWP INC. SUBSIDIARIES (All subsidiaries are 100% owned unless otherwise indicated. The level of indentation indicates the level of ownership.) JWP INC. Jamaica Water Securities Corp. Jamaica Water Supply Company (97%) Sea Cliff Water Company JWP Risk Holdings Inc. Defender Indemnity Ltd. JWP Information Services, Inc. Businessland Canada Ltd. Businessland (Hong Kong) Limited AZCO Inc. A to Z Equipment Corp. JWP Mechanical/Electrical Services, Inc. JWP Mechanical/Electrical Services (East), Inc. JWP Forest Electric Corp. American Cable Products, Inc. JWP Penguin Air Conditioning Corp. Kerby Saunders Inc. Kerby Saunders-Warkol, Inc. Wachtel, Duklauer & Fein Incorporated Wachtel, Duklauer & Fein Incorporated (NJ) (90%) SLR Constructors, Inc. JWP Welsbach Electric Corp. Heritage Air Systems Inc. JWP Welsbach Electrical Corp. of L.I. JWP New England Inc. JWP of Hartford, Inc. JWP/J.C. Higgins Corp. JWP Guzovsky Electrical Corp. Guzovsky/JWP Electrical Inc. Afgo Engineering Corporation JWP Maintenance & Services, Inc. JWP Mechanical Services of New York, Inc. Afgo Engineering Corp. of Washington JWP Mechanical/Electrical Services (Midwest), Inc. JWP Midwest, Inc. Gibson Electric Co., Inc. Unique Construction Inc. (49%) Sutter Hill Industries, Inc. JWP Technical Services Corp. North American Heating & Air Conditioning Company JWP/Hyre Electrical Corp. JWP Zack Inc. G/M Tech, Inc. JWP Technical Services of Ohio, Inc. JWP Mechanical/Electrical Services (West), Inc. Contra Costa Inc. JWP West JWP Trautman & Shreve, Inc. Hansen Mechanical Contractors, Inc. Superior Engineering Corporation Houle Corporation University Mechanical Contractors Inc. JWP Mechanical Services, Inc. University Energy Services of California, Inc. University Technical Services Inc. University Cogeneration, Inc. T.L. Cholette, Inc. Gone Inc. University Mechanical & Engineering, Inc. University Nuclear Systems, Inc. JWP Technical Services of Guam, Inc. (50%) JWP Pacific International, Inc. Jamaica Technical Trading Co. JWP Technical Services of Guam, Inc. (50%) JWP Technical Services (CNMI), Inc. JWP Technical Services (Malaysia) SDN Bhd. JWP Technical Services (Hong Kong) Limited JWP Technical Services (Singapore) PTE, Ltd. JWP Thailand Ltd. JWP Systems/Kirkwood Electric Co., Inc. JWP Mechanical/Electrical Services (South), Inc. B & B Contracting and Supply Company JWP Brandt Engineering Brandt Engineering Company of Arkansas, Inc. Brandt Service Company Metalair Industries, Inc. JWP Gowan Inc. Dyn Specialty Contracting Inc. Dynalectric Company of Nevada Dynalectric Company Marlon of Texas, Inc. E.M.A. International, Inc. JWP Communications Inc. JWP/IS Network Integration Services, Inc. Communications Services, Inc. NSI Communications Services, Inc. Computer Maintenance Corporation JWP Equipment Services Inc. JWP Energy Products Inc. General Energy Development, Inc. JWP Environmental Composting Technologies, Inc. JWP Voc 1, Inc. JWP Voc 2, Inc. JWP Environmental Services Company JWP Controls Holdings Inc. Photo-Scan Management Corp. JWP/HCCII Corp. Case/Acme Systems, Inc. Intec Business Phones, Inc. Walker Engineering Corp. Worldwide Communications Inc. JWP/MEC Corp. JWP Controls, Inc. ISYS Security Systems, Inc. JWP E.C. Corp. Fort Corp. JWP Unrestricted Sub 3 Inc. JWP/SHI Corp. Hydrosec (33%) JWP Credit Corp. JWP Merger Sub JWP Environmental Services III Inc. JWP Unrestricted Sub 12 Inc. JWP International Inc. Foreign Corporations (See Attached Annex A) JWP Asset Management Inc. JWP Telecom, Inc. JWP Telecommunications Services, Inc. JWP Telephone Service, Inc. Standard Telecommunications, Inc. Standard Telecommunications Equipment Inc. JWP Unrestricted Sub 9 Inc. SellCo Corporation ANNEX A FOREIGN SUBSIDIARIES (All subsidiaries are 100% owned unless otherwise indicated. The level of indentation indicates the level of ownership. JWP International Inc. is a wholly-owned subsidiary of JWP INC.) JWP International Inc. Comstock Limited Comstock Canada (Limited Partnership) (50%) Drake & Scull (Cayman Islands) Limited Drake & Scull Assarain (LLC) (49%) Lunar Drake & Scull (UAE) (49%) JWP (Cayman Islands) Ltd. JWP-NESMA Ltd. (50%) JWP NRO Holdings Inc. JWP (U.K.) Limited Businessland Holdings Ltd. BL Distribution Ltd. JWP Leasing Limited Drake & Scull Holdings Limited DEL Commerce (Contract Services) Limited Drake & Scull Group Services Limited Drake & Scull Engineering Limited Drake & Scull Airport Services Limited Drake & Scull (Scotland) Limited HKW Consultancy Limited Drake & Scull Overseas Limited Drake & Scull International Limited Forest Datacom (UK) Ltd. Forest Drake Scull Electric Limited Forest Electric (U.K.) Limited Heritage Air Systems Limited H. & F. Kornfeld (U.K.) Limited 923452 Ontario Limited Comstock Canada (Limited Partnership) (50%) Drake & Scull France SARL JWP (France) SARL JWP Information Systems SARL Sivea Geston S.A. JWP Espana S.A. Sivea Benelux MicroAvenue Antwerp Educational Center MicroCom ANNEX 2 SUBSIDIARIES OF JWP INC. Dyn Specialty Contracting Inc. D&B Contracting and Supply Company Contra Costa Electric, Inc. Dynalectric Company Dynalectric Company of Nevada JWP Systems/Kirkwood Electric Co., Inc. SellCo Corporation (for subsidiaries of Sellco, see Annex A attached hereto) MES Holdings Corporation (for subsidiaries of MES see Annex B attached hereto) JWP Energy Products, Inc. JWP/MEC Corp. University Energy Services of California, Inc. University Technical Services, Inc. JWP Telecom, Inc. JWP Telecommunication Services Inc. JWP Telephone Services Inc. Standard Telecommunications, Inc. Standard Telecommunications Equipment Inc. JWP Pacific International, Inc. Jamaica Technical Trading Company JWP Technical Services (C.N.M.I.) Inc. JWP Technical Services Hong Kong Limited JWP Technical Services (Singapore) PTE Ltd. JWP Thailand Ltd. SUBSIDIARIES (Direct and Indirect) OF SELLCO (All subsidiaries are 100% owned unless otherwise indicated. The level of indentation indicates the level of ownership. SellCo is a wholly-owned subsidiary of JWP INC.) Afgo Engineering Corporation Afgo Engineering Corp. of Washington American Cable Products, Inc. Antwerp Education Center N.V. AZCO Inc. A to Z Equipment Corp. Brandt Engineering Company of Arkansas, Inc. Brandt Service Company Communications Management Inc. Drake & Scull France SARL E.M.A. International, Inc. Gone Inc. Guzovsky/JWP Electrical Inc. Jamaica Water Securities Corp. Jamaica Water Supply Company (97%) Sea Cliff Water Company JWP Asset Management Inc. JWP Brandt Engineering Co., Inc. JWP Communications Inc. Computer Maintenance Corporation JWP/IS Network Integration Services, Inc. JWP Controls Holding, Inc. Case/Acme Systems, Inc. Fort Corp. Intec Business Phones Inc. JWP Controls Inc. ISYS Security Systems, Inc. JWP Unrestricted Sub 3 Inc. JWP/SHI Corp. Photo-Scan Management Systems, Inc. JWP Credit Corp. JWP E.C. Corp. JWP Environmental Services Company JWP Equipment Services Inc. General Energy Development, Inc. JWP Voc 1, Inc. JWP Voc 2, Inc. JWP Environmental Composting Technologies, Inc. JWP Espana SA JWP France SARL JWP Guzovsky Electrical Corp. JWP/HCCII Corp. JWP of Hartford, Inc. JWP Information Services, Inc. Businessland Canada Ltd. Businessland (Hong Kong) Limited JWP Information Services SARL JWP Mechanical Services of New York, Inc. JWP Merger Sub Inc. JWP Environmental Services III Inc. JWP New England Inc. JWP Technical Services Corp. Kerby Saunders, Inc. Kerby Saunders-Warkol, Inc. Marlon of Texas, Inc. Metalair Industries, Inc. MicroAvenue MicroCom North American Heating & Air Conditioning Company Sivea Benelux SLR Constructors Inc. Superior Engineering Corporation Sutter Hill Industries, Inc. Teletime Limited University Cogeneration, Inc. University Mechanical Contractors, Inc. University Nuclear Systems, Inc. Wachtel, Duklauer & Fein, Incorporated Wachtel, Duklauer & Fein Incorporated (NJ) (90%) Walker Engineering, Inc. Worldwide Communications, Inc. JWP Unrestricted Sub 9 Inc. JWP Unrestricted Sub 12 Inc. SUBSIDIARIES (Direct and Indirect) OF MES HOLDINGS CORPORATION (All subsidiaries are 100% owned unless otherwise indicated. The level of indentation indicates the level of ownership. MES Corporation is a wholly-owned subsidiary of JWP INC.) JWP Mechanical/Electrical Services, Inc. JWP Mechanical/Electrical Services (East), Inc. Heritage Air Systems Inc. JWP Forest Electric Corp. JWP/J.C. Higgins Corp. JWP Maintenance and Services, Inc. JWP Penguin Air Conditioning Corp. JWP Welsbach Electric Corp. JWP Welsbach Electric Corp. of L.I. JWP Mechanical/Electrical Services (Midwest), Inc. JWP/Hyre Electric Co. of Indiana, Inc. JWP Midwest, Inc. Gibson Electric Co., Inc. JWP Technical Services of Ohio, Inc. JWP Zack Inc. JWP Mechanical/Electrical Services (West), Inc. JWP West T.L. Cholette, Inc. Hansen Mechanical Contractors, Inc. JWP Mechanical Services Inc. JWP Trautman & Shreve, Inc. JWP Mechanical/Electrical Services (South), Inc. JWP Gowan Inc. Defender Indemnity, Ltd. JWP Risk Holdings Inc. JWP International Inc. Comstock Limited Comstock Canada (Limited Partnership) (50%) Drake & Scull (Cayman Islands) Limited Drake & Scull Assarain (LLC) (49%) Lunar Drake & Scull (UAE) (49%) JWP (Cayman Islands) Ltd. JWP-NESMA Ltd. (50%) JWP Technical Services of Guam, Inc. JWP NRO Holdings Inc. JWP (U.K.) Limited Businessland Holdings Ltd. BL Distribution Ltd. JWP Leasing Limited Drake & Scull Holdings Limited DEL Commerce (Contract Services) Limited Drake & Scull Group Services Limited Drake & Scull Engineering Limited Drake & Scull Airport Services Limited Drake & Scull (Scotland) Limited HKW Consultancy Limited Drake & Scull Overseas Limited Drake & Scull International Limited Forest Datacom (UK) Ltd. Forest Drake Scull Electric Limited Forest Electric (U.K.) Limited Heritage Air Systems Limited H. & F. Kornfeld (U.K.) Limited 923452 Ontario Limited Comstock Canada (Limited Partnership) (50%) Inte-Fac Corp. FORM T-1 =================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 __________________ STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE __________________ CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(B)(2) _________________________ UNITED STATES TRUST COMPANY OF NEW YORK (Exact name of trustee as specified in its charter) New York 13-5459866 (Jurisdiction of incorporation (I.R.S. employer if not a U.S. national bank) identification No.) 114 West 47th Street 10036-1532 New York, NY (Zip Code) (Address of principal executive offices) __________________ JWP INC. (Exact name of obligor as specified in its charter) Delaware 11-2125338 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification No.) Six International Drive Rye Brook, New York 10573 (Address of principal executive offices) (Zip Code) __________________ MES CORPORATION (Exact name of obligor as specified in its charter) Delaware Applied for (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification No.) C/O JWP Inc. Six International Drive Rye Brook, New York 10573 (Address of principal executive offices) (Zip Code) __________________ SELLCO CORPORATION (Exact name of obligor as specified in its charter) Delaware Applied for (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification No.) C/O JWP Inc. Six International Drive Rye Brook, New York 10573 (Address of principal executive offices) (Zip Code) __________________ 7% Senior Secured Notes, Series B, Due 1997 (Title of the indenture securities) ________________________________________________________________ GENERAL 1. GENERAL INFORMATION Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject. Federal Reserve Bank of New York (2nd District), New York, New York (Board of Governors of the Federal Reserve System) Federal Deposit Insurance Corporation, Washington, D.C. New York State Banking Department, Albany, New York (b) Whether it is authorized to exercise corporate trust powers. The trustee is authorized to exercise corporate trust powers. 2. Affiliations with the Obligor If the obligor is an affiliate of the trustee, describe each such affiliation. None 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15. JWP Inc. currently is not in default under any of its outstanding securities for which United States Trust Company of New York is Trustee. Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15 of Form T-1 are not required under General Instruction B. 16. LIST OF EXHIBITS. T-1.1 - "Chapter 204, Laws of 1853, An Act to Incorporate the United States Trust Company of New York, as Amended", is incorporated by reference to Exhibit T-1.1 to Form T-1 filed on September 20, 1991 with the Securities and Exchange Commission (the "Commission") pursuant to the Trust Indenture Act of 1939 (Registration No. 2221291). T-1.2 - The trustee was organized by a special act of the New York Legislature in 1853 prior to the time that the New York Banking Law was revised to require a Certificate of authority to commence business. Accordingly, under New York Banking Law, the Charter (Exhibit T-1.1) constitutes an equivalent of a certificate of authority to commence business. T-1.3 - The authorization of the trustee to exercise corporate trust powers is contained in the Charter (Exhibit T-1.1). 16. LIST OF EXHIBITS (Continued) T-1.4 - The By-laws of the United States Trust Company of New York, as amended to date, are incorporated by reference to Exhibit T-1.4 to Form T-1 filed on September 20, 1991 with the Commission pursuant to the Trust Indenture Act of 1939 (Registration No. 2221291). T-1.6 - The consent of the trustee required by Section 321(b) of the Trust Indenture Act of 1939. T-1.7 - A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority. NOTE As of September 30, 1994, the trustee had 2,999,020 shares of Common Stock outstanding, all of which are owned by its parent company, U.S. Trust Corporation. The term "trustee" in Item 2, refers to each of United States Trust Company of New York and its parent company, U.S. Trust Corporation. In answering Item 2 in this statement of eligibility as to matters peculiarly within the knowledge of the obligor or its directors, the trustee has relied upon information furnished to it by the obligor and will rely on information to be furnished by the obligor and the trustee disclaims responsibility for the accuracy or completeness of such information. __________________ Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee, United States Trust Company of New York, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility and qualification to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of New York, and State of New York, on the 30th day of September 1994. UNITED STATES TRUST COMPANY OF NEW YORK, Trustee By: S/Louis P. Young Vice President Exhibit T-1.6 The consent of the trustee required by Section 321(b) of the Act. United States Trust Company of New York 114 West 47th Street New York, NY 10036 March 19, 1992 Securities and Exchange Commission 450 5th Street, N.W. Washington, DC 20549 Gentlemen: Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939, and subject to the limitations set forth therein, United States Trust Company of New York ("U.S. Trust") hereby consents that reports of examinations of U.S. Trust by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon request therefor. Very truly yours, UNITED STATES TRUST COMPANY OF NEW YORK By: S/Gerard F. Ganey Senior Vice President EXHIBIT T-1.7 Consolidated Report of Condition of UNITED STATES TRUST COMPANY OF NEW YORK and Foreign and Domestic Subsidiaries, a member of the Federal Reserve System, at the close of business June 30, 1994, published in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act.
Dollar Amounts ASSETS in Thousands Cash and balances due from depository institutions: a. Noninterest bearing balances and currency and coin: $ 290,519 b. Interest bearing balances: 50,000 Securities: 1,452,265 Federal funds sold and securities purchased under agreements to resell in domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBF's: 0 a: Federal funds sold: 5,000 b: Securities purchased under agreements to resell: 0 Loans and lease financing receivables: a. Loans and leases, net of unearned income: 1,456,949 b. LESS: Allowance for loan and lease losses: 12,399 c. Loans and leases, net of unearned income, allowance and reserve: 1,444,550 Premises and fixed assets (including capitalized leases): 97,105 Other real estate owned: 10,865 Investments in unconsolidated subsidiaries and associated companies: 957 Intangible assets: 1,465 Other assets: 113,660 ----------- TOTAL ASSETS: $ 3,466,386 =========== LIABILITIES Deposits: a. In domestic offices: $ 2,161,830 (1) Non interest bearing: 1,098,376 (2) Interest bearing: 1,063,454 b. In foreign offices, Edge and Agreement subsidiaries, and IBF's: 7,636 (1) Interest bearing: 7,636 Federal funds purchased and securities sold under agreements to repurchase in domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBF's: a. Federal funds purchased: 933,170 b. Securities sold under agreements to repurchase: 3,672 Demand notes issued to the U.S. Treasury: 0 Other Borrowed Money 73,049 Mortgage indebtedness and obligations under capitalized leases: 1,639 Subordinated notes and debentures: 12,453 Other liabilities: 81,856 ------------ TOTAL LIABILITIES: $ 3,275,305 ============ EQUITY CAPITAL Common Stock: $ 14,995 Surplus: 41,500 Undivided profits and capital reserves: 138,377 Net unrealized holding gains (losses) on available-for-salesecurities (3,791) ------------ TOTAL EQUITY CAPITAL: $ 191,081 =========== TOTAL LIABILITY AND EQUITY CAPITAL: $ 3,466,386 ===========
I, Daniel M. Clavin, Senior Vice President of the above-named bank do hereby declare that this report of condition has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true to the best of my knowledge and belief. DANIEL M. CLAVIN, SVP June 30, 1994 We, the undersigned trustees, attest the correctness of this Report of Condition and declare that it has been examined by us and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true and correct. H. MARSHALL SCHWARZ ) Trustees JEFFREY S. MAURER ) FREDERICK S. WONHAM ) EX-99 2 EMCOR GROUP, INC. (Formerly Known as JWP INC.), as Issuer, MES HOLDINGS CORPORATION and SELLCO CORPORATION, as Guarantors and UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee INDENTURE Dated as of December [__], 1994 $11,357,000 7% Senior Secured Notes, Series B, Due 1997 CROSS-REFERENCE TABLE* Trust Indenture Act Section Indenture Section 310(a)(1) . . . . . . . . . . . . . . . . . . . . . . . 7.10 (a)(2) . . . . . . . . . . . . . . . . . . . . . . . 7.10 (a)(3) . . . . . . . . . . . . . . . . . . . . . . . N.A. (a)(4) . . . . . . . . . . . . . . . . . . . . . . N.A. (a)(5) . . . . . . . . . . . . . . . . . . . . . . . 7.10 (b) . . . . . . . . . . . . . . . . . . . . . . . . 7.08; 7.10; 12.02 (c) . . . . . . . . . . . . . . . . . . . . . . . . N.A. 311(a) . . . . . . . . . . . . . . . . . . . . . . . . 7.11 (b) . . . . . . . . . . . . . . . . . . . . . . . . 7.11 (c) . . . . . . . . . . . . . . . . . . . . . . . . N.A. 312(a) . . . . . . . . . . . . . . . . . . . . . . . . 2.05 (b) . . . . . . . . . . . . . . . . . . . . . . . . 12.03 (c) . . . . . . . . . . . . . . . . . . . . . . . . 12.03 313(a) . . . . . . . . . . . . . . . . . . . . . . . . 7.06 (b)(1) . . . . . . . . . . . . . . . . . . . . . . . 7.06 (b)(2) . . . . . . . . . . . . . . . . . . . . . . . 7.06 (c) . . . . . . . . . . . . . . . . . . . . . . . . 7.06; 12.02 (d) . . . . . . . . . . . . . . . . . . . . . . . . 7.06 314(a) . . . . . . . . . . . . . . . . . . . . . . . . 4.03; 4.04; . . . . . . . . . . . . . . . . . . . . . . . . 12.02 (b) . . . . . . . . . . . . . . . . . . . . . . . . 10.02 (c)(1) . . . . . . . . . . . . . . . . . . . . . . . 12.04 (c)(2) . . . . . . . . . . . . . . . . . . . . . . . 12.04 (c)(3) . . . . . . . . . . . . . . . . . . . . . . . N.A. (d) . . . . . . . . . . . . . . . . . . . . . . . . 10.02 (e) . . . . . . . . . . . . . . . . . . . . . . . . 12.05 (f) . . . . . . . . . . . . . . . . . . . . . . . . N.A. 315(a) . . . . . . . . . . . . . . . . . . . . . . . . 7.01 (b) . . . . . . . . . . . . . . . . . . . . . . . . 7.05; 12.02 (c) . . . . . . . . . . . . . . . . . . . . . . . . 7.01 (d) . . . . . . . . . . . . . . . . . . . . . . . . 7.01 (e) . . . . . . . . . . . . . . . . . . . . . . . . 6.11 316(a)(last sentence) . . . . . . . . . . . . . . . . . 2.09 (a)(1)(A) . . . . . . . . . . . . . . . . . . . . . 6.05 (a)(1)(B) . . . . . . . . . . . . . . . . . . . . . 6.04 (a)(2) . . . . . . . . . . . . . . . . . . . . . . . N.A. (b) . . . . . . . . . . . . . . . . . . . . . . . . 6.07 (c) . . . . . . . . . . . . . . . . . . . . . . . . 6.05 317(a)(1) . . . . . . . . . . . . . . . . . . . . . . . 6.08 (a)(2) . . . . . . . . . . . . . . . . . . . . . . . 6.09 (b) . . . . . . . . . . . . . . . . . . . . . . . . 2.04 318(a) . . . . . . . . . . . . . . . . . . . . . . . . 12.01 N.A. means not applicable. * This Cross-Reference Table shall not, for any purpose, be deemed to be a part of the Indenture. TABLE OF CONTENTS Page ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01. Definitions . . . . . . . . . . . . . . . . . 1 Section 1.02. Incorporation by Reference of Trust Indenture Act 20 Section 1.03. Rules of Construction . . . . . . . . . . . . 20 ARTICLE 2 THE SECURITIES Section 2.01. Form and Dating . . . . . . . . . . . . . . . 21 Section 2.02. Execution and Authentication . . . . . . . . . 21 Section 2.03. Registrar and Paying Agent . . . . . . . . . . 22 Section 2.04. Paying Agent to Hold Money in Trust . . . . . 22 Section 2.05. Holder Lists . . . . . . . . . . . . . . . . . 23 Section 2.06. Transfer and Exchange . . . . . . . . . . . . 23 Section 2.07. Replacement Securities . . . . . . . . . . . . 24 Section 2.08. Outstanding Securities . . . . . . . . . . . . 24 Section 2.09. Treasury Securities . . . . . . . . . . . . . 24 Section 2.10. Temporary Securities. . . . . . . . . . . . . 25 Section 2.11. Cancellation . . . . . . . . . . . . . . . . . 25 Section 2.12. Defaulted Interest . . . . . . . . . . . . . . 25 ARTICLE 3 REDEMPTION Section 3.01. Notices to Trustee. . . . . . . . . . . . . . 26 Section 3.02. Selection of Securities to Be Redeemed . . . . 26 Section 3.03. Notice of Redemption . . . . . . . . . . . . . 26 Section 3.04. Effect of Notice of Redemption . . . . . . . . 27 Section 3.05. Deposit of Redemption Price . . . . . . . . . 27 Section 3.06. Securities Redeemed in Part . . . . . . . . . 28 Section 3.07. Optional Redemption. . . . . . . . . . . . . . 28 Section 3.08. Mandatory Redemption. . . . . . . . . . . . . 28 ARTICLE 4 COVENANTS Section 4.01. Payment of Securities . . . . . . . . . . . . 30 Section 4.02. Maintenance of Office or Agency . . . . . . . 30 Section 4.03. SEC Reports; Reports to Securityholders . . . 31 Section 4.04. Compliance Certificate . . . . . . . . . . . . 31 Section 4.05. Stay, Extension and Usury Laws . . . . . . . . 32 Section 4.06. Limitation on Restricted Payments . . . . . . 32 Section 4.07. Limitations on Transactions with Affiliates. . 33 Section 4.08. Limitation on Liens . . . . . . . . . . . . . 33 Section 4.09. Limitation on Additional Indebtedness and Capital Stock . . . . . . . . . . . . . . 35 Section 4.10. Limitation on New Subsidiaries. . . . . . . . 39 Section 4.11. Limitation on Sales of Assets . . . . . . . . 39 Section 4.12. Limitation on Certain Transfers of Assets . . 40 Section 4.13. No Material Changes in the Nature of the Business 40 Section 4.14. Limitation on Investments and Advances . . . . 40 Section 4.15. Maintenance of Coverage Ratios . . . . . . . . 41 Section 4.16. Capital Expenditures. . . . . . . . . . . . . 42 Section 4.17. Corporate Existence . . . . . . . . . . . . . 43 Section 4.18. Change of Control . . . . . . . . . . . . . . 43 Section 4.19. Maintenance of Properties . . . . . . . . . . 45 Section 4.20. Payment of Taxes and Other Claims . . . . . . 45 Section 4.21. Maintenance of Insurance . . . . . . . . . . . 45 Section 4.22. Compliance with Law . . . . . . . . . . . . . 46 Section 4.23. Books and Records . . . . . . . . . . . . . . 46 Section 4.24. Employee Benefit Plans; ERISA . . . . . . . . 46 Section 4.25. Modification of Material Contractual Obligations. 46 Section 4.26. Security Interests . . . . . . . . . . . . . . 47 Section 4.27. Lease Obligations . . . . . . . . . . . . . . 47 Section 4.28. Maintenance of Consolidated Tangible Net Worth 47 Section 4.29. Performance Guaranties . . . . . . . . . . . . 48 ARTICLE 5 MERGERS AND ACQUISITIONS Section 5.01. Mergers, Acquisitions, Etc. . . . . . . . . . 48 ARTICLE 6 DEFAULTS AND REMEDIES Section 6.01. Events of Default . . . . . . . . . . . . . . 49 Section 6.02. Acceleration . . . . . . . . . . . . . . . . . 52 Section 6.03. Other Remedies . . . . . . . . . . . . . . . . 52 Section 6.04. Waiver of Past Defaults . . . . . . . . . . . 53 Section 6.05. Control by Majority . . . . . . . . . . . . . 53 Section 6.06. Limitation on Suits . . . . . . . . . . . . . 53 Section 6.07. Rights of Holders to Receive Payment . . . . . 54 Section 6.08. Collection Suit by Trustee . . . . . . . . . . 54 Section 6.09. Trustee May File Proofs of Claim . . . . . . . 54 Section 6.10. Priorities . . . . . . . . . . . . . . . . . . 55 Section 6.11. Undertaking for Costs . . . . . . . . . . . . 55 ARTICLE 7 TRUSTEE Section 7.01. Duties of Trustee . . . . . . . . . . . . . . 55 Section 7.02. Rights of Trustee . . . . . . . . . . . . . . 56 Section 7.03. Individual Rights of Trustee . . . . . . . . . 57 Section 7.04. Trustee's Disclaimer . . . . . . . . . . . . . 57 Section 7.05. Notice of Defaults . . . . . . . . . . . . . . 57 Section 7.06. Reports by Trustee to Holders . . . . . . . . 58 Section 7.07. Compensation and Indemnity . . . . . . . . . . 58 Section 7.08. Replacement of Trustee . . . . . . . . . . . . 59 Section 7.09. Successor Trustee by Merger, Etc. . . . . . . 60 Section 7.10. Eligibility; Disqualification . . . . . . . . 60 Section 7.11. Preferential Collection of Claims Against Company 61 ARTICLE 8 DISCHARGE OF INDENTURE Section 8.01. Termination of Company's Obligations . . . . . 61 Section 8.02. Application of Trust Money . . . . . . . . . . 63 Section 8.03. Repayment to the Company . . . . . . . . . . . 63 Section 8.04. Reinstatement . . . . . . . . . . . . . . . . 63 ARTICLE 9 AMENDMENTS Section 9.01. Without Consent of Holders . . . . . . . . . . 64 Section 9.02. With Consent of Holders . . . . . . . . . . . 64 Section 9.03. Compliance with Trust Indenture Act . . . . . 65 Section 9.04. Revocation and Effect of Consents . . . . . . 66 Section 9.05. Notation on or Exchange of Securities . . . . 66 Section 9.06. Trustee to Sign Amendments, Etc. . . . . . . . 66 ARTICLE 10 COLLATERAL Section 10.01. Pledge of Collateral . . . . . . . . . . . . 66 Section 10.02. Recording, Etc. . . . . . . . . . . . . . . . 68 Section 10.03. Suits to Protect the Collateral . . . . . . . 69 Section 10.04. Authorization of Receipt of Funds by the Trustee Under the Collateral Documents and the Intercreditor Agreement . . 69 ARTICLE 11 GUARANTY OF SECURITIES Section 11.01. Guaranty. . . . . . . . . . . . . . . . . . . 70 Section 11.02. Obligations of the Guarantors Unconditional. 71 Section 11.03. Execution and Delivery of Guaranties . . . . . 71 Section 11.04. Limitations of Guaranties. . . . . . . . . . 72 ARTICLE 12 MISCELLANEOUS Section 12.01. Trust Indenture Act Controls . . . . . . . . 72 Section 12.02. Notices . . . . . . . . . . . . . . . . . . . 72 Section 12.03. Communication by Holders with Other Holders . 73 Section 12.04. Certificate and Opinion as to Conditions Precedent . . . . . . . . . . . . . . . . . . 73 Section 12.05. Statements Required in Certificate or Opinion 74 Section 12.06. Rules by Trustee and Agents . . . . . . . . . 74 Section 12.07. Legal Holidays . . . . . . . . . . . . . . . 74 Section 12.08. Duplicate Originals . . . . . . . . . . . . . 74 Section 12.09. Governing Law . . . . . . . . . . . . . . . . 75 Section 12.10. No Adverse Interpretation of Other Agreements 75 Section 12.11. Successors . . . . . . . . . . . . . . . . . 75 Section 12.12. Severability . . . . . . . . . . . . . . . . 75 Section 12.13. Counterpart Originals . . . . . . . . . . . . 75 Section 12.14. Variable Provisions . . . . . . . . . . . . . 75 Section 12.15. Table of Contents, Headings, Etc. . . . . . . 75 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . 76 Exhibit A Form of Securities Exhibit B-1 Form of Software House Senior Pledge Agreement Exhibit B-2 Form of Software House Subordinated Pledge Agreement Exhibit B-3 Form of Software House SellCo Pledge Agreement Exhibit C Form of Intercreditor Agreement INDENTURE, dated as of December [__], 1994, among EMCOR Group, Inc. (formerly known as JWP INC.), a Delaware corporation (the "Company"), MES Holdings Corporation, a Delaware corporation ("MES"), SellCo Corporation, a Delaware corporation ("SellCo" and, together with MES, the "Guarantors"), and United States Trust Company of New York, a New York corporation, as trustee (the "Trustee"). Each party agrees as follows for the benefit of the other parties and for the equal and ratable benefit of the Holders of the Company's 7% Senior Secured Notes, Series B, Due 1997 (the "Securities"): ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01. Definitions. "Accountants' Certificate" means a certificate from Deloitte and Touche or from other independent certified public accountants of national standing. "Affiliate" of any specified Person means any other Person, directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Agent" means any Registrar, Paying Agent or co-registrar. "Asset Sale" has the meaning set forth in Section 4.11. "Available Cash" means, at any date of determination, the excess, if any, of (a) the sum of (i) the average daily balance of collected funds on deposit for the immediately preceding calendar month in the Cash Accounts (other than (A) customary cash deposits made in the ordinary course of business consistent with past practice in connection with payroll, employee benefit and other similar or customary deposit arrangements, petty cash accounts, disbursement accounts, or accounts holding retentions, (B) cash deposited in a Cash Account maintained by a Water Company, any Subsidiary of MES or a Dynalectric Company, the disbursement or withdrawal of which is prohibited or restricted, by contract, course of dealing or otherwise, on the Issue Date, (C) funds deposited in a Cash Account in respect of the proceeds received in connection with an Asset Sale or (D) an amount equal to the proceeds of (1) Indebtedness incurred by the Company or any of its Subsidiaries and (2) the issuance of the Company's Capital Stock), plus (ii) the lesser of (A) the average daily unused portion of the credit available under the Revolving Credit Agreement for such immediately preceding calendar month, or (B) $40,000,000, minus (b) the reserve maintained in accordance with the Bankruptcy Plan by the Company or any disbursing agent therefor, in respect of disputed claims against the Company, and minus (c) the tax reserve maintained by SellCo in respect of taxes owing in connection with Asset Sales by the Company and any of its Subsidiaries. "Bankruptcy Law" has the meaning set forth in Section 6.01(b). "Bankruptcy Plan" means the Third Amended Joint Plan of Reorganization of the Company and SellCo under Chapter 11 of the Bankruptcy Code (Chapter 11 Case No. 94 B 46404 (JHG)), as amended, supplemented or otherwise modified from time to time. "Board of Directors" of a Person means the board of direc- tors of such Person or any committee of such board of directors duly authorized to act hereunder. "Business Day" means any day other than a Legal Holiday. "Capital Expenditures" means, for any Person for any period, the aggregate (without duplication) of (a) all expenditures by such Person, except interest capitalized during construction, during such period for property, plant or equipment, including, without limitation, renewals, improvements, replacements and capitalized repairs, that would be reflected as additions to property, plant or equipment on a consolidated balance sheet of such Person prepared in conformity with GAAP, and (b) the principal amount of all Indebtedness incurred or assumed in connection with any such additions to property, plant and equipment. For the purpose of this definition, the purchase price of equipment which is acquired simultaneously with the trade-in of existing equipment owned by such Person or with insurance proceeds shall be included in Capital Expenditures only to the extent of the gross amount of such purchase price less the credit granted by the seller of such equipment being traded in at such time or the amount of such proceeds, as the case may be. "Capital Lease" means, as to any Person, any lease of property, real or personal, in respect of which the present value of the minimum rental commitment would be capitalized on a balance sheet of such Person in accordance with GAAP. "Capital Lease Obligation" means, as to any Person, the amount of the liability in respect of a Capital Lease which would at such time be required to be capitalized on a balance sheet of such Person in accordance with GAAP. "Capital Stock" means any and all shares, interests, participations, rights or other equivalents (however designated) of any Person. "Cash Accounts" means, collectively, all bank, money market and other deposit accounts maintained by the Company and its Subsidiaries other than the Imprest Accounts. "Change of Control" means an event whereby any Person or group (as such term is defined in Rule 13d-5 of the Exchange Act) of related Persons, other than the Specified Holders, shall acquire beneficial ownership, directly or indirectly, of more than 50% of the outstanding voting stock of the Company. "Change of Control Offer" has the meaning set forth in Section 4.18(a). "Change of Control Payment Date" has the meaning set forth in Section 4.18(a). "Code" means the Internal Revenue Code of 1986 (or any successor legislation thereto), as amended from time to time. "Collateral" means the "Pledged Collateral," as defined in each of the Pledge Agreements, and any and all other collateral securing the obligations of the Company, the Guarantors, or any other obligor under the Securities or under this Indenture pursuant to any other Collateral Document. "Collateral Documents" means the Pledge Agreements and any other document executed and delivered by the Company, a Guarantor, or any other obligor under the Securities or under this Indenture granting a Lien on any of its property to secure payment of the obligations of the Company, the Guarantors, or any other obligor under the Securities or under this Indenture, which document shall be in form and substance satisfactory to the Trustee. "Company" means EMCOR Group, Inc. (formerly known as JWP INC.), a Delaware corporation, and its successors. "Comstock" means, so long as it is a Subsidiary of the Company, Comstock Canada, Ltd., a Canadian limited partnership, and its successors. "Consolidated Cash Interest Expense" means, for any period, total accrued interest expense, (including the interest component of Capital Lease obligations) of the Operating Companies on a consolidated basis during such period, including, without limitation, all commissions, discounts and other fees and charges (to the extent such commissions, fees and charges are included in "interest" under GAAP) owed with respect to letters of credit, and net costs under interest rate contracts, but excluding, however, (a) amortization of debt discount, (b) interest paid in property other than cash, (c) any other interest expense not payable in cash, (d) interest on $16,000,000 principal amount of the Subordinated Notes and (e) commitment fees payable under the Revolving Credit Agreement and the Dynalectric Revolving Credit Agreement, all as determined in conformity with GAAP. "Consolidated EBIT" for any period means Consolidated Net Income (Loss) for such period increased (to the extent already deducted therefrom) by the sum, on a consolidated basis, of (a) all income tax expense for such period to the extent included in Consolidated Net Income (Loss), and (b) all interest expense for such period to the extent included in Consolidated Net Income (Loss). "Consolidated Fixed Charge Coverage Ratio" at any date means the ratio of (a) Consolidated EBIT plus depreciation and amortization of the Operating Companies less any Capital Expenditures of the Operating Companies for the applicable quarters immediately preceding such determination date (the "Reference Period") to (b) the sum of (i) Consolidated Cash Interest Expense incurred by the Operating Companies calculated on a pro forma basis for the Reference Period; (ii) (A) for the Reference Period from January 1, 1995 through December 31, 1995, stated interest on the Securities, the Series A Notes and the Subordinated Notes, excluding interest on $16,000,000 principal amount of the Subordinated Notes, accreted during the period from October 1, 1995 through December 31, 1995, (B) for the Reference Period from April 1, 1995 through March 31, 1996, stated interest on the Securities, the Series A Notes and the Subordinated Notes, excluding interest on $16,000,000 principal amount of the Subordinated Notes, accreted from October 1, 1995 through March 31, 1996, (C) for the Reference Period from July 1, 1995 through June 30, 1996, stated interest on the Securities, the Series A Notes and the Subordinated Notes, excluding interest on $16,000,000 principal amount of the Subordinated Notes, accreted from October 1, 1995 through June 30, 1996, (D) for the Reference Period from October 1, 1995 through September 30, 1996, and for each Reference Period thereafter, stated interest on the Securities, the Series A Notes and the Subordinated Notes, excluding interest on $16,000,000 principal amount of the Subordinated Notes, accreted during such Reference Period; and (iii) cash dividends (including on any preferred stock) paid by the Operating Companies during the Reference Period to a Person other than an Operating Company. For purposes of this definition, the factors set forth in (a) and (b) above (other than cash dividends) shall be calculated after giving effect on a pro forma basis (as if the same occurred at the beginning of the Reference Period) to (i) the acquisition by any Operating Company of any Person which, as a result of such acquisition, becomes a wholly-owned Subsidiary or the acquisition of assets constituting a business by any Operating Company during such Reference Period and (ii) any Asset Sales by an Operating Company (excluding gains or losses recognized from such Asset Sales) occurring during the Reference Period. In calculating cash interest expense for purposes of determining the denominator of this ratio, interest on Indebtedness of any Operating Company determined on a fluctuating basis, to the extent such interest is covered by an agreement relating to an interest swap obligation, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreement. "Consolidated Net Income (Loss)" means, for any period, the aggregate of the net income (loss) of the Operating Companies for such period, determined on a consolidated basis in accordance with GAAP, provided that there shall be excluded from such net income (to the extent otherwise included therein) (a) any gain or loss realized upon the sale or other disposition (including with- out limitation dispositions pursuant to sale-leaseback transactions and costs related to closings of operations, if incurred) of any real property or equipment of the Operating Companies which is not sold or otherwise disposed of in the ordinary course of business or of any Capital Stock of any Person owned by any Operating Company; (b) the net income (loss) of any such Person accounted for by the equity method of accounting (other than a venture permitted under Section 4.14(k)), except to the extent of the amount of dividends or distributions paid to an Operating Company; and (c) the net income (loss) of any other Person acquired by any Operating Company in a pooling of interests transaction for any period prior to the date of such acquisition. "Consolidated Tangible Net Worth" means, as at any date of determination, the consolidated tangible net worth of the Operating Companies, determined on a consolidated basis in accordance with GAAP. "Contractor" means any Domestic MES Subsidiary as of the time of any determination of Seaboard Hard Dollar Backlog. "Contractor Hard Dollar Backlog" means, for any Contractor that is the subject of a Contractor Sale, the aggregate contract price of all Seaboard bonded contracts of such Contractor (including contracts awarded but on account of which work has not yet commenced) less the amounts earned on account of such contracts, calculated on a percent of completion basis as of the month ended prior to the date of such Contractor Sale and in accordance with GAAP. "Contractor Sale" means any sale or other disposition, pursuant to one transaction or a series of transactions, of all or substantially all of the Capital Stock or assets of a Contractor. "Contractual Obligation" of any Person means any obligation, agreement, undertaking or similar provision of any security issued by such Person or of any agreement, undertaking, contract, lease, indenture, mortgage, deed of trust or other instrument (excluding a Security or this Indenture) to which such Person is a party or by which it or any of its property is bound or to which any of its properties is subject, and includes, without limitation, such Person's Material Contractual Obligations. "Corporate Trust Office" shall be at the address of the Trustee specified in Section 12.02 or such other address as the Trustee may give notice of to the Company. "Current Assets" means, at any date, the total consolidated current assets of the Operating Companies at such date, determined in conformity with GAAP. "Current Liabilities" means, at any date, the total consolidated current liabilities of the Operating Companies at such date, determined in conformity with GAAP. "Custodian" has the meaning set forth in Section 6.01(b). "Default" means any event that is, or after notice or passage of time or both would be, an Event of Default. "Defender" means (a) so long as it is a Subsidiary of the Company, Defender Indemnity Ltd., a Vermont corporation, and its successors, and (b) any other Domestic MES Subsidiary conducting insurance related services for the Company and its Subsidiaries similar to those conducted by Defender Indemnity Ltd. "Disqualified Stock" means any Capital Stock which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof, in whole or in part, on or prior to the maturity date of the Securities. "Domestic MES Subsidiaries" means each of the Subsidiaries of MES other than the Foreign MES Subsidiaries. "Dynalectric Company" means, for so long as it is a Subsidiary of the Company, each of the following: Dynalectric Company, Dynalectric Company of Nevada, Inc., Dyn Specialty Contracting, Inc., Contra Costa Electric, Inc., JWP Systems/Kirkwood Electric Company, Inc., B&B Contracting and Supply Company, and their respective successors. "Dynalectric Revolving Credit Agreement" means the Credit Agreement, dated as of the Issue Date, by and among the Company, the Dynalectric Companies and the other parties thereto and their respective successors and assigns, and any refinancings, replacements or renewals thereof permitted by Section 4.09. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "ERISA Affiliate" means any trade or business (whether or not incorporated) that is a member of a controlled group of which the Company or any of its Subsidiaries is a member or that is under common control with the Company or any of its Subsidiaries within the meaning of Section 414 of the Code and the regulations promulgated and rulings issued thereunder. "ERISA Event" means (a) a Reportable Event, with respect to a Title IV Plan or a Multiemployer Plan (other than a Reportable Event not subject to the provision for 30-day notice to the PBGC), or an event described in Section 4068 of ERISA; (b) the withdrawal of the Company or any of its Subsidiaries or any ERISA Affiliate from a Title IV Plan subject to Section 4063 of ERISA during a plan year in which it was a "substantial employer," as such term is defined in Section 4001(a)(2) of ERISA, or the incurrence of liability by the Company or any of its Subsidiaries or any ERISA Affiliate under Section 4064 of ERISA upon the termination of a Title IV Plan subject to Section 4063 of ERISA; (c) the complete or partial withdrawal of the Company, any of its Subsidiaries or any ERISA Affiliate from any Multiemployer Plan; (d) the filing of a notice of intent to terminate a Title IV Plan pursuant to Section 4041(a)(2) of ERISA or the treatment of a plan amendment as a termination under Section 4041 of ERISA; (e) the institution of proceedings to terminate a Title IV Plan or Multiemployer Plan by the PBGC under Title IV of ERISA; (f) the failure to make required contributions to a Qualified Plan; or (g) any other event or condition which might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Title IV Plan or Multiemployer Plan, other than PBGC premiums due but not delinquent under Section 4007 of ERISA. "Event of Default" has the meaning set forth in Section 6.01(a). "Excess Cash" means, at any date of determination, (a) if the Seaboard Hard Dollar Backlog is less than $280,000,000, the excess, if any, of Available Cash over $40,000,000, and (b) if the Seaboard Hard Dollar Backlog equals or exceeds $280,000,000, (i) the sum of the balances, from the financial statements reflecting all necessary adjustments and accruals required by Generally Accepted Accounting Principles, of (A) cash and cash equivalents of the Domestic MES Subsidiaries and the Company other than cash restricted by agreement or contract (but including such cash restricted by agreement or contract under contracts for which there is an equal and offsetting account payable included in (ii) (A) of this definition), (B) accounts receivable of the Domestic MES Subsidiaries outstanding less than 90 days, excluding any amounts specifically reserved for and reduced for a pro-rata portion of general accounts receivable reserves, including any reserves maintained by the Company, (C) costs in excess of billings for the Domestic MES Subsidiaries, net of reserves, including any reserves maintained by the Company, and (D) (x) $20,000,000 at any time that the Seaboard Hard Dollar Backlog is greater than or equal to $280,000,000 but less than $300,000,000, (y) $10,000,000 at any time that the Seaboard Hard Dollar Backlog is greater than or equal to $300,000,000 but less than $320,000,000, and (z) zero if the Seaboard Hard Dollar Backlog is equal to or greater than $320,000,000; less (ii) the sum of (A) all current liabilities of the Domestic MES Subsidiaries and the Company (but not including any liability on account of any Funded Indebtedness), and (B) any balance outstanding under any working capital revolver or lines of credit of or guaranteed by the Domestic MES Subsidiaries or the Company, to the extent that such balance is not already classified as a current liability under clause (ii)(A) above. A positive result of this calculation constitutes Excess Cash. For purposes of determining Excess Cash, any date of determination shall be at a financial reporting quarter end. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Foreign MES Subsidiaries" means Comstock, each U.K. Subsidiary, each Middle-East Subsidiary, each Malaysian Subsidiary, U2, and any other Subsidiary of any MES Company permitted hereunder, incorporated and organized in a jurisdiction other than the United States of America, and each of their respective Subsidiaries. "Funded Indebtedness" of any Person, means the sum, without duplication, of (a) total consolidated long-term Indebtedness of such Person as shown on such Person's consolidated balance sheet (including current maturities of long-term Indebtedness and excluding Indebtedness outstanding under the Revolving Credit Agreement), (b) total Capital Lease Obligations of such Person reported as long-term Indebtedness on such Person's consolidated balance sheet, and (c) Guaranties by such Person of the Funded Indebtedness of others. "GAAP" means Generally Accepted Accounting Principles as in effect on the Issue Date. "Generally Accepted Accounting Principles" means generally accepted accounting principles in the United States of America as in effect from time to time set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and the statements and pronouncements of the Financial Accounting Standards Board, or in such other statements by such other entity as may be in general use by significant segments of the accounting profession, which are applicable to the circumstances as of the date of determination. "Guarantors" means, collectively, MES and SellCo and their respective successors, and "Guarantor" means either of the Guarantors individually. "Guaranty" or "guaranty" means, as applied to any obligation, (a) a guaranty (other than (i) by endorsement of negotiable instruments for collection in the ordinary course of business, and (ii) a Performance Guaranty), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of any part or all of such obligation including, without limitation, the Guaranty pursuant to Article 11; and (b) an agreement, direct or indirect, contingent or otherwise, the practical effect of which is to assure in any way the payment or performance (or payment of damages in the event of non-performance) of any part or all of such obligation, including, without limiting the foregoing, the payment of amounts drawn down by letters of credit, but excluding any Performance Guaranty. The amount of a guaranty shall be deemed to be the maximum amount of the obligation guarantied for which the guarantor could be held liable under such guaranty. "Holder" means a Person in whose name a Security is registered. "Imprest Accounts" means bank and other deposit accounts maintained by the Company or any of its Subsidiaries which are subject to Liens of the type described in clause (f) of the definition of the term "Permitted Liens". "Indebtedness" means, when used with reference to any Person, any indebtedness, contingent or otherwise, in respect of borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof) or evidenced by bonds (other than bonds constituting Performance Guaranties), notes, debentures or similar instruments or obligations to provide cash collateral for or to cover or to reimburse for drawings under letters of credit or representing the balance deferred and unpaid of the purchase price of any property (except any such balance that constitutes a trade payable), and shall also include, without limitation (but without duplication), (a) any Capital Lease Obligations of such Person, (b) (to the extent not otherwise included in this definition) Guaranties of items which would be included within this definition (regardless of whether such items would appear upon such balance sheet), and (c) all Indebtedness referred to above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including, without limitation, accounts and general intangibles) owned by such Person even though such Person has not assumed or become liable for the payment of such Indebtedness, provided that for purposes of computing Indebtedness outstanding at any time, such items shall be excluded to the extent that they would otherwise be eliminated as inter-company items in consolidation. "Indenture" means this Indenture as amended, supplemented or otherwise modified from time to time. "Insignificant Subsidiary" means, at any date of determination, any Subsidiary of SellCo that (a) has not for the 90-day period ending on such date carried on any active trade or business or owned the Capital Stock of any Subsidiary that, during such period, carried on any active trade or business, and (b) has total liabilities (including contingent liabilities estimated by the Board of Directors of such Subsidiary in good faith) that exceed its total assets. "Insurance Related Letter of Credit Obligations" means, at any time, the sum of (a) the maximum aggregate amount then available to be drawn under all Insurance Related Letters of Credit outstanding at such time (assuming the occurrence of, and compliance with, all conditions for drawing) plus (b) the aggregate amount of unpaid reimbursement obligations resulting from drawings under Insurance Related Letters of Credit. "Insurance Related Letters of Credit" means standby letters of credit issued for the account of Defender or the Company in the ordinary course of business to secure its payment obligations under workers' compensation and liability insurance policies underwritten by Defender or such other underwriter in respect of the Company and its Subsidiaries and their respective employees and businesses. "Intercreditor Agreement" means the Intercreditor Agreement, dated as of the Issue Date and substantially in the form of Exhibit D hereto, among the Trustee, the Series A Indenture Trustee, the SellCo Subordinated Indenture Trustee, the Company, MES and SellCo, as the same may be amended, supplemented or otherwise modified from time to time. "Interest Deferral Securities" has the meaning set forth in Section 2.02(d). "Investment" means, when used with reference to any Person, any direct or indirect advances, loans or other extensions of credit or capital contributions by such Person to (by means of transfers of property to others or payments for property or services for the account or use of others, or otherwise), or purchases or acquisitions by such Person of Capital Stock, bonds, notes, debentures or other securities or instruments issued by, any other Person. "IRS" means the Internal Revenue Service, or any successor thereto. "Issue Date" means December [__], 1994. "JWS" means, so long as it is a Subsidiary of the Company, Jamaica Water Supply Company, a New York corporation, and its successors. "JWSC" means, (a) so long as it is a Subsidiary of the Company, Jamaica Water Securities Corp., a New York corporation, and its successors, and (b), so long as it is a Subsidiary of the Company, the immediate parent corporation, if any, of Jamaica Water Securities Corp., and its successors. "Legal Holiday" has the meaning set forth in Section 12.07. "Lien" means any mortgage, deed of trust, pledge, hypothecation, assignment, deposit arrangement, security inter- est, lien, charge, encumbrance or other preferential arrangement of any kind intended to assure payment of any Indebtedness or other obligation or to assure any performance by any Person (including any conditional sale or other title retention agreement, any lease in the nature thereof, and any agreement to give any security interest). "Malaysian Subsidiaries" means, so long as such corporation is a Subsidiary of the Company, (a) the corporation to be organized by the Company or any Subsidiary of the Company in Malaysia in connection with the operation and maintenance of power plants in Malaysia, and (b) if organized by a Subsidiary of the Company, the immediate parent corporation of such corporation so long as the principal asset of such parent corporation is such corporation, each of such corporation's Subsidiaries, and their respective successors. "Management Stock Option Plan" means the Company's Management Stock Option Plan, dated as of the Issue Date. "Material Adverse Change" means a material adverse change in any of (a) the condition (financial or otherwise), business, performance, prospects, operations or properties of the Company or of the Operating Companies taken as one enterprise; (b) the legality, validity or enforceability of this Indenture, the Securities, any Collateral Document, the Intercreditor Agreement or any other document executed in connection with any of the foregoing; (c) the perfection or priority of the Liens granted pursuant to any Collateral Document; (d) the ability of the Company to repay its obligations under the Securities or this Indenture or to perform its obligations under the Securities, this Indenture, any Collateral Document or the Intercreditor Agreement; or (e) the rights and remedies of the Trustee or the Holders of Securities under the Securities, this Indenture, any Collateral Document or the Intercreditor Agreement. "Material Adverse Effect" means an effect that results in or causes, or has a reasonable likelihood of resulting in or causing, a Material Adverse Change. "Material Contractual Obligation" means, in respect of any Person, (a) the articles of incorporation, bylaws, partnership agreement, or other organizational and governing documents of such Person; (b) in the case of the Company, the Series A Notes, the Series A Indenture, the Series A Senior Pledge Agreement, the Series A Subordinated Pledge Agreement, each of the other "Collateral Documents" (as defined in the Series A Indenture) to which it is a party, the Subordinated Notes, the Subordinated Note Indenture, the Management Stock Option Plan, and the Revolving Credit Agreement and the Dynalectric Revolving Credit Agreement; (c) in the case of SellCo, the SellCo Subordinated Notes, the SellCo Subordinated Indenture, the Securities, this Indenture, the Series A SellCo Pledge Agreement, the Software House SellCo Pledge Agreement and each of the other "Collateral Documents" (as defined in the SellCo Subordinated Indenture) to which it is a party; (d) in the case of MES, the Revolving Credit Agreement, the Securities, this Indenture, the Subordinated Notes and the Subordinated Note Indenture; and (e) in the case of the Dynalectric Companies, the Dynalectric Revolving Credit Agreement. "MES" means MES Holdings Corporation, a Delaware corporation, and its successors. "MES Companies" means MES and each of its Subsidiaries. "Middle-East Subsidiaries" means, so long as such Persons are Subsidiaries of the Company, Lunar Drake & Scull (UAE), a United Arab Emirates corporation, Drake & Scull Assarain, an Omani corporation, Drake & Scull (Cayman Islands) Ltd., a Cayman Islands corporation, JWP-Nesma Ltd., a Saudi Arabia corporation, JWP (Cayman Islands), Ltd., a Cayman Islands corporation and their respective successors. "Multiemployer Plan" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA to which the Company or any of its Subsidiaries or any ERISA Affiliate is making or accruing an obligation to make contributions, or has within any of the preceding five years made or accrued an obligation to make contributions on behalf of participants who are or were employed by any of them. "Net Cash Proceeds" means, when used with reference to any Asset Sale or series of related Asset Sales effected on or after December 1, 1993 (other than an Asset Sale consisting of the assets of any MES Company or of any Dynalectric Company or the Capital Stock of Dyn Specialty Contracting, Inc.), (a) the aggregate amount of the cash portion of the purchase price, and (b) all other cash consideration (including, without limitation, any cash payments received by way of deferred payment of principal pursuant to a note and any interest thereon, receivable, contingent payment arrangement, dividend, distribution or otherwise, but only as and when received) received after the Issue Date directly or indirectly by the Company or any of its Subsidiaries in respect of an Asset Sale, which cash consideration equals or exceeds $250,000, after deducting, without duplication (i) sales, transfer and similar taxes and reasonable out-of-pocket expenses and fees (including reasonable legal, accounting and brokerage fees and expenses) incurred by the Company or such Subsidiary (which taxes, expenses and fees are classified as such in accordance with Generally Accepted Accounting Principles) in connection with such sale; (ii) employee severance costs incurred in connection with the sale of any business constituting an Asset Sale; (iii) fixed, determined liabilities in accordance with Generally Accepted Accounting Principles retained by the Company or such Subsidiary in connection with such Asset Sale including amounts payable in respect of any insurance matters or employee benefit matters; (iv) reserves established in respect of contingent liabilities in accordance with Generally Accepted Accounting Principles retained by the Company or such Subsidiary in connection with such Asset Sale; (v) customary costs incurred in connection with the closing of a business constituting or arising in connection with such Asset Sale; and (vi) reserves maintained in accordance with the Bankruptcy Plan by the Company or any disbursing agent therefor, in respect of disputed unsecured claims against the Company; provided, however, that with respect to the sale of the Capital Stock or assets of one or more of the Water Companies, an aggregate amount not in excess of $15,000,000, which is either applied to the repayment of Indebtedness outstanding under and pursuant to the Revolving Credit Agreement or deposited in a cash collateral account pursuant to the provisions thereof, shall not be considered "Net Cash Proceeds" hereunder. "Net Debt Offering Proceeds" means the principal amount of Indebtedness of the Company (other than Indebtedness incurred under or evidenced by the Securities, the Software House Notes, the SellCo Subordinated Notes, the Subordinated Notes, the Revolving Credit Agreement, the Dynalectric Revolving Credit Agreement, and the SellCo Intercompany Note), net of the amount of (a) reasonable brokers' and advisors' fees and commissions payable in connection with such Indebtedness; (b) all federal, state and local taxes payable as a direct consequence of such Indebtedness; (c) the reasonable fees and expenses directly attributable to the incurrence of such Indebtedness, to the extent not included in clause (a); and (d) reserves maintained in accordance with the Bankruptcy Plan by the Company or any disbursing agent therefor, in respect of disputed unsecured claims against the Company. "Net Equity Offering Proceeds" means the gross cash proceeds received by the Company from the issuance, subsequent to the Issue Date, of the Company's Capital Stock (upon the exercise of options, warrants or otherwise), other than the issuance of the Company's common stock pursuant to the Management Stock Option Plan, less (a) all reasonable out-of-pocket expenses (including reasonable legal, accounting and advisor's fees and expenses), discounts and commissions incurred, and all federal, state and local taxes assessed, in connection therewith; and (b) reserves maintained in accordance with the Bankruptcy Plan by the Company or any disbursing agent therefor, in respect of disputed unsecured claims against the Company. "Nevada Subsidiaries" means Dynalectric Company of Nevada and Hansen Mechanical Contractors, Inc., each a Nevada corporation, and their respective Subsidiaries and successors. "Obligors" means, collectively, the Company and the Guarantors, and "Obligor" means any of the Obligors singly. "OECD" means the Organization for Economic Cooperation and Development. "Offer Price" has the meaning set forth in Section 4.18(a). "Officer" means the Chairman of the Board, the President, the Chief Financial Officer, the Treasurer, any Vice President, the Assistant Treasurer, the Secretary, the Assistant Secretary or the Controller of an obligor, as the context requires. "Officers' Certificate" means a certificate signed by two Officers of the Company, delivered to the Trustee, and which shall include the statements set forth in Section 12.05. "Operating Companies" means the Company, individually, each of the MES Companies and each of the Dynalectric Companies. "Opinion of Counsel" means a written opinion from independent legal counsel who is acceptable to the Trustee. The counsel may not be an employee of, or counsel to, the Company or the Trustee. "Paying Agent" has the meaning set forth in Section 2.03(a). "Payment Securities" means the Securities issued under this Indenture on the Issue Date. "PBGC" means the Pension Benefit Guaranty Corporation or any successor thereto. "Pension Plan" means an employee pension benefit plan, as defined in Section 3(2) of ERISA (other than a Multiemployer Plan), which is not an individual account plan as defined in Section 3(34) of ERISA, and which the Company, any of its Subsidiaries or, if a Title IV Plan, any ERISA Affiliate maintains, contributes to or has an obligation to contribute to on behalf of participants who are or were employed by any of them. "Performance Guaranties" means, in respect of the Company or any of its Subsidiaries, contingent obligations arising from the issuance of performance guaranties, assurances, indemnities, bonds, letters of credit or similar agreements in the ordinary course of business in respect of the contracts (other than for borrowed money) of the Company, any of the Subsidiaries of the Company, or Unique Construction for the benefit of surety companies or for the benefit of others to induce such others to forgo the issuance of a surety bond in their favor. "Permitted Investments" means (a) securities issued or directly and fully guarantied or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof) with a maturity not more than one year from the date of acquisition; (b) time deposits and certificates of deposit of any domestic commercial bank of recognized standing having capital and surplus of at least $500,000,000 or a commercial bank organized under the laws of any other country that is a member of the OECD and having total assets of at least $500,000,000, in either case, the outstanding short-term securities of which are rated at least A-1 by Standard & Poor's Corporation or at least P-1 by Moody's Investors Service, Inc., or carry an equivalent rating by a nationally recognized rating agency if both of the two named rating agencies cease publishing ratings of investments, which time deposits or certificates of deposit mature not more than one year from the date of acquisition; (c) commercial paper and demand notes rated at least A-1 or the equivalent thereof by Standard & Poor's Corporation or at least P-1 or the equivalent thereof by Moody's Investors Service, Inc. and maturing within one year after the date of acquisition; and (d) debt securities issued by any State of the United States of America or any political subdivision thereof rated at least A- or the equivalent thereof by Standard & Poor's Corporation or A3 or the equivalent thereof by Moody's Investors Service, Inc. and maturing within one year after the date of acquisition. "Permitted Liens" means, with respect to any Person, (a) pledges or deposits by such Person under workmen's compensation laws, unemployment insurance laws or similar legislation, or good faith deposits in connection with bids, tenders, contracts (other than for borrowed money) or leases to which such Person is a party, or deposits to secure public or statutory obligations of such Person or deposits of cash or United States Government bonds to secure surety or appeal bonds to which such Person is a party, or deposits as security for contested taxes or import duties or for the payment of rent; (b) Liens arising by operation of law in favor of materialmen, mechanics, warehousemen, carriers, lessors, bankers or other similar Persons incurred in the ordinary course of business which secure its obligations (other than for borrowed money) to such Person; provided, however, that (i) the Person incurring such Lien is not in default with respect to such payment obligation to such other Person, or (ii) the Person incurring such Lien is in good faith and by appropriate proceedings diligently contesting such obligation and adequate provision is made for the payment thereof in accordance with Generally Accepted Accounting Principles; (c) Liens for taxes, assessments or other governmental charges not yet subject to penalties for non-payment or which are being contested in good faith and by appropriate proceedings, if adequate reserves, as may be required by Generally Accepted Accounting Principles, shall have been made therefor; (d) Liens in favor of issuers of surety bonds issued pursuant to the request of and for the account of such Person or any Person guarantying such surety bonds in the ordinary course of its business; (e) survey exceptions, encumbrances, easements or reservations of, or rights of others for, rights of way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real properties or Liens incidental to the conduct of the business of such Person or to the ownership of its properties; and (f) Liens consisting of restrictions regarding the disbursement or withdrawal of funds deposited by a Subsidiary of the Company in bank accounts maintained by such Subsidiary in the ordinary course of business consistent with past practice, which accounts are (A) maintained in connection with specific construction projects or contracts from which payments and disbursements with respect to such projects or contracts are to be made or (B) required by customers of such Subsidiary to be excluded from the Company's or such Subsidiary's cash management system. "Person" means any individual, corporation, limited liability company, partnership, joint venture, trust, unincorporated organization or government or any agency or political subdivision thereof. "Plan" means an employee benefit plan, as defined in Section 3(3) of ERISA, which the Company or any of its Subsidiaries maintains, contributes to or has an obligation to contribute to on behalf of participants who are or were employed by any of them. "Pledge Agreements" means the Software House Senior Pledge Agreement, the Software House Subordinated Pledge Agreement and the Software House SellCo Pledge Agreement. The "principal" of a debt security means the principal of the security plus the premium, if any, on the security. "Qualified Plan" means an employee pension benefit plan, as defined in Section 3(2) of ERISA, which is intended to be tax- qualified under Section 401(a) of the Code, and which the Company, any of its Subsidiaries or any ERISA Affiliate maintains, contributes to or has an obligation to contribute to on behalf of participants who are or were employed by any of them. "Quarter" means a fiscal quarterly period of the Company or any of its Subsidiaries. "Registrar" has the meaning set forth in Section 2.03(a). "Reportable Event" means any of the events described in Section 4043(b)(1), (2), (3), (5), (6), (8) or (9) of ERISA. "Restricted Debt Prepayment" means any purchase, redemption, defeasance (including, but not limited to, in-sub- stance or legal defeasance), prepayment, other acquisition or re- tirement for value, or payment (other than (a) a required scheduled or mandatory payment or redemption or required payment on demand; (b) payments under the Revolving Credit Agreement, the Dynalectric Revolving Credit Agreement or other revolving credit facilities of the Operating Companies permitted herein; (c) payments made by a Subsidiary of the Company to the Company or another Subsidiary of the Company in respect of intercompany Indebtedness permitted hereunder; or (d) payments permitted under Section 4.09(xxxi)), directly or indirectly, by the Company or any of its Subsidiaries, of Indebtedness of the Company or any of its Subsidiaries, other than in respect of the Securities. "Restricted Investment" means any direct or indirect Investment by the Company or any Subsidiary of the Company in any Affiliate of the Company, other than investments permitted pursuant to Section 4.14. "Restricted Payment" means any (a) Stock Payment by the Company or a Subsidiary of the Company, (b) Restricted Investment, or (c) Restricted Debt Prepayment. Notwithstanding the foregoing, Restricted Payments shall not include tax payments by a Subsidiary of the Company to the Company or to another Subsidiary of the Company that is the parent entity of such Subsidiary, or payments of dividends or other distributions by a Subsidiary of the Company so long as such dividends or distributions are made pro rata to all shareholders of the same class in respect of which such dividend or distribution is made. "Revolving Credit Agreement" means the Credit Agreement, dated as of the Issue Date, by and among the Company, MES, and the other parties thereto and their respective successors and assigns, and any refinancings, replacements or renewals thereof permitted by Section 4.09. "Rohr Indebtedness" means Indebtedness of University Cogeneration, Inc. owed to Connecticut General Insurance Company and outstanding on the Issue Date. "Seaboard" means Seaboard Surety Company. "Seaboard Hard Dollar Backlog" means the aggregate contract price of all Seaboard bonded contracts of Contractors (including contracts awarded but on account of which work has not yet commenced), less the amounts earned on account of such contracts, calculated on a percent of completion basis in accordance with Generally Accepted Accounting Principles less the Contractor Hard Dollar Backlog. "Sea Cliff" means, so long as it is a Subsidiary of the Company, Sea Cliff Water Company, a New York corporation, and its successors. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Security" means any Payment Security or any Interest Deferral Security. "SellCo" means SellCo Corporation, a Delaware corporation, and its successors. "SellCo Companies" means SellCo, each of the Subsidiaries of SellCo and each of the Software House Subsidiaries. "SellCo Intercompany Note" means the promissory note of the Company in favor of SellCo, dated the Issue Date, in an aggregate principal amount of $5,464,133.78, which promissory note shall be payable after the payment in full of the Securities and prior to the date on which the SellCo Subordinated Notes are redeemed and canceled or deemed to have been redeemed and canceled pursuant to Section 3.09 of the SellCo Subordinated Indenture, but in no event earlier than the fifth anniversary of the "Issue Date" (as defined in the SellCo Subordinated Indenture). "SellCo Subordinated Indenture" means the Indenture, dated the Issue Date, between SellCo, as issuer and Shawmut Bank Connecticut National Association, as trustee, pursuant to which SellCo issued the SellCo Subordinated Notes. "SellCo Subordinated Indenture Trustee" means the "Trustee," as defined in the SellCo Subordinated Indenture. "SellCo Subordinated Notes" means SellCo's 12% Subordinated Contingent Payment Notes, Due 2004, issued by SellCo pursuant to the Sellco Subordinated Indenture in an aggregate principal amount not exceeding the sum of $46,000,000 plus the Additional Interest Amount (as defined in the Bankruptcy Plan) in respect thereof, together with any pay-in-kind interest accrued thereon pursuant to the terms thereof. "SellCo Subordinated Pledge Agreement" means the Pledge Agreement, dated the Issue Date, pursuant to which the "Pledged Collateral," as defined therein, shall be pledged by SellCo to secure the payment of SellCo's obligations under the SellCo Subordinated Notes and the SellCo Subordinated Indenture, as the same may be amended, supplemented or otherwise modified from time to time. "Series A SellCo Pledge Agreement" means the Pledge Agreement, dated the Issue Date and substantially in the form of Exhibit B-3 hereto, pursuant to which the "Pledged Collateral," as defined therein, shall be pledged by SellCo to secure the payment of SellCo's obligations under the Securities and this Indenture, as the same may be amended, supplemented or otherwise modified from time to time. "Series A Indenture" means the Indenture, dated the Issue Date, between the Company, as issuer, and IBJ Schroder Bank & Trust Company, as trustee, pursuant to which the Company issued the Series A Notes. "Series A Indenture Trustee" means the "Trustee," as defined in the Series A Indenture. "Series A Notes" means the Company's 7% Senior Secured Notes, Series A, Due 1997, issued by the Company pursuant to the Series A Indenture in an aggregate principal amount not exceeding the sum of $[51,000,000] plus the Additional Interest Amount (as defined in the Bankruptcy Plan) in respect thereof, together with any pay-in-kind interest accrued thereon pursuant to the terms thereof. "Series A Senior Pledge Agreement" means the Pledge Agreement, dated the Issue Date, pursuant to which the "Pledged Collateral," as defined therein, shall be pledged by the Company to secure the payment of the Company's obligations under the Series A Notes and the Series A Indenture, as the same may be amended, supplemented or otherwise modified from time to time. "Series A Subordinated Pledge Agreement" means the Pledge Agreement, dated the Issue Date, pursuant to which the "Pledged Collateral," as defined therein, shall be pledged by the Company to secure the payment of the Company's obligations under the Series A Notes and the Series A Indenture, as the same may be amended, supplemented or otherwise modified from time to time. "Software House SellCo Pledge Agreement" means the Pledge Agreement, dated the Issue Date, pursuant to which the "Pledged Collateral," as defined therein, shall be pledged by SellCo to secure the payment of SellCo's obligations under the Software House Notes and the Software House Indenture, as the same may be amended, supplemented or otherwise modified from time to time. "Software House Senior Pledge Agreement" means the Pledge Agreement, dated the Issue Date and substantially in the form of Exhibit B-1 hereto, pursuant to which the "Pledged Collateral," as defined therein, shall be pledged by the Company to secure the payment of the Company's obligations under the Securities and the Indenture, as the same may be amended, supplemented or otherwise modified from time to time. "Software House Subordinated Pledge Agreement" means the Pledge Agreement, dated the Issue Date and substantially in the form of Exhibit B-2 hereto, pursuant to which the "Pledged Collateral," as defined therein, shall be pledged by the Company to secure the payment of the Company's obligations under the Securities and the Indenture, as the same may be amended, supplemented or otherwise modified from time to time. "Software House Subsidiaries" means, so long as such Persons are Subsidiaries of the Company, JWP/MEC Corp., a Pennsylvania corporation, University Energy Services of California Inc. (and, if organized by the Company, a direct subsidiary of the Company, so long as (a) the principal asset of such subsidiary is the Capital Stock of University Energy Services of California Inc. and (b) the Capital Stock of such subsidiary is pledged to the Trustee under the Series A Subordinated Pledge Agreement), a California corporation, JWP Pacific International Inc., a Delaware corporation, JWP Telecom, Inc., a Delaware corporation, and JWP Energy Products, Inc., an Idaho corporation, each of the Subsidiaries of such corporations, and their respective successors. "Specified Holder" means a Holder to which one or more Securities is issued on the Issue Date. "Stock Payment" means: (a) with respect to a Person, any dividend, either in cash or in property (except dividends payable in common stock of such Person), on, or the making by such Person of any other distribution in respect of, its Capital Stock, now or hereafter outstanding, or the redemption, repurchase, retirement or other acquisition for value by such Person, directly or indirectly, of its Capital Stock or any warrants, rights or options to purchase or acquire shares of any class of its Capital Stock, now or hereafter outstanding; and (b) with respect to any Subsidiary, any such dividend (except dividends payable in common stock of such Subsidiary) or distribution in respect of, or any such redemption, repurchase, retirement or other acquisition of, its Capital Stock or the Capital Stock of any Person of which it is a Subsidiary or any warrants, rights, or options to purchase or acquire shares of any class of its Capital Stock or the Capital Stock of any Person of which it is a Subsidiary, now or hereafter outstanding. "Subordinated Notes" means the Company's 11% Series C Notes, Due 2001, issued by the Company pursuant to the Subordinated Note Indenture in an aggregate principal amount not exceeding the sum of $60,000,000 plus the Additional Interest Amount (as defined in Bankruptcy Plan) in respect thereof, together with any pay-in-kind interest accrued thereon pursuant to the terms thereof. "Subordinated Note Indenture" means the Indenture, dated the Issue Date, between the Company, as issuer and Shawmut Bank Connecticut National Association, as trustee, pursuant to which the Company issued the Subordinated Notes. "Subsidiary" of a Person means (a) any corporation of which the outstanding Capital Stock having at least a majority of the votes entitled to be cast in the election of directors, under ordinary circumstances, shall at the time be owned or controlled, directly or indirectly, by such Person, by such Person and one or more of its Subsidiaries or by one or more of its Subsidiaries; (b) any other Person the power to direct the policies, management or affairs of which is contractually held by such Person, or by such Person and one or more of its Subsidiaries or by one or more of its Subsidiaries; or (c) any other Person of which at least a majority of voting interest, under ordinary circumstances, is at the time, directly or indirectly, owned or controlled by such Person, or by such Person and one or more of its Subsidiaries or by one or more of its Subsidiaries. Notwithstanding the foregoing, for purposes of this Indenture, (i) none of JWP Information Services, Inc., Antwerp Education Center N.V., Microcom N.V., Sivea Benelux, Micro Avenue or JWP Information Systems S.A.R.L. shall be deemed Subsidiaries of the Company or any of its Subsidiaries, and (ii) any Middle-East Subsidiary and any Malaysian Subsidiary and its respective Subsidiaries shall be deemed Subsidiaries of the Company and certain of its Subsidiaries so long as the Company, individually or together with any of such Subsidiaries of the Company, owns or controls Capital Stock entitling it to cast at least one-third of the votes entitled to be cast at the election of directors of such Middle East Subsidiary or such Malaysian Subsidiary, respectively. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date on which this Indenture is qualified under the TIA, except as provided in Sections 9.01 and 9.03 hereof. "Title IV Plan" means a Pension Plan, other than a Multiemployer Plan, which is covered by Title IV of ERISA. "Trustee" means United States Trust Company of New York, a New York corporation, until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder. "Trust Officer" means the Chairman or Vice Chairman of the Board of Directors, the President or any other officer or assistant officer of the Trustee assigned by the Trustee to administer its corporate trust office. "U.K. Subsidiaries" means, so long as such Persons are Subsidiaries of the Company, JWP U.K. Ltd., a United Kingdom corporation, and each of its Subsidiaries (other than any Middle East Subsidiary or any Malaysian Subsidiary) and their respective successors. "Unique Construction" means Unique Construction Company, an Illinois corporation, and its successors. "Unrestricted Cash Coverage Ratio" at any date means the ratio of (a) Consolidated EBIT (other than Consolidated EBIT attributable to the Foreign MES Subsidiaries) plus depreciation and amortization of the Operating Companies (other than depreciation and amortization attributable to the Foreign MES Subsidiaries) plus any cash received by any of the Operating Companies (other than the Foreign MES Subsidiaries from any Water Company or any Foreign MES Subsidiary) during the applicable quarters immediately preceding such determination date less any Capital Expenditures of the Operating Companies (other than Capital Expenditures of the Foreign MES Subsidiaries not funded by the Company) for the applicable quarters immediately preceding such determination date (the "Reference Period"), to (b) the sum of (i) Consolidated Cash Interest Expense incurred by the Operating Companies (other than the Foreign MES Companies) calculated on a pro forma basis for the Reference Period, and (ii) cash dividends (including on any preferred stock) paid by the Operating Companies (other than the Foreign MES Companies) during the Reference Period to a Person other than an Operating Company (other than the Foreign MES Companies). For purposes of this definition, the factors set forth in (a) and (b) above (other than cash dividends) shall be calculated after giving effect on a pro forma basis (as if the same occurred at the beginning of the Reference Period) to (i) the acquisition by any Operating Company of any Person which, as a result of such acqui- sition, becomes a wholly-owned Subsidiary or the acquisition of assets constituting a business by any Operating Company during such Reference Period and (ii) any Asset Sales by an Operating Company (excluding gains or losses recognized from such Asset Sales) occurring during the Reference Period. In calculating cash interest expense for purposes of determining the denominator of this ratio, interest on Indebtedness of any Operating Company determined on a fluctuating basis, to the extent such interest is covered by an agreement relating to an interest swap obligation, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreement. "U.S. Government Obligations" has the meaning set forth in Section 8.01(f). "U2" means, so long as it is a Subsidiary of the Company, University Mechanical Contractors, Inc., a Washington corporation, and its successors. "Water Company" means, so long as it is a Subsidiary of the Company, each of JWS, JWSC, and Sea Cliff, and their respective successors. "Withdrawal Liability" means, at any time, the aggregate amount of the liabilities, if any, pursuant to Section 4201 of ERISA, and any increase in contributions pursuant to Section 4243 of ERISA with respect to all Multiemployer Plans. Section 1.02. Incorporation by Reference of Trust Indenture Act. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Securities; "indenture security holder" means a Holder; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; and "obligor" on the Securities means the Company or any other obligor on the Securities (including each Guarantor). All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA have the meanings so assigned to them. Section 1.03. Rules of Construction. Unless the context otherwise requires: (a) a term has the meaning assigned to it; (b) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (c) "or" is not exclusive; (d) words in the singular include the plural, and in the plural include the singular; and (e) provisions apply to successive events and transactions. ARTICLE 2 THE SECURITIES Section 2.01. Form and Dating. The Securities, and the Trustee's certificate of authentication in respect thereof, shall be substantially in the form of Exhibit A, the terms of which are incorporated in and made a part of this Indenture. The Securities may have notations, legends or endorsements required by law, stock exchange rule, agreements to which the Company is subject or usage. Each Security shall be dated the date of its authentication. The Securities shall be issuable only in registered form and only in denominations of $100 and integral multiples thereof. Section 2.02. Execution and Authentication. (a) An Officer of the Company shall sign the Securities for the Company by manual or facsimile signature. Such signature shall be attested to by the Secretary of the Company. The Com- pany's seal shall be reproduced on the Securities. Each Guarantor shall execute its Guaranty in the manner set forth in Section 11.03. If an Officer whose signature is on a Security no longer holds that office at the time the Security is authen- ticated, the Security shall nevertheless be valid. (b) A Security shall not be valid until authenticated by the manual signature of a Trust Officer on behalf of the Trustee. The signature of such Trust Officer shall be conclusive evidence, and the only evidence, that the Security has been authenticated under this Indenture. (c) The Trustee shall authenticate Payment Securities for original issue up to the aggregate principal amount stated in paragraph 4 of the Securities, upon a written order of the Company signed by two Officers, which order shall set forth the amount and the date of the Securities to be authenticated. The aggregate principal amount of Payment Securities outstanding at any time may not exceed $11,357,000 except as provided in Section 2.07. (d) As provided in Paragraph 2 of the Securities, the Company is required on each interest payment date, in lieu of the payment interest in cash on the outstanding Securities, to pay interest on the outstanding Securities through the issuance of additional Securities (the "Interest Deferral Securities") in an aggregate principal amount equal to the interest that would be payable with respect to the outstanding Securities if such interest were paid in cash. On each interest payment date, the Trustee or authenticating agent shall authenticate Interest Deferral Securities for issuance to each Holder of Securities on the preceding record date, as shown by the records of the Registrar, in the amount required to pay such interest (which shall be determined based on the aggregate amount of Securities held by each Holder as shown by the records of the Trustee). Each issuance of Interest Deferral Securities shall be made pro rata, except that the Company shall pay cash to any Holder to the extent necessary to avoid issuing Interest Deferral Securities in denominations which are not integral multiples of $100. (e) The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Securities. Unless limited by the term of such appointment, an authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with any obligor or an Affiliate of any obligor. Section 2.03. Registrar and Paying Agent. (a) The Company shall maintain or cause to be maintained an office or agency where Securities may be presented for registration of transfer or for exchange ("Registrar") and an office or agency where Securities may be presented or surrendered for payment ("Paying Agent"). The Registrar shall keep a register of the Securities and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Paying Agent" includes any additional paying agent. The Company may change any Paying Agent, Registrar or co-registrar without notice to any Holder. The Company shall notify the Trustee of the name and address of any Agent not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent, Registrar or co-registrar, except as otherwise provided in this Indenture. (b) The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture, which shall incorporate the provisions of the TIA. The agreement shall implement the provisions of this Indenture that relate to such Agent. The Company shall give prompt written notice to the Trustee of the name and address of any such Agent. If the Company fails to maintain a Registrar or Paying Agent, or fails to give the foregoing notice, the Trustee shall act as such, and shall be entitled to appropriate compensation in accordance with Section 7.07. (c) The Company initially appoints the Trustee as Registrar, Paying Agent and agent for service of notices and demands in connection with the Securities. Section 2.04. Paying Agent to Hold Money in Trust. Not later than each date on which principal and interest on the Securities is due and payable (other than by issuance of Interest Deferral Securities), the Company (or any other obligor on the Securities) shall deposit with the Paying Agent, in immediately available funds, money sufficient to pay such principal and interest. The Company (and any other obligor on the Securities) shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent shall hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal of or interest on the Securities (whether such money has been paid to it by the Company or any other obligor on the Securities), and shall notify the Trustee of any default by the Company (or any other obligor on the Securities) in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company) shall have no further liability for the money delivered to the Trustee. If the Company acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Section 2.05. Holder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of the Holders and shall otherwise comply with TIA Section 312(a). If the Trustee is not the Registrar, the Company shall cause to be furnished to the Trustee at least 15 Business Days before each interest payment date and at such other times as the Trustee may request in writing, within 30 days of such request, a list in such form and as of such date as the Trustee may reasonably require, of the names and addresses of the Holders and the Company shall otherwise comply with TIA Section 312(a). Section 2.06. Transfer and Exchange. (a) When Securities are presented to the Registrar or a co-registrar with a request to register, transfer or exchange them for an equal principal amount of Securities of other authorized denominations, the Registrar shall register the trans- fer or make the exchange if its requirements for such trans- actions are met; provided, however, that any Security presented or surrendered for registration of transfer or exchange shall be duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar and the Trustee, duly executed by the Holder thereof or his attorney duly authorized in writing. To permit registrations of transfers and exchanges, the Company shall issue and the Trustee shall authenticate Securities which the Holder making the transfer or exchange is entitled to receive at the Registrar's written request, subject to such rules as the Trustee may reasonably require. (b) The Company shall not be required (i) to issue, register the transfer of or exchange Securities during a period beginning at the opening of business on a Business Day 15 days before the day of any selection of Securities for redemption under Section 3.02 and ending at the close of business on the day of selection; (ii) to register the transfer of or exchange any Security so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part; or (iii) to register the transfer or exchange of a Security between the record date and the next succeeding interest payment date. (c) No service charge shall be made to the Holder for any registration of transfer or exchange (except as otherwise expressly permitted herein), but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than such transfer tax or similar governmental charge payable upon ex- changes (without a transfer to another Person) pursuant to Section 2.10, 3.06 or 9.05, in which event the Company shall be responsible for the payment of any such taxes). (d) Prior to due presentment for registration of transfer of any Security, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Security is registered as the absolute owner of such Security for the purpose of receiving payment of principal of and interest on such Security and for all other purposes whatsoever, whether or not such Security is overdue, and none of the Trustee, any Agent or the Company shall be affected by notice to the contrary. Section 2.07. Replacement Securities. (a) If any mutilated Security is surrendered to the Trustee, or the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Security, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall issue and the Trustee, upon the written order of the Company signed by two Officers, shall authenticate a replacement Security of like tenor and principal amount, bearing a number not contemporaneously outstanding, in exchange for any such mutilated Security or in lieu of any such destroyed, lost or stolen Security, if the Trustee's requirements for replacement of Securities are met. If required by the Trustee or the Company, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Trustee, any Agent or any authenticating agent from any loss that any of them may suffer if a Security is replaced. The Company and the Trustee may charge for their expenses in replacing a Security. (b) Every replacement Security is an additional obligation of the Company and each Guarantor, and shall be entitled to the benefits of this Indenture equally and proportionately with any and all other Securities issued hereunder. (c) The provisions of this Section 2.07 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. Section 2.08. Outstanding Securities. (a) The Securities outstanding at any time are all the Securities authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation, those redeemed or purchased by the Company pursuant to Article 3, and those described in this Section as not outstanding. If a Security is replaced pursuant to Section 2.07, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Security is held by a bona fide purchaser. (b) If the principal amount of any Security is considered paid under Section 4.01, it ceases to be outstanding and interest on it ceases to accrue. (c) A Security ceases to be outstanding if the Company or one of its Subsidiaries holds the Security. Section 2.09. Treasury Securities. (a) In determining whether the Holders of the required principal amount of Securities have given or concurred in any request, demand, authorization, notice, direction, waiver or consent, Securities owned by an Affiliate of the Company (other than a Specified Holder) shall be disregarded and considered as though not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such request, demand, authorization, notice, direction, waiver or consent, only Securities that a Trust Officer knows are so owned shall be so disregarded. (b) In determining whether the Holders of the required principal amount of Securities have (i) directed the time, method or place of conducting any proceeding for any remedy available to the Trustee hereunder, or exercising any trust or power conferred upon the Trustee; (ii) consented to the waiver of any past Event of Default and its consequences; or (iii) consented to the postponement of any interest payment, Securities owned by a Specified Holder shall be disregarded and considered as though not outstanding only if such Specified Holder is an Affiliate of the Company, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction or consent, only Securities that a Trust Officer knows are so owned shall be so disregarded. Section 2.10. Temporary Securities. Until definitive Securities are ready for delivery, the Company may prepare and, upon written request from the Company signed by two Officers of the Company, the Trustee shall authenticate temporary Securities. Temporary Securities shall be in any authorized denomination, substantially in the form of definitive Securities and with other variations that the Company considers appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and the Trustee, upon receipt of the written order of the Company signed by two Officers, shall authenticate definitive Securities in exchange for temporary Securities. Until such exchange, temporary Securities shall be entitled to the same rights, benefits and privileges as definitive Securities. Section 2.11. Cancellation. The Company at any time may deliver Securities previously authenticated hereunder to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Securities surrendered to them for registration of transfer, ex- change or payment. The Trustee shall cancel all Securities surrendered for registration of transfer, exchange, payment, re- placement or cancellation and shall destroy canceled Securities (subject to the record-retention requirement of the Exchange Act), and certification of their destruction shall be delivered to the Company unless the Company shall direct that canceled Securities be returned to it. The Company may not reissue or issue new Securities to replace Securities that it has redeemed or paid or that have been delivered to the Trustee for cancel- lation. Section 2.12. Defaulted Interest. If the Company defaults in a payment of interest on the Securities, it shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, which date shall be at least five Business Days prior to the payment date, in each case at the rate provided in the Securities and in Section 4.01 (which interest shall be paid, except on the maturity date of the Securities, in the form of Interest Deferral Securities). The Company shall, with the consent of the Trustee, fix or cause to be fixed each such special record date and payment date. At least 15 days before a special record date, the Company (or the Trustee in the name of and at the expense of the Company) shall mail to the Holders and to the Trustee (unless the Trustee mailed such notice on behalf of the Company) a notice that states the special record date, the related payment date and the amount of such interest to be paid. Section 2.13. CUSIP Numbers. The Company, in issuing the Securities, may use "CUSIP" numbers (if then generally in use), and the Trustee shall use CUSIP numbers in notices of redemption or exchange as a convenience to the Holders; provided, however, that any such notice shall state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of redemption or exchange, and that reliance may be only on the other identification numbers printed on the Securities, and any redemption shall not be affected by any defect in or omission of such numbers. ARTICLE 3 REDEMPTION Section 3.01. Notices to Trustee. If the Company elects to redeem Securities pursuant to the optional redemption provisions of Section 3.07, it shall furnish to the Trustee, at least 45 days but not more than 60 days (unless a shorter period shall be agreed to in writing by the Trustee) before a redemption date, an Officers' Certificate setting forth the Section of this Indenture and/or paragraph of the Securities pursuant to which the redemption shall occur, the redemption date, the principal amount of Securities to be redeemed and the redemption price; provided, however, that if the Company redeems Securities on the Issue Date, such notice of such redemption shall be given on the Issue Date. Section 3.02. Selection of Securities to Be Redeemed. (a) If less than all of the Securities are to be redeemed (other than pursuant to a repurchase thereof pursuant to Section 4.18 below), the Trustee shall select the Securities to be redeemed by lot or by a method that complies with applicable legal and stock exchange requirements, if any, taking into account the provisions of clause (b) of this Section 3.02. The particular Securities to be redeemed shall be selected unless otherwise provided herein, not less than 30 nor more than 60 days prior to the redemption date by the Trustee from the outstanding Securities not previously called for redemption; provided, however, that if the Company redeems Securities on the Issue Date, the Trustee shall select such Securities to be redeemed on the Issue Date. (b) The Trustee shall promptly notify the Company in writing of the Securities selected for redemption and, in the case of any Security selected for partial redemption, the principal amount thereof to be redeemed. Securities and portions of them selected shall be in amounts of $1,000 or whole multiples of $1,000; except that if all of the Securities of a Holder are to be redeemed, the entire outstanding amount of Securities held by such Holder, even if not a multiple of $1,000, shall be redeemed. Except as provided in the preceding sentence, provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. Section 3.03. Notice of Redemption. (a) At least 30 days but not more than 60 days before a redemption date, the Company shall mail or cause to be mailed a notice of redemption, by first-class mail, postage prepaid, to each Holder whose Securities are to be redeemed at the Holder's last address, as it shall appear on the register of the Securities; provided, however, that if the Company shall redeem Securities on the Issue Date, no such notice shall be required. A copy of such notice shall be mailed to the Trustee in the same manner and on the same day that the notice is mailed to the Holders. (b) The notice shall identify the Securities to be redeemed and shall state: (i) the redemption date; (ii) the redemption price; (iii) if any Security is being redeemed in part, the portion of the principal amount of such Security to be redeemed and that, after the redemption date, upon sur- render of such Security, a new Security or Securities in principal amount equal to the unredeemed portion will be issued; (iv) the name and address of the Paying Agent; (v) that Securities called for redemption must be surrendered to the Paying Agent to collect the redemption price; (vi) that, unless the Company defaults in making such redemption payment, interest on Securities called for redemption ceases toaccrue on and after theredemption date; (vii) the paragraph of the Securities and/or Section of this Indenture pursuant to which the Securities called for redemption are being redeemed, and, if such redemption is being made pursuant to Section 3.08(b), (c), (d), (e) or (f), setting forth in reasonable detail the facts and circumstances surrounding the event giving rise to such required redemption and the calculations made by the Company in determining the amount of Securities to be redeemed; and (viii) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Securities. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at its expense; provided, however, that the Company shall deliver to the Trustee, at least 45 days prior to the redemption date, an Officers' Certificate requesting that the Trustee give such notice and setting forth the text of the information to be stated in such notice as provided in this Section 3.03(b), and the Trustee shall have no responsibility whatsoever with regard to such notice being accurate or correct. Section 3.04. Effect of Notice of Redemption. Once notice of redemption is mailed, Securities called for redemption become due and payable on the redemption date at the redemption price set forth in the Security or this Indenture, as the case may be. Section 3.05. Deposit of Redemption Price. (a) No later than the redemption date, the Company shall deposit in immediately available funds with the Trustee or with the Paying Agent (or, if the Company or a Subsidiary of the Company is the Paying Agent, shall segregate and hold in trust) money sufficient to pay the redemption price of and accrued interest on all Securities to be redeemed on that date. The Trustee or the Paying Agent shall return to the Company any money deposited with the Trustee or the Paying Agent by the Company in excess of the amounts necessary to pay the redemption price of, and accrued interest on, all Securities to be redeemed. (b) If the Company complies with clause (a) of this Section 3.05, interest on the Securities to be redeemed will cease to accrue on the applicable redemption date, whether or not such Securities are presented for payment. If any Security called for redemption shall not be so paid upon surrender for redemption because of the failure of the Company to comply with the preceding paragraph, interest will be paid on the unpaid principal from the redemption date until such principal is paid and to the extent lawful on any interest not paid on such unpaid principal, in each case at the rate provided in the Securities and in Section 4.01. Section 3.06. Securities Redeemed in Part. Upon surrender of a Security that is redeemed in part, the Company shall issue and the Trustee shall authenticate for the Holder at the expense of the Company a new Security equal in principal amount to the unredeemed portion of the Security surrendered. Section 3.07. Optional Redemption. After the payment in full of all Indebtedness outstanding under the Series A Notes, the Company may redeem all or any portion of the Securities, upon the terms and at the redemption price set forth in paragraph 5 of the Securities in an aggregate amount at any date of determination not to exceed Excess Cash. Any redemption pursuant to this Section 3.07 shall be made pursuant to the provisions of Sections 3.01 through 3.06. Section 3.08. Mandatory Redemption. (a) Concurrently with its receipt of any Net Cash Proceeds in respect of an Asset Sale or series of related Asset Sales effected by the Company in respect of assets constituting "Pledged Shares" under the Software House Senior Pledge Agreement, the Company shall redeem Securities, at a redemption price of 100% of the principal amount thereof, together with accrued interest to the date of such redemption on the principal amount of Securities redeemed, in an amount equal to such Net Cash Proceeds (it being understood that the Company shall, on the Issue Date, redeem Securities in accordance with this clause (a) in an amount equal to all such Net Cash Proceeds held by the Company on the Issue Date. (b) After the payment in full of all Indebtedness outstanding under the Series A Notes, concurrently with its receipt of any Net Cash Proceeds in respect of an Asset Sale or series of related Asset Sales effected by the Company (other than an Asset Sale (i) of the type referred to in clause (a) above, and (ii) governed by Section 5.01(a), (b), (c), (d) or (e)), the Company shall redeem Securities, at a redemption price of 100% of the principal amount thereof, together with accrued interest to the date of such redemption on the principal amount of Securities redeemed, in an amount equal to such Net Cash Proceeds. (c) After the payment in full of all Indebtedness outstanding under the Series A Notes, concurrently with its receipt of any Net Equity Offering Proceeds (other than in connection with an offering or series of offerings constituting a Change of Control) in an amount in excess of $25,000,000, the Company shall redeem Securities, at a redemption price of 100% of the principal amount thereof, together with accrued interest to the date of such redemption on the principal amount of Securities redeemed, in an amount equal to such excess. (d) After the payment in full of all Indebtedness outstanding under the Series A Notes, concurrently with its receipt of any Net Debt Offering Proceeds in respect of Indebtedness permitted under Section 4.09(vi), the Company shall redeem Securities, at a redemption price of 100% of the principal amount thereof, together with accrued interest to the date of such redemption on the principal amount of Securities redeemed, in an amount equal to such Net Debt Offering Proceeds. (e) From and after (i) the payment in full of all Indebtedness outstanding under the Series A Notes, and (ii) the later to occur of (A) the payment in full of the Loans (as defined in the Revolving Credit Agreement as in effect on the Issue Date and the Dynalectric Revolving Credit Agreement as in effect on the Issue Date), together with all accrued interest thereon, and the termination of the Aggregate Loan Commitment (as defined in the Revolving Credit Agreement and the Dynalectric Revolving Credit Agreement), and (B) December 31, 1995, within 45 days after the last day of June and December of each calendar year, commencing on June 30, 1995, the Company shall redeem Securities, at a redemption price of 100% of the principal amount thereof, together with accrued interest to the date of such redemption on the principal amount of Securities redeemed, in an amount equal to 100% of Excess Cash as at the last day of June or December of such calendar year, as the case may be. (f) Concurrently with the receipt by any Software House Subsidiary of Net Cash Proceeds in respect of any Asset Sale or series of related Asset Sales by such Software House Subsidiary, the Company shall redeem Securities, at a redemption price of 100% of the principal amount thereof, together with accrued interest to the date of such redemption on the principal amount of Securities redeemed, in an amount equal to the product of such Net Cash Proceeds multiplied by a fraction, the numerator of which is the aggregate number of shares of the common stock of such Subsidiary owned directly or indirectly by the Company, and the denominator of which is the aggregate number of shares of common stock of such Subsidiary issued and outstanding (it being understood that the Company shall, on the Issue Date, redeem Securities in accordance with this clause (f) in an amount equal to all such Net Cash Proceeds held by each Software House Subsidiary on the Issue Date). (g) After the payment in full of all Indebtedness outstanding under the Series A Notes, concurrently with the receipt by any Subsidiary of the Company (other than a Software House Subsidiary) of Net Cash Proceeds in respect of any Asset Sale or series of related Asset Sales by such Subsidiary (or within 60 days after such receipt if such Net Cash Proceeds do not exceed $500,000), the Company shall redeem Securities, at a redemption price of 100% of the principal amount thereof, together with accrued interest to the date of such redemption on the principal amount of Securities redeemed, in an amount equal to the product of such Net Cash Proceeds multiplied by a fraction, the numerator of which is the aggregate number of shares of the common stock of such Subsidiary owned directly or indirectly by the Company, and the denominator of which is the aggregate number of shares of common stock of such Subsidiary issued and outstanding. (h) Notwithstanding anything to the contrary contained in this Section 3.08: (i) the Company shall only be required to redeem Securities in respect of an Asset Sale by JWS or Sea Cliff (A) to the extent dividends or other distributions by JWS or Sea Cliff of Net Cash Proceeds in respect of such Asset Sale would not violate the terms of any Contractual Obligation binding upon JWS or Sea Cliff, as the case may be, or any rule or regulation of any governmental authority binding upon JWS or Sea Cliff, as the case may be, and (B) in an amount equal to such Net Cash Proceeds received by JWS or Sea Cliff in respect of such Asset Sale, multiplied by a fraction, the numerator of which is the aggregate number of shares of the common stock of JWS, Sea Cliff or JWSC, as the case may be, owned by JWSC or the Company, as the case may be, and the denominator of which is the aggregate number of shares of common stock of JWSC, JWS or Sea Cliff, as the case may be, issued and outstanding; and (ii) in respect of any Asset Sale by any Foreign MES Subsidiary, the Company shall only be required to redeem Securities (A) to the extent dividends or other distributions by such Foreign MES Subsidiary to the Company or other Subsidiary of the Company of Net Cash Proceeds in respect of such Asset Sale would not violate the terms of any Contractual Obligation binding upon such Foreign MES Subsidiary or any rule or regulation of any governmental authority binding upon any of such Foreign MES Subsidiary, and (B) in an amount equal to the Net Cash Proceeds received by such Foreign MES Subsidiary in respect of such Asset Sale, multiplied by a fraction, the numerator of which is the aggregate number of shares of the common stock of such Foreign MES Subsidiary owned by the Company or any Subsidiary of the Company, and the denominator of which is the aggregate number of shares of common stock of such Foreign MES Subsidiary issued and outstanding. (i) Other than as specifically provided in this Section 3.08, any redemption pursuant to this Section 3.08 shall be made pursuant to the provisions of Sections 3.01 through 3.06. ARTICLE 4 COVENANTS Section 4.01. Payment of Securities. (a) The Company shall pay the principal of and interest on the Securities on the dates and in the manner provided in the Securities and this Indenture. Principal and interest shall be considered paid on the date due if the Paying Agent holds on such date money deposited by the Company in immediately available funds (or in the case of interest due other than in cash, Interest Deferral Securities), designated for and sufficient to pay all principal and interest then due. (b) The Company shall pay interest (including post- petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the rate equal to 2% per annum in excess of the then applicable interest rate on the Securities to the extent lawful; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue install- ments of interest (without regard to any applicable grace period) at the same rate to the extent lawful. Section 4.02. Maintenance of Office or Agency. (a) The Company shall maintain in the Borough of Man- hattan, The City of New York, an office or agency (which may be an office of the Trustee, Registrar or co-registrar) where Securities may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. (b) The Company may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. (c) The Company hereby designates the Corporate Trust Office of the Trustee in the Borough of Manhattan, the City of New York, as one such office or agency of the Company in accordance with Section 2.03. Section 4.03. SEC Reports; Reports to Securityholders. (a) The Company shall file with the Trustee and mail to the Holders, within 15 days after it files them with the SEC, copies of the annual and quarterly reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) that the Company is required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act. The Company also shall comply with the provisions of TIA Section 314(a). (b) From and after the date at which audited financial statements of the Company are prepared for the Company's 1993 fiscal year, so long as any of the Securities are outstanding, the Company shall prepare, (i) for the first three Quarters of each fiscal year (commencing with the first Quarter commencing after the Issue Date), quarterly reports (containing information including, but not limited to, unaudited combined or consolidated financial statements) and (ii) for each fiscal year commencing with the 1994 fiscal year, an annual report (containing audited financial statements and an opinion thereon by the Company's independent certified public accountants) in substantially the form which it would be required to file under Section 13 of the Exchange Act if it had a class of securities listed on a national securities exchange. The Company shall cause a copy of such reports to be mailed to the Trustee and to each of the Holders of the Securities within 50 days after the close of each of the first three Quarters of each fiscal year (commencing with the first Quarter commencing after the Issue Date) and within 95 days after the close of each fiscal year commencing with the 1994 fiscal year, at such Holder's address appearing on the register of the Securities. Section 4.04. Compliance Certificate. (a) The Company shall deliver to the Trustee, within 105 days after the end of each fiscal year of the Company commencing with the 1994 fiscal year and within 60 days after the end of each Quarter commencing with the first Quarter commencing after the Issue Date, a certificate of the principal executive officer, the principal financial officer or the principal accounting officer of the Company stating, as to the officer signing such certificate, that a review of the activities of the Company and its Subsidiaries during the preceding fiscal period has been made under the supervision of such signing officers with a view to determining whether each of the Company and such Subsidiaries has kept, observed, performed and fulfilled its obligations under this Indenture and that to the best of his knowledge no Default or Event of Default has occurred, and setting forth in reasonable detail each of the calculations performed by the Company in respect of the covenants set forth in Sections 4.09(vi) and 4.09(viii) (if Indebtedness has been incurred in such fiscal year under such Sections) and Sections 4.11, 4.15, 4.16, 4.18 (if a Change of Control has occurred during such fiscal year), 4.27 and 4.28; or, if the signer has knowledge of any such Default or Event of Default, specifying each such Default or Event of Default and the nature thereof and what action the Company is taking or proposes to take with respect thereto. (b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the annual reports delivered to the Trustee and the Holders pursuant to Section 4.03(b) above shall be accompanied by a written statement of the Company's independent public accountants (who shall be Deloitte and Touche or another firm of established national reputation) that in the course of the regular audit of the business of the Company and its Subsidiaries, which audit was conducted by such accountants in accordance with generally accepted auditing standards, such accountants have obtained no knowledge that a Default or Event of Default has occurred and is continuing, or, if in the opinion of such accountants, a Default or Event of Default has occurred and is continuing, a statement as to the nature thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any Default or Event of Default. (c) The Company shall deliver to the Trustee, immediately upon an Officer having knowledge of (i) any Event of Default, (ii) the fact that any Indebtedness of the Company or any Subsidiary of the Company in an amount in excess of $500,000 has been or could be declared due and payable before its maturity because of the occurrence of any default (or any event which, with notice or the lapse of time, or both, shall constitute such default) under such Indebtedness, or (iii) the occurrence of any event requiring the performance by the Company or any of its Subsidiaries under any Performance Guaranty, an Officers' Cer- tificate specifying such Event of Default or Default or other event and what action the Company is taking or proposes to take with respect thereto. Section 4.05. Stay, Extension and Usury Laws. Each Obligor covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim, and shall resist any and all efforts to be compelled to take the benefit or advantage of, any stay or extension law or any usury law or other law which would prohibit or forgive any Obligor from paying all or any portion of the principal of and/or interest on the Securities as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) each Obligor hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. Section 4.06. Limitation on Restricted Payments. The Company shall not, and shall not permit MES, any Domestic MES Subsidiary, any Dynalectric Company or any SellCo Company to, directly or indirectly, make any Restricted Payment; provided, however, that the foregoing shall not prohibit: (a) the purchase, redemption, retirement or other acquisition by any Water Company of any of its shares of preferred stock or Indebtedness pursuant to any sinking fund or other mandatory retirement requirement in respect thereof or the optional repurchase or repayment thereof if the proceeds used therefor are not available for the payment of dividends by such Water Company; (b) acquisitions permitted under Sections 5.01(g) and 5.01(h); or (c) renewals, extensions or replacements of Indebtedness permitted by Section 4.09(xxxi). Section 4.07. Limitations on Transactions with Affiliates. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, enter into or renew any transaction (including without limitation the purchase, sale, lease, or exchange of any property or the rendering of any service) with any Affiliate of the Company or of any Subsidiary (other than a transaction between the Company, MES, any Domestic MES Subsidiary or any Dynalectric Company and MES, any Domestic MES Subsidiary, any Dynalectric Company or the Company); pro- vided, however, that this Section 4.07 shall not be violated by (a) the payment of reasonable and customary directors fees to directors who are not employees of the Company or such Subsidiary; (b) the incurrence of Indebtedness and the making of Investments permitted in Sections 4.09 and 4.14; (c) payments by the Company in respect of the Securities, the Software House Notes or the Subordinated Notes, in each case in accordance with the terms thereof; (d) payments by SellCo in respect of the SellCo Subordinated Notes in accordance with the terms thereof; (e) payments by MES and SellCo pursuant to their respective Guaranties set forth in Article 11; (f) the making of Restricted Payments permitted in Section 4.06; (g) Performance Guaranties permitted under Section 4.29; or (h) any other transaction directly or indirectly with or for the benefit of any Affiliate of the Company or any of its Subsidiaries on a basis no less favorable to the Company or such Subsidiary as would be obtained in a comparable arm's length transaction with a Person not an Affiliate (as determined by a majority of the disinterested members of the board of directors of the Company or such Subsidiary). Section 4.08. Limitation on Liens. The Company shall not, and shall not permit any of its Subsidiaries to, create, assume or suffer to exist any Lien upon any of its assets, now owned or hereafter acquired, except: (a) Liens arising under the Collateral Documents; (b) Liens on the assets of the Company (other than (i) the Capital Stock of MES, the Software House Subsidiaries, the Water Companies, SellCo and the Subsidiaries of SellCo, and (ii) the Series A Substitute Collateral and the Series B Substitute Collateral, as such terms are defined in the Bankruptcy Plan) and any of the MES Companies (i) arising under or pursuant to the Revolving Credit Agreement and the Dynalectric Revolving Credit Agreement, securing Indebtedness incurred thereunder in an aggregate principal amount outstanding not in excess of $70,000,000, and (ii) securing the obligations of any of the MES Companies under Performance Guaranties; (c) Liens arising under (i) the Series A Senior Pledge Agreement, the Series A Subordinated Pledge Agreement, the Series A SellCo Pledge Agreement, and the SellCo Subordinated Pledge Agreement, each as in effect on the Issue Date, and (ii) each of the other "Collateral Documents" (as defined in the Series A Indenture and in the SellCo Subordinated Indenture); (d) Liens pursuant to Capital Lease Obligations permitted under Section 4.09(viii); (e) purchase money mortgages or pledges or other purchase money Liens upon any property acquired by the Company or any of its Subsidiaries (other than the Water Companies) after the Issue Date acquired or held by such company in the ordinary course of business and securing solely the purchase price of such property or Indebtedness incurred solely for the purpose of financing the acquisition of such property (but only to the extent the Indebtedness secured by such Liens shall otherwise be permitted under Section 4.09) in an aggregate principal amount which does not exceed (i) $10,000,000 in the aggregate, in the case of the Operating Companies, and (ii) $1,500,000 in the aggregate, in the case of the SellCo Companies (other than the Water Companies). (f) Permitted Liens; (g) Liens existing on the Issue Date; (h) Liens (including purchase money mortgages or pledges or other purchase money Liens) on the assets of the Water Companies, securing Indebtedness permitted by Section 4.09(xvi); (i) Liens on the assets of the Operating Companies securing obligations (other than for borrowed money) in the ordinary course of business in an aggregate amount not in excess of $10,000,000 at any time outstanding; (j) Liens on the assets of Foreign MES Subsidiaries, securing Indebtedness permitted under Section 4.09 incurred by any Foreign MES Subsidiary; (k) Liens on the insurance policies of the Company, MES, any Domestic MES Subsidiary or any Dynalectric Company arising in connection with the deferred payment or financing thereof in the ordinary course of business; (l) Liens consisting of cash collateral deposits made by the Company, MES, any MES Subsidiary, any Dynalectric Company or Defender in the ordinary course of business in connection with the Company's, MES', any MES Subsidiary's or any Dynalectric Company's insurance program consistent with past practices; (m) Liens incurred by Defender in respect of its pledge of promissory notes made by the Company in favor of Defender, securing Defender's obligations under Insurance Related Letter of Credit Obligations; (n) Liens existing on any property of a corporation at the time such corporation becomes a Subsidiary of the Company, which Liens were not created, incurred or assumed in contemplation thereof, provided that no such Lien shall extend to or cover any other property of the Company or any Subsidiary; (o) Liens on the assets of the Company (other than any such assets constituting Collateral) and the common stock or assets of the Dynalectric Companies securing (i) indebtedness incurred under and pursuant to the Dynalectric Revolving Credit Agreement and (ii) obligations of the Dynalectric Companies under Performance Guaranties; (p) Liens on up to $15,000,000 of the proceeds received in respect of the sale by the Company or a Water Company of the common stock or assets of a Water Company, securing outstanding Indebtedness under the Revolving Credit Agreement and the Dynalectric Revolving Credit Agreement; (q) Liens on the tangible personal property of the Company to be located at the Company's executive offices at 101 Merritt Seven Corporate Park, Norwalk, Connecticut, to secure Indebtedness to the State of Connecticut or any agency or instrumentality thereof in an aggregate amount at any time outstanding not in excess of $200,000; and (r) any extension, renewal or replacement (or successive extensions, renewals or replacements) of Liens permitted by this Section 4.08 without any increase in the amount of Indebtedness secured thereby or in the assets subject to such Lien. Section 4.09. Limitation on Additional Indebtedness and Capital Stock. The Company shall not, and shall not permit any of its Subsidiaries to (a) directly or indirectly, create incur, issue, assume, guaranty or otherwise become directly or indirectly liable with respect to any Indebtedness; or (b) issue any Capital Stock, except: (i) the Securities; (ii) Indebtedness of the Company and MES under the Revolving Credit Agreement in an aggregate principal amount not in excess of $70,000,000 at any time outstanding, and Guaranties of such Indebtedness by any of the Subsidiaries of MES; (iii) Indebtedness of the Company in respect of the Series A Notes and the Subordinated Notes; (iv) Indebtedness of SellCo in respect of the SellCo Subordinated Notes; (v) the Guaranties of (A) SellCo in respect of its Guaranty pursuant to Article 11 and its guaranty of the Indebtedness of the Company under the Software House Notes and the Software House Indenture, and (B) MES in respect of its Guaranty pursuant to Article 11, its guaranty of the Indebtedness of the Company under the Software House Notes and the Software House Indenture, and its guaranty of the Indebtedness of the Company under the Subordinated Notes and the Subordinated Note Indenture; (vi) Funded Indebtedness of the Company, the Net Debt Offering Proceeds of which are used by the Company in accordance with Section 3.08(d); provided, however, that (A) if the aggregate amount of outstanding Securities on the date the Company issues such Funded Indebtedness is $15,000,000 or less, the Net Debt Offering Proceeds of such Funded Indebtedness shall be in an amount sufficient to redeem all of the outstanding Securities, together with all accrued but unpaid interest thereon; and (B) if the aggregate amount of outstanding Securities on the date the Company issues such Funded Indebtedness exceeds $15,000,000, such Net Debt Offering Proceeds shall be in an amount at least equal to 50% of such outstanding Securities; and provided further, that if, after the application of the Net Debt Offering Proceeds of such Funded Indebtedness in accordance with Section 3.08, the Securities will not be redeemed in full, together with all accrued but unpaid interest thereon, the Company may issue such Funded Indebtedness only if (1) the Funded Indebtedness so issued does not mature earlier than the maturity of the Securities; and (2) the Funded Indebtedness so issued has (x) no scheduled principal, sinking fund, redemption, prepayment or other payments (other than interest payments) due in respect thereof on or prior to the maturity date of the Securities, and (y) covenants relating to limitations on Restricted Payments, payment restrictions of Subsidiaries, Liens and additional Indebtedness of the Company and its Subsidiaries, in each case no more restrictive than the similar covenants set forth in the Securities in this Indenture; (vii) Indebtedness of the Company or any of its Subsidiaries (other than the Water Companies) secured by Liens permitted by Section 4.08(e); (viii) Indebtedness of the Company or any of its Subsidiaries (other than the Water Companies) under Capital Lease Obligations; provided, however, that the aggregate amount of Capital Lease Obligations incurred after the Issue Date in any fiscal year of the Company under this clause (viii) by (A) the Operating Companies shall not exceed an amount equal to 50% of the Capital Expenditures made by such Operating Companies during such fiscal year and permitted by Section 4.16, and by (B) the SellCo Companies (other than the Water Companies) shall not exceed $3,000,000 at any time outstanding; (ix) Indebtedness of Defender and the Company consisting of Insurance Letter of Credit Obligations not in excess of $75,000,000 at any one time outstanding; (x) Indebtedness (A) arising from loans or advances to the Company, MES or any Domestic MES Subsidiary made in the ordinary course of business and consistent with the Company's or MES's cash management system; (B) arising from loans or advances to the Company or any Dynalectric Company made in the ordinary course of business consistent with Dynalectric's cash management system; and (C) arising from loans or advances to the SellCo Companies made in the ordinary course of business consistent with SellCo's cash management system; (xi) Indebtedness incurred after the Issue Date arising from loans or advances by the Company or any MES Company to (i) the SellCo Companies in an aggregate principal amount at any time outstanding not in excess of $7,000,000, and (ii) the Dynalectric Companies in an aggregate amount at any time outstanding not in excess of $8,000,000; (xii) Indebtedness of Comstock in an aggregate principal amount not in excess of $20,000,000 (Canadian) at any time outstanding (other than (A) Capital Lease Obligations, (B) Indebtedness owed to the Company or any Subsidiary of the Company, which Indebtedness is outstanding on the Issue Date, (C) Indebtedness owed to any Foreign MES Subsidiary, and (D) Indebtedness permitted under Section 4.09(xxiv)), and Guaranties by the Company, JWP International, Inc. or one or more Foreign MES Subsidiaries of such Indebtedness; (xiii) Indebtedness of the U.K. Subsidiaries in an aggregate principal amount not in excess of 20,000,000 at any time outstanding (other than (A) Capital Lease Obligations, (B) Indebtedness owed to the Company or any Subsidiary of the Company, which Indebtedness is outstanding on the Issue Date, (C) Indebtedness owed to any Foreign MES Subsidiary, and (D) Indebtedness permitted under Section 4.09(xxiv)) and Guaranties by JWP International, Inc. or one or more Foreign MES Subsidiaries of such Indebtedness; (xiv) Indebtedness of the Middle East Subsidiaries and the Malaysian Subsidiaries in an aggregate principal amount not in excess of 7,000,000 at any time outstanding (other than (A) Capital Lease Obligations, (B) Indebtedness owed to the Company or any Subsidiary of the Company which Indebtedness is outstanding on the Issue Date, (C) Indebtedness owed to any Foreign MES Subsidiary, and (D) Indebtedness permitted under Section 4.09(xxiv)) and Guaranties by JWP International Inc. or one or more Foreign MES Subsidiaries of such Indebtedness; (xv) Indebtedness of U2 in an aggregate principal amount not in excess of $4,000,000 at any time outstanding (other than (A) Capital Lease Obligations, (B) Indebtedness owed to the Company which Indebtedness is outstanding on the Issue Date, (C) Indebtedness owed to any Foreign MES Subsidiary, and (D) Indebtedness permitted under Section 4.09(xxiv)); (xvi) Indebtedness of the Water Companies and preferred stock of the Water Companies, the aggregate principal amount outstanding and liquidation preference of which shall not exceed $130,000,000 at any time of determination; (xvii) Capital Stock issued by the Company (other than Disqualified Stock), so long as the Net Equity Offering Proceeds thereof are applied in accordance with Section 3.08(c); (xviii) Indebtedness of the Company to Defender in an aggregate principal amount not in excess of $75,000,000 at any time outstanding, incurred in connection with Insurance Related Letters of Credit; (xix) Indebtedness consisting of deferred payment obligations of the Company or any of its Subsidiaries for insurance premiums, or incurred by the Company or any of its Subsidiaries in respect of funds borrowed for the payment of such premiums, in either case in the ordinary course of business and consistent with past practices; (xx) Indebtedness of any of the Operating Companies consisting of reimbursement obligations with respect to documentary letters of credit issued for its own account in the ordinary course of business; (xxi) Indebtedness of any of the SellCo Companies consisting of reimbursement obligations with respect to documentary letters of credit issued for its own account in the ordinary course of business; (xxii) contingent reimbursement obligations of Defender or the Company in respect of Insurance Related Letters of Credit in an aggregate amount not in excess of $75,000,000 at any time outstanding; (xxiii) Indebtedness outstanding on the Issue Date; (xxiv) Indebtedness of Foreign MES Subsidiaries consisting of loans or advances made after the Issue Date by the Company or any Domestic MES Subsidiary in an aggregate principal amount not in excess of $5,000,000 at any time outstanding; (xxv) Indebtedness of one or more of the Company and the Dynalectric Companies pursuant to the Dynalectric Revolving Credit Agreement in an aggregate principal amount not in excess of $10,000,000 at any time outstanding, and Guaranties of such Indebtedness by the other Dynalectric Companies, MES, and the Domestic MES Subsidiaries; (xxvi) Indebtedness of the Company to SellCo in an aggregate principal amount not in excess of $5,464,133.78 at any time outstanding, evidenced by the SellCo Intercompany Note; (xxvii) Indebtedness of any corporation at the time such corporation becomes a Subsidiary which Indebtedness was not created, assumed or guaranteed in contemplation thereof; (xxviii) Indebtedness of (A) a Foreign MES Subsidiary to any other Foreign MES Subsidiary, (B) a Dynalectric Company to any other Dynalectric Company, (C) the Company or any MES Company to any other MES Company (other than a Foreign MES Subsidiary), and (D) any SellCo Company to any other SellCo Company; (xxix) additional Indebtedness in an aggregate amount at any time outstanding not in excess of $5,000,000; (xxx) Indebtedness of the Company in an aggregate amount at any time outstanding not in excess of $200,000 to the State of Connecticut or any agency or instrumentality thereof, incurred in connection with the relocation of the Company's executive offices to the State of Connecticut; and (xxxi) any renewals, extensions or replacements of Indebtedness permitted under this Section 4.09 in an aggregate amount not in excess of the Indebtedness being renewed, extended or replaced. Notwithstanding the above, at no time will the Company or any of its Subsidiaries be permitted to incur or assume Indebtedness or issue Capital Stock if a Default or Event of Default would exist upon the incurrence or assumption of such In- debtedness, the issuance of such Capital Stock, or immediately thereafter. Section 4.10. Limitation on New Subsidiaries. The Company shall not have any direct Subsidiaries other than MES, SellCo, Dyn Specialty Contracting, Inc., and each of the Software House Subsidiaries. Section 4.11. Limitation on Sales of Assets. Subject to Section 4.12, the Company shall not, and shall not permit any of its Subsidiaries to, sell, lease, convey or otherwise dispose of any assets (which shall include the Capital Stock of any Subsidiary) (an "Asset Sale"), other than the sale or disposition of inventory or equipment sold in each case in the ordinary course of business or equipment or motor vehicles that have become obsolete or are replaced in the ordinary course of business (provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company or any of its Subsidiaries shall be governed by the provisions of Section 5.01), unless (i) such Asset Sale is for at least fair market value (as determined, in respect of any Asset Sale generating Net Cash Proceeds in excess of $250,000, by the majority of the disinterested members of the board of directors of the Company or such Subsidiary, as the case may be, in good faith), (ii) in connection with an Asset Sale in respect of the assets or Capital Stock of any Water Company, at least 50% of the consideration therefor consists solely of cash and such cash is received within 60 days of the closing of such Asset Sale, excluding from such consideration the assumption of liabilities by the purchaser in connection with such Asset Sale, (iii) the Company complies with Section 3.08, (iv) such assets do not consist of the Capital Stock of MES or SellCo, and (v) any notes, bonds, securities, instruments, properties or other non-cash assets constituting proceeds of any such Asset Sale are pledged to the Trustee as Collateral under the Pledge Agreements or another Collateral Document. Section 4.12. Limitation on Certain Transfers of Assets. The Company shall not, and shall not permit any Subsidiary to, transfer, sell, assign or contribute any assets to any Subsidiary of the Company other than (a) Investments of the type permitted under Section 4.14, (b) sales, leases, conveyances or other dispositions of assets permitted under Sections 4.06, 4.08 and 4.11, (c) transfers, sales, assignments or contributions of assets to any Domestic MES Subsidiary, any Dynalectric Company or any SellCo Subsidiary in connection with, and at the time of, the sale of such Domestic MES Subsidiary, Dynalectric Company or SellCo Subsidiary, provided that the sale of such assets would otherwise have been permitted under the other provisions described in this Indenture, including, without limitation, Section 4.11 and Article 5, and (d) the sale, transfer, assignment or contribution of the Capital Stock or assets of (i) any Domestic MES Subsidiary to any other Domestic MES Subsidiary, (ii) any Dynalectric Company to another Dynalectric Company or to any MES Company, (iii) any Subsidiary of SellCo to any other Subsidiary of SellCo, (iv) any Foreign MES Subsidiary to any other Foreign MES Subsidiary, or (v) any Software House Subsidiary to any other Software House Subsidiary. Section 4.13. No Material Changes in the Nature of the Business. The Company shall not, and shall not permit any of its Subsidiaries to, engage in any business not related to its businesses engaged in on the Issue Date. Section 4.14. Limitation on Investments and Advances. The Company shall not, and shall not permit any of its Subsidiaries to, make any Investments in or advances to any other Person, except for: (a) Permitted Investments; (b) Investments in the Company, MES or any Domestic MES Subsidiary; (c) Investments consisting of extensions of trade credit and notes receivable, in either case, made or obtained in the ordinary course of business consistent with past practice; (d) existing Investments (but only to extent of the capital invested in such investments at the Issue Date unless otherwise provided in this Section 4.14); (e) Investments consisting of loans or advances to the Company, MES, any Domestic MES Subsidiary or any Dynalectric Company made in the ordinary course of business and consistent with past practices in connection with the Company's, MES's or the Dynalectric Companies' cash management system; (f) Investments made after the Issue Date consisting of loans, advances or capital contributions (i) by the Company, MES, or any MES Subsidiary to any SellCo Company; provided, however, that such Investments in the aggregate shall not exceed at any time outstanding $7,000,000, (ii) by the Company, MES, or any MES Subsidiary to any Dynalectric Company; provided, however, that such Investments in the aggregate shall not exceed at any time outstanding $8,000,000, (iii) by a Dynalectric Company to any other Dynalectric Company, and (iv) by a SellCo Company to any other SellCo Company; (g) loans or advances to employees of the Company, MES, any Domestic MES Company, any Dynalectric Company or any SellCo Company, which loans and advances in the aggregate shall not exceed $500,000 at any time outstanding; (h) Investments made by the Company or any MES Company after the Issue Date in (i) Comstock in an aggregate amount not in excess of $5,000,000 (Canadian) at any time outstanding, and (ii) Foreign MES Subsidiaries in an aggregate amount not in excess of $5,000,000 at any time outstanding; (i) Investments made by any Foreign MES Subsidiary in any Foreign MES Subsidiary; (j) Investments of the Company or any of its Subsidiaries consisting of notes, bonds, debentures or other securities or instruments (other than general partnership and similar interests) acquired by the Company or such Subsidiary in connection with an Asset Sale permitted hereunder; (k) Investments of the Company or any of its Subsidiaries made in the ordinary course of business in connection with its capacity as a co-venturer in a joint venture, corporation or other similar pooling of efforts in respect of a specific project or series of related specific projects for a limited or fixed duration to conduct a business of the type in which the Company or such Subsidiary is presently engaged, consistent with past practices; (l) Investments of SellCo evidenced by the SellCo Intercompany Note; (m) Investments of Defender consisting of Indebtedness incurred by the Company permitted in Section 4.09(xviii); and (n) Additional Investments made in the ordinary course of business consistent with past practice in an aggregate amount not in excess of $2,500,000 at any time outstanding. Section 4.15. Maintenance of Coverage Ratios. (a) The Operating Companies shall maintain an Unrestricted Cash Coverage Ratio for each of the periods listed below of not less than the following ratio, calculated as of the last date of the periods indicated below: Unrestricted Cash Coverage Measurement Period Ratio January 1, 1995 - September 30, 1995 1.00:1 January 1, 1995 - December 31, 1995 1.00:1 Each Rolling Four Fiscal Quarter Period ending thereafter 1.00:1 (b) The Operating Companies shall maintain a Consolidated Fixed Charge Coverage Ratio for each of the periods listed below of not less than the following ratio, calculated as of the last date of the periods indicated below: Consolidated Fixed Charge Coverage Measurement Period Ratio January 1, 1995 - September 30, 1995 1.00:1 January 1, 1995 - December 31, 1995 1.00:1 Each Rolling Four Fiscal Quarter Period ending thereafter 1.50:1 Section 4.16. Capital Expenditures. (a) The Company shall not permit the aggregate Capital Expenditures of the Operating Companies made during each of the fiscal years set forth below to be in excess of the maximum amount set forth below for such fiscal year: Maximum Amount of Fiscal Year Beginning in Capital Expenditures 1994 10,000,000 1995 10,500,000 1996 11,000,000 1997 and thereafter 11,500,000 (b) The Company shall not permit the aggregate Capital Expenditures of the SellCo Companies (other than the Water Companies) made during each of the fiscal years set forth below to be in excess of the maximum amount set forth below for such fiscal year: Maximum Amount of Fiscal Year Beginning in Capital Expenditures 1994 4,000,000 1995 4,000,000 1996 4,000,000 1997 and thereafter 4,000,000 Section 4.17. Corporate Existence. Except as permitted under Article 5, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and the corporate, partnership or other existence of each Subsidiary of the Company in accordance with the respective organizational documents as they may be from time to time amended of the Company and each such Subsidiary and the rights (charter and statutory), governmental licenses and governmental franchises of the Company and its Subsidiaries; provided, however, that neither the Company nor any of its Subsidiaries shall be required to preserve any statutory right, governmental license or governmental franchise of any Subsidiary of the Company, unless the failure to do so would have a Material Adverse Effect; and provided further that nothing in this Section 4.17 shall prohibit the dissolution of any such Subsidiary of the Company (other than MES, SellCo or any Software House Subsidiary) if such dissolution would not have a Material Adverse Effect. Section 4.18. Change of Control. (a) If there shall at any time or times occur a Change of Control, then the Company shall notify the Holders in writing of such occurrence and shall make an offer to repurchase (the "Change of Control Offer"), not later than the 90th day after the earlier of (i) an Officer of the Company obtaining knowledge of such occurrence, and (ii) written notice to the Company by the Trustee or any Holder of any Security of such occurrence (the "Change of Control Payment Date"), all Securities then outstanding at a price equal to 100% of the outstanding principal amount thereof plus accrued and unpaid interest to the repurchase date (the "Offer Price"). (b) The Company shall comply with all applicable law (including, without limitation, Rule 14e-1 under the Exchange Act, if applicable) in the event that the Company shall be required to make an offer to redeem pursuant to this Section 4.18. (c) Subject to Section 4.18(b), the Company shall provide the Trustee with written notice of the Change of Control Offer at least 60 days before any such Change of Control Payment Date and at least 10 days before the notice of any Change of Control Offer is mailed to Holders. Notice of a Change of Control Offer shall be mailed by the Company not less than 45 days or more than 60 days before the Change of Control Payment Date to the Holders at their last registered addresses with a copy to the Trustee and the Paying Agent. The Change of Control Offer shall remain open from the time of mailing until one Business Day before the Change of Control Payment Date. The notice shall contain all instructions and materials necessary to enable such Holders to tender Securities pursuant to the Change of Control Offer. The notice, which shall govern the terms of the Change of Control Offer, shall state, in addition to anything required to be stated therein under applicable law: (i) that the Change of Control Offer is being made pursuant to this Section 4.18 and that all Securities validly tendered will be accepted for payment; (ii) the Offer Price and the Change of Control Payment Date; (iii) that any Security not tendered for payment will continue to accrue interest; (iv) that, unless the Company defaults in making such repurchase payment, any Security accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest on and after the Change of Control Payment Date; (v) that Holders electing to have a Security repurchased pursuant to a Change of Control Offer will be required to surrender the Security, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Security completed, to the Company at the address specified in the notice at least one Business Day before the Change of Control Payment Date; (vi) that Holders will be entitled to withdraw their election if the Company receives, not later than one Business Day prior to the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of Securities the Holder delivered for repurchase and a statement that such Holder is withdrawing his election to have such Security repurchased; (vii) that Holders whose Securities are repurchased only in part will be issued new Securities representing the unrepurchased portion of the Securities surrendered; (viii) the instructions that Holders must follow in order to tender their Securities; and (ix) the circumstances and relevant facts regarding such Change of Control (including, but not limited to, information (to the extent reasonably available to the Company) with respect to pro forma historical and projected financial information after giving effect to such Change of Control, information regarding the Persons acquiring control, and such Person's business plans going forward). (d) On the Change of Control Payment Date, the Company shall, to the extent lawful (i) accept for payment Securities or portions thereof tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent money sufficient to pay the Offer Price of all Securities or portions thereof so tendered, and (iii) deliver to the Trustee Securities so accepted, together with an Officer's Certificate stating the Securities or portions thereof tendered to the Company. The Paying Agent shall promptly mail or deliver to the Holders of Securities so accepted payment in an amount equal to the Offer Price, and the Trustee shall promptly authenticate and mail or deliver to Holders whose Securities are repurchased only in part a new Security equal in principal amount to the unrepurchased portion of the Security surrendered. For purposes of this Section 4.18, the Trustee shall act as Paying Agent. Section 4.19. Maintenance of Properties. The Company shall cause all material properties owned by the Company or any of its Subsidiaries or used or useful in the conduct of its business or the business of any of its Subsidiaries to be maintained and kept in good condition, repair and working order (ordinary wear and tear excepted) and supplied with all necessary equipment and shall cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the reasonable judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section shall prevent the Company or any of its Subsidiaries from discontinuing the operation or maintenance of any of such properties if such discontinuance is, in the reasonable judgment of the Company, desirable in the conduct of its business or the business of any of its Subsidiaries and not disadvantageous in any material respect to the Holders. Section 4.20. Payment of Taxes and Other Claims. The Company shall pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (a) all taxes, assessments and governmental charges levied or imposed upon the Company or any of its Subsidiaries or upon the income, profits or property of the Company or any Subsidiary, and (b) all lawful claims for labor, materials and supplies that, if unpaid, might by law become a Lien upon the property of the Company or any of its Subsidiaries; provided, however, that neither the Company nor any of its Subsidiaries shall be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim (i) whose amount, applicability or validity is being contested in good faith by appropriate proceedings, and with respect to which appropriate reserves have been established in accordance with Generally Accepted Accounting Principles or (ii) if the failure to so pay or discharge would not have a Material Adverse Effect. Section 4.21. Maintenance of Insurance. The Company shall, and shall cause its Subsidiaries to, keep at all times all of their properties that are of an insurable nature insured against loss or damage with insurers believed by the Company to be responsible to the extent that property of similar character is usually so insured by corporations similarly situated and owning like properties in accordance with good business practice. The Company shall, and shall cause its Subsidiaries to, use the proceeds from any such insurance policy to repair, replace or otherwise restore the property to which such proceeds relate; provided that the Company or such Subsidiary may elect not to make such repair, replacement or restoration if the Company or such Subsidiary determines in good faith that such repair, replacement or restoration is not in the best interests of the Company or such Subsidiary. Section 4.22. Compliance with Law. The Company shall, and shall cause each of its Subsidiaries to, comply, in all material respects, with all applicable federal, state and local laws and regulations, including, without limitation, ERISA, those regarding the collection, payment and deposit of employees' income, unemployment and Social Security taxes and those relating to environmental matters, except where the failure to comply would not have a Material Adverse Effect. Section 4.23. Books and Records. The Company shall, and shall cause each of its Subsidiaries to, keep proper records and books of account with respect to its business activities, in which proper entries, reflecting all of their financial transactions, are made in accordance with Generally Accepted Accounting Principles. Section 4.24. Employee Benefit Plans; ERISA. The Company shall not, directly or indirectly, and shall not permit its Subsidiaries or any ERISA Affiliate to, directly or indirectly, by reason of an amendment or amendments (other than any amendment required by applicable law or by any federal or state agency or commission) to, or the adoption of, one or more Title IV Plans, permit the present value of all accrued benefit liabilities, under all Title IV Plans, (using the actuarial assumptions utilized for purposes of funding such Title IV Plans) to increase by more than $2,000,000; provided that this limitation shall not be applicable to the extent that the fair market value of assets allocable to such benefits, all determined as of the most recent valuation date for each such Title IV Plan, is in excess of the benefit liabilities, or to increase to the extent security must be provided to any Title IV Plan under Section 401(a)(29) of the Code. Neither the Company nor any of its Subsidiaries shall establish or become obligated to any new Plan that is a "welfare benefit plan," as defined in Section 3(1) of ERISA, for the purpose of providing retiree medical and/or retiree life insurance benefits, or modify any existing welfare benefit plan for the benefit of retirees, which would result in the present value of future liabilities under any such plans to increase by more than $1,000,000 (except as may be required by applicable laws or by any state or federal agency or commission). Except as hereinabove permitted with respect to any Title IV Plan, neither the Company nor any of its Subsidiaries shall establish or become obligated to any new Pension Plan, or modify any existing Pension Plan, which would result in the present value of future liabilities under any such plans increasing by more than $1,000,000. Section 4.25. Modification of Material Contractual Obligations. The Company shall not, and shall not permit any of its Subsidiaries to, alter, amend, modify, rescind, terminate or waive any of their respective rights under, or fail to comply in all material respects with, any of its Material Contractual Obligations; provided, however, that (a) the Company and each of its Subsidiaries may amend its certificate of incorporation and bylaws (or other similar governing documents) if such amendment would not have a Material Adverse Effect, (b) the Company and the MES Companies may amend the Revolving Credit Agreement if such amendment would not have a Material Adverse Effect, and (c) the Company and the Dynalectric Companies may amend the Dynalectric Revolving Credit Agreement if such amendment would not have a Material Adverse Effect. Section 4.26. Security Interests. The Company shall comply in all material respects with its obligations and agreements under the Collateral Documents and the Intercreditor Agreement. Section 4.27. Lease Obligations. (a) The Company shall not create or suffer to exist, or permit any of its Subsidiaries to create or suffer to exist, any obligations as lessee for the rental or hire of real or personal property of any kind under leases or agreements to lease having an original term of more than one year (other than Capital Leases) that would cause the liabilities of (i) the Operating Companies, on a consolidated basis, in respect of all such obligations (net of rentals received in connection with any sublease arrangements) to exceed the sum of (A) $24,000,000, plus (B) an amount equal to 110% of the obligations as lessee of any Subsidiary acquired by the Company and permitted by Section 5.01(f) or (g) on the date such Subsidiary was acquired in the Company's 1994 fiscal year, the sum of (A) $25,000,000, plus (B) an amount equal to 110% of the obligations as lessee of any Subsidiary acquired by the Company and permitted by Section 5.01(f) or (g) on the date such Subsidiary was acquired in the Company's 1995 fiscal year, the sum of (A) $26,000,000, plus (B) an amount equal to 110% of the obligations as lessee of any Subsidiary acquired by the Company and permitted by Section 5.01(f) or (g) on the date such Subsidiary was acquired in the Company's 1996 fiscal year, and the sum of (A) $27,000,000, plus (B) an amount equal to 110% of the obligations as lessee of any Subsidiary acquired by the Company and permitted by Section 5.01(f) or (g) on the date such Subsidiary was acquired in the Company's 1997 fiscal year, or (ii) the SellCo Companies (other than the Water Companies), on a consolidated basis, in respect of all such obligations to exceed $11,000,000 payable in any fiscal year. (b) The Company shall not, and shall not permit any of its Subsidiaries to, become or remain liable as lessee or guarantor or other surety with respect to any lease, whether an operating lease or a Capital Lease, of any property (whether real or personal or mixed), whether now owned or hereafter acquired, which (i) the Company or any of its Subsidiaries has sold or transferred or is to sell or transfer to any other Person (other than customary contingent liabilities as a sublessor or assignor of a lease), or (ii) the Company or any of its Subsidiaries intends to use for substantially the same purposes as any other property that has been or is to be sold or transferred by that entity to any other Person in connection with such lease unless, in either case, the Company complies with Section 4.11. Section 4.28. Maintenance of Consolidated Tangible Net Worth. The Operating Companies shall at all times maintain a Consolidated Tangible Net Worth of not less than an amount equal to (a) from the Issue Date through December 31, 1994, $44,000,000, and (b) during each Quarter commencing on or after January 1, 1995, the sum of (i) $44,000,000 plus (ii) an amount equal to the sum of fifty percent of the cumulative Consolidated Net Income of the Operating Companies from January 1, 1995 through the date of determination. Section 4.29. Performance Guaranties. The Company shall not, and shall not permit any of its Subsidiaries to, enter into, assume, or otherwise become liable under, any Performance Guaranty except in the ordinary course of business consistent with sound commercial practices; provided, however, that the aggregate amount of Performance Guaranties in respect of the contracts of Unique Construction shall not exceed $8,000,000 at any time outstanding. ARTICLE 5 MERGERS AND ACQUISITIONS Section 5.01. Mergers, Acquisitions, Etc. The Company shall not and shall not permit any of its Subsidiaries to (i) merge with any Person, (ii) consolidate with any Person, (iii) acquire all or substantially all of the Capital Stock or stock equivalents of any Person, (iv) acquire, whether in one transaction or in a series of transactions, all or substantially all of the assets of any Person or assets constituting the business of a division, branch or other unit operation of any Person, or (v) sell, lease, transfer or otherwise dispose of, whether in one transaction or in a series of transactions, all or substantially all of its assets, except: (a) the merger of a Domestic MES Subsidiary with and into, or sale or transfer of all or substantially all of the assets or Capital Stock of a Domestic MES Subsidiary to, MES or another Domestic MES Subsidiary; (b) the merger of a Foreign MES Subsidiary with and into, or sale or transfer of all or substantially all of the assets or Capital Stock of a Foreign MES Subsidiary to, MES or another Foreign MES Subsidiary; (c) the merger of a Dynalectric Company with and into, or sale or transfer of all or substantially all of the assets or Capital Stock of a Dynalectric Company to, another Dynalectric Company or an MES Subsidiary, or, with respect to the sale or transfer of the Capital Stock of Dynalectric Company, to MES; (d) the merger of a Subsidiary of SellCo with and into, or sale or transfer of all or substantially all of the assets or Capital Stock of a Subsidiary of Sellco to, SellCo or another Subsidiary of Sellco; (e) the merger with and into, or sale or transfer of all or substantially all of the assets or Capital Stock of a Software House Subsidiary to, another Software House Subsidiary; (f) one or more Asset Sales in respect of all or substantially all of the assets of (i) any Subsidiary of MES (other than a sale by such Subsidiary that would constitute a sale of all or substantially all of the assets of MES), (ii) any Dynalectric Company, (iii) any SellCo Company, and (iv) any Software House Subsidiary, in each case, subject to compliance with Section 4.11; (g) the acquisition for cash of all or substantially all of the assets of any corporation by any MES Subsidiary, provided that (i) such assets are purchased for no more than the fair market value thereof, and (ii) the aggregate fair market value of all such assets acquired during any calendar year shall not exceed $500,000; provided, however, that, to the extent the actual acquisition of assets pursuant to this clause (f) in any calendar year shall be less than the maximum amount set forth in this clause (f) for such calendar year (without giving effect to the carry over permitted by this provision), the difference between such stated maximum amount and such actual acquisitions shall, in addition, be available for acquisitions in the next succeeding calendar year; and (h) the acquisition of all or substantially all of the assets of any domestic corporation by any Domestic MES Subsidiary, provided that (i) such assets are purchased for no more than the fair market value thereof, and (ii) the consideration for such assets consists solely of the common stock of such Domestic MES Subsidiary. ARTICLE 6 DEFAULTS AND REMEDIES Section 6.01. Events of Default. (a) An "Event of Default" occurs if: (i) any Obligor defaults in the payment of interest on any Security (including, without limitation, the issuance of Interest Deferral Securities) when the same becomes due and payable and the Default continues for a period of five days; (ii) any Obligor defaults in the payment of the principal of any Security when the same becomes due and payable at maturity, upon redemption, repurchase or otherwise; (iii) any Obligor fails to observe or perform any covenant, condition or agreement on the part of the Company to be observed or performed pursuant to the Intercreditor Agreement or pursuant to Section 4.11, 4.15, 4.16, 4.17, 4.18, 4.25, 4.26, 4.28 or 4.29 or pursuant to Article 3 or Article 5; (iv) any Obligor fails to comply with any of its other agreements or covenants in, or provisions of, the Securities, any Collateral Document, or this Indenture and the Default continues for the period and after the notice specified in Section 6.01(c); (v) any representation or warranty in Article 10 or in any Collateral Document shall have been incorrect in any material respect when made; (vi) (A) a default in the payment of principal, premium or interest when due occurs (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) under any agreement, Guaranty, note, mortgage, indenture or instrument (other than the Securities) under which there may be issued or by which there may be secured or evidenced any Indebtedness of the Company or any of its Subsidiaries (other than (i) the Rohr Indebtedness, (ii) Indebtedness of an Insignificant Subsidiary or (iii) so long as such Indebtedness is not guaranteed, directly or indirectly, by the Company, any of the domestic MES subsidiaries, MES or any of the SellCo Companies Indebtedness of Comstock or any of the UK Subsidiaries outstanding on the Issue Date) in an amount or amounts in excess of $5,000,000 individually or $7,000,000 in the aggregate, (B) a default occurs under any such agreement, note, mortgage, indenture or instrument, the effect of which (1) results in the acceleration of such Indebtedness, or (2) permits the holder of such Indebtedness to accelerate, declare to be due and payable, or demand total or partial redemption, prepayment or repurchase of, all or any portion of such Indebtedness prior to its stated maturity, or (C) all or any portion of such Indebtedness is required to be prepaid, redeemed, purchased or defeased, or an offer to prepay, redeem, purchase or defease such Indebtedness is required to be made, in each case prior to the stated maturity thereof; (vii) a final judgment or final judgments for the payment of money are entered by a court or courts of competent jurisdiction against the Company or any of its Subsidiaries (other than an Insignificant Subsidiary or in respect of the Rohr Indebtedness) and such judgment or judgments remain undischarged for a period (during which execution shall not be effectively stayed) of 60 days, provided that any such judgment or judgments exceeds $1,000,000 individually or $1,500,000 in the aggregate; (viii) the Company or any of its Subsidiaries (other than an Insignificant Subsidiary) pursuant to or within the meaning of any Bankruptcy Law: (A) commences a voluntary case, (B) consents to the entry of an order for relief against it in an involuntary case, (C) consents to the appointment of a Cus- todian of it or for all or substantially all of its property, (D) makes a general assignment for the bene- fit of its creditors, or (E) is unable to pay its debts as the same become due; or (ix) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is for relief against the Company or any Subsidiary of the Company (other than an Insignificant Subsidiary) in an involuntary case, (B) appoints a Custodian of the Company or any Subsidiary of the Company (other than an Insignificant Subsidiary) or for all or substan- tially all of its property, (C) orders the liquidation of the Company or any Subsidiary of the Company (other than an Insignificant Subsidiary), and the order or decree remains unstayed and in effect for 60 days; or (x) the Liens on any of the Collateral granted or purported to be granted pursuant to any Collateral Document shall be or become unenforceable or invalid, or the priority thereof shall become diminished; or (xi) with respect to any Plan, (A) a prohibited transaction within the meaning of Section 4975 of the Code or Section 406 of ERISA occurs that in the reasonable determination of the Trustee could result in direct or indirect liability to the Company or any of its Subsidiaries; (B) with respect to any Title IV Plan, the filing of a notice to voluntarily terminate any such plan in a distress termination; (C) with respect to any Multiemployer Plan, the Company, any of its Subsidiaries, or any ERISA Affiliate shall incur any Withdrawal Liability; (D) with respect to any Qualified Plan, the Company, any of its Subsidiaries or any ERISA Affiliate shall incur an accumulated funding deficiency or request a funding waiver from the IRS, and (E) with respect to any Title IV Plan or Multiemployer Plan that has an ERISA Event not described in clause (B), (C) or (D) above that, in the reasonable determination of the Trustee, there is a reasonable likelihood for termination of any such plan by the PBGC and for resulting liability of the Company, any of its Subsidiaries or any ERISA Affiliate; provided, however, that the events listed in clauses (A) through (E) above shall constitute Events of Default only if the liability, deficiency or waiver request of the Company, any of its Subsidiaries or any ERISA Affiliate, whether or not assessed, exceeds, individually or in the aggregate, $1,000,000; or (xii) the Guaranty pursuant to Article 11 shall cease for any reason to be in full force and effect or either Guarantor, or any Person acting by or on behalf of either Guarantor, shall deny or disaffirm its obligations under such Guaranty. (b) The term "Bankruptcy Law" means Title 11, U.S. Code, or any similar federal or state law for the relief of debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law. (c) A Default under Section 6.01(a)(iv) or (v) is not an Event of Default until 30 days after the Trustee notifies the Obligors, or until 30 days after the Holders of at least 25% in aggregate principal amount of the then outstanding Securities notify the Obligors (and the Trustee, if such notice is given by the Holders), in writing, of the Default. The notice must specify the Default, demand that it be remedied and state that the notice is a "Notice of Default." Section 6.02. Acceleration. If an Event of Default (other than an Event of Default specified in clause (viii) or (ix) of Section 6.01(a)) occurs and is continuing, the Trustee may, by written notice to the Company, or the Holders of at least 25% in aggregate principal amount of the then outstanding Securities may, by written notice to the Obligors and the Trustee, and the Trustee shall, upon the request of such Holders, declare the unpaid principal of, and any accrued but unpaid interest on, all the Securities to be due and payable. Upon such declaration, the unpaid principal of, and accrued and unpaid interest shall be due and payable immediately in cash. In the event of a declaration of acceleration because an Event of Default specified in Section 6.01(a)(vi) has occurred and is continuing, such declaration of acceleration shall be automatically annulled if such payment default is cured or waived or the holders of the Indebtedness that is the subject of such Event of Default have rescinded their declaration of acceleration in respect of such Indebtedness within 30 days thereof and the Trustee has received written notice of such cure, waiver or rescission and no other Event of Default under Section 6.01(a)(vi) has occurred that has not been cured or waived within 30 days of the declaration of acceleration of such Indebtedness in respect thereof. If an Event of Default specified in clause (viii) or (ix) of Section 6.01(a) occurs, the unpaid principal of, and any accrued but unpaid interest on, all the Securities shall ipso facto become and be immediately due and payable in cash without any declaration or other act on the part of the Trustee or any Holder. The Holders of a majority in aggregate principal amount of the then outstanding Securities by written notice to the Trustee may rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree of a court of competent jurisdiction and if all existing Events of Default (except nonpayment of principal or interest on the Securities that has become due solely because of the acceleration) have been cured or waived. No such rescission shall affect any subsequent Default or Event of Default or impair any right consequent thereto. Section 6.03. Other Remedies. (a) Notwithstanding any other provision of this Indenture, if an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal of or interest on the Securities or to enforce the performance of any provision of the Securities or this Indenture, including, without limitation, the Guaranty, pursuant to Article 11. (b) The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. Section 6.04. Waiver of Past Defaults. Subject to Section 9.02, the Holders of at least a majority in aggregate principal amount of the then outstanding Securities by notice to the Trustee may waive an existing Default or Event of Default and its consequences except a continuing Default or Event of Default in the payment of the principal of or interest on any Security. Upon any such waiver, such Default or Event of Default shall cease to exist, and together with any Event of Default arising therefrom, shall be deemed to have been cured for every purpose of this Indenture, but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. Section 6.05. Control by Majority. (a) The Holders of at least a majority in aggregate principal amount of the then outstanding Securities may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on it. The Trustee may refuse, however, to follow any direction that conflicts with law or this Indenture, that may be unduly prejudicial to the rights of other Holders, or would subject the Trustee to personal liability. The Trustee shall be entitled to indemnification reasonably satisfactory to it against losses or expenses caused by the taking or not taking of such action. (b) The Company may set a record date for purposes of determining the identity of Holders entitled to vote or consent to any action by vote or consent authorized or permitted under this Indenture, which record date shall be the later of 10 days prior to the first solicitation of such consent or the date of the most recent list of Holders furnished to the Trustee pursuant to Section 2.05 of this Indenture prior to such solicitation. If a record date is fixed, those persons who were Holders of Securities at such record date (or their duly designated proxies), and only those persons, shall be entitled to take such action by vote or consent or to revoke any vote or consent previously given, whether or not such persons continue to be Holders after such record date. No such vote or consent shall be valid or effective for more than 120 days after such record date. Section 6.06. Limitation on Suits. (a) A Holder may pursue a remedy with respect to this Indenture or the Securities only if: (i) the Holder gives to the Trustee written notice of a continuing Event of Default; (ii) the Holders of at least 25% in aggregate principal amount of the then outstanding Securities make a written request to the Trustee to pursue the remedy; (iii) such Holder or Holders offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (iv) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and (v) during such 60-day period, the Holders of a majority in aggregate principal amount of the then outstanding Securities do not give the Trustee a direction inconsistent with the request. (b) A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over another Holder. Section 6.07. Rights of Holders to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of principal of and interest on the Security, on or after the respective due dates expressed in the Security, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. Section 6.08. Collection Suit by Trustee. If an Event of Default specified in Section 6.01(a)(i) or (ii) occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against any or all of the Obligors or any other obligor on the Securities for the whole amount of principal and interest remaining unpaid on the Securities and interest on overdue principal and, to the extent lawful, interest and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. Section 6.09. Trustee May File Proofs of Claim. The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders allowed in any judicial proceedings relative to any Obligor (or any other obligor upon the Securities), its creditors or its property and shall be entitled and empowered to collect, receive and distri- bute any money or other property payable or deliverable on any such claims, and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 out of the estate in any such proceeding shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding except to vote for the election of a trustee in bankruptcy or similar Person. Section 6.10. Priorities. (a) If the Trustee collects any money pursuant to this Article, any Collateral Document or the Intercreditor Agreement, it shall pay out the money in the following order: First: to the Trustee, its agents and attorneys for amounts due under Section 7.07, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee, and the costs and expenses of collection; Second: to the Holders for amounts due and unpaid on the Securities for principal and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal and interest, respectively; and Third: to the Obligors or as otherwise provided in the Intercreditor Agreement. (b) The Trustee may fix a record date and payment date for any payment to Holders and give whatever notice to the Holders the Trustee deems appropriate. Section 6.11. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.06, or a suit by Holders of more than 10% in aggregate principal amount of the then outstanding Securities. ARTICLE 7 TRUSTEE Section 7.01. Duties of Trustee. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default known to the Trustee: (i) The duties of the Trustee shall be determined solely by the express provisions of this Indenture and the Trustee need perform only those duties that are specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee. (ii) In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. The Trustee shall, however, examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) This clause (c) does not limit the effect of clause (a) or (b) of this Section. (ii) The Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts. (iii) The Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05. (d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to clause (a), (b), (c) and (e) of this Section 7.01. (e) Notwithstanding anything to the contrary outstanding, no provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee may refuse to perform any duty or exercise any right or power unless it receives indemnity satisfactory to it against any loss, liability or expense that may be incurred thereby, including, but not limited to, liability relating to any environmental laws, rules or regulations. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. Section 7.02. Rights of Trustee. (a) The Trustee may conclusively rely and shall be protected from acting or refraining from acting based upon any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate (which shall conform to the provisions of Section 12.05) or an Opinion of Counsel, or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (c) The Trustee may act through agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within its rights or powers conferred upon it by this Indenture. (e) Unless otherwise specifically provided in the Indenture, any demand, request, direction or notice from the Company shall be sufficient if signed by an Officer of the Company. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered the Trustee reasonable security and indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction. Section 7.03. Individual Rights of Trustee. The Trustee, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with the Company, the other Obligors or an Affiliate of the Obligors with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. The Trustee is subject, however, to Sections 7.10 and 7.11. Section 7.04. Trustee's Disclaimer. The Trustee shall not be responsible for, and makes no representation as to the validity or adequacy of this Indenture or the Securities; it shall not be accountable for the Company's use of any proceeds from the Securities or any money paid to the Company or upon the Company's direction under any provision hereof; it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee; and it shall not be responsible for any statement or recital herein or any statement in the Securities or any other document in connection with the sale of the Securities or pursuant to this Indenture other than its certificate of authentication. Section 7.05. Notice of Defaults. If a Default or Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to the Holders, as their names and addresses appear on the register of the Securities, a notice of the Default or Event of Default within 90 days after the occurrence thereof. Except in the case of a Default or Event of Default in payment on any Security, the Trustee may withhold the notice if and so long as a committee of its Trust Officers in good faith determines that withholding the notice is in the interests of the Holders. Section 7.06. Reports by Trustee to Holders. (a) Within 60 days after each May 15, beginning with the May 15 following the date of this Indenture, the Trustee shall mail to the Holders, in the manner and to the extent required by TIA Section 313(c), a brief report dated as of such reporting date that complies with TIA Section 313(a). The Trustee shall also comply with TIA Section 313(b). The Trustee shall also transmit by mail all reports as required by TIA Section 313(c). (b) Commencing at the time this Indenture is qualified under the TIA, a copy of each report at the time of its mailing to Holders shall be filed with the SEC and each stock exchange on which the Securities are listed. The Company shall promptly notify the Trustee when the Securities are listed on any stock exchange. Section 7.07. Compensation and Indemnity. (a) The Obligors, jointly and severally, agree that they shall pay to the Trustee from time to time reasonable compensation for its acceptance of this Indenture and services hereunder. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Obligors, jointly and severally, agree that they shall reimburse the Trustee promptly upon request for all reasonable dis- bursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. (b) The Obligors, jointly and severally, shall indemnify the Trustee for, and hold it harmless against, any and all loss, liability or expense incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture, except as set forth in Section 7.07(c). The Trustee shall notify each Obligor promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify each Obligor shall not relieve any Obligor of its obligations hereunder. The Obligors shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Obligors shall pay the reasonable fees and expenses of such counsel. The Obligors need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld. The obligation of the Obligors under this Section 7.07 shall survive the satisfaction and discharge of this Indenture. (c) The Obligors need not reimburse any expense or indemnify against any loss or liability incurred by the Trustee through its own negligence or willful misconduct. (d) To secure the Obligors' payment obligations in this Section, the Trustee shall have a claim and Lien prior to the Securities on all money or property held or collected by the Trustee, except that held in trust to pay principal of and interest on particular Securities. Such Lien shall survive the satisfaction and discharge of the Indenture. (e) When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(a) (viii) or (ix) occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any Bankruptcy Law. Section 7.08. Replacement of Trustee. (a) A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section. (b) The Trustee may resign at any time and be discharged from the trust hereby created by so notifying the Company in writing. The Holders of a majority in aggregate principal amount of the then outstanding Securities may remove the Trustee by so notifying the Trustee and the Company in writing. The Company may remove the Trustee if: (i) the Trustee fails to comply with Section 7.10; (ii) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (iii) a Custodian or public officer takes charge of the Trustee or its property; or (iv) the Trustee becomes incapable of acting. (c) If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in aggregate principal amount of the then outstanding Securities may appoint a successor Trustee to replace the successor Trustee appointed by the Company. (d) If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of at least 10% in aggregate principal amount of the then outstanding Securities may petition any court of competent jurisdiction for the appointment of a successor Trustee. (e) If the Trustee after written request by any Holder who has been a Holder for at least six months fails to comply with Section 7.10, such Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. (f) A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its suc- cession to the Holders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, provided all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.07. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Obligors' obligations under Section 7.07 shall continue for the benefit of the retiring Trustee. Section 7.09. Successor Trustee by Merger, Etc. If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee, provided such successor is eligible and qualified under Section 7.10. Section 7.10. Eligibility; Disqualification. (a) There shall at all times be one or more Trustee(s) hereunder at least one of whom shall be at all times either: (i) a corporation organized and doing business under the laws of the United States of America or of any state or the District of Columbia, authorized under such laws to exercise corporate trust powers and subject to supervision or examination by federal or state authority and having a combined capital and surplus of at least $50,000,000; or (ii) a corporation or other Person organized and doing business under the laws of a foreign government that is permitted to act as Trustee pursuant to a rule, regulation or order of the SEC, authorized under such laws to exercise corporate trust powers, and subject to supervision or examination by authority of such foreign government or a political subdivision thereof substantially equivalent to supervision or examination applicable to United States institutional trustees, and having a combined capital and surplus of at least $50,000,000. (b) If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then, for the purposes of this Section 7.10, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 7.10, it shall resign immediately in the manner and with the effect hereinafter specified in this Article 7. Neither the Company nor any person directly or indirectly controlling, controlled by, or under common control with, the Company shall serve as Trustee hereunder. (c) The Trustee shall be subject to the provisions of Section 310(b) of the TIA during the period of time provided for therein. Nothing herein shall prevent the Trustee from filing with the SEC the application referred to in the second to last paragraph of Section 310(b) of the TIA. (d) Notwithstanding the provisions of clause (a) of this Section 7.10, no obligor upon the Securities or any Affiliate of such obligor shall serve as Trustee hereunder. Section 7.11. Preferential Collection of Claims Against Company. The Trustee is subject to TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein. ARTICLE 8 DISCHARGE OF INDENTURE Section 8.01. Termination of Company's Obligations. (a) This Indenture shall cease to be of further effect (except that the Obligors' obligations under Section 7.07 and the Obligors', Trustee's and Paying Agent's obligations under Section 8.03 shall survive) when all outstanding Securities theretofore authenticated and issued have been delivered (other than destroyed, lost or stolen Securities that have been replaced or paid) to the Trustee for cancellation and each Obligor has paid all sums payable hereunder. (b) In addition, the Obligors may terminate their obliga- tions under the Securities and this Indenture if: (i) the Company has irrevocably deposited in trust for the benefit of the Holders with the Trustee or (at the option of the Trustee) with a trustee reasonably satisfactory to the Trustee and the Company, under the terms of an irrevocable trust agreement in form and substance satisfactory to the Trustee at any time prior to the stated maturity of the Securities or the date of redemption of all of the outstanding Securities, money or U.S. Government Obligations maturing as to principal and interest in such amounts and at such times as are sufficient (in the reasonable opinion of a nationally recognized firm of independent accountants expressed in a written certificate thereof delivered to the Trustee, without consideration of the reinvestment of such interest) to pay principal of and interest on the outstanding Securities (other than Securities replaced pursuant to Section 2.07) to maturity or redemption, as the case may be, and to pay all other sums payable by it hereunder, provided that (i) the trustee of the irrevocable trust shall have been irrevocably instructed to pay such money or the proceeds of such U.S. Government Obligations to the Trustee and (ii) the Trustee shall have been irrevocably instructed to apply such money or the proceeds of such U.S. Government Obligations to the payment of said principal and interest with respect to the Securities; (ii) the Obligors deliver to the Trustee an Officers' Certificate stating that all conditions precedent provided for herein relating to the satisfaction and discharge of this Indenture have been complied with, and an Opinion of Counsel to the same effect; (iii) no Default or Event of Default shall have occurred and be continuing on the date of such deposit or as a result thereof; (iv) the Obligors shall have delivered to the Trustee (A) either (1) a ruling directed to the Trustee received from the Internal Revenue Service to the effect that the Holders of the Securities will not recognize income, gain or loss for federal income tax purposes as a result of the Obligors' exercise of its option under this clause (b) and will be subject to federal income tax on the same amount and in the same manner and at the same time as would have been the case if such option had not been exercised or (2) an Opinion of Counsel, reasonably satisfactory to the Trustee, to the same effect as the ruling described in clause (1), accompanied by a ruling to that effect published by the Internal Revenue Service, and (B) an Opinion of Counsel, reasonably satisfactory to the Trustee, to the effect that (1) after the passage of 90 days following the deposit, the trust funds will not be subject to the preference provisions of Section 547 of Title 11 of the United States Code (except that no opinion need be given with respect to the application of subsection (6)(4)(b) thereof), or (2) (x) the Trustee will hold, for the benefit of the Holders of Securities, a valid and perfected security interest in such trust funds, and (y) the Holders of Securities will be entitled to receive adequate protection of their interests in such trust funds if such trust funds are used; (v) each Obligor has paid or caused to be paid all sums then payable by such Obligor hereunder and under the Securities; and (vi) the exercise by the Obligors of their option under this clause (b) shall not cause the Trustee to have a conflicting interest as defined in Section 7.10 or for purposes of the TIA with respect to any securities of the Company. (c) Notwithstanding the foregoing paragraph (b), prior to the end of the 90-day period following the deposit referred to above, none of the Company's obligations or, to the extent applicable, any Guarantor's obligations, under this Indenture shall be discharged and, subsequent to the end of such 90-day period, the Obligors' respective obligations under Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.10, 4.01, 4.02, 4.05, 4.17, 7.07, 7.08, 8.03 and 8.04 and under Article 11 shall survive until the Securities are no longer outstanding. Thereafter, only the Obligors' and the Trustee's obligations in Sections 7.07, 8.03 and 8.04 shall survive. (d) After such irrevocable deposit made pursuant to Section 8.01(b) and satisfaction of the other conditions set forth herein, the Trustee upon request shall acknowledge in writing the discharge of the Obligors' obligations under this Indenture except for those surviving obligations specified above. (e) In order to have money available on a payment date to pay principal of or interest on the Securities, the U.S. Government Obligations shall be payable as to principal or interest at least one Business Day before such payment date in such amounts as will provide the necessary money. (f) "U.S. Government Obligations" means securities that are (i) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (ii) obligations of a Person controlled or supervised by, and acting as an agency or instrumentality of, the United States of America, the timely payment of which is unconditionally guarantied as a full faith and credit obligation by the United States of America, that, in either case under clause (i) or (ii), are not callable or redeemable at the option of the issuer thereof. Section 8.02. Application of Trust Money. The Trustee or a trustee satisfactory to the Trustee and the Company shall hold in trust money or U.S. Government Obligations deposited with it pursuant to Section 8.01(b). It shall apply the deposited money and the money from U.S. Government Obligations through the Paying Agent and in accordance with this Indenturetothe paymentofprincipal ofand interestonthe Securities. Section 8.03. Repayment to the Company. (a) The Trustee and the Paying Agent shall promptly pay to the Company, upon written request, any excess money or securities held by them at any time after the termination of the Company's obligations in accordance with Section 8.01. (b) The Trustee and the Paying Agent shall pay to the Company, upon written request, any money held by them for the payment of principal or interest that remains unclaimed for two years and six months after the date upon which such payment shall have become due; provided, however, that the Company shall have caused notice of such payment to be mailed to each Holder entitled thereto not less than 30 days prior to such repayment. After payment to the Company, the Holders entitled to the money must look to the Company for payment as general creditors unless an applicable abandoned property law designates another person, and all liability of the Trustee and such Paying Agent with respect to such money shall cease. Section 8.04. Reinstatement. If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with Section 8.02 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Obligors' obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.01(b) until such time as the Trustee or Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with Section 8.02; provided, however, that if any Obligor has made any payment of interest on or principal of any Securities because of the reinstatement of its obligations, such Obligor shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent. ARTICLE 9 AMENDMENTS Section 9.01. Without Consent of Holders. (a) The Obligors and the Trustee may amend or supplement this Indenture or the Securities without the consent of any Holder: (i) to cure any ambiguity, defect or inconsistency; (ii) to comply with any requirements of the SEC in connection with the qualification of this Indenture under the TIA as then in effect; (iii) to provide for uncertificated Securities in addition to certificated Securities; or (iv) to make any change that does not adversely affect the rights of any Holder hereunder or under any Collateral Document, the Intercreditor Agreement or any Security. (b) Upon the written request of the Obligors, accompanied by a resolution of the Boards of Directors of the Obligors authorizing the execution of any such supplemental Indenture, and, upon receipt by the Trustee of the documents described in Section 9.06, the Trustee shall join with the Obligors in the execution of any supplemental Indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into any such supplemental Indenture that affects its own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may, in its discretion, but shall not be obligated to, enter into such supplemental Indenture. Section 9.02. With Consent of Holders. (a) The Obligors and the Trustee may amend any of the provisions of this Indenture, any Collateral Document, the Intercreditor Agreement or the Securities or waive compliance in a particular instance by any Obligor of any provision of this Indenture, any Collateral Document, the Intercreditor Agreement or the Securities, with the written consent of the Holders of at least a majority in aggregate principal amount of the then outstanding Securities; provided that, without the consent of each Holder affected, an amendment or waiver under this Section may not: (i) reduce the principal amount of Securities the Holders of which must consent to an amendment or waiver; (ii) reduce the rate of or change the time for payment of interest, including defaulted interest, on any Security; (iii) reduce the principal or premium (if any) of or change the fixed maturity of any Security or alter the redemption provisions with respect thereto; (iv) make any Security payable in money other than that stated in the Security; (v) make any change in Section 6.04 or 6.07 or in this clause (v) of this Section 9.02(a); (vi) waive a Default in the payment of principal of or interest on, or redemption payment with respect to, any Security; (vii) make any change in Section 2 of the Intercreditor Agreement; (viii) release any Collateral consisting of the Capital Stock of MES or SellCo; or (ix) release any Guarantor or modify the provisions of this Indenture relating to the Guaranty set forth in Article 11 in a manner adverse to the Holders. (b) Upon the written request of the obligors, accompanied by a resolution of the Boards of Directors of the obligors authorizing the execution of any such supplemental Indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders as aforesaid, and upon receipt by the Trustee of the documents described in Section 9.06, the Trustee shall join with the obligors in the execution of such supplemental Indenture unless such supplemental Indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may, in its discretion, but shall not be obligated to, enter into such supplemental Indenture. (c) It shall not be necessary for the consent of the Holders under this Section to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof. (d) After an amendment or waiver under this Section becomes effective, the Company shall mail to the Holders of each Security affected thereby a notice briefly describing the amendment or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental Indenture or waiver. (e) The Company shall give the Holders of the Securities notice of the effectiveness of any amendment under this Section 9.02. Section 9.03. Compliance with Trust Indenture Act. Every amendment to this Indenture or the Securities at a time when this Indenture shall be qualified under the TIA shall be set forth in a supplemental Indenture that complies with the TIA as then in effect. Section 9.04. Revocation and Effect of Consents. Until an amendment or waiver becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Security or portion of a Security that evidences the same Indebtedness as the consenting Holder's Security, even if notation of the consent is not made on any Security. Any such Holder or subsequent Holder may, however, revoke the consent as to his Security or portion of a Security if the Trustee receives written notice of revocation before the date the amendment or waiver becomes effective. An amendment or waiver becomes effective in accordance with its terms and thereafter binds every Holder. The Company may fix a record date for determining which Holders must consent to such amendment or waiver. Section 9.05. Notation on or Exchange of Securities. The Trustee may place an appropriate notation about an amendment or waiver on any Security thereafter authenticated. The Company, in exchange for all Securities, may issue and the Trustee shall authenticate new Securities that reflect the amendment or waiver. Failure to make the appropriate notation or issue a new Security shall not affect the validity and effect of such amendment or waiver. Section 9.06. Trustee to Sign Amendments, Etc. The Trustee shall sign any amendment or supplemental Indenture authorized pursuant to this Article 9 if the amendment does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may, but need not, sign it. In signing or refusing to sign such amendment or supplemental Indenture, the Trustee shall be entitled to receive, if requested, an indemnity reasonably satisfactory to it and to receive, and, subject to Section 7.01, shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel as conclusive evidence that such amendment or sup- plemental Indenture is authorized or permitted by this Indenture, that it is not inconsistent herewith, and that it will be valid and binding upon the Company in accordance with its terms. The Company may not sign an amendment or supplemental Indenture until the Board of Directors approves it. ARTICLE 10 COLLATERAL Section 10.01. Pledge of Collateral. (a) Each of the Company and SellCo has made an assignment of its right, title and interest in and to all of the "Pledged Collateral" (as defined in the Pledge Agreements) to the Trustee under the Pledge Agreements to which it is a party for the benefit of the Holders of Securities and the Trustee. The due and punctual payment of the principal of, premium, if any, and interest on the Securities when and as the same shall be due and payable, whether on an interest payment date, at maturity, by acceleration, call for redemption or otherwise, and interest on the overdue principal and interest, if any, of the Securities ac- cording to the terms hereunder or thereunder (and at the rate set forth therein), and payment of all other obligations of the Obligors to the Trustee and the Holders pursuant to the terms of this Indenture are (and are intended to be) secured by such Pledged Collateral as provided in the Pledge Agreements, subject to the terms of the Intercreditor Agreement. At the time the Pledge Agreements were executed, each of the Company and SellCo had full right, power and lawful authority to grant, convey, hypothecate, assign, mortgage and pledge the property constituting such Pledged Collateral, in the manner and form done, or intended to be done, in the Pledge Agreements, free and clear of all liens, pledges, charges and encumbrances whatsoever, except (i) the liens created by the Pledge Agreements, the Series A Senior Pledge Agreement, the Series A Subordinated Pledge Agreement, the Series A SellCo Pledge Agreement, and the SellCo Subordinated Pledge Agreement, and, except to the extent otherwise provided therein, and (ii) liens permitted under Section 4.08(p), and (a) shall forever warrant and defend title to the same against the claims of all persons whatsoever, (b) shall execute, acknowledge and deliver to the Trustee such further assignments, transfers, assurances or other instruments as the Trustee may reasonably require or request, and (c) shall do or cause to be done all such acts and things as may be necessary or proper, or as may be reasonably required by the Trustee, to assure and confirm to the Trustee the security interests in such Pledged Collateral contemplated hereby, by the Pledge Agreements or any part thereof, as from time to time constituted, so as to render the same available for the security and benefit of this Indenture and of the Securities secured hereby, according to the intent and purposes herein expressed. The Pledge Agreements create a direct and valid lien on the property constituting Collateral, as set forth therein. To the extent applicable, the Pledge Agreements will be governed by the Uniform Commercial Code in effect from time to time in the State of New York. Each Holder, by accepting a Security, irrevocably agrees to be bound by the provisions of the Pledge Agreements and the Intercreditor Agreement. (b) Upon the receipt by the Company or any of the Software House Subsidiaries of any proceeds from an Asset Sale in respect of the Capital Stock or assets of any Software House Subsidiary (other than (i) Net Cash Proceeds used for the redemption of (A) Securities pursuant to Section 3.08, or (B) Series A Notes pursuant to the Series A Indenture, and (ii) proceeds pledged to the Trustee pursuant to the terms of the Pledge Agreements), the Company shall (i) execute and deliver to the Trustee such Collateral Documents and take such further actions as shall be requested by the Trustee to grant to the Trustee a Lien on such proceeds, (ii) deliver such proceeds to the Trustee, file or record such financing statements, mortgages, agreements or other documents, notify such third parties, and do all further actions as are necessary to perfect the Lien granted to the Trustee, and (iii) execute and deliver such further instruments, documents and agreements, deliver such opinions of counsel, and do such further acts as the Trustee shall request to carry out the provisions of this Section 10.01(b). The Lien on any Collateral granted to the Trustee under any Collateral Document pursuant to this Section 10.01(b) shall be senior to any Lien in such Collateral granted to the Series A Indenture Trustee and the SellCo Subordinated Indenture Trustee pursuant to any "Collateral Document" (as defined in the Series A Indenture and the SellCo Subordinated Indenture). (c) Upon receipt by the Company or any SellCo Company of any proceeds from an Asset Sale in respect of the assets of the Company (other than the Capital Stock of any Software House Subsidiary) or such SellCo Company, the Company shall (i) execute and deliver to the Trustee such Collateral Documents and take such further actions as shall be requested by the Trustee to grant to the Trustee a Lien on such proceeds, (ii) deliver such proceeds to the Series A Indenture Trustee, as bailee, file or record such financing statements, mortgages, agreements or other documents, notify such third parties, and do all further actions as are necessary to perfect the Lien granted to the Trustee, and (iii) execute and deliver such further instruments, documents and agreements, deliver such opinions of counsel, and do such further acts as the Trustee shall request to carry out the provisions of this Section 10.01(c). The Lien on any Collateral granted to the Trustee under any Collateral Document pursuant to this Section 10.01(c) shall be (A) senior to any Lien in such Collateral granted to the SellCo Subordinated Indenture Trustee pursuant to any "Collateral Document" (as defined in the SellCo Subordinated Indenture), and (B) subject to any Lien in such Collateral granted to the Series A Indenture Trustee pursuant to any "Collateral Document" (as defined in the Series A Indenture). Section 10.02. Recording, Etc. (a) The Company has duly delivered to (i) the Trustee, pursuant to the Software House Senior Pledge Agreement, the Pledged Collateral referred to therein, and (ii) the Series A Indenture Trustee, as bailee, pursuant to the Software House Subordinated Pledge Agreement, the Pledged Collateral referred to therein, in each case together with appropriate stock powers therefor and assignments thereof, duly executed in blank. SellCo has duly delivered to the Trustee, pursuant to the Software House SellCo Pledge Agreement, the Pledged Collateral referred to therein, together with appropriate stock powers therefor and assignments thereof, duly executed in blank. In addition, each of the Company and SellCo, as the case may be, has caused, at its own expense, the Pledge Agreements to which it is a party, this Indenture, all amendments or supplements thereto and hereto, and all appropriate financing statements to be registered, recorded and filed or re-recorded, refiled and renewed in such manner and in such place or places, if any, as may be required by law in order fully to preserve and protect the Liens of the Pledge Agreements on all parts of the Collateral and to effectuate and preserve the security of the Holders and all rights of the Trustee. (b) The Company and each other obligor on the Securities shall furnish to the Trustee, promptly after the execution and delivery of this Indenture, and promptly after the execution and delivery of any amendment hereto or to the Collateral Documents or any other instrument of further assurance, an Opinion of Counsel stating that, in the opinion of such Counsel, subject to customary exclusions and exceptions reasonably acceptable to the Trustee, either (i) this Indenture, the Pledge Agreements, any such amendment and all other instruments of further assurance have been properly recorded, registered and filed and all such other action has been taken to the extent necessary to make effective the Lien intended to be created by the Collateral Documents, and reciting the details of such action or referring to prior Opinions of Counsel in which such details are given, and stating that, as to the Collateral Documents, such recording, registering and filing are the only recordings, registering and filings necessary to give notice thereof and that no re- recordings, re-registering or refilings are necessary to maintain such notice, and further stating that all financing statements and continuation statements have been executed and filed that are necessary fully to preserve and protect the rights of the Security holders and the Trustee hereunder and under the Collateral Documents, or (ii) no such action is necessary to make such Lien and assignment effective. (c) The Company and each other obligor on the Securities shall furnish to the Trustee, within 30 days after March 31 in each year beginning with March 31, 1995, an Opinion of Counsel, dated as of such date, (i) stating that, in the opinion of such counsel, subject to customary exclusions and exceptions reasonably acceptable to the Trustee, either (A) all such action has been taken with respect to the recording, registering, fil- ing, re-recording, re-registering and refiling of the Indenture, all supplemental indentures, financing statements, continuation statements and all other instruments of further assurance as are necessary to maintain the Lien of the Collateral Documents and reciting the details of such action or referring to prior Opinions of Counsel in which such details are given, and stating that all financing statements and continuation statements have been executed and filed that are necessary fully to preserve and protect the rights of the Security holders and the Trustee hereunder and under the Collateral Documents, or (B) no such action is necessary to maintain such Lien and assignment and (ii) stating what, if any, action of the foregoing character is necessary during the one-year period commencing March 31 in the then-current calendar year so to maintain such Lien and assignment during such period. (d) To the extent applicable, the Company and each obligor on the Securities shall cause TIA Section 314(d) relating to the release of property from the Lien of the Collateral Documents to be complied with. Any certificate or opinion required by TIA Section 314(d) may be made by an Officer of the Company, except in cases which TIA Section 314(d) requires that such certificate or opinion be made by an independent person. Section 10.03. Suits to Protect the Collateral. The Trustee shall have power to institute and maintain such suits and proceedings as it may deem expedient to prevent any impairment of the Collateral by any acts that may be unlawful or in violation of any Collateral Document, the Intercreditor Agreement, or this Indenture, and such suits and proceedings as the Trustee may deem expedient to preserve or protect its interests and the interests of the Securityholders in the Collateral (including power to institute and maintain suits or proceedings to restrain the enforcement of or compliance with any legislative or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid if the enforcement of, or compliance with, such enactment, rule or order would impair the Security hereunder or be prejudicial to the interests of the Holders or the Trustee). Section 10.04. Authorization of Receipt of Funds by the Trustee Under the Collateral Documents and the Intercreditor Agreement. The Trustee is authorized to receive any funds for the benefit of Holders distributed under the Collateral Documents and the Intercreditor Agreement and to make further distributions of such funds to the Holders according to the provisions of this Indenture. ARTICLE 11 GUARANTY OF SECURITIES Section 11.01. Guaranty. (a) Subject to the provisions of this Article 11, each Guarantor hereby unconditionally guaranties to each Holder and to the Trustee, on behalf of the Holders, (i) the due and punctual payment of the principal of and interest on each Security, when and as the same shall become due and payable, whether at maturity, upon redemption, by acceleration or otherwise, the due and punctual payment of interest on the overdue principal of and interest, if any, on the Securities, to the extent lawful, and the due and punctual performance of all other obligations of the Company to the Holders or the Trustee all in accordance with the terms of such Security and this Indenture, and (ii) in the case of any extension of time of payment or renewal of any Securities or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, at stated maturity, upon redemption, by acceleration or otherwise. Each Guarantor hereby agrees that its obligations hereunder shall be absolute and unconditional, irrespective of, and shall be unaffected by, any invalidity, irregularity or unenforceability of any such Security or this Indenture, any failure to enforce the provisions of any such Security or this Indenture, any waiver, modification or indulgence granted to the Company with respect thereto, by any Holder of such Security or the Trustee, or any other circumstances that may otherwise constitute a legal or equitable discharge of a surety or such Guarantor. Each Guarantor hereby waives diligence, presentment, filing of claims with a court in the event of merger or bankruptcy of the Company, any right to require a proceeding first against the Company, the benefit of discussion, protest or notice with respect to any such Security or the Indebtedness evidenced thereby and all demands whatsoever (except as specified below), and covenants that this Guaranty will not be discharged as to any such Security except by payment in full of the principal thereof and interest thereon and as provided in Section 8.01. Each Guarantor further agrees that, as between such Guarantor, on the one hand, and the Holders and the Trustee, on the other hand, (i) the maturity of the obligations guarantied hereby may be accelerated as provided in Article 6 for the purposes of this Guaranty, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guarantied hereby, and (ii) in the event of any declaration of acceleration of such obligations as provided in Article 6, such obligations (whether or not due and payable) shall forthwith become due and payable by such Guarantor for the purpose of this Guaranty. In addition, without limiting the foregoing provisions, upon the effectiveness of an acceleration under Article 6, the Trustee shall promptly make a demand for payment on the Securities under the Guaranty provided for in this Article 11 and not discharged. (b) Notwithstanding anything to the contrary contained in this Article 11, none of the Holders or the Trustee shall be entitled to make any demand whatsoever under the Guaranty until all of the Indebtedness outstanding under the Series A Notes has been paid in full, whether at maturity, upon redemption, after acceleration, or otherwise. (c) Each Guarantor hereby waives any rights of subrogation or any similar rights against the Company in respect of any amounts paid to any Holder by such Guarantor pursuant to the provisions of this Guaranty. (d) The Guaranty set forth in this Section 11.01 shall not be valid or become obligatory for any purpose with respect to a Security until the certificate of authentication on such Security shall have been signed by or on behalf of the Trustee. Section 11.02. Obligations of the Guarantors Unconditional. (a) Nothing contained in this Article 11 or elsewhere in this Indenture or in any Security is intended to or shall impair, as between each Guarantor and the Holders, the obligations of such Guarantor, which obligations are independent of the obligations of the Company under the Securities and the Indenture and are absolute and unconditional, to pay to the holders the principal of and interest on the Securities as and when the same shall become due and payable in accordance with the provisions of this Guaranty, or is intended to or shall affect the relative rights of the Holders and creditors of such Guarantor, nor shall anything herein or therein prevent the Trustee or any Holder from exercising all remedies otherwise permitted by applicable law upon the occurrence of an Event of Default. (b) This Article 11 shall continue to be effective or shall be reinstated, as the case may be, if at any time any payment of any of the Securities is rescinded or must otherwise be returned by the Holders or the Trustee upon the insolvency, bankruptcy or reorganization of any obligor or otherwise, all as though such payment had not been made. (c) Each Guarantor hereby covenants and agrees that it shall comply with all its obligations, requirements and restrictions contained in Articles 4, 5 and 6 of this Indenture so as not to create a Default or Event of Default under this Indenture. Section 11.03. Execution and Delivery of Guaranties. (a) To evidence its Guaranty set forth in this Article 11, each Guarantor hereby agrees that a notation of such Guaranty shall be placed on each Security authenticated and delivered by the Trustee and that this Guaranty shall be executed on behalf of such Guarantor by the manual or facsimile signature of an Officer of such Guarantor. (b) Each Guarantor hereby agrees that its Guaranty set forth in this Article 11 shall remain in full force and effect notwithstanding any failure to endorse on each Security a notation of such Guaranty. (c) If an Officer of a Guarantor whose signature is on a Security no longer holds that office at the time the Trustee authenticates the Security on which a Guaranty is endorsed, such Guaranty shall be valid nevertheless. (d) The delivery of any Security by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of the Guaranty set forth in this Indenture on behalf of each Guarantor. Section 11.04. Limitations of Guaranties. Each Guarantor and, by its acceptance hereof, each Holder, hereby confirms that it is the intention of all such parties that in no event shall either Guarantor's obligations under its Guaranty constitute or result in a violation of any applicable fraudulent conveyance or similar law of any relevant jurisdiction. Therefore, in the event that the Guaranty would, but for this sentence, constitute or result in such a violation, then the liability of a Guarantor under such Guaranty shall be reduced to the extent necessary to eliminate such violation under the applicable fraudulent conveyance or similar law. Subject to the preceding limitation on liability, the Guaranty constitutes a guaranty of payment in full when due and not merely a guaranty of collectibility. ARTICLE 12 MISCELLANEOUS Section 12.01. Trust Indenture Act Controls. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by any of Sections 310 to 317, inclusive, of the TIA through operation of Section 318(c) thereof, such imposed duties shall control. Section 12.02. Notices. (a) Any notice or communication by any obligor or the Trustee to any other party hereto is duly given if in writing and delivered in person or mailed by first-class mail (registered or certified, return receipt requested), postage prepaid, telex, telecopier or overnight air courier guarantying next day delivery, to such party's address: If to the Company: EMCOR Group, Inc. 101 Merritt Seven Corporate Park Norwalk, Connecticut 061851-1060 Attention: President Telecopier No.: (203) [________] If to MES: MES Holdings Corporation c/o EMCOR Group, Inc. 101 Merritt Seven Corporate Park Norwalk, Connecticut 061851-1060 Attention: President Telecopier No.: (203) [________] If to SellCo: SellCo Corporation c/o EMCOR Group, Inc. 101 Merritt Seven Corporate Park Norwalk, Connecticut 061851-1060 Attention: President Telecopier No.: (203) [________] If to the Trustee: United States Trust Company of New York 114 West 47th Street New York, New York 10036 Attention: Corporate Trust - Department B Telecopier No.: (212) 852-1626 (b) The obligors or the Trustee, by notice to the other parties hereto, may designate additional or different addresses for subsequent notices or communications. (c) If the Company mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time. Section 12.03. Communication by Holders with Other Holders. Holders may communicate pursuant to TIA Section 312(b) with other Holders with respect to their rights under this Indenture or the Securities. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c). Any notice or communication given to a Holder shall be mailed to the Holder at the Holder's address as it appears on the registration books of the Registrar and shall be sufficiently given if so mailed within the time prescribed. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not received by the addressee. Section 12.04. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (a) an Officers' Certificate in form and substance satisfactory to the Trustee (which shall include the statements set forth in Section 12.05) stating that, in the opinion of the signers, all conditions precedent and covenants (including any covenants compliance with which constitutes a condition precedent), if any, provided for in this Indenture relating to the proposed action have been complied with; and (b) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 12.05) stating that, in the opinion of such counsel, all such conditions precedent and covenants (including any covenants compliance with which constitutes a condition precedent) have been complied with. Section 12.05. Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than certificates pursuant to Section 4.04(a)) shall include: (a) a statement that the person making such certificate or opinion has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with. Section 12.06. Rules by Trustee and Agents. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. Section 12.07. Legal Holidays. A "Legal Holiday" is a Saturday, Sunday or day on which banking institutions or trust companies in the City of New York or at a place of payment are authorized or obligated by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. Section 12.08. Duplicate Originals. The parties may sign any number of copies of this Indenture. One signed copy is enough to prove this Indenture. Section 12.09. Governing Law. The internal laws of the State of New York shall govern and be used to construe this Indenture and the Securities, without regard to the conflicts of law rules thereof. Section 12.10. No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or any of its Subsidiaries. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. Section 12.11. Successors. All agreements of the Company in this Indenture and the Securities shall bind its successor. All agreements of the Trustee in this Indenture shall bind its successor. Section 12.12. Severability. In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 12.13. Counterpart Originals. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Section 12.14. Variable Provisions. The Company initially appoints the Trustee as Paying Agent and Registrar. Section 12.15. Table of Contents, Headings, Etc. The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms or provisions hereof. SIGNATURES EMCOR GROUP, INC. By:______________________________ Title: MES HOLDINGS CORPORATION By:______________________________ Title: SELLCO CORPORATION By:______________________________ Title: UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee By:______________________________ Title: EXHIBIT A (Face of Securities) No. EMCOR GROUP, INC. 7% Senior Secured Notes, Series B, Due 1997 EMCOR GROUP, INC. (formerly known as JWP INC.), a corporation organized and existing under the laws of the State of Delaware, promises to pay to __________________ or registered assigns the principal sum of _________ Dollars on [___________ __], 1997, as set forth herein. Interest Payment Dates: March __ and September __ Record Dates: March __ and September __ Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. EMCOR GROUP, INC. By: Title: Attest: [SEAL] By: Title: Secretary Dated: Certificate of Authentication: This is one of the Securities referred to in the within-mentioned Indenture. UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee By: Authorized Signatory (Back of Securities) EMCOR GROUP, INC. 7% Senior Secured Notes, Series B, Due 1997 1. Interest. EMCOR GROUP, INC. (formerly known as JWP INC.), a Delaware corporation (the "Company"), promises to pay interest on the principal amount of this Security from the date of issuance until maturity at the interest rate of 7.0% per annum, payable as set forth in paragraph 2. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law, as defined in the Indenture) on overdue principal at the rate equal to 2% per annum in excess of the then applicable interest rate on the Securities to the extent lawful; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace period) at the same rate to the extent lawful. Interest shall be computed on the basis of a 360-day year of twelve 30-day months. 2. Method of Payment. The Company shall pay interest semiannually in arrears on each June 30 and December 31 to the holders of record of this Security ("Holders") at the close of business on the June 15 and December 15 next preceding the interest payment date, commencing June 30, 1995. Interest shall initially accrue from the date of issuance of this Security, and the first interest payment date will be June 30, 1995. The Company shall pay interest on the Securities (except defaulted interest) to the persons who are registered Holders of Securities at the close of business on the record date for the next interest payment date even though Securities are canceled after the record date and on or before the interest payment date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company shall pay principal and, except as set forth below, interest in money of the United States of America that at the time of payment is legal tender for payment of public and private debts. The Company may, however, pay principal and, except as set forth below, interest by check payable in such money. The Company shall, in lieu of the payment of interest in cash on this Security (other than on the final maturity date of this Security), pay interest on this Security on each interest payment date by the issuance of additional Securities (the "Interest Deferral Securities") in an aggregate principal amount up to the amount of interest that would be payable with respect to this Security if such interest was paid in cash. For purposes of determining the principal amount of Interest Deferral Securities to be received as interest pursuant to this paragraph, each Interest Deferral Security will have a value equal to its face value. On each such interest payment date, the Trustee or authenticating agent shall authenticate Interest Deferral Securities for original issuance to each Holder of Securities on the preceding record date, as shown by the records of the Registrar, dated the date of such interest payment date, in the principal amount calculated in the previous sentence. Each issuance of Interest Deferral Securities shall be made pro rata with respect to the outstanding Securities, except that the Company shall pay cash to any Holder to the extent necessary to avoid issuing Interest Deferral Securities in denominations that are not integral multiples of $100. Any Interest Deferral Security shall be governed by the Indenture and shall be subject to the same terms as this Security (except, as the case may be, with respect to the title, issuance date and aggregate principal amount). The term Securities shall include the Interest Deferral Securities that are issued under the Indenture. 3. Paying Agent and Registrar. United States Trust Company of New York, a New York corporation, as Trustee (the "Trustee"), shall act as Paying Agent and Registrar. The Company may change any Paying Agent, Registrar or Co-Registrar without prior notice. The Company or any of its subsidiaries may act in any such capacity. 4. Indenture. The Company issued the Securities under an Indenture dated as of December [__], 1994 (the "Indenture") between the Company, MES Holdings Corporation, SellCo Corporation and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date of the Indenture. The Securities are subject to, and qualified by, all such terms, certain of which are summarized herein, and Holders are referred to the Indenture and such Act for a statement of such terms. The Payment Securities are general obligations of the Company limited to $11,357,000 in initial aggregate principal amount. 5. Optional Redemption. After the payment in full of all Indebtedness outstanding under the Series A Notes, the Company may redeem all or any of the Securities at any time and from time to time at the redemption price of 100% of the principal amount thereof plus accrued but unpaid interest to the redemption date in an aggregate amount at any date of determination not in excess of Excess Cash. 6. Mandatory Redemption in Certain Instances. Concurrently with its receipt of any Net Cash Proceeds in respect of an Asset Sale or series of related Asset Sales effected by the Company in respect of the sale of assets constituting "Pledged Shares" under the Software House Senior Pledge Agreement, the Company will redeem Securities at a redemption price of 100% of the principal amount thereof, together with accrued interest to the date of such redemption on the principal amount of Securities redeemed, in an amount equal to such Net Cash Proceeds. The Company will redeem on the Issue Date Securities in an amount equal to all such Net Cash Proceeds held by the Company on the Issue Date. Concurrently with the receipt by any Software House Subsidiary of any Net Cash Proceeds in respect of an Asset Sale or series of related Asset Sales, the Company will redeem Securities at a redemption price of 100% of the principal amount thereof, together with accrued interest to the date of such redemption on the principal amount of Securities redeemed, in an amount equal to such Net Cash Proceeds. The Company will redeem on the Issue Date Securities in an amount equal to all such Net Cash Proceeds held by each Software House Subsidiary on the Issue Date. After the payment in full of all Indebtedness outstanding under the Series A Notes, concurrently with the receipt by the Company or any SellCo Company of any Net Cash Proceeds in respect of an Asset Sale or series of related Asset Sales by the Company or such SellCo Company (other than an Asset Sale (i) of the type referred to in the two preceding paragraphs, or (b) governed by Article 5 of the Indenture), the Company will redeem Securities at a redemption price of 100% of the principal amount thereof, together with accrued interest to the date of such redemption on the principal amount of Securities redeemed, in an amount equal to such Net Cash Proceeds. After the payment in full of all Indebtedness outstanding under the Series A Notes, concurrently with its receipt of any Net Equity Offering Proceeds (other than in connection with an offering or series of offerings constituting a Change of Control) in an amount in excess of $25,000,000, the Company will redeem Securities at a redemption price of 100% of the principal amount thereof, together with accrued interest to the date of such redemption on the principal amount of Securities redeemed, in an amount equal to such excess. After the payment in full of all Indebtedness outstanding under the Series A Notes, concurrently with its receipt of any Net Debt Offering Proceeds in respect of Indebtedness permitted under Section 4.09(vi) of the Indenture, the Company will redeem Securities at a redemption price of 100% of the principal amount thereof, together with accrued interest to the date of such redemption on the principal amount of Securities redeemed, in an amount equal to such Net Debt Offering Proceeds. After the payment in full of all Indebtedness outstanding under the Series A Notes, and from and after the later to occur of (i) the repayment in full of the Loans (as defined in the Revolving Credit Agreement as in effect on the Issue Date and the Dynalectric Revolving Credit Agreement as in effect on the Issue Date), together with all accrued interest thereon, and the termination of the Aggregate Loan Commitment (as defined in the Revolving Credit Agreement and the Dynalectric Revolving Credit Agreement), and (ii) December 31, 1995, within 45 days after the last day of June and December of each calendar year, commencing on June 30, 1995, the Company will redeem Securities at a redemption price of 100% of the principal amount thereof, together with accrued interest to the date of such redemption on the principal amount of Securities redeemed, in an aggregate amount equal to 100% of Excess Cash as at the end of such period. 7. Repurchase Upon Change of Control. If at any time a Change of Control occurs, the Company shall be required to offer to repurchase all outstanding Securities at a price equal to 100% of the outstanding principal amount thereof plus accrued interest thereon to the date of repurchase of such Securities. Holders of Securities that are the subject of such an offer to repurchase shall receive an offer to repurchase from the Company prior to any related repurchase date, and may elect to have such Securi- ties repurchased by completing the form entitled "Option of Holder to Elect Purchase" appearing on this Security and by complying with the other requirements requested by the Company in respect of such repurchase. 8. Notice of Redemption. Notice of redemption pursuant to paragraph 5 of this Security shall be mailed at least 30 days but no more than 60 days before the redemption date to each Holder to be redeemed at his registered address; provided, however, that if the Company redeems Securities on the Issue Date, no such notice shall be required. Securities in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000. In the event of a redemption of less than all of the Securities, the Securities shall be chosen for redemption by the Trustee, generally pro rata or by lot. On and after the redemption date, interest ceases to accrue on Securities or portions of them called for redemption. If this Security is redeemed subsequent to a record date with respect to any interest payment date specified above and on or prior to such interest payment date, then any accrued interest shall be paid to the person in whose name this Security is registered at the close of business on such record date. 9. Denominations, Transfer, Exchange. Subject to certain exceptions set forth in the Indenture, the Securities are in registered form without coupons in denominations of $100 and integral multiples thereof. The transfer of Securities may be registered and Securities may be exchanged as provided in the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer docu- ments and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not exchange or register the transfer of any Security or portion of a Security selected for redemption. Also, it need not exchange or register the transfer of any Securities for a period of 15 days before a selection of Securities to be redeemed. 10. Persons Deemed Owners. The registered Holder of a Security shall be treated as its owner for all purposes. 11. Amendments and Waivers. Subject to certain exceptions, the Indenture or the Securities may be amended with the consent of the Holders of at least a majority in principal amount of the then outstanding Securities, and any existing Default may be waived with the consent of the Holders of at least a majority in principal amount of the then outstanding Securities. Without the consent of any Holder, the Indenture or the Securities may be amended to cure any ambiguity, defect or inconsistency, to pro- vide for assumption of the Company's obligations to Holders or to make any change that does not adversely affect the rights of any Holder. 12. Defaults and Remedies. An Event of Default is: default for five days in payment of interest on the Securities; default in payment of principal on the Securities; failure by any Obligor to comply with certain of its agreements in the Indenture, the Securities or the Intercreditor Agreement; failure by any Obligor for 30 days after notice to it to comply with any of its other agreements in the Indenture, the Securities or certain other agreements; a material breach by the Company of certain of its representations and warranties; certain defaults under, and the acceleration prior to the maturity of, other indebtedness of the Company and certain of its Subsidiaries; certain final judgments that remain undischarged; certain events of bankruptcy or insolvency; the ineffectiveness of the Guaranty contained in Article 11 of the Indenture or the denial or disaffirmation of its obligations thereunder by a Guarantor; and the invalidity, unenforceability or diminished priority of the Liens on the Collateral under any Collateral Document (each as defined in the Indenture). If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Securities may declare the principal amount of the Securities to be due and payable immediately. In the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Securities become due and payable immediately without further action or notice. Holders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the Indenture or Securities. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders notice of any continuing default (except a default in payment of principal or interest) if it determines that withholding notice is in their interests. The Company must furnish an annual compliance certificate to the Trustee. 13. Collateral. The obligations of the Company and the Guarantors under the Securities and the Indenture are secured by the Collateral (as defined in the Indenture), as set forth in the Indenture and the Collateral Documents referred to therein. 14. Unclaimed Money. If money for the payment of principal or interest remains unclaimed for two years and six months, the Trustee and the Paying Agent will pay the money back to the Company at its request. After that, Security holders entitled to the money must look to the Company for payment unless an abandoned property law designates another person and all liability of the Trustee and such Paying Agent with respect to such money shall cease. 15. Discharge Prior to Redemption or Maturity. If the Company deposits with the Trustee money or U.S. Government Obligations sufficient to pay principal of, premium, if any, and accrued interest on the Notes to redemption or maturity, the Company will be discharged from the Indenture and the Securities, except for certain sections thereof. 16. Trustee Dealings with Obligors. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for any obligor on the Securities or its Affiliates, and may otherwise deal with each such obligor or its Affiliates, as if it were not Trustee. 17. No Recourse Against Others. A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations. Each Holder by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. 18. Authentication. This Security shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 19. Abbreviations. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act.) 20. Indenture. Each Holder, by accepting a Security, agrees to be bound by all of the terms and provisions of the Indenture, as the same may be amended from time to time. 21. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Securities and has directed the Trustee to use CUSIP numbers in notices of redemption as a convenience to Holders. No repre- sentation is made as to the accuracy of such numbers either as printed on the Securities or as contained in any notice of re- demption and reliance may be placed only on the other identifi- cation numbers placed hereon. The Company will furnish to any Holder, upon written request and without charge, a copy of the Indenture. Request may be made to: EMCOR Group, Inc., 101 Merritt Seven Corporate Park, Norwalk, Connecticut 061851-1060, Attention: Secretary. FORM OF NOTATION ON SECURITY RELATING TO GUARANTY SellCo Corporation and MES Holdings Corporation (collectively, the "Guarantors," which term includes any successor Person under the Indenture) have each unconditionally guarantied, to the extent set forth in the Indenture and subject to the provisions in the Indenture, (a) the due and punctual payment of the principal of and interest on the Securities, whether at maturity, upon redemption, by acceleration or otherwise, the due and punctual payment of interest on overdue principal, and, to the extent permitted by law, interest, and the due and punctual performance of all other obligations of the Company to the Holders or the Trustee, all in accordance with the terms set forth in Article 11 of the Indenture and (b) in case of any extension of time of payment or renewal of any Securities or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, upon redemption, by acceleration or otherwise. The obligations of each Guarantor to the Holders of Securities and to the Trustee pursuant to this Guaranty and the Indenture are expressly set forth in Article 11 of the Indenture and reference is hereby made to the Indenture for the precise terms of this Guaranty. This Guaranty shall not be valid or obligatory for any purpose until the certificate of authentication on the Security upon which this Guaranty is noted shall have been executed by the Trustee under the Indenture by the manual signature of one of its authorized officers. MES HOLDINGS CORPORATION By: Title: SELLCO CORPORATION By: Title: ASSIGNMENT FORM To assign this Security, fill in the form below: (I) or (we) assign and transfer this Security to (Insert assignee's Social Security or tax I.D. no.) (Print or type assignee's name, address and zip code) and irrevocably appoint _____________________________ agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. Date:_______________ Your signature: (Sign exactly as your name appears on the other side of this Security) Signature Guaranty:_________________________ OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security purchased by the Company pursuant to Section 4.18 of the Indenture, check the box: If you want to elect to have only a portion of this Security purchased by the Company pursuant to the aforesaid Section of the Indenture, state the amount to be purchased by the Company: $______________ Date: Your Signature: (Sign exactly as your name appears on the other side of this Security) Signature Guaranty: SOFTWARE HOUSE SUBORDINATED PLEDGE AGREEMENT PLEDGE AGREEMENT, dated [____________ __], 1994, made by EMCOR Group, Inc. (formerly known as JWP INC.), a Delaware corporation (the "Company"), to United States Trust Company of New York, as trustee under the Indenture referred to below (in such capacity, the "Trustee" and, together with the Holders (as defined in the Indenture), the "Secured Parties"). W I T N E S S E T H: WHEREAS, the Company has entered into an Indenture, dated as of December [__], 1994, with the Trustee in respect of the Company's 7% Senior Secured Notes, Series B, Due 1997 (said Indenture, as it may be amended, supplemented or otherwise modified from time to time, being the "Indenture" and capitalized terms not defined herein but defined therein or in the Intercreditor Agreement referred to below being used herein as therein defined); and WHEREAS, the Trustee has entered into an Intercreditor Agreement, dated the date hereof and substantially in the form of Exhibit C to the Indenture (as the same may be amended, supplemented or otherwise modified from time to time, the "Intercreditor Agreement"), with the Company and with each of IBJ Schroder Bank & Trust Company, as the trustee for the holders of the Series A Obligations referred to therein (the "Series A Indenture Trustee"), and Shawmut Bank Connecticut, National Association, as the trustee for the holders of the SellCo Related Obligations referred to therein, pursuant to which, among other things, the Lien on the Pledged Collateral (as defined in Section 1(a) hereof) created hereby shall be subordinated to the Senior Lien (as defined in the Intercreditor Agreement) on the Pledged Collateral securing the Series A Obligations; and WHEREAS, the Pledged Collateral constitutes Category One Collateral under the Intercreditor Agreement; and WHEREAS, pursuant to the Intercreditor Agreement, the Series A Indenture Trustee, as the Senior Lienor (in such capacity, the "Senior Pledgee"), has agreed to hold the Pledged Collateral as bailee for the Trustee, as junior pledgee; and WHEREAS, the Company is the legal and beneficial owner of (a) the shares of capital stock described in Schedule I hereto (the "Pledged Shares") and issued by the issuers named therein (the "Issuers"), and (b) the Indebtedness (if any) described in said Schedule and issued by the obligors named therein (the "Pledged Debt"); and WHEREAS, it is a requirement under the Indenture that the Company shall have made the pledge contemplated by this Agreement; NOW, THEREFORE, in consideration of the premises, the Company hereby agrees with the Trustee on behalf and for the ratable benefit of the Secured Parties as follows: Section 1. Pledge. (a) The Company hereby pledges to the Trustee on behalf and for the ratable benefit of the Secured Parties, and grants to the Trustee on behalf and for the ratable benefit of the Secured Parties a security interest in, the following (the "Pledged Collateral"): (i) all of the Pledged Shares; (ii) all additional shares of stock or other securities of any Issuer from time to time acquired by the Company in any manner (any such shares being "Additional Shares"); (iii) the certificates representing the shares referred to in clauses (i) and (ii) above; (iv) all of the Pledged Debt; (vi) all notes or other instruments evidencing the indebtedness referred to in clause (iv) above; and (vii) all dividends, interest, cash, instruments and other property or proceeds, from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the foregoing. (b) The pledge made and the security interest granted pursuant to this Agreement, and all rights and remedies of the Trustee and the other Secured Parties hereunder and in and to the Pledged Collateral shall be subject in all respects to the terms and provisions of the Intercreditor Agreement. The Trustee, for itself and on behalf of each of the other Secured Parties, acknowledges and agrees that the Lien granted to the Secured Parties hereunder is junior and subordinate to the Senior Lien in the Pledged Collateral securing the Series A Obligations. (c) The Trustee, by execution of the Intercreditor Agreement, appoints the Senior Pledgee to hold the Pledged Collateral, in accordance with the terms of, and subject to the conditions of, the Intercreditor Agreement. Section 2. Security for Obligations. This Agreement secures and the Pledged Collateral is security for the full and prompt payment when due (whether at stated maturity, redemption, repurchase, by acceleration or otherwise) of, and the performance of, all of the Company's obligations under the Securities, the Indenture, this Agreement, and each other instrument, document and agreement executed by the Company in connection with any of the foregoing, whether now or hereafter existing and whether for principal, premium, interest (including without limitation, interest, whether or not allowed, after the filing of a petition initiating any proceeding under any Bankruptcy Law), penalties, commissions, charges, expenses, fees, indemnifications, reimbursements, liabilities, amounts payable, or otherwise (collectively, the "Obligations"). Section 3. Delivery of Pledged Collateral. All certificates or instruments representing or evidencing the Pledged Collateral shall be delivered to the Senior Pledgee, so long as the Senior Lien has not been released, and thereafter, to the Trustee, and held by the Senior Pledgee, so long as the Senior Lien has not been released, and thereafter, by or on behalf of the Trustee, pursuant hereto and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Trustee. After the Senior Lien has been released, the Trustee shall have the right (a) at any time in its discretion and without notice to the Company, to transfer to or to register in its name or in the name of any of its nominees any or all of the Pledged Collateral, and (b) at any time to exchange certificates or instruments representing or evidencing any of the Pledged Collateral for certificates or instruments of smaller or larger denominations. Section 4. Representations and Warranties. The Company makes the following representations: (a) The Pledged Shares (i) have been duly authorized and validly issued; (ii) are fully paid and non-assessable; and (iii) constitute 100% of the issued and outstanding shares of stock of the respective Issuers thereof. (b) The Company is the legal and beneficial owner of the Pledged Collateral free and clear of any Lien, except for (i) the Lien created by this Agreement, and (ii) the Senior Lien. (c) The pledge of the Pledged Shares and the Pledged Debt pursuant to this Agreement creates a valid and perfected security interest in the Pledged Collateral, subject only to the Senior Lien, in favor of the Trustee on behalf and for the ratable benefit of the Secured Parties securing the payment of all of the Obligations. (d) No consent, authorization, approval, or other action by, and no notice to or filing with, any governmental authority is required either (i) for the pledge by the Company of the Pledged Collateral pursuant to this Agreement or for the due execution, delivery or performance of this Agreement by the Company, or (ii) for the exercise by the Trustee of the voting or other rights provided for in this Agreement or of the remedies in respect of the Pledged Collateral pursuant to this Agreement, except as may be required in connection with the disposition of the Pledged Collateral by laws affecting the offering and sale of securities generally. (e) The Pledged Debt constitutes all of the Series A Substitute Collateral," as defined in the Plan of Reorganization. Section 5. Further Assurances, Etc. (a) The Company agrees that at any time and from time to time, at the cost and expense of the Company, the Company will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Trustee may request, in order to perfect and protect the Lien granted or purported to be granted hereby or, subject to the provisions of the Intercreditor Agreement, to enable the Trustee to exercise and enforce its rights and remedies hereunder with respect to any Pledged Collateral. (b) The Company agrees to defend the title to the Pledged Collateral and the Lien thereon of the Trustee against the claim of any other Person and to maintain and preserve such Lien until indefeasible payment in full of all of the Obligations. Section 6. Voting Rights; Dividends; Etc. (a) Subject to the provisions of the Intercreditor Agreement, as long as no Default or Event of Default shall have occurred and be continuing: (i) The Company shall be entitled to exercise any and all voting and other consensual rights pertaining to the Pledged Collateral or any part thereof for any purpose not inconsistent with the terms of this Agreement, the Indenture, the Securities or any other instrument or document relating thereto; provided, however, that the Company shall not exercise or shall refrain from exercising any such right if such action would (A) in the reasonable judgment of the Company have a material adverse effect on the value of the Pledged Collateral or any part thereof, or (B) be inconsistent with or violate any provision of this Agreement, the Securities or the Indenture. (ii) Subject to the provisions of the Intercreditor Agreement, the Company shall be entitled to receive and retain any and all dividends and interest paid in respect of the Pledged Collateral, other than any and all (A) dividends and interest paid or payable other than in cash in respect of, and instruments and other property received, receivable or otherwise distributed in respect of, or in exchange for, any Pledged Collateral, (B) dividends and other distributions paid or payable in cash in respect of any Pledged Shares or Additional Pledged Shares in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid- in-surplus, and (C) cash paid, payable or otherwise distributed in redemption of, or in exchange for, any Pledged Collateral, all of which shall be forthwith delivered to the Trustee or to the Senior Pledgee on the Trustee's behalf to hold as Pledged Collateral and shall, if received by the Company, be received in trust for the benefit of the Secured Parties, be segregated from the other property or funds of the Company, and be forthwith delivered to the Trustee or to the Senior Pledgee on the Trustee's behalf as Pledged Collateral in the same form as so received (with any necessary indorsement). (iii) Subject to the provisions of the Intercreditor Agreement, the Trustee shall execute and deliver (or cause to be executed and delivered) to the Company all such proxies and other instruments as the Company may reasonably request for the purpose of enabling the Company to exercise the voting and other rights which it is entitled to exercise pursuant to paragraph (i) above and to receive the dividends or interest payments which it is authorized to receive and retain pursuant to paragraph (ii) above. (b) Subject to the provisions of the Intercreditor Agreement, upon the occurrence and during the continuance of a Default or an Event of Default: (i) Upon notice by the Trustee to the Company, all rights of the Company to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to Section 6(a)(i) above shall cease, and all such rights shall thereupon become vested in the Trustee who shall thereupon have the sole right to exercise such voting and other consensual rights. (ii) All rights of the Company to receive the dividends, interest payments and other distributions which it would otherwise be authorized to receive and retain pursuant to Section 6(a)(ii) above shall cease, and all such rights shall thereupon become vested in the Trustee who shall thereupon have the sole right to receive and hold as Pledged Collateral such dividends, interest payments and other distributions. (iii) All dividends, interest payments and other distributions which are received by the Company contrary to the provisions of paragraph (ii) of this Section 6(b) shall be received in trust for the benefit of the Trustee, shall be segregated from other funds of the Company and shall be forthwith paid over to the Trustee as Pledged Collateral in the same form as so received (with any necessary indorsement). (iv) The Company shall, if necessary to permit the Trustee to exercise the voting and other rights which it may be entitled to exercise pursuant to Section 6(b)(i) above and to receive all dividends, interest payments and distributions which it may be entitled to receive under Section 6(b)(ii) above, execute and deliver to the Trustee, from time to time and upon written notice of the Trustee, appropriate proxies, dividend payment orders and other instruments as the Trustee may reasonably request. The foregoing shall not in any way limit the Trustee's power and authority granted pursuant to Section 8 hereof. Section 7. Transfers and Other Liens; Additional Shares. (a) The Company agrees that it will not (i) sell or otherwise dispose of, or grant any option or warrant with respect to, any of the Pledged Collateral, or (ii) create or permit to exist any Lien upon or with respect to any of the Pledged Collateral except for (A) the Lien created pursuant to this Agreement, and (B) the Senior Lien. (b) The Company agrees that it will (i) cause each Issuer not to issue any shares of stock or other securities in addition to or in substitution for the Pledged Shares except to the Company, (ii) pledge hereunder, immediately upon its acquisition (directly or indirectly) thereof, to the Trustee (or, until the Senior Lien has been released, to the Senior Pledgee) any and all Additional Shares, and (iii) promptly (and in any event within three Business Days) deliver to the Trustee a Pledge Amendment, duly executed by the Company, in substantially the form of Schedule II hereto (a "Pledge Amendment"), in respect of the Additional Shares, together with all certificates, notes or other instruments representing or evidencing the same. The Company hereby (i) authorizes the Trustee to attach each Pledge Amendment to this Pledge Agreement, (ii) agrees that all Additional Shares listed on any Pledge Amendment delivered to the Trustee shall for all purposes hereunder constitute Pledged Shares and Pledged Debt, respectively, subject to the rights of the holders of the Senior Lien, and (iii) is deemed to have made, upon such delivery, the representations and warranties contained in Section 4 hereof with respect to such Pledged Collateral. Section 8. Trustee Appointed Attorney-in-Fact and Proxy. Subject to the provisions of the Intercreditor Agreement, the Company hereby irrevocably constitutes and appoints the Trustee and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact and proxy with full irrevocable power and authority in the place and stead of the Company and in the name of the Company or in its own name, from time to time in the Trustee's discretion, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute and deliver any and all documents and instruments which the Trustee may deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation, to receive, indorse and collect all instruments made payable to the Company representing any dividend, interest payment or other distribution or payment in respect of the Pledged Collateral or any part thereof, to give full discharge for the same, and to vote or grant any consent in respect of the Pledged Shares authorized by Section 6(b) hereof. The Company hereby ratifies, to the extent permitted by law, all that any said attorney shall lawfully do or cause to be done by virtue hereof. This power, being coupled with an interest, is irrevocable until the Obligations are paid in full. Section 9. Trustee May Perform. Subject to the provisions of the Intercreditor Agreement, if the Company fails to perform any agreement contained herein, the Trustee may itself perform, or cause performance of, such agreement, and the expenses of the Trustee incurred in connection therewith shall be payable by the Company under Section 12 hereof and constitute Obligations secured hereby. Section 10. Reasonable Care. The Trustee shall be deemed to have exercised reasonable care in the custody and preservation of the Pledged Collateral in its possession if the Pledged Collateral is accorded treatment substantially equal to that which the Trustee accords its own property, it being understood that neither the Trustee nor any other Secured Party shall have responsibility for (i) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Pledged Collateral, whether or not the Trustee or any other Secured Party has or is deemed to have knowledge of any such matter, or (ii) taking any necessary steps to preserve rights against any Person with respect to any Pledged Collateral. Section 11. Remedies upon Default. Subject to the provisions of the Intercreditor Agreement, if any Event of Default shall have occurred and be continuing: (a) The Trustee may exercise in respect of the Pledged Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party after default under the Uniform Commercial Code in effect in the State of New York at that time (the "UCC"), and the Trustee may also, without notice except as specified below, sell the Pledged Collateral or any part thereof in one or more parcels at public or private sale, at any exchange, broker's board or at any office of the Trustee or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Trustee may deem commercially reasonable. The Company agrees that, to the extent notice of sale shall be required by law, at least ten days' notice to the Company of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Trustee shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been given. The Trustee may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. The Company hereby waives any claims against the Trustee arising by reason of the fact that the price at which any Pledged Collateral may have been sold at such a private sale was less than the price which might have been obtained at a public sale, even if the Trustee accepts the first offer received and does not offer such Pledged Collateral to more than one offeree. (b) If the Trustee shall determine to exercise its right to sell all or any of the Pledged Collateral pursuant to this Section 11, the Company agrees that, upon request of the Trustee, the Company will, at its own cost and expense: (i) execute and deliver, and use its best efforts to cause each issuer of the Pledged Collateral and its directors and officers to execute and deliver, all such instruments and documents, and do or cause to be done all such other acts and things, as may be necessary or, in the reasonable opinion of the Trustee, advisable to register such Pledged Collateral under the provisions of the Securi- ties Act of 1933, as from time to time amended (the "Securities Act"), and to cause the registration statement relating thereto to become effective and to remain effective for such period as prospectuses are required by law to be furnished, and to make all amendments and supplements thereto and to the related prospectus which, in the opinion of the Trustee, are necessary or advisable, all in con- formity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission ("SEC") applicable thereto; (ii) use its best efforts to qualify the Pledged Collateral under the state securities or "Blue Sky" laws and to obtain all necessary governmental approvals for the sale of the Pledged Collateral, as requested by the Trustee; (iii) make available to its security holders, as soon as practicable, an earning statement which will satisfy the provisions of section 11(a) of the Securities Act; and (iv) do or cause to be done all such other acts and things as may be necessary to make such sale of the Pledged Collateral or any part thereof valid and binding and in compliance with applicable law. The Company further acknowledges the impossibility of ascertaining the amount of damages which would be suffered by the Secured Parties by reason of the failure by the Company to perform any of the covenants contained in this Section 11 and, consequently, agrees that, if the Company shall fail to perform any of such covenants, it shall pay, as liquidated damages and not as a penalty, an amount equal to the value of the Pledged Collateral on the date the Trustee shall demand compliance with this Section. (c) The Company recognizes that, by reason of the aforementioned requirements and certain prohibitions contained in the Securities Act and applicable state securities laws, the Trustee may, at its option, elect not to require the Company to register all or any part of the Pledged Collateral and may therefore be compelled, with respect to any sale of all or any part of the Pledged Collateral, to limit purchasers to those who will agree, among other things, to acquire such securities for their own account, for investment, and not with a view to the distribution or resale thereof. The Company acknowledges and agrees that any such sale may result in prices and other terms less favorable to the seller than if such sale were a public sale without such restrictions and, notwithstanding such circumstances, agrees that any such sale shall be deemed to have been made in a commercially reasonable manner. The Trustee shall be under no obligation to delay the sale of any of the Pledged Collateral for the period of time necessary to permit the Company to register such securities for public sale under the Securities Act, or under applicable state securities laws, even if the Company would agree to do so. (d) If the Trustee determines to exercise its right to sell any or all of the Pledged Collateral, upon written request, the Company shall, from time to time, furnish to the Trustee all such information as the Trustee may request in order to determine the number of shares and other instruments included in the Pledged Collateral which may be sold by the Trustee as exempt transactions under the Act and rules of the SEC thereunder, as the same are from time to time in effect. (e) Any cash held by the Trustee as Pledged Collateral and all cash proceeds received by the Trustee in respect of any sale of, collection from, or other realization upon all or any part of the Pledged Collateral shall be applied by the Trustee as provided in Section 6.10 of the Indenture. (f) Notwithstanding anything to the contrary set forth herein, the Trustee shall not exercise any of the remedies set forth in this Section 11 for a period of 90 days after the occurrence of an Event of Default without the prior written consent of the Majority Lenders (as defined in the Revolving Credit Agreement referred to in the Indenture). Section 12. Expenses. The Company will upon demand pay to the Trustee the amount of any and all reasonable expenses, including, without limitation, the reasonable fees and expenses of the Trustee's counsel and of any experts and agents, which the Trustee may incur in connection with (a) the administration of this Agreement, (b) the custody or preservation of, sale of, collection from, or other realization upon, any of the Pledged Collateral, (c) the exercise or enforcement of any of the rights and remedies hereunder of the Trustee and the other Secured Parties, or (d) the failure by the Company to perform or observe any of the provisions hereof. Section 13. Security Interest Absolute. All rights of the Trustee and security interests hereunder, and all obligations of the Company hereunder, shall be absolute and unconditional irrespective of: (a) any lack of validity or enforceability of any provision of the Indenture, the Securities, the Intercreditor Agreement, or any other agreement or instrument relating thereto; (b) any change in the time, manner or place of payment of, or in any other term of, or any increase in the amount of, all or any of the Obligations, or any other amendment or waiver of any term of, or any consent to any departure from any requirement of, the Indenture, the Securities, the Intercreditor Agreement, or any other instrument or document relating thereto; (c) any exchange, release or non-perfection of any Lien on any other collateral, or any release or amendment or waiver of any term of any guaranty of, or consent to departure from any requirement of any guaranty of, all or any of the Obligations; or (d) any other circumstance which might otherwise constitute a defense available to, or a discharge of, a borrower or a pledgor. Section 14. Amendments, Etc. No amendment or waiver of any provision of this Agreement nor consent to any departure by the Company herefrom shall in any event be effective unless the same shall be in writing and signed by the Trustee, and then such waiver or consent shall be effec- tive only in the specific instance and for the specific purpose for which given. Section 15. Addresses for Notices. All notices and other communications provided for hereunder shall be in writing (including telegraphic, telex, telecopy or cable communication) and mailed, telegraphed, telexed, telecopied, cabled or delivered by hand, if to the Company or the Trustee, addressed to the Company or the Trustee, as the case may be, at its address specified in the Indenture, or, as to either party, at such other address as shall be designated by such party in a written notice to each other party complying as to delivery with the terms of this Section. All such notices and other communications shall, when mailed, telegraphed, telexed, telecopied, cabled or delivered, be effective four (4) Business Days after deposit in the mails, delivered to the telegraph company, confirmed by telex answerback, telecopied with confirmation of receipt, delivered to the cable company or delivered by hand to the addressee or its agent, respectively. Section 16. Continuing Security Interest; Transfer of Securities or Obligations. This Pledge Agreement shall create a continuing security interest in the Pledged Collateral and shall (a) remain in full force and effect until indefeasible payment in full of the Obligations, (b) be binding upon the Company, its successors and assigns, and (c) inure, together with the rights and remedies of the Trustee hereunder, to the benefit of and be enforceable by the Secured Parties and their respective successors, transferees and assigns. Without limiting the generality of the foregoing clause (c), any Holder may assign or otherwise transfer any Security held by it or Obligation owing to it to any other Person, and such other Person shall thereupon become vested with all the rights in respect thereof granted to such Holder herein or otherwise with respect to such of the Securities or Obligations so transferred or assigned. Subject to the provisions of the Intercreditor Agreement, upon the payment in full of the Obligations, the Company shall be entitled to the return, upon its request and at its expense, of such of the Pledged Collateral as shall not have been sold or otherwise applied pursuant to the terms hereof. Section 17. Governing Law; Severability; Terms. This Agreement shall be governed by, and be construed and interpreted in accordance with, the law of the State of New York. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity and without invalidating the remaining provisions of this Agreement. Unless otherwise defined herein or in the Indenture, terms defined in Article 9 of the UCC are used herein as therein defined. Section 18. Waiver of Jury Trial. The Company waives any right it may have to a trial by jury in respect of any litigation based on, or arising out of, under or in connection with, this Agreement or any course of conduct, course of dealing, verbal or written statement or other action of the Trustee or any other Secured Party. Section 19. Conflicts. In the event of any conflict between the terms of the Intercreditor Agreement and this Agreement, the terms of the Intercreditor Agreement shall govern. Section 20. Section Titles. The Section titles contained in this Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not part of this Agreement. IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed and delivered by its duly authorized officer on the date first above written. EMCOR GROUP, INC. By:____________________________ Title: Accepted and Acknowledged: UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee By:__________________________ Title: SCHEDULE I TO PLEDGE AGREEMENT Attached to and forming a part of that certain Pledge Agreement, dated December [__], 1994, by EMCOR Group, Inc. to United States Trust Company of New York, as Trustee.
Stock Certificate Number Stock Issuer Class of Stock No(s). Par Value of Shares ____________ ______________ ___________ _________ _________ 1. MES Holdings Corporation Common [__] [__] [___] 2. SellCo Corporation Common [__] [__] [___]
Original Description Debt Certificate Final Principal Issuer of Debt No(s). Maturity Amount ______ ___________ ________________ ________ __________ [NONE] SCHEDULE II TO PLEDGE AGREEMENT PLEDGE AMENDMENT ________________ This Pledge Amendment, dated ___________, 19__, is delivered pursuant to Section 7 of the Pledge Agreement referred to below. The undersigned hereby agrees that this Pledge Amendment may be attached to the Pledge Agreement, dated December [__], 1994, between the undersigned and United States Trust Company of New York, as Trustee on behalf of and for the ratable benefit of the Secured Parties referred to therein and that the Additional Shares listed on this Pledge Amendment shall be and become part of the Pledged Collateral referred to in the Pledge Agreement and shall secure all Obligations of the undersigned. The terms defined in the Pledge Agreement or Indenture are being used herein as therein defined. EMCOR GROUP, INC. By:____________________________ Title:
Stock Certificate Number Stock Issuer Class of Stock No(s). Par Value of Shares ____________ ______________ ___________ _________ _________
EXHIBIT B-1 SOFTWARE HOUSE SENIOR PLEDGE AGREEMENT PLEDGE AGREEMENT, dated [____________ __], 1994, made by EMCOR Group, Inc. (formerly known as JWP INC.), a Delaware corporation (the "Company"), to United States Trust Company of New York, as trustee under the Indenture referred to below (in such capacity, the "Trustee" and, together with the Holders (as defined in the Indenture), the "Secured Parties"). W I T N E S S E T H: WHEREAS, the Company has entered into an Indenture, dated as of December [__], 1994, with the Trustee in respect of the Company's 7% Senior Secured Notes, Series B, Due 1997 (said Indenture, as it may be amended, supplemented or otherwise modified from time to time, being the "Indenture" and capitalized terms not defined herein but defined therein or in the Intercreditor Agreement referred to below being used herein as therein defined); and WHEREAS, the Trustee has entered into an Intercreditor Agreement dated the date hereof and substantially in the form of Exhibit C to the Indenture (as it may be amended, supplemented or otherwise modified from time to time, the "Intercreditor Agreement") with the Company, SellCo and the other Trustees referred to therein; and WHEREAS, the Pledged Collateral constitutes Category Two Collateral under the Intercreditor Agreement; and WHEREAS, the Company is the legal and beneficial owner of (a) the shares of capital stock described in Schedule I hereto (the "Pledged Shares") and issued by the issuers named therein (the "Issuers"), and (b) the Indebtedness (if any) described in said Schedule and issued by the obligors named therein (the "Pledged Debt"); and WHEREAS, it is a requirement under the Indenture that the Company shall have made the pledge contemplated by this Agreement; NOW, THEREFORE, in consideration of the premises, the Company hereby agrees with the Trustee on behalf and for the ratable benefit of the Secured Parties as follows: Section 1. Pledge. (a) The Company hereby pledges to the Trustee on behalf and for the ratable benefit of the Secured Parties, and grants to the Trustee on behalf and for the ratable benefit of the Secured Parties a security inter- est in, the following (the "Pledged Collateral"): (i) all of the Pledged Shares; (ii) all additional shares of stock or other securities of any Issuer from time to time acquired by the Company in any manner (any such shares being "Additional Shares"); (iii) the certificates representing the shares referred to in clauses (i) and (ii) above; (iv) all of the Pledged Debt; (v) all indebtedness for the deferred purchase price of property from time to time owed to (A) the Company by any Person in respect of the sale by the Company of any of the Pledged Shares or Additional Shares, and (B) all indebtedness for the deferred purchase price of property from time to time owed to the Company or any of the Issuers by any other Person in respect of an Asset Sale (as defined in the Indenture) by such Issuer (any such indebtedness being "Additional Debt"); (vi) all notes or other instruments evidencing the indebtedness referred to in clauses (iv) and (v) above; and (vii) all dividends, interest, cash, instruments and other property or proceeds, from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the foregoing. (b) The pledge made and the security interest granted pursuant to this Agreement, and all rights and remedies of the Trustee and the other Secured Parties hereunder and in and to the Pledged Collateral shall be subject in all respects to the terms and provisions of the Intercreditor Agreement. Section 2. Security for Obligations. This Agreement secures and the Pledged Collateral is security for the full and prompt payment when due (whether at stated maturity, redemption, repurchase, by acceleration or otherwise) of, and the performance of, all of the Company's obligations under the Securities, the Indenture, this Agreement, and each other instrument, document and agreement executed by the Company in connection with any of the foregoing, whether now or hereafter existing and whether for principal, premium, interest (including without limitation, interest, whether or not allowed, after the filing of a petition initiating any proceeding under any Bankruptcy Law), penalties, commissions, charges, expenses, fees, indemnifications, reimbursements, liabilities, amounts payable, or otherwise (collectively, the "Obligations"). Section 3. Delivery of Pledged Collateral. All certificates or instruments representing or evidencing the Pledged Collateral shall be delivered to and held by or on behalf of the Trustee pursuant hereto and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Trustee. The Trustee shall have the right, at any time in its discretion and without notice to the Company, to transfer to or to register in its name or in the name of any of its nominees any or all of the Pledged Collateral. In addition, the Trustee shall have the right at any time to exchange certi- ficates or instruments representing or evidencing any of the Pledged Collateral for certificates or instruments of smaller or larger denominations. Section 4. Representations and Warranties. The Company makes the following representations: (a) The Pledged Shares (i) have been duly authorized and validly issued; (ii) are fully paid and non- assessable; and (iii) constitute 100% of the issued and outstanding shares of stock of the respective Issuers thereof. (b) The Company is the legal and beneficial owner of the Pledged Collateral free and clear of any Lien, except for (i) the Lien created by this Agreement, and (ii) the Lien created by the Series A Subordinated Pledge Agreement. (c) The pledge of the Pledged Shares and the Pledged Debt pursuant to this Agreement creates a valid and perfected first priority security interest in the Pledged Collateral, in favor of the Trustee on behalf and for the ratable benefit of the Secured Parties securing the payment of all of the Obligations. (d) No consent, authorization, approval, or other action by, and no notice to or filing with, any governmental authority is required either (i) for the pledge by the Company of the Pledged Collateral pursuant to this Agreement or for the due execution, delivery or performance of this Agreement by the Company, or (ii) for the exercise by the Trustee of the voting or other rights provided for in this Agreement or of the remedies in respect of the Pledged Collateral pursuant to this Agreement, except as may be required in connection with the disposition of the Pledged Collateral by laws affecting the offering and sale of securities generally. (e) The Pledged Debt constitutes all of the "Series B Substitute Collateral," as defined in the Plan of Reorganization. Section 5. Further Assurances, Etc. (a) The Company agrees that at any time and from time to time, at the cost and expense of the Company, the Company will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Trustee may request, in order to perfect and protect the Lien granted or purported to be granted hereby or to enable the Trustee to exercise and enforce its rights and remedies hereunder with respect to any Pledged Collateral. (b) The Company agrees to defend the title to the Pledged Collateral and the Lien thereon of the Trustee against the claim of any other Person and to maintain and preserve such Lien until indefeasible payment in full of all of the Obligations. Section 6. Voting Rights; Dividends; Etc. (a) As long as no Default or Event of Default shall have occurred and be continuing: (i) The Company shall be entitled to exercise any and all voting and other consensual rights pertaining to the Pledged Collateral or any part thereof for any purpose not inconsistent with the terms of this Agreement, the Indenture, the Securities or any other instrument or document relating thereto; provided, however, that the Company shall not exercise or shall refrain from exercising any such right if such action would (A) in the reasonable good faith judgment of the Company have a material adverse effect on the value of the Pledged Collateral or any part thereof, or (B) be inconsistent with or violate any provision of this Agreement, the Securities or the Indenture. (ii) The Company shall be entitled to receive and retain any and all dividends and interest paid in respect of the Pledged Collateral, other than any and all (A) dividends and interest paid or payable other than in cash in respect of, and instruments and other property received, receivable or otherwise distributed in respect of, or in exchange for, any Pledged Collateral, (B) dividends and other distributions paid or payable in cash in respect of any Pledged Shares or Additional Pledged Shares in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in-surplus, and (C) cash paid, payable or otherwise distributed in redemption of, or in exchange for, any Pledged Collateral, all of which shall be forthwith delivered to the Trustee to hold as Pledged Collateral and shall, if received by the Company, be received in trust for the benefit of the Secured Parties, be segregated from the other property or funds of the Company, and be forthwith delivered to the Trustee as Pledged Collateral in the same form as so received (with any necessary indorsement). (iii) The Trustee shall execute and deliver (or cause to be executed and delivered) to the Company all such proxies and other instruments as the Company may reasonably request for the pur- pose of enabling the Company to exercise the voting and other rights which it is entitled to exercise pursuant to paragraph (i) above and to receive the dividends or interest payments which it is authorized to receive and retain pursuant to paragraph (ii) above. (b) Upon the occurrence and during the continuance of a Default or an Event of Default: (i) Upon notice by the Trustee to the Company, all rights of the Company to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to Section 6(a)(i) above shall cease, and all such rights shall thereupon become vested in the Trustee who shall thereupon have the sole right to exercise such voting and other consensual rights. (ii) All rights of the Company to receive the dividends, interest payments and other distributions which it would otherwise be authorized to receive and retain pursuant to Section 6(a)(ii) above shall cease, and all such rights shall thereupon become vested in the Trustee who shall thereupon have the sole right to receive and hold as Pledged Collateral such dividends, interest payments and other distributions. (iii) All dividends, interest payments and other distributions which are received by the Company contrary to the provisions of paragraph (ii) of this Section 6(b) shall be received in trust for the benefit of the Trustee, shall be segregated from other funds of the Company and shall be forthwith paid over to the Trustee as Pledged Collateral in the same form as so received (with any necessary indorsement). (iv) The Company shall, if necessary to permit the Trustee to exercise the voting and other rights which it may be entitled to exercise pursuant to Section 6(b)(i) above and to receive all dividends, interest payments and distributions which it may be entitled to receive under Section 6(b)(ii) above, execute and deliver to the Trustee, from time to time and upon written notice of the Trustee, appropriate proxies, dividend payment orders and other instruments as the Trustee may reasonably request. The foregoing shall not in any way limit the Trustee's power and authority granted pursuant to Section 8 hereof. Section 7. Transfers and Other Liens; Additional Shares and Additional Debt. (a) The Company agrees that it will not (i) sell or otherwise dispose of, or grant any option or warrant with respect to, any of the Pledged Collateral (except, in respect of the Pledged Shares, in accordance with the terms of the Indenture), or (ii) create or permit to exist any Lien upon or with respect to any of the Pledged Collateral except for (A) the Lien created pursuant to this Agreement, and (B) the Lien created pursuant to the Series A Subordinated Pledge Agreement. (b) The Company agrees that it will (i) cause each Issuer not to issue any shares of stock or other securities in addition to or in substitution for the Pledged Shares except to the Company, (ii) pledge here- under, immediately upon its acquisition (directly or indirectly) thereof, any and all Additional Shares and any and all Additional Debt, and (iii) promptly (and in any event within three Business Days) deliver to the Trustee a Pledge Amendment, duly executed by the Company, in substantially the form of Schedule II hereto (a "Pledge Amendment"), in respect of the Additional Shares and Additional Debt, together with all certificates, notes or other instruments representing or evidencing the same. The Company hereby (i) authorizes the Trustee to attach each Pledge Amendment to this Pledge Agreement, (ii) agrees that all Addi- tional Shares and all Additional Debt listed on any Pledge Amendment delivered to the Trustee shall for all purposes hereunder constitute Pledged Shares and Pledged Debt, respectively, and (iii) is deemed to have made, upon such delivery, the representations and warranties contained in Section 4 hereof with respect to such Pledged Collateral. Section 8. Trustee Appointed Attorney-in-Fact and Proxy. The Company hereby irrevocably constitutes and appoints the Trustee and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact and proxy with full irrevocable power and authority in the place and stead of the Company and in the name of the Company or in its own name, from time to time in the Trustee's discretion, for the purpose of carrying out the terms of this Agree- ment, to take any and all appropriate action and to execute and deliver any and all documents and instruments which the Trustee may deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation, to receive, indorse and collect all instruments made payable to the Company representing any dividend, interest payment or other distribution or payment in respect of the Pledged Collateral or any part thereof, to give full discharge for the same, and to vote or grant any consent in respect of the Pledged Shares authorized by Section 6(b) hereof. The Company hereby ratifies, to the extent permitted by law, all that any said attorney shall lawfully do or cause to be done by virtue hereof. This power, being coupled with an interest, is irrevocable until the Obligations are paid in full. Section 9. Trustee May Perform. If the Company fails to perform any agreement contained herein, the Trustee may itself perform, or cause performance of, such agreement, and the expenses of the Trustee incurred in connection therewith shall be payable by the Company under Section 12 hereof and constitute Obligations secured hereby. Section 10. Reasonable Care. The Trustee shall be deemed to have exercised reasonable care in the custody and preservation of the Pledged Collateral in its possession if the Pledged Collateral is accorded treatment substantially equal to that which the Trustee accords its own property, it being understood that neither the Trustee nor any other Secured Party shall have responsibility for (i) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Pledged Collateral, whether or not the Trustee or any other Secured Party has or is deemed to have knowledge of any such matter, or (ii) taking any necessary steps to preserve rights against any Person with respect to any Pledged Collateral. Section 11. Remedies upon Default. If any Event of Default shall have occurred and be continuing: (a) The Trustee may exercise in respect of the Pledged Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party after default under the Uniform Commercial Code in effect in the State of New York at that time (the "UCC"), and the Trustee may also, without notice except as specified below, sell the Pledged Collateral or any part thereof in one or more parcels at public or private sale, at any exchange, broker's board or at any office of the Trustee or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Trustee may deem commercially reasonable. The Company agrees that, to the extent notice of sale shall be required by law, at least ten days' notice to the Company of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Trustee shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been given. The Trustee may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. The Company hereby waives any claims against the Trustee arising by reason of the fact that the price at which any Pledged Collateral may have been sold at such a private sale was less than the price which might have been obtained at a public sale, even if the Trustee accepts the first offer received and does not offer such Pledged Collateral to more than one offeree. (b) If the Trustee shall determine to exercise its right to sell all or any of the Pledged Collateral pursuant to this Section 11, the Company agrees that, upon request of the Trustee, the Company will, at its own cost and expense: (i) execute and deliver, and use its best efforts to cause each issuer of the Pledged Collateral and its directors and officers to execute and deliver, all such instruments and documents, and do or cause to be done all such other acts and things, as may be necessary or, in the reasonable opinion of the Trustee, advisable to register such Pledged Collateral under the provisions of the Securities Act of 1933, as from time to time amended (the "Securities Act"), and to cause the registration statement relating thereto to become effective and to remain effective for such period as prospectuses are required by law to be furnished, and to make all amendments and supplements thereto and to the related prospectus which, in the opinion of the Trustee, are necessary or advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission ("SEC") applicable thereto; (ii) use its best efforts to qualify the Pledged Collateral under the state securities or "Blue Sky" laws and to obtain all necessary governmental approvals for the sale of the Pledged Collateral, as requested by the Trustee; (iii) make available to its security holders, as soon as practicable, an earning statement which will satisfy the provisions of section 11(a) of the Securities Act; and (iv) do or cause to be done all such other acts and things as may be necessary to make such sale of the Pledged Collateral or any part thereof valid and binding and in compliance with applicable law. The Company further acknowledges the impossibility of ascertaining the amount of damages which would be suffered by the Secured Parties by reason of the failure by the Company to perform any of the covenants contained in this Section 11 and, consequently, agrees that, if the Company shall fail to perform any of such covenants, it shall pay, as liquidated damages and not as a penalty, an amount equal to the value of the Pledged Collateral on the date the Trustee shall demand compliance with this Section. (c) The Company recognizes that, by reason of the aforementioned requirements and certain prohibitions contained in the Securities Act and applicable state securities laws, the Trustee may, at its option, elect not to require the Company to register all or any part of the Pledged Collateral and may therefore be compelled, with respect to any sale of all or any part of the Pledged Collateral, to limit purchasers to those who will agree, among other things, to acquire such securities for their own account, for investment, and not with a view to the distribution or resale thereof. The Company acknowledges and agrees that any such sale may result in prices and other terms less favorable to the seller than if such sale were a public sale without such restrictions and, notwithstanding such circumstances, agrees that any such sale shall be deemed to have been made in a commercially reasonable manner. The Trustee shall be under no obligation to delay the sale of any of the Pledged Collateral for the period of time necessary to permit the Company to register such securities for public sale under the Securities Act, or under applicable state securities laws, even if the Company would agree to do so. (d) If the Trustee determines to exercise its right to sell any or all of the Pledged Collateral, upon written request, the Company shall, from time to time, furnish to the Trustee all such information as the Trustee may request in order to determine the number of shares and other instruments included in the Pledged Collateral which may be sold by the Trustee as exempt transactions under the Act and rules of the SEC thereunder, as the same are from time to time in effect. (e) Any cash held by the Trustee as Pledged Collateral and all cash proceeds received by the Trustee in respect of any sale of, collection from, or other realization upon all or any part of the Pledged Collateral shall be applied by the Trustee as provided in Section 6.10 of the Indenture. Section 12. Expenses. The Company will upon demand pay to the Trustee the amount of any and all reasonable expenses, including, without limitation, the reasonable fees and expenses of the Trustee's counsel and of any experts and agents, which the Trustee may incur in connection with (a) the administration of this Agreement, (b) the custody or preservation of, sale of, collection from, or other realization upon, any of the Pledged Collateral, (c) the exercise or enforcement of any of the rights and remedies hereunder of the Trustee and the other Secured Parties, or (d) the failure by the Company to perform or observe any of the provisions hereof. Section 13. Security Interest Absolute. All rights of the Trustee and security interests hereunder, and all obligations of the Company hereunder, shall be absolute and unconditional irrespective of: (a) any lack of validity or enforceability of any provision of the Indenture, the Securities or any other agreement or instrument relating thereto; (b) any change in the time, manner or place of payment of, or in any other term of, or any increase in the amount of, all or any of the Obligations, or any other amendment or waiver of any term of, or any consent to any departure from any requirement of, the Indenture, the Securities or any other instrument or document relating thereto; (c) any exchange, release or non-perfection of any Lien on any other collateral, or any release or amendment or waiver of any term of any guaranty of, or consent to departure from any requirement of any guaranty of, all or any of the Obligations; or (d) any other circumstance which might otherwise constitute a defense available to, or a discharge of, a borrower or a pledgor. Section 14. Amendments, Etc. No amendment or waiver of any provision of this Agreement nor consent to any departure by the Company herefrom shall in any event be effective unless the same shall be in writing and signed by the Trustee, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. Section 15. Addresses for Notices. All notices and other communications provided for hereunder shall be in writing (including telegraphic, telex, telecopy or cable communication) and mailed, telegraphed, telexed, telecopied, cabled or delivered by hand, if to the Company or the Trustee, addressed to the Company or the Trustee, as the case may be, at its address specified in the Indenture, or, as to either party, at such other address as shall be designated by such party in a written notice to each other party complying as to delivery with the terms of this Section. All such notices and other communications shall, when mailed, telegraphed, telexed, telecopied, cabled or delivered, be effective four (4) Business Days after deposit in the mails, delivered to the telegraph company, confirmed by telex answerback, telecopied with confirmation of receipt, delivered to the cable company or delivered by hand to the addressee or its agent, respectively. Section 16. Continuing Security Interest; Transfer of Securities or Obligations. This Pledge Agreement shall create a continuing security interest in the Pledged Collateral and shall (a) remain in full force and effect until indefeasible payment in full of the Obligations, (b) be binding upon the Company, its successors and assigns, and (c) inure, together with the rights and remedies of the Trustee hereunder, to the benefit of and be enforceable by the Secured Parties and their respective successors, transferees and assigns. Without limiting the generality of the foregoing clause (c), any Holder may assign or otherwise transfer any Security held by it or Obligation owing to it to any other Person, and such other Person shall thereupon become vested with all the rights in respect thereof granted to such Holder herein or otherwise with respect to such of the Securities or Obligations so transferred or assigned. Upon the payment in full of the Obligations, the Company shall be entitled to the return, upon its request and at its expense, of such of the Pledged Collateral as shall not have been sold or otherwise applied pursuant to the terms hereof. Section 17. Release of Liens. Upon the Trustee's receipt of a written request by the Company made contemporaneously with or at any time after the receipt by the Trustee (or, if applicable, the Senior Pledgee) of all Net Cash Proceeds and Additional Debt from the Company in accordance with the terms of the Indenture in connection with the sale by the Company of any of the Pledged Shares or Additional Shares, the Trustee shall release its Lien on such Pledged Shares and Additional Shares. The Trustee shall, at the Company's expense, execute and deliver such documents and instruments as the Company may reasonably request to evidence such release. Section 18. Governing Law; Severability; Terms. This Agreement shall be governed by, and be construed and interpreted in accordance with, the law of the State of New York. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity and without invalidating the remaining provisions of this Agreement. Unless otherwise defined herein or in the Indenture, terms defined in Article 9 of the UCC are used herein as therein defined. Section 19. Waiver of Jury Trial. The Company waives any right it may have to a trial by jury in respect of any litigation based on, or arising out of, under or in connection with, this Agreement or any course of conduct, course of dealing, verbal or written statement or other action of the Trustee or any other Secured Party. Section 20. Conflicts. In the event of any conflict between the terms of the Intercreditor Agreement and this Agreement, the terms of the Intercreditor Agreement shall govern. Section 21. Section Titles. The Section titles contained in this Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not part of this Agreement. IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed and delivered by its duly authorized officer on the date first above written. EMCOR GROUP, INC. By: Title: Accepted and Acknowledged: UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee By:__________________________ Title: SCHEDULE I TO PLEDGE AGREEMENT Attached to and forming a part of that certain Pledge Agreement, dated December [__], 1994, by EMCOR Group, Inc. to United States Trust Company of New York, as Trustee. Stock Certificate Number Stock Issuer Class of Stock No(s). Par Value of Shares 1.JWP/MEC Corp. Common [__] [__] [___] 2.University Energy Services of California, Inc. Common [__] [__] [___] 3. JWP Pacific International, Inc. Common [__] [__] [___] 4.JWP Telecom, Inc. Common [__] [__] [___] 5.JWP Energy Products, Inc. Common [__] [__] [___] Original Description Debt Certificate Final Principal Issuer of Debt Nos. Maturity Amount SCHEDULE II TO PLEDGE AGREEMENT PLEDGE AMENDMENT This Pledge Amendment, dated , 19__, is delivered pursuant to Section 7 of the Pledge Agreement referred to below. The undersigned hereby agrees that this Pledge Amendment may be attached to the Pledge Agreement, dated December [__], 1994, between the undersigned and United States Trust Company of New York, as Trustee on behalf of and for the ratable benefit of the Secured Parties referred to therein and that the [Additional Shares] [and] [Additional Debt] listed on this Pledge Amendment shall be and become part of the Pledged Collateral referred to in the Pledge Agreement and shall secure all Obligations of the undersigned. The terms defined in the Pledge Agreement or Indenture are being used herein as therein defined. EMCOR GROUP, INC. By:____________________________ Title: Stock Certificate Number Stock Issuer Class of Stock No(s). Par Value of Shares Original Description Debt Certificate Final Principal Issuer of Debt No(s). Maturity Amount EXHIBIT B-3 SOFTWARE HOUSE SELLCO PLEDGE AGREEMENT PLEDGE AGREEMENT, dated [____________ __], 1994, made by SellCo Corporation, a Delaware corporation (the "Pledgor"), to United States Trust Company of New York, as trustee under the Indenture referred to below (in such capacity, the "Trustee" and, together with the Holders (as defined in the Indenture), the "Secured Parties"). W I T N E S S E T H: WHEREAS, EMCOR Group, Inc. (formerly known as JWP INC.), a Delaware corporation (the "Company") has entered into an Indenture, dated as of December [__], 1994, with the Trustee in respect of the Company's 7% Senior Secured Notes, Series B, Due 1997 (said Indenture, as it may be amended, supplemented or otherwise modified from time to time, being the "Indenture" and capitalized terms not defined herein but defined therein or in the Intercreditor Agreement referred to below being used herein as therein defined); and WHEREAS, as set forth in the Indenture, the Pledgor has guarantied all of the Company's obligations under the Indenture and the Securities; and WHEREAS, the Trustee has entered into an Intercreditor Agreement, dated the date hereof and substantially in the form of Exhibit C to the Indenture (as it may be amended, supplemented or otherwise modified from time to time, the "Intercreditor Agreement") with the Pledgor, the Company, IBJ Schroder Bank & Trust Company, as the trustee for the holders of the Series A Obligations referred to therein (the "Series A Indenture Trustee"), and Shawmut Bank Connecticut, National Association, as the trustee for the holders of the SellCo Related Obligations referred to therein, pursuant to which, among other things, the Lien on the Pledged Collateral (as defined in Section 1(a) hereof) created hereby shall be subordinated to the Senior Lien (as defined in the Intercreditor Agreement) on the Pledged Collateral securing the Series A Obligations; and WHEREAS, the Pledged Collateral constitutes Category One Collateral under the Intercreditor Agreement; and WHEREAS, pursuant to the Intercreditor Agreement, the Series A Indenture Trustee, as the Senior Lienor (in such capacity, the "Senior Pledgee"), has agreed to hold the Pledged Collateral as bailee for the Trustee, as junior pledgee; and WHEREAS, the Pledgor is the legal and beneficial owner of (a) the shares of capital stock described in Schedule I hereto (the "Pledged Shares") and issued by the issuers named therein (the "Issuers"), and (b) the Indebtedness described in said Schedule and issued by the obligors named therein (the "Pledged Debt"); and WHEREAS, it is a requirement under the Indenture that the Pledgor shall have made the pledge contemplated by this Agreement; NOW, THEREFORE, in consideration of the premises, the Pledgor hereby agrees with the Trustee on behalf and for the ratable benefit of the Secured Parties as follows: Section 1. Pledge. (a) The Pledgor hereby pledges and deposits with the Senior Pledgee, on the Trustee's behalf and for the ratable benefit of the Secured Parties, and grants to the Trustee on behalf and for the ratable benefit of the Secured Parties a security interest in, the following (the "Pledged Collateral"): (i) all of the Pledged Shares; (ii) all additional shares of stock or other securities of any Issuer from time to time acquired by the Pledgor in any manner (any such shares being "Additional Shares"); (iii) the certificates representing the shares referred to in clauses (i) and (ii) above; (iv) all of the Pledged Debt; (v) all indebtedness for the deferred purchase price of property from time to time owed to (A) the Pledgor by any Person in respect of the sale by the Pledgor of any of Pledged Shares or Additional Shares, and (B) all indebtedness for the deferred purchase price of property from time to time owed to the Pledgor or any of the Issuers by any other Person in respect of any Asset Sale (as defined in the Indenture) by such Issuer (any such indebtedness being "Additional Debt"); (vi) all notes or other instruments evidencing the indebtedness referred to in clauses (iv) and (v) above; and (vii) all dividends, interest, cash, instruments and other property or proceeds, from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the foregoing. (b) The pledge made and the security interest granted pursuant to this Agreement, and all rights and remedies of the Trustee and the other Secured Parties hereunder and in and to the Pledged Collateral shall be subject in all respects to the terms and provisions of the Intercreditor Agreement. The Trustee, for itself and on behalf of each of the other Secured Parties, acknowledges and agrees that the Lien granted to the Secured Parties hereunder is junior and subordinate to the Senior Lien in the Pledged Collateral securing the Series A Obligations. (c) The Trustee, by execution of the Intercreditor Agreement, appoints the Senior Pledgee to hold the Pledged Collateral, in accordance with the terms of, and subject to the conditions of, the Intercreditor Agreement. Section 2. Security for Obligations. This Agreement secures and the Pledged Collateral is security for the full and prompt payment when due (whether at stated maturity, redemption, repurchase, by acceleration or otherwise) of, and the performance of, all of the Pledgor's obligations under the Securities, the Indenture, this Agreement, and each other instrument, document and agreement executed by the Pledgor in connection with any of the foregoing, whether now or hereafter existing and whether for principal, premium, interest (including without limitation, interest, whether or not allowed, after the filing of a petition initiating any proceeding under any Bankruptcy Law), penalties, commissions, charges, expenses, fees, indemnifications, reimbursements, liabilities, amounts payable, otherwise (collectively, the "Obligations"). Section 3. Delivery of Pledged Collateral. All certificates or instruments representing or evidencing the Pledged Collateral shall be delivered to the Senior Pledgee, so long as the Senior Lien has not been released, and thereafter, to the Trustee, and held by the Senior Pledgee, so long as the Senior Lien has not been released, and thereafter, by or on behalf of the Trustee, pursuant hereto and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Trustee. After the Senior Lien has been released, the Trustee shall have the right (a) at any time in its discretion and without notice to the Pledgor, to transfer to or to register in its name or in the name of any of its nominees any or all of the Pledged Collateral, and (b) at any time to exchange certificates or instruments representing or evidencing any of the Pledged Collateral for certificates or instruments of smaller or larger denominations. Section 4. Representations and Warranties. The Pledgor makes the following representations: (a) The Pledged Shares (i) have been duly authorized and validly issued; (ii) are fully paid and non- assessable; and (iii) constitute 100% of the issued and outstanding shares of stock of the respective Issuers thereof. (b) The Pledgor is the legal and beneficial owner of the Pledged Collateral free and clear of any Lien, except for (i) the Lien created by this Agreement, (ii) the Senior Lien, and (iii) the Lien created by the SellCo Subordinated Pledge Agreement. (c) The pledge of the Pledged Shares and the Pledged Debt pursuant to this Agreement creates a valid and perfected security interest in the Pledged Collateral, subject only to the Senior Lien, in favor of the Trustee on behalf and for the ratable benefit of the Secured Parties securing the payment of all of the Obligations. (d) No consent, authorization, approval, or other action by, and no notice to or filing with, any governmental authority is required either (i) for the pledge by the Pledgor of the Pledged Collateral pursuant to this Agreement or for the due execution, delivery or performance of this Agreement by the Pledgor, or (ii) for the exercise by the Trustee of the voting or other rights provided for in this Agreement or of the remedies in respect of the Pledged Collateral pursuant to this Agreement, except as may be required in connection with the disposition of the Pledged Collateral by laws affecting the offering and sale of securities generally. (e) The Pledged Debt constitutes all of the outstanding indebtedness for the deferred purchase price of property owed to the Pledgor and each of the Issuers in respect of Asset Sales (as defined in the Indenture) by the Pledgor and the Issuers. Section 5. Further Assurances, Etc. (a) The Pledgor agrees that at any time and from time to time, at the cost and expense of the Pledgor, the Pledgor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Trustee may request, in order to perfect and protect the Lien granted or purported to be granted hereby or, subject to the provisions of the Intercreditor Agreement, to enable the Trustee to exercise and enforce its rights and remedies hereunder with respect to any Pledged Collateral. (b) The Pledgor agrees to defend the title to the Pledged Collateral and the Lien thereon of the Trustee against the claim of any other Person and to maintain and preserve such Lien until indefeasible payment in full of all of the Obligations. Section 6. Voting Rights; Dividends; Etc. (a) Subject to the provisions of the Intercreditor Agreement, as long as no Default or Event of Default shall have occurred and be continuing: (i) The Pledgor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Pledged Collateral or any part thereof for any purpose not inconsistent with the terms of this Agreement, the Indenture, the Securities or any other instrument or document relating thereto; provided, however, that the Pledgor shall not exercise or shall refrain from exercising any such right if such action would (A) in the reasonable good faith judgment of the Pledgor have a material adverse effect on the value of the Pledged Collateral or any part thereof, or (B) be inconsistent with or violate any provision of this Agreement, the Securities or the Indenture. (ii) Subject to the provisions of the Intercreditor Agreement, the Pledgor shall be entitled to receive and retain any and all dividends and interest paid in respect of the Pledged Collateral, other than any and all (A) dividends and interest paid or payable other than in cash in respect of, and instruments and other property received, receivable or otherwise distributed in respect of, or in exchange for, any Pledged Collateral, (B) dividends and other distributions paid or payable in cash in respect of any Pledged Shares or Additional Pledged Shares in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in-surplus, and (C) cash paid, payable or otherwise distributed in redemption of, or in exchange for, any Pledged Collateral, all of which shall be forthwith delivered to the Trustee or to the Senior Pledgee on the Trustee's behalf to hold as Pledged Collateral and shall, if received by the Pledgor, be received in trust for the benefit of the Secured Parties, be segregated from the other property or funds of the Pledgor, and be forthwith delivered to the Trustee as Pledged Collateral in the same form as so received (with any necessary indorsement). (iii) Subject to the provisions of the Intercreditor Agreement, the Trustee shall execute and deliver (or cause to be executed and delivered) to the Pledgor all such proxies and other instruments as the Pledgor may reasonably request for the purpose of enabling the Pledgor to exercise the voting and other rights which it is entitled to exercise pursuant to paragraph (i) above and to receive the dividends or interest payments which it is authorized to receive and retain pursuant to paragraph (ii) above. (b) Subject to the provisions of the Intercreditor Agreement, upon the occurrence and during the continuance of a Default or an Event of Default: (i) Upon notice by the Trustee to the Pledgor, all rights of the Pledgor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to Section 6(a)(i) above shall cease, and all such rights shall thereupon become vested in the Trustee who shall thereupon have the sole right to exercise such voting and other consensual rights. (ii) All rights of the Pledgor to receive the dividends, interest payments and other distributions which it would otherwise be authorized to receive and retain pursuant to Section 6(a)(ii) above shall cease, and all such rights shall thereupon become vested in the Trustee who shall thereupon have the sole right to receive and hold as Pledged Collateral such dividends, interest payments and other distributions. (iii) All dividends, interest payments and other distributions which are received by the Pledgor contrary to the provisions of paragraph (ii) of this Section 6(b) shall be received in trust for the benefit of the Trustee, shall be segregated from other funds of the Pledgor and shall be forthwith paid over to the Trustee as Pledged Collateral in the same form as so received (with any necessary indorsement). (iv) The Pledgor shall, if necessary to permit the Trustee to exercise the voting and other rights which it may be entitled to exercise pursuant to Section 6(b)(i) above and to receive all dividends, interest payments and distributions which it may be entitled to receive under Section 6(b)(ii) above, execute and deliver to the Trustee, from time to time and upon written notice of the Trustee, appropriate proxies, dividend payment orders and other instruments as the Trustee may reasonably request. The foregoing shall not in any way limit the Trustee's power and authority granted pursuant to Section 8 hereof. Section 7. Transfers and Other Liens; Additional Shares and Additional Debt. (a) The Pledgor agrees that it will not (i) sell or otherwise dispose of, or grant any option or warrant with respect to, any of the Pledged Collateral (except, in respect of the Pledged Shares, in accordance with the terms of the Indenture), or (ii) create or permit to exist any Lien upon or with respect to any of the Pledged Collateral except for (A) the Lien created pursuant to this Agreement, (B) the Senior Lien, and (C) the Lien created pursuant to the SellCo Subordinated Pledge Agreement. (b) The Pledgor agrees that it will (i) cause each Issuer not to issue any shares of stock or other securities in addition to or in substitution for the Pledged Shares except to the Pledgor, (ii) pledge hereunder, immediately upon its acquisition (directly or indirectly) thereof, to the Trustee (or, until the Senior Lien has been released, to the Senior Pledgee) any and all Additional Shares and any and all Additional Debt, and (iii) promptly (and in any event within three Business Days) deliver to the Trustee a Pledge Amendment, duly executed by the Pledgor, in substantially the form of Schedule II hereto (a "Pledge Amendment"), in respect of the Additional Shares or Additional Debt, together with all certificates, notes or other instruments representing or evidencing the same. The Pledgor hereby (i) authorizes the Trustee to attach each Pledge Amendment to this Pledge Agreement, (ii) agrees that all Additional Shares and all Additional Debt listed on any Pledge Amendment delivered to the Trustee shall for all purposes hereunder constitute Pledged Shares and Pledged Debt, respectively, subject to the rights of the holders of the Senior Lien, and (iii) is deemed to have made, upon such delivery, the representations and warranties contained in Section 4 hereof with respect to such Pledged Collateral. Section 8. Trustee Appointed Attorney-in-Fact and Proxy. Subject to the provisions of the Intercreditor Agreement, the Pledgor hereby irrevocably constitutes and appoints the Trustee and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact and proxy with full irrevocable power and authority in the place and stead of the Pledgor and in the name of the Pledgor or in its own name, from time to time in the Trustee's discretion, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute and deliver any and all documents and instruments which the Trustee may deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation, to receive, indorse and collect all instruments made payable to the Pledgor representing any dividend, interest payment or other distribution or payment in respect of the Pledged Collateral or any part thereof, to give full discharge for the same, and to vote or grant any consent in respect of the Pledged Shares authorized by Section 6(b) hereof. The Pledgor hereby ratifies, to the extent permitted by law, all that any said attorney shall lawfully do or cause to be done by virtue hereof. This power, being coupled with an interest, is irrevocable until the Obligations are paid in full. Section 9. Trustee May Perform. Subject to the provisions of the Intercreditor Agreement, if the Pledgor fails to perform any agreement contained herein, the Trustee may itself perform, or cause performance of, such agreement, and the expenses of the Trustee incurred in connection therewith shall be payable by the Pledgor under Section 12 hereof and constitute Obligations secured hereby. Section 10. Reasonable Care. The Trustee shall be deemed to have exercised reasonable care in the custody and preservation of the Pledged Collateral in its possession if the Pledged Collateral is accorded treatment substantially equal to that which the Trustee accords its own property, it being understood that neither the Trustee nor any other Secured Party shall have responsibility for (i) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Pledged Collateral, whether or not the Trustee or any other Secured Party has or is deemed to have knowledge of any such matter, or (ii) taking any necessary steps to preserve rights against any Person with respect to any Pledged Collateral. Section 11. Remedies upon Default. Subject to the provisions of the Intercreditor Agreement, if any Event of Default shall have occurred and be continuing: (a) The Trustee may exercise in respect of the Pledged Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party after default under the Uniform Commercial Code in effect in the State of New York at that time (the "UCC"), and the Trustee may also, without notice except as specified below, sell the Pledged Collateral or any part thereof in one or more parcels at public or private sale, at any exchange, broker's board or at any office of the Trustee or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Trustee may deem commercially reasonable. The Pledgor agrees that, to the extent notice of sale shall be required by law, at least ten days' notice to the Pledgor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Trustee shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been given. The Trustee may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. The Pledgor hereby waives any claims against the Trustee arising by reason of the fact that the price at which any Pledged Col- lateral may have been sold at such a private sale was less than the price which might have been obtained at a public sale, even if the Trustee accepts the first offer received and does not offer such Pledged Collateral to more than one offeree. (b) If the Trustee shall determine to exercise its right to sell all or any of the Pledged Collateral pursuant to this Section 11, the Pledgor agrees that, upon request of the Trustee, the Pledgor will, at its own cost and expense: (i) execute and deliver, and use its best efforts to cause each issuer of the Pledged Collateral and its directors and officers to execute and deliver, all such instruments and documents, and do or cause to be done all such other acts and things, as may be necessary or, in the reasonable opinion of the Trustee, advisable to register such Pledged Collateral under the provisions of the Securities Act of 1933, as from time to time amended (the "Securities Act"), and to cause the registration statement relating thereto to become effective and to remain effective for such period as prospectuses are required by law to be furnished, and to make all amendments and supplements thereto and to the related prospectus which, in the opinion of the Trustee, are necessary or advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission ("SEC") applicable thereto; (ii) use its best efforts to qualify the Pledged Collateral under the state securities or "Blue Sky" laws and to obtain all necessary governmental approvals for the sale of the Pledged Collateral, as requested by the Trustee; (iii) make available to its security holders, as soon as practicable, an earning statement which will satisfy the provisions of section 11(a) of the Securities Act; and (iv) do or cause to be done all such other acts and things as may be necessary to make such sale of the Pledged Collateral or any part thereof valid and binding and in compliance with applicable law. The Pledgor further acknowledges the impossibility of ascertaining the amount of damages which would be suffered by the Secured Parties by reason of the failure by the Pledgor to perform any of the covenants contained in this Section 11 and, consequently, agrees that, if the Pledgor shall fail to perform any of such covenants, it shall pay, as liquidated damages and not as a penalty, an amount equal to the value of the Pledged Collateral on the date the Trustee shall demand compliance with this Section. (c) The Pledgor recognizes that, by reason of the aforementioned requirements and certain prohibitions contained in the Securities Act and applicable state securities laws, the Trustee may, at its option, elect not to require the Pledgor to register all or any part of the Pledged Collateral and may therefore be compelled, with respect to any sale of all or any part of the Pledged Collateral, to limit purchasers to those who will agree, among other things, to acquire such securities for their own account, for investment, and not with a view to the distribution or resale thereof. The Pledgor acknowledges and agrees that any such sale may result in prices and other terms less favorable to the seller than if such sale were a public sale without such restrictions and, notwithstanding such circumstances, agrees that any such sale shall be deemed to have been made in a commercially reasonable manner. The Trustee shall be under no obligation to delay the sale of any of the Pledged Collateral for the period of time necessary to permit the Pledgor to register such securities for public sale under the Securities Act, or under applicable state securities laws, even if the Pledgor would agree to do so. (d) If the Trustee determines to exercise its right to sell any or all of the Pledged Collateral, upon written request, the Pledgor shall, from time to time, furnish to the Trustee all such information as the Trustee may request in order to determine the number of shares and other instruments included in the Pledged Collateral which may be sold by the Trustee as exempt transactions under the Act and rules of the SEC thereunder, as the same are from time to time in effect. (e) Any cash held by the Trustee as Pledged Collateral and all cash proceeds received by the Trustee in respect of any sale of, collection from, or other realization upon all or any part of the Pledged Collateral shall be applied by the Trustee as provided in Section 6.10 of the Indenture. (f) Notwithstanding anything to the contrary set forth herein, the Trustee shall not exercise any of the remedies set forth in this Section 11 for a period of 90 days after the occurrence of an Event of Default without the prior written consent of the Majority Lenders (as defined in the Revolving Credit Agreement referred to in the Series A Indenture. Section 12. Expenses. The Pledgor will upon demand pay to the Trustee the amount of any and all reasonable expenses, including, without limitation, the reasonable fees and expenses of the Trustee's counsel and of any experts and agents, which the Trustee may incur in connection with (a) the administration of this Agreement, (b) the custody or preservation of, sale of, collection from, or other realization upon, any of the Pledged Collateral, (c) the exercise or enforcement of any of the rights and remedies hereunder of the Trustee and the other Secured Parties, or (d) the failure by the Pledgor to perform or observe any of the provisions hereof. Section 13. Security Interest Absolute. All rights of the Trustee and security interests hereunder, and all obligations of the Pledgor hereunder, shall be absolute and unconditional irrespective of: (a) any lack of validity or enforceability of any provision of the Indenture, the Securities, the Intercreditor Agreement, or any other agreement or instrument relating thereto; (b) any change in the time, manner or place of payment of, or in any other term of, or any increase in the amount of, all or any of the Obligations, or any other amendment or waiver of any term of, or any consent to any departure from any requirement of, the Indenture, the Securities, the Intercreditor Agreement, or any other instrument or document relating thereto; (c) any exchange, release or non-perfection of any Lien on any other collateral, or any release or amendment or waiver of any term of any guaranty of, or consent to departure from any requirement of any guaranty of, all or any of the Obligations; or (d) any other circumstance which might otherwise constitute a defense available to, or a discharge of, a borrower or a pledgor. Section 14. Amendments, Etc. No amendment or waiver of any provision of this Agreement nor consent to any departure by the Pledgor herefrom shall in any event be effective unless the same shall be in writing and signed by the Trustee, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. Section 15. Addresses for Notices. All notices and other communications provided for hereunder shall be in writing (including telegraphic, telex, telecopy or cable communication) and mailed, telegraphed, telexed, telecopied, cabled or delivered by hand, if to the Pledgor or the Trustee, addressed to the Pledgor or the Trustee, as the case may be, at its address specified in the Indenture, or, as to either party, at such other address as shall be designated by such party in a written notice to each other party complying as to delivery with the terms of this Section. All such notices and other communications shall, when mailed, telegraphed, telexed, telecopied, cabled or delivered, be effective four (4) Business Days after deposit in the mails, delivered to the telegraph company, confirmed by telex answerback, telecopied with confirmation of receipt, delivered to the cable company or delivered by hand to the addressee or its agent, respectively. Section 16. Continuing Security Interest; Transfer of Securities or Obligations. This Pledge Agreement shall create a continuing security interest in the Pledged Collateral and shall (a) remain in full force and effect until indefeasible payment in full of the Obligations, (b) be binding upon the Pledgor, its successors and assigns, and (c) inure, together with the rights and remedies of the Trustee hereunder, to the benefit of and be enforceable by the Secured Parties and their respective successors, transferees and assigns. Without limiting the generality of the foregoing clause (c), any Holder may assign or otherwise transfer any Security held by it or Obligation owing to it to any other Person, and such other Person shall thereupon become vested with all the rights in respect thereof granted to such Holder herein or otherwise with respect to such of the Securities or Obligations so transferred or assigned. Subject to the provisions of the Intercreditor Agreement, upon the payment in full of the Obligations, the Pledgor shall be entitled to the return, upon its request and at its expense, of such of the Pledged Collateral as shall not have been sold or otherwise applied pursuant to the terms hereof. Section 17. Governing Law; Severability; Terms. This Agreement shall be governed by, and be construed and interpreted in accordance with, the law of the State of New York. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity and without invalidating the remaining provisions of this Agreement. Unless otherwise defined herein or in the Indenture, terms defined in Article 9 of the UCC are used herein as therein defined. Section 18. Release of Liens. Upon the Trustee's receipt of a written request by the Pledgor made contemporaneously with or at any time after the receipt by the Trustee of all Net Cash Proceeds and Additional Debt from the Pledgor in accordance with the terms of the Indenture in connection with the sale by the Pledgor of any of the Pledged Shares or Additional Shares, the Trustee shall release its Lien on such Pledged Shares and Additional Shares. The Trustee shall, at the Pledgor's expense, execute and deliver such documents and instruments as the Pledgor may reasonably request to evidence such release. Section 19. Waiver of Jury Trial. The Pledgor waives any right it may have to a trial by jury in respect of any litigation based on, or arising out of, under or in connection with, this Agreement or any course of conduct, course of dealing, verbal or written statement or other action of the Trustee or any other Secured Party. Section 20. Conflicts. In the event of any conflict between the terms of the Intercreditor Agreement and this Agreement, the terms of the Intercreditor Agreement shall govern. Section 21. Section Titles. The Section titles contained in this Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not part of this Agreement. IN WITNESS WHEREOF, the Pledgor has caused this Agreement to be duly executed and delivered by its duly authorized officer on the date first above written. SELLCO CORPORATION By: Title: Accepted and Acknowledged: UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee By:__________________________ Title: SCHEDULE I TO PLEDGE AGREEMENT Attached to and forming a part of that certain Pledge Agreement, dated December [__], 1994, by SellCo Corporation to United States Trust Company of New York, as Trustee. Stock Certificate Number Stock Issuer Class of Stock No(s). Par Value of Shares 1[___] Common [__] [__] [___] 2.[___] Common [__] [__] [___] 3.[____] Common [__] [__] [___] 4.[___] Common [__] [__] [___] Original Description Debt Certificate Final Principal Issuer of Debt No(s). Maturity Amount SCHEDULE II TO PLEDGE AGREEMENT PLEDGE AMENDMENT This Pledge Amendment, dated , 19__, is delivered pursuant to Section 7 of the Pledge Agreement referred to below. The undersigned hereby agrees that this Pledge Amendment may be attached to the Pledge Agreement, dated December [__], 1994, between the undersigned and United States Trust Company of New York, as Trustee on behalf of and for the ratable benefit of the Secured Parties referred to therein and that the [Additional Shares] [and] [Additional Debt] listed on this Pledge Amendment shall be and become part of the Pledged Collateral referred to in the Pledge Agreement and shall secure all Obligations of the undersigned. The terms defined in the Pledge Agreement or Indenture are being used herein as therein defined. SELLCO CORPORATION By:____________________________ Title: Stock Certificate Number Stock Issuer Class of Stock No(s). Par Value of Shares Original Description Debt Certificate Final Principal Issuer of Debt No(s). Maturity Amount UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK - ----------------------------X In re : CHAPTER 11 JWP INC., : Case No. 93-B-46404 (JHG) Debtor. : - ----------------------------X ORDER (A) APPROVING THE DEBTOR'S THIRD AMENDED DISCLOSURE STATEMENT, (B) ESTABLISHING PROCEDURES FOR SOLICITATION AND TABULATION OF VOTES TO ACCEPT OR REJECT THE DEBTOR'S THIRD AMENDED PLAN OF REORGANIZATION, AND (C) SCHEDULING HEARING ON CONFIRMATION OF THE DEBTOR'S THIRD AMENDED PLAN OF REORGANIZATION AND APPROVING NOTICE THEREOF Upon the motion (the "Motion") of JWP INC. (the "Debtor") dated August 9, 1994 for an order pursuant to (S)(S) 1125 and 1126 of title 11 of the United States Code (the "Bankruptcy Code") and Rules 3017, 3018 and 3020 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules") scheduling (a) a hearing on approval of the Debtor's Proposed Third Amended Disclosure Statement, dated August 9, 1994, and a hearing (i) on establishing procedures for solicitation and tabulation of votes (the "Voting Procedures") to accept or reject the Third Amended Joint Plan of Reorganization proposed by the Debtor and its affiliate, SellCo Corporation ("SellCo"), dated August 9, 1994 (the "Third Amended Plan"), and (ii) scheduling a hearing on confirmation of the Third Amended Plan and approving notice thereof; and notice of the Motion having been given to the Official Committee of Unsecured Creditors (the "Creditors' Committee"), the Official Committee of Junior Creditors and Interest Holders (the "Junior Creditors' Committee"), the United States Trustee, the Securities and Exchange Commission (the "SEC"), all parties who had requested a copy of the Debtor's Disclosure Statement dated February 14, 1994 or any amendments thereto, and all parties in interest that have filed notices pursuant to Bankruptcy Rule 2002 in the Debtor's chapter 11 case; and the Debtor's Second Amended Disclosure Statement, dated as of July 21, 1994 (the "Second Amended Disclosure Statement") having been approved by order of this Court on July 21, 1994; and the Debtor having served proposed amendments to the Second Amended Disclosure Statement (the "Amendments," the Second Amended Disclosure Statement with the Amendments, the "Proposed Third Amended Disclosure Statement"); and a hearing to consider approval of the Amendments having been scheduled for August 22, 1994 (the "Disclosure Statement Hearing"); and due notice of the Disclosure Statement Hearing having been given; and upon the record of the Disclosure Statement Hearing and all of the proceedings had before the Court; and the Court having determined after due deliberation that the Proposed Third Amended Disclosure Statement contains adequate information as such term is defined in (S) 1125 of the Bankruptcy Code and there appearing sufficient cause for approval thereof, it is hereby ORDERED that in accordance with (S) 1125 of the Bankruptcy Code and Bankruptcy Rule 3017(b), the Proposed Third Amended Disclosure Statement be, and it hereby is approved (as approved, the "Third Amended Disclosure Statement"); and it is further ORDERED that the order of this Court dated July 21, 1994, (a) approving the Debtor's Second Amended Disclosure Statement, (b) establishing procedures for solicitation and tabulation of votes to accept or reject the Debtor's Second Amended Joint Plan of Reorganization proposed by the Debtor and SellCo, dated as of July 21, 1994 (the "Second Amended Plan"), and (c) scheduling a hearing on confirmation of the Debtor's Second Amended Plan and approving notice thereof, is hereby superseded by this Order; and it is further ORDERED that the ballots (the "Ballots") and the notification of non-voting status (the "Notification") substantially in the form annexed hereto as Exhibit "A" be, and they hereby are approved; and it is further ORDERED that, pursuant to Bankruptcy Rules 3017(c) and 3018(a), the holders of claims and interest holders of record as of July 21, 1994 (the "Record Date") in Classes 2, 3, 4(B), 4(C), 6, 7, 8, 9, 10 and 11 of the Third Amended Plan may vote to accept or reject the Third Amended Plan by indicating their acceptance or rejection of the Third Amended Plan on the Ballots provided therefor; and it is further ORDERED that in order to be counted as a vote to accept or reject the Third Amended Plan, a Ballot must be executed by the holder of a claim or equity interest and returned to JWP INC. c/o Donlin, Recano & Company, Inc., ("Donlin Recano") either by (i) first class mail, at P.O. Box 2034, Murray Hill Station, New York, New York 10156-0701, or (ii) hand-delivery, Federal Express, overnight mail or other courier service, at 419 Park Avenue South, Suite 1206, New York, New York 10016, so that it is actually received no later than 5:00 p.m., New York time, on September 23, 1994; and it is further ORDERED that any Ballot which has been executed and timely received by Donlin Recano but which does not indicate an acceptance or rejection of the Third Amended Plan shall be deemed to be an acceptance of the Third Amended Plan; and it is further ORDERED that any election by the holder of a Class 4(B) or 4(C) claim allowed in an aggregate amount greater than $10,000, to reduce such claim in the aggregate to $10,000 and, in full satisfaction of such claim, be treated as the holder of a Class 4(A) claim under the Third Amended Plan, must be made through the execution and return of the Ballot to Donlin Recano in the manner set forth above, so that it is actually received no later than 5:00 p.m., New York time on September 23, 1994; and it is further ORDERED that any election by the holder of an allowed claim or interest in classes 7, 8, 9, 10 or 11 to receive $0.10 in lieu of each whole New Series Z Warrant that such holder is entitled to receive under the Third Amended Plan must be made through the execution and return of the Ballot to Donlin Recano in the manner set forth above, so that it is actually received no later than 5:00 p.m., New York time on September 23, 1994; and it is further ORDERED that, solely for the purpose of voting to accept or reject the Third Amended Plan and not for the purpose of allowance of or distribution on account of a claim, each claim entitled to vote to accept or reject the Third Amended Plan be, and it hereby is, temporarily allowed in an amount equal to the amount of such claim as set forth in the schedules of assets and liabilities and the statement of financial affairs filed by the Debtor as required by Section 521 of the Bankruptcy Code and the Official Bankruptcy Forms of the Bankruptcy Rules, and all amendments thereto (the "Schedules") or, in the event that a proof of claim has been timely filed, the amount set forth in such proof of claim; provided, however, that (i) if a claim is not listed in the Schedules, but is the subject of a timely filed proof of claim, such claim shall be temporarily allowed for voting purposes only and not for the purpose of allowance or distribution in the amount set forth in such proof of claim, (ii) if a claim for which a proof of claim has been timely filed is filed as contingent or unliquidated either in whole or in part, such claim shall be temporarily disallowed (to the extent it is filed as contingent or unliquidated) for voting purposes only and not for the purpose of allowance or distribution, and (iii) if the Debtor has served and filed an objection to a claim not later September 2, 1994, such claim shall be temporarily disallowed for voting purposes only and not for the purpose of allowance or distribution, except to the extent and in the manner set forth in the objection; and it is further ORDERED that any claimant that challenges the allowance of its claim for voting purposes pursuant to the foregoing decretal paragraph of this Amended Order be, and it hereby is, required to obtain an order of this Court pursuant to Bankruptcy Rule 3018(a) temporarily allowing such claim for purposes of voting to accept or reject the Third Amended Plan prior to the last date for voting to accept or reject the Third Amended Plan; and it is further ORDERED that the hearing on confirmation of the Third Amended Plan (the "Confirmation Hearing") shall be held before this Court at the United States Bankruptcy Court, Room 523, Alexander Hamilton Custom House, One Bowling Green, New York, New York on September 28, 1994 at 9:30 a.m., or as soon thereafter as counsel may be heard; and it is further ORDERED that objections, if any, to confirmation of the Third Amended Plan shall be in writing, and shall (a) state the name and address of the objecting party and the nature of the claim or interest of such party, (b) state with particularity the basis and nature of each objection to the Third Amended Plan and (c) be filed, together with proof of service, with the Court (with a copy to the Chambers of the Honorable Jeffry H. Gallet) and served by 4:00 p.m., New York time, on September 13, 1994 on the following parties: (i) Stroock & Stroock & Lavan, Counsel for the Debtor, Seven Hanover Square, New York, New York 10004, Attention: Lawrence M. Handelsman, Esq., (ii) Weil, Gotshal & Manges, Co-Counsel for the Creditors' Committee, 767 Fifth Avenue, New York, New York 10153, Attention: Michael F. Walsh, Esq., (iii) Wachtell, Lipton, Rosen & Katz, Co-Counsel for the Creditors' Committee, 51 West 52nd Street, New York, New York 10019, Attention: Chaim Fortgang, Esq., (iv) Tenzer, Greenblatt, Fallon & Kaplan, Counsel for the Junior Creditors' Committee, 405 Lexington Avenue, New York, New York 10174, Attention: James D. Glass, Esq., and (v) the Office of the United States Trustee, 80 Broad Street, New York, New York 10004, Attention: Craig Freeman, Esq.; and it is further ORDERED that objections to the Third Amended Plan that are not timely filed may not be considered by the Court; and it is further ORDERED that the Confirmation Hearing may be adjourned from time to time without further notice to holders of claims, holders of equity interests or other parties-in-interest other than the announcement of the adjourned hearing date in open court; and it is further ORDERED that the Debtor be, and it hereby is, authorized and directed to mail or cause to be mailed by first-class mail, postage prepaid, no later than August 26, 1994 a copy of the notice (the "Notice") of, among other things, the Confirmation Hearing, substantially in the form annexed hereto as Exhibit "B", a copy of the Third Amended Disclosure Statement, including a copy of the Third Amended Plan (without exhibits), and a copy of this Order, to (i) all persons or entities that have filed proofs of claim with the Court on or before the Record Date, (ii) all persons or entities listed in the Debtor's Schedules and lists of equity security holders and all amendments thereto through the Record Date, (iii) all other known holders of claims or equity interests against the Debtor, if any, through the Record Date, (iv) any entity that has filed with the Court a notice of the transfer of a claim under Bankruptcy Rule 3001(e) on or before the Record Date, (v) all parties in interest that have filed a request for notice pursuant to Bankruptcy Rule 2002(i) in the Debtor's Chapter 11 case on or before the Record Date, (vi) Co-Counsel to the Creditors' Committee, (vii) Counsel to the Junior Creditors' Committee, (viii) the indenture trustees under any debt instruments of the Debtor, (ix) the Office of the United States Trustee, and (x) the Securities and Exchange Commission; and it is further ORDERED that the Debtor be, and it hereby is, authorized and directed to mail or cause to be mailed, together with the Notice and the Third Amended Disclosure Statement, (i) a Ballot to the holders of claims in Classes 2, 3, 4(B), 4(C), 6, 7, 8, 9, 10 and 11 of the Third Amended Plan and (ii) a Notification to the holders of claims in Classes 1, 4(A) and 5; and it is further ORDERED that the Debtor be, and it hereby is, directed to cause the Notice to be published no less than twenty-five days prior to the date of the Confirmation Hearing in the national editions of The Wall Street Journal and The New York Times; and it is further ORDERED that, pursuant to Bankruptcy Rule 3017(e), the Debtor be, and it hereby is, authorized to contact record holders of the Debtor's publicly traded securities to cause such record holders to forward to beneficial holders of those securities the Notice, Third Amended Plan, Third Amended Disclosure Statement and Ballot; and it is further ORDERED that the provision of notice in accordance with the procedures set forth in this Amended Order shall be deemed good and sufficient notice of the Confirmation Hearing, the time fixed for filing objections to the Third Amended Plan and the time within which holders of claims may vote to accept or reject the Third Amended Plan; and it is further ORDERED that the Debtor be, and it hereby is, authorized and empowered to take such steps and perform such acts as may be necessary to implement and effectuate this Order. Dated: New York, New York August 22, 1994 /s/ Jeffry H. Gallet ------------------------------- United States Bankruptcy Judge UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK - ------------------------------- X In re: : CHAPTER 11 Case No. 93-B-46404 (JHG) JWP INC., : Debtor. : - --------------------------------X THIRD AMENDED DISCLOSURE STATEMENT AND THIRD AMENDED JOINT PLAN OF REORGANIZATION PROPOSED BY THE DEBTOR AND ITS AFFILIATE, SELLCO CORPORATION STROOCK & STROOCK & LAVAN Attorneys for JWP INC. Seven Hanover Square New York, New York 10004 212-806-5400 August 9, 1994 THIS IS NOT A SOLICITATION OF ACCEPTANCE OF THE PLAN. ACCEPTANCES MAY NOT BE SOLICITED UNTIL A DISCLOSURE STATEMENT HAS BEEN APPROVED BY THE BANKRUPTCY COURT. THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED BY THE BANKRUPTCY COURT. 10F292 TABLE OF CONTENTS
Page ---- I. INTRODUCTION........................................ 1 A. About This Reorganization Case.................... 1 B. Confirmation Hearing.............................. 3 C. Voting Instructions............................... 3 D. Objections........................................ 4 E. Events During the Reorganization Case............. 5 1. Official Committees........................... 5 2. Debtor-in-Possession Financing................ 6 3. Surety Bonds.................................. 7 4. Asset Sales................................... 7 5. Avoidance Actions............................. 8 II. SUMMARY.............................................. 8 A. Summary of Classes and Treatment Under the Plan... 8 B. Provisions for Employees.......................... 13 C. Bar Date-Who Must File a Claim.................... 13 D. JWP's Senior Institutional Indebtedness........... 13 1. Old Credit Agreement.......................... 13 2. Old Notes..................................... 14 E. Background Information............................ 14 1. Background of the Restructuring............... 14 2. The Standstill Agreements..................... 15 3. The "Software House" Collateral............... 15 4. The Asset Sales............................... 15 III. FINANCIAL INFORMATION................................ 18 A. Selected Historical Financial Information......... 18 B. Unaudited Pro Forma Financial Information......... 20 C. Projected Financial Information: 1994-1997 Assumptions....................................... 29 D. Valuation of Reorganized JWP...................... 43 IV. SUMMARY OF THE PLAN.................................. 46 A. Property to be Distributed Under the Plan......... 46 1. Senior Secured Notes.......................... 46 2. Series C Notes................................ 48 3. SellCo Subordinated Contingent Payment Notes.. 48 4. New Common Stock.............................. 48 5. New Series X Warrants and New Series Y Warrants...................................... 49 6. New Series Z Warrants......................... 49 7. New Securities for Debtor-in-Possession Lender........................................ 50 8. JWP Supplemental SellCo Note.................. 50 B. Classification and Treatment...................... 50 1. Unimpaired Claims Not Classified Under the Plan...................................... 50 2. Claims and Interests Classified Under the Plan.......................................... 50 C. Disputed Claims................................... 61 D. Executory Contracts............................... 61 E. Implementation of the Plan........................ 61 1. Corporate Action.............................. 61 2. 1994 Management Incentive Stock Option Plan... 61 3. Listing of New Securities and Registration Rights....................................... 62 F. Conditions Precedent to Plan Effectiveness........ 62 1. Confirmation Order........................... 62 2. Class 4B Claims.............................. 62 3. Working Capital Facility..................... 62 4. Indenture Qualificatin....................... 63 5. Waiver....................................... 63 6. Failure of Conditions........................ 63 G. Releases, Setoffs and Recoupments, and Discharge....................................... 63 1. Releases..................................... 63 2. Setoffs and Recoupments...................... 63 3. Discharge and Injunction..................... 63 H. Retention of Jurisdiction by the Bankruptcy Court........................................... 64 I. Miscellaneous................................... 65 1. Fractional Shares or Debt Instruments and Cash Option.............................. 65 2. Reservation of Warrants for the Businessland Debentures................................... 65 3. Business Days................................ 65 4. Revesting of Assets.......................... 65 J. Timing of the Distributions..................... 65 V. CERTAIN RISK FACTORS............................... 66 A. Payment of Senior Notes......................... 66 B. Working Capital Facility........................ 66 C. Lack of Established Market for the New Securities...................................... 66 D. Projections..................................... 67 E. Business Factors and Competitive Conditions..... 67 F. Dividends....................................... 67 G. Bonding Capacity................................ 67 H. Public Utility Holding Company Act of 1935...... 67 VI. THE COMPANY........................................ 68 A. Business........................................ 68 1. Mechanical/Electrical Services............... 68 2. Supply of Water.............................. 69 3. Information Services......................... 70 4. Other Business............................... 71 VII. REORGANIZED JWP.................................... 71 A. Business........................................ 71 B. Corporate Structure............................. 71 1. MES.......................................... 72 2. SellCo....................................... 72 VIII. MANAGEMENT AND MANAGEMENT STOCK OPTIONS............ 73 A. Changes in Management........................... 73 B. Board of Directors of Reorganized JWP........... 73 C. Management of Reorganized JWP................... 74 D. Description of the 1994 Management Stock Option Plan............................... 74 IX. LEGAL PROCEEDINGS.................................. 78 A. Shareholder Litigation.......................... 78 B. Securities and Exchange Commission Investigation 79 C. New York County District Attorney Investigation 79 D. Jamaica Water Supply Company.................... 79 1. Rate Related Proceedings and Rate Related Litigation........................... 79 2. New York City Condemnation Proceeding........ 80 X. FEASIBILITY OF THE PLAN........................... 81 A. Payments on the Effective Date............... 81 B. Future Payments Under the Plan............... 82 XI. CONFIRMATION OF THE PLAN.......................... 83 A. Hearing........................................ 83 B. Acceptance..................................... 83 C. Feasibility.................................... 83 D. Best Interests Test............................ 83 E. Confirmation Without Acceptance By All Impaired Classes............................... 84 1. Unfair Discrimination..................... 84 2. Fair and Equitable Standard............... 85 XII. ALTERNATIVES TO THE PLAN.......................... 85 A. Alternative Plan of Reorganization........... 85 B. Liquidation Under Chapter 7.................. 86 XIII. SECURITIES LAW CONSIDERATIONS..................... 86 A. Issuance of Reorganization Securities........ 86 B. Subsequent Transfers of Reorganization Securities................................... 86 XIV. CERTAIN FEDERAL INCOME TAX CONSEQUENCES........... 88 XV. CONCLUSION......................................... 102
EXHIBITS 1. Plan of Reorganization (with exhibits separately bound and available upon request) 2. Creditors' Committee 3. Junior Committee 4. 1992 Financial Statements 5. Liquidation Analysis UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK - ------------------------------ X In re : CHAPTER 11 JWP INC., : Case No. 93-B-46404 (JHG) Debtor. : - -------------------------------X THIRD AMENDED DISCLOSURE STATEMENT I. INTRODUCTION A. ABOUT THIS REORGANIZATION CASE In the fall of 1993, JWP INC., a Delaware corporation ("JWP" or the "Debtor"), announced that it had reached an agreement in principle with holders of its senior debt to restructure its business and capitalization and, subject to documentation of such agreement, intended to file a prepackaged plan of reorganization. On December 21, 1993 (the "Petition Date"), an involuntary petition for a reorganization under Chapter 11 (the "Reorganization Case") of the United States Bankruptcy Code, 11 U.S.C. (S) 101 et seq. ("Bankruptcy Code") was filed against JWP in the United States Bankruptcy Court for the Southern District of New York ("Bankruptcy Court") by three subordinated debt holders asserting claims of $2,000,000, $20,000 and $50,000, respectively. On February 14, 1994 (the "Consent Date"), JWP filed a consent to the involuntary petition and an order for relief was entered. Under Sections 1107 and 1108 of the Bankruptcy Code, JWP continues to operate its businesses as a debtor-in-possession. This Third Amended Disclosure Statement ("Disclosure Statement") is provided by JWP and its affiliate, SellCo Corporation ("SellCo"), in connection with the solicitation of votes from those holders of impaired claims and equity interests entitled to vote to accept or reject the proposed Third Amended Plan of Reorganization, dated August 9, 1994 ("Plan"), a copy of which is annexed hereto as Exhibit 1.1 A ballot is enclosed for each such holder. This Disclosure Statement is being provided to all other known parties in interest for information purposes. Creditors whose claims are not being impaired by the Plan are deemed to have accepted the Plan and, accordingly, are not being provided with a ballot. See the tabular description set forth under "Summary of Classes and Treatment under the Plan" immediately following this section to determine whether you are entitled to vote on the Plan. This Disclosure Statement was approved by the Bankruptcy Court on August 22, 1994 as containing adequate information to enable a hypothetical reasonable investor typical of holders of claims against and interests in JWP to make an informed judgment about the Plan. The Bankruptcy Court's approval does not constitute a recommendation of or a determination on the merits of the Plan. JWP'S BOARD OF DIRECTORS HAS APPROVED THE PLAN AND UNANIMOUSLY RECOMMENDS THAT THE PLAN'S ACCEPTANCE IS IN THE BEST INTERESTS OF JWP, ITS CREDITORS AND INTEREST HOLDERS TO WHOM RECOVERIES ARE AVAILABLE. - ------ 1 Capitalized terms used but not defined herein have the same meanings given to them in the Plan and reference should be made thereto. Uncapitalized terms used herein and in the Plan that are defined (either explicitly or implicitly) in the Bankruptcy Code or the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules") are used herein with such defined meanings unless the context clearly requires otherwise. Each of the Statutory Committee of Unsecured Creditors and the Official Committee of Junior Creditors and Interest Holders participated in the negotiation of the Plan. BOTH COMMITTEES RECOMMEND ACCEPTANCE OF THE PLAN BY THOSE PERSONS ENTITLED TO VOTE. See "Events During the Reorganization Case-Official Committees." The Plan contemplates completion of the restructuring of JWP's business and capitalization which was begun in the Fall of 1992. During the restructuring process, the Company (i) developed an asset disposition plan and (ii) negotiated the consensual plan of reorganization, initially filed by JWP on the Consent Date, with unofficial steering committees of holders of senior debt in the aggregate principal amount of $484,366,000 under the Old Credit Agreement ("Old Credit Agreement Holders") and under the Old Notes ("Old Note Holders") (Old Credit Agreement Holders and Old Note Holders, each as defined below and referred to herein collectively as "Lenders"). See "Summary -Senior Institutional Indebtedness." Until August 1993, JWP's principal businesses were divided into three industry segments: Mechanical/ Electrical Services ("MES"), Supply of Water, and Information Services ("IS"). The current status of each such segment is described in greater detail below. See "The Company." In summary, Reorganized JWP intends to retain most of its core MES business, which primarily provides mechanical and electrical systems and services for large construction projects and commercial buildings (see "The Company-Mechanical/Electrical Services"). JWP's two regulated water companies have not been offered for sale by reason of rate-related proceedings and a condemnation proceeding with respect to the New York City water properties owned by one of those companies. The rate-related matters have recently been resolved. Although the condemnation proceeding may continue for some time, JWP expects to sell these companies in the near future. See "The Company-Supply of Water," "Reorganized JWP" and "Legal Proceedings-Jamaica Water Supply Company." The IS business in the United States, United Kingdom, Japan, Canada, and Germany, which provided computer and systems integration services for medium and large-sized companies and other organizations, has been sold. The IS business units in Belgium and France are the subject of liquidation proceedings. See "The Company-Information Services." The Debtor is a holding company conducting all of its businesses through subsidiaries. Other than one domestic, one French and two Belgian subsidiaries which were engaged in the IS business, and which do not have substantial assets and are being liquidated (See "The Company-Information Services"), none of the Debtor's remaining subsidiaries ("Nondebtor Subsidiaries") has sought reorganization or liquidation under the Bankruptcy Code or any other insolvency law. The businesses and operations of the Nondebtor Subsidiaries are not subject to the Reorganization Case and will continue in the ordinary course during JWP's Reorganization Case. Consummation of the Plan will result in the restructuring of JWP's debt and equity as described below. See "Summary of the Plan" and "Reorganized JWP." The Plan provides that, in addition to holders of administrative expense and priority claims, certain creditors (Classes 4A and 5) will remain unimpaired. Holders of impaired senior claims (Classes 2, 3, 4B and 4C) will receive a combination of debt ("New Debt Securities") and equity securities of Reorganized JWP ("New Common Stock"). The holders of JWP's Old Subordinated Debt (as defined below) (Class 6) will receive New Series X and New Series Y Warrants for New Common Stock. Holders of contingent and statutory subordinated claims (Class 7) and certain holders of impaired equity interests (Classes 8, 9, 10 and 11) may receive New Series Z Warrants for New Common Stock. (New Series X Warrants, New Series Y Warrants and New Series Z Warrants, collectively, "New Warrants") (New Debt Securities, New Common Stock and New Warrants, collectively, "New Securities"). See "Summary of the Plan." THIS DISCLOSURE STATEMENT CONTAINS ONLY A SUMMARY OF THE PLAN. ALL DESCRIPTIONS OF THE PLAN IN THIS DISCLOSURE STATEMENT ARE QUALIFIED BY THE TERMS OF THE PLAN ITSELF WHICH ARE IN ALL INSTANCES CONTROLLING. ALL CREDITORS AND HOLDERS OF EQUITY INTERESTS ARE ENCOURAGED TO REVIEW THE FULL TEXT OF THE PLAN AND TO READ CAREFULLY THIS ENTIRE DISCLOSURE STATEMENT. PARTICULAR ATTENTION SHOULD BE GIVEN TO THE PROVISIONS AFFECTING EACH CREDITOR'S OR SECURITY HOLDER'S RIGHTS. No person has been authorized to give any information or make any representation not contained in this Disclosure Statement, and if given or made, such information or representation must not be relied upon. The statements contained in this Disclosure Statement are made as of the date hereof, and neither delivery of this Disclosure Statement nor any exchange or issuance of New Securities pursuant to the Plan will, under any circumstances, create any implication that the information contained herein is correct at any time subsequent to the date hereof. Holders of impaired claims and interests should not construe the contents of this Disclosure Statement as providing any legal, business, financial or tax advice. Each such holder should consult with its own legal, business, financial and tax advisors with respect to any such matters concerning this Disclosure Statement and the Plan and the transactions contemplated hereby and thereby. B. CONFIRMATION HEARING The Bankruptcy Court will hold a hearing to consider confirmation of the Plan ("Confirmation Hearing") commencing at 9:30 a.m. on September 28, 1994 in Court Room 523 located at The Alexander Hamilton Custom House, One Bowling Green, New York, New York. The hearing may be adjourned from time to time without further notice other than by announcement in court on the scheduled or adjourned date of such hearing. At the Confirmation Hearing, the Bankruptcy Court will (i) determine whether the Plan has been accepted by the requisite majority of each voting class (See "Confirmation of the Plan-Acceptance"), (ii) hear and determine all objections, if any, to the Plan and to confirmation of the Plan, (iii) determine whether the Plan meets the requirements of the Bankruptcy Code (See "Confirmation of the Plan"), and (iv) determine whether the Plan should be confirmed. C. VOTING INSTRUCTIONS After carefully reviewing the Plan2 and this Disclosure Statement and its exhibits, please indicate your vote on the enclosed Ballot, sign and date and return it in the envelope provided. In voting for or against the Plan, please use only the Ballot sent to you with this Disclosure Statement. General Unsecured Creditors in Class 4C who hold claims that are contingent, disputed or unliquidated will not be entitled to vote to accept or reject the Plan unless, upon motion of such creditor, the Bankruptcy Court has estimated such claim for voting purposes pursuant to Bankruptcy Rule 3018. IN ORDER FOR YOUR BALLOT TO BE COUNTED, IT MUST BE COMPLETED AS SET FORTH ABOVE AND RETURNED: IF BY MAIL, TO JWP INC. c/o DONLIN, RECANO & COMPANY P.O. BOX 2034 MURRAY HILL STATION NEW YORK, NEW YORK 10156-0701 - ------ 2 The exhibits to the Plan are so voluminous that mailing them with this Disclosure Statement is impracticable. The exhibits to the Plan are filed with the Bankruptcy Court, have been provided to the Official Committees and are available upon request to counsel for the Debtor or either of the Official Committees. IF BY HAND DELIVERY, FEDERAL EXPRESS OR OTHER COURIER, TO JWP INC. c/o DONLIN, RECANO & COMPANY 419 PARK AVENUE SOUTH SUITE 1206 NEW YORK, NEW YORK 10016 ALL BALLOTS MUST BE RECEIVED NO LATER THAN 5:00 P.M., NEW YORK TIME, ON SEPTEMBER 23, 1994. D. OBJECTIONS Objections to confirmation of the Plan, if any, must be in writing, must specify with particularity the provisions of the Plan to which objection is made, and must be both filed with the Clerk of the Bankruptcy Court and a copy delivered to the Chambers of the Hon. Jeffry H. Gallet, Room 528 at The Alexander Hamilton Custom House, One Bowling Green, New York, New York 10004 at or before 4:00 p.m. New York City Time on September 13, 1994, with copies of such objection to be delivered also at or before 4:00 p.m. New York City time on September 13, 1994 to STROOCK & STROOCK & LAVAN Attorneys for JWP Seven Hanover Square New York, New York 10004 Attention: Lawrence M. Handelsman, Esq. 212-806-5400 WEIL, GOTSHAL & MANGES Co-Counsel for the Creditors' Committee 767 Fifth Avenue New York, New York 10153 Attention: Michael F. Walsh, Esq. 212-310-8000 WACHTELL, LIPTON, ROSEN & KATZ Co-Counsel for the Creditors' Committee 51 West 52nd Street New York, New York 10019 Attention: Chaim J. Fortgang, Esq. Richard G. Mason, Esq. 212-403-1000 TENZER, GREENBLATT, FALLON & KAPLAN Attorneys for the Junior Committee 405 Lexington Avenue New York, New York 10174 Attention: James D. Glass, Esq. 212-573-4300 UNITED STATES TRUSTEE 80 Broad Street New York, New York 10004 Attention: Craig Freeman, Esq. 212-668-2200 E. EVENTS DURING THE REORGANIZATION CASE 1. Official Committees a. Statutory Committee of Unsecured Creditors. The Statutory Committee of Unsecured Creditors ("Creditors' Committee") was appointed, pursuant to Section 1102 of the Bankruptcy Code, by the United States Trustee for the Southern District of New York. It consists of seven members, holding claims in the aggregate amount of approximately $200 million. The members of the Creditors' Committee represent all senior creditors and are listed on Exhibit 2 hereto. The members of the Creditors' Committee are institutions holding senior debt which is treated in Classes 2 and 3 under the Plan, some of which institutions were represented on the unofficial steering committees that initially negotiated the terms of the Plan with JWP. b. Official Committee of Junior Creditors and Interest Holders. Following the United States Trustee's denial of a request to appoint an additional creditors' committee consisting of holders of JWP's Old Subordinated Debt ("Subordinated Debtholders"), certain of those holders moved the Bankruptcy Court to direct the United States Trustee to appoint such a committee over the objections of the Debtor and the Creditors' Committee. Prior to the hearing on the motion, JWP and the Creditors' Committee, after discussions with certain Subordinated Debtholders, consented to the appointment of an Official Subordinated Debtholders' Committee (the "Subordinated Debtholders' Committee") in consideration of the proposed Subordinated Debtholders' Committee's (i) agreement to a schedule contemplating a hearing on confirmation of the Plan no later than June 23, 1994, (ii) agreement on the scope of the Subordinated Debtholders' Committee's role in the Reorganization Case, and (iii) agreement to a cap on the fees and expenses to be incurred by and on behalf of the Subordinated Debtholders' Committee. The stipulation reflecting the agreement among the Debtor, the Creditors' Committee and the proposed Subordinated Debtholders' Committee, and approved by the Bankruptcy Court on April 1, 1994, provided, among other things, that those parties would jointly object to the appointment of any further additional committees. Subsequently, the Bankruptcy Court declined to appoint additional committees and ordered that the Subordinated Debtholders' Committee would represent all previously unrepresented creditors and interest holders and be deemed the Official Committee of Junior Unsecured Creditors and Interest Holders (the "Junior Committee")3. On April 14, 1994, the United States Trustee appointed the Junior Committee consisting of five members holding an aggregate $2,102,000 principal amount of junior subordinated debt. The members of the Junior Committee are listed on Exhibit 3 annexed hereto. Pursuant to the stipulation, the Junior Committee's role is limited to the following: to review and analyze the valuation of JWP and its present and former subsidiaries, to investigate the treatment of holders of claims or interests junior to the Lenders in any proposed plan of reorganization, to investigate any potential avoidance claims, including claims for preference, fraudulent conveyance, improper transfers or equitable subordination, and to examine the financial dealings between JWP and its present and former Lenders. In addition, the fees and expenses of the Junior Committee, including but not limited to the fees and expenses of its attorneys and any financial advisor, shall not exceed $575,000, unless the Bankruptcy Court orders otherwise upon a determination that the incurrence of such additional fees and expenses is in the best interests of JWP's estate and necessary to protect the interests of junior creditors and equity holders. Since its appointment, the Junior Committee, by its counsel and investment advisor, has performed the duties it undertook in the stipulation approved by the Bankruptcy Court. These included a review and analysis of the valuation of JWP, an investigation of the treatment of holders of claims and interests junior to the Lenders, an investigation of potential avoidance claims and an examination of the financial dealings between JWP and the Lenders. - ------ 3 In light of recent negotiations resulting in the Plan now proposed and investigations commenced by the Junior Committee, the confirmation hearing will be later than planned. In its investigation of the Debtor's businesses, asset sales and transactions with the Lenders, the Junior Committee served broad-ranging document demands upon the Debtor and its counsel and investment advisor and upon counsel for the Creditors' Committee. In response to the document demands, these parties produced and the Junior Committee examined several hundred thousand pages of documents relevant to its investigations. Following the document production, the Junior Committee took the depositions of four people to establish the facts with respect to the events of the past two years. On a parallel track with the discovery, the Junior Committee's investment advisor, Rothschild Inc., conducted several weeks of due diligence for the purpose of establishing the reorganization value of the Debtor. Rothschild Inc.'s valuation and the basis on which it was made is set forth below. Although differing from the valuation performed by the Debtor's investment advisor, the Junior Committee valuation established that reorganization value is not sufficient to pay senior creditors in full. See "Financial Information-Valuation of Reorganized JWP." As a result of the investigation and the Rothschild Inc. valuation, the Junior Committee completed the negotiations leading to and supports the Plan which is now proposed by the Debtor and SellCo. The Official Committees collectively represent all creditors of and interest holders in JWP and, among their other rights and duties, have monitored and will continue to monitor the progress of the Reorganization Case. The fees and expenses of any professionals retained, with approval of the Bankruptcy Court, by the Official Committees will be, subject to the further approval of the Bankruptcy Court, administrative expenses charged to JWP's estate. 2. Debtor-in-Possession Financing. In order to assure continuity of operations during the Reorganization Case, JWP and a substantial number of its Nondebtor Subsidiaries, as Guarantors, entered into a credit agreement (the "DIP Loan") with Belmont Capital Partners II, L.P. ("Belmont")4 that became initially effective upon the interim approval of the Bankruptcy Court on February 16, 1994 and approved by final order of the Bankruptcy Court on March 4, 1994. The DIP Loan provides a credit facility of up to $35 million during the Reorganization Case at an initial interest rate of 12% per annum. The DIP Loan is secured by a perfected first lien on substantially all of JWP's assets, including a pledge of 100% of the capital stock of the Nondebtor Subsidiaries which are Guarantors and, in most instances, a perfected first lien on all of the assets of each Guarantor. The DIP Loan is intended to be repaid on the Effective Date of the Plan and matures by its terms on the earliest of (i) one-year from its approval by the Bankruptcy Court, (ii) the Effective Date of the Plan, (iii) termination of the DIP Loan commitment, or (iv) the occurrence of an event of default thereunder. The DIP Loan also contains an affirmative covenant that JWP will obtain, within six months of the initial advance under the DIP Loan, a commitment for the financing necessary to assure implementation of the Plan. The initial advance under the DIP Loan in the amount of $15,000,000 occurred on February 17, 1994 and, as of the date hereof, $25,000,000 in principal amount of borrowings were outstanding thereunder. See "Summary of the Plan-Conditions Precedent to Plan Effectiveness." To induce Belmont to make the DIP Loan, JWP agreed that, upon maturity of the DIP Loan, Belmont shall be entitled to "Additional Interest" which, depending on the length of time the DIP Loan is outstanding, could range from 1% to a maximum of 5.5% of each type of consideration issued to creditors under the Plan (the "Additional Interest Amount")5. In lieu of delivering the Additional Interest in the form of New Securities, JWP may elect to make payment thereof to Belmont in cash equal to the amount of such New Securities. - ------ 4 The Debtor's records reflect that Belmont, as a creditor of JWP in the Reorganization Case, holds, as of the date hereof, $32,702,927 of Old Notes (including principal and interest) and $9,856,786 of debt (including principal and interest) under the Old Credit Agreement. 5 Assuming confirmation of the Plan on or about September 28, 1994 and an Effective Date on or before October 17, 1994, the Additional Interest Amount will be 3.5%.The calculations in this Disclosure Statement are based on the assumption of an Additional Interest Amount of 3.5%. As of the date of this Disclosure Statement, JWP is in default of certain covenants of the DIP Loan. Pursuant to written waivers of default, dated April 27, 1994 and May 6, 1994, JWP has been permitted to draw on its line of credit. Under the circumstances, any future advances will require a further written waiver of any defaults. 3. Surety Bonds. A crucial element of the MES business is the ability of the MES Nondebtor Subsidiaries to provide project owners or general contractors with bonds either for performance of contracts awarded ("performance bonds") or as a condition of bidding for contracts for future work ("bid bonds"). Prior to the Reorganization Case, Seaboard Surety Company ("Seaboard") was the primary source of performance and bid bonds for the largest portion of the MES business. As a condition of obtaining bonds from Seaboard, historically, JWP guaranteed the obligations of the MES Nondebtor Subsidiaries to Seaboard pursuant to a General Agreement of Indemnity ("GAI"). In order to enable the MES Nondebtor Subsidiaries to continue to receive performance or bid bonds from Seaboard, JWP sought and obtained the approval of the Bankruptcy Court for the terms of a new agreement that covers any bonds executed or procured by Seaboard after the Consent Date ("New Bonds"). Accordingly, JWP entered into a new general agreement of indemnity ("New GAI") with Seaboard pursuant to which JWP guaranteed the obligations of Nondebtor Subsidiaries under New Bonds. Any claims arising under the New GAI will be superpriority claims in the Reorganization Case, junior only to (i) the claims of Belmont under the DIP Loan, (ii) the fees payable to the United States Trustee pursuant to 28 U.S.C. (S) 1930 and (iii) the fees and expenses of professionals retained by the Debtor and the Creditors' Committee, not to exceed $1,500,000, exclusive of fees paid during the pendency of the Reorganization Case. Superpriority claims, if any, granted to any other bonding company which provides bonds during the Reorganization Case shall not be afforded better treatment than those of Seaboard. All superpriority Seaboard claims that are fixed and liquidated as of the Effective Date will be paid in cash, in full, on the Effective Date. All remaining claims, i.e., contingent or unliquidated claims, under the New GAI will be unimpaired, will not be discharged and will survive as obligations of Reorganized JWP and MES. A surety company, other than Seaboard, which had been the primary source of surety bonds for certain MES Nondebtor Subsidiaries, which together comprised approximately 20% of JWP's 1993 revenues of those MES subsidiaries which JWP currently plans to retain, is no longer engaged in the business of issuing such bonds. However, the absence of available bonding for these subsidiaries has not resulted in a material reduction in their backlog. The Debtor and these subsidiaries are actively engaged in discussions with another surety company which has substantially completed due diligence for the purpose of entering into a new surety bonding arrangement. 4. Asset Sales. As set forth in greater detail herein, a major component of JWP's restructuring is the sale of all of its non-core businesses and certain of its core MES businesses. See "Background Information-Asset Sales" and "Reorganized JWP." Prior to the Consent Date, JWP had completed the sale of more than twenty subsidiaries. JWP expects to continue such sales during and subsequent to the Reorganization Case. An agreement in principle has been reached (subject to, among other things, a satisfactory definitive contract of sale and the approval, after notice and a hearing, of the Bankruptcy Court) for the sale of JWP Energy Products, Inc. (a non-core business) and an agreement in principle is being negotiated for the sale of University Energy Services of California, Inc. and its affiliate, University Cogeneration, Inc. (a non-core business). However, there is no assurance that these transactions will occur.6 If acceptable offers are received for any of the other businesses being held for sale (see "Reorganized JWP"), JWP intends to take all necessary action to effect the sales of such businesses. Businesses held for sale which have not been sold prior to the Effective Date will, with certain exceptions, become direct or indirect subsidiaries of SellCo, a JWP subsidiary formed solely for the purpose of owning JWP subsidiaries to be sold. - ------ 6 A letter of intent for the sale of JWP Telecom, Inc. (a non-core business) has expired. 5. Avoidance Actions. Several parties in interest have asserted that an investigation into whether certain sales of assets, certain 1992 payments of asset sales proceeds in the amount of $51.9 million made in reduction of Old Credit Agreement debt and a 1992 pledge of the stock of certain Nondebtor Subsidiaries are transactions that are avoidable under the Bankruptcy Code as fraudulent conveyances, preferences or obtained through improper control. The Debtor has examined all such transactions and does not believe there is a basis for such assertions. This Disclosure Statement sets forth the facts of those transactions and, further, describes the Series A Secured Notes to be distributed under the Plan, which Notes were specifically negotiated to recognize and account for the aforesaid $51.9 million payment by (i) issuing $51 million principal amount of the Series A Secured Notes in respect of the Lenders' aggregate unsecured claims only to the Old Note Holders (Class 2) (and none to Old Credit Agreement Holders (Class 3)) (See "Background Information"), and (ii) providing to the holders of all other senior impaired unsecured claims (except Old Credit Agreement Holders) (Classes 4B and 4C) treatment equal to that afforded the Lenders' aggregate unsecured claims by issuing to Classes 4B and 4C an additional principal amount of Series A Secured Notes in the same ratio to the aggregate Class 4B and 4C claims as the $51 million principal amount of Series A Secured Notes bears to the aggregate amount of allowed unsecured claims in Class 2 and Class 3. See "Summary of the Plan." The $11,357,000 principal amount of Series B Secured Notes to be distributed under the Plan to Old Note Holders and Old Credit Agreement Holders, also described under "Summary of the Plan," reflects the 1992 stock pledge. The Debtor believes that the ninety-day period for which a preference might have been asserted in respect of the stock pledge expired in December 1992. The Junior Committee believes that the one-year preference period applies; even if this is true, the preference period would still have expired prior to the bankruptcy filing. The distribution of the Series B Secured Notes reflects the provisions of a December 1992 agreement between the Old Note Holders and the Old Credit Agreement Holders that the proceeds of the pledged stock (and subsequent substitute collateral) would be distributed pari passu among them. The amount of Series A and Series B Secured Notes distributed to each of Classes 2, 3, 4B and 4C, as applicable, is taken into account in calculating the Residual Percentage of the remaining New Securities to be distributed among them. See "Background Information" and "Summary of the Plan." II. SUMMARY A. SUMMARY OF CLASSES AND TREATMENT UNDER THE PLAN For a fuller description of each class and its treatment, see "Summary of the Plan-Classification and Treatment."
Treatment (Unimpaired) No Solicitation Unclassified to Accept - -------------------------------------------------- - ------------------------------------------------------- Administrative Expense Claims: all claims arising Paid in full in cash on the later of the Effective Date on and after the Petition Date for preservation of or when due unless the claim holder has agreed to a the Estate. different treatment. Paid in full in cash on the later of the Effective Date or the date such claim becomes an allowed claim; or, Priority Tax Claims: claims of governmental units at the option of JWP, as specified in Section under Section 507(a)(7) of the Bankruptcy Code. 1129(a)(9)(C) of the Bankruptcy Code. Classified Class 1 - Priority Claims, other than administrative expense and priority tax claims. Treatment (Unimpaired) No Solicitation Class 1 Deemed to Accept Allowed priority claims shall be paid in full in cash JWP believes that the only priority claims will or, in the case of employee claims for vacation pay, if consist of claims arising between the Petition Date any, reinstated on the Effective Date, unless the claim and the Consent Date. holder has agreed to a different treatment. Class 2 - Old Note Holders Claims Treatment (Impaired) Class 2 Vote Solicited - ------------------------------------------------ - --------------------------------------------------- (i) $51,000,000 principal amount of Series A 7% Senior Secured Notes of Reorganized JWP, plus (ii) $7,348,129 principal amount of Series B 7% Senior Secured Notes of Reorganized JWP, plus (iii) All claims of the Old Note Holders arising under $33,315,547 principal amount of 11% Series C Notes and evidenced by the Old Notes, in the aggregate of Reorganized JWP, plus (iv) $25,541,920 principal principal amount of $328,572,000, plus interest amount of 12% SellCo Subordinated Contingent thereon to the Petition Date in the amount of Payment Notes, plus (v) 4,997,332 shares of New $29,593,112. Common Stock.* - ------ * The estimated Class 2 principal amount of 11% Series C Notes and 12% SellCo Subordinated Contingent Payment Notes and the number of shares of New Common Stock are calculated on the assumption that the aggregate Class 4B and 4C allowed claims will be $85,000,000. If the aggregate Class 4B and 4C allowed claims are greater or less than $85,000,000, the distribution of such New Securities to Class 2 will vary. See the Table at "Summary of Plan-Classification and Treatment-General Unsecured Creditors-Class 4C" for the effect of an increase or decrease in the aggregate amount of Class 4B and 4C claims ultimately allowed. Class 3 - Old Credit Agreement Holders Claims Treatment (Impaired) Class 3 Vote Solicited - --------------------------------------------------- - ---------------------------------------------------- (i)$4,008,871 principal amount of Series B 7% Senior Secured Notes of Reorganized JWP, plus (ii) $18,175,748 principal amount of 11% Series C Notes All claims arising under and evidenced by the Old of Reorganized JWP, plus (iii) $13,934,740 principal Credit Agreement, in the principal amount of amount of 12% SellCo Subordinated Contingent $155,794,042, plus interest thereon to the Petition Payment Notes, plus (iv) 2,726,362 shares of New Date in the amount of $11,784,088. Common Stock.* - ------ * The estimated Class 3 principal amount of 11% Series C Notes and 12% SellCo Subordinated Contingent Payment Notes and the number of shares of New Common Stock are calculated on the assumption that the aggregate Class 4B and 4C allowed claims will be $85,000,000. If the aggregate Class 4B and 4C allowed claims are greater or less than $85,000,000, the distribution of such New Securities to Class 3 will vary. See the Table at "Summary of Plan-Classification and Treatment-General Unsecured Creditors-Class 4C" for the effect of an increase or decrease in the aggregate amount of Class 4B and 4C claims ultimately allowed. Class 4 - General Unsecured Claims Class 4 Treatment - -------------------------------------- All unsecured claims that are not claims for administrative expenses or priority tax claims or otherwise classified in Class 1, 2, 3, 5, 6 or 7. See below: 4A, 4B and 4C. Class 4A - Convenience Class Treatment (Unimpaired) No Solicitation Deemed to Accept - ---------------------------------------------------- - ------------------------------------------------------ All claims in Class 4 of any holder that are $10,000 or less in the aggregate or, at the election of the Paid in full, in cash on the Effective Date or as soon holder, reduced to $10,000 in the aggregate. as practicable thereafter. Class 4B - Treatment (Aggregate 4B and 4C) (Impaired) Vote Solicited - --------------------------------------------- -------------- Other Borrowed Money Class 4 claims All Class 4 claims which constitute "Senior Indebtedness" with respect to Class 6 claims. Class 4C - (i) $8,427,520 principal amount of Series A 7% Senior Secured Notes, plus (ii) $8,508,704 principal amount of 11% Series C Notes of Reorganized JWP, plus (iii) $6,523,340 principal amount of 12% SellCo All Class 4 claims not included in Classes 4A and Subordinated Contingent Payment Notes, plus (iv) 4B. 1,276,306 shares of New Common Stock.* Class 5 - Unimpaired Contingent Claims Treatment (Unimpaired) No Solicitation Class 5 Deemed to Accept - ---------------------------------------------------- - ---------------------------------------------------- (i) All unsecured claims that are listed on Schedule 1 to the Plan, subject, in certain cases, to All Class 5 claims are reinstated and the legal, conditions precedent (see Schedule 1 to the Plan) equitable and contractual rights of each holder of a and (ii) all priority employee claims. Class 5 claim are unaltered. - ------ * The estimated aggregate Class 4B and 4C principal amounts of the New Debt Securities and the number of shares of New Common Stock are calculated on the assumption that aggregate Class 4B and 4C allowed claims will be $85,000,000. If aggregate Class 4B and 4C allowed claims are greater or less than $85,000,000, the distribution of such New Securities to Classes 4B and 4C will vary. See the Table at "Summary of Plan-Classification and Treatment-General Unsecured Creditors-Class 4C" for the effect of an increase or decrease in the aggregate amount of Class 4B and 4C claims ultimately allowed. Class 6 - Subordinated Debt Claims Treatment (Impaired) Class 6 Vote Solicited - -------------------------------------------------- - -------------------------------------------------------- All claims of (i) holders of $7,040,000 principal amount of JWP's 73/4% Convertible Subordinated Debentures, due 2012, plus interest thereon to the Petition Date in the amount of $441,027 and (ii) If the claims in Classes 2, 3 and 4B, voting as a single holders of $9,600,000 principal amount of JWP's class, accept the Plan, (i) 600,000 five-year New 12% Subordinated Notes, due 1996, plus interest Series X Warrants, plus (ii) 600,000 five-year New thereon to the Petition Date in the amount of Series Y Warrants, each of which will entitle the $1,411,200. holder to purchase one share of New Common Stock. Exercise Price: (i) Series X: $12.55. (ii) Series Y: $17.55. The exercise prices of the New Warrants are subject to adjustment in order to limit the recovery of the holders of claims in Class 6 to 100% of their claims. Class 7 - Contingent and Statutory Subordinated Claims Treatment (Impaired) Class 7 Vote Solicited - --------------------------------------------------- - ----------------------------------------------------- (i) The indemnification or contribution claims, if any, by current or former officers and directors of JWP or by other parties in connection with the If each of Classes 4C and 7 accepts the Plan, Class 7 claims asserted in AUSA Life Insurance Company, will receive 1,388 two-year New Series Z Warrants, et al. v. Andrew T. Dwyer et al., 93 CIV. 6830 each of which will entitle the holder to purchase one (CLB) (S.D.N.Y.) (the "Old Note Holders share of New Common Stock at the exercise price of Litigation"), and (ii) any intercompany claims that $50.00. If either of Classes 4C or 7 does not accept the Court determines should be subordinated to the Plan, Class 7 will not receive or retain any general unsecured claims. property under the Plan.* Class 8 - Old Preferred Stock Interests Treatment (Impaired) Class 8 Vote Solicited - ---------------------------------------------------------------------------------------------------- If each of Classes 4C, 6, 7 and 8 accepts the Plan, Class 8 will receive 29,297 two-year New Series Z Warrants, each of which will entitle the holder to purchase one share of New Common Stock at the exercise price of $50.00. If any of Classes 4C, 6, 7 or Equity interests evidenced by the issued and 8 does not accept the Plan, neither Class 8 nor any outstanding shares of JWP's 4.25% Convertible class junior to it will receive or retain any property Exchangeable Preferred Stock. under the Plan.* - ------ * The classification, treatment and voting rights of the holders of these claims and interests are subject to various qualifications and conditions, which are more fully set forth in the Plan. See "Summary of the Plan-Classification and Treatment." Class 9 - Old Common Stock and Certain Related Interests Treatment (Impaired) Class 9 Vote Solicited - ----------------------------------------------------- - -------------------------------------------------------- Equity interests evidenced by (i) the issued and outstanding shares of JWP's Old Common Stock and (ii) options, warrants, or rights, contractual or otherwise, to acquire Old Common Stock, including (a) options issued pursuant to the 1986 Incentive Stock Option and Appreciation Plan; If each of Classes 4C, 6, 7, 8, 9, 10 and 11 accepts the 1991 Stock Option Plan; and 1992 Stock Option Plan, Class 9 will receive 195,667 two-year New Plan and (b) equity interests under the $43,000,000 Series Z Warrants, each of which will entitle the principal amount of Businessland, Inc. 51/2% holder to purchase one share of New Common Stock Convertible Subordinated Debentures, due 2007 at the exercise price of $50.00. If any of Classes 4C, and the related Share Issuance Agreement, dated 6, 7, 8, 9, 10 or 11 does not accept the Plan, Class 9 August 6, 1993, between JWP and ENTEX will not receive or retain any property under the Information Services, Inc. Plan.* Class 10 - Members of the Plaintiff Class Certified in In re JWP INC. Securities Litigation. Treatment (Impaired) Class 10 Vote Solicited - ------------------------------------------------------------------------------------------------------------- Claims against JWP in connection with Old Common Stock, within the meaning of Section If each of Classes 4C, 6, 7, 8, 9, 10 and 11 accepts the 510(b) of the Bankruptcy Code, including those of Plan, Class 10 will receive 22,059 two-year New (i) members of the plaintiff class in the Shareholder Series Z Warrants, each of which will entitle the Litigation (ii) current or former officers or holder to purchase one share of New Common Stock directors or other defendants asserting or capable at the exercise price of $50.00. If any of Classes 4C, of asserting reimbursement, indemnification or 6, 7, 8, 9, 10 or 11 does not accept the Plan, Class 10 contribution claims in connection with the will not receive or retain any property under the Shareholder Litigation. Plan.* Class 11 - Warrants of Participation Treatment (Impaired) Class 11 Vote Solicited - ----------------------------------------------------------------------------------------------------------- If each of Classes 4C, 6, 7, 8, 9, 10 and 11 accepts the Plan, Class 11 will receive 1,589 two-year Series Z Warrants, each of which will entitle the holder to purchase one share of New Common Stock at the exercise price of $50.00. If any of Classes 4C, 6, 7, 8, Equity interests evidenced by the 1,152,622 9, 10 or 11 does not accept the Plan, Class 11 will not Warrants of Participation dated as of July 1, 1969. receive or retain any property under the Plan.* - ------ * The classification, treatment and voting rights of the holders of these claims and interests are subject to various qualifications and conditions, which are more fully set forth in the Plan. See "Summary of the Plan-Classification and Treatment."
B. PROVISIONS FOR EMPLOYEES Because the Plan and the Reorganization Case relate only to JWP and not to its Nondebtor Subsidiaries, the rights of trade creditors and employees of such Nondebtor Subsidiaries are not affected by the filing of the Reorganization Case. Following the Consent Date, JWP obtained orders of the Bankruptcy Court designed to ensure that the employees of JWP are also unaffected by the filing. Pursuant to the terms of the Plan, JWP intends that salaries or wages, as the case may be, expense reimbursements, accrued paid vacation, health-related benefits, and similar employee benefits of employees of JWP will be unimpaired under the Plan. To ensure the continuity of its work force and to accommodate further the unimpaired treatment of employee benefits, JWP sought the approval of the Bankruptcy Court to pay all accrued pre-petition salaries or wages and expense reimbursement, to permit employees to utilize their paid vacation time which accrued prior to the Petition Date and to continue paying medical benefits under JWP's health plan. The Bankruptcy Court has authorized the payment of pre-petition wages, including payment of medical benefits and utilization of accrued paid vacation time, up to $2,000 per employee. The Bankruptcy Court has also (i) approved a severance and stay bonus plan adopted by JWP in June 1993, as modified,7 and (ii) authorized JWP's contributions to the employee savings and retirement plans. Employee claims and benefits not paid or honored, as the case may be, prior to consummation of the Plan will be paid or honored in full upon consummation of the Plan or as soon thereafter as such payment or other obligation becomes due or performable. JWP believes the only employee claims that may remain on the Effective Date will be for unutilized vacation time. C. BAR DATE - WHO MUST FILE A CLAIM JWP has filed schedules listing every known creditor whose claim is proposed to be impaired under the Plan. Any person or entity asserting a claim that is proposed to be impaired under the Plan and whose claim is listed as contingent, unliquidated or disputed or who disagrees with the liquidated amount for which its claim is listed was required to file a proof of claim with the Bankruptcy Court. By a notice mailed on March 1, 1994 and published in the national editions of The Wall Street Journal and The New York Times on March 9, 1994, creditors were advised to examine the schedules filed with the Bankruptcy Court to determine whether they must file proofs of claim. All other impaired creditors listed on the schedules filed with the Bankruptcy Court are deemed to have allowed claims. Holders of equity interests were not required to file proofs of claim or interest unless they were asserting claims not based solely on the ownership of such interests. The Bankruptcy Court fixed April 8, 1994 as the last date on which any creditor who was required to file a proof of claim must have filed such proof of claim ("Bar Date"). If such proof of claim was not timely filed, the impaired creditor will not participate in any distributions to which it might otherwise be entitled under the Plan and will be forever barred from asserting its claim against JWP. Holders of claims arising from JWP's rejection of an executory contract or unexpired lease were not required to file claims by the Bar Date and will be given notice of such rejection and a period of twenty (20) days from such notice to file a proof of claim. D. JWP'S SENIOR INSTITUTIONAL INDEBTEDNESS The principal senior claims against JWP which are being impaired under the Plan are, in the aggregate, approximately $525,743,200. Those claims arise under the credit agreement and senior notes described below. 1. Old Credit Agreement. JWP is party to that certain Amended and Restated Credit Agreement dated as of September 11, 1992, as amended from time to time, between and among JWP and the signatory Banks, - ------ 7 The stay bonus is an inducement for JWP employees not to seek other employment, and the severance portion of the plan is intended to provide for employees whose employment may be terminated without cause. Fleet Bank (formerly Norstar Bank), as Agent and Issuing Bank, and Credit Suisse, Bank of America National Trust and Savings Association and Chemical Bank as co-lead managers ("Old Credit Agreement") initially affording JWP an unsecured credit facility, to which Banks JWP owed the aggregate of approximately $155,794,042 principal amount and $11,784,088 of accrued interest, totalling $167,578,130 at December 21, 1993 ("Old Credit Agreement Debt"). 2. Old Notes. A group of insurance companies or their successors and assigns (the "Old Note Holders") holding senior unsecured debt (the "Old Notes") issued by JWP, as follows:
Principal and Interest Unpaid Issued in the at December 21, Notes Principal Amount 1993 - ---------------------------------------------- ---------------- --------------- 9.10% Senior Serial Notes due March 31, 1994.. $ 5,000,000 $ 5,390,647 9.33% Senior Serial Notes due March 31, 1995.. 5,000,000 5,412,445 9.51% Senior Serial Notes due March 31, 1996.. 5,000,000 5,421,727 9.65% Senior Serial Notes due March 31, 1997.. 5,000,000 5,428,944 9.83% Senior Serial Notes due March 31, 1998.. 5,000,000 5,439,120 9.10% Senior Notes due March 6, 2002.......... 60,000,000 64,768,016 9.95% Senior Notes due November 15, 2005...... 60,000,000 65,417,449 9.56% Senior Notes due November 30, 1997...... 5,000,000 5,421,827 10.25% Senior Notes due December 1, 1998...... 50,000,000 54,594,252 10.35% Senior Notes due November 30, 2005..... 50,000,000 54,648,074 10.27% Senior Notes due November 30, 2005..... 20,000,000 21,836,163 10.95% Senior Notes due December 15, 2002..... 30,000,000 33,095,314 9.25% Senior Notes due December 15, 1996...... 40,000,000 31,291,135 ---------------- --------------- TOTAL......................................... $340,000,000 $358,165,112
E. BACKGROUND INFORMATION 1. Background of the Restructuring. JWP's unaudited 1992 financial statements (annexed hereto as Exhibit 4) reflect a net loss of approximately $600 million and negative cash flow from operations of approximately $50 million. These losses and negative cash flow were brought on by several circumstances, including rapid technology changes and price wars in the IS business, the costs of integrating numerous acquired MES and IS business units, and weakened economic conditions in the United States, Canada and the United Kingdom, particularly, in the construction industry, all of which combined to depress JWP's operating margins and to create a liquidity crisis. Consequently, JWP was unable to obtain an increased revolving credit facility in the Summer of 1992. From September 1992 until February 1994 when the DIP Loan was made, JWP did not have available undrawn credit facilities. Cash flow from operations was insufficient to meet JWP's debt service obligations and working capital requirements. Accordingly, JWP funded its operations from working capital and the proceeds of sales of business units and other assets. In the second half of 1992, JWP developed an asset disposition program to sell certain operations that were determined to be non-core to its MES and domestic IS businesses. It was subsequently determined that the Water Supply business which had been identified for sale would not be sold, due to litigation and uncertainties related to certain regulatory proceedings. See "Legal Proceedings-Jamaica Water Supply Company." Thereafter, in March 1993, JWP's Board of Directors concluded that the personal computer industry did not provide the stable operating environment that JWP needed to restructure, and the decision was made to sell the domestic IS business. Discussions with Lenders commenced in the second half of 1992 as JWP implemented the first phase of the asset disposition program. The asset disposition program was intended to cut costs, to raise funds to reduce indebtedness, and to narrow the focus of JWP's operations. A portion of the sales proceeds ($51,900,000) was used in October of 1992 to repay Old Credit Agreement Holders, pursuant to the terms of the Old Credit Agreement. These payments gave rise to negotiations with the Old Note Holders in late 1992, with the result that JWP, the Old Note Holders and the Old Credit Agreement Holders agreed on December 10, 1992 that the Old Note Holders would have a $51 million priority as against the Old Credit Agreement Holders from future asset sales and the cash flow of JWP (the "Intercreditor Agreement"). The asset sales did not provide sufficient cash to stabilize the working capital required for JWP's remaining business. As a result, JWP's business prospects began to deteriorate and its backlog started to decline rapidly in the face of adverse publicity and JWP's inability promptly to restructure its indebtedness. After April 1993, JWP did not make principal payments or interest payments on any of this indebtedness. As of the Petition Date, JWP's principal indebtedness outstanding under its Old Note Agreements and its Old Credit Agreement aggregated $484,366,000. As of December 21, 1993, the principal amount of the Old Subordinated Debt was $16,640,000. 2. The Standstill Agreements. Beginning in late 1992, JWP proposed a series of standstill agreements with its Lenders (the "Standstill Agreements") intended to afford JWP sufficient time to develop a plan to raise funds for debt repayment, reduce costs, and narrow the focus of JWP's operations. Although agreements in principle were reached concerning forbearance of remedies while reduced debt service was paid, no Standstill Agreements were actually executed. Since April 30, 1993, no standstill agreement in principle has been in place and JWP ceased making principal and interest payments. However, interest continued to accrue, until the Petition Date, under the terms of the respective loan agreements, which in certain circumstances include default rate premiums of an additional 2% and, in one case, 4%. At the Petition Date, the accrued interest on the aggregate debt to the Lenders was $41,377,200. 3. The "Software House" Collateral. On September 11, 1992, JWP pledged the stock of its subsidiary Software House, Inc. ("Software House") and certain other subsidiaries as collateral for its obligations under its Revolving Credit Agreement. In 1992, JWP sold substantially all of the assets of these subsidiaries (other than Software House) and applied the proceeds (which constituted a portion of the aforementioned $51,900,000) to reduce indebtedness under the Revolving Credit Agreement. Pursuant to the Intercreditor Agreement, it was agreed that all net proceeds from the sale or other disposition of Software House and other amounts received by the Lenders would be shared in accordance with the terms of the Intercreditor Agreement. However, no further principal payments were made to the Lenders after the 1992 asset sales except for the net proceeds, in the amount of $656,250, from the sale of Maris Equipment Company ("Maris") which was deposited with Fleet Bank as agent. Subsequently, in May 1993 Software House sold substantially all of its assets and the Lenders agreed to permit JWP to use the net proceeds of approximately $11,357,000 for working capital upon the pledge by JWP of substitute collateral for Software House. JWP pledged as substitute collateral for Software House the stock of three of its subsidiaries consisting of University Energy Services of California Inc., Maris and JWP Telecom Inc. At or about the time the sale of Maris was consummated and as a condition to the Lender's consent to such consummation, JWP pledged as additional collateral the stock of its subsidiaries, JWP Pacific International Inc. and JWP Energy Products Inc. Accordingly, the only secured portion of the obligations owing to the Lenders by JWP is secured at present by the outstanding capital stock of JWP Telecom, Inc., University Energy Services of California Inc., JWP Energy Products Inc., JWP Pacific International Inc., the stock of Maris and certain remaining assets of Maris (consisting of a $3.7 million note made by the purchaser of the Maris assets and guarantees and other rights and property relating to the sale). 4. The Asset Sales. Since September 1992, JWP, either itself or through its subsidiaries, has sold more than twenty businesses and certain other miscellaneous assets, generating approximately $143 million in cash proceeds. $51.9 million of these proceeds were paid in 1992 in respect of principal under the Old Credit Agreement. In 1993, approximately $656,250 was paid to and is being held by Fleet Bank, as agent, from the proceeds of the sale of Maris. In addition, the Bank of Montreal received $2.79 million in 1993 in reduction of a line of credit from the sale of real estate ("Scarborough building") on which it held a mortgage. The balance of the cash sales proceeds in the amount of approximately $87.97 million was or will be used by JWP for working capital and to maintain the operations of its remaining businesses. The following table lists businesses and other assets sold since September 1992 and cash proceeds thereof. Asset Sales Completed Since September 1992 (Dollars in Thousands)
Gross Cash Cash Received Total Gross Received From Purchaser Amount of Cash Transaction At Closing After Closing Received - ----------------------------------------------------------------- -------------- -------------- September 1992-December 1992 JWP Amcec Corporation, JWP Air Technologies, Inc. and Enviro-Gro Technologies Company(1)................... $68,900,000 $19,142,000 $ 88,042,000 NetFrame shares...................................... 1,400,000 -0- 1,400,000 ------------ -------------- -------------- $ 70,300,000 $19,142,000 $ 89,442,000 January 1993 to date New England Fertilizer Company Partnership Interest.. $ 2,500,000 $ -0- $ 2,500,000 A to Z Equipment Corp. .............................. 2,372,108 111,034 2,483,142 Businessland Canada, Ltd.(2)......................... 6,850,635 194,801 7,045,436 Software House, Inc.................................. 12,807,500 198,726 13,006,226 Sutter Hill Industries Inc........................... 1,407,840 443,081 1,850,921 Scarborough, Ontario building-Comstock(3)............ 2,793,960 -0- 2,793,960 NetFrame shares...................................... 2,062,500 -0- 2,062,500 Case/Acme Systems, Inc............................... 500,000 500,000 1,000,000 JWP Information Services, Inc........................ -0- -0- -0- Hetra Computer & Communication Industries, Inc....... 827,107 621,944 1,449,051 JWP Information Services Ltd. (UK)(4)................ 2,620,571 -0- 2,620,571 Transtel Communications Ltd.(5)...................... 9,000 80,661 89,661 Huen Electric, Inc................................... 3,007,392 -0- 3,007,392 Afgo Engineering Corp. of Washington................. 325,000 -0- 325,000 Businessland Holding Ltd. (Japan).................... 2,700,000 -0- 2,700,000 Maris Equipment Company(6)........................... 350,000 306,250 656,250 JWP Controls Inc..................................... 1,616,049 -0- 1,616,049 JWP McPhee Inc....................................... 500,000 1,050,000 1,550,000 JWP Network Integration Services, Inc................ 2,277,804 -0- 2,277,804 Kerby Saunders-Warkol, Inc........................... 375,554 -0- 375,554 Resource Recovery Technologies, Inc. shares.......... 2,299,885 -0- 2,299,885 JWP Holdings GmbH.................................... 716,100 -0- 716,100 JWP Technical Services Corp.(7)...................... 402,000 402,000 JWP Pacific International(8)......................... 1,049,985 -0- 1,049,985 ------------ -------------- -------------- $ 50,370,989 $ 3,506,497 $ 53,877,486 TOTALS...............................................$120,670,989 $22,648,497 $143,319,486 ============ ============== ============== - ------------------------------------------------------------------------------------------------ (1) Total gross amount received includes $21,044,000 repayment of working capital advances from JWP INC. to the various operations. (2) C$9,078,000 converted at C$1:US$0.7761 (3) C$3,600,000 converted at C$1:US$0.7761 (4) Pounds1,747,047 converted at Pounds1:US$1.50 (5) Pounds59,734 converted at Pounds1:US$1.50 (6) All cash proceeds have been directed into a creditor escrow account at Fleet Bank. (7) Cash proceeds pledged to and reside in an account under the control of Belmont Capital Partners, L.P. pursuant to the DIP Loan. (8) Initial collection of balance sheet net assets; operations being liquidated.
In 1993, JWP's liquidity continued to worsen. This cash drain was a result of weakened operating performance, the required infusion of working capital into operating units, extraordinary legal, accounting and financial advisory fees, and the funding of a cash escrow account for payment of claims under JWP's partial self-insurance program, which was required because of JWP's inability to obtain letters of credit for this purpose. In August 1993, JWP concluded Reorganized JWP should be built around a smaller domestic and international MES business that would be less volatile, require less capital and bonding, be easier to control and manage and result in a significant reduction in overhead costs. A number of factors were considered in determining which MES units to retain and which to sell. Subsidiaries that are to be retained generally have lower bonding and capital requirements, can generate steady cash flow from recurring maintenance and service revenues to service Reorganized JWP's debt, operate in markets where growth potential exists, have the management infrastructure to support systems and significant growth and offer the opportunity for high returns on net assets. The international MES companies are to be retained to provide access to markets which could provide higher margins and serve as a buffer from U.S. business cycles. III. FINANCIAL INFORMATION A. SELECTED FINANCIAL INFORMATION (Dollars in millions, except per share data) The following table sets forth certain historical consolidated financial data of JWP for the five years ended December 31, 1993. This information has been derived from the Consolidated Financial Statements of JWP, including the respective notes thereto, included elsewhere herein and should be read in conjunction with Management Discussion and Analysis of JWP INC. and Subsidiaries Financial Statements and Results of Operations and the unaudited pro forma financial information included elsewhere herein. The information presented for each of the four years ended December 31, 1993 is unaudited. See "Financial Statements" (Exhibit 4 hereto) and "Pro Forma Financial Information". See Note 1 to the Consolidated Financial Statements regarding JWP's ability to continue as a going concern, the class action lawsuit filed against JWP, debt in default and the restatement of JWP's Consolidated Financial Statements for the year ended December 31, 1991 and 1990. See also Notes (a) and (b) below with respect to the restatement of the 1990 and 1991 financial statements, respectively. SELECTED HISTORICAL FINANCIAL DATA (Dollars in millions, except per share data)
Years Ended December 31, 1993 1992 1991 1990 1989 ----------- ----------- --------------- --------------- --------- (Unaudited) (Unaudited) (Unaudited) (Unaudited) As Restated (b) As Restated (a) Statement of Operations Data (a) (b) (c) (d): Revenues: Mechanical/Electrical Services............ $2,194.7 $2,404.5 $2,318.1 $2,057.6 $1,547.6 Cost of sales.................................2,043.5 2,160.7 1,973.6 1,726.2 1,275.7 Selling, general and Administrative........... 216.7 440.7 286.9 248.6 191.9 Restructuring charges........................... - 38.7 - - - ------- ----------- --------------- --------------- Total cost and expenses.................... 2,260.2 2,640.1 2,260.5 1,974.8 1,467.6 Operating (Loss) Income........................ (65.5) (235.6) 57.6 82.8 80.0 Interest expense, net...........................(50.2) (44.2) (43.9) (36.6) (29.1) Gain (loss) on net assets held for sale (sold).. 1.0 (76.1) (6.6) - - (Credit) provision for income taxes............ (0.7) 7.6 2.4 17.5 18.7 ---------- ----------- --------------- --------------- (Loss) income from continuing operations.... (114.0) (363.5) 4.7 28.7 32.2 (Loss) income from discontinued operations (e) (Loss) income from discontinued operations, net of income taxes........................................... 11.3 (203.7) 24.3 21.6 14.4 (Loss) from disposal of businesses............. (20.1) (49.5) - - - ----------- ----------- --------------- ------------------------ (Loss) income from discontinued operations.... (9.1) (253.2) 24.3 21.6 14.4 Cumulative effect of change in method of accounting for income taxes........................... - 4.3 - - - Net (loss) income............................ $(123.1) $(612.4) $29.0 $50.3 $46.6 ========== =========== =============== =============== == (Loss) income per share (a)(b)(c)(d): Continuing operations.................. $(2.84) $(9.00) $0.10 $0.75 $0.91 Discontinued operations (e)................... (0.22) (6.24) 0.63 0.57 0.40 Cumulative effect of change in method of accounting for income taxes........................... - 0.11 - - - ----------- ----------- --------------- --------------- --------- Net (loss) income per share............. $(3.06) $(15.13) $0.73 $1.32 $1.31 =========== =========== =============== =============== ========= Balance sheet data (at end of period) (a)(b): Working capital (deficit)...................(452.3) (364.9) 368.1 377.3 314.9 Property, plant and equipment, net.......... 39.3 51.1 323.4 249.0 226.4 Total assets............................... 806.4 907.6 2,233.8 1,484.2 1,242.5 Long-term debt, including current maturities. 4.5 6.0 463.0 381.3 326.7 Debt in default............................. 501.0 501.0 - - - Capital lease obligations.................... 2.6 3.9 27.0 30.0 28.4 Shareholders' (deficit) equity..............(302.3) (175.0) 456.1 370.5 311.9 Book value per common share................. (7.95) (4.84) 10.82 10.00 8.36 Other data: Capital expenditures......................... 17.3 68.4 58.8 44.2 43.6 Depreciation and amortization............... 35.2 69.0 49.1 33.9 23.6
See accompanying notes to Selected Historical Data NOTES TO SELECTED HISTORICAL FINANCIAL DATA (a) JWP has restated its previously reported financial statements for the year ended December 31, 1990. As a result, net income for the year ended December 31, 1990 has been reduced from the previously reported amount of $59.3 million to $50.3 million and earnings per share reduced from $1.56 per share to $1.32 per share. The restatement of 1990 operating results reflects pre-tax charges consisting of $8.3 million related to continuing operations and $1.3 million to discontinued operations. The 1990 restatement of continuing operations reflects $4.8 million of adjustments to correct the accounting for goodwill and a net $3.5 million reduction in the carrying value of certain assets, primarily long-term investments. The 1990 restatement had the effect of decreasing shareholders' equity at December 31, 1990 by $9.1 million. (b) JWP has restated its previously reported financial statements for the year ended December 31, 1991. As a result, net income for the year ended December 31, 1991 has been reduced from the previously reported amount of $60.3 million to $29.0 million and earnings per share has been reduced from $1.54 per share to $0.73 per share. The 1991 restatement reflected pre-tax charges of $47.9 million, of which $36.7 million relates to continuing operations and $11.2 million applicable to discontinued operations. The 1991 restatement of continuing operations reflected a $4.5 million increase in insurance reserves, a $6.6 million loss from the sale of a business which the Company had decided to sell in 1991 and a $25.6 million reduction in the carrying value of certain assets, principally receivables. Substantially all of the restated 1991 charges applicable to discontinued operations related to JWP's Information Services business and included $9.9 million of costs and expenses relating to the acquisition of Businessland, Inc., which was acquired by JWP in August 1991. These costs and expenses were previously charged to reserves established as part of the acquisition. The 1991 restatement, together with the 1990 restatement, described in Note (a) above, had the effect of decreasing previously reported shareholders' equity at December 31, 1991 by $40.4 million. (c) The Statement of Operations data include the results of the purchased businesses from acquisition dates except for the acquisition of Neeco, Inc. ("Neeco") on May 22, 1990. The acquisition of Neeco was accounted for as a pooling of interests and, accordingly, all financial data has been restated to include the accounts of Neeco, which data are included in discontinued operations. (d) Net (loss) income per share has been adjusted to reflect a three-for-two stock split effected July 16, 1990 and a three-for-two stock split effected June 12, 1989. (e) The Statement of Operations data has been reclassified for all periods presented to reflect JWP's Information Services and Supply of Water businesses as discontinued operations. B. UNAUDITED PRO FORMA FINANCIAL INFORMATION The unaudited Pro Forma Consolidated Balance Sheet as of December 31, 1993 and the unaudited Pro Forma Consolidated Statements of Operations for the year ended December 31, 1993 set forth below have been prepared using the principles of Fresh Start Accounting as required by the American Institute of Certified Public Accountants' Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" and are based on the historical unaudited consolidated financial statements of JWP, adjusted to give effect to the Plan. The unaudited Pro Forma Consolidated Balance Sheet reflects adjustments as if the Plan described above had occurred on December 31, 1993 and also gives effect to other adjustments described therein. The unaudited Pro Forma Consolidated Statements of Operations for the year ended December 31, 1993 reflects adjustments as if the Plan had occurred on January 1, 1993. The pro forma financial information should be read in conjunction with the historical consolidated financial statements, including the notes thereto, and Management's Discussion and Analysis of Financial Condition and Results of Operations, included in Exhibit 4 to the Disclosure Statement. The pro forma financial information does not purport to be indicative of the financial position or results that actually would have been obtained had the restructuring been completed as of the date and for the period presented or that may be expected in the future. The pro forma data should be read together with the other information contained herein under the headings "Selected Historical Financial Information," and in Exhibit 4 hereto, "Management Discussion and Analysis of JWP and Subsidiaries Financial Statements and Results of Operations for the three years ended December 31, 1992 (unaudited)" and "Management Discussion and Analysis of JWP and Subsidiaries Financial Information for the two years ended December 31, 1993 (unaudited)" and the unaudited Consolidated Financial Statements of JWP and Subsidiaries and related notes thereto as of December 31, 1992 and 1991 and for the three years ended December 31, 1992 and the unaudited Condensed Consolidated Financial Statements of JWP and Subsidiaries and related notes thereto as of December 31, 1993 and 1992 and for the two years ended December 31, 1993. PRO FORMA CONSOLIDATED BALANCE SHEET DECEMBER 31, 1993 (Unaudited)
Pro Forma Adjustments to record Proposed Plan Confirmation - -------------------------------------------------------- Debt Discharge & Exchange FreshStart ProForma of Stock Adjustments Reorganized Historical (Note (b)) (Note (g)) (Note (h)) - ------------ ----------------- ------------ ------------ (In thousands) ASSETS Current Assets Cash and cash equivalents.................................. $ 39,534 $ - $ - $39,534 Accounts receivable, net................................... 455,944 - - 455,944 Costs and estimated earnings in excess of billings on uncompleted contracts...................................... 61,987 - (2,259) 59,728 Inventories................................................ 5,221 - - 5,221 Prepaid expenses and other................................. 13,240 - - 13,240 Net assets held for sale................................... 20,454 - - 20,454 ------------ ----------------- ------------ ------------ Total Current Assets....................................... 596,380 - $(2,259) 594,121 ------------ ----------------- ------------ ------------ Net assets held for sale................................... 63,161 (20,787)(c) - 42,374 Investments, notes and other long-term receivables......... 19,737 - - 19,737 Property, plant and equipment, net......................... 39,266 - (6,360) 32,906 Other assets Excess of cost of acquired businesses over net assets, less amortization............................................... 58,973 - (58,973) - Miscellaneous.............................................. 28,925 - (3,688) 25,237 ------------ ----------------- ------------ ------------ 87,898 - (62,661) 25,237 ------------ ----------------- ------------ ------------ Total Assets............................................... $806,442 $(20,787) $(71,280) $714,375 ============ ================= ============ ============ LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY Current Liabilities Notes payable.............................................. $ 172 $ - $ - $ 172 New working capital facility (a)........................... - - - - Current maturities of long-term debt and capital lease obligations................................................ 2,327 10,613 (c) (529) 12,411 Debt in default............................................ 501,007 (501,007)(c) - - Accounts payable........................................... 209,867 (400)(d) - 209,467 Billings in excess of costs and estimated earnings on uncompleted contracts...................................... 115,179 - - 115,179 Other accrued expenses and liabilities..................... 220,152 (91,959)(d) 21,079 149,272 ------------ ----------------- ------------ ------------ Total Current Liabilities.................................. 1,048,704 (582,753) 20,550 486,501 ------------ ----------------- ------------ ------------ Long-term debt............................................. 2,538 127,957 (c) (14,720) 115,775 ------------ ----------------- ------------ ------------ Other long-term obligations and deferred credits........... 57,462 (29,493)(d) 3,000 30,969 ------------ ----------------- ------------ ------------ Shareholders' (Deficit) Equity Old Series A Preferred Stock............................ 21,250 (21,250)(e) - - Old Common Stock........................................... 4,072 (4,072)(e) - - New Common Stock........................................... - 933 (e) - 933 Old Warrants of Participation.............................. 576 (576)(e) - - New Warrants............................................... - - (e) 2,179 2,179 Capital surplus............................................ 204,247 24,965 (e) (151,194) 78,018 Cumulative translation adjustment.......................... (6,068) - 6,068 - (Deficit)..................................................(526,339) 463,502 (f) 62,837 - ------------ ----------------- ------------ ------------ Total Shareholders' (Deficit) Equity....................... (302,262) 463,502 (80,110) 81,130 ------------ ----------------- ------------ ------------ Total Liabilities & Shareholders' (Deficit) Equity........ $806,442 $ (20,787) $(71,280) $714,375 ============ ================= ============ ============ See Notes to Pro Forma Consolidated Balance Sheet
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET (Unaudited) The following notes set forth an explanation of the assumptions used in preparing the unaudited Pro Forma Consolidated Financial Statements. All amounts are in thousands, except per share data. (a) Excludes any outstanding balances under an anticipated post-confirmation domestic working capital facility of approximately $40 million. The Company expects that the average outstanding balance for the first year of the facility will approximate $15 million. (b) Reflects adjustments relating to discharge of debt and exchange of newly issued debt and equity securities under the restructuring. (c) Reflects the discharge of old debt and issuance of new debt under the restructuring as follows:
Historical Restructure Pro Carrying Discharge/ Forma 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)................................. $ 744 $ (744) - ========== =========== New 7% Series A Senior Secured Notes (included in long-term debt).................................... - $60,781 $ 60,781 =========== ========= New 7% Series B Senior Secured Notes (included in current maturities of long-term debt)....... - $11,357 $ 11,357 =========== ========= New 11% Series C Senior Subordinated Notes (included in long-term debt)....................... - $62,176 $ 62,176 =========== ========= New 12% SellCo Subordinated Contingent Payment Non-Recourse Notes.. - 47,668 47,668 Estimated Discount to Reflect Amounts Available to Redeem Non-Recourse SellCo Notes............. - (26,881) (26,881) ----------- --------- Total SellCo Subordinated Contingent Payment Notes (included in net assets held for sale-long-term)................... - $20,787 $20,787 =========== ========= New 8% Supplemental SellCo Note (included in long-term debt)................................... - $ 5,000 $ 5,000 =========== ========= Total................................... $501,751 $(341,650) $160,101 ====== =========== =========
The proforma 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 under JWP's restructuring plan. The 7% Series B Senior Secured Notes are included in current maturities of long-term debt because JWP anticipates that such notes will be redeemed within one year from the net proceeds of sales of related assets. It has been assumed that the Additional Interest Amount payable to Belmont will be equivalent to a 3.5% share of the Series A Senior Secured Notes, the Series C Notes, the SellCo Subordinated Contingent Payment Notes and the New JWP equity securities, including warrants (but excluding the Management Stock Options). Accordingly, the total face amount of the new debt securities, the new warrants and the number of New JWP Common Shares issued reflect the additional 3.5% distribution to Belmont. An equivalent 3.5% amount of Series B Senior Secured Notes is assumed to be paid in cash in lieu of additional Series B Senior Secured Notes. (d) Reflects reduction of recorded amounts of accrued interest, insurance reserves, other impaired liabilities and unexpired leases to be rejected by JWP as follows:
(In thousands) ------------------------------ Accounts Accrued Long-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 Director's retirement benefits................ - - 975 975 Other impaired claims......................... 400 699 - 1,099 -------- -------- ----------- -------- Total......................................... $ 400 $ 91,959 $ 29,493 $121,852 ======== ======== =========== ========
(e) Reflects the elimination of the recorded book value of Old Common Stock, Old Preferred Stock and Warrants of Participation upon consummation of the restructuring and the issuance of 1,502,591 New Warrants and 9,326,425 shares of New Common Stock, $.10 par value. (f) Deficit was reduced by the following:
Net reduction in debt upon discharge of old debt and issuance of new debt. See Note (c) above.......................................... $341,650 Reduction in recorded amounts of accrued interest, insurance reserves, other impaired claims and unexpired leases to be rejected by JWP upon consummation the restructuring. See Note (d) above...... 121,852 -------- Total.......................................................... $463,502 ========
(g) JWP has accounted for the reorganization using fresh-start reporting. Accordingly, all assets and liabilities are restated to reflect their reorganization value, which approximates estimated fair value at the date of confirmation assuming a reorganization equity value of $81,130 including $2,179 allocated to the New Warrants on the basis of a valuation made by JWP's financial advisor. See "Financial Information-Valuation." The following table summarizes the estimated adjustments to record the reorganization under fresh-start accounting in accordance with AICPA Statement of Position 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code. The adjustments made to the respective asset and liabilities categories are preliminary estimates. The allocation of reorganization equity value to the individual assets and liabilities will be made after consummation of the restructuring. NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET (Unaudited) (Continued) Footnote (g) (continued) Fresh Start Accounting Adjustments (In thousands)
Costs in Net Assets Property Excess of Held Plant & Misc. Billings For Sale Equipment Goodwill Assets Deficit ---------- ---------- ----------- ------------------- Assets To record discounted value of 12% SellCo Notes using a dis- count rate of 14%................. 3,819 3,819 To record accrued interest to maturity on 12% SellCo Notes based upon discounted proforma carrying value and assum- ing a discount rate of 14%...................... (3,819) (3,819) To eliminate goodwill and other intangible assets (58,973) (5,488) (64,461) To reflect costs and estimated earnings in excess of billings at estimated fair market value............... (2,259) (2,259) To reflect fixed assets at estimated fair market value.......... (6,360) (6,360) To reflect unamortized debt issuance expense on post-confir- mation working capital credit facility.......................... 1,800 ---------- ---------- ---------- ----------- ---------- $ (2,259) $ 0 $ (6,360) $ (58,973) $ (3,688) ========== ========== ========== =========== ==========
Current Other Cumulative Maturities Accrued Long-Term Long-Term New Capital Translation Long-Term Debt Expenses Debt Liabilities Warrants Surplus Adjustments -------------- -------- ---------- ----------- -------- ----------- ----------- Liabilities To record 7% Series A and Series B Senior Notes at estimated fair market value using a discount rate of 12%......................... (529) (4,200) 4,729 To record 11% Series C Senior Sub- ordinated Notes at estimated fair market value using a discount rate of 14%......................... (9,282) 9,282 To record 8% Supplemental SellCo Note at estimated fair market value using a discount rate of 14%................................. (1,238) 1,238 To reflect liability for cash to be paid in lieu of issuance of certain Series B Senior Notes............... 412 (412) To adjust for above fair market value leases........................ 2,000 3,000 (5,000) To reflect accrued severance and other post-employment liabili- ties................................ 3,000 (3,000) To reflect accrued interest on Debt- or-in Possession financing.......... 1,367 (1,367) To reflect accrued professional and other fees related to confirmation of the proposed plan................ 7,500 (7,500) To reflect accrued debt issuance costs on post-confirmation work- ing capital facility................ 1,800 To record potential Federal and State income tax liability arising from the sale of water compa- nies................................ 5,000 (5,000) Equity To eliminate cumulative translation adjustment.......................... 6,068 (6,068) To eliminate deficit................ (229,212) 229,212 To record estimated fair value of new warrants........................ 2,179 (2,179) To record reorganization equity value in excess of par value of common stock........................ 78,018 (78,018) -------------- -------- ---------- ----------- -------- ----------- ----------- $(529) $21,079 $(14,720) $3,000 $2,179 $(151,194) $6,068 $62,837 ============== ======== ========== =========== ======== =========== ====================
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET (Unaudited) (Continued) (h) See "Historical and Pro Forma Capitalization" of JWP which sets forth the unaudited consolidated capitalization of JWP as of December 31, 1993 as if the Plan became effective on such date. (i) JWP has a net operating loss carryforward for U.S. income tax purposes which approximates $500 million and which expires in years through 2008. The proforma financial statements assume that the amount of net operating loss carryforwards available to offset post-confirmation taxable income will be subject to restrictions and substantial reductions governed by Section 382 of the Internal Revenue Code. Additionally, the pro forma financial statements assume that any net deferred tax asset which may be recognized for financial reporting purposes will be offset by a valuation allowance of the same amount, which valuation allowance would be attributable to the uncertainty of the realization of the pre-confirmation net operating loss carryforward. NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET (Unaudited) (Concluded) PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1993 (In thousands, except per share data) (Unaudited)
Pro Forma Adjustments Operations Sold, or Other Held for Sale Pro Forma Pro Forma Historical (Note (a)) Adjustments Reorganized ----------- ------------- ---------------- -------------- Revenues................................... $2,194,735 $(340,413) $ - $1,854,322 Costs and Expenses Cost of sales.............................. 2,043,558 (313,390) - 1,730,168 Selling, general and administrative........ 216,709 (32,938) (20,269)(b) 163,502 ------------------------ ---------------- -------------- 2,260,267 (346,328) (20,269) 1,893,670 ----------- ------------- ---------------- -------------- Operating (Loss)........................... (65,532) 5,915 20,269 (39,348) Interest expense, net...................... (50,187) 476 30,699 (c) (19,012) Gain on sale of businesses................. 1,028 (1,028) - - ----------- ------------- ---------------- -------------- (Loss) Before Income Taxes................. (114,691) 5,363 50,968 (58,360) (Credit) provision for income taxes........ (700) - - (700) ----------- ------------- ---------------- -------------- (Loss) From Continuing Operations.......... (113,991) 5,363 50,968 (57,660) ----------- ------------- ---------------- -------------- Discontinued Operations (Loss) from operations..................... 11,263 (11,263) - - (Loss) from disposal of businesses......... (20,350) 20,350 - - ------------------------ ---------------- -------------- (Loss) from discontinued operations........ (9,087) 9,087 - - ----------- ------------- ---------------- -------------- Net (Loss)................................. (123,078) 14,450 50,968 (57,660) Old Preferred Stock Dividend Requirements.. (1,806) - 1,806 (d) - ----------- ------------- ---------------- -------------- Net Loss Attributable to Common Stock...... $(124,884) $14,450 $52,774 $(57,660) =========== ============= ================ ============== (Loss) Per Share Continuing operations...................... $(2.84) $(6.18)(e) Discontinued operations.................... (0.22) - ----------- -------------- Net (Loss)................................. $(3.06) $(6.18)(e) Average Number of Common Shares Outstanding................................ 40,817 9,326 (e) =========== ==============
See Notes to Pro Forma Consolidated Statement of Operations (Unaudited) NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1993 (Unaudited) (a) Reflects adjustments to JWP's historical condensed consolidated statement of operations to eliminate revenues, cost and expenses, interest and losses on sale or disposal in respect to businesses sold or held for sale. (b) Reflects the following adjustments to selling, general and administrative expenses: (In thousands)
To eliminate amortization of goodwill and other intangibles........................ $(5,882) To eliminate legal, consulting and other professional fees arising from shareholder litigation, debt restructuring and the restatement of JWP's financial statements... (12,000) To reduce depreciation expense as a result of fair market value adjustment to fixed assets........................... (1,387) To reduce rent expense for above fair market value leases (1,000) -------------- $(20,269) ==============
(c) Reflects the following adjustments to interest expense:
(In thousands) To eliminate interest expense related to exchanged debt........................... $(48,697) To record interest expense on 7% Series A Senior Notes based upon the proforma discounted carrying value and assuming a discount rate of 12%..................... 6,668 To record interest expense on 7% Series B Senior Notes based upon the proforma discounted carrying value and assuming a discount rate of 12%..................... 1,170 To record interest expense on 11% Series C Subordinated Notes based upon the proforma discounted carrying value and assuming a discount rate of 14%............ 7,665 To record interest expense on 8% SellCo Recourse Notes based upon the proforma carrying value and assuming a discount rate of 14%. 545 To record interest expense on post-confirmation working capital credit facility assuming an average of $15 million outstanding at 9%... 1,350 To record amortization of debt issuance costs on post-confirmation working capital credit facility..... 600 -------------- $(30,699) ==============
(d) Reflects elimination of dividends on old preferred stock. (e) Proforma net loss per common share is calculated based upon the number of shares new common stock outstanding upon confirmation of the restructuring. HISTORICAL AND PRO FORMA CAPITALIZATION The following unaudited table sets forth the unaudited consolidated capitalization of JWP at December 31, 1993, and the unaudited consolidated pro forma capitalization of JWP as of such date as adjusted to give effect to the restructuring as if it became effective on such date. The pro forma information presented below assumes a revaluation of JWP's assets and liabilities pursuant to principles of Fresh-Start Accounting. The information presented below should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and the unaudited Pro Forma Financial Information and related notes appearing elsewhere herein. See "Financial Statements" and "Pro Forma Financial Information."
Pro Forma Adjustments to Record Plan Confirmation (a) - ------------------------------------- Debt Discharge and Historical Exchange of Fresh Start Pro Forma (Unaudited) Stock Adjustments (Unaudited) ----------- ------------- ----------- ----------- ($ in thousands) Notes Payable Comstock Canada....................... $172 $- $- $172 New Working Capital Facility........................ - - - - Current Maturities of Long-Term Debt and Capital Lease Obligations................................... 2,327 (744) - 1,583 New 7% Series B Senior Notes........................ - 11,357 (529) 10,828 Debt in Default: Senior Notes Payable Under Revolving Credit Facility..................................... 155,795 (155,795) - - Senior Notes Payable Under Various Indentures....... 328,572 (328,572) - - Subordinated Notes Payable.......................... 9,600 (9,600) - - Convertible Subordinated Debentures................. 7,040 (7,040) - - ----------- ------------- ----------- ----------- Total Short-Term Debt............................... 503,506 (490,394) (529) 12,583 Long-Term Debt: New 7% Series A Senior Notes........................ - 60,781 (4,200) 56,581 Capital Lease Obligations and Other Long-Term Debt (b)............................................ 4,699 - - 4,699 New 12% Sellco Subordinated Non-Recourse Notes............................................... - 20,787 - 20,787 New 11% Series C Senior Subordinated Notes.......... - 62,176 (9,282) 52,894 New 8% Supplemental SellCo Note..................... - 5,000 (1,238) 3,762 ----------- ------------ ----------- ----------- Subtotal Long-Term Debt............................. 4,699 148,744 (14,720) 138,723 Less Reclassification of New 12% Sellco Notes to Net Assets Held for Sale................................ - (20,787) - (20,787) ----------- ------------- ----------- ----------- Total Long-Term Debt................................ 4,699 127,957 (14,720) 117,936 Shareholders' Deficit (Equity): Old Series A Preferred Stock........................ 21,250 (21,250) - - Old Common Stock.................................... 4,072 (4,072) - - New Common Stock.................................... - 933 - 933 Warrants of Participation........................... 576 (576) - - New Warrants........................................ - - 2,179 2,179 Capital Surplus..................................... 204,247 24,965 (151,194) 78,018 Cumulative Translation Adjustment................... (6,068) - 6,068 - (Deficit)........................................... (526,339) 463,502 62,837 - ----------- ------------- ----------- ----------- Total Shareholders' (Deficit) Equity................ (302,262) 463,502 (80,110) 81,130 Total Capitalization................................ $205,943 $101,065 $(95,359) $211,649 =========== ============= =========== =========== - ------ (a) See Notes to Pro Forma Balance Sheet (Unaudited) for a discussion of the pro forma adjustments. (b) Includes $2,161 of long-term capital lease obligations which are included in the caption "Other long-term obligations" in JWP's consolidated balance sheet as of December 31, 1993.
C. PROJECTED FINANCIAL INFORMATION: 1994-1997 ASSUMPTIONS 1. Basis of Presentation The following projections have been prepared by management to present the effects of the restructuring and consummation of the Plan and to assess whether Reorganized JWP could meet its restructured financial obligations, but are not facts and should not be relied upon as being necessarily representative of future results. The estimates and assumptions underlying the projections are inherently uncertain, being based upon events that have not taken place, are subject to significant economic, competitive and other uncertainties and contingencies beyond Reorganized JWP's control and involve judgments based upon past performance and industry trends which may not necessarily be indicative of future performance or trends. Consequently, there can be no assurance that the projected results can be realized, or that actual results will not be higher or lower than those projected. Management believes that the basis for such projections is reasonable, taking into account the purpose for which they were prepared. However, the projections were not prepared with a view towards compliance with the published guidelines of the Securities and Exchange Commission or the American Institute of Certified Public Accountants regarding projections or forecasts. JWP's independent auditors, have neither examined, reviewed, performed agreed-upon procedures, nor compiled the following projections and, consequently, do not express an opinion or any other form of assurance with respect thereto. Management believes, however, that the projections are presented on a basis consistent with generally accepted accounting principles as applied to JWP's historical financial statements. There can be no assurance that the assumptions underlying the projections will prove correct or that Reorganized JWP's actual ability to cover its future principal and cash interest payment obligations will not differ from the information reflected below. See "Key Assumptions." CREDITORS HOLDING IMPAIRED CLAIMS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THE FOLLOWING PROJECTIONS IN DETERMINING WHETHER TO VOTE TO ACCEPT OR REJECT THE PLAN. The estimates and assumptions underlying the projections are based on matters as they exist on the date hereof, and not as of any future date. No representation is made as to the completeness or accuracy of the material contained herein, nor should it be relied upon as a promise or representation as to future performance. The projections include levels of revenues that have not been realized. Moreover, Reorganized JWP may be vulnerable to competitive pressures because of its liquidity needs, which are publicly known. These factors may adversely affect Reorganized JWP's businesses, its growth opportunities and relationships with its customers, suppliers, bonding companies and employees. Neither JWP nor Reorganized JWP intends to update or otherwise revise the following projections to reflect circumstances existing after the date hereof or to reflect the occurrence of unanticipated events, even in the event that any or all of the underlying assumptions are shown to be in error, except as required by applicable law. The projections should be read together with the other information contained herein under the headings "Selected Financial Information," and, in Exhibit 3 hereto, "Management's Discussion and Analysis of Consolidated Financial Statements and Results of Operations for the three years ended December 31, 1993". 2. Projected Operating Results JWP projections for 1994-1997 are the consolidation of the operating forecasts that were initially prepared by the individual business units' management. These forecasts were thereafter reviewed by JWP management. The forecast represents further shrinkage of JWP's mechanical and electrical businesses to provide, among other things, the cash required to repay the indebtedness of a reorganized JWP. The forecast does not incorporate any strategies to offset JWP's dependence on either the new construction market or bonding availability. The operating business forecasts have been prepared based upon the assumption that (i) bonding becomes more readily available for large and longer term projects by mid-1994, (ii) the market conditions throughout the forecast period will remain highly competitive with excess capacity and low margins, and (iii) working capital financing is available. However, the projections for the forecast period do not include any such large size projects unless they are currently included in the backlog. Generally, JWP and the operating company management believe that 1994 will be weaker for the contracting market, particularly in the Midwest U.S., Canada and the United Kingdom. This is based on the expected continued overall weaknesses in each of these markets and, because of JWP's financial difficulties during late 1992 and 1993, potential customers were hesitant to award business to JWP companies thereby resulting in a significant decrease in backlog as of the end of 1993. In addition, certain operating units experienced higher than normal revenues in 1993 relating to large, one-time projects. Should JWP remain in bankruptcy beyond fall 1994, the operating businesses will be confronted with continued pressures with respect to generating new awards beyond those assumptions inherent in these financial projections. These businesses had assumed that in fall 1994, the parent company would emerge from bankruptcy and, therefore, the cloak of financial instability would be lifted. Should this assumption prove to be incorrect, potential customers may be likely to continue to hesitate in awarding projects to JWP's operating businesses. This may have a negative affect on JWP's projected financial performance, particularly for 1994 and 1995. The operating businesses will continue to review and assess their operating cost structures in the normal course to attempt to mitigate any resultant revenue or gross profit pressures. 3. Pro forma Balance Sheet Adjustments In preparing the estimated condensed balance sheet as of December 31, 1993, pro forma adjustments were made to the estimated December 31, 1993 balance sheet to account for the proposed debt discharge and exchange of stock and for fresh start accounting and other reorganization adjustments. Additionally, JWP has prepared an estimated pro forma capitalization table as of December 31, 1993, which reflects the estimated pro forma debt and equity structure upon confirmation of the reorganization plan. The pro forma consolidated balance sheet and capitalization table, each as of December 31, 1993, are presented herein. The year end 1993 balance sheet incorporates JWP's estimate of certain restructuring transactions to reflect the debt and other obligations of the holding company which would be exchanged as a result of the reorganization. The exchanged obligations include indebtedness (principal and accrued interest) under JWP's revolving credit agreement, senior note agreements, guarantees of foreign indebtedness relating to financing agreements for JWP's former information services operations in France and Belgium, an amount due to JWP's former information services company in the United States (currently under control of a trustee appointed by the U.S. Bankruptcy Court pursuant to a Chapter 7 filing), and miscellaneous other indebtedness and guarantees. It is assumed that pursuant to JWP's plan of reorganization that all subsidiary operating company obligations and indebtedness, including those relating to domestic and foreign working capital lines of credit and surety credit, will be unimpaired. Additionally, it is assumed that JWP's preferred stock, common stock, warrants of participation and stock options will have minimal recovery under the reorganization plan by way of issuance of new warrants. It is assumed for purposes of the projections that as of January 1, 1994, JWP adopted "Fresh Start Accounting" as set forth in Statement of Position 90-7, "Financial Reporting By Entities In Reorganization Under The Bankruptcy Code", issued by the American Institute of Certified Public Accountants. (This statement will be adopted upon emergence from bankruptcy.) Pursuant to Statement of Position 90-7, JWP's assets and liabilities will be revalued and will be adjusted to their estimated fair values, and JWP's retained deficit eliminated. The net assets were revalued to be equal to the post-restructuring equity value of the new JWP-estimated at $81.1 million as of December 31, 1993 by JWP's financial advisor. See "Estimated Pro Forma Capitalization" which sets forth the unaudited estimated pro forma consolidated capitalization of Reorganized JWP as of December 31, 1993 as if the Plan became effective on such date. A subsequent re-valuation was completed as of March 31, 1994 based upon the financial results for the first quarter of 1994 (see attached exhibits). JWP's financial advisor concluded that on the basis of the information received from JWP, there was no material change in the net asset valuation. Finally, it has been assumed that the Additional Interest Amount payable to Belmont will be equivalent to a 3.5% share of the Series A Senior Secured Notes, the Series C Notes, the Sellco Subordinated Contingent Payment Notes and the New JWP equity securities, including warrants (but excluding the Management Stock Options). Accordingly, the total face amount of the new debt securities, the new warrants and the number of New JWP Common Shares issued reflect the additional 3.5% distribution to Belmont. An equivalent 3.5% amount of Series B Senior Secured Notes is assumed to be paid in cash in lieu of additional Series B Senior Secured Notes. 4. The Retained Operating Companies The consolidated projections include those operating units which JWP presently intends to keep as part of its on-going organization. The principal units are: JWP Welsbach Electric Corp. JWP/J.C. Higgins Corp. JWP Penguin Air Conditioning Corp. JWP Forest Electric Corp. JWP/Zack Inc. JWP/Hyre Electrical Co. of Indiana, Inc. JWP Gowan Inc. Heritage Air Systems, Inc. JWP West (d/b/a University Mechanical Contractors) Gibson Electric Co., Inc. JWP Trautman & Shreve, Inc. Hansen Mechanical Contractors, Inc. Comstock Canada Drake & Scull Engineering Limited Dynalectric group of companies Businesses which are intended to be sold are consolidated into Sellco Net Assets at their estimated realizable value. Transaction expenses, taxes and any retained liabilities relating to the sales of the designated companies are assumed to reduce the proceeds available to repay the Series A and B Senior Secured Notes, SellCo Recourse Notes, and the SellCo Subordinated Contingent Payment Notes, as described below. The debt to be repaid from currently planned asset sales includes the $60.8 million Series A 7% Senior Secured Notes, the $11.4 million Series B 7% Senior Secured Notes and the 12% SellCo Subordinated Contingent Payment Notes. The non-recourse SellCo Subordinated Contingent Payment Notes are reflected as an offset to SellCo Net Assets in the amount of $20.8 million, which amount is equal to the estimated net proceeds to be realized from the SellCo Net Assets less any retained liabilities not assumed by the prospective purchasers and less the principal amount of and accrued interest on the Series A and B Senior Secured Notes, and the face amount of the $5 million 8% Supplemental SellCo Note. The projections assume that the retained liabilities will include federal and state income taxes payable on the gain on the sale of the water companies. If the sales proceeds are insufficient to cover the full face amount of the non-recourse SellCo Subordinated Contingent Payment Notes, such remaining debt would be extinguished for a nominal amount. The following operating businesses are included in SellCo Net Assets: JWP Brandt Engineering Co. Inc. Wachtel, Duklauer & Fein Incorporated University Mechanical Contractors Inc. (WA) Superior Engineering Corporation University Cogeneration, Inc. Jamaica Water Supply Company & Sea Cliff Water Co. General Energy Development, Inc. These operations are assumed to be sold by June 30, 1995. Prior to such sales, these operations are assumed to be break-even on a cash flow basis. Also included in Sellco Net Assets are net cash proceeds and the face amount of various receivables, notes and other assets, net of liabilities, taken as consideration for the previously concluded sales of various businesses. Presently, JWP has already concluded the sale of substantially all of the assets of Kerby Saunders-Warkol, Inc. and JWP Technical Services. In addition, JWP Pacific International is currently being liquidated. 5. Insurance Expense Provision/Cash and Letters of Credit Collateral The insurance premiums and estimated future claims payouts for the then-existing plan year are included in the operating companies projected results within cost of work and selling, general and administrative expenses. Under JWP's insurance program, JWP has posted cash and letters of credit as security collateral with the insurance carriers to cover the estimated future unpaid liability for the present and prior plan years. At December 31, 1993, there were approximately $36.4 million in letters of credit outstanding to JWP's insurance carriers as security for the estimated future claims payouts relating to prior plan years. Since the plan year ended September 30, 1992 JWP has been unable to obtain letters of credit covering the then current plan year's projected future liability. Therefore, JWP has been required to post cash collateral with the insurance carriers in lieu of the letters of credit. The cash in this collateral account was $21.4 million as of December 31, 1993. Moreover, since October 1, 1992 JWP has not been able to fully apply the cash collateral held by its insurance carriers to pay the plan year loss payouts-i.e., JWP has had to fund additional amounts of monies despite having cash in its collateral accounts. For the purposes of these projections JWP is assuming that (i) it will retain the residual liability relating to prior years' claims for these future payouts for the operations to be sold, (ii) all amounts billed to the on-going operating units for estimated future payouts will be passed through to the insurance carrier as cash collateral for this liability, (iii) existing letters of credit covering prior plan years and any liability for payouts from the plan years prior to October 1, 1992 not covered by letters of credit will be impaired and treated as Class 4B claims pursuant to the Plan, (iv) no new letters of credit will be available to cover the current or future plan years' estimated ultimate payout liabilities or to post with the insurance carriers as a means to recover the cash collateral account balance, (v) any excess cash collateral, above an amount to cover the projected remaining future payout liabilities, will be released back to JWP during 1995, and (vi) beginning January 1, 1996 JWP is able to fully utilize specific plan year cash collateral on deposit with its insurance carriers to fund loss payouts as the losses are paid by the carrier. 6. Long Term Debt/Working Capital Lines of Credit/Interest Expense JWP assumes that it will have a new $40 million working capital line of credit upon the confirmation of the Plan and that its foreign subsidiaries will maintain their existing lines of credit. For the forecast period, the average amounts outstanding under various working capital lines of credit and the interest rates are as follows:
Average Outstandings - --------------------------------- Interest Rate 1994 1995 1996 1997 ------------- ---- ---- ---- ---- (Amounts in $millions) Domestic U.S. Working Capital Line.. 9%-10% 15.0 22.5 15.0 15.0 Foreign Working Capital Lines....... 8%-12% 9.2 4.3 4.3 4.3
The $62.2 million Series C Notes have an 11% coupon, with interest during the first eighteen months being paid-in-kind. This paid-in-kind interest is added to the principal balance. This debt does not carry any mandatory repayment provisions during the projection period. The final maturity will be seven years from the date of issuance. JWP's financial advisors estimate that the fair market rates of interest on the $62.2 million 11% Series C Notes, the $60.8 million Series A 7% Senior Secured Notes, the $11.4 million Series B 7% Senior Secured Notes and the $5 million 8% Supplemental SellCo Note are 14%,12%,12% and 14%, respectively. Each of these indebtedness obligations have been recorded at their respective present values which, because the estimated market rates of interest are greater than the stated coupon rates, are less than the face amounts. Interest expense is shown net of interest income. Cash balances are assumed to earn interest at 3% per annum based on the average year-end amount. 7. Income Tax Provision As of December 31, 1993, JWP has net operating loss carry-forwards ("NOLs") available to offset future U.S. federal tax liabilities which is estimated to exceed $500 million. The NOL relates to taxable years prior to the confirmation of the restructuring plan. JWP has conservatively assumed that usage of these NOLs will be limited by Section 382(l)(6) of the Internal Revenue Service Code (the "Code") after the confirmation of the Plan. The annual limitation at JWP's estimated 35% marginal federal income tax rate is approximately $1.71 million, or a maximum total benefit of approximately $23.9 million over a fourteen year period. JWP estimates that it will have a net deferred tax asset as of the confirmation date which primarily resulted from differences due to the excess of amounts previously expensed for financial reporting purposes over amounts deducted for income tax purposes. This net deferred tax asset has been offset by a valuation allowance of the same amount. The valuation allowance is attributed to the uncertainty of the realization of the NOL. The projections incorporate fresh start reporting which requires JWP to report Federal income tax expense on income before utilization of the pre-confirmation NOLs. As a result, pursuant to the Statement of Financial Accounting Standards 109, any tax benefit taken pursuant to Section 382 of the Code in a given year is not credited to income but instead is credited directly to shareholders' equity. U.S. state income taxes were calculated at an effective rate of 8%. However, to the extent that the total estimated U.S. state taxes in a given year aggregate less than a minimum franchise tax amount, the minimum franchise tax amount is projected to be paid. Foreign taxes are assumed to be paid at an effective rate of 33%. The $62.2 million 11% Series C Notes, the Supplemental SellCo Note and the SellCo Subordinated Contingent Payment Notes are assumed to be subject to the applicable high yield discount obligation provisions of Section 163(e)(5) of the Code. Accordingly, a portion of the interest expense on this indebtedness is assumed to be non-deductible for federal and state tax purposes, with the balance of the interest expense being deductible only when paid. 8. Capital Expenditures Each of the individual operating units have projected the annual amounts of capital expenditures for plant and equipment. Such total amounts approximate the historical levels of expenditures over the past three years. In addition, certain expenditures have been projected at the corporate level to provide for overall implementation of and enhancements to JWP's systems of internal control and its management information systems. 9. Working Capital Requirements The primary components of working capital-accounts receivable, costs in excess of billings, accounts payable and billings in excess of costs-are assumed to increase based upon increases in revenue. However, for 1994, JWP is projecting a decrease in working capital, primarily due to the collection of certain accounts receivable and costs in excess of billings, partially offset by a reduction in billings in excess of costs, relating to various large construction projects that have been substantially completed during 1993 or are estimated to be completed during 1994. Moreover, the cash flow projections for 1994 assume that significant restructuring advisory expenses are paid during 1994. The operating businesses also have on-going working capital management plans to improve-i.e., lower-working capital utilization. Certain working capital improvements are included in the projections. 10. Cash Balances The cash balances of JWP in the estimated proforma consolidated balance sheets do not necessarily represent the amount of cash on hand available for JWP's operations. Pursuant to various foreign financing agreements, the cash balances in Canada and the U.K./European operations are "fenced off" from the remainder of the domestic U.S. operations-i.e., such cash is generally assumed to be only available to support the operations and debt of the foreign companies. Moreover, the cash balances do not reflect the amount of "float", or checks written against such balances, or the amounts required on a going-concern basis to fund various local payroll accounts. In summary, the cash generally available to support the domestic operations, the new working capital facility, the $62.2 million 11% Series C Notes and the $5 million Supplemental SellCo Note is substantially less than the overall balance stated on the estimated proforma balance sheets. At December 31, 1993, the estimated cash balances are comprised as follows: U.S. U.K. Canada Total -------- ------- ------ -------- ($ millions) Book Balance....... $34.3 $3.0 $0.1 $37.4 Float/Restricted... (11.9) (2.4) 0.0 (14.3) -------- ------- ------ -------- Total "Available".. $22.4 $0.6 $0.1 $23.1 ======== ======= ====== ======== Additionally, the total foreign and domestic U.S. cash balances as of the end of each of the projection years, excluding amounts classified on the balance sheet as "Restricted Cash" in the U.S. to provide for certain insurance and tax liabilities, are estimated as follows: 1994 1995 1996 1997 ----- ----- ----- ------ ($ millions) U.S..... $29.5 $51.6 $63.0 $77.5 U.K..... 5.5 13.9 12.4 16.3 Canada.. 4.9 8.2 10.2 13.1 ----- ----- ----- ------ Total... $39.9 $73.7 $85.6 $106.9 ===== ===== ===== ====== ESTIMATED PRO FORMA CONSOLIDATED BALANCE SHEET DECEMBER 31, 1993 (Unaudited) Pro Forma Adjustments to record Proposed Plan Confirmation - --------------------------------------------------------
Fresh Start Debt and Other Discharge Reorganization As Exchange Adjustments Pro Forma Reclassified (a) of Stock Note (f) Estimated ---------------- -------------- -------------- --------- (In millions) ASSETS Current Assets Cash and cash equivalents......... $37.4 $37.4 Accounts receivable, net............... 441.5 441.5 Costs in excess of billings............ 62.3 $(2.3) 60.0 Inventories............................... 5.4 5.4 Prepaid expenses and other................ 10.1 10.1 Sellco Net Assets......................... 12.2 $ 12.2 --------- -------------- -------------- --------- Total Current Assets...................... 568.9 (2.3) 566.6 -------------- -------------- -------------- --------- SellCo Net Assets......................... 98.1 (20.8)(b) - 77.3 Investments, Notes and Other Long-Term Receivables......... 10.7 10.7 Insurance Funds Held in Escrow............. 21.4 21.4 Property, Plant and Equipment, net......... 40.5 (6.3) 34.2 Other Assets Excess of cost of acquired businesses over net assets, less amortization............................. 59.0 (59.0) - Miscellaneous............................ 7.5 (3.7) 3.8 ----------- -------------- -------------- --------- 66.5 - (62.7) $ 3.8 ------------ -------------- -------------- --------- Total Assets.............................. $806.1 $(20.8) $(71.3) $714.0 ======== ============== ============= ========= LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY Current Liabilities Notes payable............................. $ 0.2 $ 0.2 Current maturities of long-term debt...... 1.9 $10.7 (b) $(0.5) 12.1 Current maturities of capital lease obligations 0.6 0.6 Debt in default................................ 501.0 (501.0)(b) - Accounts payable............................... 207.6 (0.4)(c) 207.2 Billings in excess of costs.................... 115.4 115.4 Federal income taxes payable................... 1.6 1.6 State, foreign and local income taxes payable.. 2.7 2.7 Accrued payroll................................ 38.3 (0.2)(c) 3.0 41.1 Accrued expenses, other........................ 179.5 (91.7)(c) 11.0 98.8 --------- -------------- -------------- --------- Total Current Liabilities...................... 1,048.8 (582.6) 13.5 479.7 -------------- -------------- -------------- --------- Long-Term Debt................................. 2.5 128.0 (b) (14.8) 115.7 Capital Lease Obligations...................... 2.2 2.2 Other Long-Term Liabilities.................... 54.9 (29.6)(c) 10.0 35.3 ---------------- -------------- -------------- --------- Total Liabilities.............................. 1,108.4 (484.2) 8.7 632.9 -------------- -------------- -------------- --------- Shareholders' (Deficit) Equity Old Series A Preferred Stock................... 21.2 (21.2)(d) - Old Common Stock............................... 4.1 (4.1)(d) - New Common Stock............................... - 0.9 (d) 0.9 Old Warrants of Participation.................. 0.6 (0.6)(d) - New Warrants-Reorganized JWP................... - - 2.2 2.2 Capital surplus................................ 204.2 25.0 (d) (151.2) 78.0 Cumulative translation adjustment.............. (6.1) 6.1 - Retained Earnings (Deficit).................... (526.3) 463.4 (e) 62.9 - --------------- -------------- -------------- --------- Total Shareholders' (Deficit) Equity........... (302.3) 463.4 (80.0) 81.1 ---------- -------------- -------------- --------- Total Liabilities and Shareholders' (Deficit) Equity....... $806.1 $(20.8) $(71.3) $714.0 ================ ============== ============== ========= See Notes to Estimated Pro Forma Consolidated Balance Sheet.
NOTES TO ESTIMATED PRO FORMA CONSOLIDATED BALANCE SHEET (Unaudited) The following notes set forth an explanation of the assumptions used in preparing the unaudited Estimated Pro Forma Consolidated Balance Sheet as of December 31, 1993. All amounts are in millions. (a) To reclassify certain assets and liabilities as SellCo Net Assets and to reclassify certain assets and liabilities included in Net Assets Held For Sale as part of the continuing operation. JWP INC. and SUBSIDIARIES ESTIMATED CONSOLIDATED BALANCE SHEET DECEMBER 31, 1993 (unaudited)
Reclassify NAHFS, SellCo As Historical Net Assets Reclassified ---------- ---------- ------------ (in millions) ASSETS Current Assets Cash and Cash Equivalents......................... $39.5 $(2.1) $37.4 Accounts Receivable, net................................. 455.9 (14.4) 441.5 Costs in Excess of Billings........................ 62.1 0.2 62.3 Inventories.......................................... 5.2 0.2 5.4 Prepaid Expenses and Other............................ 13.2 (3.1) 10.1 Net Assets Held For Sale ("NAHFS").................... 20.5 (20.5) - SellCo Net Assets............................ - 12.2 12.2 ---------- ---------- ------------ Total Current Assets......................... 596.4 (27.5) 568.9 Net Assets Held For Sale ("NAHFS").................. 63.1 (63.1) - SellCo Net Assets........................ - 98.1 98.1 Investments, Notes and Other Long Term Receivables. 19.7 (9.0) 10.7 Insurance Funds Held in Escrow (1)................. 21.4 - 21.4 Plant, Property and Equipment, net. ............... 39.3 1.2 40.5 Other Assets Excess of cost of acquired businesses over net assets, less amortization.. 59.0 - 59.0 Miscellaneous.................................... 7.5 - 7.5 ---------- ---------- ------------ 66.5 - 66.5 ---------- ---------- ------------ Total Assets............................ $806.4 $(0.3) $806.1 ========== ========== ============ LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY Current Liabilities Notes Payable............................. $0.2 - $0.2 Current Maturities of Long Term Debt and Capital Lease Obligations........ 2.3 0.2 2.5 Debt in Default................. 501.0 - 501.0 Accounts Payable............. 209.9 (2.3) 207.6 Billings in Excess of Costs ............. 115.2 0.2 115.4 Federal Income Taxes Payable (2). ....... 1.6 - 1.6 State Income Taxes Payable (2)... ....... 2.7 - 2.7 Accrued Payroll (2)............... 37.9 0.4 38.3 Accrued Expenses, Other (2)............. 177.9 1.6 179.5 ---------- ---------- ------------ Total Current Liabilities.......... 1,048.7 0.1 1,048.8 Long Term Debt and Capital Lease Obligations.............................. 4.7 - 4.7 Other Long Term Liabilities...... 55.3 (0.4) 54.9 ---------- ---------- ------------ Total Liabilities............... .... $1,108.7 $(0.3) $1,108.4 Shareholders' (Deficit) Equity Preferred Stock............. 21.2 - 21.2 Common Stock.............. 4.1 - 4.1 Warrant of Participation........ 0.6 - 0.6 Cumulative Translation Adjustment... (6.1) - (6.1) (Deficit)........................... (526.3) - (526.3) ---------- ---------- ------------ Total Shareholders' (Deficit) Equity $(302.3) - $(302.3) ---------- ---------- ------------ Total Liabilities and Shareholders' (Deficit) Equity...................... $806.4 $(0.3) $806.1 ========== ========== ============ - ------ (1) Included in Condensed Consolidated Balance Sheet in "Other assets, miscellaneous" (2) Included in December 31, 1993 Condensed Consolidated Balance Sheet in "Other accrued expenses and liabilities".
NOTES TO ESTIMATED PRO FORMA CONSOLIDATED BALANCE SHEET-(Continued) (Unaudited) (b) Reflects the discharge of old debt and issuance of new debt under the Plan as follows:
Historical Restructure Pro Carrying Discharge/ Forma Amount Exchange Balance ---------- -------- (in millions) Senior Notes Payable Under Revolving Credit Facility $155.8 $(155.8) - Senior Notes Payable Under Various Indentures............ 328.6 (328.6) Subordinated Note Payable................................. 9.6 (9.6) - Convertible Subordinated Debentures........................ 7.0 (7.0) - ------ ----------- Total Debt in Default..................................... $501.0 $(501.0) - ======== =========== Other Senior Notes (included in current maturities of long-term debt)................................. $0.7 $(0.7) - ========= =========== New 7% Series A Senior Secured Notes (included in long term debt).......................... - $60.8 $ 60.8 New 7% Series B Senior Secured Notes (included in current maturities of long term debt)........................ - 11.4 11.4 New 11% Subordinated Notes (included in long-term debt) - $62.2 $62.2 New 12% SellCo Subordinated Contingent Payment Notes... - 47.7 47.7 Estimated Discount to Reflect Amounts Available to Repay SellCo Notes........................................ - $(21.9) $(21.9) -------- ----------- -------- $25.8 $25.8 New 8% Supplemental SellCo Note (included in long-term debt) - $ 5.0 $ 5.0 =========== ======== Total SellCo Subordinated Contingent Payment Notes (deducted) from long term portion of SellCo Net Assets).............. - $20.8 $20.8 =========== ======== Total......................................... $501.7 $(341.5) $160.2 ======= =========== ========
The proforma adjustments to the recorded debt balances reflect the differences between the historical carrying amounts of the old debt securities and the estimated face amount of the new debt securities issued under the plan. The 7% Series B Senior Secured Notes are included in the current maturities of long term debt because JWP anticipates that such notes will be redeemed within approximately one year from the net proceeds of sales of collateral assets. (c) Reflects reduction of recorded amounts of accrued interest, impaired claims and unexpired leases to be rejected by JWP as follows:
Other Accounts AccruedAccrued Long-Term Payable Expenses Payroll Liabilities Total -------- -------- ------- ----------- ------ (in millions) Payables................................... $0.4 $- $- $- $0.4 Insurance related liabilities.............. - 9.6 - 26.8 36.4 Accrued interest........................... - 43.3 - - 43.3 Intercompany balance due to JWP Information Services, Inc. ............................ - 24.9 - - 24.9 Foreign debt guarantees.................... - 6.0 - - 6.0 Stock price guarantees..................... - 5.1 - - 5.1 Preferred dividends in arrears............. - 2.3 - - 2.3 Unexpired leases........................... - - - 1.7 1.7 Other impaired claims...................... - 0.5 0.2 1.1 1.8 -------- -------- ------- ----------- ------ Total...................................... $ 0.4 $91.7 $0.2 $29.6 $121.9 ======== ======== ======= =========== ======
NOTES TO ESTIMATED PRO FORMA CONSOLIDATED BALANCE SHEET-(Continued) (Unaudited) (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 and the issuance of 9,326,425 shares of New Common Stock, $.10 par value. (e) Deficit was reduced by the following: Net reduction in debt upon discharge of old debt and issuance of new debt.
See Note (b) above...................................................... $341.5 Reduction in recorded amounts of accrued interest, debt and stock price guarantees, estimated amounts accrued in respect of unexpired leases to be rejected, and other impaired claims. See Note (c)above. 121.9 ------ $463.4
(f) JWP has accounted for the reorganization using fresh-start reporting. Accordingly, all assets and liabilities are restated to reflect their reorganization value, which approximates estimated fair value at the date of reorganization assuming a reorganization equity value of $81.1 million on the basis of a valuation made by JWP's financial advisors. See "Financial Information-Valuation." The following table summarizes the estimated adjustments required to record the reorganization under fresh-start accounting. The adjustments made to the individual assets and liabilities are preliminary estimates. The allocation of reorganization value to individual assets and liabilities will be made after consummation of the Plan. NOTES TO ESTIMATED PRO FORMA CONSOLIDATED BALANCE SHEET-(Continued) (Unaudited) Footnote (f)-(continued) Table to Note (f) Fresh Start and Other Reorganization Adjustments
Cost in Property Retained Excess of Plant & Misc. Earnings Billings Equipment Goodwill Assets (Deficit) ----------- --------- --------- ----------- --------- (in millions) ASSETS To eliminate goodwill and other intangible assets....................... (59.0) (5.5) (64.5) To reflect cost in excess of billings at estimated net present value............. (2.3) (2.3) To reflect fixed assets at estimated fair market value....................... (6.3) (6.3) To reflect unamortized debt issuance expense on post-confirmation working capital credit facility......... - - - 1.8 1.8 ----------- --------- --------- ----------- $(2.3) $(6.3) $(59.0) $(3.7) =========== ========= ========= ===========
Warrants- Long-term Reor Debt, Long- Other - Cumulative Current Accrued Accrued term Long-term ganized Capital Translation Portion Payroll Expenses Debt Liabilities JWP Surplus Adjustments --------- ------- -------- -------- ----------- --------- --------- ----------- LIABILITIES To record 7% Series A and Series B Senior Notes at estimated fair market value using a discount rate of 12%.................................. (0.5) (4.2) 4.7 To record 11% Series C Notes at estimated fair market value using a discount rate of 14%.................. (9.3) 9.3 To record 8% Supplemental SellCo Notes at estimated fair market value using a discount rate of 14%..................................... (1.3) 1.3 To adjust for above fair market value for leases.............................. 5.0 (5.0) To reflect accrued severance and other post-employment liabilities....... 3.0 (3.0) To reflect accrued interest on Debtor-in-Possession financing.......... 1.3 (1.3) To reflect accrued professional and other fees related to confirmation of the Plan............................. 7.5 (7.5) To reflect liability for payment in lieu of issuance of certain Series B Senior Notes............................ 0.4 (0.4) To reflect accrued debt issuance costs on post-confirmation working capital facility................ 1.8 (1.8) To record potential Federal and State income tax liability arising from sale of water companies............ 5.0 (5.0) To reflect issuance of new warrants..... 2.2 (2.2) To eliminate cumulative translation adjustments............................. 6.1 (6.1) To eliminate deficit.................... (229.2) 229.2 To record reorganization equity value in excess of par value of common stock............................ - - - - - - 78.0 - (78.0) --------- --------------- -------- ----------- --------- --------- ----------- - --------- $(0.5) $3.0 $11.0 $(14.8) $10.0 $2.2 $(151.2) $6.1 $62.9 ========= =============== ======== =========== ========= ========= ===========
JWP INC. PROJECTED PRO FORMA CONSOLIDATED BALANCE SHEETS (unaudited)
Estimated Proforma 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 --------- -------- -------- -------- -------- (in millions) ASSETS Cash and Cash Equivalents................... $ 37.4 $ 39.9 $ 73.7 $85.6 $106.9 Accounts Receivable......................... 441.5 363.3 377.1 411.8 430.2 Costs in Excess of Billings................. 60.0 53.3 51.1 54.7 56.7 Inventories................................. 5.4 5.4 6.1 6.6 6.7 Prepaid Expenses and Other.................. 10.1 8.5 10.0 10.9 11.4 SellCo Net Assets........................... 12.2 72.4 0.0 0.0 0.0 --------- ---------------- -------- -------- Total Current Assets........................ 566.6 542.8 518.0 569.6 611.9 SellCo Net Assets........................... 77.3 0.0 0.0 0.0 0.0 Investments, Notes & Long Term Receivables.. 10.7 14.9 13.7 13.7 13.7 Insurance Funds Held in Escrow.............. 21.4 35.8 43.9 51.2 56.4 Other Restricted Cash....................... 0.0 4.8 5.1 5.1 0.1 Property, Plant & Equipment................. 88.1 95.4 104.5 113.8 123.5 Less: Accumulated Depreciation.............. 53.9 63.6 73.6 82.9 92.8 --------- --------------- -------- -------- Property, Plant & Equipment, Net............ 34.2 31.8 30.9 30.9 30.7 Other Assets Intangibles-Other........................... 3.8 2.7 1.8 0.9 0.6 --------- -------- -------- -------- -------- TOTAL ASSETS................................ $714.0 $632.8 $613.4 $671.4 $713.4 ========= ================ ======== ======== LIABILITIES Notes Payable............................... $ 0.2 $ 0.0 $ 0.0 $ 0.0 $ 0.0 Long-Term Debt, Current Portion............. 12.1 64.4 0.3 0.3 0.3 Capital Lease Obligation, Current Portion... 0.6 0.4 0.2 0.2 0.2 Accounts Payable............................ 207.2 177.0 190.3 209.1 216.8 Billings in Excess of Costs................. 115.4 79.5 81.3 85.1 87.8 Federal Income Taxes Payable................ 1.6 1.6 1.6 6.6 1.6 Other Income Taxes Payable.................. 2.7 2.6 5.6 4.4 4.4 Accrued Payroll and Benefits................ 41.1 37.8 38.8 39.6 40.2 Accrued Expenses, Other..................... 98.8 82.0 82.4 83.4 84.4 --------- ---------------- -------- -------- Total Current Liabilities................... 497.7 445.3 00.5 428.7 435.7 Long-Term Debt.............................. 115.7 66.5 71.5 73.1 74.9 Capital Lease Obligation, Long-Term......... 2.2 1.2 0.9 0.5 0.2 Other Long-Term Liabilities................. 35.3 50.1 58.2 58.9 62.6 --------- ---------------- -------- -------- TOTAL LIABILITIES........................... $632.9 $563.1 $531.1 $561.2 $573.4 --------- ---------------- -------- -------- SHAREHOLDER'S EQUITY (DEFICIT): Warrants-Reorganized JWP.................... 2.2 2.2 2.2 2.2 2.2 Paid in Capital/Common Stock-12/31/93....... 78.9 78.9 78.9 78.9 78.9 Pre-Reorganization Tax Benefits............. 0.0 0.0 3.4 8.3 10.0 --------- ---------------- -------- -------- Total Shareholders' Equity (Deficit)........ 81.1 81.1 84.5 89.4 91.1 Retained Earnings Beginning of Year........................... 0.0 0.0 (11.4) (2.2) 20.8 Net Income/(Loss)........................... 0.0 (11.4) 9.2 23.0 28.1 --------- ---------------- -------- -------- Ending Year Retained Earnings............... 0.0 (11.4) (2.2) 20.8 48.9 --------- -------- -------- -------- -------- TOTAL SHAREHOLDERS' EQUITY.................. $81.1 $69.7 $82.3 $110.2 $140.0 --------- ---------------- -------- -------- TOTAL LIABILITIES & SHAREHOLDERS' EQUITY...................................... $714.0 $632.8 $613.4 $671.4 $713.4 ========= ======== ======== ======== ========
See accompanying "Notes To Estimated Pro Forma Consolidated Balance Sheet" and "Projected Financial Information: 1994-1997 Assumptions."
JWP INC. PROJECTED CONSOLIDATED INCOME STATEMENTS (unaudited) (For the Twelve Months Ended) --------------------------------------- 12/31/94 12/31/95 12/31/96 12/31/97 --------- --------- --------- --------- ($ Millions) Revenue..................................... $1,515.5 $1,660.4 $1,823.9 $1,928.8 Cost of Sales............................... 1,369.0 1,490.0 1,631.8 1,721.5 --------- --------- --------- --------- Gross Profit................................ 146.5 170.4 192.1 207.3 Gross Margin %.............................. 9.7% 10.3% 10.5% 10.7% Selling, General & Administrative Expense... 137.1 136.7 146.2 153.2 S, G & A % Revenue.......................... 9.0% 8.2% 8.0% 7.9% Operating Income............................ 9.4 33.7 45.9 54.1 Operating Margin %.......................... 0.6% 2.0% 2.5% 2.8% Interest Expense, Net....................... 18.0 17.4 9.4 9.2 --------- --------- --------- --------- Income Before Taxes......................... (8.6) 16.3 36.5 44.9 Income Taxes................................ 2.8 7.1 13.5 16.8 --------- --------- --------- --------- Net Income (Loss)........................... $(11.4) $ 9.2 $23.0 $28.1 ========= ========= ========= =========
JWP INC. PROJECTED CONSOLIDATED STATEMENTS OF CASH FLOW (unaudited) (For the Twelve Months Ended) --------------------------------------- 12/31/94 12/31/95 12/31/96 12/31/97 --------- --------- --------- --------- ($ Millions) Net Income.................................. $(11.4) $ 9.2 $23.0 $28.1 Non-cash expenses Depreciation................................ 8.1 7.7 7.0 7.6 Amortization................................ 1.1 0.9 0.9 0.3 Non-Cash Interest/Accretion................. 16.5 9.2 1.9 2.1 Pre-Reorganization Tax Benefits Taken....... 0.0 3.4 4.9 1.7 Change in Operating Assets and Liabilities.. 0.4 5.6 (11.6) (13.8) --------- --------- --------- --------- Cash Flow From Operations................... 14.7 36.0 26.1 26.0 Reduction in SellCo Net Assets.............. 17.2 72.4 0.0 0.0 Payment of subsidiary & corporate debt...... (14.8) (68.7) (0.7) (0.7) --------- --------- --------- --------- Cash Flow From Financing Activities......... 2.4 3.7 (0.7) (0.7) Sale of Miscellaneous Assets................ 0.4 0.0 0.0 0.0 Capital Expenditures........................ (7.2) (7.8) (8.0) (8.5) Decrease (Increase) in Other Assets, Net.... (7.8) 1.9 (5.5) 4.5 --------- --------- --------- --------- Cash From (Used In) Investment Activities... (14.6) (5.9) (13.5) (4.0) Increase In Cash............................ $2.5 $33.8 $11.9 $21.3 ========= ========= ======= ========= Cash At Beginning Of Period................. $37.4 $39.9 $73.7 $85.6 Cash At End of Period....................... $39.9 $73.7 $85.6 $106.9
See accompanying "Notes to Estimated Pro Forma Consolidated Balance Sheet" and "Projected Financial Information: 1994-1997-Assumptions." ESTIMATED PRO FORMA CAPITALIZATION The following unaudited table sets forth the unaudited estimated consolidated capitalization of JWP at December 31, 1993, and the unaudited estimated consolidated pro forma capitalization of JWP as of such date as adjusted to give effect to the restructuring as if it became effective on such date. The pro forma information presented below assumes a revaluation of JWP's assets and liabilities pursuant to principles of Fresh-Start Accounting. The information presented below should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and the unaudited Pro Forma Financial Information and related notes appearing elsewhere herein. See "Financial Statements" and "Pro Forma Financial Information." Pro Forma Adjustments to Record Plan Confirmation (a)
- ------------------------------------------------- Estimated Historical Discharge and Pro Forma 12/31/93 Exchange of Fresh Start 12/31/93 (Unaudited) Stock Adjustments (Unaudited) - ----------- ------------- ----------- ----------- (in millions) Notes Payable Comstock Canada and miscellaneous domestic companies............................................. $0.2 $- $- $0.2 New Working Capital Facility.......................... - - - - Current Maturities of Long-Term Debt and Capital Lease Obligations(b).................................. 2.5 (0.7) - 1.8 New 7% Series B Senior Notes.......................... - 11.4 (0.5) 10.9 Debt in Default: Senior Notes Payable Under Revolving Credit Facility.. 155.8 (155.8) - - Senior Notes Payable Under Various Indentures......... 328.6 (328.6) - - Subordinated Notes Payable............................ 9.6 (9.6) - - Convertible Subordinated Debentures................... 7.0 (7.0) - - ----------- ------------- ----------- ---------- Total Short-Term Debt................................. 503.7 (490.3) (0.5) 12.9 ----------- ------------- ----------- ---------- Long-Term Debt: Capital Lease Obligations and Other Long-Term Debt.... 4.7 - - 4.7 New 7% Series A Senior Notes.......................... - 60.8 (4.2) 56.6 New 12% SellCo Subordinated Notes..................... - 20.8 - 20.8 New 11% Series C Notes................................ - 62.2 (9.3) 52.9 New 8% Supplemental SellCo Notes...................... - 5.0 (1.2) 3.8 ----------- ------------ ----------- ----------- Subtotal Long-Term Debt............................... 4.7 148.8 (14.7) 138.8 Less Reclassification of New 12% SellCo Notes to SellCo Net Assets..................................... - (20.8) - (20.8) ----------- ------------- ----------- ----------- Total Long-Term Debt.................................. 4.7 128.0 (14.7) 118.0 ----------- ------------- ----------- ----------- Shareholders' Deficit (Equity): Old Series A Preferred Stock.......................... 21.2 (21.2) - - Old Common Stock...................................... 4.1 (4.1) - - New Common Stock...................................... - 0.9 - 0.9 Old Warrants of Participation......................... 0.6 (0.6) - - Warrants-Reorganized JWP.............................. - - 2.2 2.2 Capital Surplus....................................... 204.2 25.0 (151.2) 78.0 Cumulative Translation Adjustment..................... (6.1) - 6.1 - (Deficit)............................................. (526.3) 463.4 62.9 - ----------- ------------- ----------- ----------- Total Shareholders' (Deficit) Equity.................. (302.3) 463.4 (80.0) 81.1 ----------- ------------- ----------- ----------- Total Capitalization.................................. $206.1 $101.1 $(95.2) $212.0 =========== ============= =========== ===========
- ------ (a) See Notes to Estimated Pro Forma Balance Sheet (Unaudited) for a discussion of the pro forma adjustments. (b) Includes $0.2 miscellaneous capital lease obligations that have been excluded from the previously presented "Historical And Pro Forma Capitalization" table. D. VALUATION OF REORGANIZED JWP 1. Lazard Freres & Co., Financial Advisor to the Debtor. In connection with the distribution of the New Securities under the Plan, it is necessary to determine the enterprise value of Reorganized JWP for the purpose of creating a capital structure of Reorganized JWP and to allocate that structure among creditors and interest holders. Accordingly, JWP directed its financial advisor, Lazard Freres & Co. ("Lazard"), to make a determination of the enterprise value of Reorganized JWP as of an assumed date of January 1, 1994, based on information made available by JWP to Lazard. "Enterprise value" is the going concern present value of Reorganized JWP on an unleveraged basis. In reaching its conclusions, Lazard, among other steps (a) reviewed certain public and non-public financial statements of JWP for the three fiscal years ended December 31, 1993; (b) reviewed certain internal financial and operating data concerning the operating businesses of JWP, including financial projections through December 31, 1997, as prepared by JWP management and summarized in the projected financial information included in this Disclosure Statement; (c) prepared a discounted cash flow analysis of the JWP businesses, based on the projected financial information and discussions with the JWP tax professionals as to the amount and availability of the JWP net operating loss carryforwards8; (d) analyzed the market valuations of certain publicly traded companies whose operating businesses are believed to be comparable to those of JWP; (e) considered the financial terms, to the extent publicly available, of certain acquisitions of companies whose operating businesses were determined to be comparable to those of JWP as well as considered the market prices of certain relevant assets being sold by JWP; (f) considered certain general economic and industry information relevant to the businesses of JWP; (g) discussed the current operations and prospect of the businesses with the senior management of JWP; (h) reviewed, from a financial point of view, the Plan and the terms of the New Debt, New Common Stock and New Warrants, assuming consummation of the JWP Plan according to its terms and conditions; and (i) made such other investigations and analyses as Lazard deemed necessary or appropriate to its determination.9 - ------ 8 To arrive at the discounted operating asset valuation of the on-going MES operations as well as to arrive at the discounted value of the net operating losses of Reorganized JWP, Lazard used a range of discount rates of between 10% and 30% for the domestic MES operations and a range of discount rates of between 20% and 40% for the international MES operations. In addition, to estimate the operating asset value of MES beyond the JWP projection period, which ends December 31, 1997, Lazard used a range of multiples of between 3 and 7-and then capitalized the 1997 EBITDA at these multiples before discounting this capitalized value back at the rates described above and adding this value to the discounted value of the MES free cash flow for the years 1994 through 1997. For this purpose, EBITDA equals earnings before interest, taxes, depreciation and amortization. 9 For illustrative purposes, the following description explains how Lazard arrived at the total enterprise value of Reorganized JWP of $228.9 million (which is between the range of $225 million and $250 million). First, Lazard calculated the operating asset value of MES at $108.9 million, using the methodology described in the footnote immediately preceding. To that, Lazard added the present value of the Dynalectric companies, of $26 million, as well as the present value of the various assets and operations to be sold as part of the Plan of Reorganization, which Lazard calculated at $88.9 million. Lazard based its valuation of the Dynalectric companies on Lazard's attempts in 1993 to sell the Dynalectric companies as a separate company to a third party. The Lazard valuation of JWP's interest in Jamaica Water Securities Company was based on Lazard's view of what the public market equity value, net of taxes payable as a result of the sale, of the water companies would be in 1994. The values of the assets to be sold, aside from the water companies, as part of the Plan of Reorganization, were provided by JWP management, in part based upon transactions which have already been consummated or for which agreements to sell have been reached with third parties and in part based upon JWP management's estimate of the net realizable value of the various assets and operations including taking into account the expected timing of any of these dispositions. Finally, to these various asset values, Lazard added the present value of Reorganized JWP's net operating losses in accordance with the methodology described in the footnote immediately preceding. Lazard relied on the accuracy and reasonableness of the projections and the underlying assumptions as prepared by management of JWP. Lazard's valuation assumes that the operating results projected by JWP will be achieved in all material respects, including revenue growth, improvements in operating margins, earnings and cash flow, improvement in the collection of accounts receivable and other techniques for managing working capital, expenses and other elements, as well as that Reorganized JWP will have access to working capital financing and that its access to surety and bid bonds will continue. Certain of the projected results are materially better than certain historical results of operations of JWP. No assurance can be given that the projected results will be achieved. To the extent that the valuation is dependent on JWP's achievement of the projections, the valuation must be considered speculative. Lazard has also assumed that general financial and market conditions as of the assumed Effective Date of the Plan will not differ materially from those conditions prevailing as of the date of this Disclosure Statement. As a result of its analysis, reviews, discussions and considerations and based upon economic, monetary and market conditions existing on the date hereof, Lazard estimates that the enterprise value of Reorganized JWP and its subsidiaries as of January 1, 1994 would be in a range of between $225 million to $250 million. Lazard estimates the equity value of Reorganized JWP at $81.1 million.10 It is not a prediction of the future trading prices of securities of Reorganized JWP. Events occurring after the date hereof could materially affect the assumptions used in preparing this valuation and Lazard has not undertaken to reaffirm or to revise this valuation or otherwise comment on any events occurring after the date hereof.11 2. Rothschild Inc. Financial Advisor to the Junior Committee. Rothschild Inc. ("Rothschild") was retained by the Junior Committee to perform financial advisory services including, but not limited to, an enterprise valuation of Reorganized JWP. In conducting its analyses to develop the enterprise valuation, Rothschild reviewed, analyzed and considered certain information including but not limited to: (a) historical financial information for JWP; (b) projected financial statements for 1994 to 1997 for JWP prepared by management of JWP; (c) information provided by JWP's management regarding assets held for sale; (d) analyses, reports and information prepared and provided by Lazard, JWP's financial advisor; (e) various reports, memoranda, analyses and correspondence by JWP and other parties to the bankruptcy produced by them through document discovery requested by counsel to the Junior Committee; (f) market valuations of companies in businesses similar to those of JWP; (g) conditions in the capital markets and general economic conditions; and (h) the draft Amended Disclosure Statement dated May 31, 1994. - ------ 10 To arrive at the equity value of Reorganized JWP of $81.1 million, which is the opening pro-forma book value of Reorganized JWP, Lazard used the $228.9 total enterprise valuation described above and from that subtracted the present value of the post-reorganization obligations of Reorganized JWP: i.e., the present value of the reinstated debt from MES' international operations as well as estimated outstandings under the DIP facility ($6.7 million): the present value of the Series A Secured Notes ($56.6 million); the present value of the Series B Secured Notes ($10.8 million); the present value of the Series C Notes ($52.9 million); the present value of the JWP Supplemental SellCo Note ($3.8 million); and the present value of the SellCo Subordinated Contingent Payment Notes ($17 million). 11 Lazard did, however, review the Debtor's financial statements for the fiscal quarter ended March 31, 1994 (see Exhibit 4 hereto) and concluded that the enterprise value would be slightly higher, but not of a material difference. Based on such financial statements, Lazard also concluded that there is no change in the equity value. Rothschild also conferred with the senior management of JWP and Jamaica Water Supply Company to discuss and review the business of the operating subsidiaries of JWP and the aforementioned projections which management prepared. In arriving at its conclusion as to valuation, Rothschild relied on the accuracy of the information and reasonableness of the projections and underlying assumptions provided by JWP's management. Based on the analyses of the above information, and other information deemed relevant by Rothschild, Rothschild believes that as of January 1, 1994, the enterprise value of Reorganized JWP is between $345 million and $415 million12. While Rothschild believes that this is the inherent value of Reorganized JWP, it is unlikely that this value will be reflected in the trading value of the Reorganized JWP securities in the near term. 3. Differences in Enterprise Value. Although the financial advisors for the Debtor and the Junior Committee, Lazard and Rothschild, arrived at significantly different estimated enterprise values for JWP, it is important to note that the financial advisors express their own independent opinions. It is not unusual, as in this case, for highly qualified experts to arrive at different valuations utilizing essentially the same information. In conducting valuation analyses, experts may use similar techniques but still come to different conclusions based on the judgmental nature by which such techniques are applied. The valuation reports of Lazard and Rothschild may be examined by any party in interest who has executed and delivered a confidentiality agreement, which agreement may be obtained from counsel to the Debtor. - ------ 12 Rothschild's calculation of the enterprise value of Reorganized JWP is based on a sum of the values of (i) the ongoing operating assets of JWP, including the Dynalectric Companies, (ii) the value of Jamaica Water Supply Company and Sea Cliff Water Company, (iii) the present value of the assets held for sale, and (iv) the present value of the net operating losses. Rothschild valued the ongoing operating assets of JWP by discounting the cash flows attributable to the assets, after extending JWP's projections by one year to 1998, using a discount rate of between 18% and 22% and a terminal multiple of EBITDA in 1998 of between 5.0 and 7.0 times. In addition to the value of the discounted cash flows, Rothschild also considered the value of excess cash in JWP, investments held by JWP, other than assets held for sale, and of the possible substitution of cash held in escrow for insurance purposes by letters of credit. Rothschild valued Jamaica Water Supply Company and Sea Cliff Water Company based on Rothschild's view of the likely trading value of those companies as public companies. The value attributed to JWP's interest in the Water Companies was calculated by taking account of the value attributable to minority shareholders and the taxes payable by JWP on the sale of its interest. The values of assets held for sale as part of the reorganization of JWP, other than the Water Companies, were provided by the management of JWP and reviewed by Rothschild. Rothschild calculated the present value of assets held for sale using an average 9 month period to the receipt of proceeds and a discount rate of 20%. Rothschild valued JWP's net operating losses assuming that the Internal Revenue Service adopts Lazard's equity valuation for JWP and by using a discount rate of between 18% and 22%. IV. SUMMARY OF THE PLAN The following discussion is qualified in its entirety by the provisions of the Plan, which is annexed hereto as Exhibit 1. In addition to administrative expense claims and priority tax claims, which will be paid in full in accordance with the Bankruptcy Code, the Plan divides all other claims against and equity interests in JWP into eleven classes.
CLASS STATUS - ------------------------------------- Class 1: Priority Claims...................................Unimpaired-not entitled to vote Class 2: Old Note Claims...................................Impaired-entitled to vote Class 3: Old Credit Agreement Claims.......................Impaired-entitled to vote Class 4A: Convenience: $10,000 and under....................Unimpaired-not entitled to vote Class 4B: Other Borrowed Money Claims.......................Impaired-entitled to vote Class 4C: General Unsecured Claims..........................Impaired-entitled to vote Class 5: Unimpaired Contingent Claims......................Unimpaired-not entitled to vote Class 6: Subordinated Debt Claims..........................Impaired-entitled to vote Class 7: Contingent and Statutory Subordinated Claims......Impaired-entitled to vote Class 8: Old Preferred Stock...............................Impaired-entitled to vote Old Common Stock (including Employee Stock Options Class 9: and Other Rights).................................Impaired-entitled to vote Class 10: Class Action Plaintiffs...........................Impaired-entitled to vote Class 11: Warrants of Participation.........................Impaired-entitled to vote
A. PROPERTY TO BE DISTRIBUTED UNDER THE PLAN The reorganization of JWP will result, under the Plan, in a corporate restructuring that will, among other things, reflect the New Securities and, in the case of New Debt Securities, the sources of payment therefor. Reorganized JWP will have two significant wholly-owned subsidiaries: - -- MES Corporation ("MES"), a newly-organized nondebtor subsidiary and a holding company which will own, directly and indirectly, the wholly-owned Nondebtor Subsidiaries that constitute the continuing core business operations providing mechanical/electrical services. - -- SellCo Corporation ("SellCo"), a newly-organized non-debtor subsidiary and a holding company which is a co-proponent of the Plan and will own, directly and indirectly, the Nondebtor Subsidiaries which constitute the operating businesses that are actively being marketed or held for eventual sale. Reorganized JWP will also retain, as direct subsidiaries, the five Nondebtor Subsidiaries listed on Schedule 4 of the Plan, the stock of which is pledged as the substitute for the original Software House Collateral (see "Background Information-Software House Collateral") and Dyn Specialty Contracting, Inc. (see "Reorganized JWP"). In addition to the cash payments to be made in respect of administrative expense, priority tax and Class 4A claims, the following New Securities will be distributed, as applicable, under the Plan to Classes 2, 3, 4B, 4C, 6, 7 8, 9, 10 and 11: 1. Senior Secured Notes. Reorganized JWP will issue to Classes 2, 3, 4B and 4C, as applicable, two series of senior secured notes: - -- Series A Senior Secured Notes (the terms of which are described immediately below): as a result of the Intercreditor Agreement, Series A Senior Secured Notes are to be issued (i) in the principal amount of $51 million to the Old Note Holders and (ii) to the holders of Class 4B Borrowed Money Claims and Class 4C General Unsecured Claims in the principal amount necessary to provide the same percentage of their aggregate unsecured debt as the percentage $51 million is of the aggregate unsecured debt in the amount of $514,386,200 held by the Old Note Holders and Old Credit Agreement Holders. $51 million equals 9.9% of $514,386,200. Thus, the principal amount of Series A Senior Secured Notes issued to Class 4B and Class 4C will be equal to 9.9% of the aggregate Class 4B and 4C claims ultimately allowed. See below "Classification and Treatment-General Unsecured Creditors-Class 4C" for a table setting forth the range of Series A Senior Secured Notes that could be issued to Classes 4B and 4C. - -- Series B Senior Secured Notes in the principal amount of $11,357,000 recognizes the secured portion of the debt held by the Lenders. See "Background Information." The terms of the two series of senior secured notes are: a. Series A Senior Secured Notes. Three-year Series A 7% Senior Secured Notes ("Series A Secured Notes") to be issued by Reorganized JWP in the initial principal amount of (a) $51,000,000 to the Class 2 Old Note Holders, plus (b) to holders of the Class 4B Borrowed Money Claims and Class 4C General Unsecured Claims, the amount that bears the same ratio to the aggregate allowed claims of Classes 4B and 4C as $51,000,000 bears to the aggregate allowed unsecured claims of the Old Note Holders and the holders of Old Credit Agreement Debt, plus (c) to Belmont, the Additional Interest Amount unless Reorganized JWP elects to pay such Additional Interest Amount in cash. The Series A Secured Notes will be guaranteed by SellCo, which guaranty shall be secured by a priority pledge of the capital stock of each of the Nondebtor Subsidiaries which constitute SellCo listed on Schedule 5 of the Plan, subject only to the Working Capital Lien (see "Summary of the Plan-Conditions Precedent-Working Capital Facility"), will also be guaranteed by MES, and will be secured by, among other things, a first priority pledge of the capital stock of MES* and SellCo, a first priority security interest in the Series A Substitute Collateral, a second priority security interest in the Series B Substitute Collateral, and a second priority pledge of the capital stock of the Nondebtor Subsidiaries consisting of the substitute collateral for the original Software House Collateral listed on Schedule 4 of the Plan. There is a mandatory redemption of $10,000,000 principal amount, less any prepayments pursuant to the Indenture governing the Series A Secured Note, on the second anniversary of the Effective Date. Interest on the Series A Secured Notes, commencing on the Effective Date, shall be compounded semi-annually and payable by the issuance of additional Series A Secured Notes. For a full description of the terms, conditions and covenants of the Series A Secured Notes and the form of Series A Secured Note, see the Series A Secured Note Indenture annexed to the Plan as Exhibit A. b. Series B Senior Secured Notes. Three-year Series B 7% Senior Secured Notes ("Series B Secured Notes") to be issued by Reorganized JWP in the initial principal amount of $11,357,000 to the Class 2 Old Note Holders and the holders of Class 3 Old Credit Agreement Debt in the respective Class 2 and Class 3 Series B Percentages, plus, to Belmont, the Additional Interest Amount unless Reorganized JWP elects to pay such Additional Interest Amount in cash. The Series B Secured Notes will be guaranteed by SellCo, which guaranty shall be secured by a pledge of the capital stock of each of the Nondebtor Subsidiaries which constitute SellCo listed on Schedule 5 of the Plan, subject only to the Working Capital Lien and the lien in favor of the Series A Secured Notes, will also be guaranteed by MES, and will be secured by a first priority pledge of the capital stock of the Nondebtor Subsidiaries constituting the substitute collateral for the original Software House Collateral listed on Schedule 4 of the Plan and an assignment of a note and a right to a deferred payment in consideration of the sale of the assets of Maris Equipment Company, one of the said Nondebtor Subsidiaries, a first priority security interest in the Series B Cash Collateral and Substitute Collateral13, a second priority pledge of the capital stock of MES* and SellCo and a second priority security interest in the Series A Substitute Collateral. - ------ 13 The Plan also provides that net cash proceeds of the sales of the stock of Nondebtor Subsidiaries or sales of the assets of Nondebtor Subsidiaries which are to be collateral for the Series B Secured Notes received prior to the Effective Date will be Series B Cash Collateral. Series B Cash Collateral will be distributed on or shortly after the Effective Date as a mandatory prepayment of the Series B Secured Notes. Non-cash proceeds, if any, of such sales of stock or assets will constitute Series B Substitute Collateral and continue to secure the Series B Secured Notes. Non-cash proceeds of stock or assets of Nondebtor Subsidiaries which are to be collateral for the Series A Secured Notes and which are consummated after December 1, 1993 and which have not been converted to cash prior to the Effective Date will constitute Series A Substitute Collateral. * In the event of a default under either the Series A Secured Note or the Series B Secured Notes, foreclosure on the pledge of the capital stock of MES may be subject to a "standstill" agreement with a working capital lender for a period to be negotiated between the Creditors Committees and a working capital lender. Interest on the Series B Secured Notes shall be compounded semi-annually, commencing on the Effective Date, and payable by the issuance of additional Series B Secured Notes. For a full description of the terms, conditions and covenants of the Series B Secured Notes and the form of Series B Secured Note, see the Series B Secured Note Indenture annexed to the Plan as Exhibit B. 2. Series C Notes. Reorganized JWP will issue to Classes 2, 3, 4B and 4C, $60,000,000 principal amount of seven-year Series C 11% subordinated notes ("Series C Notes"), plus, to Belmont, the Additional Interest Amount (unless Reorganized JWP elects to pay such Additional Interest Amount in cash). The Series C Notes will be senior indebtedness of Reorganized JWP, but subordinate to (i) the Series A and Series B Secured Notes and (ii) up to $100 million of a new working capital credit facility of Reorganized JWP or MES, and will be guaranteed by MES subject to payment in full of the Series A and Series B Secured Notes. Interest, commencing on the Effective Date, on the Series C Notes shall be payable, semi-annually, by the issuance of additional Series C Notes for the first eighteen months after the Effective Date and, thereafter, payable quarterly in cash. For a full description of the terms, conditions and covenants of the Series C Notes and the form of Series C Note, see the Series C Note Indenture annexed to the Plan as Exhibit C. 3. SellCo Subordinated Contingent Payment Notes. As the means of segregating asset sales proceeds under the Plan for the benefit of impaired creditors, SellCo will issue to Classes 2, 3 and 4B $46,000,000 principal amount of ten-year 12% subordinated notes (the "SellCo Subordinated Contingent Payment Notes"), plus, to Belmont, the Additional Interest Amount (unless Reorganized JWP elects to pay such Additional Interest Amount in cash). The SellCo Subordinated Contingent Payment Notes will be junior and subordinated indebtedness of SellCo so long as any portion of indebtedness on account of the Series A or Series B Secured Notes or the guaranty of SellCo in respect thereof remain outstanding. The SellCo Subordinated Contingent Payment Notes will be secured by a pledge of the capital stock of the Nondebtor Subsidiaries owned by SellCo and listed on Schedule 5 to the Plan, subject only to the Working Capital Lien and the lien in favor of the Series A Secured Notes and the Series B Secured Notes, and a first priority pledge of the JWP Supplemental SellCo Note. See Paragraph 8 below for a summary of the terms of the JWP Supplemental SellCo Note. Subject to the prior payment in full of the Series A Secured Notes and the Series B Secured Notes and establishment of a cash reserve for the payment of capital gains taxes arising from the sales of Nondebtor Subsidiaries, the Sellco Subordinated Contingent Payment Notes will be mandatorily prepayable to the extent of Net Cash Proceeds from the sale of stock or the assets of such Nondebtor Subsidiaries. Interest, commencing on the Effective Date, on the SellCo Subordinated Contingent Payment Notes will be compounded semi-annually and payable in additional SellCo Subordinated Contingent Payment Notes until the earlier to occur of payment in full of the original principal amount of such Notes or the maturity date. If, at any time after the fifth anniversary of the Effective Date and prior to the maturity date, the value, as determined by an independent appraiser selected by Reorganized JWP, of the consolidated assets of SellCo (excluding the JWP Supplemental SellCo Note) and the Nondebtor Subsidiaries listed on Schedule 5 of the Plan is less than $250,000, then the SellCo Subordinated Contingent Payment Notes will be deemed canceled. For a full description of the terms and conditions of the SellCo Subordinated Contingent Payment Notes and the form of SellCo Subordinated Contingent Payment Note, see the SellCo Subordinated Contingent Payment Note Indenture, annexed to the Plan as Exhibit D. 4. New Common Stock. The amended and restated certificate of incorporation of Reorganized JWP, to be filed on or before the Effective Date, will authorize a single class of 13,700,000 shares of new common stock ("New Common Stock"), of which (i) 9,000,000 shares will be reserved for issuance to Classes 2, 3, 4B and 4C, (ii) 1,000,000 shares will be reserved for issuance under the 1994 Management Stock Option Plan, (iii) 1,450,000 shares will be reserved for issuance upon exercise of New Warrants by Classes 7, 8, 9, 10 and 11, and (iv) up to 608,202 shares14 will be reserved for the Additional Interest Amount in respect of New Common Stock and New Warrants. - ------ 14 Reflects maximum possible Additional Interest Amount of 5.5%. However, the Debtor has assumed a 3.5% Additional Interest Amount of New Common Stock, or 379,016 shares, will be issued. 5. New Series X Warrants and New Series Y Warrants. Reorganized JWP will issue to holders of Old Subordinated Debt (Class 6) two series of five-year warrants (which, together with the warrants described in Paragraph 6 below are, collectively, "New Warrants"), each of which will entitle the holder thereof to purchase one share of New Common Stock: (i) 600,000 New Series X Warrants, plus to Belmont the Additional Interest Amount; exercise price: $12.55 per share and (ii) 600,000 New Series Y Warrants, plus to Belmont the Additional Interest Amount; exercise price: $17.55 per share. If the market value of the New Common Stock has reached and remained at $30.46 per share for ten of the preceding fifteen trading days at any time prior to the expiration of five years from the date of issuance, the holders of Class 6 claims, upon exercise of the New Series X Warrants and the New Series Y Warrants, will have received, in value, the full amount of their claims. At that time, Reorganized JWP will notify the registered holders of such Warrants that the New Series X Warrants and New Series Y Warrants will expire in fifteen days, thereby giving such holders a final opportunity to exercise such Warrants to purchase New Common Stock. The New Series X Warrants and New Series Y Warrants will contain certain antidilution and other provisions. For a full description of the terms and conditions of the New Series X Warrants and the New Series Y Warrants, see the forms of Warrant Agreements annexed to the Plan as Exhibits O and P, respectively. 6. New Series Z Warrants. Reorganized JWP will issue to holders of other subordinated claims (Class 7) and impaired equity interests (Classes 8, 9, 10 and 11) 250,000 two-year New Series Z Warrants, each of which will entitle its holder to purchase one share of New Common Stock; exercise price: $50.00, which are allocated among such classes. See "Classification and Treatment" for such allocations. The New Series Z Warrants will contain antidilution and other provisions similar to the New Series X Warrants and New Series Y Warrants. Persons entitled to receive New Series Z Warrants may elect, instead, to receive $.10 for each such Warrant. See "Implementation of the Plan." For a full description of the New Series Z Warrants, see the form of Warrant Agreement annexed to the Plan as Exhibit R. The New Series Z Warrants being issued to Classes 7, 8, 9, 10 and 11 have an exercise price of $50.00 per share, which, based on the total number of shares of Reorganized JWP to be outstanding at the Effective Date, equates to an enterprise value of approximately $650 million for Reorganized JWP. Since Lazard values the Reorganized JWP as of January 1, 1994 at a range of $225 million to $250 million, and Rothschild values Reorganized JWP as of January 1, 1994 at a range of $345 million to $415 million, in all probability, the New Series Z Warrants will have little value upon the Effective Date of the Plan. There is also no certainty that the New Common Stock will trade at above $50 per share within the two year period by which the New Series Z Warrants must be exercised. However, the Debtor projects that the net income of the Reorganized JWP will increase from a loss of $11.4 million for 1994 to net income of $23.0 million in 1996. See "Financial Information-Projected Consolidated Income Statements." To the extent that Reorganized JWP achieves or exceeds these projections, and dependent upon prevailing stock market multiples for similar securities, it is likely that the improvement in earnings will be reflected in the market price of the New Common Stock. Pursuant to the Plan, holders of New Series Z Warrants have the option to receive $.10 in lieu of a warrant, provided that Reorganized JWP shall not be required to make any payment of less than one ($1) dollar. Lazard and Rothschild believe that the value of $.10 per warrant exceeds the market price at which the New Series Z Warrants are likely to trade after the Effective Date of the Plan. The exercise price of the New Series X and New Series Y Warrants being distributed to Class 6 is lower than the exercise price of the New Series Z Warrants, and the exercise term of the New Series X and New Series Y Warrants is longer than the term of the New Series Z Warrants. This difference is attributable to a number of factors, including that Class 6 is entitled to priority in distribution pursuant to the Bankruptcy Code and that equitable subordination claims that could be asserted by Class 6 would not be available to the equity classes receiving the Series Z Warrants. Although the Debtor and the Creditors' Committee deny any basis for equitable subordination of the Lenders' claims, in an effort to avoid the risks and delay inherent in such litigation, the parties negotiated the issuance of the New Series X and New Series Y Warrants to the Class 6 creditors. Despite the fact that, based upon the valuations by Lazard and Rothschild, there is insufficient value in Reorganized JWP to satisfy all creditors, and therefore there is no obligation under the Bankruptcy Code to provide any distribution to holders of equity interests, the Junior Committee, after protracted negotiations, successfully negotiated the issuance and distribution of New Series Z Warrants to Classes 7, 8, 9, 10 and 11. The exercise price of $50 a share equates to an enterprise value of approximately $650 million for Reorganized JWP. This enterprise value is approximately equivalent to the total amount of allowed claims that have priority in distribution to the holders of equity interests pursuant to the Bankruptcy Code. 7. New Securities For Debtor-in-Possession Lender. The Plan authorizes the issuance of additional Series A Secured Notes, Series B Secured Notes, Series C Notes, SellCo Subordinated Contingent Payment Notes, New Common Stock and New Warrants to Belmont in respect of the Additional Interest Amount. See "Events during the Reorganization Case" and "Implementation of the Plan." 8. JWP Supplemental SellCo Note. JWP will also issue an intercompany note to SellCo (the "JWP Supplemental SellCo Note") in the principal amount approximately equal to the net cash proceeds, less $1,000,000, generated by sales of businesses between December 1, 1993 and the date on which such Note is issued which would have been, under the Plan, subsidiaries of SellCo. Such net cash proceeds, initially intended to be paid as a prepayment of the Series A Secured Notes, were used by JWP for working capital needs. It is estimated that the principal amount of the JWP Supplemental SellCo Note will be approximately $5,000,000. The JWP Supplemental SellCo Note will (a) be senior indebtedness of Reorganized JWP, (b) accrue interest at the rate of 8% per annum, compounded semi-annually, and payable upon maturity and (c) mature on the earlier of (i) ten years or (ii) one day prior to the date, but not earlier than five years from the Effective Date, upon which the SellCo Subordinated Contingent Payment Notes are deemed canceled upon a determination that the value of the assets of SellCo (excluding the JWP Supplemental SellCo Note) is less than $250,000. B. CLASSIFICATION AND TREATMENT 1. Unimpaired Claims Not Classified Under the Plan. Administrative Expense and Priority Tax Claims. Administrative expense claims are those expenses, incurred by JWP after the Consent Date, which are necessary to preserve the estate, including usual ordinary course costs, wages and salaries, taxes, and such professional fees as are approved by the Bankruptcy Court. JWP intends to pay all administrative expenses of operations as they become due in the Reorganization Case. Fees of professionals employed at the expense of the estate, whose compensation is subject to the approval of the Bankruptcy Court, will be paid in the amounts awarded after entry of an order by the Bankruptcy Court. JWP is unable, at this time, to estimate the amount of professional fees that will be sought or that may be allowed. Several parties have expressed an intent to challenge the reorganization values developed by Lazard Freres & Co., the investment adviser relied on by the Debtor and its senior creditors. If there is significant or protracted litigation in connection with the confirmation process and the Plan, it is likely that professional fees will escalate to a currently undeterminable amount. Priority tax claims, under Section 507(a)(7) of the Bankruptcy Code, consist, generally, of taxes that are or were due within the three years prior to the Petition Date, except that tax claims arising between the Petition Date and the Consent Date, if any, will have priority under Section 507(a)(2) of the Bankruptcy Code. The Plan provides that payment of priority tax claims will be made, at JWP's option, either in cash on the Effective Date (or as soon as practicable thereafter) or, pursuant to Section 1129(a)(9)(C) of the Bankruptcy Code, by deferred cash payments over a period of six years from the date of assessment, with interest thereon at a rate to be determined by the Bankruptcy Court. JWP estimates that allowed priority tax claims are not likely to exceed $288,000. 2. Claims and Interests Classified Under the Plan. a. Unimpaired Claims. (1) Priority Claims-Class 1. Class 1 consists of priority claims under Section 507(a) of the Bankruptcy Code other than claims for administrative expenses or claims of a governmental unit under Section 507(a)(7). In addition to administrative expense and priority tax claims, which are separately treated, the only claims afforded priority under Section 507(a) of the Bankruptcy Code that JWP believes would be relevant to the Reorganization Case and the Plan would be (i) for debts other than wages and benefits incurred between the Petition Date and the Consent Date and (ii) those for wages, salaries and employee benefit plans. JWP estimates that claims incurred between the Petition Date and the Consent Date will not exceed $359,000. Since JWP has been authorized by the Bankruptcy Court to pay virtually all employee claims prior to confirmation of the Plan, JWP does not believe there will be any Class 1 priority wage-related claims other than, perhaps, unutilized vacation time which will be reinstated. In the event JWP has not paid all wage, salary and employee benefit plan claims promptly after the Consent Date, such claims will nonetheless remain unimpaired and be classified in Class 5. Holders of Class 1 claims are deemed to have accepted the Plan and are not entitled to vote on the Plan. Allowed Class 1 claims will be paid in full, in cash, on the Effective Date or as soon as practicable thereafter. (2) Convenience Class-Class 4A. A claimant who holds General Unsecured Claims of $10,000 or less in the aggregate or who elects to reduce his claims to $10,000 in the aggregate is unimpaired and classified in Class 4A. Holders of allowed Class 4A claims will be paid in full in cash on the Effective Date or as soon as practicable thereafter. A holder of a General Unsecured Claim in Class 4 who elects Class 4A treatment by reducing his claims, in the aggregate, to $10,000 accepts payment under the Plan as payment in full. JWP has scheduled and received proofs of claim in Class 4A that are, in the aggregate, approximately $220,000. In addition, it is anticipated that holders of Class 4B claims of up to $30,000 may elect to reduce their claims to $10,000, which election could add up to approximately $30,000 to the allowed Class 4A claims. Holders of Class 4A claims are unimpaired and are not entitled to vote on the Plan. (3) Unimpaired Contingent Claims-Class 5. JWP has determined it is essential to the feasibility of the Plan, and to Reorganized JWP's ability to preserve the value of the New Securities, that certain significant ordinary course obligations remain unimpaired. In addition to (a) administrative expense and priority tax claims (unclassified) and (b) claims arising between the Petition Date and the Consent Date (Class 1), employee claims that have not been otherwise addressed in the Plan and claims of certain bonding companies that satisfy the requirements of subsection H of Article III of the Plan, as described below, unimpaired claims are those listed on Schedule 1 to the Plan and are classified in Class 5. On the Effective Date, Class 5 claims will be reinstated and will have the same legal status as if the Reorganization Case had not been filed, with the rights and obligations of Reorganized JWP and the Class 5 claimant unaltered. In addition to the employee claims discussed above, the unimpaired claims include what are essentially contingent and/or unliquidated obligations, such as guarantees made by JWP to certain bonding companies in respect of bonds issued for the account of operating Nondebtor Subsidiaries (which guarantees constitute the largest part of the unimpaired claims) that are required to maintain operations of the Nondebtor Subsidiaries. Such guarantee claims could be in the range of $700 million to $1.5 billion. Based on past experience, JWP believes these contingent obligations are unlikely to become fixed, liquidated liabilities of Reorganized JWP. Impairment of these claims, however, (in particular, the bonding companies' contingent claims) could result in significant disruption of the businesses and operations of the Nondebtor Subsidiaries and, possibly, the liquidation of JWP and the Nondebtor Subsidiaries. The legal, equitable and contractual rights of Class 5 creditors will remain unaltered under the Plan. It is contemplated that, on the Effective Date, Reorganized JWP, MES and certain Nondebtor Subsidiaries will enter into agreements with bonding companies, other than Wellington Guarantee and Reliance Insurance Corp. (each a "Bonding Company") substantially in the form of Exhibit K to the Plan or such other agreement acceptable to the Debtor and the Creditors' Committee (a "Claims Reduction Agreement"). Pursuant to subsection H of Article III of the Plan, regardless of whether Reorganized JWP, MES and certain Nondebtor Subsidiaries have also executed a Claims Reduction Agreement, (A) the pre-petition claims of a Bonding Company listed on Schedule 1 to the Plan that has executed a Claims Reduction Agreement shall be (w) included in Class 5, (x) allowed (whether contingent or fixed, liquidated or unliquidated), (y) assumed by MES as primary obligations of MES and (z) treated as reinstated and unimpaired as against Reorganized JWP15, (B) all contractors' general agreements of indemnity or other - ------ 15 Under certain circumstances, if a Bonding Company listed on Schedule 1 to the Plan has entered into a Claims Reduction Agreement, but declines or fails to provide bonds to Nondebtor Subsidiaries in accordance with the terms of such agreement or subsequently consents to a Claims Reduction Agreement amendment which is materially adverse to Reorganized JWP or MES, the unimpaired and reinstated Class 5 contingent claims of such Bonding Company shall, by operation of such agreement and without any requirement of further action, be permanently reduced to zero as against the Debtor, Reorganized JWP and MES. similar instruments pursuant to which bonds were executed or procured prior to the Effective Date of the Plan shall remain in full force and effect and (C) the terms of Section 4 of the agreement attached to the Plan as Exhibit K shall be effective as against Reorganized JWP, MES and those certain Nondebtor Subsidiaries and shall be deemed to have been incorporated into the Plan by reference. The claims of a Bonding Company listed on Schedule 1 that has refused to execute such an agreement will be classified and treated as Class 4B claims which JWP will seek to have expunged under Section 502(e) of the Bankruptcy Code, following notice and a hearing to the affected Bonding Company. At least one of the bonding companies has stated that it does not believe that its contingent claims are subject to expungement under Section 502(e). Holders of Class 5 claims are deemed to have accepted the Plan and are not entitled to vote on the Plan. b. Impaired Claims. There are six classes of impaired claims. In addition to the claims of the Lenders (Class 2 and 3), the remaining claims which constitute "Senior Indebtedness" under the Indentures covering the Old Subordinated Debt (Class 6) are classified in Class 4B for the purpose of effectuating the terms of the Intercreditor Agreement without affecting the distributions to Class 4B. For all other purposes under the Plan, the claims in Class 2, 3 and 4B are treated as a single class of senior indebtedness claims against JWP. (1) Old Note Claims-Class 2. Holders of claims under the Old Notes are impaired. Old Note claims aggregate $328,572,000 principal amount, plus interest thereon of $29,593,112. Holders of Class 2 allowed claims will receive their Ratable Shares of (i) $51,000,000 principal amount of Series A 7% Senior Secured Notes of Reorganized JWP; plus (ii) the Class 2 Series B Percentage of $11,357,000 principal amount of Series B 7% Senior Secured Notes of Reorganized JWP reflecting the Class 2 Percentage of the aggregate allowed claims of Classes 2 and 3 after deducting the $51,000,000 distribution of the Series A Secured Notes; plus (iii) the Class 2 Residual Percentage of (A) $60,000,000 principal amount of 11% Series C Notes of Reorganized JWP, (B) $46,000,000 principal amount of 12% SellCo Subordinated Contingent Payment Notes and (C) 9,000,000 shares of New Common Stock. Based on the Lazard valuation and depending upon the aggregate amount of Class 4B and 4C claims ultimately allowed, JWP estimates that the consideration to be received by Class 2 claimants will have a value of approximately $.40 for each dollar of allowed Class 2 claims. Based on the Rothschild valuation and using the model developed by Lazard, such consideration will have a value of $.64 for each dollar of allowed Class 2 claims. Holders of Class 2 claims are impaired and entitled to vote on the Plan together with the holders of claims in Classes 3 and 4B as a single class. (2) Old Credit Agreement Claims-Class 3. Holders of claims under the Old Credit Agreement are impaired. Old Credit Agreement claims aggregate $155,794,000 principal amount, plus interest thereon of $11,784,088. Holders of Class 3 allowed claims will receive their Ratable Shares of: (i) the Class 3 Series B Percentage of $11,357,000 principal amount of Series B 7% Senior Secured Notes of Reorganized JWP reflecting the Class 3 Percentage of the aggregate allowed claims of Classes 2 and 3 after deducting the $51,000,000 distribution of the Series A Secured Notes to the holders of Class 2 Claims; plus (ii) the Class 3 Residual Percentage of (A) $60,000,000 principal amount of 11% Series C Notes of Reorganized JWP, (B) $46,000,000 principal amount of 12% SellCo Subordinated Contingent Payment Notes and (C) 9,000,000 shares of New Common Stock. Based on the Lazard valuation and depending upon the amount of Class 4B claims ultimately allowed, JWP estimates that the consideration to be received by Class 3 claimants will have a value of approximately $.27 for each dollar of allowed Class 3 claims. Based on the Rothschild valuation and using the model developed by Lazard, such consideration will have a value of approximately $.50 for each dollar of allowed Class 3 claims. Holders of Class 3 claims are impaired and entitled to vote on the Plan together with the holders of claims in Classes 2 and 4B as a single class. (3) Other Borrowed Money Claims-Class 4B. Other Borrowed Money Claims consist of claims which constitute "Senior Indebtedness" (other than the claims of Classes 2 and 3) under the Indentures governing the Old Subordinated Debt claims in Class 6, including the claims held by three banks (the "Letter of Credit Banks") which have outstanding letters of credit ("Letters of Credit"), in one case, guaranteed by JWP, in the aggregate amount of approximately $36 million to collateralize obligations under JWP's partial self-insurance program and which, in addition, hold promissory notes of JWP. In order to effectuate the terms of the Intercreditor Agreement between the holders of claims in Classes 2 and 3, the allowed claims of Class 4B are treated, for distribution purposes, with the allowed claims of Class 4C. See the discussion of Class 4C recoveries immediately below. Holders of Class 4B claims are impaired and entitled to vote on the Plan together with the holders of claims in Classes 2 and 3 as a single class. (4) General Unsecured Creditors-Class 4C. General Unsecured Creditors consist of all creditors not included in Classes 2, 3, 4A, 4B, 5, 6 and 7, together with (i) parties to executory contracts or unexpired leases which are rejected by JWP after the Consent Date and at or prior to the confirmation of the Plan, and (ii) any bonding company (other than Wellington Guarantee and Reliance Insurance Corp.), which provided performance or bid bonds to Nondebtor Subsidiaries and is listed on Schedule 1 to the Plan, which fails to enter into an agreement, substantially in the form annexed to the Plan as Exhibit K, establishing the terms and conditions on which such bonding company's claims shall remain in Class 5 and be reinstated and unimpaired. Certain claims in Class 4C are contingent, unliquidated and, in some cases, disputed claims. If any such Class 4C Creditor has filed a proof of claim in the Reorganization Case (see "Bar Date-Who Must File a Claim"), JWP intends either to seek estimation of such claim by the Bankruptcy Court pursuant to Section 502(c) of the Bankruptcy Code or, in appropriate cases such as contingent indemnification or contribution claims, to seek to have such claims disallowed and expunged under Section 502(e) of the Bankruptcy Code. Holders of allowed Class 4B and 4C claims will receive their Ratable Shares of (i) the principal amount of Series A 7% Senior Secured Notes that bears the same ratio to the aggregate amount of allowed claims of Class 4B and 4C as $51,000,000 bears to the aggregate amount of allowed unsecured claims of Classes 2 and 3; plus, (ii) the Class 4B and 4C Residual Percentage of (A) $60,000,000 principal amount of 11% Series C Notes of Reorganized JWP; (B) $46,000,000 principal amount of 12% SellCo Subordinated Contingent Payment Notes and (C) 9,000,000 shares of New Common Stock. Holders of allowed Class 4C claims are impaired and entitled to vote on the Plan. Holders of contingent, disputed or unliquidated Class 4C claims may only vote if the Bankruptcy Court has estimated such holder's claim for voting purposes pursuant to Bankruptcy Rule 3018. JWP has estimated the aggregate Class 4B and 4C claims that will ultimately be allowed by the Bankruptcy Court will be approximately $85,000,000. Based on that assumption and the Lazard valuation, JWP estimates that the consideration to be received by Class 4B and 4C claimants will have a value of approximately $.34 for each dollar of the aggregate allowed Class 4B and 4C claims. Based on the Rothschild valuation and using the model developed by Lazard, such consideration will have a value of approximately $.58 for each dollar of the aggregate allowed Class 4B and 4C claims. HOWEVER, THERE CAN BE NO ASSURANCE THAT ALLOWED CLASS 4B AND 4C CLAIMS WILL NOT EXCEED JWP'S ESTIMATE, THEREBY HAVING A SUBSTANTIAL EFFECT ON THE RATABLE SHARES OF THE SERIES C NOTES, SELLCO SUBORDINATED CONTINGENT PAYMENT NOTES AND NEW COMMON STOCK TO BE DISTRIBUTED UNDER THE PLAN TO CLASSES 2, 3, 4B AND 4C. IF, PRIOR TO CONFIRMATION, JWP ESTIMATES THAT THE AGGREGATE CLASS 4B AND 4C CLAIMS LIKELY TO BE ALLOWED BY THE BANKRUPTCY COURT WILL EXCEED $100,000,000, THE PLAN WILL NOT BE CONFIRMED UNLESS SUCH CONDITION IS WAIVED, IN WRITING, BY THE HOLDERS OF AT LEAST TWO-THIRDS IN AMOUNT OF EACH OF CLASS 2 AND CLASS 3 CLAIMS WHICH HAVE VOTED ON THE PLAN. SHOULD THE ALLOWED CLASS 4B AND 4C CLAIMS REACH, FOR EXAMPLE, $150,000,000 AND THE PLAN BE CONFIRMED, THE ESTIMATED VALUES OF THE RECOVERIES TO EACH OF CLASSES 2, 3, 4B AND 4C WOULD DECREASE TO $.38, $.24 AND $.31 BASED ON THE LAZARD VALUATION AND $.58, $.51 AND $.44 BASED ON THE ROTHSCHILD VALUATION FOR EACH DOLLAR OF ALLOWED CLAIMS, RESPECTIVELY, FROM THE VALUES ESTIMATED AT $85 MILLION OF ALLOWED CLASS 4B AND 4C CLAIMS. For example, the Letter of Credit Banks have outstanding Letters of Credit, in one case, guaranteed by JWP, in the amounts of $12 million, $16 million and $8 million, respectively which collateralize obligations under JWP's partial self-insurance program.16 One of the Letter of Credit Banks had filed a proof of claim in the approximately amount of $27 million, but subsequently settled its claim for approximately $18 million. The two other Letter of Credit Banks have filed proofs of claim based on the Letters of Credit and related JWP promissory notes in amounts that are far in excess of the face amounts of the respective Letters of Credit. If the claims of these two Letter of Credit Banks are allowed in the full amounts asserted, the Debtor's estimate of $85 million as the likely amount of aggregate allowed Class 4B and 4C claims would be exceeded by approximately $25 million. In addition, the Debtor has scheduled an intercompany claim owing to its subsidiary JWP Information Services Inc. ("JWPIS") in the amount of $24.9 million. See "The Company-Information Services." The Chapter 7 trustee for JWPIS (the "JWPIS Trustee") has filed a proof of claim in the amount of $50 million. If the claim of the JWPIS Trustee is allowed in full, the Debtor's estimate of $85 million as the likely amount of aggregate Class 4B and 4C claims would be further exceeded by $25.1 million. The following table illustrates the range of the distributions that would be made to Classes 2, 3, 4B and 4C, depending upon the amount of Class 4B and 4C claims that are ultimately allowed.
If Class 4B and 4C allowed claims are: Class 2 Class 3 Classes 4B and 4C - --------------------------------------------------------------------- ----------- ----------------- $50,000,000 Series A Notes................................ $51,000,000 $0 $4,957,365 Series B Notes................................ 7,348,129 4,008,871 0 Series C Notes................................ 35,381,587 19,302,904 5,315,509 SellCo Subordinated Contingent Payment Notes.. 27,125,883 14,798,893 4,075,224 New Common Stock shares....................... 5,307,238 2,895,436 797,326 $60,000,000 Series A Notes................................$51,000,000 $0 $5,948,838 Series B Notes................................ 7,348,129 4,008,871 0 Series C Notes................................ 34,765,597 18,966,843 6,267,560 SellCo Subordinated Contingent Payment Notes.. 26,653,625 14,541,246 4,805,129 New Common Stock shares....................... 5,214,840 2,845,026 940,134 $70,000,000 Series A Notes................................ $51,000,000 $0 $6,940,311 Series B Notes................................ 7,348,129 4,008,871 0 Series C Notes................................ 34,170,689 18,642,283 7,187,028 SellCo Subordinated Contingent Payment Notes.. 26,197,529 14,292,417 5,510,055 New Common Stock shares....................... 5,125,603 2,796,342 1,078,054 $80,000,000 Series A Notes................................ $51,000,000 $0 $7,931,784 Series B Notes................................ 7,348,129 4,008,871 0 Series C Notes................................ 33,595,799 18,328,643 8,075,558 SellCo Subordinated Contingent Payment Notes.. 25,756,779 14,051,960 6,191,261 New Common Stock shares....................... 5,039,370 2,749,296 1,211,334 $85,000,000 Series A Notes................................ $51,000,000 $0 $8,427,520 Series B Notes................................ 7,348,129 4,008,871 0 Series C Notes................................ 33,315,547 18,175,748 8,508,704 SellCo Subordinated Contingent Payment Notes.. 25,541,920 13,934,740 6,523,340 New Common Stock shares....................... 4,997,332 2,726,362 1,276,306 $90,000,000 Series A Notes................................ $51,000,000 $0 $8,923,256 Series B Notes................................ 7,348,129 4,008,871 0 Series C Notes................................ 33,039,933 18,025,383 8,934,684 SellCo Subordinated Contingent Payment Notes.. 25,330,615 13,819,460 6,849,925 New Common Stock shares....................... 4,955,990 2,703,807 1,340,203
- ---------------------------------------------------------------- 16 The Debtor intends to draw upon the Letters of Credit up to the full amounts thereof.
If Class 4B and 4C allowed claims are: Class 2 Class 3 Classes 4B and 4C - --------------------------------------------------------------------- ---------- ----------------- m $100,000,000 Series A Notes................................ $51,000,000 $0 $9,914,729 Series B Notes................................ 7,348,129 4,008,571 0 Series C Notes................................ 32,502,161 17,731,994 9,765,844 SellCo Subordinated Contingent Payment Notes.. 24,918,324 13,594,529 7,487,147 New Common Stock shares....................... 4,875,324 2,659,799 1,464,877 $125,000,000 Series A Notes................................ $51,000,000 $0 $12,393,412 Series B Notes................................ 7,348,129 4,008,871 0 Subordinated Notes............................ 31,231,327 17,038,673 11,730,000 Sellco Subordinated Contingent Payment Notes.. 23,944,017 13,062,983 8,993,000 New Common Stock shares....................... 4,684,699 2,555,801 1,759,500 $150,000,000 Series A Notes................................ $51,000,000 $0 $14,872,094 Series B Notes................................ 7,348,129 4,008,871 0 Subordinated Notes............................ 30,056,132 16,397,530 13,546,338 Sellco Subordinated Contingent Payment Notes.. 23,043,035 12,571,440 10,385,526 New Common Stock shares....................... 4,508,420 2,459,630 2,031,951
(5) Subordinated Debt Claims-Class 6. Class 6 consists of claims against JWP: i) by the holders of $7,040,000 principal amount of JWP's 73/4% Convertible Subordinated Debentures, due 2012, plus interest thereon to the Petition Date in the amount of $441,027; and ii) by holders of $9,600,000 principal amount of JWP's 12% Subordinated Notes, due 1996, plus interest thereon to the Petition Date in the amount of $1,411,200. The Plan provides for the issuance to each holder of an allowed Class 6 claim its Ratable Share of 600,000 New Series X Warrants and 600,000 New Series Y Warrants, but only if (i) Class 6 accepts the Plan by the requisite majority, (ii) such holder has delivered to Reorganized JWP the instrument or instruments on which its claim is based on or before the first anniversary of the Effective Date and (iii) the claims in Classes 2, 3 and 4B vote to accept the Plan in accordance with Section 1126(c) of the Bankruptcy Code. Class 6 is impaired and is entitled to vote on the Plan. CLASSES RECEIVING NEW SERIES Z WARRANTS The Plan provides for the issuance of 250,000 two-year New Series Z Warrants, each of which will entitle the holder to purchase one share of New Common Stock at the exercise price of $50.00. The Series Z Warrants are allocated among Class 7 (Other Subordinated Claims, described below) and the impaired equity interests described below (Classes 8, 9, 10 and 11). If Class 7 does not accept the Plan, none of the classes of equity interests will retain any property or receive any distributions under the Plan. However, if all of the claims in Class 7 are subsequently disallowed or expunged, the failure of Class 7 to accept the Plan will not preclude distributions to the classes of impaired equity interests which accept the Plan, if they are not otherwise subject to the "cram-down" provisions of the Bankruptcy Code. See "Confirmation of the Plan." The Junior Committee, in conjunction with Rothschild, determined the appropriate allocations of the New Series Z Warrants. In allocating the New Series Z Warrants, a uniform market analysis of the various claims and interests in Classes 7 through 11 was applied as of October 2, 1992, the date following JWP's announcement of its restated financial statements which gave rise to the market decline of JWP's stock and the commencement of the shareholder litigation and the litigation by the Old Noteholders. See "Legal Proceedings-Shareholder Litigation." As of October 2, 1992, the market value of the outstanding Old Common Stock was $157,921,948; the liquidation preference of the Old Preferred Stock was $21,250,000; and the market value of the Warrants of Participation was $1,152,649. The total value of the Equity Interests and the Liquidation Preference of the Old Preferred Stock was therefore $180,324,597 as of the close of business on October 2, 1992 (the "Equity Value"). The allocation of New Series Z Warrants is based upon the proportionate value that the claims or interests of Classes 7, 8, 9, 10 and 11 bear to the Equity Value. No fractional New Series Z Warrants will be issued. Accordingly, if any holder of a claim or interest in any of Classes 7, 8, 9, 10 or 11 does not hold a sufficient claim or interest to equate to the issuance of one warrant, no distribution will be made to such claimant or interest holder under the Plan. All New Series Z Warrants which are not distributed as a result of fractional share interests shall be distributed in a proportionate manner, to the extent practicable, to the members of each of Classes 7, 8, 9, 10 and 11 who do receive New Series Z Warrants from the undistributed portion of the New Series Z Warrants allocable to such class. Persons entitled to receive New Series Z Warrants may elect, instead, to receive $.10 in cash for each whole New Series Z Warrant (the "Cash Election"). However, Reorganized JWP is not obligated to distribute cash in lieu of New Series Z Warrants unless the claim or interest holder is entitled to receive at least $1.00, in the aggregate, in lieu of New Series Z Warrants. See the descriptions of the treatment of Classes 7, 8, 9, 10 and 11 below to determine whether a claim or interest holder in each such class would be entitled to make the Cash Election. (6) Other Subordinated Claims-Class 7. Holders of: i) the indemnification or contribution claims, if any, by current or former officers and directors of JWP or by other parties in connection with the claims asserted in the Old Note Holders Litigation, and ii) any intercompany claims that the Court determines should be subordinated to general unsecured claims, are impaired and are entitled to vote on the Plan. Since all of the Class 7 claims, except for the potential Class 7 intercompany claim filed by the Chapter 7 Trustee of JWP Information Services, Inc. ("JWPIS") (See "The Company-Information Services") are contingent and unliquidated indemnification claims, the Debtor intends to move before the Bankruptcy Court for an order estimating each such contingent, unliquidated claim at $100 solely for purposes of voting to accept or reject the Plan, without prejudice to the right of any party in interest to object to the allowance of such claim for purposes of receiving a distribution under the Plan. If each of Classes 4C and 7 accepts the Plan, 1,388 New Series Z Warrants will be reserved for holders of Class 7 claims, each of which will entitle the holder to purchase one share of New Common Stock at the exercise price of $50.00. In the event, however, that either of Classes 4C or 7 does not accept the Plan, Class 7 will not receive or retain any property under the Plan. IF CLASS 7 DOES NOT ACCEPT THE PLAN, NO CLASS JUNIOR TO IT WILL RECEIVE ANY DISTRIBUTION UNDER THE PLAN UNLESS ALL OF THE CLAIMS IN CLASS 7 HAVE BEEN DISALLOWED OR EXPUNGED. The Debtor, the Creditors' Committee and the Junior Committee believe that it is improbable that the contingent unliquidated claims of Class 7 will ever ripen into liquidated claims. In all probability, the legal fees of the directors and officers that may be incurred in connection with the defense of the litigation by the Old Noteholders will be paid by their insurers. It is also assumed that the plaintiffs in the Old Noteholders Litigation will settle within the policy limits of the insurance policies that cover these claims and, therefore, will not seek to recover judgments against the directors and officers individually. Nonetheless, in an exercise of caution, the Debtor has reserved New Series Z Warrants in an amount equivalent to a cumulative $1 million dollar liquidated claim by Class 7. This amount equates to 0.555% of JWP's Equity Value. Class 7 will therefore be entitled to receive 0.555% of the New Series Z Warrants, or 1,388 Warrants. These Warrants will be reserved in the event that Class 7 claimants actually do incur any payment expenses, and such Warrants will be issued in the proportion that any such claimant's payment or expenses bears to the aggregate of $1 million. A holder of an allowed Class 7 claim in the amount of $720 would be entitled to one whole New Series Z Warrant. Accordingly, a holder of an allowed Class 7 claim in the amount of $7,200 or greater would be entitled to make the Cash Election. c. Impaired Equity Interests. There are four classes of impaired equity interests. (1) Old Preferred Stock-Class 8. Holders of the equity interests evidenced by JWP's issued and outstanding shares of Series A Convertible Exchangeable Preferred Stock ($1 par value) are impaired and are entitled to vote on the Plan. The Plan provides that if each of Classes 4C, 6, 7 and 8 accepts the Plan, 29,297 New Series Z Warrants will be issued to the holders of interests in Class 8, each of which will entitle the holder to purchase one share of New Common Stock at an exercise price of $50.00. In the event, however, that any of Classes 4C, 6, 7 or 8 does not accept the Plan, Class 8 will not retain or receive any property under the Plan. After deduction of the 1,388 New Series Z Warrants allocable to Class 7, which, pursuant to the Bankruptcy Code, has priority in distribution to interest holders, there will be a remaining balance of 248,612 New Series Z Warrants available for distribution. Since the Old Preferred stock represented 11.784% of JWP's Equity Value, the Old Preferred Stock will receive 11.784% of the available 248,612 Warrants, or 29,297 New Series Z Warrants. The amount of Old Preferred Stock necessary to receive one whole warrant is 15 shares. Accordingly, in order to make the Cash Election, 150 shares or more of Old Preferred Stock would be necessary. (2) Old Common Stock and Certain Related Interests-Class 9. Holders of: i) JWP's issued and outstanding shares of common stock ($.10 par value) ("Old Common Stock"), ii) options granted under JWP's 1986 Incentive Stock Option and Appreciation Plan, JWP's 1991 Stock Option Plan, and JWP's 1992 Stock Option Plan ("Employee Stock Options"), and iii) Other Rights including equity interests under the Businessland, Inc. 51/2% Convertible Subordinated Debentures, due 2007 ("Businessland Debentures"), and the related Share Issuance Agreement, dated August 6, 1993 between JWP and ENTEX Information Services, Inc.17 are impaired and are entitled to vote on the Plan. The Plan provides if that each of Classes 4C, 6, 7, 8, 9, 10 and 11 accepts the Plan, 195,667 New Series Z Warrants will be issued, subject to reservation in the case of the Businessland Debentures (as set forth below) to the holders of interests in Class 9, each of which will entitle the holder to purchase one share of New Common Stock at the exercise price of $50.00. If any of Classes 4C, 6, 7, 8, 9, 10 and 11 does not accept the Plan, Class 9 will not retain or receive any property under the Plan. However, notwithstanding the failure of any of Classes 9, 10 or 11 to accept the Plan, Reorganized JWP may elect to make distributions of the New Series Z Warrants to all such Classes. Both Class 7 and 8 have priority in distribution to Classes 9, 10 and 11. After deducting the New Series Z Warrants allocable to Classes 7 and 8, there will be a remaining balance of 219,315 New Series Z Warrants available for distribution. These Warrants will be issued as follows: - ------ 17 Parties to the Share Issuance Agreement have filed contingent, unliquidated claims against the Debtor arising from the Share Issuance Agreement. The Debtor is advised that such parties may object to the Debtor's classification of such claims as being properly included as Class 9 claims. The Debtor intends to seek a determination by the Bankruptcy Court that the treatment of Class 9 interests related to the Businessland Debentures affords the holders of Businessland Debentures the same rights under the Plan as such holders have under the recapitalization provisions of such Debentures, i.e., the contractual right to receive the same consideration received by holders of Old Common Stock and, accordingly, that Reorganized JWP will have fulfilled JWP's obligations under the Share Issuance Agreement by performance in accordance with the Plan. In the event that it is ultimately determined by the Bankruptcy Court that some or all of such claims are properly included as Class 4C claims, such claims will be allowed as creditors of that class, as if they were originally included in that class, and will be entitled to receive the distributions afforded members of that Class under the Plan. (a) Common Stockholders-Holders of Old Common Stock as of sixty days following the Effective Date of the Plan will receive all remaining Warrants after the distribution and reserve for other members of Classes 9, 10 and 11, as set forth below. Class 9 interest holders will be entitled to receive up to 78.267% of the 250,000 Warrants, or 195,667 New Series Z Warrants. (b) Businessland Debentures-660 New Series Z Warrants will be reserved. The exercise price under the Share Issuance Agreement with respect to the Businessland acquisition is $314 for each share of Old Common Stock. It is, therefore, improbable and unrealistic to expect that any of the conversion rights will be exercised. Nonetheless, since the Subordinated Debentures could be converted to 138,000 shares of Old Common stock, the amount of Warrants equivalent to these shares is 660 New Series Z Warrants. Therefore, of the 195,667 New Series Z Warrants allocated to Class 9, 660 New Series Z Warrants will be reserved in the event that the conversion rights are later exercised. (c) Employee Stock Options-Holders of options pursuant to Employee Stock Option Plans must exercise their options within 60 days following the Effective Date of the Plan. It is unlikely and unrealistic to expect that any of the Employee Stock Options will be exercised, since the exercise price exceeds the market value of the Old Common Stock. Nonetheless, in the event any such options are timely exercised, they can be converted to New Series Z Warrants. Any of the Employee Stock Options not exercised within 60 days of the Effective Date will be canceled. The amount of Old Common Stock necessary to receive one whole warrant is 209 shares. Accordingly, in order to make the Cash Election, 2,090 or more shares of Old Common Stock would be necessary. (3) Members of the Plaintiff Class Certified in In re JWP Inc. Securities Litigation-Class 10. Holders of any other claim with respect to a security classified in Class 8 or 9 which would be subordinated pursuant to Section 510(b) of the Bankruptcy Code, including, but not limited to, the claims asserted in In re JWP INC. Securities Litigation, 92 Civ. 5815 (CLB) (S.D.N.Y.) (the "Shareholder Litigation") and any indemnification, reimbursement or contribution claims by current or former officers or directors of JWP or other parties in connection with such subordinated claims. Holders of equity interests in Class 10 are impaired and are entitled to vote on the Plan. The Plan provides that if each of Classes 4C, 6, 7, 8, 9, 10 and 11 accepts the Plan, 22,059 New Series Z Warrants will be reserved for holders of interests in Class 10, each of which will entitle the holder to purchase one share of New Common Stock at the exercise price of $50.00. If any of Classes 4C, 6, 7, 8, 9, 10 and 11 does not accept the Plan, Class 10 will not retain or receive any property under the Plan. However, notwithstanding the failure of any of Classes 9, 10 or 11 to accept the Plan, Reorganized JWP may elect to make distribution of the New Series Z Warrants to all such classes. The Debtor, the Creditors' Committee and the Junior Committee believe that even if JWP's bankruptcy case had not been commenced, the Shareholder Litigation would settle for payment directly from the insurers of JWP's directors and officers and from other third parties, and that no significant payment would have been made by JWP. Nonetheless, for purposes of the Plan only, and without constituting any admission of liability, it is assumed that the claims against JWP in connection with the Shareholder Litigation are $15 million. This amount has been estimated as follows. Although, based upon information provided to the Junior Committee, no expert report of damages has been prepared in the Shareholder Litigation, the representatives or the plaintiffs have indicated that the damages are approximately $300-350 million. However, the Junior Committee and its financial advisor have calculated approximately $65 million of potential damages, based upon a comparison of the market price of Old Common Stock prior to October 2, 1992 and thereafter. Since it is assumed that at least $50 million of that claim can be recovered from the insurers of the directors and officers and other third party sources, JWP's potential liability for purposes of the Plan is assumed to be $15 million. That amount represents 9.430% of the $159,074,597 total value of the Old Common Stock and Warrants of Participation as of the close of business on October 2, 1992 (the "Common Value"). Accordingly, 9.430% of the 219,315 New Series Z Warrants allocated to Classes 9 through 11, or 20,680 Warrants, will be reserved for the Class Action Plaintiffs. Any distribution under the Plan will not affect the rights of the plaintiffs in the Shareholder Litigation to pursue their claims against other defendants, and the Class Action Plaintiffs who continue to hold JWP Old Common Stock will also receive a distribution in their capacity as Class 9 holders of Old Common Stock. In addition, although the Debtor, the Creditors' Committee and the Junior Committee do not believe that there will be any payment or expense incurred by JWP's officers or directors individually, since all costs and expenses will be paid by their insurers, the Debtor has reserved New Series Z Warrants equivalent to a $1 million dollar interest. This equates to 1,379 New Series Z Warrants. These warrants will be issued in the proportion that any such interest holder's payments or expenses bear to the aggregate $1 million. A holder of an allowed Class 10 indemnification claim in the amount of $725 would be entitled to one whole New Series Z Warrant. Accordingly, a holder of an allowed Class 10 indemnification claim in the amount of $7,250 or greater would be entitled to make a Cash Election. Notwithstanding the foregoing, each claim in Class 10, whether filed on behalf of an individual holder or on behalf of a class of such holders, is deemed disputed. Since all Class 10 claims are disputed, the Debtor intends to seek estimation of each Class 10 claim in the amount of $100, solely for the purpose of voting to accept or reject the Plan and for no other purpose. Recognition of the existence of such disputed claims in the Plan shall not be deemed an admission by JWP or its Board of Directors of any liability to such holders. No distribution will be made to the holder of a claim in Class 10 unless and until the claim becomes an allowed claim. Holders of timely filed claims in Class 10 who do not opt out of the Shareholder Litigation shall have their claims allowed or disallowed exclusively by the Court with jurisdiction over the Class Action. Holders of timely filed claims in Class 10 who opt out of the Class Action shall have their claims allowed or disallowed exclusively by the Bankruptcy Court, provided that no proceeding to allow or disallow such a claim shall be commenced in the Bankruptcy Court until after disposition of the Class Action by Final Order. Neither the Plan nor the Disclosure Statement shall be admissible as evidence in the Class Action. The Ratable Share of New Series Z Warrants of a holder of an allowed Class 10 claim in respect of claims asserted in the Shareholder Litigation cannot be determined until the members of the class in the Class Action, as well as those who opt out, are identified. (4) Warrants of Participation-Class 11. Holders of JWP's outstanding Warrants of Participation18 are impaired and are entitled to vote on the Plan. The Plan provides that if each of Classes 4C, 6, 7, 8, 9, 10 and - ------ 18 Certain holders of Warrants of Participation ("Warrant Holders") have asserted that the Warrants of Participation are improperly classified as equity interests in JWP on the grounds, inter alia, that such Warrants (i) entitle the Warrant Holders to "a substantial portion" of the value of Jamaica Water Supply Company ("JWS") upon its sale, (ii) that such sale was "delayed by action and inaction of the Debtor," (iii) that the shares of JWS were improperly transferred to Jamaica Water Securities Corp. ("JWSC"), a new, wholly-owned direct subsidiary of the Debtor, and, therefore, the Warrant Holders are entitled to receive shares of JWSC or cash. The Debtor disputes all of the foregoing, as well as other assertions and legal conclusions of the Warrant Holders (including violation of the Warrant Holders' constitutional rights and lack of subject matter jurisdiction in the Bankruptcy Court), and asserts that the Warrants of Participation by their terms entitle Warrant Holders to shares of Old Common Stock upon the sale or other disposition of JWS or its assets only if such sale or other disposition occurs prior to December 31, 1994 and then only to the extent there is "Excess Value," a defined term in the Warrant Agreement governing the Warrants of Participation. Based on the valuations of the Water Companies by each of the investment advisers, the likelihood of "Excess Value" upon the disposition of JWS is remote enough to cause a calculation of Excess Value at zero. Certain Warrant Holders have filed proofs of claim, to which the Debtor will object. If such Warrant Holders prevail over the Debtor's objection to their claims, the values ascribed to the distributions to Classes 2, 3, 4B and 4C may change significantly enough to require either a resolicitation of votes for and/or a renegotiation of the Plan. See "Legal Proceedings-Jamaica Water Supply Company" for the status of JWS. 11 accepts the Plan, 1,589 New Series Z Warrants will be issued to holders of interests in Class 11, each of which will entitle the holder to purchase one share of New Common Stock at the exercise price of $50.00. If any of Classes 4C, 6, 7, 8, 9, 10 or 11 does not accept the Plan, Class 11 will not receive or retain any property under the Plan. However, notwithstanding the failure of any of Classes 9, 10 or 11 to accept the Plan, Reorganized JWP may elect to make distributions of the New Series Z Warrants to all such Classes. The Debtor, the Creditors' Committee and the Junior Committee believe that the Warrants of Participation do not have any present value. The Warrants of Participation provide that the Warrant holders are entitled to receive shares of Old Common Stock only if a sale or other disposition of all or part of Jamaica Water Supply Company occurs prior to December 31, 1994, and then only to the extent that "excess value" exists, as defined in the warrant agreement. Although the Debtor has determined that it will cause Jamaica Water Supply Company to be sold, and although a condemnation proceeding by the City of New York may continue (see "Legal Proceedings-New York City Condemnation Proceeding"), it is highly unlikely that any such sale or disposition will occur prior to December 31, 1994, when the Warrants of Participation expire. Moreover, based upon the valuation of Jamaica Water Supply Company by both Lazard and Rothschild, it does not appear that the Jamaica Water Supply Company can be sold in the near future for an amount that will yield "excess value", and thereby provide any distribution of stock to the warrant holders. In any event, even if "excess value" should be realized, such value would be converted to Old Common Stock which, under the Plan, will be canceled and replaced by New Series Z Warrants. The market value of the Warrants of Participation represented 0.725% of the Common Value. Accordingly, the holders of the Warrants of Participation will be issued 0.725% of the 219,315 available Warrants for Class 9 through 11, or 1,589 New Series Z Warrants. If and when it is determined that excess value exists upon a timely sale of JWS which would entitle holders of Warrants of Participation to New Series Z Warrants, it will be necessary to hold 725 Warrants of Participation to receive one whole New Series Z Warrant. Accordingly, it would be necessary to hold 7,250 Warrants of Participation to make a Cash Election. C. DISPUTED CLAIMS Disputed claims include those filed claims to which JWP objects (i) either as to nature or amount or (ii) by way of a request for estimation pursuant to an estimation procedure to be established by the Bankruptcy Court. For purposes of calculating the initial distributions to be made under the Plan, JWP will make a good faith estimate of the amounts, if any, likely to be allowed in respect of contingent or unliquidated claims and will treat all liquidated disputed claims as if allowed in full. D. EXECUTORY CONTRACTS As of the Effective Date, all executory contracts and unexpired leases to which JWP is a party will be assumed, except for any executory contracts and unexpired leases which are specifically rejected by JWP with the approval of the Bankruptcy Court. All applications to the Bankruptcy Court made by JWP to reject executory contracts and unexpired leases must be either determined by or pending on the date of Plan confirmation. Entry of the order confirming the Plan by the Clerk of the Bankruptcy Court will constitute approval of such assumptions pursuant to subsection 365(a) of the Bankruptcy Code. Claims created by the rejection of executory contracts must be filed with the Bankruptcy Court no later than twenty (20) days after the entry of an order authorizing such rejection. Any claims not filed within such time will be forever barred from assertion against JWP, the estate of JWP and Reorganized JWP. Unless otherwise ordered by the Bankruptcy Court or arising from claims or interests in Classes 9 or 11, all such claims arising from the rejection of executory contracts shall be classified in Class 4C of the Plan. JWP estimates that Class 4C claims arising from rejection of material executory contracts and unexpired leases will result in allowed claims that will not exceed $4,500,000. However, there can be no assurance that such additional claims will not exceed JWP's estimates. See "Impaired Claims-Class 4C" and the table therein. For the effects of JWP's assumption of executory contracts and unexpired leases, see "Financial Information-Projections." E. IMPLEMENTATION OF THE PLAN 1. Corporate Action. On or as soon as practicable after the Effective Date all corporate actions will occur which are necessary to effect the business, corporate and debt restructuring contemplated by the Plan. An amended and restated certificate of incorporation will be filed for Reorganized JWP; a certificate of incorporation will be filed for MES; transfers of the stock of Nondebtor Subsidiaries will be made, as appropriate, to MES or SellCo; the new seven-member Board of Directors of Reorganized JWP will assume office and will, by voting the Reorganized JWP stockholdings in MES and SellCo, elect the Board of Directors of each such corporation. In addition, the New Securities will be deemed to have been issued (but will only be delivered when the Percentages for the initial distribution, including reserves for disputed claims, have been calculated), and the pledge agreements and other security interests related to the New Securities will be executed and delivered. In addition, the Plan authorizes the issuance of additional Series A Secured Notes, Series B Secured Notes, Series C Notes, SellCo Subordinated Contingent Payment Notes, New Common Stock and New Warrants solely for the purpose of paying the Additional Interest Amount to Belmont, upon the terms and conditions of the DIP loan facility provided to JWP during the Reorganization Case. Reorganized JWP may, instead of delivering all or a portion of the New Securities to Belmont, elect to make a cash payment equal to the amount of such New Securities that would be due. 2. 1994 Management Stock Option Plan. Within one year but not earlier than the expiration of three months and twenty days after the Effective Date, the Compensation Committee of the Board of Directors of Reorganized JWP shall determine the recipients of options to purchase 500,000 shares of New Common Stock of Reorganized JWP pursuant to the 1994 Management Stock Option Plan and shall issue such options to such recipients in the respective amounts as determined by the Compensation Committee of the Board of Directors of Reorganized JWP. The employment agreement between JWP and Frank T. MacInnis, its President and Chief Executive Officer requires that options to purchase 200,000 shares of New Common Stock be issued to Mr. MacInnis. The exercise price for such options shall 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; provided, however, that in no event shall such options be issued or the exercise price be determined prior to expiration of three months plus twenty days after the Effective Date; provided further, that if the average market price of New Common Stock for the applicable period cannot be determined, the exercise price shall be determined by an investment advisor selected by the Board of Directors of Reorganized JWP. Options may be exercised only after they have vested. Vesting of options generally shall occur over a three-year period with one-third vesting each year. All options granted under the 1994 Management Stock Option Plan shall expire no later than the tenth anniversary of their date of grant. The Compensation Committee of the Board of Directors of Reorganized JWP is authorized to issue additional options pursuant to the Management Stock Option Plan to then current employees of Reorganized JWP or the Nondebtor Subsidiaries to purchase up to 500,000 shares of New Common Stock available under The Management Stock Option Plan. The 1994 Management Stock Option Plan will be substantially in the form annexed to the Plan as Exhibit L. See "Management and Management Stock Options-Description of the 1994 Management Stock Option Plan." 3. Listing of New Securities and Registration Rights. Reorganized JWP or Sellco, as the case may be, shall use its best efforts to (i) cause, as promptly as practicable after the Effective Date, the shares of New Common Stock and the other securities issued hereunder to be listed on a national securities exchange or quoted in the national market system of the National Association of Securities Dealers', Automated Quotation System, (ii) file, as promptly as practicable after the Effective Date, and be declared effective as soon as possible thereafter, a registration statement or registration statements under the Securities Act of 1933, as amended (the "Securities Act"), for the offering on a continuous or delayed basis in the future of each of the shares of New Common Stock, the Series A Secured Notes, the Series B Secured Notes, the Series C Notes, the SellCo Subordinated Contingent Payment Notes, the New Series X Warrants and the New Series Y Warrants (the "Shelf Registration"), (iii) keep the Shelf Registration effective for a two-year period, commencing on the date on which the Shelf Registration is declared effective, and (iv) supplement or make amendments to the Shelf Registration, if required under the Securities Act or by the rules or regulations promulgated thereunder or if requested by any holder or underwriter of any of the securities covered by the Shelf Registration, and have such supplements and amendments declared effective as soon as practicable after filing. See "Securities Laws Considerations." F. CONDITIONS PRECEDENT TO PLAN EFFECTIVENESS 1. Confirmation Order. The order of the Bankruptcy Court confirming the Plan shall be satisfactory in form to the holders of a majority in amount of the claims in each of Class 2 and Class 3 and shall have become a final order, no longer subject to review or appeal. 2. Class 4B and 4C Claims. Unless waived by the holders of at least two-thirds in amount of the claims of each of Class 2 and Class 3 which voted on the Plan, JWP shall have estimated that the aggregate allowed claims of Classes 4B and 4C will not exceed $100,000,000. 3. Working Capital Facility. Reorganized JWP or MES shall have entered into an agreement, subject only to confirmation of the Plan and the occurrence of the Effective Date, providing a working capital facility in an amount at least sufficient to repay and replace the DIP Loan provided to JWP during the Reorganization Case. JWP and its investment adviser have been diligently seeking such "exit financing" in order to fulfill this condition. In order to facilitate JWP's ability to obtain exit financing and to meet the anticipated needs of a working capital lender, the Plan provides that such lender may have a "Working Capital Lien" on the stock of Jamaica Water Securities Corp. and the right to receive net proceeds from the sale thereof equal to the balance by which the working capital loan exceeds $25,000,000, up to $15,000,000; provided, however, that the application of any such proceeds to repay all or a portion of the balance of such working capital facility shall permanently reduce the availability under such facility by the amount applied. Accordingly, the pledges of stock or assets of the Nondebtor Subsidiaries which constitute SellCo, to secure the Series A Secured Notes, the Series B Secured Notes and the SellCo Subordinated Contingent Payment Notes, are subject to the Working Capital Lien and the Series C Notes are subordinated and junior to repayment in full of any working capital facility obtained by Reorganized JWP or MES, up to $100,000,000, following confirmation of the Plan. 4. Indenture Qualification. Each of the indentures governing the Series A Secured Notes, Series B Secured Notes, SellCo Subordinated Contingent Payment Notes and the Series C Notes shall have been duly qualified under the Trust Indenture Act of 1939. 5. Waiver. Any of the foregoing conditions, except that condition in Paragraph F.2 above which requires a two-thirds vote, may be waived by a writing signed by an authorized representative of JWP and the holders of a majority in amount of the claims of each of Class 2 and Class 3 which voted on the Plan. 6. Failure of Conditions. If each of the conditions to effectiveness and the occurrence of the Effective Date has not been satisfied or duly waived on or before the first Business Day that is more than 179 days after the date the Bankruptcy Court enters an order confirming the Plan, or by such later date as is proposed and approved, after notice and a hearing, by the Bankruptcy Court, upon motion by JWP or any party in interest made before the time that each of the conditions has been satisfied or duly waived, the order confirming the Plan may be vacated by the Bankruptcy Court; provided, however, that notwithstanding the filing of such a motion, the order confirming the Plan shall not be vacated if each of the conditions to consummation is either satisfied or duly waived before the Bankruptcy Court enters an order granting the relief requested in such motion. If the order confirming the Plan is so vacated, the Plan shall be null and void in all respects, and nothing contained in the Plan shall (a) constitute a waiver or release of any claims against or equity interests in JWP or (b) prejudice in any manner the rights of the holder of any claim or equity interest or JWP. G. RELEASES, SETOFFS AND RECOUPMENTS, AND DISCHARGE 1. Releases. As of the Effective Date, JWP, Reorganized JWP, and each creditor of JWP, Reorganized JWP and/or any Nondebtor Subsidiary will waive, release and discharge the Seaboard Surety Company, each of the holders of claims in Classes 2, 3 and 6, the holders of claims in Classes 4B and 4C to the extent ordered by the Bankruptcy Court, and all officers, directors, employees or agents (including professionals retained by such holder) of such holder, from any and all claims arising prior to the Effective Date that could be brought by, through, or on behalf of JWP or its estate or any Nondebtor Subsidiary; provided, however, that claims which are waived, released or discharged shall not include the claims of any Nondebtor Subsidiary for services rendered or goods sold to the holder of a Class 2, 3, 4B, 4C or 6 claim or the officers, directors, employees or agents (including professionals retained by such holder) of such holder, if any, or defenses of a Nondebtor Subsidiary to any claim asserted by the Seaboard Surety Company (or other bonding company) solely in respect of such Nondebtor Subsidiary's liability on a bond; and provided, however, that the provisions of the Plan described in this paragraph shall not in any way affect the releases to Seaboard Surety Company provided for in the agreement attached to the Plan as Exhibit K. Such waiver, release and discharge shall also act as an injunction against any person or entity commencing or continuing any action, employment of process, or act to collect, offset, or recover any such waived, released and discharged claim. In accordance with Section 1123(b)(3) of the Bankruptcy Code, all other claims, rights and causes of action held by JWP shall be retained by Reorganized JWP. 2. Setoffs and Recoupments. Reorganized JWP shall retain its rights of setoff against or recoupment from any claim that is not impaired by the Plan and against and from the holder of any Class 4B or 4C claim that is not otherwise released as set forth above. Such setoff or recoupment may be taken in conjunction with any payments to be made or consideration to be distributed under the Plan or reserved to Reorganized JWP in connection with any reinstated Class 5 claim. 3. Discharge and Injunction. Other than with respect to the claims in Class 5, entry of the order confirming the Plan acts as a discharge of all debts of, claims against, liens on, and interests in each of JWP, its assets, or properties, which debts, claims, liens, and interests arose at any time before the entry of the order confirming the Plan. Other than with respect to the claims in Class 5, the discharge of JWP shall be effective as to each claim, regardless of whether a proof of claim therefor was filed, whether the claim is an allowed claim, or whether the holder thereof votes to accept the Plan. On the date the Court enters an order confirming the Plan, as to every discharged claim and equity interest, any holder of such claim or equity interest shall be precluded from asserting against JWP or against JWP's assets or properties, or any successors of JWP, any other or further claim or equity interest based on any document, instrument, act, omission, transaction, or other activity of any kind or nature that occurred before the date the Court enters the order confirming the Plan. In accordance with Section 524 of the Bankruptcy Code, the discharge provided by the Plan and Section 1141 of the Bankruptcy Code, inter alia, acts as an injunction against the commencement or continuation of any action, employment of process, or act to collect, offset, or recover the claims discharged hereby. H. RETENTION OF JURISDICTION BY THE BANKRUPTCY COURT On and after confirmation of the Plan, the Bankruptcy Court shall retain jurisdiction of all matters arising out of and related to the Reorganization Case pursuant to, and for purposes of Sections 105(a) and 1142 of the Bankruptcy Code and including the following purposes: 1. To hear and determine pending applications for the assumption or rejection of executory contracts or unexpired leases, if any are pending, and the allowance of claims resulting therefrom; 2. To determine any and all pending adversary proceedings, applications, and contested matters; 3. To ensure that distributions, if any, to holders of allowed claims are accomplished as provided herein; 4. To resolve disputes as to the ownership of a claim; 5. To hear and determine any timely objections to claims for administrative expenses or to proofs of claims and equity interests filed, both before and after the date the Court enters an order confirming the Plan, including any objections to the classification of any claim or equity interest, and to allow or disallow any disputed claims for administrative expenses, disputed claim, or disputed equity interest, in whole or in part; 6. To enter and implement such orders as may be appropriate in the event the order confirming the Plan is for any reason stayed, revoked, modified, or vacated; 7. To issue such orders in aid of execution of the Plan, to the extent authorized by Section 1142 of the Bankruptcy Code; 8. To consider any modifications of the Plan, to cure any defect or omission, or reconcile any inconsistency in any order of the Court, including, without limitation, the order confirming the Plan; 9. To resolve disputes concerning nondebtor releases and injunctions contained herein; 10. To hear and determine all applications for compensation and reimbursement of expenses of professionals under Sections 330, 331 and 503(b) of the Bankruptcy Code; 11. To hear and determine disputes arising in connection with the interpretation, implementation, or enforcement of the Plan; 12. To recover all assets of JWP and property of the estate, wherever located, including any causes of action under Sections 544 through 550 of the Bankruptcy Code; 13. To hear and determine matters concerning state, local and federal taxes in accordance with Sections 346, 505 and 1146 of the Bankruptcy Code; 14. To hear any other matter not inconsistent with the Bankruptcy Code; and 15. To enter a final decree closing the Reorganization Case. I. MISCELLANEOUS 1. Fractional Shares or Debt Instruments and Cash Option. No fractional shares of New Common Stock, New Series X Warrants, or New Series Y Warrants, or cash in lieu thereof, shall be distributed. No fractional shares of New Series Z Warrants shall be distributed; however, the New Series Z Warrants not distributed on account of such fractional shares shall be divided among Classes 7, 8, 9, 10 and 11 in proportion to the number of New Series Z Warrants to be distributed to each such class, and each holder of a claim or interest in each such class shall receive its Ratable Share of such New Series Z Warrants attributable to its class. At the option of the holder of an allowed claim or interest in Classes 7, 8, 9, 10 or 11, such holder shall be entitled to receive from Reorganized JWP $0.10 for each whole New Series Z Warrant such holder receives under the Plan, provided, however, that Reorganized JWP shall not be obligated to distribute cash to such holder on account of such whole New Series Z Warrants unless such holder is entitled to receive, in the aggregate, at least $1.00 on account of such whole New Series Z Warrants. The remaining New Securities, which are in the form of New Debt Securities, shall be issued in multiples of $100. On the Effective Date, if a fraction of New Debt Securities would otherwise be distributed to the holder of a Class 2, 3 or 4B claim (i) the actual distribution of securities shall be rounded down to the next lower multiple of $100, and (ii) cash in an amount equal to the fraction of securities which would otherwise be so distributed shall be distributed to the holders of such claims. Interest on the New Debt Securities that is payable in kind shall be paid by issuance of additional New Debt Securities in multiples of $100, with any interest amount under $100 payable in cash. 2. Reservation of Warrants for the Businessland Debentures. Reorganized JWP shall reserve and keep available a number of New Series Z Warrants on account of the Old Common Stock reserved to satisfy the conversion rights under the Businessland Debentures and the ENTEX Share Issuance Agreement. Reorganized JWP shall distribute such New Series Z Warrants only after all of the requirements for conversion set forth in the Businessland Debentures and the ENTEX Share Issuance Agreement have been satisfied. 3. Business Days. Any payment or act required to be made or performed under the Plan on a day that is not a Business Day shall be made or performed on the next succeeding Business Day. 4. Revesting of Assets. On the Effective Date, the property of JWP's estate shall revest in Reorganized JWP, free and clear of all claims, security interests, liens and equity interests, except as provided in the Plan. Reorganized JWP may then operate its businesses and use, acquire and dispose of property free of the restrictions of the Bankruptcy Code and the Bankruptcy Rules. J. TIMING OF DISTRIBUTIONS The initial distributions of New Securities, other than New Series Z Warrants, under the Plan will be made on the Effective Date, or as soon as practicable thereafter. The Additional Interest Amount, Class 4B and 4C Series A Amount and the Class 2, Class 3 and Class 4B and 4C Residual Percentages will be calculated (including all liquidated Disputed claims in such classes, for purposes of such calculation, as if they were allowed in full and making a good-faith estimate of the amount of the Disputed claims filed in an unliquidated amount). Based on such calculations, and establishing a reserve for Disputed claims and interests in Classes 7, 8, 9, 10 and 11 as if such claims or interests were allowed in full, a distribution of New Securities, as applicable, will be made to holders of allowed claims and interests in Classes 2, 3, 4B, 4C, 6, 7, 8, 9, 10 and 11; provided, however, that New Series Z Warrants will not be distributed to holders of Class 9 interests earlier than 60 days after the Effective Date. New Securities not distributed in the initial distribution will be held in reserve pending resolution of Disputed claims or interests. Every six months following the Effective Date, there will be a distribution in respect of Disputed claims or interests that have been allowed in whole or in part. New Securities held in reserve for Disputed claims or interests that have been disallowed, in whole or in part, shall be distributed to holders of allowed claims or interests based on a recalculation of the relevant Ratable Shares, taking into account the allowance or disallowance of Disputed claims or interests in the preceding six months, until all Disputed claims or interests have been determined. The Debtor is unable, as of the date of this Disclosure Statement, to estimate the amount of New Securities that will be reserved on the Effective Date in respect of Disputed Claims in Classes 4B and 4C, which will affect the distribution of Series C Notes, SellCo Subordinated Contingent Payment Notes and New Common Stock to Classes 2, 3, 4B and 4C. The Debtor cannot, at this time, estimate if or what amount of New Series Z Warrants may have to be reserved on the Effective Date in respect of Disputed claims in Class 7 or Disputed interests in Classes 8, 9, 10 or 11. V. CERTAIN RISK FACTORS The securities to be issued pursuant to the Plan are subject to a number of material risks, including those enumerated below. The risk factors enumerated below assume confirmation and the consummation of the Plan and the transactions contemplated by the Plan and do not include matters that could prevent confirmation. See "Summary of the Plan-Conditions Precedent to Effectiveness of the Plan" and "Confirmation of the Plan" for discussions of such matters. Prior to voting on the Plan, each holder of claims against JWP entitled to vote on the Plan should carefully consider the risk factors enumerated or referred to below as well as all of the information contained in this Disclosure Statement, including the exhibits hereto. A. PAYMENT OF SENIOR NOTES JWP intends that payment of the Series A Secured Notes and Series B Secured Notes, including the $10,000,000 mandatory redemption on the second anniversary of the Effective Date, will be made from the proceeds of asset sales. If the projected sales prices for the collateral underlying the respective Notes are not realized or if any of the proceeds of such sales are required to be held as collateral under the Working Capital Liens, Reorganized JWP may not have the cash or the ability to borrow to make the mandatory redemption or to pay the relevant Note at its maturity in three years. B. WORKING CAPITAL FINANCING It is a condition precedent to effectiveness of the Plan that, upon emergence from the Reorganization Case, Reorganized JWP shall have obtained, subject only to the occurrence of the Effective Date, a working capital facility in an amount at least sufficient to repay and replace the DIP Loan ("exit financing"). The outstanding principal amount of the DIP Loan is, at the date hereof, $25 million. There is no assurance that, despite JWP's efforts, adequate exit financing will be obtained. In addition, the terms of any such exit financing may be costly and may include the Working Capital Lien referred to in Section IV-F hereof. C. LACK OF ESTABLISHED MARKET FOR THE NEW SECURITIES There is no existing market for the New Securities and there will be relatively few holders of the New Securities. Under the Plan, Reorganized JWP has undertaken to use reasonable efforts to secure the listing of the New Securities for trading on a national securities exchange or the NASDAQ National Market System. However, the historical financial statements of JWP (see Exhibit 4 hereto) are unaudited and JWP has not filed all periodic reports required to be filed by it under the Securities Exchange Act of 1934, as amended (the "1934 Act"). Accordingly, JWP believes it will be unable to secure a listing of the New Securities unless JWP obtains audited financial statements and becomes current in its filings of periodic reports under the 1934 Act. There can be no assurance as to whether or when such audited financial statements will become available and JWP will become current in its periodic filings. In addition, the New Securities will be issued pursuant to the Plan to prepetition creditors, some of whom may prefer to liquidate their investment rather than to hold it on a long-term basis. Accordingly, it is anticipated that, if a market for New Securities develops, such market will be uncertain, at least for an initial period of trading. In addition, there can be no assurance that an active market therefor will develop or as to the degree of price volatility in any such particular market. Accordingly, no assurance can be given that a holder of the New Securities will be able to sell such securities in the future or as to the price at which any such sale may occur. Moreover, while the Plan was developed based upon an assumed reorganization value of $8.70 per share of New Common Stock (See "Pro Forma Financial Information" and "Valuation"), such valuation was not an estimate of the prices at which New Common Stock may trade in the market, and JWP has not attempted to make any such estimate in connection with the development of the Plan. If markets with respect to the New Debt Securities were to exist, such securities could trade at prices higher or lower than the face amount thereof, depending upon many factors, including prevailing interest rates, markets for similar securities, industry conditions, and the performance of, and investor expectations, for Reorganized JWP. No assurance can be given as to the market prices, if any, that will prevail following the Effective Date. For information regarding the current Securities and Exchange Commission investigation see "Legal Proceedings." C. PROJECTIONS The financial projections included in this Disclosure Statement are dependent upon the successful implementation of JWP's business plan and the reliability of the other assumptions contained therein. See "Projected Financial Information." These projections reflect numerous assumptions, including confirmation and consummation of the Plan in accordance with its terms, the anticipated future performance of Reorganized JWP, industry performance, general business and economic conditions and other matters, most of which are beyond the control of Reorganized JWP and some of which may not materialize. In addition, unanticipated events and circumstances occurring subsequent to the preparation of the projections may affect the actual financial results of Reorganized JWP. Therefore, the actual results achieved throughout the periods covered by the projections may vary significantly from the projected results. These variations may be material. See "Projected Financial Information." D. BUSINESS FACTORS AND COMPETITIVE CONDITIONS The MES business in which Reorganized JWP will engage is extremely competitive. This business competes with national, regional and local companies. Reorganized JWP will have to regain customer confidence in its financial stability. In addition, Reorganized JWP's business will be directly affected by general economic conditions, particularly the cyclical nature of new construction. E. DIVIDENDS Under the terms of the New Debt Securities, Reorganized JWP is prohibited from paying dividends on the New Common Stock. There is no assurance that Reorganized JWP will be able to declare and pay dividends on the New Common Stock if or when the New Debt Securities have been paid in full. F. BONDING CAPACITY As of May 31, 1994, JWP's business had a backlog of contracts in the amount of approximately $1 billion, of which approximately $600 million is bonded. In order to obtain a substantial portion of their new business, Reorganized JWP and the MES businesses will require bonding. There is no assurance that Reorganized JWP and the MES business will be able to obtain the performance or bid bonds necessary to achieve the projections contained in this Disclosure Statement. See "Events During the Reorganization Case-Surety Bonds." G. PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 An indirect subsidiary of the Debtor, University Cogeneration, Inc., owns a cogeneration facility which during calendar year 1993 narrowly failed to satisfy one of the necessary criteria under applicable federal law for being a "qualifying facility." The Securities and Exchange Commission ("SEC") has informed the Debtor's counsel that it will issue a "no action" letter so that such failure will not cause such subsidiary's direct and indirect parents (including the Debtor) to be considered "utility holding companies" required to be registered under the Public Utility Holding Company Act of 1935 ("PUHCA") during 1993. In addition, the Debtor plans to apply for a waiver from the Federal Energy Regulatory Commission waiving compliance in 1993 with the one criterion which such facility failed to meet. The Debtor believes that it will be able to ensure that the aforementioned cogeneration facility meets all criteria for being a qualifying facility during calendar year 1994. However, because satisfaction of the key criteria are determined on a calendar-year basis, there can be no definitive assurance that such criteria will be met until the end of 1994. VI. THE COMPANY A. BUSINESS 1. Mechanical/Electrical Services. JWP's Mechanical/Electrical Services Group (the "MES Group") specializes in the design, distribution, integration, installation and maintenance of complex mechanical and electrical systems. Services are provided to a broad range of commercial, industrial and institutional customers through approximately 40 offices located in major markets throughout the United States and more than 25 offices located in Canada, the United Kingdom and the Middle East. The business units that are to comprise the MES Group after completion of the restructuring generated approximately $1.8 billion of revenues in 1992 and $1.9 billion in 1993. The MES Group provides its mechanical and electrical services, both directly, by designing, selling, integrating, installing and maintaining systems to and for end-users (including corporations, municipalities and other governmental entities, owner/developers, and tenants of buildings), and indirectly, by acting as subcontractor for construction managers, general contractors and other subcontractors. The MES Group is primarily involved in the design, integration, installation and maintenance of (i) distribution systems for electrical power (including power cables, conduits, distribution panels, transformers and generators), (ii) lighting systems, and (iii) heating, ventilating, air conditioning, plumbing, process and high purity piping, and clean air systems. With approximately 13,000 employees in the subsidiaries to be retained, JWP believes its mechanical and electrical services business is the largest of its kind in the United States and Canada and one of the largest in the United Kingdom. Historically, mechanical and electrical services have been principally of three types: (1) large installation projects, with contracts generally in the multi-million dollar range, in connection with construction of industrial facilities, institutional and public works projects, commercial buildings, and large blocks of space within commercial buildings, (2) smaller system installations involving renovation and retrofit work, and (3) maintenance and service. JWP's largest installation projects have included those for (i) industrial and institutional use (such as manufacturing, pharmaceutical and chemical plants, refineries, research facilities, water and wastewater treatment facilities, hospitals, correctional facilities, schools, trading floors and computer facilities, and mass transit systems), (ii) for commercial use (such as office buildings, convention centers, shopping malls, hotels and destination resorts), and (iii) for electric utilities. These can be multi-year projects ranging in size up to and, occasionally, in excess of, $50 million. The MES Group also installs and maintains street, highway, bridge and tunnel lighting, traffic signals, computerized traffic signal control systems, and signal control and communication systems for mass transit in several metropolitan areas. Major projects are performed pursuant to contracts with owners, such as corporations and municipalities and other governmental entities, general contractors, construction managers, as agents for owners of construction projects, owner-developers, and tenants of commercial properties. Institutional and public works projects are frequently long-term, complicated projects requiring significant technical skills and financial strength to obtain the performance bonds that are often a condition to the award of contracts for such projects. Smaller projects, which are generally completed in less than one year, involve the provision of conventional mechanical and electrical contracting services in industrial plants, office buildings and commercial and retail space in which The MES Group installs electrical fixtures, provides electrical and air conditioning systems for computer facilities, and installs smaller heating, air conditioning, and plumbing systems for office and renovation projects. In this area, The MES Group is not necessarily dependent upon new construction; demands for its services are frequently prompted by the expiration of leases, changes in technology and changes in the customer's plant or office layout in the normal course of business. The MES Group's mechanical and electrical businesses also perform maintenance and service work, under multi-year contracts or on a short-term, on-call basis, for outside and interior lighting systems and for air conditioning and heating systems in plants and other large facilities, office buildings and commercial enterprises. The MES Group's service units also install refrigeration systems for restaurants, office cafeterias and supermarkets. Contracts for maintenance of mechanical and electrical systems range from one to several years and are billed on a time and materials basis or a fixed fee plus the cost of materials. In many of the buildings in which The MES Group maintains lighting systems, its service units also install fixtures, move outlets, rewire and perform other routine electrical work. Service operations often require a number of employees to be permanently located at the building or facility served. The MES Group also operates fully equipped sheet metal fabrication facilities in the United States, providing and installing sheet metal for both its own mechanical services businesses and unrelated mechanical contractors; it also maintains welding and piping fabrication shops for its own mechanical operations. Certain of these facilities will be sold. The businesses in which JWP's MES Group engage are extremely competitive. These businesses compete with national, regional and local companies. However, JWP believes that, at present, it is the largest mechanical and electrical services company in the United States and Canada and one of the largest in the United Kingdom. JWP, through the MES Group, competes in these businesses on the basis of the quality of service, price, performance and reliability. JWP's competitive position has been adversely affected by its weakened financial condition, which has caused a decrease in backlog and a weak negotiating position with respect to new work and contract disputes, and has adversely affected margins. JWP has been able to obtain new work, frequently only at reduced margins. 2. Supply of Water. Jamaica Water Supply Company ("JWS") (substantially all the common stock of which is owned by JWP) and Sea Cliff Water Company ("Sea Cliff") (all the capital stock of which is owned by JWP) (sometimes referred to herein collectively as the "Water Companies") are regulated public utilities that own and operate water supply systems on portions of Long Island, New York. JWS, the largest investor-owned water utility in New York state, supplies water to a densely populated residential area of approximately 40 square miles in the Borough of Queens in New York City and in adjacent southwestern Nassau County, Long Island, 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, commercial and industrial purposes, providing backup water for commercial customers' fire sprinkler systems, and renting, as lessor, fire hydrants for municipal fire protection. As of December 31, 1993, the Water Companies provided potable water to approximately 120,000 water service accounts, substantially all of whom are metered and billed for the amount of water actually used, and approximately 1,000 private fire protection accounts for sprinkler connections billed on a flat rate basis. On December 22, 1993, JWS entered into a settlement agreement (the "Settlement Agreement") with New York State, local government entities and a public interest group resolving complex disputes as to JWS rates and operations. On February 2, 1994, the Public Service Commission of the State of New York ("Public Service Commission") approved the Settlement Agreement. See "Legal Proceedings-Jamaica Water Supply Rate Related Proceeding and Related Litigation." The Settlement Agreement contemplates, among other things, that Jamaica Water Securities Corp. ("JWSC"), a subsidiary of JWP which holds JWP's interest in JWS, be separated from JWP. In the interim, within the corporate structure of Reorganized JWP, JWSC and Sea Cliff will become subsidiaries of SellCo. See "Reorganized JWP." The Water Companies' primary sources of water are ground water from wells located in the New York counties of Queens and Nassau and surface water obtained from the City of New York (the "City"). JWS has 93 wells on 60 well sites, of which 71 wells are currently operable, and Sea Cliff has two wells on two sites. Where appropriate, JWS has installed treatment facilities at well sites to remove volatile organic compounds prior to the water entering the distribution system. In an effort to reduce the cost of water to City residents, the City provides JWS with an exemption from real property taxes from the City and makes direct revenue support payments to JWS for water service. JWS also has an agreement with the City to purchase up to 50 million gallons of water daily from the City (to the extent available) at a cost of $1 per million gallons. JWS expects to purchase approximately 30 million gallons daily. The $1 per million gallons rate is substantially less than both JWS' cost to pump and treat water from its wells and the New York City rate for commercial customers. The agreement expires June 30, 1998, although it is cancelable by either party on two years notice. The 30 million gallons of water JWS expects to purchase daily from the City constitutes approximately 60 percent of the average daily amount of water presently distributed by JWS to its customers in Queens County. JWS customers in Nassau County are served entirely from wells owned and operated by JWS. The Water Companies are subject to regulation by the Public Service Commission. Since the population of the areas served by the Water Companies has been relatively stable, the amount of water consumed by their customers has not and is not expected to increase in any significant respect. Consequently, cost increases due to inflation or otherwise must be recovered through operating efficiencies or increases in rates which are subject to approval of the Public Service Commission. Until recently, the Water Companies have traditionally filed for rate increases on an annual basis and have received approvals of rate increases from the Public Service Commission enabling them to maintain satisfactory operating results. See "Legal Proceedings-Jamaica Water Supply Rate Related Proceedings and Related Litigation." The Water Companies are also subject to regulation by various federal, state and local agencies, including the Department of Environmental Conservation of the State of New York, the New York State and New York City Departments of Health, the New York City Department of Environmental Protection, the Nassau County Department of Health, and the United States Environmental Protection Agency. JWP believes that the Water Companies are in compliance with all applicable federal, state and local laws and regulations. 3. Information Services. JWP's Information Services Group, which was discontinued in 1993 and which reported revenues of $1.7 billion for 1992, principally engaged in providing computer and systems integration services. It sold integrated multi-vendor personal computer related products and services for medium and large sized companies and other organizations. On August 9, 1993, JWP sold all of the operating assets of JWP Information Services, Inc. ("JWPIS"), its subsidiary which conducted this business in the United States; on April 19, 1993, JWP sold the Canadian operations of this group; on August 17, 1993, JWP sold the United Kingdom operations of its information services group; on September 14, 1993, JWP sold its information services business in Japan; and on January 26, 1994, JWP sold the German information services business. JWP also carried on similar information services businesses in Belgium and France. In 1992, the Belgian operation filed a petition seeking relief from its creditors and is in the process of being liquidated. On June 25, 1993 the IS unit in France filed a petition in the Paris Commercial Court seeking relief from its creditors and is also in the process of being liquidated. On October 25, 1993, JWPIS filed a voluntary petition under Chapter 7 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York (the "Chapter 7 Case"). A Chapter 7 trustee has been appointed to liquidate the remaining assets of JWPIS and to administer the proceeds thereof for the creditors of JWPIS. The Chapter 7 Case will provide JWPIS's creditors a single, orderly procedure for recovery. The remaining principal assets of JWPIS are a receivable in the amount of $24.9 million ("IS Intercompany Account") owed to JWPIS by JWP (and included in the Class 4B claims) and warrants, for which JWP has not booked or estimated any value, for the purchase of ten (10%) percent of the stock of Entex Holding, Inc., the parent corporation of the purchaser of JWPIS' assets. See "Summary of the Plan-Treatment of Classes-Class 4." The Chapter 7 Trustee of JWPIS has filed a proof of claim in the Reorganization Case in the amount of $50 million to which JWP intends to object and seek to have the Bankruptcy Court reduce and allow in the amount of $24.9 million. The Creditors' Committee has propounded the view that even further reductions in the amount of this claim are warranted, as well as the view that this claim should be subordinated. The IS Intercompany Account will be a Class 4B claim in the Reorganization Case, unless grounds for subordinating such claim are determined by the Bankruptcy Court, in which case the IS Intercompany Account will become a Class 7 subordinated claim. 4. Other Business. In addition to the sale of certain mechanical and electrical service business units contemplated by the Business Plan, beginning in 1992, JWP began the sale of its non-core businesses and, through February, 1994, has disposed of a number of non-core businesses. See "Background Information-Asset Disposition Program." The non-core business units that continue to be held for sale include JWP's telephone systems business and its remaining energy and environmental related businesses. JWP's telephone systems service business is engaged in the design, sale, installation and servicing of telecommunication systems, including LEXAR PBX telephone systems, which JWP manufactures. JWP's telephone switching systems are used to interconnect business and institutional users with telephone lines of the regulated telephone companies. JWP's principal remaining energy and environmental related business constructs, operates and maintains co-generation facilities for use in steam enhanced oil recovery processes, industrial plants, hotels, universities, hospitals and shopping centers. JWP, through its subsidiaries, has built sixteen co-generation facilities, operates six of them, and owns, in whole or in part, three of them. Where a JWP subsidiary owns a co-generation facility, it supplies utility services to its customer under a long-term contract. The other two environmental related business units include one which manufactures fluidized bed combustion and gasification systems for the waste-to-energy market to process solid wastes of various types and one which collects methane gas at a landfill for conversion into electrical energy which is sold to a utility. VII. REORGANIZED JWP A. BUSINESS After completing the asset sales which are an integral part of the restructuring of JWP's business (see "Background Information"), Reorganized JWP will be a smaller company, remaining international in scope, engaged principally in the MES business. Reorganized JWP's corporate headquarters will be located in Rye Brook, New York. The Rye Brook corporate headquarters will focus on corporate direction and strategy, handling the legal and financial requirements for Reorganized JWP, providing for financial reporting, risk management, treasury, tax, human resources policy and compliance functions and financial and operating controls. The Rye Brook office will also oversee the management and sale of the non-MES units until they are sold. B. CORPORATE STRUCTURE The corporate structure of Reorganized JWP will reflect the purposes of the restructuring. Reorganized JWP will continue to be a holding company, the direct subsidiaries of which will be (i) MES, a holding company for all MES operating subsidiaries, (ii) SellCo, a holding company for substantially all businesses to be offered for sale, (iii) the five Nondebtor Subsidiaries listed on Schedule 4 to the Plan which constitute the substitute Software House collateral and (iv) the "Dynalectric Companies,"* consisting of DYN Specialty Contracting, Inc. and its subsidiaries B&B Contracting and Supply Company, Dynalectric Company, Dynalectric Company of Nevada, Inc., Contra Costa Electric, Inc. and JWP Systems/Kirkwood Electric Company, Inc. The North American MES business will continue to operate on a decentralized basis, with day-to-day operations managed by the business units. Reorganized JWP's European operations are managed by Drake & Scull, which has its corporate office in London. 1. MES. The following table lists the names, principal markets and principal business of the principal MES units which are to be retained by Reorganized JWP, through its ownership of MES Corporation. - ------ * Reflected in the Disclosure Statement, dated February 14, 1994, as a SellCo subsidiary. It has since been determined that these companies will be retained. MES CORPORATION PRINCIPAL RETAINED MES UNITS Principal Company Business - ------------------------------------------------------------------- - -------------------- JWP/JC Higgins Corp. ............................... Boston Mechanical JWP Forest Electric Corp. .......................... New York Electrical JWP Penguin Air Conditioning Corp. ................. New York Mechanical JWP Welsbach Electric Corp. ........................ New York Electrical Gibson Electric Company, Inc. ......................Chicago/MidWest Electrical JWP/Hyre Electric Co. of Indiana, Inc. ............. Mid-West Electrical Los Angeles/ San Diego/ Phoenix/ JWP West (d/b/a University Mechanical Contractors).. National Mechanical JWP Trautman & Shreve, Inc. ........................ Denver Mechanical Hansen Mechanical Contractors, Inc. ................ Las Vegas Mechanical JWP Zack Inc. ...................................... Power Systems Boiler/Mechanical *JWP Gowan, Inc. ................................... Southwest Mechanical UnitedKingdom/ The Drake & Scull Companies......................... Middle East Mechanical/Electrical Comstock Canada..................................... Canada Mechanical/Electrical *Heritage Air Systems, Inc. ........................ New York Mechanical - ------
* Reflected in the Disclosure Statement, dated February 14, 1994, as a SellCo subsidiary. It has since been determined that these companies will be retained. 2. SellCo. The following table lists the principal business units which will be direct or indirect subsidiaries of SellCo. SELLCO CORPORATION NON-MES BUSINESSES *University Cogeneration, Inc. General Energy Development Inc. Water Companies MES BUSINESSES Wachtel Duklauer & Fein, Incorporated Superior Engineering Corporation University Mechanical Contractors, Inc. (Washington) JWP Brandt Engineering Co., Inc. - ------ * Negotiations for the sale of this company, together with University Energy Services of California, Inc., a Nondebtor Subsidiary listed on Schedule 4 to the Plan, are in progress. VIII. MANAGEMENT AND MANAGEMENT STOCK OPTIONS A. CHANGES IN MANAGEMENT There have been a number of changes in the management of JWP during 1992, 1993 and 1994. David L. Sokol was President from January 1992 until he resigned such position in October 1992. Andrew Dwyer, who, from 1987 to 1993, was Chairman of the Board of Directors, and Chief Executive Officer of JWP and, from 1985 until January 1992, President, resumed the office of President upon Mr. Sokol's resignation. Mr. Dwyer subsequently resigned as President and Chief Executive Officer in April 1993 and was succeeded in such positions by Edward F. Kosnik. Mr. Kosnik became Chairman on July 1, 1993. Prior to becoming President and Chief Executive Officer, Mr. Kosnik served from December 1992 as Executive Vice-President and Chief Financial Officer. In January 1994, Mr. Kosnik announced his intention to resign from the positions he held, and the JWP Board of Directors commenced a search for a new Chief Executive Officer. In April 1994, the search was concluded and Mr. Frank T. MacInnis was elected as Chairman of the Board of Directors, Chief Executive Officer and President of JWP. Mr. MacInnis was previously Chairman of the Board of Directors and Chief Executive Officer and President of Comstock Group, Inc., a nationwide electrical contracting company. Susan B. Garelli, formerly Senior Vice President-Human Resources of JWP, resigned as of June 1, 1993. Stephen H. Kornfeld, formerly Senior Vice President of JWP and Chairman of the Board and Chief Executive Officer of JWP International Inc., a subsidiary of JWP, resigned all such positions effective as of August 31, 1993. Since August 1992, there has been significant turnover among JWP's senior management with financial and accounting responsibilities. In August 1992, Ernest W. Grendi resigned as Chief Financial Officer. Mr. Grendi had also served as JWP's principal accounting officer. Following Mr. Grendi's resignation, Mr. Richard F. Zannino, a Vice President of JWP, became Acting Chief Financial Officer, and Mr. Philip M. McGinn, who had been Controller of JWP, was also elected a Vice President of JWP and designated principal accounting officer of JWP. In the Fall of 1992, Mr. Zannino resigned from JWP's employ and, as indicated above, Mr. Edward F. Kosnik, in December 1992, became Executive Vice President and Chief Financial Officer of JWP. Following Mr. Kosnik's election as President and Chief Executive Officer of JWP in April 1993, Mr. Stephen H. Meyers and Mr. Joseph A. Gallo took on much of Mr. Kosnik's responsibilities in the financial area. Mr. Meyers joined JWP in January 1993 as Senior Vice President-Finance and continues in that position. Mr. Gallo, who had been a Vice President and Treasurer of JWP, was promoted to the position of Senior Vice President in April 1993. He also continues as Treasurer of JWP. In May 1994, Mr. Leicle Chesser became an Executive Vice-President and the Chief Financial Officer of JWP. In January 1994, Mr. Jeffrey M. Levy was elected Senior Vice President of JWP and in February 1993 Mr. Levy was named Chief Operating Officer of JWP. Formerly, Mr. Levy had been President and Chief Executive Officer of JWP Electrical Mechanical Services (East) Inc. B. BOARD OF DIRECTORS OF REORGANIZED JWP Reorganized JWP will remain a Delaware corporation and will have a Board of Directors that will initially consist of seven members, who will serve until the next annual meeting of shareholders. Four Directors will be designated by the Old Note Holders; two Directors will be designated by the Old Credit Agreement Holders; and one Director will be JWP's current Chairman. The names and description of the principal occupations and employments of the foregoing designees will be available at or prior to the hearing on confirmation of the Plan. C. MANAGEMENT OF REORGANIZED JWP The current officers of JWP, will continue in their positions as officers of Reorganized JWP, subject to review by the Board of Directors of Reorganized JWP: Frank T. MacInnis, age 47, Chairman of the Board of Directors, President and Chief Executive Officer. Sheldon I. Cammaker, age 54, Executive Vice President and General Counsel. Leicle Chesser, age 47, Executive Vice President and Chief Financial Officer. Joseph A. Gallo, age 42, Senior Vice President and Treasurer. Jeffrey Levy, age 41, Senior Vice-President and Chief Operating Officer. Stephen H. Meyers, age 52, Senior Vice President-Finance. Joseph G. Barnett, age 56, Vice President-Real Estate and Corporate Secretary. Sidney Bernstein, age 58, Vice President-Taxation. D. DESCRIPTION OF THE 1994 MANAGEMENT STOCK OPTION PLAN During the restructuring process and the Plan negotiations, all parties concluded that it would be in the best interests of the Reorganized JWP, its creditors and equity holders that there be both continuity of key management and a performance incentive for maintaining such continuity. Accordingly, Reorganized JWP will adopt a Management Stock Option Plan (the "1994 Plan"). The 1994 Plan will be conditioned on approval by the stockholders of Reorganized JWP following its adoption. A copy of the 1994 Plan is annexed hereto as Exhibit L. The following summary of its principal provisions is subject to the full text of the 1994 Plan. The 1994 Plan will be administered by the Compensation Committee of the Board of Directors (the "Compensation Committee"), comprised of two or more directors of Reorganized JWP, each of whom are disinterested within the meaning of Rule 16b-3(c)(2) under the Securities Exchange Act of 1934 (the "Exchange Act") and considered outside directors within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code") and the regulations promulgated thereunder. Such key employees as may be determined by the Compensation Committee from time to time will be eligible to participate in the 1994 Plan. 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 shall not exceed 500,000 shares. Within one year after the Effective Date, the Compensation Committee shall determine the recipients of options to purchase 500,000 shares of New Common Stock of Reorganized JWP pursuant to the 1994 Plan and shall issue such options to such recipients in the respective amounts as determined by the Compensation Committee; provided, however, that in no event shall such options be issued prior to the expiration of three months plus 20 days after the Effective Date. The employment agreement between JWP and Frank T. MacInnis requires that Mr. MacInnis shall receive options to purchase 200,000 shares of New Common Stock three months and twenty days following the Effective Date. Options may be granted by the Compensation Committee to eligible employees as "incentive stock options" (as defined under Section 422 of the Code) 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 purchase price for the initial grant of options with respect to 500,000 shares shall 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 cannot be determined, the exercise price shall be determined by an investment advisor selected by the Compensation Committee of the Board of Directors of Reorganized JWP. Notwithstanding the preceding, the exercise price of any such option which is an incentive stock option shall 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 shall be exercisable at such rate and times as may be fixed by the Committee on the date of grant; however, the rate at which the option first becomes exercisable may not be more rapid than 331/3% on and after each of the first, second and third anniversaries of the date of grant. The aggregate fair market value (determined at the time the option is granted) of the New Common Stock with respect to which incentive stock options are exercisable for the first time by a participant during any calendar year (under all stock option plans of Reorganized JWP and its subsidiaries) shall not exceed $100,000; to the extent that this limitation is exceeded, such excess options shall be treated as non-qualified stock options for purposes of the 1994 Plan and the Code. At the time an option is granted, the Compensation Committee may, in its sole discretion, designate whether the option is to be considered an incentive stock option or non-qualified stock option. Options with no such designation shall be deemed an incentive stock option to the extent that the $100,000 limit described above is met. Payment of the purchase price for shares acquired upon the exercise of options may be made by any one or more of the following methods: in cash, by check, by delivery to Reorganized JWP of shares of New Common Stock already owned by the option holder, by a "cashless" exercise method with a designated broker, or by such other method as the Compensation Committee may permit from time to time. However, a holder may not use previously owned shares of New Common Stock that were acquired pursuant to the 1994 Plan, or any other stock plan that may be maintained by Reorganized JWP or its subsidiaries, to pay the purchase price under an option, unless the holder has beneficially owned such shares for at least six months. Options become immediately exercisable in full upon the retirement of the holder after reaching the age of 65, upon the disability or death of the holder while in the employ of Reorganized JWP, or upon the occurrence of such special circumstances as in the opinion of the Compensation Committee merit special consideration. However, no options or rights may be exercised earlier than six months following the later of the date of grant or of the stockholder approval of the 1994 Plan (except that the estate of a deceased holder of an option may exercise it prior to the expiration of such six-month period). Options terminate at the end of the three-month period following the holder's termination of employment. This period is extended to six months in the case of the death of the holder, in which case the option is exercisable by the holder's estate. Each option contains anti-dilution provisions which will automatically adjust the number of shares subject to options in the event of a stock dividend, split-up, conversion, exchange, reclassification or substitution. In addition, upon the dissolution or liquidation of Reorganized JWP, or the occurrence of a merger or consolidation in which Reorganized JWP is not the surviving corporation, or in which Reorganized JWP becomes a subsidiary of another corporation or in which the voting securities of Reorganized JWP which are outstanding immediately prior thereto do not continue to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting securities of Reorganized JWP or such surviving entity immediately after such merger or consolidation, or upon the sale of all or substantially all of the assets of Reorganized JWP, the 1994 Plan and the options granted thereunder shall terminate unless provision is made by Reorganized JWP in connection with such transaction for the assumption of options theretofore granted, or the substitution for such options of new options of the successor corporation or a parent or subsidiary thereof, with appropriate adjustments as to the number and kinds of shares and the per share exercise prices. If options terminate as a result of any such transaction, the holder will be entitled to the excess of (i) the fair market value (determined on the basis of the amount received by stockholders in connection with such transaction) of the shares subject to the portion of the option not theretofore exercised (whether or not the option is then exercisable pursuant to its terms or otherwise), over (ii) the aggregate purchase price that would be payable for such shares upon the exercise of the option. In the event of any other change in the corporate structure or outstanding shares of New Common Stock, the Compensation Committee may make such equitable adjustments to the number of shares and the class of shares available under the 1994 Plan or to any outstanding options as it shall deem appropriate to prevent dilution or enlargement of rights. Reorganized JWP shall obtain such consideration for granting options under the 1994 Plan as the Compensation Committee in its discretion may request. Each option may be subject to provisions to assure that any exercise or disposition of New Common Stock will not violate the securities laws. No options may be granted under the 1994 Plan after ten years following the date of its adoption. The Board of Directors or the Compensation Committee may at any time withdraw or amend the 1994 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 or to any individual employee, or change the class of employees to whom options may be granted shall be subject to the approval of the stockholders of Reorganized JWP within one year of such amendment. The Federal income tax consequences to an employee who receives incentive stock options generally will, under current law, be as follows: An employee will not realize any income upon the grant or exercise of an incentive stock option. If the employee disposes of the shares of New Common Stock acquired upon the exercise of an incentive stock option at least two years after the date the option is granted and at least one year after the New Common Stock is transferred to him or her, the employee will realize long-term capital gain in an amount equal to the excess, if any, of his or her selling price for the shares over the option exercise price. In such case, Reorganized JWP will not be entitled to any tax deduction resulting from the issuance or sale of the shares. If the employee disposes of the shares of New Common Stock acquired upon the exercise of an incentive stock option prior to the expiration of two years from the date the option is granted, or one year from the date the New Common Stock is transferred to him or her, any gain realized will be taxable at such time as follows (a) as ordinary income to the extent of the difference between the option exercise price and the lesser of the fair market value of the shares on the date the option was exercised or the amount realized from such disposition, and (b) as capital gain to the extent of any excess, which gain shall be treated as short-term or long-term capital gain depending upon the holding period of the New Common Stock. In such case, Reorganized JWP may claim an income tax deduction (as compensation) for the amount taxable to the employee as ordinary income. In general, the difference between the fair market value of the New Common Stock at the time the incentive stock option is exercised and the option exercise price will constitute an item of adjustment, for purposes of determining alternative minimum taxable income, and under certain circumstances may be subject, in the year in which the option is exercised, to the alternative minimum tax. If an employee uses shares of New Common Stock which he or she owns to pay, in whole or in part, the exercise price for shares acquired pursuant to an incentive stock option, (a) the holding period for the newly issued shares of New Common Stock equal in value to the old shares which were surrendered upon the exercise shall include the period during which the old shares were held, (b) the employee's basis in such newly issued shares will be the same as his or her basis in the old shares surrendered and (c) no gain or loss will be recognized by the employee on the old shares surrendered. However, if any employee uses shares previously acquired pursuant to the exercise of an incentive stock option to pay all or part of the exercise price under an incentive stock option, such tender will constitute a disposition of such previously acquired shares for purposes of the one-year (or two-year) holding period requirement applicable to such incentive stock option and such tender may be treated as a taxable exchange. The Federal income tax consequences to an employee who receives non-qualified stock options generally will, under current law, be as follows: An employee will not realize any income at the time the option is granted. Generally, an employee will realize ordinary income, at the time the option is exercised in a total amount equal to the excess of the then fair market value of the New Common Stock acquired over the exercise price. However, Section 83 of the Code provides that, if a director, officer or principal stockholder (i.e., an owner of more than 10 percent of the outstanding shares of New Common Stock) receives shares pursuant to the exercise of a non-qualified stock option, he or she is not required to recognize any income until the date on which such shares can be sold at a profit without liability under Section 16(b) of the Exchange Act. At such time, the director, officer or principal stockholder will realize income equal to the amount by which the then fair market value of the shares acquired pursuant to the exercise of such option exceeds the price paid for such shares. Alternatively, a director, officer or principal stockholder who would not otherwise be taxed at the time the shares are transferred may file a written election within 30 days with the Internal Revenue Service, to be taxed as of the date of transfer, on the difference between the then fair market value of the shares and the price paid for such shares. All income realized upon the exercise of a non-qualified stock option will be taxed as ordinary income. Reorganized JWP will be entitled to a tax deduction (as compensation) for the amount taxable to an employee (including a director, officer and principal stockholder) upon the exercise of a non-qualified stock option, as described above, in the same year as those amounts are taxable to the employee. Shares of New Common Stock issued pursuant to the exercise of a non-qualified stock option generally will constitute a capital asset in the hands of an employee (including a director, officer or principal stockholder) and will be eligible for capital gain or loss treatment upon any subsequent disposition. The holding period of an employee (including a director, officer or principal stockholder) will commence upon the date he or she recognizes income with respect to the issuance of such shares, as described above. The employee's basis in the shares will be equal to the greater of their fair market value as of that date or the amount paid for such shares. If, however, an employee uses shares of New Common Stock which he or she owns to pay, in whole or in part, the exercise price for shares acquired pursuant to the exercise of a non-qualified stock option, (a) the holding period for the newly issued shares of New Common Stock equal in value to the old shares which were surrendered upon the exercise shall include the period during which the old shares were held, (b) the employee's basis in such newly issued shares will be the same as his or her basis in the surrendered shares, (c) no gain or loss will be realized by the employee on the old shares surrendered, and (d) the employee will realize ordinary income in an amount equal to the fair market value of the additional number of shares received over and above the number of old shares surrendered (the "Additional Shares") and the employee's basis in the Additional Shares will be equal to such fair market value. In addition to the Federal income tax consequences discussed above, Section 280G of the Code provides that if an officer, stockholder or highly compensated individual receives a payment which is in the nature of compensation and which is contingent upon a change in control of the employer, and such payment equals or exceeds three times his or her "base salary" (as hereinafter defined), then any amount received in excess of base salary shall be considered an "excess parachute payment." An individual's "base salary" is equal to his or her average annual compensation over the five-year period (or period of employment, if shorter) ending with the close of the individual's taxable year immediately preceding the taxable year in which the change in control occurs. If the taxpayer establishes, by clear and convincing evidence, that an amount received is reasonable compensation for past or future services, all or a portion of such amount may be deemed not to be an excess parachute payment. If any payments made under the 1994 Plan in connection with a change in control of Reorganized JWP constitute excess parachute payments with respect to any employee, then in addition to any income tax which would otherwise be owed on such payment, the individual will be subject to an excise tax equal to 20% of such excess parachute payment and Reorganized JWP will not be entitled to any tax deduction to which it otherwise would have been entitled with respect to such excess parachute payment. Section 280G provides that payments made pursuant to a contract entered into within one year of the change in control are presumed to be parachute payments unless the individual establishes, by clear and convincing evidence, that such contract was not entered into in contemplation of a change in control. In addition, the General Explanation of the Tax Reform Act of 1984 prepared by the Staff of the Joint Committee on Taxation indicates that the grant of an option within one year of the change in control or the acceleration of an option because of a change in control may be considered a parachute payment, in an amount equal to the value of the option or the value of the accelerated portion of the option as the case may be. Pursuant to proposed regulations issued by the Treasury Department under Section 280G, the acceleration of a non-qualified stock option because of a change in control is considered a parachute payment in an amount equal to the value of the accelerated portion of the option. Even if the grant of an option within one year of the change in control or the acceleration of an option is not a parachute payment for purposes of Section 280G, the exercise of an option within one year of the change in control or the exercise of the accelerated portion of an option may result in a parachute payment, in an amount equal to the excess of the fair market value of the shares received upon exercise of the option over the exercise price. Payments received for the cancellation of an option because of a change in control may also result in parachute payments. The foregoing summary with respect to Federal income taxation does not purport to be complete and reference is made to the applicable provisions of the Code. IX. LEGAL PROCEEDINGS A. SHAREHOLDER LITIGATION Since August 1992, nineteen class action lawsuits have been filed against JWP arising out of the restatements of earnings, write-offs and losses announced by JWP on August 4, 1992 and October 2, 1992. The lawsuits named as defendants, among others, JWP and certain of its current and former officers and directors and alleged federal securities law and state law violations. On November 2, 1992, all of those actions were consolidated for pre-trial purposes before Judge Charles L. Brieant in the White Plains division of the United States District Court for the Southern District of New York. Pursuant to Stipulation and Court Order, on January 15, 1993, a single consolidated amended class action complaint (the "Complaint") was filed against JWP and Andrew T. Dwyer, a director of JWP and former Chairman of the Board, President and Chief Executive Officer of JWP, Ernest W. Grendi, JWP's former Chief Financial Officer, Joseph E. Grendi, former Chief Financial Officer of JWP's Mechanical/Electrical Services Group, and three other current directors of JWP-Innis O'Rourke, Jr., Craig C. Perry, and Edmund S. Twining, Jr.-and George M. Duff, Jr., a former director, each of whom were members of JWP's Audit Committee for all or part of 1991, and Ernst & Young, which served as JWP's auditor for 1992 and 1991 and several prior years. The Complaint alleges violations of Section 10(b) of the Securities and Exchange Act of 1934, Rule 10b-5 promulgated thereunder and common law fraud and deceit on the part of JWP and the other named defendants. Among other things, JWP is alleged to have intentionally and materially overstated its inventory, accounts receivable and earnings in various public disseminations during the purported class period, May 1, 1991 through October 1, 1992. The Complaint seeks an unspecified amount of damages. On March 30, 1993, JWP filed an answer which denies the material allegations in the Complaint. In June 1994, the Bankruptcy Court modified the automatic stay provided by the Bankruptcy Code with respect to the Shareholder Litigation in order to allow discovery of the non-debtor defendants and limited discovery of JWP. The parties are now engaged in discovery proceedings. For a description of the treatment of the Shareholder Litigation under the Plan, see "Summary of the Plan-Class 10." B. SECURITIES AND EXCHANGE COMMISSION INVESTIGATION JWP has been informed by the Securities and Exchange Commission (the "SEC") that it is conducting a private investigation to determine whether there have been violations of certain provisions of the federal securities laws and/or the rules and regulations of the SEC in connection with JWP's financial records, reports, and public disclosures. JWP has been cooperating with the SEC's staff and has voluntarily produced documents and information as requested by the staff. On April 12, 1994, the SEC staff informed JWP of its intention to recommend that the SEC file a civil injunction action against the JWP. JWP is currently engaged in discussions with the SEC staff concerning a possible consensual resolution of the matter. C. NEW YORK COUNTY DISTRICT ATTORNEY INVESTIGATION In connection with an investigation of the plumbing industry being conducted by the New York County District Attorney's Office, two related subsidiaries of JWP engaged in the plumbing business in New York City have received subpoenas for certain of their books and records. The subsidiaries have complied with those subpoenas. Additionally, certain employees of the two subsidiaries have been subpoenaed to testify as witnesses before a grand jury, and the employees have complied with the subpoenas. D. JAMAICA WATER SUPPLY COMPANY 1. Rate Related Proceedings and Related Litigation. Effective March 1991, JWS was authorized by the Public Service Commission of the State of New York (the "Public Service Commission") to increase its rates charged to customers by amounts designed to increase annual revenues by $3,992,000. At that time the Public Service Commission made $2,000,000 of that increase temporary and subject to refund pending a further review by the Public Service Commission. Upon completion of its review, in July 1992, the Public Service Commission ordered JWS to refund to its customers all of the amounts collected under the temporary portion of the rate increase during the period from March 1991 through June 1992. In addition, the Public Service Commission ordered JWS to reduce the rates charged customers, as initially authorized effective March 1991, by amounts designed to reduce annual revenues by $1,400,000 effective July 1, 1992. During the third quarter of 1992, JWS, which had not recorded as revenue any of the amounts collected under the temporary portion of the rate increase, made the required refund, aggregating $2,900,000 including interest, by way of credits to customers' bills. In January 1992, the Public Service Commission ordered its Staff to perform an audit covering all aspects of JWS's operations. The report on that audit alleged that mismanagement and imprudence on the part of JWS may have resulted in excess charges to the customers of up to $10,600,000. As a result of the audit report, in June 1992, the Public Service Commission instituted a proceeding requiring JWS to demonstrate that its rates charged customers are not excessive and providing for an investigation of JWS's management practices. As part of this proceeding, and citing the audit report's assertions without receiving the audit report in evidence, the Public Service Commission ordered that $10,600,000 of JWS's annual revenues be made temporary and subject to refund, effective August 6, 1992, pending the completion of the investigation. Between December 1992 and May 1993, each of JWS, the Public Service Commission Staff, the New York State Consumer Protection Board, Waterbill Watchdogs, Inc., the County of Nassau, the Town of Hempstead, the New York City Department of Environmental Protection and the New York City Water Board appeared and submitted testimony in the Public Service Commission proceedings. On June 3, 1993, the Public Service Commission issued an order suspending hearings and appointing two administrative law judges for the purpose of effecting a settlement. Negotiations among the parties and through the settlement judges were ongoing from that time. In addition, in February 1993, the County of Nassau commenced an action alleging violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO") and common law fraud based on allegations that JWS intentionally filed false rate applications and, as a result, had earnings that exceeded projections by $8,653,000. The complaint demanded treble damages and punitive damages. As a result of the negotiations ordered by the Public Service Commission, all of the foregoing parties entered into a settlement agreement dated December 22, 1993 ("Settlement Agreement"), which, following approval by the Public Service Commission on February 2, 1994, settled all issues outstanding before the Public Service Commission, various state courts, and in the RICO action. The Settlement Agreement provides, among other things, (i) that JWS will use its best efforts to bring about the separation of Jamaica Water Securities Corp. ("JWSC"), a subsidiary of JWP, which holds substantially all of the common stock of JWS, from JWP and that JWSC will submit a plan to the Public Service Commission on or before December 31, 1994 for its separation from JWP and the formation of a separate waterworks corporation to be incorporated under the New York Transportation Corporations Law to provide water utility service to the Nassau County customers served by JWS, (ii) a commitment by JWS that, subject to limited specified exceptions, it will not seek to have a general rate increase become effective prior to January 1, 1997, thus providing rate stability for three years, (iii) for refunds and other payments to customers estimated to aggregate approximately $11.7 million over the 1994-1997 period, and (iv) a cap on earnings above which JWS will share with its customers its return on equity. The JWS Settlement Agreement also recognizes the positive steps taken by JWS to comply with the Public Service Commission's audit recommendations. 2. New York City Condemnation Proceeding. From time to time representatives of New York City (the "City") and JWP met to discuss a possible purchase by the City of that portion of JWS's water distribution system, which is located in the City. That system constitutes approximately 75% of JWS's water plant. In September 1986, the State of New York enacted a law that requires 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 the Supreme Court of the State of New York that the amount of compensation to be paid JWS for the water distribution 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. As of December 31, 1987, the rate base of those assets located in the City was approximately $53,084,000 exclusive of water meters currently under lease which may be required to be purchased in the event of condemnation. In April 1988, the City instituted a proceeding in the Supreme Court of the State of New York pursuant to the 1986 statute. The City sought, in the first instance, an order providing that the income capitalization method of valuation would be the sole method used to determine compensation for JWS's property, and, on that basis, asked the Court to determine the value of the JWS property to be condemned. Pursuant to the 1986 law, if the Court were to determine compensation that exceeds the rate base or were to determine compensation by a method other than the income capitalization method, the City could withdraw the condemnation proceeding. JWS argued, at trial and in its post-trial memorandum, that the judicially recognized method of valuing public utility property is by the Reproduction Cost New Less Depreciation ("RCNLD")19 of tangible and intangible assets in order to determine just compensation for the JWS property in the City. JWS also sought consequential and severance damages that would result from separating the JWS Nassau County water supply system from that in the City. The aggregate compensation sought by JWS as of December 31, 1987 was $923,966,341, consisting of $846,625,285 RCNLD, $49,670,056 consequential and severance damages and $27,671,000 as the fair market value of the land owned by JWS. The City submitted its income capitalization valuation, as of December 31, 1987, at $62,500,000. The evidentiary hearings in the proceedings were concluded and JWS reserved its right to contest the constitutionality of the 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 Supreme Court sua sponte, 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.20 Aware that a constitutional challenge to a nearly identical condemnation statute21 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 statute to be constitutional.22 On April 6, 1994, a conference was held with the Supreme 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. JWP cannot predict when or if the Supreme Court will conduct further proceedings under the statute nor is it possible to predict what the decision of the Supreme 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. X. FEASIBILITY OF THE PLAN Assuming JWP has met the conditions precedent to confirmation of the Plan (See "Summary of the Plan-Conditions Precedent") with respect to a working capital credit facility: A. PAYMENTS ON THE EFFECTIVE DATE JWP expects to have cash on hand on the Effective Date in the amount of approximately $8,000,000 to fund expected immediate disbursements under the Plan for administrative expense, priority and Class 4A claims and still leave Reorganized JWP with the cash or available credit necessary for continuing its business. - ------ 19 RCNLD, as a standard of just compensation in a condemnation proceeding, reflects, essentially, what it would cost to reproduce a comparable new water system at current costs less depreciation to reflect its current condition. It is the Debtor's position that RCNLD has no relationship or relevance to the reorganization value of a debtor in a Chapter 11 case under the Bankruptcy Code. Certain representatives of Class 10 disagree with this position. 20 600 N.Y.S.2d 914 (Sup. 1993). 21 New York Public Authorities Law (S) 1199.eee(5). 22 Saratoga Water Services, Inc. v. Saratoga County Water Authority, 83 N.Y.2d 205, 608 N.Y.S.2d 952 (1994). Other than payment of administrative expense, priority and Class 4A claims, the only cash payments that JWP expects will be payable under the Plan on or shortly after the Effective Date are (i) a mandatory prepayment of the Series B Secured Notes if there are proceeds constituting Series B Cash Collateral from assets sales consummated prior to the Effective Date and (ii), if Reorganized JWP so elects, a cash payment to Belmont in an amount equal to the face amount of Series B Secured Notes Belmont would otherwise receive as Additional Interest. B. FUTURE PAYMENTS UNDER THE PLAN Confirmation of the Plan will result in discharge of indebtedness in the amount of approximately $630 million23 Reorganized JWP will have indebtedness under the Plan in the amount of approximately $136 million24 consisting of the 1. approximately $59.4 million23 principal amount (plus the Additional Interest amount if not paid in cash) of the 3-year 7% Series A Senior Secured Notes, with interest payable only in kind; 2. $11.357 million principal amount (plus the Additional Interest amount if not paid in cash) of the 3-year 7% Series B Senior Secured Notes, with interest payable only in kind; and 3. $60 million principal amount (plus the Additional Interest amount if not paid in cash) of the 7-year 11% Series C Notes with interest payable only in kind for the first eighteen months and payable in cash quarterly thereafter. 4. Reorganized JWP Supplemental SellCo Note issued to SellCo in the estimated principal amount of $5,000,000; interest to accrue at 8% per annum, payable at maturity, which is the earlier of ten years from the Effective Date and one day prior to the date on which the SellCo Subordinated Contingent Payment Note is deemed canceled by reason of the sale of substantially all of SellCo's assets other than this note, but not earlier than five years from the Effective Date. Additionally, SellCo will have indebtedness under the Plan consisting of $46,000,000 principal amount, plus the Additional Interest amount if not paid in cash, of the 10-year 12% SellCo Subordinated Contingent Payment Notes, with interest compounded semi-annually and payable at the earlier of maturity or payment in full of principal; provided that if all the assets of SellCo have been sold and the proceeds distributed or if the SellCo assets (other than the JWP Supplemental SellCo Note) are valued at less than $250,000, the SellCo Subordinated Contingent Payment Notes shall be canceled. The SellCo Subordinated Contingent Payment Notes are recourse to Reorganized JWP to the extent of the JWP Supplemental SellCo Note. Other than the $10 million mandatory redemption under of Series A Secured Notes (less optional prepayments and asset sales proceeds) on the second anniversary of the Effective Date and mandatory redemptions based on net proceeds of assets sales or debt or equity offerings or "Available Cash," Reorganized JWP will not be required to make any cash debt service payments for the first eighteen months following the Effective Date. After that time, cash interest payments, of approximately $8 million per year25, will be payable and only in respect of the Series C Notes. Based on the projections set forth in this Disclosure Statement, JWP believes that the Plan is feasible. - ------ 23 Assumes allowed Class 4B and 4C claims of $85 million. 24 Not including the Additional Interest Amount, which could amount to additional indebtedness of up to $4.9 million. 25 Not including interest on the Additional Interest Amount. XI. CONFIRMATION OF THE PLAN A. HEARING To confirm the Plan, the Bankruptcy Court will be required to hold, after notice, a confirmation hearing. The Plan will only be confirmed if the Bankruptcy Court determines at such hearing that the Plan satisfies all of the requirements set forth in Section 1129 of the Bankruptcy Code. Section 1129 requires, among other things, that the Plan (1) has been accepted by each impaired class of claims or interests or, if rejected by any impaired classes, that it satisfies the requirements for "cramdown" set forth in Section 1129(b) with respect to such rejecting classes, (2) is feasible and (3) is in the "best interests" of nonaccepting creditors and equity holders that are impaired under the Plan. B. ACCEPTANCE Classes 2, 3, 4B, 4C, 6, 7, 8, 9, 10 and 11 are impaired under the Plan. Classes 2,3 and 4B constitute "Senior Indebtedness" with respect to the claims of Class 6. If Classes 2, 3 and 4B, voting as a single class, do not accept the Plan, the Plan cannot be confirmed. Each of the remaining Classes must accept the Plan;26 however, the Plan can be confirmed notwithstanding the rejection of the Plan by any of Classes 4C, 6, 7, 8, 9, 10 or 11 if the Bankruptcy Court finds that the treatment accorded to each non-accepting class of claims or interests satisfies the "cramdown" provisions of Section 1129(b). See "Confirmation of the Plan-Confirmation Without Acceptance by all Impaired Classes." C. FEASIBILITY The Bankruptcy Code requires the Bankruptcy Court to find that confirmation of the Plan is not likely to be followed by the liquidation, or the need for further financial reorganization, of the Debtor. For purposes of determining whether the Plan meets this requirement, JWP has analyzed its ability to meet its obligations under the Plan. As part of this analysis, management has prepared projections of Reorganized JWP's financial performance for the period from 1994 through 1997. See "Projected Financial Information." Although these projections do not reflect all possible effects of the Plan or of significant unanticipated adverse changes in economic conditions generally, JWP is confident that the Plan provides a feasible means of reorganization and operation, through which it can be reasonably expected that, subject to the risks disclosed herein, Reorganized JWP will be able to satisfy its obligations on and after the Effective Date. For a description of the assumptions underlying the projections, as well as the related qualifications, see "Financial Projections" and "Certain Risk Factors." D. BEST INTERESTS TEST The Bankruptcy Code requires that each creditor or equity holder in an impaired class either (a) has accepted the Plan or (b) will receive or retain under the Plan property of a value, as of the Effective Date, that is not less than the value such creditor or equity holder would receive or retain if the Debtor were liquidated under Chapter 7 of the Bankruptcy Code on such date. To determine what the holders of claims and interests in each impaired class would receive if JWP were liquidated, the dollar amount that would be generated from a liquidation of the assets and properties of JWP in the context of a hypothetical liquidation case under Chapter 7 must be calculated. Such determination must take into account the fact that costs and expenses of the liquidation case, including the creation of additional claims that would not have been impaired in the Reorganization Case, and any costs and expenses resulting from the original reorganization case would be paid in full from the liquidation proceeds before the - ------ 26 The requisite majority for acceptance of a plan by a class of creditors that is entitled to vote is acceptance by the holders of at least two-thirds in dollar amount and more than one-half in number of the allowed claims of those voting, excluding any vote that was not made or solicited or procured in good faith. The requisite majority for acceptance of a plan by a class of interests that is entitled to vote is acceptance by the holders of at least two-thirds in amount of the allowed interests of those voting, excluding any vote that was not made or solicited or provided in good faith. balance of those proceeds were made available to pay the pre-petition unsecured claims and interests. See the consolidated Liquidation Analysis attached as Exhibit 5 hereto. To determine if the Plan is in the best interests of each holder of a claim or interest in each impaired class, the present value of the distributions from the proceeds of the hypothetical liquidation of the assets and properties of JWP (after subtracting the amounts attributable to costs and expenses of the bankruptcy cases) must be compared with the present value of the consideration offered to such classes under the Plan. After considering the effect that a Chapter 7 liquidation would have on the ultimate proceeds available for distribution to creditors and equity holders of JWP, including (1) increased cost and expenses of liquidation under Chapter 7 arising from fees payable to a bankruptcy trustee and attorneys and other professional advisors to such trustee, (2) additional expenses and claims, some of which would be entitled to priority, that would be generated during the liquidation from, for example the rejection of unexpired leases and executory contracts in connection with the cessation of the operations of JWP and from the creation of liquidated claims, such as guarantee and other claims, which would be unimpaired in the Reorganization Case, or, if impaired, would remain contingent and unliquidated so long as JWP and its Nondebtor Subsidiaries are going concerns, (3) the erosion of the value of JWP's assets in the context of an expedited liquidation required under Chapter 7 and the "fire sale" atmosphere that would prevail, (4) the adverse effects on the saleability of portions of the business that could result from the possible departure of key employees and the loss of major customers, (5) the cost attributable to the time value of money resulting from what is likely to be a more protracted proceeding, and (6) the application of the rule of absolute priority to distributions in a Chapter 7 liquidation, JWP has determined that confirmation of the Plan will provide each holder of a claim or interest in an impaired class with a greater recovery than such holder would receive pursuant to a Chapter 7 liquidation of JWP and its Nondebtor Subsidiaries. The consolidated Liquidation Analysis for JWP is attached as Exhibit 5 hereto. The analysis set forth in the Liquidation Analysis of the estimated recoveries in a liquidation of JWP's operating businesses was prepared by JWP with the assistance of its financial advisors, Lazard Freres & Co. A description of procedures followed and the assumptions and qualifications made by JWP in connection with such analysis is set forth in the consolidated Liquidation Analysis contained in Exhibit 5 hereto. The Liquidation Analysis was completed using December 1993 data and, as of the date hereof, JWP is not aware of any events subsequent to such date that would materially impact the Liquidation Analysis. E. CONFIRMATION WITHOUT ACCEPTANCE BY ALL IMPAIRED CLASSES In the event that one or more of Classes 4C, 6, 7, 8, 9, 10 and 11 does not accept the Plan, the Debtor will seek to confirm the Plan notwithstanding the non-acceptance by such classes under the "cramdown" provisions set forth in Section 1129(b) of the Bankruptcy Code. To obtain confirmation under the "cramdown" provisions, it must be demonstrated to the Bankruptcy Court that the Plan does not "discriminate unfairly" and is "fair and equitable" with respect to any dissenting class. 1. Unfair Discrimination. The "unfair discrimination" test requires, among other things, that the Plan recognize the relative priorities among unsecured creditors and equity holders and that classes of equal rank receive equal treatment. JWP believes that it can demonstrate to the Bankruptcy Court that the Plan does not discriminate at all among Classes 2, 3, 4B and 4C and that this test is met for each of Classes 2, 3, 4B and 4C, based on the Intercreditor Agreement, which, in effect, provides for a partial subordination of claims in Class 3 to the claims in Class 2. The Intercreditor Agreement has no discriminatory effect on the claims in Classes 4B and 4C. Such discrimination as may exist in favor of Class 5 is fair and justified because it is essential to enable JWP's businesses to reorganize and to continue as going concerns. The claims of Class 6 are contractually subordinated to the claims of Classes 2, 3 and 4B and are separately classified and treated in order to recognize the terms of such subordination. If Classes 2, 3 and 4B, voting as a single class, accept the Plan, and the Plan is confirmed, the New Series X Warrants and New Series Y Warrants will be issued to Class 6 by reason of the negotiated settlement among such classes. The claims of Class 7 are certain claims that are subordinated to the claims of Classes 2, 3, 4, 5 or 6, and are separately classified and treated in accordance with such subordination. The interests in classes 8, 9, 10 and 11 are appropriately treated in accordance with their relative priorities. The interests in Class 8, which are based upon ownership of Old Preferred Stock, are senior to the interests in Classes 9, 10 and 11. The interests in Classes 9, 10 and 11, which are based upon the ownership of, or claims of right to, the Old Common Stock, or interests that are pari passu with such interests, are separately classified and treated under the Plan in order to effect a fair and rational allocation of New Series Z Warrants among such interests. The Plan provides that, notwithstanding the failure of any of Classes 9, 10 or 11 to accept the Plan, Reorganized JWP may, in its discretion, issue New Series Z Warrants to all such classes. 2. Fair and Equitable Standard. The Bankruptcy Code establishes different "fair and equitable" tests for secured creditors, unsecured creditors and equity holders. The respective tests, in part, are as follows: a. Unsecured Creditors. Either (i) each impaired unsecured creditor of the rejecting class receives or retains under the Plan property of a value equal to the amount of its allowed claim or (ii) the holders of claims and interests that are junior to the claims of the dissenting class do not receive or retain any property under the Plan. To the extent that any of Classes 4B, 6 and 7, which are classes of unsecured creditors, do not accept the Plan, the Plan provides that no class junior to such classes shall receive or retain any property under the Plan. b. Equity Holders. Either (i) each equity holder of the rejecting class receives or retains under the Plan property of a value equal to the value of such holder's equity interest or (ii) the holders of interests that are junior to the interests of such rejecting class do not receive or retain any property under the Plan. To the extent that Class 8, which is a class of equity interests, does not accept the Plan, the Plan provides that no class junior to such classes shall receive or retain any property under the Plan. To the extent that any of Classes 9, 10 and 11, which are classes of equity interests, do not accept the Plan, the Plan provides that no class junior to such classes shall receive any property under the Plan. If all of the applicable requirements for confirmation of the Plan set forth in Section 1129(a) of the Bankruptcy Code, except that any impaired classes reject the Plan, have been satisfied, JWP will request the Bankruptcy Court to confirm the Plan pursuant to the "cramdown" provisions of Section 1129(b) of the Bankruptcy Code, on the basis that the Plan is fair and equitable and does not discriminate unfairly with respect to such rejecting classes. XII. ALTERNATIVES TO THE PLAN A. ALTERNATIVE PLAN OF REORGANIZATION If the Plan is not confirmed, JWP or any other party in interest could attempt to formulate a different plan. Such a plan might involve either a reorganization and continuation of all or a part of JWP's businesses or it might propose an orderly liquidation of all of JWP's assets. JWP has explored various alternative plans in consultation with its advisors and in the lengthy negotiations underlying the formulation and development of the Plan. JWP believes that the Plan in its present form enables the greatest recovery for creditors. The Plan contemplates the orderly disposition of certain of JWP's assets and preserves that part of JWP's business deemed to be profitable and capable of generating sufficient cash flow to service operations and debt service. While a liquidation by JWP of all of JWP's assets under Chapter 11 would likely result in greater proceeds than a liquidation under Chapter 7 by a trustee, it is JWP's belief that the aggregate net proceeds of such a Chapter 11 liquidation would not equal the present value of the estimated recovery for creditors, over time, from JWP's continuing business, as proposed in the Plan. In addition, creditors' recoveries from a Chapter 11 liquidation would likely be further and substantially reduced by the creation and assertion of claims of a currently undetermined amount in connection with liabilities of JWP that are unimpaired under the Plan and that would not be assumed by any purchaser of purchasers of assets. These are claims, such as guarantee or indemnity obligations of JWP, that, subject to certain conditions, remain unimpaired under the Plan because the likelihood that such claims would become fixed instead of contingent is remote so long as JWP's operating subsidiaries continue to meet their obligations, as anticipated. B. LIQUIDATION UNDER CHAPTER 7. If no plan can be confirmed, the Reorganization Case may be converted to a case under Chapter 7, in which a trustee would be appointed to liquidate the assets of JWP for distribution to creditors in accordance with priorities established by the Bankruptcy Code. A discussion of the effect that a Chapter 7 liquidation would have on the recovery of the holders of claims and interests is set forth under "Confirmation of the Plan-Best Interests Test." JWP believes that liquidation under Chapter 7 would result in smaller distributions to claimants than those provided for in the Plan because of (a) increased costs and expenses arising from fees payable to a bankruptcy trustee and attorney and other professional advisors to such trustee, (b) additional expenses and claims, some of which would be entitled to priority, which would be generated during the liquidation from, for example, the rejection of unexpired leases and executory contracts in connection with the cessation of the operations of JWP and from the creation of liquidated claims, such as guarantee and other claims that will likely be unimpaired in the Reorganization Case, or, if impaired, will remain contingent and unliquidated so long as JWP and its Nondebtor Subsidiaries are going concerns, (c) the erosion of the value of JWP's assets in the context of an expedited liquidation required by Chapter 7 and the "fire sale" atmosphere that would prevail, (d) the adverse effect on the salability of portions of the business that could result from the possible departure of key employees and the loss of major customers, and (e) the cost attributable to be a more protracted proceeding. For more details, see the consolidated Liquidation Analysis attached as Exhibit 5 hereto. XIII. SECURITIES LAWS CONSIDERATIONS A. ISSUANCE OF REORGANIZATION SECURITIES Section 1145 of the Bankruptcy Code exempts the original issuance of securities under a plan of reorganization from registration under the Securities Act of 1993 (the "Securities Act") and state law. Under Section 1145, the issuance of the New Securities is exempt from registration if three principal requirements are satisfied: (1) the securities must be issued by a debtor, its successor, or an affiliate participating in a joint plan with the debtor, under a plan of reorganization; (2) the recipients of the securities must hold a claim against the debtor or such affiliate, an interest in the debtor or such affiliate, or a claim for an administrative expense against the debtor or such affiliate; and (3) the securities must be issued entirely in exchange for the recipient's claim against or interest in the debtor or such affiliate, or "principally" in such exchange and "partly" for cash or property. JWP believes that the issuance to holders of Claims in Classes 2, 3, 4B and 4C of the New Securities under the Plan will satisfy all three conditions because: (a) the issuances are expressly contemplated under the Plan, the joint proponents of which are JWP and SellCo, an affiliate of the Debtor; (b) the recipients are holders of "claims" against JWP, the Debtor; and (c) the recipients would obtain the New Securities in exchange for their prepetition Claims. B. SUBSEQUENT TRANSFERS OF REORGANIZATION SECURITIES The New Securities to be issued pursuant to the Plan may generally be resold by the holders thereof without registration under the Securities Act or other federal securities laws pursuant to the exemption provided by Section 4(1) of the Securities Act, unless the holder is an "underwriter" (as defined in Section 1145(b) of the Bankruptcy Code) with respect to such securities. In addition, such securities may generally be resold without registration or qualification under state securities laws pursuant to various exemptions provided by such laws. Section 1145(b) of the Bankruptcy Code defines four types of "underwriters:" (1) persons who purchase a claim against, an interest in, or a claim for an administrative expense against the debtor with a view to distributing any security received in exchange for such a claim or interest; (2) persons who offer to sell securities offered under a plan for the holders of such securities; (3) persons who offer to buy such securities from the holders of such securities, if the offer to buy is: (A) with a view to distributing such securities; or (B) made under a distribution agreement; and (4) a person who is an "issuer" with respect to the securities as the term "issuer" is defined in Section 2(11) of the Securities Act. Under Section 2(11) of the Securities Act an "issuer" includes any person directly or indirectly controlling or controlled by the issuer, or any person under direct or indirect common control with the issuer. Under Rule 405 of Regulation C under the Securities Act, the term "control" means the possession, direct or indirect, of the power to direct or cause the direction of the policies of a person, whether through the ownership of voting securities, by contract or otherwise. Accordingly, an officer or director of a reorganized debtor (or its affiliate or successor) under a plan of reorganization may be deemed to "control" such debtor (and therefore be an underwriter for purposes of Section 1145), particularly if such management position is coupled with the ownership of a significant percentage of a debtor's (or affiliate's or successor's) voting securities. To the extent that a person is deemed to be an "underwriter," except as described below, such person may make public offers and sales of New Securities only in accordance with the registration requirements of the Securities Act or exemptions therefrom, such as (i) the exemption for sales by persons in control relationships with the issuer provided by Rule 144 under the Securities Act, as described hereinafter, and (ii) the exemption for "ordinary trading transactions" (within the meaning of Bankruptcy Code section 1145(b)(1)), as described hereinafter. As to the exemption for sales by persons in control relationships with the issuer, the staff of the SEC has taken the position in no-action letters that a person deemed to be an "underwriter" solely because he is an affiliate or a person in a control relationship with the issuer may, pursuant to Rule 144 under the Securities Act, resell securities issued under a plan of reorganization without registration, subject to the availability to the public of current information regarding the issuer and to certain volume limitations and certain other conditions (but not the holding period requirement of Rule 144(d)). "Underwriters" may also be able to sell their securities without registration pursuant to Rule 144A under the Securities Act, which provides an exemption from the registration requirements for resales to "qualified institutional buyers." Rule 144A under the Securities Act generally defines "qualified institutional buyers" as institutional buyers who own and invest, on a discretionary basis, at least $100,000,000 in the aggregate, in the securities of unaffiliated issuers. A minimum net worth requirement is also imposed for banks and savings and loan institutions. As to the exemption for "ordinary trading transactions," the Bankruptcy Code does not define "ordinary trading transactions," and the SEC has not given definitive guidance with respect to the proper construction of that term. However, in a no-action letter, the staff of the SEC has concurred in the view that a transaction will be an "ordinary trading transaction" if it is carried out on an exchange or in the over-the-counter market at a time when the issuer of the traded securities is a reporting company under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and does not involve any of the following factors: (i) (x) concerted action by two or more recipients of securities issued under a plan of reorganization in connection with the sales of those securities, or (y) concerted action by distributors on behalf of one or more such recipients in connection with sales; (ii) the preparation or use of informational documents concerning the offering of the securities to assist in the resale of the securities, other than the disclosure statement approved in connection with the plan (and any supplement thereto) and documents filed with the SEC by the debtors or the reorganized company pursuant to the Exchange Act; or (iii) special compensation to brokers or dealers in connection with the sale of the securities designed as a special incentive to resell the securities, other than compensation that would be paid pursuant to arm's-length negotiations between a seller and a broker or dealer, each acting unilaterally, that is not greater than the compensation that would be paid for routine similar-sized sale of similar securities of a similar issuer. Although JWP's Old Common Stock is registered under the Exchange Act and JWP is, therefore, currently subject to the periodic reporting requirements of the Exchange Act, JWP has not filed all of the periodic reports required to be filed by it under the Exchange Act during the preceding 12 months and its financial statements for its three most recent fiscal years are unaudited. Accordingly, Rule 144 and Rule 144A may not be currently available and may not be available for resales of the New Securities unless and until JWP obtains audited financial statements and becomes current in its filings of periodic reports thereunder or JWP otherwise makes publicly available certain financial and other information specified in Rule 144. Under the Plan, Reorganized JWP will be obligated to use its best efforts to, among other things, file the Shelf Registration under the Securities Act covering all of the New Securities and cause it to be declared effective and remain effective for a two-year period. See "Summary of the Plan-Implementation of the Plan-Listing of New Securities and Registration Rights". However, JWP believes that Reorganized JWP will be unable to file the Shelf Registration unless and until it obtains audited financial statements for its three most recent fiscal years. Accordingly, there can be no assurance as to whether or when holders of New Securities who are deemed to be "underwriters" of JWP may be able to sell their securities pursuant to the Shelf Registration. To the extent that Rule 144 and Rule 144A and the Shelf Registration are unavailable, holders who are deemed to be "underwriters" of JWP may, under certain circumstances, be able to sell their securities in private transactions pursuant to the so-called Section 4(11/2) exemption from the registration requirements of the Securities Act. Whether or not any particular person would be deemed to be an "underwriter" with respect to any New Security to be issued pursuant to the Plan would depend upon various facts and circumstances applicable to that person. Accordingly, JWP expresses no view as to whether any particular person receiving distributions under the Plan would be an "underwriter" with respect to any New Security or other security to be issued pursuant to the Plan. Given the complex and subjective nature of the question whether a particular holder may be an underwriter, JWP makes no representation concerning the right of any person to trade in the New Securities. JWP recommends that potential recipients of a large amount of New Securities consult their own counsel concerning whether they may freely trade such New Securities without compliance with the Securities Act. XIV. CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following is a general discussion of (1) certain material federal income tax consequences of the exchanges contemplated under the Plan to holders of Old Credit Agreement Debt, Old Notes, Class 4B and 4C Claims, and Class 6 Claims (collectively, the "Old Debt"), and holders of claims in Class 7, Class 8, Class 9, Class 10 and Class 11, (2) certain material federal income tax consequences of the ownership and disposition of the Series A 7% Senior Secured Notes (the "Series A Notes"), the Series B 7% Senior Secured Notes (the "Series B Notes"), the 11% Series C Notes (the "Series C Notes"), the 12% SellCo Subordinated Contingent Payment Notes (the "SellCo Notes")(collectively, the "New Debt Securities"), New Series X Warrants, New Series Y Warrants, New Series Z Warrants and the New Common Stock, and (3) certain material federal income tax consequences of the Plan to Reorganized JWP. This discussion is based on the provisions of the Internal Revenue Code of 1986, as amended (the "Code"), final, temporary and proposed Treasury regulations thereunder ("Treasury Regulations"), and administrative and judicial interpretations thereof, all as in effect as of the date hereof and all of which are subject to change (possibly on a retroactive basis). No ruling from the Internal Revenue Service (the "Service") has been or will be sought on any of the issues discussed below, and there can be no assurance that the Service will not take a contrary view as to the federal income tax consequences discussed below. There is substantial uncertainty as to many of the federal income tax consequences discussed below. Uncertainty is created, in part, by recent changes to the Code, certain provisions of which call for the promulgation of Treasury Regulations that have not yet been promulgated or have not yet become final. This discussion provides general information only and does not address all of the federal income tax consequences that may be applicable to any particular holder subject to special treatment under United States Federal income tax law or to any particular holder in light of such holder's particular facts and circumstances. Certain holders, including broker-dealers, tax-exempt entities, banks, insurance companies, foreign persons, and persons to whom property was or is transferred in connection with the performance of services, may be subject to special and/or different rules not discussed below. This summary does not discuss any aspect of state, local or foreign taxation. This discussion also assumes that the holders compute income under the accrual method of accounting and that they hold the Old Debt, and will hold the New Debt Securities and the New Common Stock, as capital assets within the meaning of Code Section 1221. This discussion also assumes that the Old Debt and the New Debt Securities constitute debt rather than equity. Whether an interest in a corporation is to be treated as stock or debt is primarily a question of fact. Some of the primary factors considered in answering this question include: (1) whether there is a written unconditional promise to pay, on demand or on a specified date, a fixed amount in money in return for an adequate consideration and to pay a fixed rate of interest, (2) whether there is subordination to, or preference over, other debt and (3) the ratio of debt to equity. This issue is of concern in the case of the SellCo Notes because interest and principal on the SellCo Notes will not be paid in the event that insufficient funds are available after the sale of substantially all of the assets of SellCo and its direct and indirect subsidiaries. THE FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN AND OF THE OWNERSHIP AND DISPOSITION OF THE NEW DEBT SECURITIES AND THE NEW COMMON STOCK ARE COMPLEX. ALL HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE MATTERS DISCUSSED HEREIN, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL AND FOREIGN TAX LAWS. Federal Income Tax Consequences of the Plan to Holders of Old Debt Certain Assumptions The federal income tax consequences of the exchange of Old Notes, Old Credit Agreement Debt and Class 4B and 4C Claims for New Debt Securities and New Common Stock depend in part on whether each such exchange would constitute a "recapitalization" under the Code. The determination of whether each exchange would constitute a recapitalization depends, in part, upon whether the Old Notes, Bank Debt, Class 4B and 4C Claims, and New Debt Securities are "securities" for federal income tax purposes. The term "security" is not defined in the Code or the regulations issued thereunder, and has not been clearly defined by court decisions. In general, a debt instrument constitutes a "security" if it represents a participating, continuing interest in the issuer, rather than merely the right to a cash payment. Thus, the term of the debt instrument is usually regarded as a significant factor in determining whether it is a security. The Service has ruled that a debt instrument with a maturity of ten years or more is treated as a security. However, under the case law, debt instruments with maturities ranging between five and ten years are often held to be securities. For purposes of this discussion, it is assumed that the Old Notes and Series C Notes constitute "securities" within the meaning of the provisions of the Code governing reorganizations, but that the Old Credit Agreement Debt, Class 4B and 4C Claims, Series A Notes and Series B Notes do not constitute "securities." (a) Exchange of Old Notes. The exchange of the Old Notes for New Debt Securities and New Common Stock should be treated as a recapitalization within the meaning of Code Section 368(a)(1)(E). If the exchange is treated in that manner, the federal income tax consequences to the holders of the Old Notes would be as follows: (1) Subject to the discussion below as to accrued but unpaid interest, a holder would not recognize loss on the exchange, but would recognize gain to the extent of the lesser of the amount of gain realized from the exchange or the sum of the aggregate issue price, determined as discussed below, of the Series A Notes, Series B Notes and SellCo Notes received (the "Boot Notes"). The amount of gain realized, if any, would be equal to the excess of (1) the sum of the aggregate issue price of the New Debt Securities received and the fair market value of the New Common Stock received, over (2) such holder's adjusted tax basis in the Old Notes. (2) Subject to the discussion below as to accrued market discount, any such gain recognized on the exchange would be capital gain, and such capital gain would be long-term capital gain if such holder held the Old Notes for more than one year as of the Effective Date. Each holder should discuss with its tax advisor the possible application of the installment sale rules of the Code to such gain. (3) Except for the New Common Stock treated as received in exchange for accrued but unpaid interest as discussed below, a holder should have an aggregate tax basis in the New Debt Securities and New Common Stock equal to such holder's adjusted tax basis in the Old Notes, reduced by the aggregate amount of the issue price of the Boot Notes received and increased by any gain recognized on the exchange. The Boot Notes should have a tax basis equal to their issue price. (4) Except for the New Common Stock treated as received in exchange for accrued but unpaid interest as discussed below, the holding period of the New Debt Securities and New Common Stock should include the holding period of the Old Notes. The holding period for the Boot Notes should commence on the day immediately following the Effective Date. (b) Exchange of Old Credit Agreement Debt and Class 4 Claims. The exchange by the holders of the Old Credit Agreement Debt and the Class 4B and 4C Claims for their respective shares of the New Debt Securities and New Common Stock should be treated as a taxable exchange under Code Section 1001. If the exchange were treated in that manner, then the federal income tax consequences to the holders of such claims would be as follows: (1) Subject to the discussion below as to accrued but unpaid interest, a holder would recognize gain or loss on the exchange in an amount equal to the difference between (i) the sum of the fair market value of the New Common Stock received as of the Effective Date and the aggregate issue price of the New Debt Securities received, and (ii) such holder's adjusted tax basis in its Old Credit Agreement Debt or Class 4B and 4C Claims, as the case may be. (2) Subject to the discussion below as to accrued market discount, any such gain or loss should be capital gain or loss, and such capital gain or loss should be long-term capital gain or loss if such holder held the Old Credit Agreement Debt or the Class 4B and 4C Claims for more than one year as of the Effective Date. Each holder should discuss with its tax advisor the possible application of the installment sale rules of the Code to any such gain. (3) A holder's tax basis in the New Common Stock would be equal to the fair market value of the New Common Stock as of the Effective Date. The holder's tax basis in the New Debt Securities should be equal to the issue price of such New Debt Securities. (4) The holding period of the New Common Stock and New Debt Securities would begin on the day immediately following the Effective Date. (c) Exchange of Class 6 Claims. The exchange by the holders of the Claims in Classes 6, 7, 8, 9, 10 and 11 for New Warrants and/or cash should be treated as a taxable exchange under Code Section 1001. If the exchange were treated in that manner, then the federal income tax consequences to the holders of such claims would be as follows: (1) Subject to the discussion below as to accrued but unpaid interest, a holder would recognize gain or loss on the exchange in an amount equal to the difference between (i) the amount of cash and fair market value of the New Warrants received as of the Effective Date, and (ii) such holder's adjusted tax basis, if any, in its claim, Old Preferred Stock, Old Common Stock or New Warrants of Participation, as the case may be. (2) Subject to the discussion below as to accrued market discount, any such gain or loss should be capital gain or loss, and such capital gain or loss should be long-term capital gain or loss if such holder held its claim, Old Preferred Stock, Old Common Stock or New Warrants of Participation, as the case may be, for more than one year as of the Effective Date. The character of any gain (capital versus ordinary and long-term versus short-term) recognized by the holder of a Class Action claim should be determined by reference to the transaction which gave rise to such claim. Accordingly, holders of such claims are urged to consult with their own tax advisors. (3) A holder's tax basis in the New Warrants would be equal to the fair market value of the New Warrants as of the Effective Date. (4) The holding period of the New Warrants would begin on the day immediately following the Effective Date. (5) A holder of New Warrants should not recognize gain or loss upon the exercise of the New Warrants. If a holder exercises a New Warrant, the basis in the New Common Stock acquired would equal the sum of the amount paid for the New Common Stock and the tax basis of the New Warrants exercised. The holding period for such New Common Stock would commence on the date the New Warrants are exercised. If a holder does not exercise a New Warrant, but allows it to lapse, the holder would recognize a loss (which should be capital loss) in an amount equal to the holder's tax basis in the New Warrant. Such loss would be long term capital loss if the New Warrants have been held for more than one year, and otherwise would be short term capital loss. (d) Accrued But Unpaid Interest. The Plan provides, and JWP intends to take the position for federal income tax purposes, that the New Debt Securities are being issued solely in exchange for an identical principal amount of Old Debt. The New Common Stock will be treated as having been issued in exchange for the remaining principal amount of the Old Debt and any accrued but unpaid interest on the Old Debt, and allocated among such remaining principal and interest based upon the relative amounts of each. The Service, however, could challenge such allocations and contend that some other allocation is required. All holders of the Old Debt should consult their own tax advisors regarding the allocation of consideration to accrued interest and make their own independent determination whether any portion of the consideration received should be treated as received in exchange for accrued but unpaid interest. A holder that has previously included in income accrued but unpaid interest during the period that the holder held the Old Debt should recognize an ordinary loss as a result of the exchange if and to the extent the amount of such accrued but unpaid interest previously included in income exceeds the fair market value of the New Common Stock and New Warrants deemed received in payment of the accrued but unpaid interest. A holder should recognize interest income as a result of the exchange if and to the extent the fair market value of the New Common Stock and New Warrants deemed received in payment of the accrued but unpaid interest exceeds the amount the holder had included in income as accrued but unpaid interest during the period that the holder held such Old Debt. A holder's tax basis in the New Common Stock and New Warrants treated as received in exchange for accrued but unpaid interest, if any, will be equal to the fair market value of such New Common Stock and New Warrants as of the Effective Date. The holding period for such New Common Stock and New Warrants will begin on the day immediately following the Effective Date. (e) Accrued Market Discount. A holder that acquired the Old Debt subsequent to its original issuance with more than a "de minimis" amount of market discount (as defined below) would be subject to the market discount rules of Code Sections 1276 through 1278. Under those rules, assuming that no election to include market discount in income on a current basis has been made by the holder with respect to any market discount instrument, any gain recognized on the exchange of the Old Debt would be characterized as ordinary income to the extent of the accrued market discount as of the Effective Date. In the case of the exchange of the Old Notes, any market discount remaining thereon which has not been recognized as ordinary income as described in the previous sentence would be carried over and be treated as accrued market discount on the Series C Notes and New Common Stock received in exchange therefor. Because Treasury Regulations with respect to the market discount rules have not yet been issued, all holders of Old Debt should consult their own tax advisors concerning developments in this area. Federal Income Tax Consequences of Ownership and Disposition of New Debt Securities and New Common Stock Treatment of New Debt Securities The following discussion of certain of the anticipated federal income tax consequences of the ownership and disposition of the New Debt Securities is based in part on Treasury Regulations relating to the original issue discount provisions of the Code (the "Regulations"). The Regulations were released in final form on January 27, 1994, and will become effective on April 4, 1994. The Regulations are ambiguous and uncertain in many respects, and there is little authority interpreting the Regulations. Also, as discussed below, the treatment of the SellCo Notes is subject to more uncertainty because of the issuance and withdrawal of certain proposed Treasury Regulations. Accordingly, the ultimate federal income tax treatment of the New Debt Securities may differ from that described below and holders are urged to consult their own tax advisors concerning these rules. (a) Original Issue Discount. The New Debt Securities will be issued with original issue discount ("OID") within the meaning of Code Section 1273(a). As a result, a holder of the New Debt Securities generally must include OID in gross income for federal income tax purposes as it accrues, under a method that takes into account the compounding of interest on a constant yield to maturity basis. Any amount included in income as OID will increase a holder's tax basis in the New Debt Security. Generally, each payment under a New Debt Security is treated first as a payment of OID to the extent of the OID that has accrued as of the date of payment and has not been allocated to prior payments, and second as a payment of principal. However, a pro rata prepayment (such as any mandatory prepayment on the New Debt Securities) is treated as a payment in retirement of a portion of a debt instrument, which may result in gain or loss to the holder. Generally, the gain or loss is calculated by assuming that the original debt instrument consists of two instruments, one that is retired and one that remains outstanding. The adjusted issue price, adjusted basis, and accrued but unpaid OID of the original debt instrument, determined immediately before the pro rata prepayment, are allocated between these two instruments based on the portion of the instrument that is treated as retired by the pro rata prepayment. The amount of OID on a New Debt Security will be equal to the excess of its "stated redemption price" at maturity over its "issue price." In general, the "stated redemption price at maturity" of a New Debt Security will be equal to all amounts payable under the New Debt Security, other than the amounts payable as qualified stated interest. "Qualified stated interest" is stated interest that is unconditionally payable in cash or in property (other than debt instruments of the issuer, e.g., pay-in-kind interest) at least annually and, except for certain variable rate debt instruments, at a single fixed rate. It is not anticipated that the New Debt Securities will pay any qualified stated interest, and therefore each New Debt Security will be issued with OID. The determination of the "issue price" of a New Debt Security depends, in part, on whether the New Debt Securities or the Old Debt are publicly traded. In general, either the New Debt Securities or the Old Debt would be treated as publicly traded if, at any time during the 60-day period ending 30 days after the issue date of the New Debt Securities (the "60-Day Period"), the New Debt Securities or the Old Debt are traded on an established market. Subject to certain exceptions, the New Debt Securities or Old Debt would be treated as traded on an established market if (1) either is listed on certain securities exchanges, interdealer quotation systems, or designated foreign exchanges or boards of trade, (2) either is traded either on certain boards of trade that are designated as a contract market or on an interbank market, (3) either appears on a system of general circulation that provides a reasonable basis to determine fair market value by disseminating either recent price quotations of identified brokers, dealers or traders, or actual prices of recent sales transactions; or (4) price quotations are readily available from brokers, dealers or traders. The issue price of a debt instrument that is traded on an established market or that is issued for another debt instrument so traded would be the fair market value of such debt instrument or such other debt instrument, as the case may be, on the issue date as determined by such trading. The issue price of a debt instrument that is neither so traded nor issued for another debt instrument so traded would be its stated principal amount, if the stated interest rate on the debt instrument exceeds the "applicable federal rate" published monthly by the Service. The applicable federal rate is reported for three categories of debt instruments: short term (3 years or less), mid-term (over 3 years but less than 9 years), and long-term (over 9 years). The applicable federal rate for each category is determined by the Service based upon the average market yield (during any one month period ending in the calendar month in which the determination is made) on outstanding marketable obligations of the United States in such categories. In the case of a debt instrument issued in connection with a sale or exchange, the applicable federal rate is the lowest such rate in effect for any month in the three calendar month period ending with the calendar month in which there is a binding contract in writing for the sale or exchange (presumably, the Confirmation Date of the Plan). The stated interest rate of each New Debt Security would exceed the applicable federal rate in effect for June 1993. It is anticipated that neither the Old Debt nor the New Debt Securities will be listed or traded on a securities exchange, interdealer quotation system, board of trade, or interbank market within the relevant 60-Day Period. To the best of its knowledge, JWP does not believe that within the relevant 60-Day Period (i) the Old Debt or the New Debt Securities will appear on a system of general circulation that disseminates recent price quotations or actual prices of recent sales, or (ii) price quotations from traders, dealers and brokers will be readily available for the Old Debt or New Debt Securities. Accordingly, JWP intends to take the position that the Old Debt was not, and the New Debt Securities will not, be traded on an established market for purposes of the Regulations. Thus if the interest rates on the New Debt Securities continue to exceed the applicable federal rates as of their issue date, then the issue price of such notes would be their respective stated principal amounts. However, holders should note that the fair market value of the Old Debt or the New Debt Securities as of the Effective Date may be less than the stated principal amount of the New Debt Securities. Thus, if either the Old Debt or the New Debt Securities are ultimately determined to be traded on an established market, (i) the New Debt Securities would have a larger amount of OID, and (ii) the New Debt Securities (other than the Series A Notes and Series B Notes) could become subject to the applicable high yield discount obligation provisions of Code Section 163(e)(5) resulting in adverse tax consequences to JWP with respect to, among other things, the timing and amount of interest deductions. If the New Debt Securities already are subject to those provisions, the adverse tax consequences of those provisions would be worsened. To the extent that the issue price of a New Debt Security is equal to its stated principal amount, the OID on the New Debt Security would be reduced, but not eliminated. Because no "qualified stated interest" will be payable on the New Debt Securities, in each case the stated redemption price of a New Debt Security will exceed its issue price, and therefore such New Debt Security will be issued with OID. Thus, a holder of a New Debt Security will be required to include amounts in gross income for federal income tax purposes in advance of the receipt of cash payments in respect of such income. The amount of OID to be included in income in any tax period would be determined using a constant yield to maturity method, under which a holder would have to include in income increasingly greater amounts of OID in successive accrual periods. The amount of OID allocable to any accrual period is an amount equal to the excess, if any, of (a) the product of the New Debt Security's "adjusted issue price" at the beginning of such accrual period and its yield to maturity (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period) over (b) the sum of any qualified stated interest payments on the New Debt Security allocable to the accrual period. The "adjusted issue price" of the Note at the start of any accrual period is equal to its issue price increased by the accrued OID for each prior accrual period and reduced by any prior payments with respect to such New Debt Security that were not qualified stated interest payments. Under the Regulations, the issuance of additional New Debt Securities (the "PIK Notes") in lieu of cash interest payments does not constitute the payment of interest for purposes of calculating OID. Instead, all cash payments with respect to each New Debt Security and any cash payments with respect to any related PIK Note should be treated as payments in respect of a single debt instrument for purposes of applying the OID rules. The stated redemption price at maturity of a New Debt Security should be equal to the sum of all cash payments due pursuant to the terms of such Note and any related PIK Note. When a PIK Note is issued in lieu of payment of cash interest on a New Debt Security, the adjusted issue price of the New Debt Security should be allocated between the New Debt Security and the PIK Note in proportion to their respective stated principal amounts, and these allocated amounts thereafter would be used in accruing OID on the New Debt Security and the PIK Note. Similarly, the tax basis of a New Debt Security should be allocated between the New Debt Security and the PIK Note in proportion to their respective stated principal amounts. If a holder's tax basis in a New Debt Security immediately after the holder's acquisition of the New Debt Security exceeds the sum of all amounts payable thereafter on the New Debt Security other than payments of qualified stated interest, then such holder would generally be treated as having acquired such New Debt Security at a "premium" under Code Section 1272(c)(1). In such event, such holder would not be required to include original issue discount in income with respect to such New Debt Security. If a holder does not acquire a New Debt Security at a premium as described above, but the holder's tax basis in the New Debt Security immediately after the holder's acquisition of the New Debt Security exceeds the adjusted issue price of the New Debt Security as of the date of the holder's acquisition, then such holder would be treated as having acquired such New Debt Security at an "acquisition premium" equal to such excess under Code Section 1272(a)(7). For this purpose, the adjusted issue price of a New Debt Security is its issue price, increased by the amount of original issue discount on the New Debt Security previously includible in the gross income of any holder without regard to whether the acquisition premium exception applied to any such holder, and reduced by the aggregate amount of all payments previously made on the New Debt Security other than qualified stated interest payments, as discussed above. In such event, such holder would generally be permitted to reduce the amount of original issue discount includible in income by a portion of the acquisition premium. That portion is equal to a constant percentage (equal to the amount of such acquisition premium divided by the excess of the sum of all amounts payable on the debt instrument after the acquisition date, other than payments of qualified stated interest, over the New Debt Security's adjusted issue price) of the original issue discount otherwise allocable to each day that the holder holds such New Debt Security. Rather than apply this acquisition premium fraction, a holder of a New Debt Security purchased at an acquisition premium may elect to compute OID accruals by treating the acquisition as a purchase at original issuance and applying the mechanics of the constant yield method. Although Code Section 1272(a)(7) is applicable on its face only to a holder who purchases a debt instrument after its original issue, the Regulations indicate that these rules also apply to an original purchaser of a debt instrument. Accordingly, an initial holder of a New Debt Security should be entitled to treat the excess, if any, of its tax basis in the New Debt Security (determined as discussed above) over the issue price of the New Debt Security as acquisition premium that will reduce the amount of OID otherwise includible in income. Notwithstanding the foregoing two paragraphs, if a holder's tax basis in a New Debt Security is determined in whole or in part by reference to the adjusted tax basis in such New Debt Security in the hands of the person from which the holder acquired the New Debt Security, then such holder can be treated as having acquired the New Debt Security at a premium or at an acquisition premium only if such person acquired the New Debt Security at a premium or at an acquisition premium, as the case may be. It should be noted that, for purposes of applying the OID rules described above, the SellCo Notes should be treated as originally-issued with OID to JWP, and not to the holders of Old Debt. Each such holder should be treated as having acquired SellCo Notes from JWP in exchange for Old Debt (and interest thereon) in an amount equal to the issue price of such SellCo Notes. (b) Market Discount. Under the market discount provisions of Code Sections 1276 through 1278, a holder (other than a holder that makes an election to include market discount in income on a current basis, as described below) that acquires a debt instrument with market discount that is not "de minimis" would be required to treat any gain realized on a sale or certain other dispositions of, or partial principal payments on, such debt instrument as ordinary income to the extent of the market discount that accrues during the period the holder holds such debt instrument. Further, a disposition of such a debt instrument by gift (and in certain other circumstances) could result in the recognition of market discount income, computed as if such debt instrument had been sold for its fair market value. A holder of a debt instrument with market discount also would be required to defer the deduction of a portion of the interest on any indebtedness incurred or continued to purchase or carry such debt instrument until such debt instrument is sold or otherwise disposed of, or until all such market discount has been otherwise included as ordinary income. In the case of an exchange of an old debt instrument for a new debt instrument, any accrued market discount will carry over to the new debt instrument. In the case of an exchange of an old debt instrument for stock in a transaction in which the gain realized is not recognized for federal income tax purposes, ordinary income would be recognized on the disposition of such stock to the extent of the accrued market discount on the old debt instrument. Generally, the term "market discount" means the excess, if any, of the stated redemption price at maturity of a debt instrument over the holder's tax basis in the debt instrument immediately after its acquisition. In the case of a debt instrument originally issued with more than a "de minimis" amount of OID, "market discount" is generally the amount by which the holder's tax basis in such debt instrument (immediately after its acquisition) is less than the adjusted issue price of such debt instrument. Under a "de minimis" exception, if the market discount is less than one-fourth of 1% of the stated redemption price at maturity multiplied by the number of complete years from the holder's acquisition date to the maturity date of the debt instrument, market discount is deemed to be zero. A holder of a New Debt Security with market discount may elect to include market discount in income as the market discount accrues. Once made, the current inclusion election will apply to all market discount obligations acquired in the year of the election and in all subsequent years, and would be revocable only with the consent of the Service. If a holder of a New Debt Security elects to include market discount in income as it accrues, the foregoing rules with respect to the recognition of ordinary income on a sale or certain other dispositions of, or partial principal payments on, the New Debt Security and the deferral of interest deductions on indebtedness related to the New Debt Security would not apply. The New Debt Securities may be redeemed, in whole or in part, before maturity. In general, if the principal of a debt instrument is paid in more than one installment, the holder is required to include accrued market discount (as determined by Treasury Regulations to be provided) in income with respect to each principal payment up to the amount of the payment (which could be in advance of the time otherwise required). This provision could apply to a holder of a New Debt Security with market discount that will be redeemed in part. No Treasury Regulations with respect to the market discount rules have been issued or proposed, and, therefore, all holders should consult their own tax advisors concerning developments in this area. (c) Amortizable Bond Premium. If a holder's tax basis in a New Debt Security exceeds the amount payable at maturity of such New Debt Security, then such excess may be deductible by the holder as "amortizable bond premium" under Code Section 171 on a constant yield to maturity basis over the period from the holder's acquisition date to the maturity date of the New Debt Security. Under the Regulations, it appears the "amount payable at maturity" equals the sum of all amounts payable on the New Debt Security after the purchase date other than payments of qualified stated interest. The deduction would be treated as a reduction of interest income. Such deduction would be available only if the holder makes (or has made) a timely election under Code Section 171. The election, if made, would apply to all debt instruments held or subsequently acquired by the electing holder and could not be revoked without permission from the Service. (d) Disposition. On a sale, redemption or other taxable disposition of a New Debt Security, a holder generally would recognize gain or loss in an amount equal to the difference between (i) the amount realized on the disposition and (ii) the holder's adjusted tax basis in such New Debt Security. Any amount received that is attributable to accrued but unpaid interest that has not previously been included in the holder's income would be treated as interest income and would not be treated as an amount realized upon the sale, redemption or other taxable disposition of the New Debt Security. The holder's adjusted tax basis in a New Debt Security generally would equal the holder's original tax basis in the New Debt Security, increased by any OID and market discount previously included in the holder's gross income with respect to such New Debt Security pursuant to the rules described above, and reduced by any amortizable bond premium deducted as a reduction of interest income as described above, and further reduced (but not below zero) by all payments on such New Debt Security (other than payments of qualified stated interest) received by the holder. Subject to the market discount rules described above, any such gain or loss would generally be capital gain or loss, and would be long-term capital gain or loss if the holder's holding period for such New Debt Security is more than one year at the time of the disposition. (e) Backup Withholding. All payments made under the Plan are subject to applicable withholding (including employment tax withholding). Under the Code, interest, dividends and other "reportable payments" may, under certain circumstances, be subject to "backup withholding" at a 31% rate. Backup withholding generally applies if the holder (a) fails to furnish his social security number or other taxpayer identification number ("TIN"), (b) furnishes an incorrect TIN, (c) fails properly to report interest or dividends or (d) under certain circumstances, fails to provide a certified statement, signed under penalty or perjury, that the TIN provided is his correct number and that he is not subject to backup withholding. Backup withholding is not an additional tax but merely an advance payment, which may be refunded to the extent it results in an overpayment of tax. Certain persons are exempt from backup withholding, including corporations and financial institutions. (f) Information Reporting. Pursuant to the provisions of Code Section 6049, information reporting will be made to the Service, and to holders of record that are not exempted from the reporting requirements, annually or as otherwise required with respect to interest paid and original issue discount accrued on the New Debt Securities. Treatment of New Common Stock Dividends, if any, paid on the New Common Stock will be taxed as ordinary income to the extent paid from current or accumulated earnings and profits. A dividends received deduction (generally at a 70% rate) may be available with respect to such dividends to holders that are corporations, subject to limitations such as those relating to holding periods or indebtedness used to acquire or carry such stock. To the extent that a distribution exceeds current and accumulated earnings and profits, it is treated as a nontaxable recovery of the holder's adjusted tax basis to the extent thereof, and any remaining amount is treated as gain from a taxable disposition. Subject to the discussion above as to accrued market discount, a holder will generally recognize capital gain or loss upon a sale or other taxable disposition of the New Common Stock. The rules discussed above regarding backup withholding and information reporting on the New Debt Securities will also apply to the New Common Stock. Treatment of the SellCo Notes There is some degree of uncertainty as to whether the SellCo Notes would be treated as debt or as equity of SellCo for federal income tax purposes. Moreover, assuming the SellCo Notes are treated as debt, there is some doubt as to whether the debt would be treated as a "contingent debt instrument" for OID purposes. Because of the paucity of authority on whether a debt instrument is treated as "contingent" for OID purposes, and the uncertainty of whether the SellCo Notes are properly characterized as debt or as equity for federal income tax purposes, each holder should consult with its own tax advisors regarding the appropriate tax characterization of the SellCo Notes. JWP, on behalf of SellCo (its wholly-owned subsidiary), intends to take the position (and the discussion below assumes) that the SellCo Notes will be respected as debt for federal income tax purposes, however, no assurance can be made that the Service will concur with such treatment. (a) Exchange of Old Debt. Irrespective of whether the SellCo Notes are treated as debt or as equity for federal income tax purposes and subject to the discussion above as to accrued but unpaid interest, any SellCo Notes received by a holder would be treated as Boot Notes. If the SellCo Notes are debt, the amount realized with respect to them would be their issue price for OID purposes, otherwise it would be their fair market value. (b) Original Issue Discount. The following discussion concerning contingent debt instruments is based on proposed Treasury Regulations originally issued in 1986 (the "1986 Regulations"). Other proposed regulations relating to contingent debt instruments were issued in 1993, but were subsequently withdrawn. Holders are urged to consult their own tax advisors as to the possibility of whether the proposed, but withdrawn regulations might be reissued with retroactive effect. Assuming the SellCo Notes are treated as debt for federal income tax purposes, the SellCo Notes would be issued with OID. However, it is not clear whether the SellCo Notes would be treated as "contingent debt instruments" within the meaning of the 1986 Regulations. If the SellCo Notes are not treated as "contingent," then the discussion above under the caption, "Federal Income Tax Consequences Of Ownership and Disposition Of New Debt Securities and New Common Stock; Treatment of New Debt Securities" would apply to the SellCo Notes. However, since principal and interest on the SellCo Notes are payable only out of the net proceeds of the sale of certain assets of SellCo, under the 1986 Regulations, the SellCo Notes may be treated as "contingent debt instruments" of SellCo. Assuming the SellCo Notes are so treated and assuming that neither they nor the Old Debt are traded on an established market, as discussed above, the 1986 Regulations would require that each payment on the SellCo Notes be treated as consisting of (i) a payment of principal in an amount equal to the present value of the payment determined by discounting the payment by the "applicable federal rate" from the date that the amount of the payment becomes fixed to the issue date, and (ii) a payment of interest in an amount equal to the excess of the total amount of the payment over the amount treated as principal. Notwithstanding the preceding sentence, the total amount treated as principal may not exceed the stated maximum principal amount on the SellCo Note. Once the portion of the contingent payments treated as principal exceeds the stated maximum principal amount of the SellCo Notes, any additional payments would be treated entirely as interest. If either the SellCo Notes or Old Debt is deemed to be traded on an established market, as discussed above, the 1986 Regulations provide that the amount of interest deemed to accrue on the SellCo Notes during an accrual period would be equal to the product of (x) the adjusted issue price of the note at the beginning of the accrual period, and (y) the "applicable federal rate" based upon the due date of the final payment under the debt instrument. Payments on the SellCo Note would be treated as consisting of (i) a payment of interest to the extent of interest deemed accrued for the current and all prior accrual periods and not allocated to prior payments, and (ii) a payment of principal to the extent of the excess of such payment over the portion treated as interest. If at the time of maturity of the SellCo Notes, the outstanding principal balance (issue price less the sum of all prior payments treated as principal) exceeds the total amount of the final payment, the entire amount of the final payment would be treated as principal and the SellCo Notes would be treated as retired for such amount. If, conversely, at that time, the total amount of the final payment exceeds the outstanding principal balance, the SellCo Notes would be treated as retired for an amount equal to such outstanding principal balance, and the final payment would be treated as interest to the extent of such excess. In the event that the SellCo Notes are treated as equity for federal income tax purposes, the federal income tax treatment to holders with respect to payments on the SellCo Notes should follow the contingent debt rules described above (with the exception that corporate holders may be entitled to a dividends received deduction (generally at a 70% rate) with respect to any payments under the SellCo Notes characterized as dividends). However, because there is no authority confirming that this would be the proper treatment, each holder should consult with its own tax advisors as to the federal income tax consequences of payments on the SellCo Notes in the event that they are properly characterized as equity for federal income tax purposes. Certain Federal Income Tax Consequences of the Plan to JWP Cancellation of Indebtedness ("COD") Income. Upon implementation of the Plan, the amount of the JWP's aggregate outstanding indebtedness will be substantially reduced. In general, the Code provides that a debtor in a case under the Bankruptcy Code must reduce its tax attributes by any COD, i.e., the amount by which the debt discharged exceeds any consideration paid in exchange therefor. Although a debtor's net operating loss carryforwards ("NOLS") are generally reduced before any other tax attributes, a debtor may elect to first reduce the tax basis in its depreciable property (determined as of the first day of the taxable year succeeding the taxable year of discharge). However, JWP will not incur COD and will not be required to reduce its tax attributes to the extent the so-called "stock-for-debt exception" applies. Under the stock-for-debt exception, COD generally will not be realized with respect to a given claim if, in exchange for such claim pursuant to a plan confirmed by the Bankruptcy Court, the holder receives a sufficient equity interest in the debtor which satisfies certain rules. Whether an exchange by a particular holder qualifies for the stock-for-debt exception depends, in part, upon whether (i) the New Common Stock issued in exchange for the holder's Old Debt (including accrued but unpaid interest thereon, but reduced by the aggregate issue price of New Debt Securities issued in partial exchange therefor) is not nominal or token within the meaning of Code Section 108(e)(8)(A) (the "nominal or token test"), (ii) the ratio of the value of the New Common Stock received by such holder to the amount of such holder's Old Debt exchanged for the New Common Stock is not less than 50% of a similar ratio computed for all holders of the Old Debt (the "Proportionality Test") and (iii) the New Common Stock is stock eligible for the stock-for-debt exception. JWP intends to take the position that the stock-for-debt exception will apply to the exchange of New Stock for the Old Debt (excluding the Class 6 Claims) and the interest on such Old Debt outstanding after the issuance of the New Debt Securities with respect thereto. However, there can be no assurance that the Service will agree. If a Service challenge were successful, Reorganized JWP could be required to significantly reduce its tax attributes, including its NOLs. In addition, JWP will recognize COD and corresponding attribute reduction in an amount equal to the sum of (i) the excess of the face amount of the Class 6 Claims (including accrued interest) over the fair market value of the New Warrants issued in exchange therefor. The stock-for-debt exception discussed above was repealed, albeit on a delayed basis, by the Reconciliation Act of 1993 (the "1993 Act") with respect to stock transfers occurring after December 31, 1994. However, under a grandfathering provision contained in the 1993 Act, since a bankruptcy case was filed on behalf of JWP before December 31, 1993, the stock-for-debt exception will continue to apply even with respect to transfers of stock occurring after December 31, 1994, provided that the case is not dismissed and such transfers are made pursuant to the Plan. If, on the other hand, the present case is dismissed and JWP files its own bankruptcy case, the exchange of Old Debt for New Debt Securities and New Common Stock pursuant to the Plan must occur on or before December 31, 1994 in order for the stock-for-debt exception to apply. Limitation on Net Operating Losses. JWP estimates that, as of December 31, 1993, it will have consolidated NOLs for federal income tax purposes totalling approximately $553 million, of which approximately $23 million will be subject to limitation and therefore usable only by certain subsidiaries of JWP, all of which amounts are subject to reduction on audit. JWP believes that the implementation of the Plan will cause an "ownership change" as of the Effective Date for federal income tax purposes. As a result, to the extent not reduced or eliminated because of the realization of COD, as discussed above, the use of any remaining NOLs will be governed by Code Section 382, as discussed below. Generally, under Code Section 382, a corporation's annual taxable income for periods after an "ownership change" may be offset by NOLs attributable to periods prior to such an "ownership change" only to the extent of the product of (A) the fair market value of the corporation's stock immediately before such "ownership change" and (B) the long-term tax-exempt rate prescribed by the IRS (for June 1994, 6.01%). For this purpose, the fair market value of stock is generally determined without regard to capital contributions made during the two-year period ending on the date of the "ownership change." If a corporation that undergoes an "ownership change" has a "net unrealized built-in gain," its general Section 382 limitation, as described in the preceding paragraph, is increased, subject to certain limitations, by any "built-in gain" recognized during the five-year period beginning with the date of the "ownership change." If a corporation that undergoes an "ownership change" has a "net unrealized built-in loss," subject to certain limitations, any "built-in loss" recognized during the five-year period beginning with the date of the "ownership change" is treated as a pre-change loss and is subject to the general Section 382 limitation described above. Reorganized JWP would be treated as having a "net unrealized built-in loss" if at the time of the ownership change it has "built-in losses" in excess of "built-in gains." When such "built-in gains" are recognized, they might be subject to federal income taxation because the availability of pre-ownership change NOLs and recognized "built-in losses" to offset such gains would be subject to the limitations of Code Section 382. However, when an "ownership change" occurs pursuant to the implementation of a bankruptcy plan of reorganization, the general Section 382 limitation does not apply. Instead, one of two other "Section 382 regimes" is available to a debtor. (A) Section 382(1)(6) Regime. If JWP elects to utilize its NOLs under Code Section 382(1)(6) (and recently finalized Regulations thereunder), the applicable limitation under Section 382 of the Code on annual use of the NOLs would generally be the same as the general Section 382 limitation (discussed above), except that such applicable limitation would reflect the increase (if any) in the value of Reorganized JWP resulting from any surrender or cancellation of Claims in exchange for New Common Stock. Assuming a projected aggregate value of the New Common Stock immediately after the exchanges on the Effective Date of approximately $106,000,000 (i.e., net book value), and using the June 1994 long-term tax-exempt rate prescribed by the IRS of 6.01%, under Section 382(1)(6) of the Tax Code, Reorganized JWP could annually utilize $6,370,600 of its net operating loss carryforwards. It should be noted that Lazard estimates that the enterprise value of Reorganized JWP and its subsidiaries as of January 1, 1994 would be in a range between $225 million and $250 million. (B) Section 382(1)(5) Regime. Section 382(1)(5) of the Code provides that the general Section 382 limitation does not apply to an "ownership change" resulting from transactions that are pursuant to a plan of reorganization of a corporation in a chapter 11 case if the shareholders and creditors of such corporation immediately before an "ownership change" own immediately after such change (as a result of being shareholders or creditors immediately before such change) at least 50 percent of the stock of the corporation by vote and value after the "ownership change." For purposes of this rule, stock transferred to a creditor shall be taken into account only to the extent that such stock is transferred in satisfaction of indebtedness and only if such indebtedness either (1) was held by the creditor at least 18 months before the filing of the chapter 11 case, or (2) arose in the ordinary course of the trade or business of the old loss corporation and is held by the person who at all times held the beneficial interest in such indebtedness. JWP believes that a claim for unpaid interest accrued after the filing of a chapter 11 case or interest accrued within 18 months before the filing of a chapter 11 case with respect to indebtedness which was held for the requisite period would be considered qualifying indebtedness for these purposes, but there is no specific authority with respect to this issue. Pursuant to Regulations under Code Section 382(1)(5), options or warrants to acquire stock that are outstanding at the time of an "ownership change" (including options or warrants created pursuant to a plan of reorganization in a chapter 11 case) are generally deemed exercised upon such "ownership change" if such deemed exercise would cause the shareholders and creditors immediately before such "ownership change" to fail to meet the 50 percent threshold requirement of Code Section 382(1)(5). Under recently finalized Regulations, for purposes of applying the 50 percent threshold requirement of Section 382(1)(5) of the Code as described above, a debtor is entitled to treat a portion of its debt as always having been owned by the person who beneficially owned it immediately before the ownership change if that person is not, immediately after the ownership change, either (1) a 5-percent shareholder or (2) an entity through which a five-percent shareholder owns an indirect interest in the debtor. However, this safeharbor is not available in certain cases that may be relevant here, including cases where (a) the debt is beneficially owned by a person whose participation in formulating the bankruptcy plan makes evident to the debtor corporation that the person has not owned the debt for the requisite period or (b) the debtor has actual knowledge of a coordinated acquisition of debt by a group, through a formal or informal understanding among themselves, in which case the debt (and any stock received for it) is treated as owned by one entity. Based upon the provisions of the Plan and JWP's understanding of the current status and ownership of claims, JWP currently anticipates that the 50 percent threshold requirement of Section 382(1)(5) of the Code as described above could be met. However, there can be no certainty that this threshold requirement will be met as of the Effective Date. In particular, JWP's ability to meet the 50 percent threshold requirement could be adversely affected if there are subsequent significant shifts in the ownership of claims. In addition, JWP's ability to meet the 50 percent threshold requirement could be affected by the adverse resolution of certain technical uncertainties under Section 382(1)(5) of the Code as described above and possible difficulties in proving the beneficial ownership of claims on the relevant dates. Under Section 382(1)(5) of the Code, JWP could avoid entirely the application of the general Section 382 limitation to the NOLs and built-in losses, if any, but would, however, be required to reduce its NOLs and possibly other tax attributes by: (1) any deduction for interest claimed by JWP with respect to any indebtedness converted in New Common Stock for (a) the three-year period preceding the taxable year of the "ownership change" and (b) the portion of the year of the "ownership change" prior to the Effective Date of the Plan, and (2) 50 percent of the excess of discharged debt over the value of New Common Stock issued in exchange therefor in a transaction that qualifies for the stock-for-debt exception, discussed above. The amounts described in (1) and (2) above are contingent upon the value of the New Common Stock distributed to creditors on the Effective Date as well as other factors, which cannot be predicted currently with certainty. Accordingly, the precise amount of NOL and other tax attribute reduction that would be required under Section 382(1)(5) of the Code cannot currently be determined. Nevertheless, JWP estimates that the amount of NOLs available immediately after the Effective Date under Code Section 382(l)(5) would be approximately $300 million, and that, in any event, the amount of NOLs available under Code Section 382(l)(5) would be materially greater than the amount of NOLs available under Code Section 382(l)(6). Under Section 382(1)(5)(D) of the Tax Code, if a second "ownership change" with respect to Reorganized JWP occurs within the two-year period following the Effective Date, the Section 382(1)(5) exception would not apply with respect to the second ownership change and any NOLs remaining after the second ownership change would be eliminated. Thus, if Reorganized JWP is governed by Code Section 382(1)(5), a risk exists that most (if not all) of the utility of the NOLs could be lost as a result of a second ownership change within the two-year period following the Effective Date. If, on the other hand, Reorganized JWP were to elect to be governed by Code Section 382(l)(6), a second ownership change within two years of the Effective Date would not necessarily result in an elimination of Reorganized JWP's NOLs. Instead, the general Section 382 limitations (discussed above) would apply to such a second ownership change. (C) Code Section 269. Under Code Section 269, the IRS is authorized to disallow any deduction, credit or other allowance (e.g., the utilization of NOLs) if control of a corporation (i.e., 50% of the vote or value) was acquired by one or more persons principally for the purpose of evading or avoiding federal income taxes by securing the benefit of such deduction, credit or allowance to which the corporation would not otherwise be entitled. While the existence of a principal tax avoidance purpose is primarily a question of fact, JWP does not believe that Code Section 269 should apply to the change in control occurring pursuant to the Plan because such change in control was not motivated by tax considerations. Nevertheless, there can be no assurance that the IRS will not challenge the utilization of JWP's tax attributes subsequent to such change in control on the basis of Code Section 269, or that such a challenge, if asserted, would not be sustained. Under Treasury Regulation Section 1.269-3(d), absent strong evidence to the contrary, an ownership change to which Code Section 382(l)(5) (and not 382(l)(6)) applies is considered to be made for the principal purpose of evasion or avoidance of federal income tax, and therefore subject to the provisions of Code Section 269 discussed above, unless the corporation carries on more than an insignificant amount of an active trade or business during and subsequent to the bankruptcy proceeding. The determination of whether the corporation carries on more than an insignificant amount of an active trade or business is based on all the facts and circumstances, including the amount of business assets that continue to be used and the number of employees in the work force who continue to be employed. It is anticipated that JWP and its subsidiaries will, throughout the bankruptcy proceedings and after the Effective Date, have substantial assets and a substantial number of employees. Accordingly, JWP believes that it will have more than an insignificant amount of trade or business activity, and Treasury Regulation Section 1.269-3(d) should be inapplicable. (D) Effect of the Plan. The Plan affords JWP the flexibility to be governed by either Code Section 382(1)(5) or 382(1)(6). Under existing Regulations, JWP need not file the election to be governed by Code Section 382(1)(6) (and not Section 382(1)(5)) until the due date (including applicable extensions) of its federal income tax return for the year in which the Effective Date occurs. JWP will make such election if the facts and circumstances known to it at that time indicate that the election is in its best interests, taking into account, among other things, any risk that the 50 percent threshold requirement under Code Section 382(1)(5), discussed above, will not be met, and the likelihood of a second "ownership change" within two years of the Effective Date. Applicable High Yield Discount Obligation Rules. The Series C Notes and SellCo Notes (the "Long Term Notes") may constitute "applicable high yield discount obligations". In general, an applicable high yield discount obligation is any debt instrument with "significant original issue discount," a maturity date more than five years from the issue date and a yield to maturity at least five percentage points higher than the applicable federal rate. A Long Term Note would have significant original issue discount if the aggregate amount of interest and original issue discount includible in gross income with respect to such note for periods before the close of an accrual period ending more than five years after the issue date of the note exceeds the sum of (a) the aggregate amount of interest required to be paid on such note before the close of such accrual period and (b) the product of the issue price of the note and its yield to maturity. If the Series C Notes and SellCo Notes constitute applicable high yield discount obligations, Reorganized JWP and SellCo will be denied an interest deduction for a certain portion of the original issue discount on their respective notes and may claim an interest deduction as to the remainder of the original issue discount only when the cash with respect to such original issue discount is paid. To the extent Reorganized JWP and SellCo are denied an interest deduction for a portion of the original issue discount, the denied portion may be treated as a dividend and certain corporate holders may be entitled to a dividends received deduction. The treatment of the Long Term Notes as applicable high yield discount obligations will depend upon, among other things, applicable federal rates as of the Effective Date. Accordingly, holders of Long Term Notes are urged to consult their tax advisors regarding the treatment of the Long Term Notes as applicable high yield discount obligations, and the tax consequences of such treatment to the holder. XV. CONCLUSION JWP believes that the Plan, which was initially negotiated with its senior creditors holding the most substantial portion of its pre-petition indebtedness and amended after further negotiations among JWP and the Official Committees, is fair and equitable and in the best interests of Reorganized JWP and its creditors and interest holders. JWP and the Official Committees urge acceptance of the Plan by all impaired creditors and interest holders entitled to vote. August 9, 1994 JWP Inc. Debtor and Debtor-in-Possession /s/ Frank T. MacInnis By: Chairman of the Board of Directors, President and Chief Executive Officer EXHIBIT 1 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK - ---------------------------- X In re : CHAPTER 11 JWP INC., : No. 93-B-46404 (JHG) Debtor. : - ---------------------------- X THIRD AMENDED JOINT PLAN OF REORGANIZATION OF THE DEBTOR AND SELLCO CORPORATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE JWP INC., as debtor in possession, and SellCo Corporation, its wholly owned nondebtor subsidiary, propose the following chapter 11 plan pursuant to subsection 1121(a) of title 11 of the United States Code: I. Introduction A. Plan Defined Terms. Unless the context otherwise requires, the terms specified below have the following meanings (such meanings to be equally applicable to both the singular and plural): 1. Additional Interest Amount, when used in connection with the Series A Secured Notes, the Series B Secured Notes, the Series C Notes, the SellCo Subordinated Contingent Payment Notes, the New Common Stock, the New Series X Warrants, the New Series Y Warrants, or the New Series Z Warrants, means the principal amount of such notes, the number of shares of such stock or the number of shares represented by such warrants, as the context requires, to which Belmont Capital Partners II, L.P. shall be entitled, pursuant to that certain Credit Agreement, dated as of February 14, 1994, between JWP, certain guarantors, and Belmont Capital Partners II, L.P. 2. Allowed claim, allowed equity interest, or allowed administrative expense refer to a claim, equity interest, or administrative expense, as the case may be, that is allowed or deemed allowed pursuant to sections 502 or 503 of the Bankruptcy Code. 3. Asset Sale means the sale, lease, conveyance, or other disposition of any assets (including capital stock) other than (i) the sale or disposition of inventory, motor vehicles, or equipment sold in the ordinary course of business, and (ii) the sale or disposition of equipment or motor vehicles which have become obsolete or are replaced in the ordinary course of business. 4. Bankruptcy Code means title 11 of the United States Code, as amended from time to time, as applicable to the Reorganization Case. 5. Bankruptcy Rules means the Federal Rules of Bankruptcy Procedure, as amended from time to time, as applicable to the Reorganization Case, including the Local Rules of the Court. 6. Business Day means any day except a Saturday, Sunday, or "legal holiday" as such term is defined in Bankruptcy Rule 9006(a). 7. Bylaws means the amended and restated bylaws of Reorganized JWP in the form set forth in Exhibit E to the Plan. 1-1 8. Certificate of Incorporation means the Amended and Restated Certificate of Incorporation of Reorganized JWP in the form set forth in Exhibit F to the Plan. 9. Class Action means that certain consolidated class action captioned In re JWP INC. Securities Litigation, 92 Civ. 5815 (CLB) (S.D.N.Y.). 10. Class 2 Residual Percentage means (a) the aggregate amount of allowed claims in class 2 less the aggregate principal amount of Series A Secured Notes and Series B Secured Notes to be distributed to the holders of claims in class 2, divided by (b) the aggregate amount of allowed claims in classes 2, 3, 4B, and 4C less the aggregate principal amount of Series A Secured Notes and Series B Secured Notes to be distributed under the Plan to holders of allowed claims in classes 2, 3, 4B, and 4C. 11. Class 2 Series B Percentage means (a) the aggregate amount of allowed claims in class 2 less $51,000,000, divided by (b) the aggregate amount of allowed claims in classes 2 and 3, less $51,000,000. 12. Class 3 Residual Percentage means (a) the aggregate amount of allowed claims in class 3 less the aggregate principal amount of Series B Secured Notes to be distributed to the holders of claims in class 3, divided by (b) the aggregate amount of allowed claims in classes 2, 3, 4B, and 4C less the aggregate principal amount of Series A Secured Notes and Series B Secured Notes to be distributed under the Plan to the holders of allowed claims in classes 2, 3, 4B, and 4C. 13. Class 3 Series B Percentage means (a) the aggregate amount of allowed claims in class 3, divided by (b) the aggregate amount of allowed claims in classes 2 and 3, less $51,000,000. 14. Class 4B and 4C Residual Percentage means (a) the aggregate amount of allowed claims in Classes 4B and 4C less the Class 4B and 4C Series A Amount, divided by (b) the aggregate amount of allowed claims in classes 2, 3, and 4B, less the aggregate principal amount of Series A Secured Notes and Series B Secured Notes to be distributed under the Plan to the holders of allowed claims in classes 2, 3, 4B, and 4C. 15. Class 4B and 4C Series A Amount means the amount which bears the same ratio to the aggregate amount of allowed claims in Classes 4B and 4C as (a) $51,000,000 bears to (b)(i) the aggregate amount of allowed claims in class 2 and class 3, less (ii) the aggregate principal amount of Series B Secured Notes to be distributed under the Plan to the holders of allowed claims in class 2 and class 3. 16. Collateral Intercreditor Agreement means that certain Intercreditor Agreement dated as of the Effective Date among Reorganized JWP, MES, SellCo, and each of the trustees for the indentures governing the Series A Secured Notes, the Series B Secured Notes, and the SellCo Subordinated Contingent Payment Notes, substantially in the form of Exhibit C to Exhibits A, B, and D to the Plan. 17. Court means the United States District Court having jurisdiction over the Reorganization Case and, to the extent of any reference made pursuant to section 157 of title 28 of the United States Code, the unit of such District Court pursuant to section 151 of title 28 of the United States Code. 18. Disbursing Agent means the person or entity identified as the disbursing agent in the Disbursement Agreement. 19. Disbursement Agreement means that certain Disbursement Agreement, dated as of the Effective Date, substantially in the form of Exhibit N to the Plan. 20. Disputed means, with respect to a claim or interest which has been or hereafter is listed on the schedules of liabilities filed by JWP as unliquidated, disputed, or contingent and proof of which was filed, or a proof of claim or interest filed in an amount greater than the liquidated amount for which it was scheduled, and (i) in either case, (ii) in respect of any proof of claim, or (iii) in the case of a claim for administrative expenses, any such claim or interest as to which JWP or any other party in interest has interposed a timely 1-2 objection or request for estimation in accordance with the Bankruptcy Code and the Bankruptcy Rules, which objection or request for estimation has not been withdrawn or finally determined. 21. Effective Date means (a) if no stay of the order confirming the Plan is in effect, 11:00 a.m., New York time (when a specific time is contemplated), on a Business Day selected by JWP, which date is not more than 10 calendar days after the date each of the conditions set forth in Article V hereof has been satisfied or waived as set forth herein or (b) if a stay of the order confirming the Plan is in effect, on a Business Day selected by JWP that is not more than 10 calendar days after the later of (i) the date such stay is vacated or any appeal, rehearing, remand, or petition for certiorari is resolved in a manner that does not reverse or materially modify the order confirming the Plan or (ii) the date each condition set forth in Article V hereof has been satisfied or waived as set forth in such Article. 22. Generally Accepted Accounting Principles means generally accepted accounting principles in the United States of America as in effect from time to time set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and the statements and pronouncements of the Financial Accounting Standards Board, or in such other statements by such other entity as may be in general use by significant segments of the accounting profession, which are applicable to the circumstances as of the date of determination. 23. JWP means JWP INC., a Delaware corporation, the debtor or debtor in possession, as the context requires, in the Reorganization Case. 24. JWP Supplemental SellCo Note means JWP's promissory note, as described in Article IV, Q of the Plan. The JWP Supplemental SellCo Note shall be substantially in the Form of Exhibit Q to the Plan. 25. Management Stock Option Plan means the 1994 Management Stock Plan of JWP Inc., dated as of the date hereof, substantially in the form attached as Exhibit L hereto. 26. MES means MES Corporation, a Delaware corporation and wholly owned subsidiary of Reorganized JWP. 27. Net Cash Proceeds means, when used with reference to any Asset Sale or series of related Asset Sales, the aggregate amount of the cash portion of the purchase price, and all other cash consideration (including, without limitation, any cash payments received by way of deferred payment of principal pursuant to a note and any interest thereon, receivable, contingent payment arrangement, or otherwise, but only as and when received) in respect of an Asset Sale, in a net amount equal to or in excess of $250,000 in respect of such Asset Sale or series of related Asset Sales, after deducting, without duplication (i) sales, transfer, and similar taxes and reasonable out-of-pocket expenses and fees (including reasonable legal, accounting, and brokerage fees and expenses) incurred (which taxes, expenses, and fees are classified as such in accordance with Generally Accepted Accounting Principles) in connection with such Asset Sale, (ii) employee severance costs incurred in connection with the sale of any business constituting an Asset Sale, (iii) fixed, determined liabilities in accordance with Generally Accepted Accounting Principles retained in connection with such Asset Sale including amounts payable in respect of any insurance matters or employee benefit matters, (iv) reserves established in respect of contingent liabilities in accordance with Generally Accepted Accounting Principles retained in connection with such Asset Sale, and (v) customary costs incurred in connection with the closing of a business constituting or arising in connection with such Asset Sale. 28. New Common Stock means all the shares of common stock of Reorganized JWP authorized pursuant to Article IV.A. of the Plan. 29. New Series X Warrants, New Series Y Warrants, and New Series Z Warrants mean the warrants to purchase New Common Stock, as described in Article II of the Plan. 30. Nondebtor Subsidiary means any of the wholly owned, direct or indirect subsidiaries of JWP, set forth on Exhibit M to the Plan. 1-3 31. Old Common Stock means the authorized common stock, par value $0.10 per share, issued by JWP. 32. Old Credit Agreement means the Amended and Restated Credit Agreement, dated as of September 11, 1992, among JWP; the banking institutions named as Lenders therein; Fleet Bank, as Agent and Issuing Bank; and Chemical Bank, Credit Suisse, and Bank of America National Trust and Savings Association, as Co-lead Managers; as the same may have been amended from time to time. 33. Old Note Agreements means the agreements listed on Schedule 2 hereto. 34. Old Notes means the notes issued by JWP in accordance with the Old Note Agreements. 35. Petition Date means December 21, 1993. 36. Plan means this chapter 11 plan of reorganization, either in its present form or as it may be altered, amended, or modified from time to time. 37. Ratable Share means a number (expressed as a percentage) equal to the proportion that an allowed claim or interest in a particular class (or group of classes, as the context requires) bears to the aggregate amount of allowed claims or interests in such class (or group) as of the date of determination. 38. Reorganization Case means the above-captioned chapter 11 case. 39. Reorganized JWP means JWP, or any successor thereto by merger, consolidation, or otherwise, on and after the Effective Date. 40. Schedules means the schedules of assets and liabilities and the statement of financial affairs filed by JWP as required by section 521 of the Bankruptcy Code and the Official Bankruptcy Forms of the Bankruptcy Rules, as amended from time to time. 41. Sea Cliff means Sea Cliff Water Company, a New York corporation and wholly owned subsidiary of Reorganized JWP. 42. SellCo means SellCo Corporation, a Delaware corporation and wholly owned subsidiary of Reorganized JWP. 43. SellCo Subordinated Contingent Payment Notes means SellCo's 12% Subordinated Contingent Payment Notes, due 2004, described in Article II of the Plan. Each SellCo Subordinated Contingent Payment Note shall be substantially in the form of Exhibit A to the indenture governing the SellCo Subordinated Contingent Payment Notes. 44. Series A Secured Notes means Reorganized JWP's 7% Senior Secured Notes, Series A, due 1997, described in Article II of the Plan. Each Series A Secured Note shall be substantially in the form of Exhibit A to the indenture governing the Series A Secured Notes. 45. Series A Substitute Collateral means any property of any kind (other than cash) received by JWP or any Nondebtor Subsidiary on or after December 1, 1993 and prior to the Effective Date and which has not been liquidated prior to the Effective Date, in connection with an Asset Sale or Asset Sales on or after December 1, 1993 and prior to the Effective Date of any of the assets of JWP or any of the assets of the Nondebtor Subsidiaries (other than the Nondebtor Subsidiaries listed on Schedule 4 hereto) or the sale of the capital stock of any of the Nondebtor Subsidiaries (other than the Nondebtor Subsidiaries listed on Schedule 4 hereto). 46. Series B Cash Collateral means all Net Cash Proceeds received by JWP or any Nondebtor Subsidiary prior to the Effective Date in connection with an Asset Sale or Asset Sales of the Nondebtor Subsidiaries listed on Schedule 4 hereto or their assets; provided, however, that the Series B Cash Collateral shall not exceed $11,357,000. 1-4 47. Series B Secured Notes means Reorganized JWP's 7% Senior Secured Notes, Series B, due 1997, described in Article II of the Plan. Each Series B Secured Note shall be substantially in the form of Exhibit A to the indenture governing the Series B Secured Notes. 48. Series B Substitute Collateral means any property of any kind (other than cash) received by JWP or any Nondebtor Subsidiary prior to the Effective Date in connection with (a) an Asset Sale or Asset Sales of any of the Nondebtor Subsidiaries listed on Schedule 4 hereto or any of their assets and (b) the sale of the capital stock of any of the Nondebtor Subsidiaries listed on Schedule 4 hereto. 49. Series C Notes means Reorganized JWP's 11% Series C Notes, due 2001, described in Article II of the Plan. Each Series C Note shall be substantially in the form of Exhibit A to the indenture governing the Series C Notes. 50. Working Capital Lien means a lien on the stock of Jamaica Water Securities Corp., which entitles the lenders providing a working capital facility to Reorganized JWP or MES to receive proceeds from the sale of such stock equal to the amount by which the balance under such working capital facility exceeds $25,000,000; provided, however, that (i) the maximum amount of such proceeds to be received by such lenders shall not exceed $15,000,000 and (ii) the application of any such proceeds to repay all or a portion of the balance of such working capital facility shall permanently reduce the availability under such facility by the amount applied. B. Bankruptcy Code Terms. "Allowed," "case," "claims," "confirm," "confirmation," "debtor," "debtor in possession," "governmental unit," "impaired," and other uncapitalized terms defined (either explicitly or implicitly) in the Bankruptcy Code are used herein with such defined meanings. C. Other Terms. The words "herein," "hereof," "hereto," "hereunder," and others of similar import refer to the Plan as a whole and not to any particular section, subsection, or clause contained in the Plan. D. Exhibits. All Exhibits to the Plan are incorporated into and are a part of the Plan as if set forth in full herein. II. Property Distributions Reorganized JWP shall distribute (or cause the distribution of) the following property to the holders of allowed claims (as set forth herein): A. Series A Secured Notes. The Series A Secured Notes shall (a) be in an initial aggregate principal amount of $51,000,000 plus (i) the Class 4B and 4C Series A Amount and (ii) the Additional Interest Amount, (b) accrue interest commencing on the Effective Date at a rate of 7% per annum, compounded semiannually, which shall be payable in additional Series A Secured Notes, (c) be senior indebtedness of Reorganized JWP, (d) be guaranteed by SellCo, which guarantee shall be secured by a pledge of the capital stock of each of the Nondebtor Subsidiaries listed on Schedule 5 hereto, subject only to the Working Capital Lien, (e) be guaranteed by MES, (f) be secured by a first priority pledge of the capital stock of MES and a first priority pledge of the capital stock of SellCo, and a first priority security interest in the Series A Substitute Collateral, (g) be secured by a second priority pledge of the capital stock of the Nondebtor Subsidiaries identified on Schedule 4 hereto, and a second priority security interest in the Series B Substitute Collateral, (h) have a mandatory scheduled redemption on the second anniversary of the Effective Date of $10,000,000 or such lesser amounts as provided in the indenture governing the Series A Secured Notes, (i) be subject to mandatory prepayment in certain events, and (j) mature on the third anniversary of the Effective Date. The Series A Secured Notes will be governed by an indenture, dated as of the Effective Date, between Reorganized JWP and an independent trustee. Such indenture shall be substantially in the form attached as Exhibit A to the Plan. As specified in Article III of the Plan, the Series A Secured Notes are to be distributed to the holders of allowed claims in classes 2, 4B, 4C, and Belmont Capital Partners II, L.P. B. Series B Secured Notes. The Series B Secured Notes shall (a) be in an initial aggregate principal amount of (i) $11,357,000 plus (ii) the Additional Interest Amount in the event JWP determines to distribute Series B Secured Notes to Belmont Capital Partners II, L.P. rather than cash on account of the Series B 1-5 Secured Note Additional Interest Amount, (b) accrue interest commencing on the Effective Date at a rate of 7% per annum, compounded semiannually, which shall be payable in additional Series B Secured Notes, (c) be senior indebtedness of Reorganized JWP, (d) subject to the repayment in full of the Series A Secured Notes, be guaranteed by SellCo, which guarantee shall be secured by a pledge of the capital stock of each of the Nondebtor Subsidiaries listed on Schedule 5 hereto, subject only to the Working Capital Lien and the lien in favor of the Series A Secured Notes, (e) subject to the repayment in full of the Series A Secured Notes, be guaranteed by MES, (f) be secured by a first priority pledge of the capital stock of the Nondebtor Subsidiaries identified on Schedule 4 hereto, and a first priority security interest in the Series B Substitute Collateral, (g) be secured by a second priority security interest in the Series A Substitute Collateral, and a second priority pledge of the capital stock of MES and a second priority pledge of the capital stock of SellCo, (h) be subject to mandatory prepayment in certain events, and (i) mature on the third anniversary of the Effective Date. The Series B Secured Notes will be governed by an indenture, dated as of the Effective Date, between Reorganized JWP and an independent trustee. Such indenture shall be substantially in the form attached as Exhibit B to the Plan. As specified in Article III of the Plan, the Series B Secured Notes are to be distributed to the holders of allowed claims in classes 2 and 3. C. Series C Notes. The Series C Notes shall (a) be in an initial aggregate principal amount of $60,000,000 plus the Additional Interest Amount, (b) accrue interest commencing on the Effective Date at a rate of 11% per annum, which shall be payable semiannually in additional Series C Notes for the first 18 months after the Effective Date, and thereafter interest shall be paid quarterly in cash, (c) be senior indebtedness of Reorganized JWP, provided that the Series C Notes shall be (i) junior and subordinate to the payment in full of Series A Secured Notes and the Series B Secured Notes and (ii) junior and subordinate to the payment in full of any working capital or revolving credit financing obtained by JWP or MES after the confirmation of the Plan up to $100,000,000; (d) be guaranteed by MES subject to the repayment in full of any such working capital or revolving credit financing obtained by JWP or MES, the Series A Secured Notes and the Series B Secured Notes, and (e) mature on the seventh anniversary of the Effective Date. The Series C Notes will be governed by an indenture, dated as of the Effective Date, between Reorganized JWP and an independent trustee. Such indenture shall be substantially in the form attached as Exhibit C to the Plan. As specified in Article III of the Plan, the Series C Notes are to be distributed to the holders of allowed claims in classes 2, 3, 4B, 4C, and Belmont Capital Partners II, L.P. D. SellCo Subordinated Contingent Payment Notes. The SellCo Subordinated Contingent Payment Notes shall (a) be in an initial aggregate contingent principal amount of $46,000,000 plus the Additional Interest Amount, (b) accrue interest commencing on the Effective Date at a rate of 12% per annum, compounded semiannually, which shall be payable in additional SellCo Subordinated Contingent Payment Notes until the earlier to occur of maturity or payment in full of the original principal amount of the SellCo Subordinated Contingent Payment Notes, (c) be junior and subordinated indebtedness of SellCo so long as all or any portion of the indebtedness on account of the Series A Secured Notes or Series B Secured Notes or the guarantees of SellCo in respect thereof remain outstanding, (d) be secured by a pledge of all the capital stock of each of the Nondebtor Subsidiaries listed on Schedule 5 hereto, subject only to the Working Capital Lien and the lien in favor of the Series A Secured Notes and the Series B Secured Notes, (e) be secured by a first priority pledge of the JWP Supplemental SellCo Note, (f) be subject to the establishment of a cash reserve for the payment of capital gains taxes arising from the sale of Nondebtor Subsidiaries and (g) mature on the tenth anniversary of the Effective Date. If, at any time after the fifth anniversary of the Effective Date and prior to the maturity date, the value, as determined by an independent appraiser selected by Reorganized JWP, of the consolidated assets of SellCo (excluding the JWP Supplemental SellCo Note) and the Nondebtor Subsidiaries listed on Schedule 5 hereto is less than $250,000, then the SellCo Subordinated Contingent Payment Notes which are outstanding, if any, at such time shall be deemed cancelled and no longer an obligation of SellCo. The SellCo Subordinated Contingent Payment Notes will be governed by an indenture, dated as of the Effective Date, between SellCo and an independent trustee. Such indenture shall be substantially in the form attached as Exhibit D to the Plan. As specified in Article III of the Plan, the SellCo Subordinated Contingent Payment Notes are to be distributed to the holders of allowed claims in classes 2, 3, 4B, 4C, and to Belmont Capital Partners II, L.P. 1-6 E. New Common Stock. The New Common Stock shall consist of 13,700,000 shares of new common stock of Reorganized JWP par value $0.10 per share. As specified in (i) Article III of the Plan, 9,000,000 shares are to be distributed to the holders of allowed claims in classes 2, 3, 4B, and 4C (ii) the Management Stock Option Plan, 1,000,000 shares are to be held to satisfy the obligations of Reorganized JWP thereunder, (iii) that certain Credit Agreement, dated as of February 24, 1994, between JWP, certain guarantors, and Belmont Capital Partners II, L.P., the Additional Interest Amount of New Common Stock, up to 523,810 shares, is to be distributed to Belmont Capital Partners II, L.P. and up to 84,392 shares of New Common Stock are to be held to satisfy the obligations of Reorganized JWP in respect of the Additional Interest Amount of New Warrants issued to Belmont Capital Partners II, L.P., and (iv) Articles II and III of the Plan, 1,464,796 shares are to be held to satisfy the obligations of Reorganized JWP under the New Series X Warrants, the New Series Y Warrants, and the New Series Z Warrants. F. New Series X Warrants and New Series Y Warrants. The New Series X Warrants shall consist of warrants to purchase 600,000 shares of New Common Stock, plus the Additional Interest Amount, at a price equal to $12.55 for each share of New Common Stock. The New Series Y Warrants shall consist of warrants to purchase 600,000 shares of New Common Stock, plus the Additional Interest Amount, at a price equal to $17.55 for each share of New Common Stock. The New Series X Warrants and the New Series Y Warrants shall (1) expire on the fifth anniversary of the Effective Date, (2) be issued pursuant to warrant agreements substantially in the form of Exhibits O and P to the Plan containing antidilution and other provisions, (3) be subject to early expiration when the market price for New Common Stock reaches a certain level, as set forth in the applicable warrant agreement and (4) be distributed to the holders of allowed claims in class 6 and to Belmont Capital Partners II, L.P. G. New Series Z Warrants. The New Series Z Warrants shall consist of warrants to purchase 250,000 shares of New Common Stock, plus the Additional Interest Amount, at a price equal to $50.00 for each share of New Common Stock. The New Series Z Warrants shall (1) expire on the second anniversary of the Effective Date, (2) be issued pursuant to a warrant agreement substantially in the form of Exhibit R to the Plan containing antidilution and other provisions, and (3) be distributed to, or reserved for, the holders of claims or interests in classes 7, 8, 9, 10, and 11, as the case may be, and Belmont Capital Partners II, L.P. III. Classification and Treatment of Claims and Equity Interests A. Summary. The categories of claims and equity interests listed below classify allowed claims and allowed equity interests for all purposes, including voting, confirmation, and distribution pursuant to the Plan. CLASS STATUS Class 1: Priority Claims.................................. Unimpaired-not entitled to vote Class 2: Old Note Claims.................................. Impaired-entitled to vote Class 3: Old Credit Agreement Claims...................... Impaired-entitled to vote Class 4A: Convenience Claims.............................. Unimpaired-not entitled to vote Class 4B: Other Borrowed Money Claims..................... Impaired-entitled to vote Class 4C: General Unsecured Claims........................ Impaired-entitled to vote Class 5: Unimpaired Contingent Claims..................... Unimpaired-not entitled to vote Class 6: Subordinated Debt Claims......................... Impaired-entitled to vote Class 7: Contingent and Statutory Subordinated Claims..... Impaired-entitled to vote Class 8: Old Preferred Stock.............................. Impaired-entitled to vote Class 9: Old Common Stock................................. Impaired-entitled to vote Class 10: Equity Interest Claims-Class Action Plaintiffs.. Impaired-entitled to vote Class 11: Equity Interests-Warrants of Participation...... Impaired-entitled to vote
B. Claims for Administrative Expenses. JWP shall pay each allowed claim for administrative expenses in full, in cash, on the Effective Date (or as soon thereafter as is practicable), except to the extent that the holder of an allowed claim for administrative expenses agrees to a different treatment; provided, however, that allowed claims for administrative expenses representing obligations incurred in the ordinary course of business or assumed by JWP shall be paid in full or performed by Reorganized JWP in the ordinary course of business. Notwithstanding the foregoing, professionals employed at the expense of JWP, whose compensation is subject to the approval of the Court, shall be paid in cash in the amounts awarded to such professionals by order of the Court as soon as practicable after such order is entered, but no later than the Effective Date for all orders entered prior thereto. The claims of Seaboard Surety Company arising during the Reorganization Case, and on and after February 14, 1994, shall be treated as set forth in paragraph 9 of the Final Order Under 11 U.S.C. (S) 364(c)(1) and Bankruptcy Rule 4001(c) Authorizing Debtor To Execute, Deliver And Perform General Agreement Of Indemnity In Favor Of Seaboard Surety Company, dated February 24, 1994. C. Tax Claims. Each holder of an allowed claim of a governmental unit of the kind specified in subsection 507(a)(7) of the Bankruptcy Code shall receive, in the sole discretion of JWP, either cash or deferred cash payments as specified in subsection 1129(a)(9)(C) of the Bankruptcy Code. D. Classification, Treatment, and Voting. The allowed claims against JWP shall be classified and receive the treatment specified below. (1) Class 1. Priority Claims. 1. Classification: Class 1 consists of claims entitled to priority pursuant to subsection 507(a) of the Bankruptcy Code, other than a claim for administrative expenses or a claim of a governmental unit under section 507(a)(7) of the Bankruptcy Code. 2. Treatment: Each holder of an allowed claim in class 1 shall receive cash in an amount equal to the amount of its allowed claim, except to the extent that the holder of such claim agrees to a different treatment. 3. Voting: Class 1 is not impaired, and the holders of claims in class 1 are not entitled to vote to accept or reject the Plan. (2) Class 2: Old Note Claims. 1. Classification: Class 2 consists of the claims evidenced by the Old Notes and the Old Note Agreements and is denominated as a separate class solely for purposes of effectuating the terms of the Intercreditor Agreement as it relates to the holders of claims in classes 2 and 3 without affecting the distributions to class 4B. For all other purposes under the Plan, including, without limitation, voting as to acceptance or rejection of the Plan, the claims in classes 2, 3, and 4B shall be treated as a single class of senior indebtedness claims against JWP. 2. Treatment: Each holder of an allowed claim in class 2 shall receive, in full satisfaction of such claim, its Ratable Share of (i) $51,000,000 in principal amount of the Series A Secured Notes, (ii) the Class 2 Series B Percentage of the aggregate principal amount of the Series B Secured Notes (excluding the Additional Interest Amount of the Series B Secured Notes, if any), and (iii) the Class 2 Residual Percentage of (a) $60,000,000 principal amount of the Series C Notes, (b) $46,000,000 principal amount of the SellCo Subordinated Contingent Payment Notes, and (c) 9,000,000 shares of the New Common Stock. 3. Voting: Class 2 is impaired and the holders of claims in class 2 are entitled to vote, together with the holders of claims in classes 3 and 4B, to accept or reject the Plan. (3) Class 3: Old Credit Agreement Claims. 1. Classification: Class 3 consists of the claims evidenced by the Old Credit Agreement and is denominated as a separate class solely for purposes of effectuating the terms of the Intercreditor Agreement as it relates to the holders of claims in classes 2 and 3 without affecting the distributions to class 4B. For all other purposes under the Plan, including, without limitation, voting as to acceptance or rejection of the Plan, the claims in classes 2, 3, and 4B shall be treated as a single class of senior indebtedness claims against JWP. 2. Treatment: Each holder of an allowed claim in class 3 shall receive, in full satisfaction of such claim, its Ratable Share of (i) the Class 3 Series B Percentage of the aggregate principal amount of the Series B Secured Notes (excluding the Additional Interest Amount of the Series B Secured Notes, if any) and (ii) the Class 3 Residual Percentage of (a) $60,000,000 principal amount of the Series C Notes, (b) $46,000,000 principal amount of the SellCo Subordinated Contingent Payment Notes, and (c) 9,000,000 shares of the New Common Stock. 3. Voting: Class 3 is impaired and the holders of claims in class 3 are entitled to vote, together with the holders of claims in classes 2 and 4B, to accept or reject the Plan. (4) Class 4: General Unsecured Claims. 1. Classification: Class 4 consists of all unsecured claims against JWP that are not claims for administrative expenses or priority tax claims or otherwise classified in class 1, 2, 3, 5, 6, or 7. (a) Convenience Class-Class 4A. Class 4A consists of all claims in class 4 that, with respect to each holder, are in the aggregate $10,000 or less or, at the election of the holder of a class 4 claim, reduced to $10,000 in the aggregate. (b) Other Borrowed Money Class 4 Claims-Class 4B. Class 4B consists of all class 4 claims which constitute "Senior Indebtedness" with respect to the claims in class 6 and is denominated as a separate class solely for purposes of effectuating the terms of the Intercreditor Agreement as it relates to the holders of claims in classes 2 and 3 without affecting the distributions to Class 4B. For all other purposes under the Plan, including, without limitation, voting as to acceptance or rejection of the Plan, the claims in classes 2, 3, and 4B shall be treated as a single class of senior indebtedness claims against JWP. (c) All Other Class 4 Claims-Class 4C. Class 4C consists of all class 4 claims not included in classes 4A and 4B. 2. Treatment: (a) Class 4A. Each holder of an allowed claim in class 4A shall be paid in full, in cash, on the Effective Date or as soon as practicable thereafter. (b) Classes 4B and 4C. Each holder of an allowed claim in classes 4B or 4C shall receive, in full satisfaction of such claim, its Ratable Share (calculated as to all allowed claims in classes 4B and 4C) of (i) a principal amount of the Series A Secured Notes equal to the Class 4B and 4C Series A Amount and (ii) the Class 4B and 4C Residual Percentage of (a) $60,000,000 principal amount of the Series C Notes, (b) $46,000,000 principal amount of the SellCo Subordinated Contingent Payment Notes, and (c) 9,000,000 shares of the New Common Stock. 3. Voting: (a) Class 4A. Class 4A is not impaired and is not entitled to vote on the Plan. Any holder of a class 4 claim or claims greater than $10,000, in the aggregate, who elects to reduce his claim or claims to $10,000, in the aggregate, accepts payment under the Plan as payment in full of such claim. (b) Class 4B. Class 4B is impaired and the holders of claims in class 4B are entitled to vote, together with the holders of claims in classes 2 and 3, to accept or reject the Plan. (c) Class 4C. Class 4C is impaired and the holders of claims in class 4C are entitled to vote to accept or reject the Plan. (5) Class 5: Unimpaired Contingent Claims. 1. Classification: Class 5 consists of all unsecured claims against JWP specified on Schedule 1 to the Plan, except as and to the extent denoted on Schedule 1 to the Plan and as otherwise provided in subsection H of Article III to the Plan. 1-9 2. Treatment: Class 5 is not impaired and the allowed claims in class 5, including the claims of those certain bonding companies which satisfy the requirements of subsection H of Article III of the Plan (which claims shall be deemed allowed as filed), shall be reinstated in accordance with subsection 1124(1) or (2) of the Bankruptcy Code. 3. Voting: The holders of claims in class 5 are not entitled to vote to accept or reject the Plan. (6) Class 6: Subordinated Debt Claims. 1. Classification: Class 6 consists of the claims against JWP (i) evidenced by the Indenture dated as of September 1, 1987, between Neeco Inc. and State Street Bank and Trust Co., as Trustee, and the 73/4% Convertible Subordinated Debentures due 2012, and (ii) evidenced by JWP's 12% Subordinated Notes due 1996. 2. Treatment: Each holder of an allowed claim in class 6 shall receive, in full satisfaction of such claim, its Ratable Share of the New Series X Warrants and the New Series Y Warrants; provided, however, that no holder of an allowed claim in class 6 shall receive any distribution of property under the Plan unless (i) class 6 votes to accept the Plan in accordance with the requirements of section 1126(c) of the Bankruptcy Code, (ii) such holder shall have delivered to Reorganized JWP for cancellation the instrument or instruments and all related documents on which its claim is based on or before the first anniversary of the Effective Date, and (iii) those claims in classes 2, 3, and 4B which constitute "Senior Indebtedness" with respect to the claims in class 6 vote to accept the Plan in accordance with section 1126(c) of the Bankruptcy Code (counting all such claims in classes 2, 3, and 4B as a single class for purposes of this clause). In addition, in the event class 6 does not vote to accept the Plan in accordance with the requirements of section 1126(c) of the Bankruptcy Code, the holders of claims or interests in classes 8, 9, 10, and 11 shall receive no distribution of property under the Plan. Any New Series X Warrants and New Series Y Warrants not distributed on or prior to the first anniversary of the Effective Date as a result of the failure by a holder of a claim in class 6 to deliver its respective debt instruments to Reorganized JWP shall be cancelled. 3. Voting: Class 6 is impaired and the holders of claims in class 6 are entitled to vote to accept or reject the Plan. (7) Class 7: Contingent and Statutory Subordinated Claims. 1. Classification: Class 7 consists of (i) the indemnification or contribution claims, if any, by current or former officers and directors of JWP or by other parties in connection with the claims asserted or assertable in AUSA Life Insurance Company, et al. v. Andrew T. Dwyer et al., 93 Civ. 6830 (CLB) (S.D.N.Y.), and (ii) any intercompany claims that the Court determines should be subordinated to general unsecured claims. 2. Treatment: Each holder of an allowed claim in class 7 shall receive, in full satisfaction of such claim, its Ratable Share of 1,388 New Series Z Warrants; provided, however, that in the event any of classes 4C or 7 does not vote to accept the Plan in accordance with the requirements of section 1126(c) of the Bankruptcy Code, the holders of claims or interests in class 7 shall receive no distribution of property under the Plan. Holders of allowed claims in class 7 shall have the option to receive cash from Reorganized JWP in lieu of New Series Z Warrants as provided in Article IV., section J., 6. of the Plan. 3. Voting: Class 7 is impaired and the holders of claims in class 7 are entitled to vote to accept or reject the Plan. (8) Class 8: Equity Interests - Old Preferred Stock. 1. Classification: Class 8 consists of the equity interests evidenced by all the issued and outstanding 4.25% Convertible Exchangeable Preferred Stock of JWP, par value $1.00. 1-10 2. Treatment: Each holder of an allowed equity interest in class 8 shall receive, in full satisfaction of such interest, its Ratable Share of 29,297 New Series Z Warrants; provided, however, that the holders of interests in class 8 shall receive no distribution of property under the Plan if either (i) any of classes 4C, 6, and 8 does not vote to accept the Plan in accordance with the requirements of section 1126(c) of the Bankruptcy Code, or (ii) class 7 does not vote to accept the Plan in accordance with the requirements of section 1126(c) of the Bankruptcy Code and until such time as all claims in class 7 have been disallowed or expunged. Holders of allowed interests in class 8 shall have the option to receive cash from Reorganized JWP in lieu of New Series Z Warrants as provided in Article IV., section J., 6. of the Plan. 3. Voting: Class 8 is impaired and the holders of equity interests in class 8 are entitled to vote to accept or reject the Plan. (9) Class 9: Equity Interests - Old Common Stock. 1. Classification: Class 9 consists of (i) the equity interests evidenced by all the issued and outstanding shares of common stock of JWP, $.10 par value, as of the Petition Date, and any options, warrants, or rights, contractual or otherwise, to acquire such shares of common stock which are exercised within sixty (60) days of the Effective Date, and (ii) equity interests that may be asserted in respect of the $43,000,000 principal amount of Businessland, Inc. 51/2% Convertible Subordinated Debentures, due 2007, and the Share Issuance Agreement, dated August 6, 1993, between JWP and ENTEX Information Services, Inc. The options in this class include, but are not limited to, the incentive stock options, non-qualified stock options, and stock appreciation rights to acquire 1,125,000 shares of Old Common Stock pursuant to JWP's 1986 Incentive Stock Option Plan and the options for key personnel to acquire 2,500,000 and 1,000,000 shares of Old Common Stock respectively pursuant to JWP's 1991 and 1992 Stock Option Plans. 2. Treatment: Each holder of an allowed equity interest in class 9 shall receive, in full satisfaction of such interest, its Ratable Share of 195,667 New Series Z Warrants; provided, however, that the holders of interests in class 9 shall receive no distribution of property under the Plan if either (i) any of classes 4C, 6, or 8 does not vote to accept the Plan in accordance with the requirements of section 1126(c) of the Bankruptcy Code, (ii) any of classes 9, 10, or 11 does not vote to accept the Plan in accordance with the requirements of section 1126(c) of the Bankruptcy Code (unless Reorganized JWP determines, at its option, to make the distributions specified herein to all such classes), or (iii) class 7 does not vote to accept the Plan in accordance with the requirements of section 1126(c) of the Bankruptcy Code and until such time as all claims in class 7 have been disallowed or expunged. Holders of allowed interests in class 9 shall have the option to receive cash from Reorganized JWP in lieu of New Series Z Warrants as provided in Article IV, section J., 6. of the Plan. 3. Voting: Class 9 is impaired and the holders of equity interests in class 9 are entitled to vote to accept or reject the Plan. (10) Class 10: Equity Interest Claims - Class Action Plaintiffs. 1. Classification: Class 10 consists of any claim with respect to a security classified in class 8 or class 9 which would be subordinated pursuant to section 510(b) of the Bankruptcy Code, including, but not limited to, those claims asserted in the Class Action. 2. Treatment: Each holder of an allowed claim in class 10 shall receive, in full satisfaction of such interest, its Ratable Share of 22,059 New Series Z Warrants; provided, however, that the holders of claims in class 10 shall receive no distribution of property under the Plan if either (i) any of classes 4C, 6, or 8 does not vote to accept the Plan in accordance with the requirements of section 1126(c) of the Bankruptcy Code, (ii) any of classes 9, 10, or 11 does not vote to accept the Plan in accordance with the requirements of section 1126(c) of the Bankruptcy Code (unless Reorganized JWP determines, at its option, to make the distributions specified herein to all such classes), or (iii) class 7 does not vote to accept the Plan in accordance with the 1-11 requirements of section 1126(c) of the Bankruptcy Code and until such time as all claims in class 7 have been disallowed or expunged. Holders of allowed claims in class 10 shall have the option to receive cash from Reorganized JWP in lieu of New Series Z Warrants as provided in Article IV, section J., 6. of the Plan. 3. Liquidation of Claims: Each claim in class 10, whether filed on behalf of an individual holder or behalf of a class of such holders, is deemed a Disputed claim. Recognition of the existence of such Disputed claims in the Plan shall not be deemed an admission by JWP or its Board of Directors of any liability to such holders. No distribution will be made to the holder of a claim in class 10 unless and until the claim becomes an allowed claim. Holders of timely filed claims in class 10 who do not opt out of the Class Action shall have their claims allowed or disallowed exclusively by the Court with jurisdiction over the Class Action. Holders of timely filed claims in class 10 who opt out of the Class Action shall have their claims allowed or disallowed exclusively by the Bankruptcy Court, provided, however, that no proceeding to allow or disallow such a claim shall be commenced in the Bankruptcy Court until after disposition of the Class Action by a final order. Neither the Plan nor the Disclosure Statement shall be admissible as evidence in the Class Action. 4. Voting: Class 10 is impaired and the holders of allowed claims in class 10 are entitled to vote to accept or reject the Plan. (11) Class 11: Equity Interests - Warrants of Participation. 1. Classification: Class 11 consists of equity interests represented by the 1,152,649 warrants of participation issued to the holders of Old Common Stock in 1969 pursuant to that certain Warrant Agreement, dated as of June 15, 1969, between Jamaica Water and Utilities, Inc. and First National City Bank, as agent. 2. Treatment: Each holder of an allowed interest in class 11 shall receive, in full satisfaction of such interest, its Ratable Share of 1,580 New Series Z Warrants; provided, however, that the holders of interests in class 11 shall receive no distribution of property under the Plan if either (i) any of classes 4C, 6, or 8 does not vote to accept the Plan in accordance with the requirements of section 1126(c) of the Bankruptcy Code, (ii) any of classes 9, 10, or 11 does not vote to accept the Plan in accordance with the requirements of section 1126(c) of the Bankruptcy Code (unless Reorganized JWP determines, at its option, to make the distributions specified herein to all such classes), or (iii) class 7 does not vote to accept the Plan in accordance with the requirements of section 1126(c) of the Bankruptcy Code and until such time as all claims in class 7 have been disallowed or expunged. Holders of allowed interests in class 11 shall have the option to receive cash from Reorganized JWP in lieu of New Series Z Warrants as provided in Article IV, section J., 6. of the Plan. 3. Voting: Class 11 is impaired and the holders of allowed interests in class 11 are entitled to vote to accept or reject the Plan. E. Distributions of Cash Proceeds from Sales of Assets Prior to Effective Date. 1. Series B Secured Notes. On the Effective Date or as soon thereafter as is practicable, the Series B Cash Collateral shall be distributed to the Disbursing Agent. Immediately thereafter, the Disbursing Agent shall distribute, to the trustee for the indenture governing the Series B Secured Notes, the fraction of the Series B Cash Collateral allocable to Series B Secured Notes distributed on the Effective Date on account of allowed claims to be applied as mandatory prepayments of the Series B Secured Notes in accordance with the terms of such indenture. 2. Reserve for Holders of Disputed Claims Entitled to Series B Secured Notes. The remainder of the Series B Cash Collateral held by the Disbursing Agent on account of Disputed claims after the distributions provided in subsection 1. of this section E. shall be held by the Disbursing Agent in an interest-bearing account and used to make prepayments on account of Series B Secured Notes reserved for Disputed claims that become allowed claims. As soon as practicable after the allowance of all or any portion of a claim that was a Disputed claim, the holder of such claim shall receive that portion of the cash held by the Disbursing 1-12 Agent allocable to the allowed portion of such claim plus interest actually earned thereon from the Effective Date to the date such claim is allowed. As soon as practicable after the disallowance of all or any portion of a claim which was a Disputed claim, that portion of the cash held by the Disbursing Agent allocable to such disallowed amount shall be allocated pro rata among (x) the holders of Series B Secured Notes to be applied as mandatory prepayments of such notes, and (y) the remaining holders of Disputed claims in classes 2 or 3 to be held in trust by the Disbursing Agent in an interest-bearing account and used to make additional prepayments as Disputed claims in classes 2 or 3 are allowed or disallowed. Solely for purposes of calculating the amount of Series B Cash Collateral to be held by the Disbursing Agent on account of Disputed claims pursuant to this subsection 3., all Disputed claims in classes 2 and 3 shall be treated as allowed claims and JWP shall make a good-faith estimate of the amount of any such Disputed claim that has been filed in an unliquidated amount. F. Timing of Distributions and Reserve for Disputed Claims. 1. Administrative Expenses and Classes Not Impaired. On the Effective Date or as soon thereafter as is practicable, Reorganized JWP shall make the distributions required by the treatment provisions of this Article to each holder whose allowed claim is not impaired by the Plan and to each holder of a claim for an allowed administrative expense, except to the extent such holder agrees to receive its distribution at another time. No distributions shall be made and no reserves shall be kept with respect to claims in unimpaired classes or claims for administrative expenses which are Disputed. 2. Initial Distribution. Solely for purposes of calculating the Class 2 Residual Percentage, the Class 3 Residual Percentage, the Class 4B and 4C Residual Percentage, and the Class 4B, and 4C Series A Amount for the initial distribution, JWP shall (i) treat all Disputed claims in classes 2, 3, 4B, and 4C as allowed claims, and (ii) make a good-faith estimate of the amount of any such Disputed claim that has been filed in an unliquidated amount. JWP shall also make a good faith estimate of the Disputed claims or interests in classes 6, 7, 8, 9, and 11. Based on such calculations and estimates, JWP shall make an initial distribution of securities to the holders of allowed claims in classes 2, 3, 4B, 4C, and 6 on the Effective Date or as soon thereafter as is practicable and to the holders of allowed claims or interests in classes 7, 8, 9, and 11 sixty (60) days after the Effective Date or as soon thereafter as is practicable. JWP shall make an initial distribution of securities to Belmont Capital Partners II, L.P. on the Effective Date or as soon thereafter as is practicable. No distributions shall be made with respect to Disputed claims or interests. JWP shall hold all securities that are not distributed as part of the initial distribution in reserve for the benefit of the holders of claims or interests in classes 2, 3, 4B, 4C, 6, 7, 8, 9, 10, and 11. 3. Subsequent Distributions. Every six months after the Effective Date JWP shall (i) distribute, or cause to be distributed, to each holder of a claim that has been allowed in the Reorganization Case subsequent to all previous distributions and to Belmont Capital Partners II, L.P., the amount of securities that would have been distributed to such holder if its claim had been allowed prior to the Effective Date, (ii) recalculate the Additional Interest Amount, the Class 2 Residual Percentage, the Class 3 Residual Percentage, the Class 4B and 4C Residual Percentage, and the Class 4B and 4C Series A Amount to take into account any Disputed claims that have been disallowed, expunged, or withdrawn since the last distribution, (iii) distribute, or cause to be distributed, to each holder of an allowed claim or equity interest and to Belmont Capital Partners II, L.P. on such distribution date such additional securities, if any, held in reserve in respect of Disputed claims or equity interests which are disallowed or expunged so as to fulfill the treatment provisions of Article III, and (iv) cancel the Series A Secured Notes, if any, held in reserve in respect of Disputed claims which are disallowed or expunged. Except for the distribution that occurs after the resolution of all Disputed claims, JWP may determine not to make an interim distribution if the aggregate change in the Disputed claims since the last interim distribution is less than $1,000,000. JWP shall continue to make distributions every six months until no further Disputed claims or equity interests remain outstanding. At such time, JWP shall cancel any Series A Secured Notes remaining in the reserve at that time, ratably distribute all securities, cash, or other proceeds, if any, to the holders of allowed claims in classes 2, 3, 4B, and 4C and eliminate the reserve. 1-13 4. Record Keeping. JWP shall keep a record of (i) each calculation of the Class 2 Series B Percentage, the Class 3 Series B Percentage, the Class 2 Residual Percentage, the Class 3 Residual Percentage, the Class 4B and 4C Residual Percentage, and the Class 4B and 4C Series A Amount, (ii) the amount of securities distributed on each distribution date, and (iii) the amount of securities in the reserve. 5. Subsequent Cash Distributions on Account of Disputed Claims. After the Effective Date, any distributions of cash on account of Series A Secured Notes or Series B Secured Notes, as the case may be, held in reserve by JWP in accordance with subsection F of Article III of the Plan shall be transferred to the Disbursing Agent. Upon the allowance of any portion or all of a Disputed claim and the distribution of Series A Secured Notes or Series B Secured Notes, as the case may be, by JWP to the holder of such allowed claim, the Disbursing Agent shall distribute to the holder of such claim the cash distributable on account of such Series A Secured Notes or Series B Secured Notes, plus any interest actually earned thereon from the Effective Date to the date such claim is allowed, as the case may be, in accordance with the Disbursement Agreement. The cash held by the Disbursing Agent on account of the Series A Secured Notes or Series B Secured Notes held by JWP on account of the disallowed portion of such Disputed claim, plus any interest actually earned thereon, shall be transferred to the trustee for the indenture governing the Series A Secured Notes or Series B Secured Notes, as the case may be, in accordance with the Disbursement Agreement. G. Allowance of Claims in Class 2 and 3. The aggregate allowed claims in class 2 shall be $167,577,088. The aggregate allowed claims in class 3 shall be $358,165,112. H. Claims of Bonding Companies. Regardless of whether Reorganized JWP, MES and certain Nondebtor Subsidiaries have executed an agreement substantially in the form attached to the Plan as Exhibit K or other form acceptable to JWP and the statutory committee of unsecured creditors appointed in the Reorganization Case (a "Claims Reduction Agreement"), (A) the claims of each entity (a "Bonding Company"), other than Wellington Guarantee and Reliance Insurance Corp., that has (i) provided performance bonds to any of the Nondebtor Subsidiaries immediately prior to the Petition Date, and (ii) on or prior to the Effective Date, executed such a Claims Reduction Agreement, shall be (w) included in class 5, (x) allowed (whether contingent or fixed, liquidated or unliquidated), (y) assumed by MES as a primary obligation of MES and (z) treated as unimpaired and reinstated as against Reorganized JWP, (B) all contractors' general agreements of indemnity or similar instruments pursuant to which bonds have been executed or procured prior to the Effective Date shall remain in full force and effect, and (C) the terms of section 4 of the agreement attached to the Plan as Exhibit K shall be effective as against Reorganized JWP, MES and those certain Nondebtor Subsidiaries and shall be deemed incorporated into the Plan by reference. In the event that Reorganized JWP, MES, and certain Nondebtor Subsidiaries fail to enter into a Claims Reduction Agreement with any such Bonding Company because of such Bonding Company's refusal to execute such an agreement, then the claims of such company or companies shall be classified and treated as class 4 claims and JWP reserves the right to object to such claims. The contingent claims of Wellington Guarantee and Reliance Insurance Corp. shall be treated in class 5. In the event that a Bonding Company executes and delivers a Claims Reduction Agreement and, subsequently, consents to an amendment of such agreement which amendment is materially adverse to Reorganized JWP or MES, the claims of such Bonding Company arising out of or in connection with bonds executed or procured prior to the Petition Date, shall, by operation of the Claims Reduction Agreement, immediately prior to the effectiveness of such amendment and without requirement of any further action, be permanently reduced to zero as against JWP, Reorganized JWP and MES. The immediately foregoing sentence shall not be construed to modify or limit the provisions of a Claims Reduction Agreement pertaining to the reduction to zero of such claims under other circumstances explicitly set forth herein. 1-14 IV. Implementation of the Plan A. Issuance of New Securities. SellCo is a co-proponent of the Plan. The issuance of the securities described in Article II of the Plan is hereby authorized. The issuance of additional Series A Secured Notes, Series B Secured Notes, if any, Series C Notes, SellCo Subordinated Contingent Payment Notes, New Series X Warrants, New Series Y Warrants, New Series Z Warrants, and shares of New Common Stock is authorized solely for the purpose of paying the Additional Interest Amount to Belmont Capital Partners II, L.P. Any such securities which are not used to pay such Additional Interest Amount shall be cancelled. B. Pledge Agreements. On the Effective Date the following pledge agreements shall be executed in respect of the Series A Secured Notes: (i) a pledge agreement substantially in the form of Exhibit B-1 to Exhibit A to the Plan executed by JWP which secures the repayment of the Series A Secured Notes with a first priority lien on the Series A Substitute Collateral, the capital stock of MES and on the capital stock of SellCo, (ii) a pledge agreement substantially in the form of Exhibit B-2 to Exhibit A to the Plan executed by JWP which secures the repayment of the Series A Secured Notes with a second priority lien on the Series B Substitute Collateral and the capital stock of the Nondebtor Subsidiaries listed on Schedule 4 hereto, and (iii) a pledge agreement substantially in the form of Exhibit B-3 to Exhibit A to the Plan executed by SellCo which secures SellCo's guarantee of the Series A Secured Notes with a lien on the capital stock of the Nondebtor Subsidiaries listed on Schedule 5 hereto, subject only to the Working Capital Lien. On the Effective Date the following pledge agreements shall be executed in respect of the Series B Secured Notes: (i) a pledge agreement substantially in the form of Exhibit B-2 to Exhibit B to the Plan executed by JWP which secures the repayment of the Series B Secured Notes with a second priority lien on the Series A Substitute Collateral, the capital stock of MES and on the capital stock of SellCo, (ii) a pledge agreement substantially in the form of Exhibit B-1 to Exhibit B to the Plan executed by JWP which secures the repayment of the Series B Secured Notes with a first priority lien on the Series B Substitute Collateral and the capital stock of the Nondebtor Subsidiaries listed on Schedule 4 hereto, and (iii) a pledge agreement substantially in the form of Exhibit B-3 to Exhibit B to the Plan executed by SellCo which secures SellCo's guarantee of the Series B Secured Notes with a lien on the capital stock of the Nondebtor Subsidiaries listed on Schedule 5 hereto, subject only to the Working Capital Lien and the lien in favor of the Series A Secured Notes. On the Effective Date SellCo shall execute a pledge agreement substantially in the form of Exhibit B to Exhibit D to the Plan to secure the repayment of the SellCo Subordinated Contingent Payment Notes with a lien on the stock of each of the Nondebtor Subsidiaries listed on Schedule 5 hereto, subject only to the Working Capital Lien and the liens in favor of the Series A Secured Notes and the Series B Secured Notes, and a first priority lien on the JWP Supplemental SellCo Note. The repayment of the Series A Secured Notes, Series B Secured Notes, and SellCo Subordinated Contingent Payment Notes and all of the foregoing pledge agreements in respect thereof shall be subject to the terms and conditions set forth in the Collateral Intercreditor Agreement. On the Effective Date, JWP shall deliver the pledged properties to the appropriate indenture trustees and Fleet Bank, as agent under the Old Credit Agreement, shall deliver any property held by it for the benefit of the holders of claims under the Old Credit Agreement and the Old Note Agreements to the trustee under the indenture for the Series B Secured Notes. On the Effective Date, Reorganized JWP shall execute warrant agreements substantially in the form of Exhibits O, P, and R to the Plan in respect of the New Series X Warrants, the New Series Y Warrants and the New Series Z Warrants. C. Guarantees. On the Effective Date, JWP shall cause SellCo and MES to execute guarantees of Reorganized JWP's obligations under the Series A Secured Notes. On the Effective Date, JWP shall cause MES and SellCo to execute guarantees of Reorganized JWP's obligations under the Series B Secured Notes subject to the discharge of all of Reorganized JWP's obligations under the Series A Secured Notes. On the Effective Date, JWP shall cause MES to execute a guarantee of Reorganized JWP's obligations under the Series C Notes subject to the discharge of all of Reorganized JWP's obligations under the Series A Secured Notes and the Series B Secured Notes. 1-15 D. Cancellation of Existing Securities and Agreements. On the Effective Date the Old Notes, the Old Note Agreement, the Old Credit Agreement, the pledge agreements, if any, executed prior to the Petition Date by JWP in respect of the stock of any of the Nondebtor Subsidiaries listed on Schedule 4 hereto, the pledge agreements, if any, executed prior to the Petition Date by JWP in respect of any portion of the Series B Substitute Collateral, the subordinated notes and debentures governed by the agreements identified in class 6, all agreements or instruments evidencing claims in classes 2, 3, 4, and 6, the Old Common Stock, any options, warrants, or rights, contractual or otherwise, to acquire such shares of Old Common Stock (including, but not limited to, the incentive stock options, non-qualified stock options, and stock appreciation rights to acquire 1,125,000 shares of Old Common Stock pursuant to the 1986 Incentive Stock Option Plan and the options for key personnel to acquire 2,500,000 and 1,000,000 shares of Old Common Stock, respectively, pursuant to the 1991 and 1992 Stock Option Plans of JWP), any interest represented by the 1,152,649 warrants of participation issued to the holders of Old Common Stock in 1969 which may entitle such holders to receive shares of Old Common Stock on certain events with respect to the Jamaica Water Supply Company, and all the shares of preferred stock of JWP issued or authorized on or prior to the Petition Date shall be canceled. E. Corporate Action. On the Effective Date, the issuance of securities pursuant to Article III hereof, the election or appointment, as the case may be, of directors and officers pursuant to Article IV hereof, and the other matters provided under the Plan involving the corporate structure of JWP or Reorganized JWP, or corporate action by JWP or Reorganized JWP, shall be deemed to have occurred and shall be in effect from and after the Effective Date pursuant to section 303 of the Delaware General Corporation Law without any requirement of further action by the stockholders or directors of JWP or Reorganized JWP. F. JWP Corporate Action. 1. New Charter and Bylaws. On the Effective Date or as soon thereafter as is practicable, Reorganized JWP shall file with the Secretary of State of the State of Delaware, in accordance with sections 103 and 303 of the Delaware General Corporation Law, the Certificate of Incorporation and such certificate shall be the new Certificate of Incorporation for Reorganized JWP. The Certificate of Incorporation, provides, among other things, for (i) the issuance of the New Common Stock, (ii) seven members on the Board of Directors of Reorganized JWP, and (iii) a prohibition on the issuance of nonvoting equity securities. On the Effective Date, the Bylaws shall become the new bylaws of Reorganized JWP. 2. Board of Directors of JWP. On the Effective Date, the operation of Reorganized JWP shall become the general responsibility of its new Board of Directors, subject to, and in accordance with, the Certificate of Incorporation and the Bylaws. The initial directors of Reorganized JWP shall be selected as follows: (i) four directors by the holders of a majority in amount of claims in class 2; (ii) two directors by the holders of a majority in amount of claims in class 3; and (iii) one director selected by the Chairman of the Board of Directors and Chief Executive Officer of JWP. Such directors shall be deemed elected or appointed, as the case may be, pursuant to the order confirming the Plan, but shall not take office until the Effective Date. Those directors and officers not continuing in office shall be deemed removed therefrom as of the Effective Date pursuant to the order confirming the Plan. G. MES and SellCo Corporate Action. 1. Charter and Bylaws. JWP and Reorganized JWP shall take all necessary action to assure that the certificates of incorporation and bylaws of MES and SellCo are substantially in the form of Exhibits G, H, I, and J to the Plan, respectively. 2. Board of Directors. The board of directors of Reorganized JWP shall select the officers and directors of MES and SellCo. 3. Transfer of Nondebtor Subsidiaries. As of the Effective Date, JWP shall transfer or cause its Nondebtor Subsidiaries, as appropriate, to transfer (i) the Nondebtor Subsidiaries listed on Schedule 5 to the 1-16 Plan to SellCo, and (iii) all other Nondebtor Subsidiaries to MES (other than the Nondebtor Subsidiaries listed on Schedule 4 hereto, DYN Specialty Contracting, Inc. (and its subsidiaries B&B Contracting & Supply Company, Dynalectric Company, Dynalectric Company of Nevada, Inc., Contra Costa Electric, Inc. and JWP Systems/Kirkwood Electric Company, Inc.) and Sea Cliff which shall be owned directly by Reorganized JWP). JWP or Reorganized JWP, as the case may be, shall transfer Sea Cliff to Jamaica Water Securities Corp. as soon as practicable after the Effective Date, if not done prior to such time. H. Operations and Sales of Assets. 1. Except as specified in this Article, Reorganized JWP, shall continue in the operation of JWP's businesses and in the ownership of the Nondebtor Subsidiaries. JWP shall obtain for Reorganized JWP or MES a working capital line of credit of up to $50 million which may be secured by a first priority lien on the assets of MES and/or any MES subsidiary. 2. Reorganized JWP shall implement a program to sell the assets of SellCo. Subject to the provisions of the indenture governing the Series A Secured Notes and the indenture governing the Series B Secured Notes, approval by a majority of the Board of Directors of Reorganized JWP shall be required for the sale of any of the assets of JWP or Reorganized JWP, or the assets or capital stock of any Nondebtor Subsidiaries, the net proceeds of which would exceed $3,000,000 for any individual asset or stock sale or series of related asset or stock sales. I. Releases and Retention of Claims. As of the Effective Date, JWP, Reorganized JWP, and each creditor of JWP, Reorganized JWP, and/or any Nondebtor Subsidiary hereby waive, release, and discharge the Seaboard Surety Company, each of the holders of claims in the classes 2, 3, and 6, the holders of claims in class 4 to the extent ordered by the Bankruptcy Court and all officers, directors, employees, or agents (including professionals retained by such holder) of such holder, from any and all claims arising prior to the Effective Date that could be brought by, through, or on behalf of JWP or its estate or any Nondebtor Subsidiary; provided, however, that claims which are waived, released, or discharged shall not include the claims of any Nondebtor Subsidiary for services rendered or goods sold to the holder of a class 2, 3, 4, or 6 claim or the officers, directors, employees, or agents (including professionals retained by such holder) of such holder, if any, or defenses of a Nondebtor Subsidiary to any claim asserted by the Seaboard Surety Company (or other bonding company) solely in respect of such Nondebtor Subsidiary's liabilities or obligations on a bond; and provided, further, that nothing contained in this section I. shall affect the releases to Seaboard Surety Company provided for in the agreement attached hereto as Exhibit K. Such waiver, release, and discharge shall also act as an injunction against any person or entity commencing or continuing any action, employment of process, or act to collect, offset, or recover any such waived, released, and discharged claim. In accordance with section 1123(b)(3) of the Bankruptcy Code, all other claims, rights, and causes of action held by JWP shall be retained by Reorganized JWP. J. Method of Distribution Under the Plan. 1. In General. Any distribution under the Plan shall be made by Reorganized JWP or its designee to the holders of claims or equity interests in classes 1, 2, 3, 4, 6, 7, 8, 9, 10, and 11 as such holders are identified on the books and records of JWP. In the event such a claim has been properly transferred, such distribution shall be made to the transferee of such claim after receipt by Reorganized JWP of evidence reasonably satisfactory to it that such transfer has taken place. Transfer of a claim pursuant to Bankruptcy Rule 3001(e) shall be binding on Reorganized JWP. 2. Setoffs and Recoupments. JWP may, but shall not be required to, set off against or recoup from any claim that is not impaired by the Plan (other than the claims of the Bonding Companies) or from any class 4 claim that is not otherwise released by the effect of section I of Article IV of the Plan, and the payments to be made pursuant to the Plan in respect of such claim, any claims of any nature whatsoever JWP may have against the claimant, but neither the failure to do so nor the allowance of any claim hereunder shall constitute a waiver or release by JWP of any such claim JWP may have against such claimant. 1-17 3. Distribution of Unclaimed Property. Any distribution of property (cash or otherwise) under the Plan which is unclaimed after one year following the Effective Date shall be transferred to Reorganized JWP, notwithstanding state or other escheat or similar laws to the contrary. In the event that any securities are returned to Reorganized JWP as unclaimed property, then such securities shall be canceled. 4. Saturday, Sunday, or Legal Holiday. If any payment or act under the Plan is required to be made or performed on a date that is not a Business Day, then the making of such payment or the performance of such act may be completed on the next succeeding Business Day, but shall be deemed to have been completed as of the required date. 5. Fractional Debt Instruments. Series A Secured Notes, Series B Secured Notes, Series C Notes, and SellCo Subordinated Contingent Payment Notes shall be issued in multiples of $100. On the Effective Date, if a fraction of Series A Secured Notes, Series B Secured Notes, Series C Notes, or SellCo Subordinated Contingent Payment Notes would otherwise be distributed to the holder of a class 2, 3, 4B, or 4C claim (i) the actual distribution of securities shall be rounded down to the next lower multiple of $100, and (ii) cash in an amount equal to the fraction of securities which would otherwise be so distributed shall be distributed to the holders of such claims. 6. Fractional Shares and Cash in Lieu of New Series Z Warrants. No fractional shares of New Common Stock, New Series X Warrants, or New Series Y Warrants, or cash in lieu thereof, shall be distributed. No fractional shares of New Series Z Warrants shall be distributed, however, the New Series Z Warrants not distributed on account of such fractional shares shall be divided among classes 7, 8, 9, 10, and 11 in proportion to the number of New Series Z Warrants to be distributed to each such class, and each holder of a claim or interest in each such class shall receive its Ratable Share of such New Series Z Warrants attributable to its class. At the option of the holder of an allowed claim or interest in classes 7, 8, 9, 10, or 11, such holder shall be entitled to receive from Reorganized JWP $0.10 for each whole New Series Z Warrant such holder receives under the Plan, provided, however, that Reorganized JWP shall not be obligated to distribute cash to such holder on account of such whole New Series Z Warrants unless such holder is entitled to receive, in the aggregate, at least $1.00 on account of such whole New Series Z Warrants. 7. Provisions Concerning the Businessland, Inc. 51/2% Convertible Subordinated Debentures and the ENTEX Share Issuance Agreement. Reorganized JWP shall reserve and keep available a number of New Series Z Warrants sufficient to satisfy the distribution of New Series Z Warrants on account of the Old Common Stock reserved to satisfy the conversion rights under the Businessland, Inc. 51/2% Convertible Subordinated Debentures and the ENTEX Share Issuance Agreement. Reorganized JWP shall distribute such New Series Z Warrants only after all of the requirements for conversion set forth in the Businessland, Inc. 51/2% Convertible Subordinated Debentures and the ENTEX Share Issuance Agreement have been satisfied. K. Revesting of Assets. On the Effective Date, the estate of JWP shall revest in Reorganized JWP. After the Effective Date, Reorganized JWP may operate its businesses, and may use, acquire, and dispose of property free of any restrictions of the Bankruptcy Code or the Bankruptcy Rules. As of the Effective Date, the estate of JWP shall be free and clear of all claims, security interests, liens, and equity interests, except as provided herein. L. Allocation of Consideration. The aggregate consideration to be distributed to the holders of allowed claims in each class under the Plan shall be treated as first satisfying an amount equal to the stated principal amount of the allowed claim for such holders and any remaining consideration as satisfying accrued, but unpaid, interest, if any. M. Executory Contracts and Unexpired Leases. As of the Effective Date, all executory contracts and unexpired leases that exist between JWP and any person are hereby specifically assumed, except for any executory contracts or unexpired leases which are the subject of a motion to reject on or before the confirmation date. Entry of the order confirming the Plan by the Clerk of the Court shall constitute approval 1-18 of such assumptions pursuant to subsection 365(a) of the Bankruptcy Code. Claims created by the rejection of executory contracts or unexpired leases must be filed with the Court no later than twenty (20) days after the entry of an order authorizing such rejection. Any claims not filed within such time will be forever barred from assertion against JWP and the estate of JWP. Unless arising from claims or interests in classes 6, 7, 9, or 11 or otherwise ordered by the Court, all such claims arising from the rejection of executory contracts or unexpired leases shall be classified in class 4 of the Plan. N. JWP Management Stock Options. Within one year after the Effective Date, the Board of Directors of Reorganized JWP shall determine the recipients of options to purchase 500,000 shares of New Common Stock of Reorganized JWP pursuant to the Management Stock Option Plan and shall issue such options to such recipients in the respective amounts as determined by the Board of Directors of Reorganized JWP. The exercise price for such options shall 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; provided, however, that in no event shall such options be issued or the exercise price be determined prior to expiration of three months plus 20 days after the Effective Date; provided further, that if the average market price of New Common Stock for the applicable period cannot be determined, the exercise price shall be determined by an investment advisor selected by the Compensation Committee of the Board of Directors of Reorganized JWP. Such options may be exercised only after they have vested. Vesting shall occur over a three-year period, with one-third vesting each year. The Board of Directors of Reorganized JWP is authorized to issue additional options pursuant to the Management Stock Option Plan to then-current employees of Reorganized JWP or the Nondebtor Subsidiaries to purchase up to 500,000 shares of New Common Stock available under the Management Stock Option Plan. All options issued under the Management Stock Option Plan shall expire on the tenth anniversary of their issuance. O. Hart-Scott-Rodino Compliance. Any shares of New Common Stock to be distributed under the Plan to any entity required to file a Premerger Notification and Report Form under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended, shall not be distributed until the notification and waiting periods applicable under such act to such entity shall have expired or been terminated. P. Listing of New Common Stock; Registration of Securities. Reorganized JWP or SellCo, as the case may be, shall use its best efforts to (i) cause, as promptly as practicable after the Effective Date, the shares of New Common Stock and the other securities issued hereunder to be listed on a national securities exchange or quoted in the national market system of the National Association of Securities Dealers' Automated Quotation System, (ii) file, as promptly as practicable after the Effective Date, and be declared effective as soon as possible thereafter, a registration statement or registration statements under the Securities Act of 1933, as amended (the "Securities Act"), for the offering on a continuous or delayed basis in the future of each of the shares of New Common Stock, the Series A Secured Notes, the Series B Secured Notes, the Series C Notes, the SellCo Subordinated Contingent Payment Notes, the New Series X Warrants, the New Series Y Warrants, and the New Series Z Warrants (the "Shelf Registration"), (iii) keep the Shelf Registration effective for a two-year period, commencing on the date on which the Shelf Registration is declared effective, and (iv) supplement or make amendments to the Shelf Registration, if required under the Securities Act or by the rules or regulations promulgated thereunder or if requested by any holder or underwriter of any of the securities covered by the Shelf Registration, and have such supplements and amendments declared effective as soon as practicable after filing. Q. JWP Supplemental SellCo Note. On the Effective Date, Reorganized JWP shall deliver to SellCo the JWP Supplemental SellCo Note. The JWP Supplemental SellCo Note shall (a) be in an aggregate principal amount equal to the amount of all the Net Cash Proceeds received directly or indirectly by JWP or any of the Nondebtor Subsidiaries on or after December 1, 1993, and prior to the Effective Date in connection with any Asset Sale or Asset Sales of (i) the Nondebtor Subsidiaries listed on Schedule 4 to the Plan or their assets in excess of $11,357,000 and (ii) any of JWP's other assets or the assets of Nondebtor Subsidiaries, less $1,000,000, (b) be senior indebtedness of Reorganized JWP, (c) accrue interest commencing on the Effective Date at a rate of 8% per annum, compounded semiannually, which shall be payable upon maturity, and (d) 1-19 mature on the earlier of (i) the tenth anniversary of the Effective Date or (ii) one day prior to the date on which the SellCo Subordinated Contingent Payment Notes are deemed cancelled pursuant to section D of Article II hereof. R. Intercreditor Agreement. Upon the Effective Date, the Intercreditor Agreement shall be cancelled and the terms and conditions thereof shall be rendered null and void. The distributions under the Plan to the holders of claims in classes 2 and 3 are in lieu of and in complete satisfaction of any rights such holders may have under the Intercreditor Agreement. V. Effectiveness of the Plan A. Conditions Precedent. The Plan shall not become effective unless and until the following conditions shall have been satisfied in full or waived in accordance with the provisions specified below: 1. The order confirming the Plan (i) shall be satisfactory in form to the holders of a majority in amount of the claims in each of class 2 and class 3 and (ii) shall have been entered and not been reversed, stayed, modified, or amended, and either (a) the time to appeal, seek review or rehearing, or petition for certiorari has expired and no timely filed appeal or petition for review, rehearing, remand, or certiorari is pending or (b) any appeal taken or petition for certiorari filed has been resolved by the highest court to which such order was appealed or from which certiorari was sought; 2. Unless waived by the holders of two-thirds in amount of the claims in each of classes 2 and 3 who voted on the Plan, the filing with the Court of a statement by JWP providing that JWP believes, after conducting an analysis of the claims in class 4B, that the allowed amount of such claims will not exceed $100,000,000; 3. Reorganized JWP or MES shall have executed an agreement, subject only to the occurrence of the Effective Date, for a working capital facility in an amount at least sufficient to repay and replace any financing provided to JWP pursuant to section 364 of the Bankruptcy Code; and 4. Each of the indentures governing the Series A Secured Notes, Series B Secured Notes, SellCo Subordinated Contingent Payment Notes, and the Series C Notes shall be duly qualified under the Trust Indenture Act of 1939. B. Waiver of Conditions. Each of the conditions specified above (other than the conditions specified in subsection A.2 of Article V) may be waived by a writing signed by the authorized representatives of JWP and a majority in amount of those holders of claims in each of class 2 and class 3 which voted on the Plan. C. Effect of Failure of Conditions. If each of the conditions to effectiveness and the occurrence of the Effective Date has not been satisfied or duly waived on or before the first Business Day that is more than 179 days after the date the Court enters an order confirming the Plan, or by such later date as is proposed and approved, after notice and a hearing, by the Court, upon motion by JWP or any party in interest made before the time that each of the conditions has been satisfied or duly waived, the order confirming the Plan may be vacated by the Court; provided, however, that notwithstanding the filing of such a motion, the order confirming the Plan shall not be vacated if each of the conditions to consummation is either satisfied or duly waived before the Court enters an order granting the relief requested in such motion. If the order confirming the Plan is vacated pursuant to this section, the Plan shall be null and void in all respects, and nothing contained in the Plan shall (a) constitute a waiver or release of any claims against or equity interests in JWP or (b) prejudice in any manner the rights of the holder of any claim or equity interest or JWP. 1-20 VI. Administrative Provisions A. Discharge. 1. Scope. Other than with respect to the claims in class 5, entry of the order confirming the Plan acts as a discharge of all debts of, claims against, liens on, and interests in each of JWP, its assets, or properties, which debts, claims, liens, and interests arose at any time before the entry of the order confirming the Plan. Other than with respect to the claims in class 5, the discharge of JWP shall be effective as to each claim, regardless of whether a proof of claim therefore was filed, whether the claim is an allowed claim, or whether the holder thereof votes to accept the Plan. On the date the Court enters an order confirming the Plan, as to every discharged claim and equity interest, any holder of such claim or equity interest shall be precluded from asserting against JWP or against JWP's assets or properties, or any successors of JWP, any other or further claim or equity interest based on any document, instrument, act, omission, transaction, or other activity of any kind or nature that occurred before the date the Court enters the order confirming the Plan. 2. Injunction. In accordance with section 524 of the Bankruptcy Code, the discharge provided by this section and section 1141 of the Bankruptcy Code, inter alia, acts as an injunction against the commencement or continuation of any action, employment of process, or act to collect, offset, or recover the claims discharged hereby. B. Claims and Equity Interests Objections. Unless otherwise ordered by the Court, all claims objections shall be filed and served on the applicable claimant by 120 days after the Effective Date or 120 days after a claim is filed, whichever is later. After the date the Court enters an order confirming the Plan, only JWP or Reorganized JWP shall have the authority to file, settle, compromise, withdraw, or litigate to judgment objections to claims. After the date the Court enters an order confirming the Plan, JWP or Reorganized JWP may settle or compromise any Disputed claim in accordance with Bankruptcy Rule 9019. C. Claims Incurred After the Confirmation Date. Claims against JWP or Reorganized JWP incurred after the date and time of the entry of the order confirming the Plan, including (without limitation) claims for professionals' fees and expenses, shall not be subject to application or proof of claim and may be paid by JWP or Reorganized JWP, as the case may be, in the ordinary course of business and without further Court approval. D. Retention of Jurisdiction. The Court shall have exclusive jurisdiction of all matters arising out of, and related to, the Reorganization Case and the Plan pursuant to, and for the purposes of, sections 105(a) and 1142 of the Bankruptcy Code and for, among other things, the following purposes: 1. To hear and determine pending applications for the assumption or rejection of executory contracts or unexpired leases, if any are pending, and the allowance of claims resulting therefrom; 2. To determine any and all pending adversary proceedings, applications, and contested matters; 3. To ensure that distributions, if any, to holders of allowed claims are accomplished as provided herein; 4. To resolve disputes as to the ownership of a claim; 5. To hear and determine any timely objections to claims for administrative expenses or to proofs of claims and equity interests filed, both before and after the date the Court enters an order confirming the Plan, including any objections to the classification of any claim or equity interest, and to allow or disallow any Disputed claims for administrative expenses, Disputed claim, or Disputed equity interest, in whole or in part; 6. To enter and implement such orders as may be appropriate in the event the order confirming the Plan is for any reason stayed, revoked, modified, or vacated; 1-21 7. To issue such orders in aid of execution of the Plan, to the extent authorized by section 1142 of the Bankruptcy Code; 8. To consider any modifications of the Plan, to cure any defect or omission, or reconcile any inconsistency in any order of the Court, including, without limitation, the order confirming the Plan; 9. To resolve disputes concerning nondebtor releases and injunctions contained herein; 10 To hear and determine all applications for compensation and reimbursement of expenses of professionals under sections 330, 331, and 503(b) of the Bankruptcy Code; 11 To hear and determine disputes arising in connection with the interpretation, implementation, or enforcement of the Plan; 12 To hear and determine matters concerning state, local, and federal taxes in accordance with sections 346, 505, and 1146 of the Bankruptcy Code; 13 To hear any other matter not inconsistent with the Bankruptcy Code; and 14 To enter a final decree closing the Reorganization Case. E. Exemption from Transfer Taxes. Pursuant to section 1146(c) of the Bankruptcy Code, the issuance, transfer, or exchange of notes or equity securities under the Plan, the creation of any mortgage, deed of trust, or other security interest, the making or assignment of any lease or sublease, or the making or delivery of any deed or other instrument of transfer under, in furtherance of, or in connection with the Plan, including any deeds, bills of sale, or assignments executed in connection with any of the transactions contemplated under the Plan shall not be subject to any stamp, real estate transfer, mortgage recording, or other similar tax. F. Payment of Statutory Fees. All fees payable pursuant to section 1930 of title 28 of the United States Code, as determined by the Court at the hearing pursuant to section 1128 of the Bankruptcy Code, shall be paid on or before the Effective Date. G. Exculpation. Reorganized JWP, the holders of claims in classes 2, 3, and 6, the statutory committee of unsecured creditors, the official committee of junior creditors and interest holders, the Seaboard Surety Company, and their respective members, officers, directors, employees, or agents (including any professionals retained by such persons) shall have no liability to any holder of a claim or equity interest for any act or omission in connection with, or arising out of, the pursuit of approval of the disclosure statement for the Plan or the solicitation of votes for or confirmation of the Plan, the consummation of the Plan, or the administration of the Plan or the property to be distributed under the Plan, except for willful misconduct or gross negligence, and in all respects, shall be entitled to rely upon the advice of counsel with respect to their duties and responsibilities under the Plan. H. Headings. Headings are used in the Plan for convenience and reference only, and shall not constitute a part of the Plan for any other purpose. I. Binding Effect. The Plan shall be binding upon and inure to the benefit of JWP, its creditors, the holders of equity interests, and their respective successors and assigns. J. Notices. Any notice required or permitted to be provided under the Plan shall be in writing and served by either (a) certified mail, return receipt requested, postage prepaid, (b) hand delivery, or (c) reputable overnight delivery service, freight prepaid, to be addressed as follows: To JWP, Debtor in Possession, or Reorganized JWP: JWP INC. Six International Drive Rye Brook, New York 10573-1058 Attn: Sheldon I. Cammaker, Esq. 1-22 with a copy to: Stroock & Stroock & Lavan 7 Hanover Square New York, New York 10004 Attention: Lewis Kruger, Esq. Lawrence M. Handelsman, Esq. K. Governing Law. Unless a rule of law or procedure is supplied by federal law (including the Bankruptcy Code and Bankruptcy Rules) or the Delaware General Corporation Law, the laws of the State of New York shall govern the construction and implementation of the Plan and any agreements, documents, and instruments executed in connection with the Plan. L. Filing or Execution of Additional Documents. On or before substantial consummation of the Plan, JWP shall file with the Court or execute, as appropriate, such agreements and other documents as may be necessary or appropriate to effectuate and further evidence the terms and conditions of the Plan. M. Withholding and Reporting Requirements. In connection with the Plan and all instruments issued in connection therewith and distributions thereon, JWP shall comply with all withholding and reporting requirements imposed by any federal, state, local, or foreign taxing authority and all distributions hereunder shall be subject to any such withholding and reporting requirements. Dated New York, New York August 9, 1994 Respectfully submitted, JWP Inc. Debtor and Debtor in Possession /s/ Frank T. MacInnis By: Chairman of the Board of Directors, President and Chief Executive Officer SELLCO Corporation /s/ Frank T. MacInnis By: President 1-23 Exhibits to the Plan Exhibit A: Series A Secured Note Indenture Exhibit B: Series B Secured Note Indenture Exhibit C: Series C Note Indenture Exhibit D: SellCo Subordinated Contingent Payment Note Indenture Exhibit E: Bylaws of Reorganized JWP Exhibit F: Certificate of Incorporation of Reorganized JWP Exhibit G: Certificate of Incorporation of MES Exhibit H: Certificate of Incorporation of SellCo Exhibit I: Bylaws of MES Exhibit J: Bylaws of SellCo Exhibit K: Claims Reduction Agreement Exhibit L: JWP Management Incentive Stock Option Plan Exhibit M: Nondebtor Subsidiaries Exhibit N: Disbursement Agreement Exhibit O: New Series X Warrant Agreement Exhibit P: New Series Y Warrant Agreement Exhibit Q: JWP Supplemental SellCo Note Exhibit R: New Series Z Warrant Agreement Schedules to the Plan Schedule 1: Class 5 claims-(Unimpaired) Schedule 2: Old Note Agreements Schedule 3: Intentionally Omitted Schedule 4: Nondebtor Subsidiaries constituting the Collateral for the Series B Secured Notes Schedule 5: Subsidiaries comprising SellCo 1-24 AMENDED SCHEDULE 1 CREDITORS TO BE UNIMPAIRED
Creditor Basis for Claim - --------------------------------------------------------- --------------------------- 1. U.S.A. General Services Administration...............Guarantee 2. Foster Wheeler Energy Corp...........................Guarantee 3. George Hyman Company.................................Guarantee 4. Virginia Dept. of Transportation.....................Guarantees 5. PCL Construction Group Inc...........................Guarantee 6. NY City Health and Hospitals Corp....................Guarantees 7. State of Utah........................................Guarantee 8. Sundt Corp...........................................Guarantee 9. PACCO Ltd. of Guam...................................Guarantee 10. PCL Construction Group Inc...........................Guarantee 11. Lehrer, McGovern, Bovis..............................Guarantee 12. Mannesmann Demag Corporation.........................Agreement 13. Costain Construction Limited.........................Guarantee 14. Fleetway House Construction Management Limited.......Guarantee 15. Limeback.............................................Guarantee 16. ERSB Sellafield......................................Guarantee 17. John Mowlen & Co. PLC................................Guarantee 18. Olympia & York Limited...............................Guarantees 19. Olympia & York Canary Wharf Ltd......................Guarantees 20. British Rail.........................................Guarantee 21. Try Construction Ltd.................................Guarantee 22. Amec Design & Management Ltd.........................Guarantee 23. Thames Water Utilities Ltd. .........................Guarantee 24. John Lang Construction Ltd. .........................Guarantee 25. British Airways......................................Guarantee 26. Property Services Agency.............................Comfort Letter/Guarantee 27. Wessex Regional Health Authority.....................Guarantee 28. Herbert Construction (U.K.) Ltd......................Guarantees 29. United Dominions Trust...............................Guarantee 30. Lombard Water North Central PLC......................Guarantee 31. NatWest Securities Limited...........................Guarantee 32. IBOS Finance Ltd.....................................Guarantee 33. Seaboard Surety Company*.............................Indemnification 34. CIGNA*...............................................Indemnification 35. Reliance Insurance Corp..............................Indemnification 36. Wellington Guarantee.................................Indemnification 37. State of Nevada......................................Indemnification 38. State of Florida ....................................Contingent Liability 39. State of Maryland EPA................................Contingent Liability 40. State of Illinois EPA................................Contingent Liability 41. JWP 401K Plan........................................ ERISA Plan 42. JWP Defined Compensation Pension Plan................ ERISA Plan 43. Connecticut General Life Insurance Company (medical/dental policy)..............................Indemnification 44. Prudential (Erlanger)................................Guarantee 45. London Underground Limited...........................Guarantees 46. Bank of Montreal.....................................Guarantee - ---------------------------------------------------------------- * Inclusion of creditor on Schedule 1 is expressly contingent upon the satisfaction by such creditor of the conditions set forth in section H of Article III of the Plan.
SCHEDULE 2 OLD NOTE AGREEMENTS The Old Note Agreements are those respective agreements pursuant to which the following notes were issued: 1. $10,714,500 9.25% senior note payable to the order of Principal Mutual Life Insurance Company. 2. $1,428,600 9.25% senior note payable to the order of Principal Mutual Life Insurance Company. 3. $2,500,050 9.25% senior note payable to the order of Equitable Variable Life Insurance Company. 4. $2,500,050 9.25% senior note payable to the order of National Integrity Life Insurance Company. 5. $2,142,900 9.25% senior note payable to the order of Merrill Lynch Life Insurance Company of New York. 6. $3,571,500 9.25% senior note payable to the order of The Life Insurance Company of Virginia (LICOVA & Co.). 7. $2,142,900 9.25% senior note payable to the order of Northwestern National Life Insurance Company. 8. $1,428,600 9.25% senior note payable to the order of Northern National Life Insurance Company. 9. $714,300 9.25% senior note payable to the order of Pan American Assurance Company. 10. $1,428,600 9.25% senior note payable to the order of Pan American Life Insurance Company. 11. $20,000,000 10.95% senior note payable to the order of Northwestern Mutual Life Insurance Company. 12. $10,000,000 10.95% senior note payable to the order of Principal Mutual Life Insurance Company. 13. $6,000,000 10.25% senior note payable to the order of The Mutual Life Insurance Company of New York. 14. $6,000,000 10.25% senior note payable to the order of Principal Mutual Life Insurance Company. 15. $5,000,000 10.25% senior note payable to the order of Crown Life Insurance Company. 16. $500,000 10.25% senior note payable to the order of The Minnesota Mutual Life Insurance Company. 17. $500,000 10.25% senior note payable to the order of Mutual Service Life Insurance Company. 18. $4,000,000 10.25% senior note payable to the order of Provident Life and Accident Insurance Company. 19. $2,000,000 10.25% senior note payable to the order of Century Life of America. 20. $1,000,000 10.25% senior note payable to the order of Century Life Insurance Company. 21. $3,000,000 10.25% senior note payable to the order of The Union Central Life Insurance Company. 22. $2,000,000 10.25% senior note payable to the order of Guarantee Mutual Life Insurance Company. 23. $4,000,000 10.25% senior note payable to the order of The Mutual Life Insurance Company of New York. 24. $3,000,000 10.25% senior note payable to the order of Life Investor Insurance Company of America. 1-26 25. $2,000,000 10.25% senior note payable to the order of Ausa U.S. Life Insurance Company. 26. $4,000,000 10.25% senior note payable to the order of Bankers United Life Assurance Company. 27. $1,000,000 10.25% senior note payable to the order of General Services Life Insurance Company. 28. $1,000,000 10.25% senior note payable to the order of Principal Mutual Life Insurance Company. 29. $4,000,000 10.25% senior note payable to the order of The Minnesota Mutual Life Insurance Company. 30. $1,000,000 10.25% senior note payable to the order of Provident Life and Accident Insurance Company. 31. $25,000,000 9.95% senior note payable to The Prudential Insurance Company of America. 32. $12,750,000 9.95% senior note payable to Massachusetts Mutual Life Insurance Co. 33. $1,250,000 9.95% senior note payable to MML Pension Insurance Co. 34. $1,000,000 9.95% senior note payable to The Massmutual Participation Investor Fund. 35. $10,000,000 9.95% senior note payable to The Mutual Life Insurance Company of New York. 36. $6,000,000 9.95% senior note payable to Principal Mutual Life Insurance Company. 37. $4,000,000 9.95% senior note payable to Crown Life Insurance Co. 38. $50,000,000 10.35% senior note payable to The Prudential Insurance Company of America due 11/30/2005. 39. $15,000,000 10.27% senior note payable to The Variable Annuity Life Insurance Co. due 11/30/2005. 40. $3,000,000 10.27% senior note payable to Ausa Life Insurance Company due 11/30/2005. 41. $2,000,000 10.27% senior note payable to Monumental Life Insurance Company due 11/30/2005. 42. $5,000,000 9.56% senior note payable to Provident National Assurance Company due 11/30/97. 43. $5,000,000 9.51% senior note payable to New York Life Insurance Company due March 31, 1996. 44. $5,000,000 9.65% senior note payable to New York Life Insurance Company due March 31, 1997. 45. $5,000,000 9.83% senior note payable to New York Life Insurance Company due March 31, 1998. 46. $5,000,000 9.10% senior note payable to New York Life Insurance and Annuity Corp. due March 31, 1994. 47. $5,000,000 9.33% senior note payable to New York Life Insurance and Annuity Corp. due March 31, 1995. 48. $25,000,000 9.10% senior note payable to the order of The Prudential Insurance Company of America due March 6, 2002. 49. $10,000,000 9.10% senior note payable to the order of American General Life and Accident Insurance Company due March 6, 2002. 50. $5,000,000 9.10% senior note payable to the order of Ohio National Life Insurance Company due March 6, 2002. 1-27 51. $5,000,000 9.10% senior note payable to the order of Modern Woodmen of America due March 6, 2002. 52. $4,250,000 9.10% senior note payable to the order of The Paul Revere Life Insurance Company due March 6, 2002. 53. $3,750,000 9.10% senior note payable to the order of The Paul Revere Protective Life Insurance Company due March 6, 2002. 54. $3,000,000 9.10% senior note payable to the order of The Union Central Life Insurance Company due March 6, 2002. 55. $2,000,000 9.10% senior note payable to the order of The Paul Revere Variable Annuity Insurance Company due March 6, 2002. 56. $2,000,000 9.10% senior note payable to the order of The Manhattan Life Insurance Company due March 6, 2002. 1-28 SCHEDULE 3 INTENTIONALLY OMITTED 1-29 SCHEDULE 4 Non-debtor Subsidiaries Constituting The Collateral For The Series B Senior Secured Notes Maris Equipment Company JWP Pacific International, Inc. University Energy Services of California Inc. JWP Energy Products, Inc. JWP Telecom, Inc. Subsidiaries of the Above-named Companies Jamaica Technical Trading Company JWP Technical Services (C.N.M.I.) Inc. JWP Technical Services Hong Kong Limited JWP Technical Services (Singapore) PTE Ltd. JWP Thailand JWP Telecommunication Services Inc. JWP Telephone Services Inc. Standard Telecommunications, Inc. Standard Telecommunications Equipment Inc. 1-30 SCHEDULE 5 Principal Subsidiaries Comprising SellCo. University Cogeneration, Inc. General Energy Development, Inc. Water Companies Wachtel Duklauer & Fein, Incorporated Superior Engineering Corporation University Mechanical Contractors, Inc. (Washington) JWP Brandt Engineering Co., Inc. Other Subsidiaries of SellCo. A to Z Equipment Corp. Afgo Engineering Corporation Afgo Engineering Corp. of Washington American Cable Products, Inc. Antwerp Education Center N.V. AZCO Inc. Brandt Engineering Company of Arkansas, Inc. Brandt Service Company Businessland Canada Ltd. Businessland (Hong Kong) Limited Case/Acme Systems, Inc. Communications Management Inc. Computer Maintenance Corporation Drake & Scull France SARL E.M.A. International, Inc. Fort Corp. Gone Inc. Guzovsky/JWP Electrical Inc. G/M Tech Inc. Intec Business Phones Inc. ISYS Security Systems, Inc. Jamaica Water Securities Corp. Jamaica Water Supply Company JWP Voc I JWP Voc II JWP Asset Management Inc. JWP Communications Inc. JWP Controls Inc. JWP Controls Holding, Inc. JWP Credit Corp. JWP E.C. Corp. JWP Environmental Services Company JWP Environmental Services III Inc. JWP Environmental Composting Technologies, Inc. JWP Equipment Services Inc. JWP Espana SA JWP France SARL JWP Guzovsky Electrical Corp. 1-31 Other Subsidiaries of SellCo. JWP/HCCII Corp. JWP of Hartford, Inc. JWP Information Services, Inc. JWP Information Services SARL JWP/IS Network Integration Services, Inc. JWP Mechanical Services of New York, Inc. JWP Merger Sub Inc. JWP New England Inc. JWP/SHI Corp. JWP Technical Services Corp. Kerby Saunders, Inc. Kerby Saunders-Warkol, Inc. Marlon of Texas, Inc. Metalair Industries, Inc. Micro Avenue MicroCom North Am. Heating & Air Conditioning Company Photo-Scan Management Systems, Inc. Sea Cliff Water Company Sivea Benelux SLR Constructors Inc. Sutter Hill Industries, Inc. Teletime Limited University Nuclear Systems, Inc. Wachtel, Duklauer & Fein Incorporated, a New Jersey corporation Walker Engineering, Inc. Worldwide Communications, Inc. JWP Unrestricted Sub 3 Inc. JWP Unrestricted Sub 9 Inc. JWP Unrestricted Sub 12 Inc. 1-32 Exhibit 2 CREDITORS' COMMITTEE TCW Asset Management Company 865 South Figueroa Street Los Angeles, CA 90017 Attn: Mr. Richard Masson, Managing Director Bear Stearns Securities Corp. 245 Park Avenue, 4th Floor New York, NY 10167 Attn: Mr. Steven Gidumal Morgens, Waterfall, Vintaidis & Co., Inc. 610 Fifth Avenue, 7th Floor New York, NY 10153 Attn: Mr. Jooko Tamminen Baker Nye Advisors 767 Fifth Avenue New York, NY 10153 Attn: Mr. George Konomos Credit Suisse 12 East 49th Street New York, NY 10017 Attn: Mr. Jan Kofol Bank of America 335 Madison Avenue New York, NY 10017 Attn: Ms. Faith R. Larsen Mr. Mark P. Woods UBS Securities, Inc. 299 Park Avenue New York, NY 10171 Attn: Mr. Kevin Toner 2-1 Exhibit 3 JUNIOR COMMITTEE Norman Wechsler c/o Wechsler & Company 105 S. Bedford Road Mt. Kisco, NY 10549 Grazia Pontoni P.O. Box 195 225 E. Mill Street Athens, MI 49011 c/o Mr. Raymond Pontoni 348 E. Mill Street, Box 98 Athens, MI 49011 Mr. Edward Sievers 207 E. Mich Avenue Paw Paw, MI 49079 Richard R. Taylor 626 Jennings Lane Battle Creek, MI 49015 Milton Klein 84 Tardy Lane Wantagh, NY 11793 Exhibit 4
JWP INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Page No. -------- Management's Discussion and Analysis of Financial Condition and Results of Operations for the three years ended December 31, 1992 (unaudited)............. 4-1 Consolidated Financial Statements and Notes as of December 31, 1992 and 1991 and for the three years ended December 31, 1992 (unaudited): Consolidated Balance Sheets......................... 4-11 Consolidated Statements of Operations........... 4-12 Consolidated Statements of Cash Flows..................... 4-13 Consolidated Statements of Shareholders' (Deficit) Equity.................................... 4-14 Notes to Consolidated Financial Statements............ 4-15 Management's Discussion and Analysis of JWP Inc. and Subsidiaries Financial Condition and Results of Operations for the two years ended December 31, 1993 (unaudited).................. 4-37 Condensed Consolidated Financial Statements and Notes as of December 31, 1993 and 1992 and for the two years ended December 31, 1993 (unaudited): Condensed Consolidated Balance Sheets................. 4-46 Condensed Consolidated Statements of Operations....... 4-47 Condensed Consolidated Statements of Cash Flows.......... 4-48 Condensed Consolidated Statements of Shareholders' (Deficit) Equity.......................... 4-49 Notes to Condensed Consolidated Financial Statements.... 4-50 Condensed Consolidated Financial Statements and Notes as of March 31, 1994 and for the three months ended March 31, 1994 (unaudited): Condensed Consolidated Balance Sheet............... 4-59 Condensed Consolidated Statement of Operations...... 4-60 Condensed Consolidated Statement of Cash Flows.......... 4-61 Condensed Consolidated Statement of Shareholders' (Deficit).................................. 4-62 Notes to Condensed Consolidated Financial Statements..... 4-63
MANAGEMENT'S DISCUSSION AND ANALYSIS OF JWP INC. AND SUBSIDIARIES FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31, 1992 (Unaudited) Results of Operations In 1992, JWP INC. (the "Company") incurred a net loss of $612.4 million or $15.13 per share, had negative cash flow from operations of $49.6 million and was in violation of certain financial and other covenants contained in its loan agreements. The net loss includes losses of $363.5 million or $9.00 per share from continuing operations and $253.2 million or $6.24 per share from discontinued operations. As of December 31, 1992, the Company had negative net worth of $176.0 million and a working capital deficit of $364.9 million after the reclassification of debt in default aggregating $501.0 million. For the year ended December 31, 1993, the Company continued to experience losses. Cash flow from operations continues to be inadequate to fund its operations and service its debt and other obligations. From September 1992 to February 1994, when the Company obtained debtor-in-possession financing, the Company did not have available credit facilities and, consequently, funded its operations from working capital and proceeds from the sale of businesses and other assets. The Company's surety companies are reviewing bid and performance bonding requests on a case-by-case basis for large construction projects and those with a duration of more than two years. In addition, a surety company that had been the primary source of surety bonds for certain subsidiaries, which together comprised approximately 20% of the Company's 1993 revenues of those mechanical/ electrical companies which the Company currently plans to retain, is no longer engaged in the business of issuing such bonds. As a result, these subsidiaries are currently not receiving such bonds. However, the absence of available bonding for these subsidiaries has not resulted in a material reduction in their backlog. The Company and these subsidiaries are actively engaged in discussions with another surety company which has undertaken due diligence for the purpose of entering into a new surety bonding arrangement. However, there can be no assurance that such a new surety bonding arrangement can be obtained. On December 21, 1993, three holders of the Company's 73/4% Convertible Subordinated Debentures filed an involuntary petition under Chapter 11 of the U.S. Bankruptcy Code against the Company. The Company on February 14, 1994 consented to the entry of an order for relief under Chapter 11 of the Bankruptcy Code. At that time the Company adopted a proposed plan of reorganization which, as modified, has the support of the Official Unsecured Creditors Committee and the Official Unsecured Junior Creditors and Interest Holders Committee. The proposed plan of reorganization contemplates the exchange of substantially all of the Company's indebtedness for new notes of the reorganized Company, all of its common stock and warrants to purchase common stock of the reorganized Company. Holders of the Company's common and preferred stock and warrants of participation will receive warrants to purchase common stock of the reorganized Company in exchange for their equity interests. The proposed plan also contemplates a business restructuring plan which the Company initially developed in the third quarter of 1992 to divest certain of its non-core businesses. However, there can be no assurance that the proposed plan of reorganization will be consummated or, if so, its timing. See "Liquidity and Capital Resources" for additional discussion with respect to the Company's restructuring plan. The accompanying financial statements have been prepared on a going concern basis and do not include any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company's continuation as a going concern is dependent upon its ability to restructure its indebtedness in connection with its reorganization under Chapter 11 of the U.S. Bankruptcy Code, obtain sufficient bonding to guarantee its performance on construction contracts, return to profitability, obtain credit facilities and otherwise generate sufficient cash flow to meet its restructured and other obligations on a timely basis. See "Liquidity and Capital Resources". The Company has restated its financial statements for the years and quarters ended December 31, 1991 and 1990 as well as for each of the quarters in the nine month period ended September 30, 1992 based primarily upon a revaluation of certain adjustments originally recorded in 1992. As a result, net income for 4-1 the year ended December 31, 1991 has been reduced from the previously reported amount of $60.3 million to $29.0 million and earnings per share has been reduced from the previously reported $1.54 per share to $0.73 per share. The 1991 restatement reflects pre-tax charges of $47.9 million, of which $36.7 million relates to continuing operations and $11.2 million relates to discontinued operations. The 1991 restatement of continuing operations reflects a $4.5 million increase to insurance reserves, a $6.6 million loss from the sale of a business which the Company had decided to sell in 1991 and a $25.6 million reduction in the carrying value of certain assets, principally receivables. Substantially all of the restated charges in 1991 applicable to discontinued operations relate to the Company's information services business and include $9.9 million of costs and expenses relating to the acquisition of Businessland, Inc. which was acquired by the Company in August 1991. These costs and expenses were previously charged to reserves established as part of that acquisition. Net income for the year ended December 31, 1990 has been reduced from the previously reported amount of $59.3 million to $50.2 million and earnings per share has been reduced from $1.56 per share to $1.32 per share. The restatement of the 1990 operating results reflects pre-tax charges of $9.6 million consisting of $8.3 million related to continuing operations and $1.3 million to discontinued operations. The restatement of continuing operations in 1990 reflects $4.8 million of adjustments to correct the accounting for goodwill and a net $3.5 million reduction in the carrying value of certain assets, primarily long-term investments. See Notes 1 and 16 to the Consolidated Financial Statements with respect to the restatement of the 1990 and 1991 financial statements and the restatement of each of the quarters in the nine month period ended September 30, 1992 and the fourth quarter of 1990 and 1991, respectively. As a result of the restatements of the Company's first and second quarter earnings of 1992 and write-offs and losses announced by the Company on August 4, 1992 and on October 2, 1992, class action lawsuits were filed on behalf of shareholders against the Company and certain other defendants. The class action lawsuits have been consolidated and the single consolidated amended class action complaint alleges, among other things, that the Company intentionally and materially overstated assets and earnings in various public disseminations in violation of Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The complaint seeks an unspecified amount of damages. The Company has denied the material allegations contained in the complaint. The parties are now engaged in discovery proceedings. However, under the terms of the Company's proposed plan of reorganization, no damages will be recoverable from the Company by the claimants in the class action litigation, although they will receive warrants to purchase the common stock of the reorganized Company. See Note 17 to the Consolidated Financial Statements for additional discussion with respect to the shareholder litigation. The Company has been informed by the Securities and Exchange Commission (the "SEC") that it is conducting a private investigation to determine whether there have been violations of certain provisions of the federal securities laws and/or the rules and regulations of the SEC in connection with the Company's financial records, reports and public disclosures. The Company has been cooperating with the SEC's staff and has voluntarily produced requested documents and information. On April 12, 1994, the SEC's staff informed the Company of its intention to recommend that the SEC file a civil injunction action against the Company. The Company is currently engaged in discussions with the SEC's staff concerning a possible consensual resolution of the matter. The net loss in 1992 reflects (i) a continuing slump in the Company's mechanical and electrical services business, principally attributable to a downturn in commercial construction; (ii) intense competition in the Company's information services business; (iii) restructuring charges related to the planned disposition and downsizing of (a) the information services business, (b) other non-core businesses and (c) certain mechanical/electrical operations; (iv) significant provisions for losses on accounts receivable and inventories; (v) a provision for losses on net assets held for sale; and (vi) expenses associated with the shareholder litigation, the Company's efforts to restructure its debt through a consensual arrangement and the restatement of the Company's financial statements. 4-2 A significant portion of the net loss in 1992, particularly with respect to the losses on accounts receivable and to the write down of inventories, arose as a result of management's review conducted in connection with the preparation of the Company's financial statements for the year ended December 31, 1992. As a result of such review, the Company recorded write-offs and losses in 1992 for impairment of goodwill and other intangibles, for the establishment of asset valuation and restructuring reserves associated with net assets held for sale under a debt restructuring and recapitalization plan it had then developed and as a result of the decision to discontinue its information services business. The Company is focused on returning to profitability and restructuring its operations around a smaller international mechanical/electrical services business. In this regard, 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 business. Accordingly, operating results reflect the information services business as discontinued operations. See Notes 10 and 11 to the Consolidated Financial Statements. Revenues of the information services business were $1.7 billion, $1.2 billion and $0.7 billion in 1992, 1991 and 1990, respectively. The information services business incurred a net loss from operations of $201.1 million in 1992 compared to net income of $18.4 million and $15.4 million in 1991 and 1990, respectively. The loss in the information services business includes charges of $67.3 million which consist of the write-off of goodwill and other intangible assets related to the U.S. information services business and costs attributable to employee severance and facilities consolidation. The loss also reflects intense competition among personal computer resellers, decreases in the prices of personal computers and the rapid introduction of new technology. The difficulties encountered by the Company in successfully integrating the back office operations and accounting systems of Businessland Inc., which was acquired in August 1991, with the Company's preexisting information services back office operations resulted in additional losses. In August 1993, the Company sold substantially all the assets of its U.S. information services subsidiary. The transaction did not result in a material gain or loss to the Company. See "Liquidity and Capital Resources" for additional information with respect to the disposition of such subsidiary. In connection with the plan to dispose of the Company's overseas information services business and certain other of its U.S. information services businesses, the Company provided for losses aggregating $49.5 million in 1992. These charges primarily represent the estimated losses to be realized upon the disposition of such business units. Such amount is in addition to the aforementioned net loss from operations of $201.1 million and is included in the accompanying Consolidated Statement of Operations under the caption "Loss from disposal of businesses" in 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 divestiture due to uncertainties created by then pending rate-related proceedings and litigation. As described below, in December 1993, the Company's subsidiary, Jamaica Water Supply Company ("JWS"), entered into an agreement that became effective February 2, 1994 with respect to the rate proceedings and litigation (See Note 17) thereby eliminating significant uncertainties relating to the water supply business. Accordingly, the Company reinstated its plan of divestiture in the first quarter of 1994. The Consolidated Financial Statements for all periods presented reflect the water supply business as a discontinued operation. See Note 17 regarding the status of a proceeding initiated in 1988 by the City of New York with respect to the possible condemnation of the water distribution system of JWS that is located in New York City. Revenues from continuing operations were $2.4 billion, $2.3 billion and $2.1 billion in 1992, 1991 and 1990, respectively. Operating loss from continuing operations was $235.6 million in 1992 compared to operating income of $57.7 million and $82.8 million in 1991 and 1990, respectively. The operating loss in 1992 includes restructuring charges of $38.7 million relating to the downsizing and consolidation of the North American mechanical/electrical services operations described under "Mechanical/Electrical Services". 4-3 Restructuring charges related to continuing operations consist of $10.8 million applicable to permanent impairment of goodwill and $27.9 million for severance payments, facilities consolidation costs, provisions for contract losses and the write-down of certain assets to net realizable value. In connection with the Company's proposed plan of reorganization, certain mechanical/electrical services business units and non-core businesses have been identified for sale or downsizing. The operating results of such businesses are included in continuing operations. In 1992, 1991 and 1990 such business units had revenues of $526.9 million, $501.7 million and $444.2 million, respectively, and an operating loss of $41.2 million in 1992 compared to operating income of $15.3 million and $12.6 million in 1991 and 1990, respectively. Selling, general and administrative expenses ("SG&A") were $440.7 million, $286.9 million and $248.6 million in 1992, 1991 and 1990, respectively. The significant increase in SG&A in 1992 includes a provision of $100.4 million for losses on accounts and other receivables and an increase in general corporate expenses of $29.2 million and $13.6 million applicable to the write-off of goodwill. See "Mechanical/Electrical Services" below for a discussion regarding the provision for losses on accounts receivable. General corporate expenses were $48.4 million in 1992 compared to $19.2 million in 1991 and $12.2 million in 1990. The increase in such expenses in 1992 was primarily attributable to (a) fees paid to lenders for extensions of, amendments to and waivers of provisions of the Company's revolving credit agreement ($4.5 million), (b) the write-off of deferred debt expense in connection with the Company's planned restructuring of its debt ($2.9 million), (c) legal, consulting and other professional fees arising out of the shareholder litigation, defaults of covenants contained in loan agreements and associated debt restructuring activities and the restatement of the Company's financial statements ($9.6 million), (d) employee termination costs ($1.8 million), (e) relocation of the Company's corporate headquarters, primarily the write-off of leasehold improvements and costs related to an abandoned lease ($4.2 million), and (f) the accelerated vesting of deferred compensation as a result of the termination of employment of certain officers and employees in accordance with the terms of a deferred compensation plan ($5.6 million). SG&A as a percentage of revenues was 12.4% in 1991 compared to 12.1% in 1990. The increase in SG&A expenses in 1991 was primarily related to the Company's growth and expansion. Net interest expense applicable to continuing operations was $44.2 million in 1992 compared to $43.9 million in 1991 and $36.6 million in 1990. In 1992, the Company sold certain energy and environmental related businesses and a division of its equipment rental business from which it realized a net gain of $12.0 million and a net loss of $4.5 million, respectively. In 1992, the Company also recorded net losses on businesses sold or held for sale in the amount of $83.6 million. In 1991, the Company incurred a loss of $6.6 million from disposition of a certain subsidiary. See Note 11 to the Consolidated Financial Statements. Effective January 1, 1992, the Company adopted the Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" (SFAS 109). The cumulative effect of adopting SFAS 109 was to record an income tax benefit of $4.3 million or $0.11 per share as of January 1, 1992. Mechanical/Electrical Services The mechanical/electrical services business revenues were $2.4 billion, $2.3 billion and $2.1 billion for the years ended December 31, 1992, 1991 and 1990, respectively. In 1992, this business incurred an operating loss of $187.2 million compared to operating income of $76.9 million and $95.0 million in 1991 and 1990, respectively. As discussed above, the Company has restated its financial statements for the years ended December 31, 1991 and 1990. The restatement had the effect of decreasing the operating income of this segment in 1991 and 1990 by $32.4 million and $6.7 million, respectively, from the amounts previously reported. The operating loss in 1992 reflects, among other things, the negative impact of the recession and oversupply in the commercial real estate market which caused a sharp reduction in new commercial 4-4 construction. This reduction of commercial work caused many of the Company's mechanical/electrical services business units to pursue noncommercial projects, primarily governmental and municipal facilities, at lower margins than historically available in the commercial market place. Certain of the business units were not experienced in performing noncommercial projects and as a result incurred significant losses. The operating loss in 1992 includes a provision for losses on accounts and other receivables of $100.4 million due in part to the impact of the recession on the financial condition of customers of the Company's mechanical/electrical services business. Additionally, the Company's financial condition and negative cash flow has impacted its ability to settle claims and unapproved change orders on a favorable basis. The operating loss in 1992 includes restructuring charges of $38.7 million for the downsizing of the Company's North American mechanical/electrical services operations (see Note 12 to the Consolidated Financial Statements), $13.6 million applicable to the write-off of goodwill and a net charge of $15.6 million relating to the write-off of the small tool inventory. Small tools are located at numerous construction sites and generally have short lives. The Company made the decision to write-off its small tool inventory because of the difficulty and expense associated with taking periodic physical inventories required to maintain the tools as an asset. The increase in revenues of 12% in 1991 was attributable to the acquisition of Comstock Canada in February 1991 and internal growth within the European mechanical/electrical services operations. Operating margins in 1991 declined to 3.3% from 4.6% in 1990. Revenues and operating margins in the U.S. for 1991 were adversely affected by the recession which created competitive pressure for small contracts, a slowdown in retrofit and service activities and delays in the start-up of certain projects in the Company's energy and environmental related operations. In 1991, the Company focused its attention on large industrial, utility and governmental projects to offset the effects of the continuing weakness in the U.S. commercial office building construction marketplace. At December 31, 1992, the mechanical/electrical services business backlog was $1.6 billion compared to $1.0 billion at December 31, 1993. Such backlog included $1,263 million at December 31, 1992 and $954.2 million at December 31, 1993 relating to subsidiaries which the Company currently intends to retain. The Company's overall backlog in its North American regions and in the United Kingdom has stabilized at approximately $1.0 billion through May 1994. The initial decline was attributable to a downsizing in the Company's operations, the Company's weakened financial condition which continues to adversely affect its ability to obtain new contracts and the continuing recession in the U.S. and overseas construction markets. The Company's surety companies have become more selective in issuing new bonds, especially on larger projects and those with a duration of more than two years. Additionally, the surety companies will generally not bond new projects for certain non-core businesses which the Company has identified for sale. Surety bonds are frequently a precondition to the award of a mechanical or electrical contract. Prospects for a recovery in the commercial office building market in both North America and the United Kingdom remain poor for the immediate future. Included in the accompanying Consolidated Balance Sheet at December 31, 1992 under the caption "Excess of cost of acquired businesses over net assets, less amortization" is $61.5 million of goodwill. Such goodwill relates to mechanical/electrical services business units which the Company intends to retain. Management believes that such goodwill has not been permanently impaired. However, if the Company were to decide to divest certain of these units, goodwill and other write-offs might be required depending upon the then existing market conditions and their future business prospects. Supply of Water (included in discontinued operations) Revenues from the Company's water supply business were $59.8 million, $63.1 million and $59.2 million for the years ended December 31, 1992, 1991 and 1990, respectively. Operating income was $4.8 million, $14.6 million and $13.3 million in 1992, 1991 and 1990, respectively. The decrease in revenues of 5.2% in 1992 compared to 1991 was primarily due to reduced customer consumption as a result of cool and wet weather conditions in the New York City area in the summer of 1992. The increase in revenues of 6.6% in 4-5 1991 as compared to 1990 was the result of a rate increase effective March 1991 and an increase in customer consumption as a result of abnormally dry and hot weather during the summer of 1991. On December 22, 1993, JWS, the New York State Consumer Protection Board, Nassau County, certain other governmental bodies and a consumer advocate group executed an agreement that ended several regulatory and legal proceedings against JWS. The agreement was approved by the New York State Public Service Commission (the "PSC") on February 2, 1994. The agreement provides for, among other things, a three year general moratorium on rates charged by JWS, resolution of the economic issues raised by the PSC arising from its 1992 operational audit of JWS, settlement of related litigation and the dismissal of an action brought against JWS by Nassau County of the State of New York alleging violations of the Racketeer Influenced and Corrupt Organizations Act and common law fraud. JWS also agreed, in consideration of avoided litigation and other costs associated with the proceedings, to make payments over the next three years totalling $11.7 million to customers in Nassau and Queens Counties of the State of New York. In connection with this settlement, the Company provided a charge of $7.0 million in 1992. See Note 17 to the Company's Consolidated Financial Statements. Additionally, the agreement provides that JWS will use its best efforts to bring about the separation of Jamaica Water Securities Corp., a subsidiary of the Company which holds substantially all the common stock of JWS, from the Company. Liquidity and Capital Resources For the year ended December 31, 1992, the Company's operations used $49.6 million in cash primarily to fund operating losses and working capital requirements. From September 1992 to February 1994, the Company had no available lines of credit and experienced significant cash outflow as a result of adverse publicity associated with the restatements of its first and second quarter 1992 financial statements, defaults under its loan agreements, senior management changes and from operating losses. In February 1994, the Company obtained a $35 million debtor-in-possession credit facility ("DIP Loan") from Belmont Capital Partners II, L.P., an affiliate of Fidelity Investments ("Belmont"), which is described in greater detail below. Despite aggressive cash management measures that have been implemented on a worldwide basis throughout the Company, operating cash flow continued to deteriorate throughout 1993 with approximately $44.5 million of cash used to fund operations through December 31, 1993. The Company's consolidated cash balance decreased from $86.8 million at December 31, 1992 to $39.5 million at December 31, 1993. The December 31, 1993 cash balance included $3.0 million in foreign bank accounts. Such bank accounts are not available to support the Company's domestic mechanical/electrical services business or to pay corporate expenses. The negative operating cash flow reflects continued pressure on accounts payable and other increases in working capital requirements caused by the Company's weakened financial condition, restructuring costs, professional fees resulting from debt restructuring negotiations and shareholder litigation and cash deposits made to secure insurance obligations. As a consequence of the Company's financial difficulties, an asset disposition program was initiated in the third quarter of 1992 with respect to the Company's non-core businesses and certain other assets in order to raise cash to reduce operating cash outflow and to reduce debt. A total of $139.0 million of net cash proceeds was realized from such program in 1992 including: $84.1 million from the sale of five energy and environmental related businesses, $21.1 million from the sale of the Company's computer lease portfolio, $18.4 million from the sale of the Company's interest in a hospital's central utility plant and $8.8 million from the sale of a rental equipment business. The cash proceeds from these asset dispositions in 1992 were used to reduce debt and for working capital requirements. From January 1, 1993 to December 31, 1993, the Company received net cash proceeds of $43.4 million from the sale of certain overseas information services business units, other non-core businesses and other assets. Such proceeds were used primarily for working capital requirements. In February 1994, the Company and substantially all of its subsidiaries entered into an agreement with Belmont with respect to a DIP Loan. The agreement provides a credit facility to the Company of up to $35 4-6 million at an interest rate of 12% per annum during the period of the reorganization proceeding. Also, Belmont will receive, as additional interest, a percentage of the securities to be issued under the Company's plan of reorganization. The DIP Loan is secured by a first lien on substantially all of the assets of the Company and most of its subsidiaries. As of June 1994, the Company had drawn down $20 million under the DIP Loan. The Company is in default of certain covenants of the DIP Loan. Pursuant to written waivers of default, dated April 27, 1994 and May 6, 1994, the Company has been permitted by Belmont to draw on its line of credit. Under the circumstances, any additional borrowings under the DIP Loan will require further waivers of default. The DIP Loan is intended to be repaid upon the effective date of the proposed plan of reorganization. The Company is actively seeking a working capital facility of approximately $40 million. The proceeds of this new facility will be used to refinance the Company's borrowings under the DIP Loan and to provide working capital to the reorganized Company. However, there can be no assurance that the Company will be able to obtain a new working capital facility or, if so, the amount of any such facility. Obtaining such a facility is a condition of the confirmation of the Company's plan of reorganization. In August 1993, the Company sold substantially all the assets of its U.S. information services subsidiary to ENTEX Information Services, Inc. ("ENTEX"), a newly organized company owned by a private investor and the management of the U.S. information services subsidiary. As part of the consideration for its sale, the Company received warrants to buy up to 10% of the purchaser's common stock for a nominal amount. The Company has ascribed no value to these warrants. Additionally, ENTEX assumed substantially all the debt and other liabilities and obligations relating to the ongoing operations of the U.S. information services subsidiary; that subsidiary retained certain lease obligations and certain tax liabilities. The Company was also released from approximately $210 million of its guarantees of indebtedness and similar obligations of the subsidiary. In October 1993, this subsidiary filed a voluntary petition under Chapter 7 of the U.S. Bankruptcy Code. As described in Notes 1 and 3 to the Company's Consolidated Financial Statements, the Company is in default of covenants contained in its loan agreements under which approximately $501.0 million was outstanding at December 31, 1992, including $484.4 million owed to senior lenders and $16.6 million owed to subordinated note holders. With respect to the defaulted senior loan agreements, "standstill arrangements" were negotiated which covered the period from mid-December of 1992 through April 30, 1993. Under the standstill arrangements, the senior lenders agreed, in principle, to forebear the receipt of principal and to accept payment of interest during such periods at reduced rates ranging from 4% to 6.75%. Since April 30, 1993, no standstill arrangement has been in place and the Company ceased making principal and interest payments. However, interest continued to accrue under the terms of the respective loan agreements which in certain circumstances included default rate premiums of an additional 2% and in one case 4%. Interest ceased to accrue on December 21, 1993, the date on which an involuntary bankruptcy petition was filed against the Company. At December 31, 1993 and 1992, accrued interest on defaulted debt was $43.3 million and $5.8 million, respectively. The Company has pledged to the holders of its senior notes and bank indebtedness the common stock of certain subsidiaries held for sale and certain proceeds from the sale of one of these subsidiaries. The combined net book value of these subsidiaries was $23.3 million at December 31,1992. The Company has not made scheduled semiannual interest payments since September 1, 1993 with respect to its 73/4% Convertible Subordinated Debentures. All interest payments on such debt were previously made when due. The outstanding principal balance of the debentures at December 31, 1992, in the amount of approximately $7.0 million, has been included in "Debt in default" in the accompanying Consolidated Balance Sheet. 4-7 In June 1993, the Company's management developed a business restructuring plan. The plan contemplates the sale of a number of domestic mechanical and electrical services business units and the reorganization of the Company principally around a smaller international mechanical/electrical services business which had revenues of approximately $1.9 billion in both 1992 and 1993. As described above and in Notes 10 and 11 to the Company's Consolidated Financial Statements, the Company's business restructuring plan contemplated the sale of its information services business, certain of its mechanical/electrical business units, its water supply business and certain non-core businesses. As a result, the net assets of businesses to be sold have been classified in the accompanying Consolidated Balance Sheet as of December 31, 1992 as "Net assets held for sale" and carried as either current or long-term assets on the basis of their actual or expected disposition dates. The Company's proposed plan of reorganization contemplates that the creditors of JWP INC. will exchange approximately $623 million of holding company debt and other liabilities for approximately $139 million of recourse debt, approximately $48 million of nonrecourse debt, 100% of the equity of the Company and warrants to purchase common stock of the reorganized Company. All of the new debt, except for approximately $67 million, is expected to be paid from the proceeds of asset sales. As previously indicated, under the proposed plan of reorganization, holders of the Company's common and preferred stock and warrants of participation will receive warrants to purchase common stock of the reorganized Company in exchange for their equity interests. Only JWP INC., the holding company, is the subject of the proceeding under Chapter 11. The Company's mechanical/electrical, water supply and other operating subsidiaries are not parties to this proceeding. All operating subsidiary payments have been made in the ordinary course of business. See "Results of Operations" with respect to the Company's ability to continue as a going concern. The Company's Canadian subsidiary, Comstock Canada, is negotiating with a Canadian bank to obtain a Canadian $7.5 million (approximately U.S. $5.6 million) secured demand loan credit facility with interest at the Canadian prime rate (8% as of June 1994) plus 1.0%. The new credit facility would be secured by all the assets of Comstock Canada and would be guaranteed by the Company. In June 1994, a number of the Company's U.K. subsidiaries entered into a demand credit facility from a U.K. bank with an aggregate credit limit of Pounds14.1 million (approximately U.S.$21.7 million). The credit facility consists of the following components with the individual credit limits as indicated: an overdraft line of up to Pounds7.0 million (approximately U.S.$10.7 million), a facility for the issuance of guarantees, bonds and indemnities of up to Pounds7.4 million (approximately U.S.$11.4 million) and other credit facilities of up to Pounds0.75 million (approximately U.S.$1.2 million). The overdraft facility is secured by substantially all of the assets of the Company's principal U.K. subsidiaries. The overdraft facility provides for interest at the U.K. bank reference rate (51/2% as of June 1994) plus 3%. JWS, a subsidiary of the Company carried in "Net assets held for sale" in the Consolidated Balance Sheet as of December 31, 1992, had two revolving credit agreements each of which permitted unsecured borrowings of up to $10.0 million with interest rates equal to the prime rate (71/4% at June 1994). Both agreements expired on April 30, 1994 and the borrowings thereunder have been permitted by the lenders to remain outstanding. JWS is currently negotiating new revolving credit agreements. As of December 31, 1992, JWS had equal borrowings under each agreement aggregating $4.8 million. For the years ended December 31, 1992, 1991 and 1990, capital expenditures including those financed were $70.1 million, $58.8 million and $44.2 million, respectively. Capital expenditures for the year ended December 31, 1992 include $32.0 million for environmental related projects which were included in the businesses sold in the fourth quarter of 1992. The Company's mechanical/electrical services business does not require significant commitments for capital expenditures. The Company's water supply business 4-8 anticipates making capital expenditures approximating $57.0 million for the utility plant over the five years ending December 31, 1997 which includes $7.5 million expended in 1993. These capital expenditures are expected to be financed by internally generated funds from the water supply business with any remaining long-term financing requirements during that period obtained from the proceeds of newly issued first mortgage bonds and from bank loans. However, the Company's financial difficulties are making it difficult for the water supply business to finance its capital programs. At December 31, 1992, the Company and a wholly-owned captive insurance subsidiary ("Defender") had letters of credit outstanding totalling $38.2 million which in effect secure their workers' compensation, automobile and general liability insurance obligations. The letters of credit were intended to serve as collateral for the obligations of Defender to reimburse the Company's unrelated insurance carriers for claims paid in respect of certain years' insurance programs. In December 1993, these letters of credit were reduced to $36.4 million. $34.9 million of such letters of credit expire in December 1994 and $1.5 million expire in February 1995. Since October 1992, neither the Company nor Defender have been able to obtain additional letters of credit to secure their insurance obligations and, as a result, have been required to make cash collateral deposits to a third party insurance company to secure those type obligations. The deposits totalled $7.7 million as of December 31, 1992 and are included in Other Assets under the caption "Miscellaneous" in the accompanying Consolidated Balance Sheet. Such deposits have increased to $29.7 million as of June 30, 1994. They expect to be required to post additional cash collateral insurance deposits until the Company completes its reorganization under the Chapter 11 proceedings. The need to provide cash collateral has adversely affected the Company's cash flow. The Company's proposed plan of reorganization contemplates that the letters of credit described above will be drawn upon by the unrelated insurance carriers and that the Company's obligations to Defender which were pledged as collateral to the banks issuing such letters of credit, will be impaired under the Chapter 11 proceeding as well as any related Company obligations to those banks. Beginning in February 1994, Defender ceased making payments for amounts owed to the unrelated insurance carriers, which obligations are in effect secured by the letters of credit, and the Company's unrelated insurance carriers have commenced partial draw downs against certain of the letters of credit. Approximately $5 million has been drawn against the letters of credit through June 1994. In 1993, the Company's French and Belgian information services subsidiaries filed petitions in their respective countries seeking relief from their creditors. The French and Belgian subsidiaries have outstanding unsecured credit facilities guaranteed by the Company which aggregate approximately $5.9 million. Such amount has been provided for as a loss in the accompanying Consolidated Statements of Operations for the year ended December 31, 1992. The Company has not paid dividends on its preferred stock since September 1992. Cumulative unpaid dividends through December 31, 1993 aggregate $2.3 million. At December 31, 1992, the Company had net operating loss carryforwards ("NOL") for U.S. Federal income tax purposes of approximately $220 million. Because of significant tax losses in 1993, the NOL is estimated to have increased to over $500 million as of December 31, 1993. If the Company exchanges its existing indebtedness for newly issued equity and debt as contemplated by the proposed plan of reorganization (See Notes 1 and 3 to the Consolidated Financial Statements), a significant portion of the NOL may not be available to reduce future U.S. taxable income. Additionally, due to recent changes in U.S. Federal income tax laws, the timing of any such reorganization could further impact and reduce the amount of the NOL. See "Supply of Water" with respect to pending payments by JWS to its customers in 1994 to 1996 totalling $11.7 million. The payments are expected to be funded by JWS through cash on hand, cash flow from operations and additional borrowings, if necessary. 4-9 In September 1992, the PSC issued an order that resulted in the suspension of dividend payments to the Company by JWS for the last two quarters of 1992 and for the year ended December 31, 1993. Dividends paid by JWS in 1992 and 1991 amounted to $1.2 million and $2.0 million, respectively. As a result of the settlement agreement described in "Supply of Water", JWS recommenced the payment of dividends in 1994. Impact of New Accounting Pronouncements As discussed in Note 7 to the Consolidated Financial Statements, effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 106 "Employers' Accounting for Postretirement Benefits Other than Pensions". The adoption of this standard did not have a material impact upon the Company's consolidated financial position or its results of operations. The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 112 "Employers' Accounting for Postemployment Benefits" which will be effective beginning in 1994. This standard will not have a material impact upon the Company's consolidated financial position or its results of operations. JWP INC. and Subsidiaries Consolidated Balance Sheets (unaudited) (In thousands)
December 31, ---------------------- 1992 1991 - --------------------------------------------- ---------- ----------- As Restated ASSETS Current Assets Cash and cash equivalents.......................... $86,836 $76,593 Accounts receivable, less allowance for doubtful accounts of $42,630 and $29,541............... 458,273 1,038,723 Costs and estimated earnings in excess of billings on uncompleted contracts... 67,817 132,644 Inventories.......................... 6,618 359,033 Prepaid expenses and other......... 9,746 45,287 Net assets held for sale.......... 32,894 - -------- ----------- Total Current Assets............... 662,184 1,652,280 --------- ----------- Net assets held for sale.......... 85,611 - Investments, notes and other long-term receivables............................ 22,440 44,605 Property, plant and equipment, net.. 51,087 323,439 Other Assets Excess of cost of acquired businesses over net assets, less amortization...... 61,542 149,496 Miscellaneous....................... 24,720 64,007 --------- ----------- 86,262 213,503 ---------- ----------- Total Assets....................... $907,584 $2,233,827 ========== =========== LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY Current Liabilities Notes payable........................... $6,452 $110,600 Current maturities of long-term debt and capital lease obligations............ 2,634 44,012 Debt in default................... 501,007 - Accounts payable.................. 224,840 808,596 Billings in excess of costs and estimated earnings on uncompleted contracts... 125,764 140,700 Accrued payroll and benefits..... 45,665 67,710 Other accrued expenses and liabilities. 120,733 112,525 --------- ----------- Total Current Liabilities......... 1,027,095 1,284,143 --------- ----------- Long-term debt.................. 4,111 425,080 Other long-term obligations and deferred credits................................ 52,357 68,468 Shareholders' (Deficit) Equity Preferred Stock, $1 par value, 25,000,000 shares authorized, 425,000 shares of Series A issued and outstanding 21,250 21,250 Common Stock, $.10 par value, 75,000,000 shares authorized, 40,754,051 and 40,178,907 outstanding, excluding 591,775 and 225,749 treasury shares in 1992 and 1991........ .... 4,075 4,018 Warrants of Participation...... . 576 576 Capital surplus............ ..... 203,505 212,703 Cumulative translation adjustments (3,930) 4,807 Retained (deficit) earnings (401,455) 212,782 --------- ----------- Total Shareholders' (Deficit) Equity (175,979) 456,136 ---------- ----------- Total Liabilities and Shareholders' (Deficit) Equity............................ $ 907,584 $2,233,827 ========== ===========
The accompanying notes to consolidated financial statements are an integral part of these statements.
JWP INC. and Subsidiaries Consolidated Statements of Operations (unaudited) (In thousands, except per share data) Year Ended December 31, - ------------------------------------ 1992 1991 1990 - ----------------------------------------------------------------- ------------ ------------ As Restated As Restated Revenues............$2,404,577 $2,318,112 $2,057,607 ----------- ------------ ------------ Costs and Expenses Cost of sales........................ 2,160,723 1,973,561 1,726,207 Selling, general and administrative..... 440,725 286,900 248,649 Restructuring charges.................... 38,741 - - ----------- ------------ ------------ 2,640,189 2,260,461 1,974,856 ----------- ------------ ------------ Operating (Loss) Income.................... (235,612) 57,651 82,751 Interest expense............................. (45,894) (46,240) (39,340) Interest income............................... 1,713 2,348 2,713 Net (loss) on businesses sold or held for sale.(76,078) (6,628) - --------- ------------ ------------ (Loss) Income From Continuing Operations Before Income Taxes and Cumulative Effect of Accounting Change..(355,871) 7,131 46,124 Provision for income taxes........................ 7,644 2,419 17,475 ----------- ------------ ------------ (Loss) Income From Continuing Operations Before Cumulative Effect of Accounting Change.......... (363,515) 4,712 28,649 Discontinued Operations (Loss) income from operations, net of income taxes. (203,739) 24,263 21,600 (Loss) from disposal of businesses.................. (49,491) - - ---------- ------------ ------------ (Loss) income from discontinued operations...........(253,230) 24,263 21,600 ---------- ------------ ------------ Cumulative Effect of Change in Method of Accounting for Income Taxes.....................................4,315 - - ----------- ------------ ------------ Net (Loss) Income............................ $(612,430) $28,975 $50,249 =========== ============ ============ (Loss) Earnings Per Share Continuing operations............. $(9.00) $0.10 $0.75 Discontinued operations (Loss) income from operations........ (5.02) 0.63 0.57 (Loss) from disposal of businesses..... (1.22) - - ---------- ------------ ------------ (Loss) income from discontinued operations.. (6.24) 0.63 0.57 ---------- ------------ ------------ Cumulative effect of change in method of accounting for income taxes......................... 0.11 - - ---------- ------------ ------------ Net (loss) income...........................$(15.13) $0.73 $1.32 =========== ============ ============
The accompanying notes to consolidated financial statements are an integral part of these statements.
JWP INC. and Subsidiaries Consolidated Statements of Cash Flows (unaudited) (In thousands) Year Ended December 31, --------------------------------- 1992 1991 1990 - ------------------------------------------------------- ----------- ----------- As Restated As Restated - ------------------------------------ Net (Loss) Income................... $(612,430) $28,975 $50,249 Adjustments to Reconcile Net (Loss) Income to Net Cash (Used in) Provided by Operating Activities Depreciation and amortization........... 68,993 49,072 33,930 Restructuring charges applicable to continuing operations..... 38,741 - - Restructuring charges applicable to discontinued operations... 25,950 - - Net loss from businesses sold or held for sale................ 76,078 6,628 - Provision for losses on accounts and other receivables........ 113,903 16,241 6,425 Inventory valuation adjustments......... 59,787 5,300 - Write-off of deferred debt issuance cost 2,876 - - Write-off of fixed assets and miscellaneous assets............ 11,167 8,200 - Write-off of goodwill and other intangibles................... 54,873 - - Stock compensation....................... 9,518 3,808 4,713 Deferred income taxes.................. 7,137 13,418 13,359 Loss from disposal of discontinued operations................. 49,491 - - Equity and other losses in unconsolidated subsidiary............ 5,690 - - Cumulative effect of accounting change for income taxes....... (4,315) - - Other, net............................. 21,112 10,829 (4,137) ---------- ----------- ----------- (71,429) 142,471 104,539 Change in Operating Assets and Liabilities Excluding Effect of Businesses Disposed of and Acquired Decrease (increase) in accounts receivable.. 73,379 (119,774) (35,592) Decrease (increase) in inventories and contracts in progress.. 123,884 (41,309) (35,293) (Decrease) increase in accounts payable and accrued expenses.. (190,752) 114,595 75,686 Changes in other assets and liabilities... 15,335 6,490 (23,568) --------- ----------- ----------- Net Cash (Used in) Provided by Operations... (49,583) 102,473 85,772 --------- ----------- ----------- Cash Flows from Financing Activities Proceeds from long-term debt.............. 85,302 47,660 78,300 Payments of long-term debt and capital lease obligations...... (68,514) (78,710) (39,055) Payment of Businessland 101/4% Senior Notes................... - (18,750) - Proceeds from issuance of common stock and exercise of stock options...... 1,911 2,169 4,827 Payment of preferred dividends..... (1,354) (711) - Purchase of Company warrants........ - - (4,000) Acquisition of common stock for the treasury (8,130) (7,877) (4,424) Increase (decrease) in notes payable, net... 30,258 89,544 (21,245) ----- ----------- ----------- Net Cash Provided by Financing Activities...... 39,473 33,325 14,403 ---------- ----------- ----------- Cash Flows from Investment Activities Proceeds from sale of businesses and other assets 138,971 10,066 - Acquisition of businesses, net of cash acquired (15,899) (62,600) (31,682) Purchase of property, plant and equipment...... (36,411) (56,000) (34,232) Purchase of environmental facilities........... (32,044) - - Net disbursements for other investments........ (9,695) (4,779) (15,134) Cash balance of businesses held for sale or sold (26,241) - - Other, net...................................... 1,672 (2,619) (7,532) ---------- ----------- ----------- Net Cash Provided by (Used in) Investment Activities 20,353 (115,932) (88,580) ----------- ----------- ----------- Increase in Cash and Cash Equivalents............... 10,243 19,866 11,595 Cash and Cash Equivalents at Beginning of Year...... 76,593 56,727 45,132 ---- ----------- ----------- Cash and Cash Equivalents at End of Year............ $86,836 $76,593 $56,727 =========== =========== ===========
The accompanying notes to consolidated financial statements are an integral part of these statements.
JWP INC. and Subsidiaries Consolidated Statements of Shareholders' Equity (Deficit) (unaudited) (In thousands) Cumulative Retained Preferred Common Warrants of Capital Translation Earnings Shareholders' Stock Stock Participation Surplus Adjustments (Deficit) Equity (Deficit) --------- ------- ---------------------- ----------- ----------- ---------------- Balance December 31, 1989... $- $3,731 $576 $173,363 $- $134,269 $311,939 Common stock offering....... - 10 - 1,794 - - 1,804 Common stock issued in connection with acquisitions................ - 6 - 1,903 - - 1,909 Purchase of Company warrants.................... - - - (4,000) - - (4,000) Exercise of stock options... - 28 - 2,995 - - 3,023 Foreign currency translation adjustment.................. - - - - 2,836 - 2,836 Other, net.................. - 22 - 2,731 - - 2,753 Net income, as restated..... - - - - - 50,249 50,249 --------- ------- ---------------------- ----------- ----------- ---------------- Balance December 31, 1990 (As Restated)............... - 3,797 576 178,786 2,836 184,518 370,513 Common stock issued in connection with acquisitions................ - 190 - 29,048 - - 29,238 Preferred stock issued in exchange for Businessland's 101/4% Senior Notes................ 21,250 - - - - - 21,250 Foreign currency translation adjustment.................. - - - - 1,971 - 1,971 Preferred stock dividends... - - - - - (711) (711) Other, net.................. - 31 - 4,869 - - 4,900 Net income, as restated..... - - - - - 28,975 28,975 --------- ------- ------------- --------- ----------- ----------- ---------------- Balance December 31, 1991 (As Restated)............... 21,250 4,018 576 212,703 4,807 212,782 456,136 Common stock issued in connection with acquisitions................ - 10 - 739 - - 749 Exercise of stock options... - 14 - 1,897 - - 1,911 Acquisition of common stock for the treasury............ - (57) - (8,073) - - (8,130) Guaranteed future value of stock issued to acquire businesses.................. - - - (12,308) - - (12,308) Deferred compensation and officer bonus............... - 55 - 9,463 - - 9,518 Foreign currency translation adjustment.................. - - - - (8,737) - (8,737) Preferred stock dividends... - - - - - (1,807) (1,807) Other, net.................. - 35 - (916) - - (881) Net loss.................... - - - - - (612,430) (612,430) --------- ------- ------------- --------- ----------- ----------- ---------------- Balance December 31, 1992... $21,250 $4,075 $576 $203,505 $(3,930) $(401,455) $(175,979) ========= ======= ============= ========= =========== =========== ================
The accompanying notes to consolidated financial statements are an integral part of these statements. JWP INC. and Subsidiaries Notes to Consolidated Financial Statements (unaudited) (1) Basis of Presentation The accompanying financial statements have been prepared assuming that JWP INC. (the "Company") will continue as a going concern. The matters discussed below raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company's continuation as a going concern is dependent upon its ability to restructure its indebtedness in connection with its proceeding under Chapter 11 of the U.S. Bankruptcy Code, obtain sufficient bonding to guarantee its performance on construction contracts, return to profitability, obtain new credit facilities and otherwise generate sufficient cash flow to meet its restructured and other obligations on a timely basis. The Company incurred a net loss of $612.4 million for the year ended December 31, 1992, has a working capital deficit of $364.9 million after the reclassification of long-term debt in default (See Note 3) and has a shareholders' deficit at December 31, 1992 of $176.0 million. Many of the Company's mechanical/electrical services contracts require surety bonds to guarantee the performance of such contracts. In light of the Company's financial condition, the Company's surety companies are issuing new bonds but are reviewing bonding requests on a case-by-case basis for large construction projects and those with durations of more than two years. In addition, a surety company that had been the primary source of surety bonds for certain subsidiaries, which together comprised approximately 20% of the Company's 1993 revenues of those mechanical/electrical companies which the Company currently plans to retain, is no longer engaged in the business of issuing such bonds. As a result, these subsidiaries are currently not receiving such bonds. However, the absence of available bonding for these subsidiaries has not resulted in a material reduction in their backlog. The Company and these subsidiaries are actively engaged in discussions with another surety company which has undertaken due diligence for the purpose of entering into a new surety bonding arrangement. However, there can be no assurance that such a new surety bonding arrangement can be obtained. The Company is focused on returning to profitability and restructuring its operations primarily around a smaller international mechanical/electrical services business. The Company has formulated a business restructuring plan which includes the sale of its information services business, water supply business, several non-core businesses and certain mechanical/electrical services operations and the closing or downsizing of unprofitable operations (See Notes 10 and 11). The proceeds from the sale of those businesses and other assets to date have been used for working capital and to reduce debt. There is no assurance that the Company will be able to consummate the remaining sales and, if consummated, whether the Company will realize the proceeds contemplated by the plan. As described in Note 3, the Company is in default of covenants contained in its senior note agreements, bank credit agreement, 12% subordinated note agreements and its 73/4% Convertible Subordinated Debentures and is presently in a Chapter 11 proceeding. The outstanding amount of such debt in default at December 31, 1992 is $501.0 million. On December 21, 1993, three holders of the Company's 73/4% Convertible Subordinated Debentures filed an involuntary petition under Chapter 11 of the U.S. Bankruptcy Code against the Company. The Company on February 14, 1994 consented to the entry of an order for relief under Chapter 11 of the Bankruptcy Code. At that time the Company adopted a proposed plan of reorganization and its subsidiaries continue to operate in the normal course. The proposed plan of reorganization which, as modified, has the support of the Official Unsecured Creditors Committee and the Official Unsecured Junior Creditors and Interest Holders Committee. The proposed plan of reorganization contemplates that the Company's creditors will exchange approximately $623 million of holding company debt and other liabilities for approximately $139 million of recourse debt, approximately $48 million of nonrecourse debt, 100% of the equity of the 4-15 Company and warrants to purchase common stock of the reorganized Company. All of the new debt, except for approximately $67 million, is expected to be paid from the proceeds of asset sales. Additionally, the holders of the Company's common and preferred stock and warrants of participation will receive warrants to purchase common stock of the reorganized Company in exchange for their equity interests. The Company's mechanical/electrical services, water supply and other operating subsidiaries are not parties to the Chapter 11 proceeding. All operating subsidiary payments continue to be made in the ordinary course of business. There can be no assurance, however, that the proposed plan of reorganization will be consummated or, if so, its timing. The Company has restated its financial statements for the years and quarters ended December 31, 1991 and 1990 as well as for each of the quarters in the nine month period ended September 30, 1992 based principally upon the review of certain adjustments originally recorded in 1992. As a result, net income for the year ended December 31, 1991 has been reduced from the previously reported amount of $60.3 million to $29.0 million and earnings per share has been reduced from $1.54 per share to $.73 per share. The 1991 restatement reflects pre-tax charges of $47.9 million consisting of $36.7 million applicable to continuing operations and $11.2 million related to discontinued operations. The 1991 restatement of continuing operations reflects a $4.5 million increase in insurance reserves, a $6.6 million loss from the sale of a business which the Company had decided to sell in 1991 and a $25.6 million reduction in the carrying value of certain assets, principally receivables. Substantially all of the restated charges in 1991 applicable to discontinued operations relate to the Company's information services business and include $9.9 million of costs and expenses relating to the acquisition of Businessland, Inc. which was acquired by the Company in August 1991. These costs and expenses were previously charged to reserves established as part of that acquisition. Net income for the year ended December 31, 1990 has been reduced from the previously reported amount of $59.3 million to $50.2 million and earnings per share has been reduced from $1.56 per share to $1.32 per share. The restatement of the 1990 operating results reflects pre-tax charges of $9.6 million, consisting of $8.3 million related to continuing operations and $1.3 million related to discontinued operations. The restatement of continuing operations in 1990 includes $4.8 million of adjustments to correct accounting for goodwill and a net $3.5 million reduction in the carrying value of certain assets, primarily long-term investments. The restatement of the 1991 and 1990 operating results had the effect of decreasing retained earnings at December 31, 1991 and 1990 by $40.4 million and $9.1 million, respectively. 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 divestiture due to uncertainties created by the then pending rate-related matters and litigation which are described in Note 17. In December 1993, the Company's subsidiary, Jamaica Water Supply Company ("JWS"), entered into an agreement with respect to the rate related proceedings and litigation thereby eliminating significant uncertainties relating to the water supply business. Subsequently, this agreement was approved by the New York State Public Service Commission on February 2, 1994. Accordingly, the Company reinstated its plan of divestiture in the first quarter of 1994. In March 1993, the Company's Board of Directors approved the disposition of the Company's U.S. information services subsidiary. The Board of Directors had previously decided to sell the Company's overseas information services subsidiaries. Accordingly, operating results for all periods presented have been reclassified to reflect the Company's information services business and water supply business as discontinued operations (See Notes 10 and 11). As described above and in Notes 10 and 11, the Company has developed a business restructuring plan which contemplates the sale of its information services business, certain of its mechanical/electrical services business units, its water supply business and certain other non-core businesses. As a result, the net assets of 4-16 businesses to be sold have been classified in the Consolidated Balance Sheet as of December 31, 1992 as "Net assets held for sale" and carried as either current or long-term assets on the basis of their actual or expected disposition dates. As described in Note 17, a consolidated class action lawsuit for unspecified damages was filed against the Company, certain former officers and directors, four current directors, a former subsidiary officer and the Company's then auditors, Ernst & Young. The complaint alleges violations of Section 10(b) of the Securities and Exchange Act of 1934, Rule 10b-5 promulgated thereunder and common law fraud and deceit on the part of the Company and other named defendants. The Company has denied the material allegations contained in the complaint. The parties are now engaged in discovery proceedings. However, the Company expects that under the terms of its proposed plan of reorganization, no damages will be recoverable from the Company by claimants in the class action litigation, although they will receive warrants to purchase the common stock of the reorganized Company. (2) Summary of Significant Accounting Policies 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. Certain reclassifications have been made to conform prior years' data to the current presentation. 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 estimated total costs for each contract ("cost to cost"). 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 total labor costs for such contract, while others are on the cost to cost method. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in contract performance and estimated profitability, including those arising from contract penalty provisions and final contract settlements, may result in revisions to costs and income and are recognized in the period in which the revisions are determined. Profit incentives are included in revenue when their realization is reasonably assured. Accounts receivable at December 31, 1992 includes $85.2 million billed under retainage provisions included in contracts. In accordance with industry practice, certain of these receivables relate to contracts having production cycles longer than one year and, therefore, a portion will not be realized within one year. Disputes involving customers often arise in the normal course of the Company's business, primarily on projects where the Company is a subcontractor and is contesting with general contractors, owners or both, for additional funds because of events such as delays or changes in contract specifications. Such disputes, whether for claims or for unapproved change orders in process of negotiation, are recorded at their estimated net realizable value only when realization is probable and can be reliably estimated. Claims against the Company are recognized when the loss is considered probable and amounts are reasonably determinable. Accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts at December 31, 1992 include claims and change orders in the process of negotiation which aggregate approximately $46.6 million net of valuation allowances. A portion of these receivables were not realized in one year.
Costs and estimated earnings on uncompleted contracts and related amounts billed are as follows: 1992 1991 ------------- ------------- (In thousands) Costs incurred on uncompleted contracts....... $2,796,376 $3,410,854 Estimated earnings........................... 259,393 411,201 ----------- ------------- 3,055,769 3,822,055 Less billings to date............................. (3,113,716) (3,830,111) ------------------------- $(57,947) $(8,056) ============= =============
Such amounts are included in the accompanying Consolidated Balance Sheets under the following captions:
1992 1991 ------------- ------------- (In thousands) Costs and estimated earnings in excess of billings on uncompleted contracts......................... $ 67,817 $132,644 Billings in excess of costs and estimated earnings on uncompleted contracts........................ (125,764) (140,700) ------------- ------------- $(57,947) $(8,056) ============= =============
Property, Plant and Equipment Property, plant and equipment is stated at cost. Utility plant and equipment, which is classified as net assets held for sale as of December 31, 1992, includes, in addition to direct labor and materials, such costs as related employee benefits, taxes, interest and other costs attributable to the construction activity. The water supply business provides for depreciation on the straight-line basis at amounts equivalent to a composite rate of approximately 2% of the average depreciable plant. All other subsidiaries provide for depreciation by principally using the straight-line method over estimated useful lives. Property, plant and equipment consists of: 1992 1991 ------- -------- (In thousands) Utility plant and equipment................. $- $164,160 Machinery and equipment..................... 51,530 118,512 Furniture and fixtures...................... 25,344 45,633 Rental equipment............................ - 28,485 Land, buildings and leasehold improvements.. 23,396 63,780 Energy and environmental facilities......... - 37,113 ------- -------- 100,270 457,683 Accumulated depreciation and amortization... 49,183 134,244 ------- -------- $51,087 $323,439 ======= ======== Inventories Inventories are stated at the lower of cost or market. The finished goods and service spare parts inventories relate to discontinued operations and other businesses held for sale and are included in net assets held for sale as of December 31, 1992 (See Notes 10 and 11). Cost is determined by principally using average costs. The following are the major classes of inventories as of December 31: 1992 1991 ------ -------- (In thousands) Finished goods.................... $- $274,831 Service spare parts............... - 42,604 Construction materials and other.. 6,618 41,598 ------ -------- $6,618 $359,033 ====== ======== Net Assets Held for Sale Net assets held for sale are stated at the lower of cost or estimated net realizable value. Cost in Excess of Net Assets Acquired Cost in excess of net assets acquired (goodwill) is amortized on a straight line basis over 40 years. The amounts included in the accompanying Consolidated Balance Sheets are net of cumulative amortization at December 31, 1992 and 1991 of $6.9 million and $16.5 million, respectively. The Company periodically reviews whether new events and circumstances warrant the write-off of goodwill or a revision to the estimated useful life. The Company's Board of Directors have approved a plan to downsize the Company's North American mechanical/electrical services business and to sell non-core businesses and certain mechanical/electrical business units. In 1992, the Company wrote-off goodwill of $48.5 million related to such businesses to reflect the net realizable value of businesses held for sale and the permanent impairment of goodwill. Net (Loss) Earnings Per Common Share Net (loss) earnings per common share has been calculated based on the weighted average number of common shares outstanding and common share equivalents relating to warrants and stock options outstanding when the effect of such equivalents are dilutive (40,583,185, 38,800,000 and 38,100,000 shares in 1992, 1991 and 1990, respectively). Per share amounts of (loss) income from continuing operations and net (loss) income reflect amounts of dividends paid and accrued on the Company's preferred stock. References to number of shares of common stock and per share amounts have been adjusted to give effect to the acquisition of Neeco, Inc. (see Note 9) and to reflect a 3-for-2 common stock split, effected on July 16, 1990. 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 Effective January 1, 1992, the Company adopted the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). The adoption of SFAS 109 changed the Company's method of accounting for income taxes from the deferred method as discussed in the Accounting Principles Board Opinion No. 11, "Accounting for Income Taxes," to an asset and liability approach. Previously, the Company deferred the tax effects of timing differences between financial reporting and taxable income. The asset and liability approach requires the recognition of deferred tax liabilities and assets for the 4-19 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. Prior years' financial statements have not been restated for such accounting change (See Note 5). At December 31, 1992 and January 1, 1992 (after having given effect to the adoption of SFAS No. 109), the valuation allowances recorded against deferred tax assets were $138.3 million and $0, respectively. These amounts relate to certain deferred tax assets for which realization requires taxable income in the subsidiary which gave rise to the deferred tax asset. (3) Debt In Default
Debt in default at December 31, 1992 consists of (in thousands): Notes payable to banks under revolving credit facility at prime plus 3/4%$155,795 Senior notes payable to insurance companies, 9.1% to 10.95%............. 328,572 -------- Total senior debt.......................... 484,367 Subordinated notes payable to insurance companies, 12%..... 9,600 73/4% Convertible Subordinated Debentures................. 7,040 -------- $501,007 ========
The Company failed to make principal and interest payments and is in default of various financial covenants contained in its senior notes and 12% subordinated notes including minimum tangible net worth and minimum current ratio. The revolving credit facility contains certain financial and other covenants, including minimum tangible net worth and minimum current ratio, under which the Company was also in default at December 31, 1992. As a result, the entire amount of such notes and bank indebtedness has been classified in the accompanying Consolidated Balance Sheet as "Debt in default". Additionally, the Company has not made scheduled semiannual interest payments since September 1, 1993 with respect to its 73/4% Convertible Subordinated Debentures and, accordingly, such debentures have been classified as "Debt in default" in the accompanying Consolidated Balance Sheet. Effective April 1993, the Company ceased making payments of principal and interest under its revolving credit facility and its senior and subordinated notes. Interest continued to accrue in accordance with the provisions of these loan documents which in certain circumstances included default rates of an additional 2% and in one case 4%. Interest ceased to accrue on December 21, 1993, the date on which an involuntary bankruptcy petition was filed against the Company. The Company has pledged to the holders of its senior notes and bank indebtedness the common stock of five subsidiaries held for sale and certain proceeds of the sale of one of those subsidiaries which had a combined net book value of $23.2 million as of December 31, 1992. Certain of the Company's loan agreements contain covenants which restrict its ability to pay dividends on its common stock. The Company does not meet the financial ratio requirements under such covenants and consequently is restricted from paying dividends on its common stock. The Company's 73/4% Convertible Subordinated Debentures are convertible into common stock at any time on or prior to September 1, 2012 at $30.11 per share which is subject to change as defined in the indenture agreement pursuant to which the debentures were issued. The debentures are redeemable, at the Company's option, on any date prior to maturity at redemption prices (expressed as percentages of principal amount) ranging from 102.325% in 1994 to 100% in 1997 and thereafter, plus accrued interest. In 1992, 1991 and 1990, the Company purchased $8.7 million, $7.6 million and $10.5 million of its 73/4% debentures, respectively. In 1991, the Company also retired its $10.0 million 11% senior notes prior to maturity. The Company realized a net gain of $1.8 million, $0.6 million and $l.5 million in 1992, 1991 and 1990, respectively, from early retirement of such debt. See Note 1 with respect to the contemplated exchange of the debt in default for new debt and equity securities under the Company's proposed plan of reorganization. 4-20 As of June 1994, the estimated fair value of the Company's obligations under its revolving credit facility approximates $50 million or approximately 30% of the amount of its pre-bankruptcy petition date principal and accrued interest. The estimated fair value of the senior notes approximates $122 million or approximately 34% of the amount of its pre-bankruptcy petition date principal and accrued interest. Such valuations were based upon recent private transactions involving the purchase and sale of a limited number of such debt instruments. However, the estimated values described above are not necessarily indicative of their fair market value because these debt instruments are not actively traded or exchanged. The estimated fair value of the defaulted 12% subordinated notes and 73/4% Convertible Subordinated Debentures is nominal. Such valuations were based upon comparison with similarly rated securities and are not necessarily indicative of the current market value. (4) Long-Term Debt The following is a summary of the Company's long-term debt, excluding current maturities of $1.9 million and $38.0 million in 1992 and 1991, respectively:
1992 1991 --- --------- (In thousands) 9.1% to 12% Senior Notes, due 1992 to 2005 (See Note 3).... $- $ 330,119 7--% to 11% First Mortgage Bonds, due 1995 to 2029... - 34,500 7--% Convertible Subordinated Debentures, due 2012 (See Note 3)..- 15,764 5.5% Convertible Subordinated Debentures, due 2007............. - 19,262 Bank loans under revolving credit agreements................... - 4,300 Other long-term debt........................................... 4,111 21,135 ----- --------- $4,111 $425,080 ====== =========
The aggregate amount of long-term debt maturing during the next five years is: $1.0 million, $1.9 million, $0.3 million, $0.3 million and $0.3 million. The debt of JWS, described below, is carried as an element of "Net assets held for sale" in the Company's Consolidated Balance Sheet as of December 31, 1992 (See Note 11). A series of first mortgage bonds issued by JWS requires annual redemption payments of $2.0 million beginning April 1, 2020 and two other series require annual redemption payments of $0.5 million each, commencing August 1, 1994 and December 1, 2005, respectively. A fourth series aggregating $4.5 million is due May 1, 1995. The utility plant and equipment of JWS, which has a net book value of $131.9 million at December 31, 1992, is subject to a lien pursuant to the Indenture under which the first mortgage bonds were issued. The fair value of the first mortgage bonds approximates $41.6 million. There is no active quoted market for the bonds. The fair value was determined primarily based upon sales prices, or bid and asked quotes for similar debt securities. JWS has two revolving credit agreements each of which permitted unsecured borrowings of up to $10 million with interest at rates equal to the prime rate (6% at December 31, 1992). Both of the agreements expired on April 30, 1994 and borrowings thereunder have been permitted by the lenders to remain outstanding. JWS is currently negotiating new credit agreements. Borrowings under the revolving credit agreements are classified as long-term as it was the intent of JWS to extend the agreements as they expire, refinance the borrowings under an expiring agreement with funds borrowed under the other agreement, or refinance borrowings under both agreements through the issuance of long-term securities. As of December 31, 1992, JWS had equal borrowings outstanding under the agreements aggregating $4.8 million. The fair value of these borrowings approximates the carrying amounts. (5) Income Taxes Effective January 1, 1992, the Company adopted the Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). The cumulative effect of adopting SFAS 109 was to record an income tax benefit of $4.3 million or $0.11 per share as of January 1, 1992. Such amount has been reflected 4-21 in the Consolidated Statements of Operations under the caption "Cumulative Effect of Change in Method of Accounting for Income Taxes." The Company files a consolidated federal income tax return including all U.S. subsidiaries. At December 31, 1992, the Company had a net operating loss carry-forward ("NOL") for U.S. income tax purposes of approximately $220 million expiring in years through 2007. As described in Notes 1 and 3, under the Company's proposed plan of reorganization, newly issued equity and debt securities will be exchanged for existing debt of the Company. If the Company effectuates its proposed plan of reorganization, a substantial portion of the NOL may not be available to reduce future U.S. taxable income. Additionally, due to recent changes in the U.S. Federal income tax laws, the timing of any such plan of reorganization could further impact and reduce the amount of the NOL. The Company also has an alternative minimum tax credit carry-forward of approximately $2 million available to offset future regular income taxes payable to the extent such regular taxes exceed alternative minimum taxes payable. U.S. income and foreign withholding taxes have not been provided on undistributed earnings of certain foreign subsidiaries. Such undistributed earnings aggregated $16.2 million at December 31, 1992. The Company considers these earnings to be permanently invested in the business and, under the tax laws, not subject to such taxes until distributed as dividends. The provision (benefit) for income taxes relating to continuing operations consists of:
1992 1991 1990 --------- --------- ------- (In thousands) Current Federal.......... $- $663 $ 4,025 State and local.. 1,248 1,092 2,339 Foreign.......... 1,106 2,834 467 --------- --------- ------- 2,354 4,589 6,831 --------- --------- ------- Deferred Federal.......... 4,487 (5,440) 5,790 State and local.. (56) (156) 784 Foreign.......... 859 3,426 4,070 --------- --------- ------- 5,290 (2,170) 10,644 --------- --------- ------- $7,644 $2,419 $17,475 ========= ========= =======
The provision (benefit) for income taxes relating to discontinued operations consists of:
1992 1991 1990 ------- -------- ------- (In thousands) Current Federal.......... $(237) $(525) $ 9,984 State and local.. 7 (218) 2,633 ------- -------- ------- (230) (743) 12,617 ------- -------- ------- Deferred Federal.......... 983 13,287 2,417 State and local.. 864 2,301 298 ------- -------- ------- 1,847 15,588 2,715 ------- -------- ------- $1,617 $14,845 $15,332 ======= ======== =======
Factors accounting for the variation from U.S. statutory income tax rates relating to continuing operations are as follows:
1992 1991 1990 ----------- ------- -------- (In thousands) Federal income taxes at the statutory rate........ $(120,996) $2,425 $15,682 State and local income taxes, net of federal tax.. 787 618 2,061 Amortization and write-off of intangibles......... 29,791 (488) 637 Valuation allowance against deferred tax asset.... 96,849 - - Other............................................. 1,213 (136) (905) ----------- ------- -------- $7,644 $2,419 $17,475 =========== ======= ========
Factors accounting for the variation from U.S. statutory income tax rates relating to discontinued operations are as follows:
1992 1991 1990 ---------- --------- ------- (In thousands) Federal income taxes at the statutory rate........ $(85,548) $13,296 $12,557 State and local income taxes, net of federal tax.. 575 1,375 1,935 Amortization and write-off of intangibles......... 28,289 - 327 Valuation allowance against deferred tax asset.... 58,409 - - Other............................................. (108) 174 513 ---------- --------- ------- $1,617 $14,845 $15,332 ========== ========= =======
The sources of significant timing differences for 1991 and 1990 which gave rise to deferred taxes and their effects were as follows:
Continuing Discontinued Operations Operations --------------- --------------- 1991 1990 1991 1990 -------- ------- ------- (In thousands) Difference between book and tax accruals, principally contracts......................... $(1,804) $(2,523) $261 $437 Appraisal differences........................... 1,316 7,637 3,953 1,392 Depreciation.......................................(258) 1,244 1,071 657 State and local deferred taxes, net of federal tax benefits.. (103) 517 1,519 197 Acquisition adjustments...........................(382) 1,972 - (75) Terminated leases and severance pay............... - - 7,616 - Other, net........................................(939) 1,797 1,168 107 -------- --------- ------- ------- $(2,170) $10,644 $15,588 $2,715 ======= ========= ======= =======
The components of the net deferred income tax liability as of December 31, 1992 are as follows (in thousands):
Deferred tax assets: Net operating loss carry-forward......... $ 74,787 Excess of amounts expensed for financial statement purposes over amounts deucted for income tax purposes. 93,891 Other......... 2,816 ----------- Total deferred tax asset................... 171,494 ----------- Deferred tax liabilities: Costs capitalized for financial statement purposes and deducted for income tax purposes............... 33,086 Foreign deferred tax liability............... 1,635 ----------- Total deferred tax liability................ 34,721 ----------- Net deferred tax asset before valuation allowance..136,773 Valuation allowance for net deferred tax asset. (138,274) ----------- Net deferred tax liability................. $(1,501) ===========
(Loss) income before income taxes from continuing operations consists of the following: 1992 1991 1990 ----------- ---------- ------- (In thousands) United States.. $(342,304) $(11,013) $32,426 Foreign........ (13,567) 18,144 13,698 ----------- ---------- ------- $(355,871) $7,131 $46,124 =========== ========== ======= (Loss) income before income taxes from discontinued operations consists of the following: 1992 1991 1990 ----------- ------- ------- (In thousands) United States.. $(228,754) $36,010 $36,932 Foreign........ (22,859) 3,098 - ----------- ------- ------- $(251,613) $39,108 $36,932 =========== ======= ======= The above amounts applicable to discontinued operations include a loss of $49.5 million in 1992 with respect to the disposition of the Company's overseas information services business and certain units of the domestic information services business. (6) Capital Stock and Warrants In August 1991, the Company issued 425,000 shares of preferred stock in connection with the acquisition of Businessland, Inc. (See Note 9). The preferred stock is convertible into common stock of the Company, at any time, at the option of the holder at a conversion price of $20.00 per share, subject to customary anti-dilution provisions and exchangeable for 8.5% Convertible Subordinated Notes due 2006 of the Company in whole, but not in part, at the option of the Company after July 31, 1993. The Company has the option to redeem the shares of preferred stock after July 31, 1993 at $50.00 per share. Each share of preferred stock entitles the holder to receive cumulative cash dividends at the annual rate of $4.25 per annum per share. The Company has not paid dividends on its preferred stock since September 1992. Cumulative unpaid dividends at December 31, 1992 aggregate $0.5 million. In 1969, the Company distributed 1,152,649 warrants of participation to holders of its common stock. The warrants of participation, which expire on December 31, 1994, may entitle their holders to receive shares 4-24 of common stock of the Company in the event that JWS disposes of all or any significant portion of its water distribution system or the Company disposes of any shares of JWS. The number of shares of common stock to be issued, if any, will be determined on the basis of a specified formula and will be distributed to warrant holders on a pro rata basis. Under the Company's 1992 and 1991 Stock Option Plans, a maximum of 2,500,000 shares and 1,000,000 shares of common stock, respectively, have been reserved for grant to key personnel. The per share exercise price of an option may not be less than the fair market value of a share of common stock on the date of grant. The options are exercisable at various dates and expire ten years from the date of grant. The 1986 Incentive Stock Option and Appreciation Plan, as amended (the "Option Plan"), provides that incentive stock options ("ISOs"), non-qualified stock options and stock appreciation rights ("SARs") may be granted to a maximum of 1,125,000 shares of common stock. If ISOs are granted, the per share exercise price of the option must be the fair market value of a share of common stock on the date of grant. The per share exercise price of a non-qualified stock option may be below the fair market value of a share of common stock on the date of grant. Neeco, Inc., a computer reseller which the Company acquired (See Note 9), had outstanding stock options which were assumed by the Company on the date of acquisition. The Neeco options were granted at not less than fair market value at the date of grant, are exercisable at various dates and expire five years from date of grant. A summary of stock option transactions for the years ended December 31, 1992, 1991 and 1990 is as follows:
Number of Shares - -------------------------------------------------------------------- 1992 1991 1990 - ---------------------------- ------------ --------------------------- Balance beginning of year... 1,231,310 1,124,189 1,114,122 Granted..................... 3,079,680 395,075 306,414 Exercised................... (145,706) (220,329) (278,644) Lapsed or cancelled......... (939,045) (67,625) (17,703) ------------ --------------------------- Balance end of year......... 3,226,239 1,231,310 1,124,189 ------------ -------------- ------------- Exercisable at year-end..... 747,965 598,196 580,439 ------------ -------------- ------------- Option Price Per Share - --------------------------------------------------------------------- Outstanding at December 31.. $3.00-21.05 $ 6.67-21.05 $6.67-21.05 Granted..................... 3.00-18.25 14.00-15.625 20.92-21.05 Exercised................... 6.67-15.93 6.67-14.49 6.67-15.93 Lapsed or cancelled......... 3.50-21.05 6.67-21.05 6.67-15.93
As described in Note 1, under the Company's proposed plan of reorganization, the holders of the Company's existing preferred and common stock and warrants of participation will receive warrants to purchase common stock of the reorganized Company in exchange for their equity interests. (7) Retirement Plans JWS and a foreign subsidiary have defined benefit pension plans covering substantially all eligible employees. The benefits under the plans are based on wages and years of service with the respective company. The Company's policy is to fund the minimum amount required by law. In 1990, the Company curtailed the pension benefits under one of its U.S. plans and realized a net gain of $3.7 million. Effective May 31, 1991, the Company terminated that plan and replaced it with a new defined contribution plan. The effect of the pension termination and settlement of the benefit obligation was not material to the operating income of the Company. 4-25 Net pension expense for defined benefit plans for 1992, 1991 and 1990 consists of the following components:
Domestic Foreign (Discontinued Operations) (Continuing Operations) - ----------------------------- ----------------------------- 1992 1991 1990 1992 1991 1990 --------- ------------------ --------- --------- --------- (In thousands) Service cost-benefits earned............... $1,305 $939 $5,089 $1,301 $1,484 $1,853 Interest on projected benefit obligations.. 1,725 1,490 1,928 2,481 2,108 1,896 Actual return on plan assets............... (2,276) (2,331) (1,963) (5,473) (3,428) (2,241) Net amortization and deferral.............. 760 869 (267) 2,452 838 (89) --------- ------------------ --------- --------- --------- Net pension expense........................ $1,514 $967 $4,787 $761 $1,002 $1,419 ========= ================== ========= ========= =========
The benefit obligations and funded status of the plans at December 31, 1992 and 1991 are as follows:
Domestic Foreign (Discontinued Operatio(Continuing Operations --------------------- --------------------- 1992 1991 1992 1991 ---------- ---------- ---------- ---------- (In thousands) Accumulated benefit obligations: Vested...............................................$14,154 $14,379 $21,214 $20,009 Non-vested........................................... 657 902 - - Impact of future salary increases................... 8,579 9,235 3,393 3,200 ---------- ---------- ---------- ---------- Projected benefit obligations.......................... 23,390 24,516 24,607 23,209 Plan assets at market value.............................22,020 21,006 27,531 27,884 --------- ---------- ---------- ---------- (Deficiency) excess of plan assets over projected benefit obligations.............................................(1,370) (3,510) 2,924 4,675 Unrecognized net (gain) loss from past experience different from that assumed and effect of changes in assumptions.............................................(3,551) 32 (1,670) (3,181) Unrecognized net obligation (asset) from initial application of SFAS No. 87........................... 854 925 (889) (1,189) ---------- ---------- ---------- ---------- (Accrued) prepaid pension............................ $(4,067) $(2,553) $ 365 $ 305 ========== ========== ========== ==========
The assumptions used as of December 31, 1992, 1991 and 1990 in determining the pension cost and liability shown above were as follows:
Domestic Foreign (Discontinued Operatio(Continuing Operations) -------------------------------------------- 1992 1991 1990 1992 1991 1990 ------- ------ ------ ------- ------- ------- Discount rate................ 7.5% 6.5% 7.25% 10% 11% 9% Rate of salary progressions.. 7% 7% 7% 7% 7% 7% Rate of return on assets..... 8% 8% 8% 10% 11% 10%
The unrecognized net asset of the foreign plan is being amortized over 15 years. The U.S. plan assets are primarily invested in fixed income securities. The foreign plan assets are invested 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/electrical business units. Such contributions approximated $41.6 million, $38.5 million and $36.0 million in 1992, 1991 and 1990, respectively. 4-26 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 in 1992, 1991 and 1990 relating to continuing operations for the defined contribution plans was $4.7 million, $4.7 million and $1.8 million, respectively. Effective January 1, 1993, the Company adopted the provisions of Statement of Financial Accounting Standards No. 106, "Accounting For Postretirement Benefits Other Than Pensions" (SFAS 106). The estimated present value of the accumulated postretirement benefit obligations under SFAS 106 approximated $7.0 million at January 1, 1993. The adoption of SFAS 106 did not have a material impact upon the Company's Consolidated Statements of Operations. (8) Lease Commitments The Company and its subsidiaries lease land, buildings and equipment under various non-cancellable lease agreements. The lease agreements frequently include renewal options and require the Company to pay for utilities, taxes, insurance and maintenance expense. Future minimum payments, by year and in the aggregate, under capital leases and non-cancellable operating leases with initial or remaining terms of one year or more relating to continuing operations consisted of the following at December 31, 1992:
Capital Operating Leases Leases ------- --------- (In thousands) 1993....................................... $848 $31,227 1994....................................... 1,606 23,377 1995...................................... 867 18,054 1996..................................... 663 13,834 1997...................................... 205 9,923 Thereafter................................ 751 45,691 ------- --------- Total minimum lease payments........... 4,940 $142,106 ========= Amounts representing interest...... 1,005 ------- Present value of net minimum lease payments (includes current portion of $705).. $3,935 =======
The above operating lease table includes lease obligations retained by the Company in connection with the sale of its domestic information services business (See Note 10). Future minimum payments under non-cancellable operating leases relating to discontinued operations are as follows (in thousands): $11,564, $11,133, $8,993, $6,056, $4,905 and $10,130 in 1993, 1994, 1995, 1996, 1997 and thereafter, respectively. "Other long-term obligations and deferred credits" at December 31, 1992 and 1991 include capital lease obligations of $3.2 million and $21.0 million, respectively. Rent expense relating to continuing operations for the years ended December 31, 1992, 1991 and 1990 was $26.6 million, $22.8 million and $21.3 million, respectively. Rent expense relating to discontinued operations for the years ended December 31, 1992, 1991 and 1990 was $20.7 million, $10.0 million and $5.3 million, respectively. (9) Business Combinations In the fourth quarter of 1991, the Company completed the acquisition of Businessland, Inc. ("Businessland"). Pursuant to the acquisition, the Company paid $17.0 million in cash and exchanged 1,108,195 shares of its common stock for all the outstanding common stock of Businessland. The Company 4-27 acquired Businessland's 101/4% Senior Notes in the aggregate principal amount of $50.0 million for an aggregate of $18.75 million in cash and 425,000 shares of its $4.25 Convertible Exchangeable Preferred Stock with a liquidation preference of $50.00 per share. Businessland was combined with the Company's then existing information services business. The acquisition of Businessland was accounted for by the purchase method of accounting. The Company sold the rental operations of Businessland in 1991 for $10.1 million in cash. The sale of the rental operations did not result in a gain or loss to the Company. On May 22, 1990, the Company acquired Neeco, Inc. ("Neeco"), a computer reseller. Neeco was combined with the Company's then existing information services business. The acquisition was accounted for as a pooling of interests. The Company issued 4,669,375 shares of its common stock to the former holders of Neeco common stock. Including the acquisition of Businessland, the Company paid approximately $15.4 million and $133.7 million in 1992 and 1991, respectively, in cash, notes and common stock for its acquisitions. Net tangible assets acquired in 1992 and 1991 were approximately $7.0 million and $80.3 million, respectively. Except for Neeco, the acquisitions in 1992 and 1991 were accounted for by the purchase method of accounting and, accordingly, the consolidated results of operations include the results of the acquired companies from acquisition dates. Pro forma combined revenues from continuing operations of the acquired businesses would have been approximately $2.4 billion in 1991 and $2.5 billion in 1990, if the acquisitions had taken place on January 1. Pro forma combined income from continuing operations and net income per share from continuing operations would have been approximately $7.3 million and $0.14, respectively, in 1991 and $31.4 million and $0.74, respectively, in 1990. Pro forma amounts for the year ended December 31, 1992 are not materially different from the actual amounts. (10) Discontinued Operations Discontinued operations includes the Company's information services business and water supply business. In 1992, the Company's information services business was negatively impacted by several industry factors, such as rapid technology change, steep price discounting and by the problems encountered with the integration of Businessland. 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 business. Accordingly, operating results of the information services business have been classified as discontinued operations. In August 1993, the Company sold substantially all the assets of its U.S. information services business. The Company did not realize a material gain or loss from the sale. The assets of the U.S. information services business consisted primarily of inventory held for resale and accounts receivable. Under the terms of the agreement, the purchaser assumed the debt and other liabilities relating to the ongoing operations of the business. The Company received warrants to buy up to 10% of the purchaser's common stock for a nominal amount. A subsidiary of the Company retained certain lease obligations aggregating $15 million, net of estimated settlement amounts and subrentals, at December 31, 1992. Such lease obligations relate to closed facilities and facilities identified to be closed. These lease obligations are included in the accompanying Consolidated Balance Sheet under the captions "Other accrued expenses and liabilities" and "Other long-term obligations and deferred credits" in the amounts of $8.2 million and $6.8 million, respectively. At December 31, 1992, net assets of the information services business aggregated approximately $5.0 million. Such amount is included in current assets under the caption "Net assets held for sale" in the accompanying Consolidated Balance Sheet. 4-28 The information services business operated primarily in the United States, Europe and Canada. The following presents information about operations in such geographical areas:
Operating Identifiable Revenues (Loss) Income Assets ---------- ------------- ------------ (In thousands) 1992 United States.. $1,418,350 $(144,743) $378,913 Europe......... 245,497 (37,727) 78,072 Canada......... 28,573 (5,469) 10,186 ---------- ------------- ------------ $1,692,420 $(187,939) $467,171 ========== ============= ============ 1991 United States.. $1,106,711 $32,987 $723,759 Europe......... 91,088 1,824 116,094 Canada......... 15,970 (775) 16,781 ---------- ------------- ------------ $1,213,769 $34,036 $856,634 ========== ============= ============
In 1990, the information services business was located only in the United States. Revenues and operating income of the information services business in 1990 were $710.8 million and $29.6 million, respectively. The information services business' operating loss in 1992 includes $41.3 million attributable to the write-off of goodwill and other intangibles and $26.0 million primarily relating to severance payments and facilities consolidation. In connection with the plan to dispose of the overseas information services business and certain other of its U.S. information services businesses, the Company provided for a loss of $49.5 million in 1992. This loss represents the estimated loss to be realized upon the disposition of such businesses. Such loss includes $32.1 million related to the write-off of goodwill and other intangible assets and $17.4 million for estimated losses to be incurred up to the expected disposal dates and the write-down of other assets to estimated net realizable value. 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 divestiture due to uncertainties created by then pending rate related proceedings and litigation. In December 1993, JWS entered into an agreement with respect to the rate related proceedings and litigation. Subsequently, the agreement was approved by the New York State Public Service Commission on February 2, 1994. Accordingly, the Company reinstated its plan of divestiture in the first quarter of 1994 and recorded a $7.4 million loss in 1993 to write-down the assets of the water supply business to estimated net realizable value. The financial statements for all periods presented reflect the water supply business as discontinued operations. See Note 17 with respect to the status of a proceeding initiated in 1988 by the City of New York to acquire by condemnation all of the water distribution system of JWS that is located in New York City. The assets of the water supply business consists 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, which aggregate $57.2 million at December 31, 1992, are classified as long-term assets in the accompanying Consolidated Balance Sheet under the caption "Net assets held for sale" because the disposition of the water supply business is expected to take place after 1993. Revenues of the water supply business were $59.8 million, $63.1 million and $59.2 million in 1992, 1991 and 1990, respectively. Operating income of the water supply business was $4.8 million, $14.6 million and $13.3 million in 1992, 1991 and 1990, respectively. The 1992 results include a provision of $7.0 million related to the settlement litigation referred to above. 4-29 Combined operating results of discontinued operations including both the information services and the water supply businesses are as follows:
1992 1991 1990 ----------- ---------- -------- (In thousands) Revenues.................................... $1,752,171 $1,276,876 $769,994 Costs and expenses.......................... 1,935,349 1,228,281 727,090 ----------- ---------- -------- Operating (loss) income..................... (183,178) 48,595 42,904 Interest expense............................ 18,944 9,487 5,972 ----------- ---------- -------- (Loss) income before taxes.................. (202,122) 39,108 36,932 Provision for income taxes.................. 1,617 14,845 15,332 ----------- ---------- -------- (Loss) income from discontinued operations.. $(203,739) $24,263 $21,600 =========== ========== ========
(11) Other Businesses Sold and Net Assets Held For Sale On October 16, 1992, the Company completed the sale of five environmental businesses for which it received net cash proceeds of $84.1 million. The five businesses sold were two air pollution control businesses, JWP Air Technologies, Inc. and JWP Amcec Corp., two sludge pelletization projects, located in New York City and Baltimore, Maryland and Enviro-Gro Technologies Co., a sludge processing business. The Company realized a net gain of approximately $12.0 million from the sale of these businesses. The Company has sold a number of other non-core businesses and other assets in 1993 for net cash proceeds of $43.4 million and notes and other assets with an aggregate carrying value of $10.9 million. The Company's Board of Directors have approved a plan for the sale of the Company's remaining energy and environmental related businesses, other non-core businesses and certain mechanical/electrical services operations. In connection with this asset disposition plan, a loss of $88.1 million was provided for in 1992. The loss represents the loss on businesses sold and the estimated loss to be realized upon the disposition of the businesses held for sale. The loss includes $24.1 million attributable to the write-off of goodwill and $64.0 million related to the write-down of other assets to net realizable value. In 1991, the Company incurred a loss of $6.6 million in connection with the sale of a certain subsidiary. The operating results of these businesses as well as the provisions for write-down of assets are included in (loss) income from continuing operations. Revenues and operating (loss) income of the other businesses sold and held for sale for the years ended December 31, 1992, 1991 and 1990 are as follows:
1992 1991 1990 --------- -------- -------- Revenues................. $526,894 $501,696 $444,242 Operating (loss) income.. (41,151) 15,325 12,592
The condensed combined balance sheet relating to discontinued operations and other net assets held for sale at December 31, 1992 is as follows (in thousands): Cash........................... $ 25,297 Accounts receivable, net....... 340,847 Costs and estimated earnings in excess of billings............. 35,449 Inventories.................... 189,744 Other current assets........... 18,450 -------- 609,787 Property, plant and equipment, net.. 200,080 Other assets........................ 17,161 -------- $827,028 ======== Notes payable............................ $51,238 Current maturities of long-term debt and capital lease obligations............ 8,582 Accounts payable......................... 345,446 Billings in excess of costs and estimated earnings................................. 21,472 Accrued payroll and benefits............. 28,130 Other accrued expenses................... 137,590 -------- 592,458 Long-term debt........................... 74,178 Other long-term liabilities.............. 41,887 Net assets held for sale-current......... 32,894 Net assets held for sale-long-term....... 85,611 -------- $827,028 ======== 4-30 (12) Restructuring Charges In 1992, the Company recorded $38.7 million of restructuring charges related to continuing operations. The Company's business restructuring plan contemplates the downsizing and consolidation of the Company's North American mechanical/electrical services operations. The Company's strategy also provides for the disposition of non-core businesses and certain mechanical/electrical services operations. The restructuring charges consist of $10.8 million applicable to permanent impairment of goodwill and $27.9 million for severance payments, facilities consolidation costs, provisions for contract losses and the write-down of certain assets to net realizable value. (13) Insurance Reserves The Company is primarily insured with an indirect wholly-owned captive insurance subsidiary ("Defender") for its workers' compensation, automobile and general liability insurance. The 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 as of December 31, 1992 using a 4% discount rate. The current portion of the insurance liability was $16.5 million and $6.4 million at December 31, 1992 and 1991, respectively. Such amounts are included in "Other accrued expenses and liabilities" in the accompanying Consolidated Balance Sheets. The noncurrent portion of the insurance liability was $33.1 million and $12.5 million at December 31, 1992 and 1991, respectively. Such amounts are included in "Other long-term obligations and deferred credits". The undiscounted liability was approximately $54.0 million and $20.9 million at December 31, 1992 and 1991, respectively. The Company has restated its 1991 financial statements among other things, to increase its insurance liability by $4.5 million. The insurance liability in 1991 was increased primarily to provide for losses on incurred but not reported claims. At December 31, 1992, the Company and Defender had letters of credit outstanding totalling $38.2 million which in effect secure their insurance obligations. The letters of credit were intended to serve as collateral for the obligations of Defender to reimburse the Company's unrelated insurance carriers for claims paid in respect of certain years' insurance programs. In December 1993, these letters of credit were reduced to $36.4 million. $34.9 million of such letters of credit expire in December 1994 and $1.5 million expires in February 1995. Since October 1992, neither the Company nor Defender have been able to obtain additional letters of credit to secure their insurance obligations and, as a result, have been required to make cash collateral deposits to a third party insurance company to secure those type obligations. The deposits totalled $7.7 million as of December 31, 1992 and are included under the caption "Miscellaneous" in Other Assets in the accompanying Consolidated Balance Sheet. Such deposits have increased to $29.7 million as of June 30, 1994. The Company's proposed plan of reorganization contemplates that the letters of credit, described above, will be drawn upon by the unrelated insurance carriers and that the Company's obligations to Defender, which were pledged as collateral to the banks issuing such letters of credit, will be impaired in the Chapter 11 proceeding as well as any related Company obligations to those banks. Beginning in February 1994, Defender ceased making payments of amounts owed to the unrelated insurance carriers, which obligations are in effect secured by the letters of credit, and the Company's unrelated insurance carriers have commenced partial draw downs against certain of the letters of credit. Approximately $5 million has been drawn down against the letters of credit through June 1994. (14) Additional Cash Flow Information
1992 1991 1990 -------- ------- ------- (In thousands) Cash paid (refunded) during the year for: Interest................................ $ 62,582 $54,258 $45,044 Income taxes.................... (15,617) 14,400 13,850 Significant non-cash financing and investment transactions are as follows: Debt assumed in acquisitions......... $929 $93,662 $11,107 Debt issued to acquire companies.... 2,566 9,648 1,750 Common stock issued for acquisitions.. 749 29,238 1,804 Preferred stock issued to retire debt - 21,250 - Debt issued to acquire fixed assets... - - 4,122 Fixed assets acquired under capital lease obligations................... 1,616 2,760 5,831
(15) Segment Information The following presents information about continuing operations by geographic areas:
Operating Identifiable Revenues Income (Loss) Assets ---------- ------------- ------------ (In thousands) 1992 United States............. $1,793,350 $(220,242) $582,426 Europe.................... 386,003 (15,985) 145,435 Canada.................... 225,224 615 61,218 Net assets held for sale.. - - 118,505 ---------- ------------- ------------ $2,404,577 $(235,612) $907,584 ========== ============= ============ 1991 United States............. $1,713,651 $42,706 $1,842,391 Europe.................... 374,380 5,199 283,315 Canada.................... 230,081 9,746 108,121 ---------- ------------- ------------ $2,318,112 $57,651 $2,233,827 ========== ============= ============ 1990 United States............. $1,712,517 $73,313 $1,323,201 Europe.................... 345,090 9,438 152,871 ---------- ------------- ------------ $2,057,607 $82,751 $1,476,072 ========== ============= ============
(16) Selected Unaudited Quarterly Information
As Restated - ---------------------------------- 1992 Quarterly Results March 31 June 30 Sept. 30 Dec. 31 Total - ---------------------------------------- ----------- --------------------- ----------- ----------- (In thousands, except per share data) Revenues................................ $582,580 $606,824 $609,553 $605,620 $2,404,577 Gross Profit............................ 80,469 82,563 60,918 19,904 243,854 (Loss) from continuing operations before cumulative effect of accounting change.. (7,822) (31,525) (89,599) (234,569) (363,515) (Loss) from discontinued operations .... (9,712) (22,489) (38,176) (182,853) (253,230) Cumulative effect of change in method of accounting for income taxes............. 4,315 - - - 4,315 ----------- --------------------- ----------- ----------- Net (loss).............................. $ (13,219) $(54,014) $(127,775) $(417,422) $(612,430) =========== ===================== =========== ===========
As Restated - -------------------------- 1992 Quarterly Results March 31 June 30 Sept. 30 Dec. 31 Total - ------------------------------------------------------- -------- -------- -------- --------- --------- (In thousands, except per share data) (Loss) income per share: Continuing operations.................................. $(0.20) $(0.80) $(2.22) $(5.78) $(9.00) Discontinued operations................................ (0.25) (0.54) (0.94) (4.51) (6.24) Cumulative effect of change in method of accounting for income taxes........................................... 0.11 - - - 0.11 -------- -------- -------- --------- --------- Net (loss)............................................. $(0.34) $(1.34) $(3.16) $(10.29) $(15.13) ======== ======== ======== ========= =========
The loss from continuing operations in the fourth quarter of 1992 includes the following: (i) restructuring charges of $13.9 million primarily for consolidation and downsizing of certain North American mechanical/electrical services business units, (ii) $70.2 million for losses attributable to assets held for sale, (iii) valuation allowances of $56.1 million relating to accounts receivable, work-in-progress on uncompleted contracts and inventory and (iv) a valuation allowance of $24.0 million provided against deferred tax assets. The loss from discontinued operations in the fourth quarter of 1992 includes the following: (i) restructuring charges of $18.0 million relating to severance payments and facilities consolidation, (ii) $37.6 million for losses attributable to assets held for sale, (iii) valuation allowances of $62.4 million relating to accounts receivable and inventory and (iv) $29.3 million relating to write-off of goodwill and other intangibles.
As Restated ---------- 1991 Quarterly Results March 31 June 30 Sept. 30 Dec. 31 Total - ------------------------------------------ -------- -------- -------- ---------- ---------- (In thousands, except per share data) Revenues.................................. $520,613 $560,015 $585,410 $652,074 $2,318,112 Gross Profit.............................. 86,761 89,065 91,993 76,732 344,551 Income (loss) from continuing operations.. 10,619 9,807 5,583 (21,297) 4,712 Income from discontinued operations....... 3,431 5,042 9,716 6,074 24,263 -------- -------- -------- ---------- ---------- Net income (loss)......................... $14,050 $14,849 $15,299 $(15,223) $28,975 ======== ======== ======== ========== ========== Income (loss) per share: Continuing operations..................... $0.28 $0.26 $0.14 $(0.58) $0.10 Discontinued operations................... 0.09 0.13 0.25 0.16 0.63 -------- -------- -------- ---------- ---------- Net income per share...................... $0.37 $0.39 $0.39 $(0.42) $0.73 ======== ======== ======== ========== ==========
As discussed in Note 1, the Company has restated its operating results for the quarters and years ended December 31, 1991 and 1990 and each of the quarters in the nine month period ended September 30, 1992. The effect of the restatement was to decrease net income and earnings per share for the fourth quarter of 1991 and 1990 by $31.3 million and $9.1 million or $0.81 and $0.24 per share, respectively, and to decrease (increase) net loss and net loss per share for each of the quarters in the nine month period ended September 30, 1992 as follows (in thousands, except per share data): Net Loss Quarter Ended Net Loss Per Share - -------------------- -------- --------- March 31, 1992...... $26,451 $ 0.65 June 30, 1992....... (153) (0.01) September 30, 1992.. 7,554 0.19 (17) Legal Proceedings Since August 1992, nineteen purported class action lawsuits have been filed against the Company arising out of the restatement of earnings, write-offs and losses announced by the Company on August 4, 1992 and October 2, 1992. Pursuant to Stipulation and Court Order on January 15, 1993, a single consolidated amended class action complaint (the "Complaint") was filed. The Complaint names as defendants the Company, certain former officers and directors, four current directors, a former subsidiary officer and the Company's then outside auditor, Ernst & Young. The Complaint alleges violations of Section 10(b) of the Securities and Exchange Act of 1934, Rule 10b-5 promulgated thereunder and common law fraud and deceit on the part of the Company and certain other defendants. Among other things, the Company is alleged to have intentionally and materially overstated its inventory, accounts receivable and earnings in various public disseminations during the purported class period May 1, 1991 through October 2, 1992. The Complaint seeks an unspecified amount of damages. The Company denies the material allegations in the complaint. The parties are now engaged in discovery proceedings. However, the Company expects that under its proposed Chapter 11 plan of reorganization, no damages will be recoverable from the Company by claimants in the class action litigation, although they will receive warrants to purchase the common stock of the reorganized Company. The Company has been informed by the Securities and Exchange Commission (the "SEC") that it is conducting a private investigation to determine whether there have been violations of certain provisions of the Federal securities laws and/or the rules and regulations of the SEC in connection with the Company's financial records, reports and public disclosures. The Company has been cooperating with the SEC's staff and has voluntarily produced requested documents and information. On April 12, 1994, the SEC's staff informed the Company of its intention to recommend that the SEC file a civil injunction action against the Company. The Company is currently engaged in discussions with the SEC's staff concerning a possible consensual resolution of the matter. In January 1992, the Public Service Commission of the State of New York ("PSC") ordered its staff to perform an audit covering all aspects of operations of JWS. The audit report alleged that mismanagement and imprudence on the part of JWS may have resulted in excess charges to its customers of up to $10.6 million. Based on the audit report, in June 1992 the PSC instituted a proceeding requiring JWS to demonstrate that its rates charged to customers are not excessive and provided for an investigation of JWS's management practices. As part of this proceeding and citing the audit report's assertion without receiving the audit report in evidence, the PSC ordered that $10.6 million of JWS's annual revenues be made temporary and subject to refund, effective August 6, 1992, pending the completion of the investigation. Between December 1992 and May 1993, representatives of JWS, the PSC, consumer advocate groups, the County of Nassau, the town of Hempstead and others appeared and submitted testimony in the PSC proceedings. On June 3, 1993, the PSC issued an order suspending hearings and appointed two administrative law judges for the purpose of effecting a settlement. Negotiations among the parties and the settlement judges were ongoing from that time. In addition on February 5, 1993, the County of Nassau filed a complaint in the Supreme Court of the State of New York alleging that JWS intentionally filed false rate applications with the PSC and, as a result, for the period from March 31, 1987 through March 31, 1992, JWS had earnings that exceeded its projections by $8.7 million. The complaint alleged that this conduct constituted violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO") and common law fraud. On December 22, 1993, JWS, the New York State Consumer Protection Board, Nassau County, certain other governmental bodies and a consumer advocate group executed an agreement that ended the several regulatory and legal proceedings against JWS described above. Subsequently, the agreement was approved by the PSC on February 2, 1994. The agreement provides for, among other things, a three year general rate moratorium, resolution of the economic issues raised by the PSC arising from its 1992 audit of JWS, settlement of related litigation and the dismissal of Nassau County's RICO lawsuit against JWS. JWS agreed, in consideration of avoided litigation and other costs associated with the proceedings, to make payments over the next three years totalling $11.7 million to customers in Nassau and Queens Counties in the State of New York. In connection with this settlement, the Company provided a pre-tax charge of $7.0 million in 1992. 4-34 The agreement also provides that JWS will use its best efforts to bring about the separation of Jamaica Water Securities Corp., a subsidiary of the Company which holds substantially all the common stock of JWS, from the Company. In 1986, the State of New York enacted a statute requiring the City of New York (the "City") to acquire by condemnation all of the JWS property constituting or relating to its water distribution system located in the City only if a Supreme Court of the State of New York (the "Supreme Court") decides that the amount of compensation to be paid for the system is determined solely by the income capitalization method of valuation. If the Court determines compensation by a method other than the income capitalization method or the award is for more than the rate base of the condemned assets, the statute permits the City to withdraw the proceeding without prejudice or costs. In 1988, the City instituted a proceeding pursuant to the statute to acquire the system which constitutes approximately 75% of JWS' water utility plant. JWS argued at trial that the judicially recognized method for valuing public utility property is by the method known as "Reproduction Cost New, Less Depreciation". JWS also sought consequential and severance damages that would result from separating the JWS Nassau County water supply system from that in the City. The aggregate compensation sought by JWS as of December 31, 1987 was approximately $924 million. The City submitted its income capitalization valuation, as of December 31, 1987, at approximately $63 million. In June 1993, the Supreme Court dismissed the City's petition. The Supreme Court concluded, among other things, that the statute is unconstitutional because it directs the Court to render an advisory opinion. In February 1994, the New York Court of Appeals held constitutional a nearly-identical statute dealing with another water utility. In April 1994, upon a request made by the City for reconsideration, the Supreme Court stated that it would reconsider its prior decision in light of the February decision of the Court of Appeals. The Company cannot predict when or if the Supreme Court will conduct further proceedings under the statute nor is it possible to predict what the decision of the Supreme Court might be if it decides to value the JWS property or the effect of the pending litigation on the proposed sale of JWS. In 1993, the Company's French and Belgian information services subsidiaries filed petitions in their respective countries seeking relief from their creditors. The French and Belgian subsidiaries have outstanding unsecured credit facilities which are guaranteed by the Company aggregating approximately $5.9 million. Such amount has been provided for as a loss in the accompanying Consolidated Statement of Operations for the year ended December 31, 1992. As described in Note 10, in August 1993 the Company sold its U.S. information services business and among other things, retained certain liabilities, primarily lease obligations. In October 1993, the subsidiary formerly carrying on this business filed a voluntary petition under Chapter 7 of the U.S. Bankruptcy Code. In connection with an investigation of the plumbing industry being conducted by the New York County District Attorney's office, two related subsidiaries of the Company engaged in the plumbing business in New York City have received subpoenas for certain of their books and records. The subsidiaries have complied with those subpoenas. Additionally, certain employees of these subsidiaries have been subpoenaed to testify as witnesses before a grand jury and those employees have complied with the subpoenas. The Company is subject to other legal proceedings and claims which have arisen in the ordinary course of business and have not been adjudicated. The Company cannot predict the outcome of such litigation or the impact that an adverse result in such litigation will have upon the Company's financial position or results of operations. 4-35 (18) Other JWS is subject to a PSC order which requires that dividend payments by JWS not exceed 50% of JWS's net income available to common shareholders for the preceding twelve month period and subject further to a debt/equity ratio restriction. Under such PSC order, approximately $2.4 million of JWS's retained earnings were available for the payment of dividends and $52.7 million of JWS's retained earnings were restricted as of December 31, 1992. In September 1992, the PSC issued an order requiring additional subjective certifications before the payment by JWS of cash dividends on its common stock. This resulted in the suspension of dividend payments to the Company by JWS for the last two quarters of 1992 and all of 1993. Dividends paid by JWS in 1992 and 1991 amounted to $1.2 million and $2.0 million, respectively. As a result of the settlement agreement described in Note 17, JWS recommenced dividend payments in 1994. 4-36 MANAGEMENT'S DISCUSSION AND ANALYSIS OF JWP INC. AND SUBSIDIARIES FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE TWO YEARS ENDED DECEMBER 31, 1993 (Unaudited) Results of Operations Revenues for the years ended December 31, 1993 and 1992 were $2.2 billion and $2.4 billion, respectively. Net loss for the years ended December 31, 1993 was $123.1 million or $3.06 per share compared to a net loss of $612.4 million or $15.13 per share in the year earlier period. The Company's loss from continuing operations for the years ended December 31, 1993 was $114.0 million or $2.84 per share compared to a loss of $363.5 million or $9.00 per share for the year ended December 31, 1992. Net loss from continuing operations for the year ended December 31, 1993 includes net interest expense of $50.2 million compared to $44.2 million of net interest expense in 1992. The increase in interest expense in 1993 primarily reflects accruals for penalty interest on debt in default. Net loss from continuing operations for the year ended December 31, 1993 includes a net gain on businesses sold or held for sale of $1.0 million. Net loss from continuing operations for the year ended December 31, 1992 includes a net loss of $76.1 million on the businesses sold or held for sale. Net loss from discontinued operations for the year ended December 31, 1993 was $9.1 million or $0.22 per share compared to $253.2 million or $6.24 per share for the year ended December 31, 1992. 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 and a charge of $7.4 million to write down the net assets of the water supply business to estimated net realizable value. The net loss in 1992 reflects (i) a continuing slump in the Company's mechanical and electrical services business, principally attributable to a downturn in commercial construction; (ii) intense competition in the Company's information services business; (iii) restructuring charges related to the planned disposition and downsizing of (a) the information services business, (b) other non-core businesses and (c) certain mechanical/electrical operations; (iv) significant provisions for losses on accounts receivable and inventories; (v) a provision for losses on net assets held for sale; and (vi) expenses associated with the shareholder litigation, the Company's efforts to restructure its debt through a consensual arrangement and the restatement of the Company's financial statements. A significant portion of the 1992 loss, particularly with respect to losses on accounts receivable and write down of inventories, arose as a result of management's review of the Company's year end 1992 financial statements. Concurrent with such review, the Company recorded significant write-offs and losses in 1992 for impairment of goodwill and other intangibles, for the establishment of asset valuation and restructuring reserves associated with net assets held for sale and as a result of the decision to discontinue the information services business. On December 21, 1993, three holders of the Company's 73/4% Convertible Subordinated Debentures filed an involuntary petition under Chapter 11 of the U.S. Bankruptcy Code against the Company. The Company on February 14, 1994 consented to the entry of an order for relief under Chapter 11 of the Bankruptcy Code. At that time the Company adopted a proposed plan of reorganization which, as modified, has the support of the Official Unsecured Creditors Committee and the Official Unsecured Junior Creditors and Interest Holders Committee. The proposed plan of reorganization contemplates the exchange of substantially all of the Company's indebtedness for new notes of the reorganized Company, all of its common stock and warrants to purchase common stock of the reorganized Company. Holders of the Company's common and preferred stock and warrants of participation will receive warrants to purchase common stock of the reorganized Company in exchange for their equity interests. The proposed plan also contemplates a business restructuring plan which the Company initially developed in the third quarter of 1992 to divest 4-37 certain of its non-core businesses. However, there can be no assurance that the proposed plan of reorganization will be consummated or, if so, its timing. See "Liquidity and Capital Resources" for additional discussion with respect to the Company's business restructuring plan. Following the Company's public announcement in October 1993 of its then proposed reorganization plan, the New York Stock Exchange took action resulting in the delisting of the Company's common stock. As of December 31, 1993, the Company had negative net worth of $302.3 million and a working capital deficit of $452.3 million after the reclassification of debt in default aggregating $501.0 million. The Company is not in compliance with certain covenants contained in its loan agreements. The Company continues to experience inadequate cash flow to fund its operations and service its debt and other obligations. From September 1992 to February 1994, when the Company obtained debtor-in-possession financing, the Company did not have available credit facilities and, consequently, funded its operations from working capital and proceeds from the sale of businesses and other assets. The Company's surety companies are reviewing bid and performance bonding requests on a case-by-case basis with special attention paid to large construction projects and those with a duration of more than two years. In addition, a surety company that had been the primary source of surety bonds for certain subsidiaries, which together comprised approximately 20% of the Company's 1993 revenues of those mechanical/electrical companies which the Company currently plans to retain, is no longer engaged in the business of issuing such bonds. As a result, these subsidiaries are currently not receiving such bonds. However, the absence of available bonding for these subsidiaries has not resulted in a material reduction in their backlog. The Company and these subsidiaries are actively engaged in discussions with another surety company which has undertaken due diligence for the purpose of entering into a new surety bonding arrangement. However, there can be no assurance that such a new surety bonding arrangement can be obtained. The accompanying financial statements have been prepared on a going concern basis and do not include any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company's continuation as a going concern is dependent upon its ability to restructure its indebtedness in the Chapter 11 proceeding, obtain sufficient bonding to guarantee its performance on construction contracts, return to profitability, obtain new credit facilities and otherwise generate sufficient cash flow to meet its restructured and other obligations on a timely basis. See "Liquidity and Capital Resources." As a result of the restatements of the Company's first and second quarter earnings of 1992, write-offs and losses announced by the Company on August 4, 1992 and on October 2, 1992, class action lawsuits were filed on behalf of shareholders against the Company and certain other defendants. The class action lawsuits have been consolidated and the single consolidated amended class action complaint alleges, among other things, that the Company intentionally and materially overstated assets and earnings in various public disseminations in violation of Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The complaint seeks an unspecified amount of damages. The Company has denied the material allegations contained in the complaint. The parties are now engaged in discovery proceedings. However, under the terms of the Company's proposed plan of reorganization, no damages will be recoverable from the Company by the claimants in the class action litigation, although they will receive warrants to purchase the common stock of the reorganized Company. See Note I to Condensed Consolidated Financial Statements for additional discussion with respect to the shareholder litigation. The Company has been informed by the Securities and Exchange Commission (the "SEC") that it is conducting a private investigation to determine whether there have been violations of certain provisions of the federal securities laws and/or the rules and regulations of the SEC in connection with the Company's financial records, reports and public disclosures. The Company has been cooperating with the SEC's staff and has voluntarily produced requested documents and information. On April 12, 1994, the SEC's staff informed the Company of its intention to recommend that the SEC file a civil injunction action against the Company. The Company is currently engaged in discussions with the SEC's staff concerning a possible consensual resolution of the matter. 4-38 Selling, general and administrative expenses ("SG&A") were $216.7 million in 1993 compared to $440.7 million in 1992. The significantly higher SG&A expenses in 1992 reflects a provision of $100.4 million for losses on accounts and other receivables (See "Mechanical/Electrical Services" below) and higher 1992 general corporate expenses of $48.4 million compared to $26.4 million in 1993 (See "General Corporate and Other Expenses"). A reduction of SG&A expenses in 1993 was realized from the Company's downsizing and restructuring plan. Mechanical/Electrical Services Revenues of the mechanical/electrical services business units for the year ended December 31, 1993 decreased 8.7% to $2.2 billion from $2.4 billion in 1992. Operating loss for the year ended December 31, 1993 was $39.1 million compared to an operating loss of $187.2 million for the year ended December 31, 1992. In connection with the Company's business restructuring plan, certain mechanical/electrical services business units have been sold or identified for sale. The operating results of such business units are included in the aforementioned operating results. Revenues of the mechanical/electrical business units sold or held for sale for the years ended December 31, 1993 and 1992 were $257.9 million and $526.9 million, respectively. For the year ended December 31, 1993, such business units had an operating loss of $11.8 million compared to an operating loss of $41.2 million in the year earlier period. The operating results in both 1993 and 1992 reflect, among other things, the continuing negative impact of the recession and oversupply in the commercial real estate market which has caused intense competition for new commercial work. As a result of the reduction of commercial work, many of the Company's mechanical/electrical services business units have pursued noncommercial projects, primarily governmental and municipal facilities, at lower margins than historically available in the commercial marketplace. Certain of these business units were not as experienced in performing noncommercial projects and, as a result, incurred losses on these long-term contracts. The operating loss in 1993 includes $13.0 million of losses incurred by the Company's business units in the Midwest. Such losses primarily consist of job write-downs and loss contingencies on certain large completed industrial and municipal projects. In the fourth quarter of 1993, certain of the Company's mechanical business units in the Western region recorded charges of approximately $13.1 million for estimated losses on certain large uncompleted municipal projects. The losses were primarily attributable to adverse weather conditions, management turnover, inadequate estimating of job costs and labor problems. Operating margins in 1993 were also adversely affected by approximately $7.6 million of losses in the United Kingdom and Canada. Such losses reflect, among other things, the continued recession in the United Kingdom and Canada, downsizing costs in the United Kingdom and the inadequacy of available bonding in Canada. The operating loss for the year ended December 31, 1992 includes a provision for losses on accounts and other receivables of $100.4 million, due partially to the impact of the recession on the financial condition of customers of the Company's mechanical/electrical services business units. Additionally, the Company's financial condition and negative cash flow negatively impacted its ability to settle claims and unapproved change orders on a favorable basis. The operating loss for the year ended December 31, 1992 also includes restructuring charges of $38.7 million for the downsizing of the Company's North American mechanical/electrical services operations, $13.6 million applicable to the write-off of goodwill and a charge of $15.6 million relating to the write-off of the small tool inventory. Small tools are located at numerous construction sites and generally have short lives. The Company made the decision to write-off its small tool inventory because of the difficulty and expense associated with taking periodic physical inventories. At December 31, 1993, the mechanical/electrical services business backlog was $1.0 billion compared to $1.6 billion at December 31, 1992. Such backlog included $954.2 million at December 31, 1993 and $1,263 million at December 31, 1992 relating to companies which the Company currently intends to retain. The Company's overall backlog in its North American regions and in the United Kingdom has stabilized at approximately $1.0 billion through May 1994. The initial decline is attributable to the downsizing of the Company's operations, the Company's weakened financial condition which continues adversely affects its ability to obtain new contracts and the continuing recession in the North American and overseas construction markets. 4-39 Prospects for a recovery in the commercial office building market in both North America and the United Kingdom remain poor for the immediate future. Additionally, the surety companies will generally not bond new projects for certain non-core businesses which the Company has identified for sale. Surety bonds are frequently a precondition to the award of a mechanical or electrical contract. Included in the Condensed Consolidated Balance Sheet as of December 31, 1993 under the caption "Excess of cost of acquired businesses over net assets, less amortization" is $59.0 million of goodwill. Such goodwill relates to the mechanical/electrical services business units which the Company currently intends to retain. Management believes that such goodwill has not been permanently impaired. However, if the Company were to later decide to divest these units, goodwill and other write-offs might be required depending upon then existing market conditions and their future business prospects. Discontinued Operations In April 1992, the Company announced its intention to sell its water supply business. However in July 1993, the Board of Directors decided not to proceed with the divestiture due to the then pending rate proceedings and litigation. In December 1993, the Company's subsidiary, Jamaica Water Supply Company ("JWS"), executed an agreement with respect to the rate related proceedings and litigation (See Note I) thereby eliminating significant uncertainties relating to the Company's water supply business. Subsequently, the agreement was approved by the New York State Public Service Commission on February 2, 1994. Accordingly, the Company reinstated its plan of divestiture in the first quarter of 1994. In 1993, the Company recorded a $7.4 million loss to write-down the net assets of the water supply business to estimated net realizable value. The Condensed Consolidated Financial Statements reflect the water supply business as a discontinued operation for all periods presented. See Note I regarding the status of a proceeding initiated in 1988 by the City of New York with respect to the possible condemnation of the water distribution system of JWS that is located in New York City. For the year ended December 31, 1993, revenues of the water supply business increased 11.9% to $66.8 million from $59.8 million in the year earlier period. Operating income for the year ended December 31, 1993 was $15.4 million compared to $4.8 million in the year earlier period. Operating results for the year ended December 31, 1992 included a charge of $7.0 million relating to the settlement of litigation and regulatory matters. See Note I and "Liquidity and Capital Resources." On January 1, 1994, upon expiration of the then existing collective bargaining agreement, the local collective bargaining unit (Local 374 of the Utility Workers Union of America) representing 212 employees of JWS commenced a strike against JWS. On March 27, 1994, the membership of the local collective bargaining unit ratified a new five year collective bargaining agreement negotiated between JWS and union officials thereby ending the work stoppage. 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 business. Accordingly, operating results reflect the information services business as discontinued operations. See Note E to the Condensed Consolidated Financial Statements. Revenues of the information services business were $876.7 million and $1.7 billion in 1993 and 1992, respectively. Operating income of the information services business in 1993 was $10.2 million compared to a loss from operations of $187.9 million in 1992. The loss in 1992 includes charges of $67.3 million which consist of the write-off of goodwill and other intangible assets related to the U.S. information services business and costs attributable to employee severance and facilities consolidation. The loss also reflects intense competition among personal computer resellers, decreases in the prices of personal computers and the rapid introduction of new technology. The difficulties encountered by the Company in successfully integrating the back office operations and accounting systems of Businessland Inc., which was acquired in August 1991, with the Company's preexisting information services back office operations resulted in additional losses. In 1993, the Company sold substantially all the assets of its U.S. and international information services subsidiaries. The transactions did not result in a material gain or loss to the Company in 1993. See "Liquidity and Capital Resources" below for additional information with respect to the disposition of the U.S. information services subsidiary. 4-40 In connection with the plan to dispose of the Company's overseas information services business and certain of its U.S. information services units, the Company provided for losses aggregating $49.5 million in 1992. These charges primarily represent the estimated losses to be realized upon the disposition of such business units in 1993. Such amount is in addition to the aforementioned loss from operations of $187.9 million and is included in the accompanying Consolidated Statement of Operations under the caption "Loss from disposal of businesses" in Discontinued Operations. General Corporate and Other Expenses General corporate and other expenses for the year ended December 31, 1993 were $26.4 million compared to $48.4 million in 1992. Corporate expenses for the year ended December 31, 1993 include approximately $12.0 million of expenses related to legal, consulting and other professional fees arising from the shareholder litigation and the proposed debt restructuring. The higher amount of corporate expense for the year ended December 31, 1992 was related primarily to fees paid in 1992 to lending institutions for extensions, amendments and waivers to the Company's revolving credit agreement ($4.5 million), the accelerated vesting of deferred compensation as a result of the termination of employment of certain officers ($5.6 million), employee termination costs ($1.8 million) and relocation of the corporate headquarters, primarily the write-off of leasehold improvements and abandonment of a lease ($4.2 million). Liquidity and Capital Resources For the year ended December 31, 1993, the Company's operations used $44.5 million in cash primarily due to operating losses and working capital requirements. From September 1992 to February 1994, the Company had no available lines of credit and experienced significant cash outflow as a result of adverse publicity associated with the restatements of its first and second quarter 1992 financial statements, defaults under its loan agreements, senior management changes and from operating losses. In February 1994, the Company obtained a $35 million debtor-in-possession credit facility ("DIP Loan") from Belmont Capital Partners II, L.P., an affiliate of Fidelity Investments ("Belmont"), which is described in greater detail below. The Company's consolidated cash balance decreased from $86.8 million at December 31, 1992 to $39.5 million at December 31, 1993. The December 31, 1993 cash balance includes $3.0 million in foreign bank accounts. Such bank accounts are not available to support the Company's domestic mechanical/electrical services business or to pay corporate expenses. The negative operating cash flow reflects continued pressure on accounts payable and other sources in working capital caused by the Company's weakened financial condition, recurring operating losses, restructuring costs and professional fees relating to debt restructuring negotiations and shareholder litigation. Cash deposits made to secure insurance obligations also negatively impacted cash flow. As a consequence of the Company's financial difficulties, an asset disposition program was initiated in the third quarter of 1992 with respect to the Company's non-core businesses and certain other assets to raise cash to reduce operating cash outflow and to reduce debt. A total of $139.0 million of net cash proceeds was realized from that program in 1992 including: $84.1 million from the sale of five energy and environmental related businesses, $21.1 million from the sale of the Company's computer lease portfolio, $18.4 million from the sale of the Company's interest in a hospital's central utility plant and $8.8 million from the sale of a rental equipment business. The cash proceeds from these asset dispositions in 1992 were used to reduce debt and for working capital requirements. During 1993, the Company received net cash proceeds of $43.4 million from the sale of certain overseas information services business units, other non-core businesses and other assets. Such proceeds were used primarily for working capital requirements. In 1993, the Company's information services business and its Canadian mechanical and electrical services subsidiary made net repayments of $13.1 million and $6.2 million, respectively, of notes payable to various lending institutions. 4-41 In February 1994, the Company and substantially all of its subsidiaries entered into an agreement with Belmont in respect to a DIP Loan. The agreement provides a credit facility to the Company of up to $35 million at an interest rate of 12% per annum during the period of the reorganization proceeding. Also, Belmont will receive, as additional interest, a percentage of the securities to be issued under the Company's plan of reorganization. The DIP Loan is secured by a first lien on substantially all of the assets of the Company and most of its subsidiaries. As of June 1994, the Company had drawn down $20 million under the DIP Loan. The Company is in default of certain covenants of the DIP Loan. Pursuant to written waivers of default, dated April 27, 1994 and May 6, 1994, the Company has been permitted by Belmont to draw on its line of credit. Under the circumstances, any additional borrowings under the DIP Loan will require further waivers of default. The DIP Loan is intended to be repaid upon the effective date of the proposed plan of reorganization. The Company is actively seeking a working capital facility of approximately $40 million. The proceeds of this new facility will be used to refinance the Company's borrowings under the DIP Loan and to provide working capital to the reorganized Company. However, there can be no assurance that the Company will be able to obtain a new working capital facility or, if so, the amount of any such facility. Obtaining such a facility is a condition to the confirmation of the Company's plan of organization. In August 1993, the Company sold substantially all the assets of its U.S. information services subsidiary to ENTEX Information Services, Inc. ("ENTEX"), a newly organized company owned by a private investor and the management of the U.S. information services subsidiaries. As part of the consideration for its sale, the Company received warrants to buy up to 10% of the purchaser's common stock for a nominal amount. The Company has ascribed no value to these warrants. Additionally, ENTEX assumed substantially all the debt and other liabilities and obligations relating to the ongoing operations of the U.S. information services subsidiary; that subsidiary retained certain lease obligations and certain tax liabilities. The Company was also released from approximately $210 million of its guarantees of indebtedness and similar obligations of the subsidiary. In October 1993, this subsidiary filed a voluntary petition under Chapter 7 of the U.S. Bankruptcy Code. As described in Notes A and C to the Company's Condensed Consolidated Financial Statements, the Company is in default of covenants contained in its loan agreements under which approximately $501.0 million was outstanding at December 31, 1993 and 1992, including $484.4 million owed to senior lenders and $16.6 million owed to subordinated note holders. With respect to the defaulted senior loan agreements, "standstill arrangements" were negotiated which covered the period from mid-December of 1992 through April 30, 1993. Under the standstill arrangements, the senior lenders agreed, in principle, to forebear the receipt of principal and to accept payment of interest during such periods at reduced rates ranging from 4% to 6.75%. Since April 30, 1993, no standstill arrangement has been in place and the Company ceased making principal and interest payments. However, interest continued to accrue under the terms of the respective loan agreements which in certain circumstances include default rate premiums of an additional 2% and in one case 4%. Interest ceased to accrue on December 21, 1993, the date on which an involuntary bankruptcy petition was filed against the Company. At December 31, 1993, accrued interest on defaulted debt was $43.3 million. The Company has pledged to the holders of its senior notes and bank indebtedness the common stock of five subsidiaries held for sale and certain proceeds from the sale of one of these subsidiaries. The combined net book value of these subsidiaries was $23.2 million at December 31, 1993. The Company has not made scheduled semiannual interest payments since September 1, 1993 with respect to its 73/4% Convertible Subordinated Debentures. All interest payments on such debt were previously made when due. The outstanding principal balance of the debentures at December 31, 1993, in the amount of approximately $7.0 million, has been included in "Debt in default" in the accompanying Condensed Consolidated Balance Sheet. 4-42 In June 1993, the Company's management developed a business restructuring plan. The plan contemplates the sale of a number of domestic mechanical and electrical services business units and the reorganization of the Company principally around a smaller international mechanical/electrical services business which had revenues of approximately $1.9 billion in both 1993 and 1992. The Company's proposed plan of reorganization contemplates that the creditors of JWP INC. will exchange approximately $623 million of holding company debt and other liabilities for approximately $139 million of recourse debt, approximately $48 million of nonrecourse debt, 100% of the equity of the Company and warrants to purchase the common stock of the reorganized Company. All of the new debt, except for $67 million, is expected to be paid from the proceeds of asset sales. As indicated previously under the proposed plan of reorganization, holders of the Company's common and preferred stock and warrants of participation will receive warrants to purchase common stock of the reorganized Company in exchange for their equity interests. Only JWP INC., the holding company is the subject of the proceeding under Chapter 11. The Company's mechanical/electrical, water supply and other operating subsidiaries are not parties to this proceeding. All operating subsidiary payments have been made in the ordinary courses of business. See "Results of Operations" with respect to the Company's ability to continue as a going concern. See Note D with respect to the status of certain liabilities of the Company which were in existence prior to February 14, 1994, the date that the Company consented to the entry of the order for relief under Chapter 11 of the U.S. Bankruptcy Code. See also Note D with respect to the recorded liabilities as of December 31, 1993 which are subject to compromise under the Company's plan of reorganization. The Company's Canadian subsidiary, Comstock Canada, is negotiating with a Canadian bank to obtain a Canadian $7.5 million (approximately U.S.$5.6 million) secured demand loan credit facility with interest at the Canadian prime rate (8% at June 1994) plus 1%. The new credit facility would be secured by all the assets of Comstock Canada and would be guaranteed by the Company. In June 1994, a number of the Company's U.K. subsidiaries entered into a demand credit facility with a U.K. bank with an aggregate credit limit of Pounds14.1 million (approximately U.S.$21.7 million). The credit facility consists of the following components with the individual credit limits as indicated: an overdraft line of up to Pounds7.0 million (approximately U.S.$10.7 million), a facility for the issuance of guarantees, bonds and indemnities of up to Pounds7.4 million (approximately U.S.$11.4 million) and other credit facilities of up to Pounds0.75 million (approximately U.S.$1.2 million). The overdraft facility is secured by substantially all of the assets of the Company's principal U.K. subsidiaries. The overdraft facility provides for interest at the U.K. bank reference rate (51/2% as of June 1994) plus 3%. This credit facility will expire in December 1994. JWS, a subsidiary of the Company carried in "Net assets held for sale" in the accompanying Condensed Consolidated Balance Sheets, had two revolving credit agreements each of which permitted unsecured borrowings of up to $10.0 million with interest rates equal to the prime rate (71/4% at June 30, 1994). Both agreements expired on April 30, 1994 and the borrowings thereunder have been permitted by the lenders to remain outstanding. JWS is currently negotiating new revolving credit agreements. As of December 31, 1993, JWS had equal borrowings under each agreement aggregating $4.8 million. These borrowings are reflected as current liabilities in the Condensed Balance Sheet of "Net assets held for sale" which is presented in Note E to the Condensed Consolidated Financial Statements. The Company's mechanical/electrical services business does not require significant commitments for capital expenditures. The Company's water supply business anticipates making capital expenditures of approximately $53 million for the utility plant over the five years ended December 31, 1998 including approximately $9 million in 1994. These capital expenditures are expected to be financed by internally 4-43 generated funds from the water supply business with any remaining long-term financing requirements during that period obtained from the proceeds of newly issued first mortgage bonds and from bank loans. However, the Company's financial difficulties are making it difficult for the water supply business to finance its capital programs. On December 22, 1993, JWS, the New York State Consumer Protection Board, Nassau County, certain other governmental bodies and a consumer advocate group executed an agreement that ended the several regulatory and legal proceedings against JWS which are described above and in Note I to the Condensed Consolidated Financial Statements. Subsequently, the agreement was approved by the New York State Public Service Commission (the "'PSC") on February 2, 1994. The agreement provides for, among other things, a three year moratorium on rates charged by JWS, resolution of the economic issues raised by the PSC arising from its 1992 audit of JWS, settlement of related litigation and the dismissal of an action brought against JWS by Nassau County of the State of New York alleging violations of the Racketeer Influenced and Corrupt Organizations Act and common law fraud. JWS also agreed, in consideration of avoided litigation and other costs associated with the proceedings, to make payments over the next three years totalling $11.7 million to customers in Nassau and Queens Counties in the State of New York. The agreement also provides that JWS will use its best efforts to bring about the separation of Jamaica Water Securities Corp., a subsidiary of the Company which holds substantially all the common stock of JWS, from the Company. At December 31, 1993, the Company and a wholly-owned captive insurance subsidiary ("Defender") had letters of credit outstanding totalling $36.4 million which in effect secure their workers' compensation, automobile and general liability insurance obligations. The letters of credit were intended to serve as collateral for the obligations of Defender to reimburse the Company's unrelated insurance carriers for claims paid in respect of certain years' insurance programs. A total of $34.9 million of such letters of credit expire in December 1994 and $1.5 million in February 1995. Since October 1992, neither the Company nor Defender have been able to obtain additional letters of credit to secure these type of obligations and, as a result, have been required to make cash collateral deposits to a third party insurance company to secure such obligations. The deposits totalled $21.3 million and $7.7 million as of December 31, 1993 and 1992, respectively, and are included under the caption "Miscellaneous" in Other Assets in the accompanying Condensed Consolidated Balance Sheets. Such deposits have increased to $29.7 million as of June 30, 1994. They expect to be required to post additional cash collateral insurance deposits at least until the Company completes its reorganization in the Chapter 11 proceedings. The need to provide cash collateral has adversely affected the Company's cash flow. The Company's proposed plan of reorganization contemplates that the letters of credit described above will be drawn upon by the unrelated insurance carriers and that the Company's obligations to Defender, which were pledged collateral to the banks issuing such letters of credit, will be impaired under the Chapter 11 proceeding as well as any related Company obligations to those banks. Beginning in February 1994, Defender ceased making payments for amounts owed to the unrelated insurance carriers, which obligations are in effect secured by the letters of credit, and the Company's unrelated insurance carriers have commenced partial draw downs against certain of the letters of credit. Approximately $5 million has been drawn against these letters of credit through June 1994. The Company has not paid dividends on its preferred stock since September 1992. Cumulative unpaid dividends through December 31, 1993 aggregate $2.3 million. The Company has substantial net operating loss carryforwards ("NOL") for U.S. Federal income tax purposes. If the Company exchanges its existing indebtedness for newly issued equity and for debt as contemplated by the proposed plan of reorganization, a significant portion of the NOL may not be available to reduce future U.S. taxable income. Additionally, due to recent changes in the U.S. Federal income tax laws, the timing of any such reorganization could further impact and reduce the amount of the NOL (See Note H). 4-44 In September 1992, the PSC issued an order that resulted in the suspension of dividend payments to the Company by JWS for the last two quarters of 1992 and for the year ended December 31, 1993. Dividends paid by JWS in 1992 amounted to $1.2 million. As a result of the settlement agreement described above, JWS recommenced payment of dividends in 1994. Impact of New Accounting Pronouncement The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 112 "Employers' Accounting for Postemployment Benefits" which will be effective beginning in 1994. The adoption of this standard will not have a material impact upon the Company's consolidated financial position or its results of operations.
JWP INC. and Subsidiaries Condensed Consolidated Balance Sheets (unaudited) (In thousands) December 31, -------------------- 1993 1992 ----------- ----------- ASSETS Current Assets Cash and cash equivalents.............. $ 39,534 $86,836 Accounts receivable, net. 455,944 458,273 Costs and estimated earnings in excess of billings on uncompleted contracts.... 61,987 67,817 Inventories............. 5,221 6,618 Prepaid expenses and other... 13,240 9,746 Net assets held for sale... 20,454 32,894 ----------- ----------- Total Current Assets......... 596,380 662,184 --------- ----------- Net assets held for sale... 63,161 85,611 Investments, notes and other long-term receivables................... 19,737 22,440 Property, plant and equipment, net........................... 39,266 51,087 Other Assets Excess of cost of acquired businesses over net assets, less amortization.. 58,973 61,542 Miscellaneous.............. 28,925 24,720 ------ ----------- 87,898 86,262 ----------- ----------- Total Assets............. $806,442 $907,584 =========== =========== LIABILITIES AND SHAREHOLDERS' (DEFICIT) Current Liabilities Notes payable............ $ 172 $6,452 Current maturities of long-term debt and capital lease obligations........ 2,327 2,634 Debt in default........ 501,007 501,007 Accounts payable....... 209,867 224,840 Billings in excess of costs and estimated earnings on uncompleted contracts... 115,179 125,764 Other accrued expenses and liabilities................. 220,152 166,398 ----------- ----------- Total Current Liabilities. 1,048,704 1,027,095 --------- ----------- Long-term debt........ 2,538 4,111 Other long-term obligations. 57,462 52,357 Shareholders' (Deficit) Preferred Stock, $1 par value, 25,000,000 shares authorized, 425,000 shares of Series A issued and outstanding 21,250 21,250 Common Stock, $.10 par value, 75,000,000 shares authorized, 40,715,541 and 40,754,051 outstanding, excluding 727,389 and 591,775 treasury shares in 1993 and 1992....... 4,072 4,075 Warrants of Participation........... 576 576 Capital surplus................. 204,247 203,505 Cumulative translation adjustments (6,068) (3,930) (Deficit).......................... (526,339) (401,455) ----------- ----------- Total Shareholders' (Deficit)............................ (302,262) (175,979) ----------- ----------- Total Liabilities and Shareholders' (Deficit)............................. $806,442 $907,584 =========== ===========
See notes to condensed consolidated financial statements.
JWP INC. and Subsidiaries Condensed Consolidated Statements of Operations (unaudited) (In thousands, except per share data) Year Ended December 31, -------------------------- 1993 1992 --------------- ----------- Revenues........................ $2,194,735 $2,404,577 ------------- ----------- Costs and Expenses Cost of sales.............. 2,043,558 2,160,723 Selling, general and administrative. 216,709 440,725 Restructuring charges.......... - 38,741 --------------- ----------- 2,260,267 2,640,189 --------------- ----------- Operating (Loss)............ (65,532) (235,612) Interest expense, net........ (50,187) (44,181) Net gain (loss) on businesses sold or held for sale............... 1,028 (76,078) --------------- ----------- (Loss) Before Income Taxes...................... (114,691) (355,871) (Benefit) provision for income taxes............................. (700) 7,644 --------------- ----------- (Loss) From Continuing Operations Before Cumulative Effect of Accounting Change................ (113,991) (363,515) --------------- ----------- Discontinued Operations Income (loss) from operations, net of income taxes...................... 11,263 (203,739) (Loss) from disposal of businesses, net of income taxes................. (20,350) (49,491) --------------- ----------- (Loss) from discontinued operations.......................... (9,087) (253,230) --------------- ----------- Cumulative Effect of Change in Method of Accounting for Income Taxes.... - 4,315 ------------- ----------- Net (Loss)............ $(123,078) $(612,430) =============== =========== (Loss) Per Share Continuing operations........... $(2.84) $(9.00) Discontinued operations Income (loss) from operations.......................... 0.28 (5.02) (Loss) from disposal of businesses...................... (0.50) (1.22) --------------- ----------- (Loss) from discontinued operations.................. (0.22) (6.24) -------------- ----------- Cumulative effect of change in method of accounting for income taxes.... - 0.11 --------------- ----------- Net (loss)............ $(3.06) $(15.13) =============== ===========
See notes to condensed consolidated financial statements.
JWP INC. and Subsidiaries Condensed Consolidated Statements of Cash Flows (unaudited) (In thousands) Year Ended December 31, -------------------- 1993 1992 - --------------------------------------------------------------- Net (Loss).................. $(123,078) $(612,430) Adjustments to Reconcile Net (Loss) to Net Cash (Used in) Operating Activities Depreciation and amortization...... 35,246 68,993 Restructuring charges applicable to continuing operations.... - 38,741 Restructuring charges applicable to discontinued operations.. - 25,950 Net (gain) loss from businesses sold or held for sale........ (1,028) 76,078 Provision for losses on accounts and other receivables....... 13,663 113,903 Inventory valuation adjustments.... - 59,787 Write-off of deferred debt issuance cost..................... - 2,876 Write-off of fixed assets and miscellaneous assets........... - 11,167 Write-off of goodwill and other intangibles.................. - 54,873 Stock compensation.................. 727 9,518 Deferred income taxes............. 4,138 7,136 Loss from disposal of discontinued operations................ 20,350 49,491 Equity and other losses in unconsolidated subsidiary........... - 5,690 Cumulative effect of accounting change for income taxes...... - (4,315) Other, net.......................... 2,411 21,112 ---------- ----------- (47,571) (71,429) Change in Operating Assets and Liabilities Excluding Effect of Businesses Disposed of and Acquired Decrease in accounts receivable....... 41,286 73,379 Decrease in inventories and contracts in progress............ 35,292 123,884 (Decrease) in accounts payable and accrued expenses.......... (73,563) (190,752) Changes in other assets and liabilities 17 15,335 --------- ----------- Net Cash (Used in) Operations............(44,539) (49,583) ---------- ----------- Cash Flows from Financing Activities Proceeds from long-term debt........... 710 85,302 Payments of long-term debt and capital lease obligations..... 6,027) (68,514) Proceeds from issuance of common stock and exercise of stock options......................... - 1,911 Payment of preferred dividends......... - (1,354) Redemption of preferred stock of subsidiary company.......... (500) - Acquisition of common stock for the treasury................. - (8,130) (Decrease) increase in notes payable, net (19,269) 30,258 --------- ----------- Net Cash (Used in ) Provided by Financing Activities........... (25,086) 39,473 ---------- ----------- Cash Flows from Investment Activities Proceeds from sale of businesses and other assets............ 43,400 138,971 Acquisition of businesses, net of cash acquired.............. - (15,899) Purchase of property, plant and equipment.................... (17,329) (36,411) Purchase of environmental facilities - (32,044) Net disbursements for other investments...................... - (9,695) Cash balance of businesses held for sale or sold............. (3,748) (26,241) Other, net........................... - 1,672 -------- ----------- Net Cash Provided by Investment Activities..................... 22,323 20,353 --- ----------- (Decrease) Increase in Cash and Cash Equivalents............... (47,302) 10,243 Cash and Cash Equivalents at Beginning of Year................. 86,836 76,593 ---------- ----------- Cash and Cash Equivalents at End of Year $39,534 $86,836 === =========== See notes to condensed consolidated financial statements.
JWP INC. and Subsidiaries Condensed Consolidated Statements of Shareholders' Equity (Deficit) (unaudited) (In thousands) Cumulative tained Preferred Common Warrants of Capital Translation Earnings Shareholders' Stock Stock Participation Surplus Adjustments (Deficit) Equity (Deficit) --------- ------- ------------- --------- ----------- ----------- ---------------- Balance December 31, 1991 ...................... $21,250 $4,018 $576 $212,703 $4,807 $212,782 $456,136 Common stock issued in connection with acquisitions............... - 10 - 739 - - 749 Exercise of stock options.. - 14 - 1,897 - - 1,911 Acquisition of common stock for the treasury..... - (57) - (8,073) - - (8,130) Guaranteed future value of stock issued to acquire businesses................. - - - (12,308) - - (12,308) Deferred compensation and officer bonus.............. - 55 - 9,463 - - 9,518 Foreign currency translation adjustment..... - - - - (8,737) - (8,737) Preferred stock dividends.. - - - - - (1,807) (1,807) Other, net................. - 35 - (916) - - (881) Net loss................... - - - - - (612,430) (612,430) --------- ------- ---------------------- ----------- ----------- ---------------- Balance December 31, 1992....................... 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) ========= ======= ============= ========= =========== =========== ================
See notes to condensed consolidated financial statements. JWP INC. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) NOTE A Basis of Presentation The accompanying financial statements have been prepared assuming that JWP INC. (the "Company") will continue as a going concern. The matters discussed below raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company's continuation as a going concern is dependent upon its ability to restructure its indebtedness under its Chapter 11 proceedings, obtain sufficient bonding to guarantee its performance on construction contracts, return to profitability, obtain new credit facilities and generate sufficient cash flow to meet its restructured and other obligations on a timely basis. The Company has a working capital deficit of $452.3 million after the reclassification of long-term debt in default and a shareholders' deficit of $302.3 million at December 31, 1993. Many of the Company's mechanical/electrical services contracts require surety bonds to guarantee the performance of such contracts. The Company's surety companies are reviewing bid and performance bonding requests on a case-by-case basis with special attention paid to large construction projects and those with durations of more than two years. In addition, a surety company that had been the primary source of surety bonds for certain subsidiaries, which together comprised approximately 20% of the Company's 1993 revenues of those mechanical/electrical companies which the Company currently plans to retain, is no longer engaged in the business of issuing such bonds. As a result, subsidiaries are currently not receiving such bonds. However, the absence of available bonding for these subsidiaries has not resulted in a material reduction in their backlog. The Company and these subsidiaries are actively engaged in discussions with another surety company which has undertaken due diligence for the purpose of entering into a new surety bonding arrangement. However, there can be no assurance that such a new surety bonding arrangement can be obtained. The Company is focused on returning to profitability and restructuring its operations primarily around a smaller international mechanical/electrical services business. The Company has formulated a business restructuring plan which includes the sale of its information services business, water supply business, several non-core businesses and certain mechanical/electrical services operations and the closing or downsizing of unprofitable operations (See Notes D and E). The proceeds from the sale of these businesses and other assets to date have been used for working capital and to reduce debt. There is no assurance that the Company will be able to consummate the remaining sales and, if consummated, whether the Company will realize the proceeds contemplated by the plan. As described in Note C, the Company is in default of covenants contained in its senior note agreements, bank credit agreement, 12% subordinated note agreements and its 73/4% Convertible Subordinated Debentures and is presently in a Chapter 11 proceeding. The outstanding amount of such debt in default at December 31, 1993 is $501.0 million. On December 21, 1993, three holders of the Company's 73/4% Convertible Subordinated Debentures filed an involuntary petition under Chapter 11 of the U.S. Bankruptcy Code against the Company. The Company on February 14, 1994 consented to the entry of an order for relief under Chapter 11 of the Bankruptcy Code. At the time, the Company adopted a proposed plan of reorganization and its subsidiaries continue to operate in the normal course of business. The proposed plan of reorganization which, as modified, has the support of the Official Unsecured Creditors Committee and the Official Unsecured Junior Creditors and Interest Holders Committee. The proposed plan of reorganization contemplates that the Company's creditors will exchange approximately $623 million of holding company debt and other liabilities for approximately $139 million of recourse debt, approximately $48 million of nonrecourse debt, 100% of the equity of the Company and warrants to purchase common stock of the reorganized Company. All of the new debt, except for approximately $67 million, is expected to be paid from the proceeds of asset sales. The holders 4-50 of the Company's common and preferred stock and warrants of participation will receive warrants to purchase common stock of the reorganized Company in exchange for their equity interests. There can be no assurance that the proposed plan of reorganization will be consummated or, if so, its timing. The Company's mechanical/electrical services, water supply and other operating subsidiaries are not parties to this Chapter 11 proceeding. All operating subsidiary payments continue to be paid in the ordinary course of business. 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 divestiture due to uncertainties created by the then pending rate related matters and litigation which are described in Note J. In December 1993, the Company's subsidiary, Jamaica Water Supply Company ("JWS"), entered into an agreement with respect to the rate related proceedings and litigation thereby eliminating significant uncertainties relating to the water supply business. Subsequently, the agreement was approved by the New York State Public Service Commission on February 2, 1994. Accordingly, the Company reinstated its plan of divestiture in the first quarter of 1994. 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 subsidiaries. Accordingly, operating results for all periods presented have been reclassified to reflect the Company's information services business and water supply business as discontinued operations (see Note E). As described above and in Notes E and F, the Company has developed a business restructuring plan which contemplates the sale of its information services business, certain of its mechanical/electrical services business units, its water supply business and certain other non-core businesses. As a result, the net assets of businesses to be sold have been classified in the Condensed Consolidated Balance Sheets as of December 31, 1993 and 1992 as "Net assets held for sale" and carried as either current or long-term assets on the basis of their actual or expected disposition dates. As described in Note I, a consolidated class action lawsuit for unspecified damages was filed against the Company, certain former officers and directors, four current directors, a former subsidiary officer and the Company's then auditors, Ernst & Young. The complaint alleges violations of Section 10(b) of the Securities and Exchange Act of 1934, Rule 10b-5 promulgated thereunder and common law fraud and deceit on the part of the Company and other named defendants. The Company has denied the material allegations contained in the complaint. The parties are now engaged in the discovery proceedings. However, the Company expects that under the terms of its proposed plan of reorganization, no amounts will be recoverable from the Company by claimants in the class action litigation, although they will receive warrants to purchase the common stock of the reorganized Company. NOTE B Net (Loss) Per Share Net loss per common share has been calculated based on the weighted average number of shares of common stock outstanding and common stock equivalents relating to warrants and stock options outstanding when the effect of such equivalents are dilutive (40,816,783 and 40,583,185 for the years ended December 31, 1993 and 1992, respectively). Per share amounts of loss from continuing operations and net loss reflects amounts paid and accrued on the Company's preferred stock. NOTE C Debt in Default Debt in default at December 31, 1993 and 1992 consists of (in thousands):
Notes payable to banks under revolving credit facility at prime plus 3/4%$155,795 Senior notes payable to insurance companies, 9.1% to 10.95%............. 328,572 -------- Total senior debt....................................................... 484,367 Subordinated notes payable to insurance companies, 12%......... 9,600 73/4% Convertible Subordinated Debentures...................... 7,040 -------- $501,007 ====
The Company failed to make principal and interest payments and is in default of various financial covenants contained in its senior notes and 12% subordinated notes including minimum tangible net worth and minimum current ratio. The revolving credit facility contains certain financial and other covenants, including minimum tangible net worth and minimum current ratio, under which the Company is also in default. As a result, the entire amount of such notes and bank indebtedness has been classified in the accompanying Condensed Consolidated Balance Sheets as "Debt in default". Additionally, the Company has not made scheduled semiannual interest payments since September 1, 1993 with respect to its 73/4% Convertible Subordinated Debentures and, accordingly, such debentures have been classified as "Debt in default" in the accompanying Condensed Consolidated Balance Sheet. Effective April 1993, the Company ceased making payments of principal and interest under its revolving credit facility and its senior and subordinated notes. Interest continued to accrue in accordance with the provisions of these loan documents which in certain circumstances included default rates of an additional 2% and in one case 4%. Interest ceased to accrue on December 21, 1993, the date on which an involuntary bankruptcy petition was filed against the Company. The Company has pledged to the holders of its senior notes and bank indebtedness the common stock of five subsidiaries held for sale and certain proceeds of the sale of one of those subsidiaries which had a combined net book value of $23.3 million as of December 31, 1993. Certain of the Company's loan agreements contain covenants which restrict its ability to pay dividends on its common stock. The Company does not meet the financial ratio requirements under such covenants and consequently is restricted from paying dividends on its common stock. The Company's 73/4% Convertible Subordinated Debentures are convertible into common stock at any time on or prior to September 1, 2012 at $30.11 per share which is subject to change as defined in the indenture agreement pursuant to which the debentures were issued. The debentures are redeemable, at the Company's option, on any date prior to maturity at redemption prices (expressed as percentages of principal amount) ranging from 102.325% in 1994 to 100% in 1997 and thereafter, plus accrued interest. In 1992, the Company purchased $8.7 million of its 73/4% debentures and realized a net gain of $1.8 million from early retirement of such debt. See Note A with respect to the contemplated exchange of the debt in default for new debt and equity securities under the Company's proposed plan of reorganization. As of June 1994, the estimated fair value of the Company's obligations under its revolving credit facility approximates $50 million or approximately 30% of the amount of its pre-bankruptcy petition date principal and accrued interest. The estimated fair value of the senior notes approximates $122 million or approximately 34% of the amount of its pre-bankruptcy petition date principal and accrued interest. Such valuations were based upon recent private transactions involving the purchase and sale of a limited number of such debt instruments. However, the estimated values described above are not necessarily indicative of their fair market value because these debt instruments are not actively traded or exchanged. The estimated fair value of the defaulted 12% subordinated notes and 73/4% Convertible Subordinated Debentures is nominal. Such valuations were based upon comparison with similarly rated securities and are not necessarily indicative of the current market value. NOTE D Pre-Consent Date Bankruptcy Claims Subject to Compromise As described in Note A, on February 14, 1994, the Company consented to the entry of an order for relief under Chapter 11 of the U.S. Bankruptcy Code. Under Chapter 11, certain claims against the Company in existence prior to the date that an involuntary petition was filed against the Company, December 21, 1993, are stayed while the Company continues business as a debtor-in-possession. These claims which total approximately $623 million are subject to compromise under the Company's proposed reorganization plan. As detailed in the following table, the Company's Condensed Consolidated Balance Sheet as of December 31, 1993 includes certain liabilities which are subject to compromise under the Company's reorganization plan.
Other Accrued Other Long- Accounts Debt in Expenses and term Payable Default Liabilities Obligations Total -------- ------- ------------- ----------- -------- (In Thousands) Debt in default (Note C)............... $- $501,007 $- $- $501,007 Accrued interest (Note C).............. - - 43,315 - 43,315 Amount due to JWP Information Services, Inc. (Note E).................................... - - 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 Unfunded directors' retirement benefits..... - - - 975 975 Insurance reserves (Note G)................. - - 9,600 26,800 36,400 Other impaired claims....................... 400 - 699 - 1,099 -------- ------- ------- ------- ------ $400 $501,007 $91,959 $29,493 $622,859 ======== ======== ======== ======= ========
The Bankruptcy Court established April 8, 1994 as the bar date for filing of claims and certain claims have been filed against the Company which are contingent or in dispute. Additional claims may arise subsequent to the petition date resulting from rejection by the Company of executory contracts, including leases, and from determination by the Court or agreed to by the parties at interest of allowed claims for contingent or disputed amounts. The Company has received approval from the Bankruptcy Court to pay or otherwise honor certain of its pre-consent date bankruptcy obligations including employee wages and benefits, amounts due under its property, casualty, workers' compensation and other insurance programs, and amounts payable under a JWP employee stay bonus and severance pay plan. NOTE E Discontinued Operations Discontinued operations includes the Company's information services business and water supply business. 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 business. Accordingly, operating results of the information services business have been classified as discontinued operations. In August 1993, the Company sold substantially all of the assets of its U.S. information services business. The Company did not realize a material gain or loss from the sale in 1993. The assets of the U.S. information services business consisted primarily of inventory held for resale and accounts receivable. Under the terms of the agreement, the purchaser assumed the debt and other liabilities relating to the ongoing operations of the business. The Company received warrants to buy up to 10% of the purchaser's common stock for a nominal amount. In October 1993, the Company's U.S. information services subsidiary filed a voluntary petition under Chapter 7 of the U.S. Bankruptcy Code. In connection with the bankruptcy filing, the Company recorded a loss of $8.1 million. Such amount is included in "Loss from disposal of businesses" in the accompanying Condensed Consolidated Statement of Operations. At December 31, 1993, the Company owed its bankrupt U.S. information services subsidiary $24.9 million. Such amount is included in "Other accrued expenses and liabilities" in the accompanying Condensed Consolidated Balance Sheet. As described in Note A, in March 1994, the Company reinstated its plan of divestiture in respect to its water supply business. As a result, the Company recorded a loss of $7.4 million in the fourth quarter of 1993 to record the net assets of the water supply business at their estimated net realizable value. Additionally, the Company recorded a loss of $1.5 million to further writedown the estimated realizable value of one of its information services businesses to its estimated net realizable value based upon current market conditions. Also, the Company sold substantially all of the assets of its international information services businesses in 1993. The sale of such businesses results in a loss of $3.3 million in 1993. Such amounts are included as "Loss from disposal of businesses" in the accompanying Condensed Consolidated Statement of Operations. Note I discusses the status of a proceeding initiated in 1988 by the City of New York to acquire by condemnation all of the water distribution system of JWS that is located in New York City. Combined operating results of discontinued operations including both the information services and water supply business are as follows:
Year Ended December 31, ---------- ---------- 1993 1992 (In thousands) Revenues.................................... $943,455 $1,752,171 Costs and expenses.......................... 917,872 1,935,349 --------- ----------- Operating income (loss)..................... 25,583 (184,178) Interest expense............................ (14,320) (18,944) --------- ----------- Income (loss) before taxes.................. 11,263 (202,122) Provision for income taxes.................. - 1,617 --------- ----------- Income (loss) from discontinued operations.. $11,263 $(203,739) ========= ===========
NOTE F Other Businesses Sold and Net Assets Held For Sale In May 1993, the Company completed the sale of Software House, Inc., a manufacturer of security systems, for cash proceeds of $12.6 million and realized a net gain of approximately $2.7 million. In addition to Software House and the U.S. information services business, the Company sold a number of non-core businesses and other assets in 1993 for cash proceeds of approximately $43.4 million. Additionally, the Company received notes and other assets with an aggregate carrying value of $10.9 million. The Company did not realize a material gain or loss from these divestitures in 1993. The Company's Board of Directors has approved a plan for the sale of the Company's remaining energy and environmental related businesses, other non-core businesses and certain mechanical/electrical services operations. In connection with this asset disposition plan, a loss of $88.1 million was provided for in 1992. The operating results of these businesses are included in the determination of the (loss) from continuing operations. Revenues and operating (loss) of other businesses sold and held for sale for the years ended December 31, 1993 and 1992 are as follows: Year Ended December 31, ------------------- 1993 1992 --------- --------- (In thousands) Revenues.......... $257,910 $526,894 Operating (loss).. (11,802) (41,151) The assets of the water supply business consists 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, which aggregate $63.2 million and $57.2 million as of December 31, 1993 and 1992, respectively, are classified as long-term assets in the accompanying Consolidated Balance Sheet under the caption "Net assets held for sale" because the disposition of the water supply business is expected to take place after 1994. 4-54 A condensed balance sheet relating to discontinued operations and other net assets held for sale at December 31, 1993 is as follows (in thousands): Cash.................................. $17,617 Accounts receivable, net.............. 59,869 Costs and estimated earnings in excess of billings........................... 4,889 Inventories........................... 13,089 Other current assets.................. 2,597 -------- 98,061 Property, plant and equipment, net.... 154,836 Other assets.......................... 12,653 -------- $265,550 ======== Current maturities of long-term debt and capital lease obligations....... $9,783 Accounts payable.................... 13,610 Billings in excess of costs and estimated earnings.................. 9,200 Other accrued expenses.............. 72,696 -------- 105,289 Long-term debt...................... 36,945 Other long-term liabilities......... 39,701 Net assets held for sale-current.... 20,454 Net assets held for sale-long-term.. 63,161 -------- $265,550 ======== NOTE G Insurance Reserves The Company is primarily insured with an indirect wholly-owned captive insurance subsidiary ("Defender") for its workers' compensation, automobile and general liability insurance. The 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 as of December 31, 1993 and 1992 using a 4% discount rate. The estimated current portion of the insurance liability was $17.7 million and $16.5 million at December 31, 1993 and 1992, respectively. Such amounts are included in "Other accrued expenses and liabilities" in the accompanying Consolidated Balance Sheets. The noncurrent portion of the insurance liability was $41.0 million and $33.1 million at December 31, 1993 and 1992, respectively. Such amounts are included in "Other long-term obligations". The undiscounted liability was approximately $65.2 million and $54.0 million at December 31, 1993 and 1992, respectively. At December 31, 1993, the Company and Defender had letters of credit outstanding totalling $36.4 million which in effect secure their insurance obligations. Such letters of credit expire in December 1994 ($34.9 million) and in February 1995 ($1.5 million). The letters of credit were intended to serve as collateral for the obligations of Defender to reimburse the Company's unrelated insurance carriers for claims paid in respect of certain years' insurance programs. Since October 1992, neither the Company nor Defender have been able to obtain additional letters of credit to secure their insurance obligations and as a result has been required to make cash collateral deposits to a third party insurance company to secure such obligations. The deposits totalled $21.3 million and $7.7 million as of December 31, 1993 and 1992, respectively, and are classified as a long-term asset in the accompanying Condensed Consolidated Balance Sheets under the caption "Miscellaneous" in Other Assets. Such deposits have increased to $29.7 million as of June 30, 1994. The Company's proposed plan of reorganization contemplates that the letters of credit described above will be drawn upon by the unrelated insurance carriers and that the Company's obligations to Defender, which were pledged as collateral to the banks issuing such letters of credit, will be impaired under the Chapter 11 proceeding as well as any related Company obligations to those banks. Beginning in February 1994, Defender ceased making payments of amounts owed to the unrelated insurance carriers, which obligations are in effect secured by the letters of credit, and the Company's unrelated insurance carriers have commenced partial draw downs against certain of the letters of credit. Approximately $5 million has been drawn against certain of the letters of credit through June 1994. NOTE H Income Taxes The Company files a consolidated federal income tax return including all U.S. subsidiaries. At December 31, 1993, the Company has a net operating loss carry-forward ("NOL") for U.S. income tax purposes expiring 4-55 in years through 2008 which approximates $500 million. The Company has provided a valuation allowance for the full amount of such NOLs. As described in Note A, the Company is contemplating a restructuring of its indebtedness with certain of its creditors on the basis of an exchange of newly issued equity and debt securities for debt. If the Company is able to restructure its debt on such basis, a substantial portion of the NOL may not be available to reduce future U.S. taxable income. Additionally, due to recent changes in the U.S. Federal income tax laws, the timing of any such debt restructuring could further impact and reduce the amount of NOL. At December 31, 1993 and 1992 (after having given effect to the adoption of SFAS No. 109), the valuation allowance recorded against the deferred tax assets were $170.1 million and $138.3 million, respectively. These amounts relate to certain deferred tax assets for which realization requires taxable income in the subsidiary which gave rise to the deferred tax asset. NOTE I Legal Proceedings Since August 1992, nineteen purported class action lawsuits have been filed against the Company arising out of the restatement of earnings, write-offs and losses announced by the Company on August 4, 1992 and October 2, 1992. Pursuant to Stipulation and Court Order on January 15, 1993, a single consolidated amended class action complaint (the "Complaint") was filed. The Complaint names as defendants the Company, certain former officers and directors, four current directors, a former subsidiary officer and the Company's then outside auditor, Ernst & Young. The Complaint alleges violations of Section 10(b) of the Securities and Exchange Act of 1934, Rule 10b-5 promulgated thereunder and common law fraud and deceit on the part of the Company and certain other defendants. Among other things, the Company is alleged to have intentionally and materially overstated its inventory, accounts receivable and earnings in various public disseminations during the purported class period May 1, 1991 through October 2, 1992. The Complaint seeks an unspecified amount of damages. The Company denies the material allegations in the Complaint. The parties are now engaged in discovery proceedings. However, the Company expects that under the terms of its proposed Chapter 11 plan of reorganization, no damages will be recoverable from the Company by claimants in the class action litigation, although they will receive warrants to purchase the common stock of the reorganized Company. The Company has been informed by the Securities and Exchange Commission (the "SEC") that it was conducting a private investigation to determine whether there have been violations of certain provisions of the federal securities laws and/or the rules and regulations of the SEC in connection with the Company's financial records, reports and public disclosures. The Company has been cooperating with the SEC's staff and has voluntarily produced requested documents and information. On April 12, 1994, the SEC's staff informed the Company of its intention to recommend that the SEC file a civil injunction action against the Company. The Company is currently engaged in discussions with the SEC's staff concerning a possible consensual resolution of the matter. On December 22, 1993, JWS, a subsidiary of the Company, and representatives from New York State, New York City, Nassau County and a consumer advocate group executed an agreement that ended the several regulatory and legal proceedings against JWS. Subsequently, the agreement was approved by the New York State Public Service Commission (the "PSC") on February 2, 1994. The agreement provides for, among other things, a three year general rate moratorium, resolution of the economic issues raised by the PSC arising from its 1992 audit of JWS, settlement of related litigation and the dismissal of an action brought against JWS by Nassau County in the State of New York alleging violations of the Racketeer Influenced and Corrupt Organization Act and common law fraud. JWS agreed, in consideration of avoided litigation and other costs associated with the proceedings, to make payments over the next three years totalling $11.7 million to customers in Nassau and Queens Counties in the State of New York. In connection with this settlement, the Company provided a pre-tax charge of $7.0 million in 1992. The agreement also provides that JWS will use its best efforts to bring about the separation of Jamaica Water Securities Corp., a subsidiary of the Company which holds substantially all the common stock of JWS, from the Company. 4-56 In 1986, the State of New York enacted a statute requiring the City of New York (the "City") to acquire by condemnation all of the JWS property constituting or relating to its water distribution system located in the City only if a Supreme Court of the State of New York (the "Supreme Court") decides that the amount of compensation to be paid for the system is determined solely by the income capitalization method of valuation. If the Court determines compensation by a method other than the income capitalization method or the award is for more than the rate base of the condemned assets, the statute permits the City to withdraw the proceeding without prejudice or costs. In 1988, the City instituted a proceeding pursuant to the statute to acquire the system which constitutes approximately 75% of JWS' water utility plant. JWS argued at trial that the judicially recognized method for valuing public utility property is by the method known as "Reproduction Cost New, Less Depreciation". JWS also sought consequential and severance damages that would result from separating the JWS Nassau County water supply system from that in the City. The aggregate compensation sought by JWS as of December 31, 1987 was approximately $924 million. The City submitted its income capitalization valuation, as of December 31, 1987, at approximately $63 million. In June 1993, the Supreme Court dismissed the City's petition. The Supreme Court concluded, among other things, that the statute is unconstitutional because it directs the Court to render an advisory opinion. In February 1994, the New York Court of Appeals held constitutional a nearly-identical statute dealing with another water utility. In April 1994, upon a request for reconsideration by the City, the Supreme Court stated that it would reconsider its prior decision in light of the February decision of the Court of Appeals. The Company cannot predict when or if the Supreme Court will conduct further proceedings under the statute nor is it possible to predict what the decision of the Supreme Court might be if it decides to value the JWS property or the effect of the pending litigation on the proposed sale of JWS. In 1993, the Company's French and Belgian information services subsidiaries filed petitions in their respective countries seeking relief from their creditors. The French and Belgian subsidiaries have outstanding unsecured credit facilities which are guaranteed by the Company aggregating approximately $5.9 million. Such amount was provided for as a loss in 1992. As described in Note D, in August 1993 the Company sold its U.S. information services business. In October 1993, the subsidiary formerly carrying on this business filed a voluntary petition under Chapter 7 of the U.S. Bankruptcy Code. In connection with an investigation of the plumbing industry being conducted by the New York County District Attorney's office, two related subsidiaries of the Company engaged in the plumbing business in New York City have received subpoenas for certain of their books and records. The subsidiaries have complied with those subpoenas. Additionally, certain employees of these subsidiaries have been subpoenaed to testify as witnesses before a grand jury and those employees have complied with the subpoenas. The Company is subject to other legal proceedings and claims which have arisen in the ordinary course of business and have not been adjudicated. The Company cannot predict the outcome of such litigation or the impact that an adverse result in such litigation will have upon the Company's financial position or results of operations. NOTE J Other JWS is subject to a PSC order which requires that dividend payments by JWS not exceed 50% of JWS's net income available to common shareholders for the preceding twelve month period and subject further to a debt/equity ratio restriction. Under such PSC order, approximately $2.5 million of JWS's retained earnings were available for the payment of dividends and $44.7 million of JWS's retained earnings were restricted as of December 31, 1993. 4-57 In September 1992, the PSC issued an order requiring additional subjective certifications before the payment by JWS of cash dividends on its common stock. This resulted in the suspension of dividend payments to the Company by JWS for the last two quarters of 1992 and all of 1993. Dividends paid by JWS in 1992 and 1991 amounted to $1.2 million and $2.0 million, respectively. As a result of the settlement agreement described in Note I, JWS recommenced dividend payments in 1994. NOTE K Adoption of New Accounting Pronouncement Effective January 1, 1993, the Company adopted the provisions of Statement of Financial Accounting Standards No. 106, "Accounting For Postretirement Benefits Other Than Pensions" (SFAS 106). The estimated present value of the accumulated postretirement benefit obligations under SFAS 106 approximated $7.0 million at January 1, 1993. Such amount relates to the Company's water supply business. The net assets of the water supply business are included in "Net assets held for sale" in the accompanying Condensed Consolidated Balance Sheets. The adoption of SFAS 106 did not have a material impact upon the Company's consolidated results of operations. The financial Accounting Standards Board issued Statement of Financial Accounting No. 112 "Employers' Accounting for Postemployment Benefits" which will be effective in 1994. This standard will not have a material impact upon the Company's consolidated financial position or its results of operations. JWP INC. and Subsidiaries Condensed Consolidated Balance Sheet (unaudited) (In thousands)
March 31, 1994 ---------- ASSETS Current Assets Cash and cash equivalents.................................... $ 42,027 Accounts receivable, net........................... 434,879 Costs and estimated earnings in excess of billings on uncompleted contracts............ 66,294 Inventories.................................................. 7,638 Prepaid expenses and other........................ 9,247 Net assets held for sale....................... 15,819 ---------- Total Current Assets................. ......... 575,904 ---------- Net assets held for sale.................... 60,520 Investments, notes and other long-term receivables......... 19,387 Property, plant and equipment, net.................. 38,382 Other Assets Excess of cost of acquired businesses over net assets, less amortization............... 58,591 Miscellaneous.............................................. 31,819 ---------- 90,410 Total Assets................................... $784,603 ========== LIABILITIES AND SHAREHOLDERS' (DEFICIT) Current Liabilities Notes payable by foreign subsidiaries........ $ 2,915 Debtor-in-possession note payable............ 15,000 Current maturities of long-term debt and capital lease obligations..................... 2,243 Accounts payable......... ............. 179,270 Billings in excess of costs and estimated earnings on uncompleted contracts............ 109,398 Other accrued expenses and liabilities.......... 142,024 -------- Total Current Liabilities............. ....... 450,850 ---------- Long-term debt............................ ............. 2,497 Other long-term obligations................... ....... 17,869 Pre-consent date bankruptcy claims subject to compromise...622,859 Shareholders' (Deficit) Preferred Stock, $1 par value, 25,000,000 shares authorized, 425,000 shares of Series A issued and outstanding...................................... 21,250 Common Stock, $.10 par value, 75,000,000 shares authorized, 40,715,541 shares outstanding, excluding 727,389 treasury shares....................... 4,072 Warrants of Participation................... 576 Capital surplus..................................... 204,247 Cumulative translation adjustments............ (7,004) (Deficit)...............................................(532,613) ---------- Total Shareholders' (Deficit)............. (309,472) ---------- Total Liabilities and Shareholders' (Deficit)......... $784,603 ==========
See notes to condensed consolidated financial statements.
JWP INC. and Subsidiaries Condensed Consolidated Statement of Operations (unaudited) (In thousands, except per share data) Three Months Ended March 31, 1994 -------------- Revenues..................................... $435,554 -------------- Costs and Expenses Cost of sales................................ 393,257 Selling, general and administrative.......... 45,689 Reorganization charges....................... 3,600 -------------- 442,546 -------------- Operating (Loss)............................. (6,992) Interest expense, net........................ (176) -------------- (Loss) Before Income Taxes................... (7,168) Provision for income taxes................... 250 -------------- (Loss) From Continuing Operations............ (7,418) -------------- Discontinued Operations Income from operations, net of income taxes.. 1,144 -------------- Net (Loss)................................... $(6,274) ============== (Loss) Per Share Continuing operations........................ $(0.18) Discontinued operations...................... 0.03 -------------- Net (loss)................................... $(0.15) ==============
See notes to condensed consolidated financial statements JWP INC. and Subsidiaries Condensed Consolidated Statement of Cash Flows (unaudited) (In thousands)
Three Months Ended March 31, 1994 ------------- Net (Loss)..................... ....... $(6,274) Adjustments to Reconcile Net (Loss) to Net Cash (Used in) Operating Activities Depreciation and amortization........... 5,665 Change in operating assets and liabilities................................. (16,553) ------------- Net Cash (Used in) Operations............ (17,162) ------------- Cash Flows from Financing Activities Proceeds from debtor-in-possession financing 15,000 Payments of long-term debt and capital lease obligations................... (745) Increase in notes payable, net of European and Canadian subsidiaries....... 2,779 ----------- Net Cash Provided by Financing Activities.................................. 17,034 ---------- Cash Flows from Investment Activities Proceeds from sale of businesses and other assets 2,990 Purchase of property, plant and equipment, primarily water utility assets.. (2,846) Decrease in cash balances of businesses held for sale or sold.............. 4,899 Purchase of investment held for sale............ (2,422) -------------- Net Cash Provided by Investment Activities...... 2,621 -------------- Increase in Cash and Cash Equivalents............ 2,493 Cash and Cash Equivalents at December 31, 1993... 39,534 -------------- Cash and Cash Equivalents at March 31, 1994..... $42,027 ==============
See notes to condensed consolidated financial statements. JWP INC. and Subsidiaries Condensed Consolidated Statement of Shareholders' (Deficit) (unaudited) (In thousands)
Cumulative For the Three Months Ended Preferred Common Warrants of Capital Translation Shareholders' March 31, 1994 Stock Stock Participation Surplus Adjustments (Deficit) (Deficit) - ---------------------------- --------- ------ ------------- -------- ----------- ----------- ------------- Balance December 31, 1993... $21,250 $4,072 $576 $204,247 $(6,068) $(526,339) $(302,262) Foreign currency translation adjustments................. - - - - (936) - (936) Net loss.................... - - - - - (6,274) (6,274) --------- ------ ------------- -------- ----------- ----------- ----------- Balance March 31, 1994...... $21,250 $4,072 $576 $204,247 $(7,004) $(532,613) $(309,472) ========= ====== ============= ======== =========== =========== =============
See notes to condensed consolidated financial statements. NOTE A Basis of Presentation On February 14, 1994, JWP (the "Company") became a debtor-in-possession under Chapter 11 of the U.S. Bankruptcy Code. The accompanying financial statements have been 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". As a result, liabilities of the Company that are expected to be compromised as a result of the bankruptcy proceeding have been reclassified to the caption "Pre-consent date bankruptcy claims subject to compromise" in the accompanying Condensed Consolidated Balance Sheet. See Note B with respect to the Company's petition for relief under Chapter 11 and its proposed plan of reorganization. During the reorganization process, the Company has continued to expense the various legal and other professional fees incurred. These fees are reflected in the accompanying Condensed Consolidated Statement of Operations under the caption "Reorganization charges". Additionally, effective December 21, 1993, the Company ceased to accrue interest on its defaulted debt. See Note D with respect to debt in default. The accompanying financial statements have been prepared assuming that JWP INC. (the "Company") will continue as a going concern. The matters discussed in these Notes to Condensed Consolidated Financial Statements raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company's continuation as a going concern is dependent upon its ability to restructure its indebtedness in connection with its reorganization under Chapter 11 of the U.S. Bankruptcy Code, obtain sufficient bonding to guarantee its performance on construction contracts, return to profitability, obtain credit facilities and generate sufficient cash flow to meet its restructured and other obligations on a timely basis. Many of the Company's mechanical/electrical services' contracts require surety bonds to guarantee the performance of such contracts. The Company's surety companies are reviewing bid and performance bonding requests on a case-by-case basis with special attention paid to large construction projects and those with durations of more than two years. In addition, a surety company that had been the primary source of surety bonds for certain subsidiaries, which together comprised approximately 20% of the Company's 1993 revenues of those mechanical/electric subsidiaries which the Company currently plans to retain, is no longer engaged in the business of issuing such bonds. As a result, these subsidiaries are currently not receiving such bonds. However, the absence of available bonding for these subsidiaries has not resulted in a material reduction in their backlog. The Company and these subsidiaries are actively engaged in discussions with another surety company which has undertaken due diligence for the purpose of entering into a new surety bonding arrangement. However, there can be no assurance that such a new surety bonding arrangement can be obtained. The Company is focused on returning to profitability and restructuring its operations primarily around a smaller international mechanical/electrical services business. In 1992, the Company formulated a business restructuring plan which included the sale of its information services business, water supply business, several non-core businesses and certain mechanical/electrical services operations and the closing or downsizing of unprofitable operations. The proceeds from the sale of these businesses and other assets has been used for working capital and to reduce debt. There is no assurance that the Company will be able to consummate the remaining sales and, if consummated, whether the Company will realize the proceeds contemplated by the plan. 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 divestiture due to uncertainties created by a then pending rate-related proceeding with the New York State Public Service Commission (the JWP INC. and Subsidiaries Notes to Condensed Consolidated Financial Statements (unaudited) 4-63 "PSC") and litigation which are described in Note I. In December 1993, the Company's subsidiary Jamaica Water Supply Company ("JWS"), executed an agreement with respect to the rate proceeding and litigation thereby eliminating significant uncertainties relating to the water supply business. Subsequently, this agreement was approved by the PSC on February 2, 1994. Accordingly, the Company reinstated its plan of divestiture in the first quarter of 1994. As a result, the water supply business is presented as a discontinued operation in the accompanying Condensed Consolidated Financial Statements. NOTE B Chapter 11 Bankruptcy Proceeding On December 21, 1993, three holders of the Company's 73/4% Convertible Subordinated Debentures filed an involuntary petition under Chapter 11 of the U.S. Bankruptcy Code against the Company. The Company on February 14, 1994 consented to the entry of an order for relief under Chapter 11 of the Bankruptcy Code. At that time, the Company adopted a proposed plan of reorganization and its subsidiaries continue to operate in the normal course of business. The proposed plan of reorganization, as modified, has the support of the Official Unsecured Creditors Committee and the Official Unsecured Junior Creditors and Interest Holders Committee. The plan of reorganization contemplates that the Company's creditors will exchange approximately $623 million of holding company debt and other liabilities for approximately $139 million of recourse debt, approximately $48 million of onrecourse debt, 100% of the equity of the Company and warrants to purchase common tock of the reorganized Company. All of the new debt, except for approximately $67 million, is expected to be paid from the proceeds of asset sales. The holders of the Company's common and preferred stock and warrants of participation will receive warrants to purchase common stock of the reorganized Company in exchange for their equity interests. However, there can be no assurance that the proposed plan of reorganization will be consummated or, if so, its timing. Under Chapter 11, certain claims against the Company in existence prior to the date that an involuntary petition was filed against the Company, December 21, 1993, are stayed while the Company continues business as a debtor-in-possession. The pre-consent date bankruptcy claims reflected in the Company's Condensed Consolidated Balance Sheet as of March 31, 1994 total approximately $623 million as detailed in the following table.
Other Accrued Other Long- Accounts Debt in Expenses and term Payable Default Liabilities Obligations Total -------- -------- ------------- ----------- -------- (In Thousands) Debt in default (Note D).................... $- $501,007 $- $- $501,007 Accrued interest (Note D)................... - - 43,315 - 43,315 Amount due to JWP Information Services, Inc. (Note I).................................... - - 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 Unfunded directors' retirement benefits..... - - - 975 975 Insurance reserves (Note G)................. - - 9,600 26,800 36,400 Other impaired claims....................... 400 - 699 - 1,099 ---- -------- ------- ------- -------- $400 $501,007 $91,959 $29,493 $622,859 ==== ======== ======= ======= ========
The Bankruptcy Court established April 8, 1994 as the bar date for filing of claims and certain claims have been filed against the Company which are contingent or in dispute. Further, additional claims may arise subsequent to the petition date resulting from rejection by the Company of executory contracts, including leases, and from determination by the Court, or agreed to by the parties at interest, of allowed claims for contingent or disputed amounts. The Company has received approval from the Bankruptcy Court to pay or otherwise honor certain of its pre-consent date bankruptcy obligations including employee wages and benefits, amounts due under its property, casualty, workers' compensation and other insurance programs, and amounts payable under a JWP employee stay bonus and severance pay plan. The Company's mechanical/electrical services, water supply and other operating subsidiaries are not parties to the Chapter 11 proceeding. All operating subsidiary payments continue to be paid in the ordinary course of business. NOTE C Debtor-in-Possession Financing ("DIP Loan") In February 1994, the Company and substantially all of its subsidiaries entered into an agreement with Belmont Capital Partners II, L.P., an affiliate of Fidelity Investments ("Belmont") to provide for a DIP Loan. The agreement provides to the Company a credit facility of up to $35 million at an interest rate of 12% per annum during the period of the reorganization proceeding. Also, Belmont will receive, as additional interest, a percentage of the securities to be issued under the Company's plan of reorganization. The DIP Loan is secured by a first lien on substantially all of the assets of the Company and most of its subsidiaries. As of June 1994, the Company had drawn down $20 million under the DIP Loan of which $15 million was outstanding as of March 31, 1994. The Company is in default of certain covenants of the DIP Loan. Pursuant to written waivers of default, dated April 27, 1994 and May 6, 1994, the Company has been permitted by Belmont to draw on its line of credit. Under the circumstances, any additional borrowings under the DIP Loan will require further waivers of default. The DIP Loan is intended to be repaid upon the effective date of the proposed plan of reorganization. The Company is actively seeking a working capital facility of approximately $40 million. The proceeds of this new facility will be used to refinance the Company's borrowings under the DIP Loan and to provide working capital to the reorganized Company. There can be no assurance that the Company will be able to obtain a new working capital facility or, if so, the amount of any such facility. Obtaining such a facility is a condition to the confirmation of the Company's plan of reorganization. NOTE D Debt in Default
Debt in default consists of the following as of March 31, 1994 (in thousands): Notes payable to banks under revolving credit facility at prime plus 3/4%$155,795 Senior notes payable to insurance companies, 9.1% to10.95%............. 328,572 -------- Total senior debt.......................................... 484,367 Subordinated notes payable to insurance companies, 12%.................. 9,600 73/4% Convertible Subordinated Debentures............................ 7,040 -------- $501,007 ========
Total accrued interest on the above described debt was $43.3 million as of March 31, 1994. Interest, including penalty interest in certain circumstances, ceased accruing on December 21, 1993, the date on which an involuntary bankruptcy petition was filed against the Company. See Note B in respect to the contemplated exchange of the debt in default for new debt and equity securities under the Company's proposed plan of reorganization. As of June 1994, the estimated fair value of the Company's obligations under its revolving credit facility approximates $50 million or approximately 30% of the amount of its pre-bankruptcy petition date principal 4-65 and accrued interest. The estimated fair value of the senior notes approximates $122 million or approximately 34% of the amount of its pre-bankruptcy petition date principal and accrued interest. Such valuations were based upon recent private transactions involving the purchase and sale of a limited number of such debt instruments. However, the estimated values described above are not necessarily indicative of their fair market value because these debt instruments are not actively traded or exchanged. The estimated fair market value of the defaulted subordinated notes and 73/4% Convertible Subordinated Debentures is nominal. Such valuations were based upon comparison with similarly rated securities and are not necessarily indicative of their current market value. NOTE E Net Assets Held For Sale In 1992, the Company developed a business restructuring plan which contemplated the sale of its information services business, certain of its mechanical/electrical services business units, its water supply business and certain non-core businesses. The business restructuring plan has been incorporated into the Company's proposed plan of reorganization. As a result, businesses to be sold have been classified in the accompanying Condensed Consolidated Balance Sheet as "Net assets held for sale". For the three months ended March 31, 1994, businesses sold or held for sale generated revenues of $42.0 million and operating loss of $2.8 million. The assets of the water supply business consists 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, which aggregate $60.5 million and $63.2 million as of March 31, 1994 and December 31, 1993, respectively, are classified as long-term assets in the accompanying Condensed Consolidated Balance Sheet under the caption "Net assets held for sale" because the disposition of the water supply business is expected to take place after 1994. A Condensed Balance Sheet relating to net assets held for sale including discontinued operations at March 31, 1994 is as follows (in thousands): Cash.................................. $10,282 Accounts receivable, net.............. 45,220 Costs and estimated earnings in excess of billings........................... 3,347 Inventories........................... 11,856 Other current assets.................. 2,574 -------- 73,279 Property, plant and equipment, net.... 153,048 Other assets.......................... 15,577 -------- $241,904 ======== Notes payable............................ $111 Current maturities of long-term debt and capital lease obligations............ 9,626 Accounts payable......................... 11,520 Billings in excess of costs and estimated earnings................................. 6,070 Other accrued expenses................... 61,208 -------- 88,535 Long-term debt........................... 36,806 Other long-term liabilities.............. 40,224 Net assets held for sale-current......... 15,819 Net assets held for sale-long-term....... 60,520 -------- $241,904 ======== NOTE F Discontinued Operations As described in Note A, the Company's water supply business is reflected in the accompanying condensed consolidated financial statements as a discontinued operation. See Note I in respect to the status of a proceeding initiated in 1988 by the City of New York to acquire by condemnation all of the water distribution system of JWS that is located in New York City. For the three months ended March 31, 1994, the water supply business had revenues of $14.4 million and operating income of $2.1 million. 4-66 NOTE G Insurance Reserves The Company is primarily insured with an indirect wholly-owned captive insurance subsidiary ("Defender") for workers' compensation, automobile and general liability insurance. At March 31, 1994, they had letters of credit outstanding totalling $36.4 million which in effect secure their insurance obligations. Such letters of credit expire in December 1994 ($34.9 million) and in February 1995 ($1.5 million). The letters of credit were intended to serve as collateral for the obligations of Defender to reimburse the Company's unrelated insurance carriers for claims paid in respect of certain years' insurance programs. Since October 1992, neither the Company nor Defender have been able to obtain additional letters of credit to secure their insurance obligations and, as a result, have been required to make cash collateral deposits to a third party insurance company to secure those type of obligations. The deposits totalled $29.7 million as of June 30, 1994 and are classified as a long-term asset in the accompanying Condensed Consolidated Balance Sheet under the caption "Miscellaneous" in Other Assets. The Company's proposed plan of reorganization contemplates the letters of credit described above will be drawn upon by the unrelated insurance carriers and that the Company's obligations to Defender, which were pledged collateral to the banks issuing such letters of credit, will be impaired under the Chapter 11 proceeding as well as related Company obligations to those banks. Beginning in February 1994, Defender ceased making payments of amounts owed to the unrelated insurance carriers, which obligations are in effect secured by the letters of credit, and the Company's unrelated insurance carriers have commenced partial draw downs against the letters of credit. Approximately $5 million has been drawn against certain of the letters of credit through June 1994. The Company anticipates that all of the letters of credit described above will be drawn upon and the Company's obligations to reimburse the banks issuing such letters of credit will be impaired under the Chapter 11 proceeding. As a result, the Company has reclassified $36.4 million of its insurance reserves to the caption "Pre-consent date bankruptcy claims subject to compromise" in the accompanying Condensed Consolidated Balance Sheet. NOTE H Income Taxes The Company has a net operating loss carry-forward ("NOL") for U.S. income tax purposes expiring in years through 2008 which approximates $500 million. The Company has provided a valuation allowance for the full amount of such NOLs. As described in Notes A and B, the Company is contemplating a restructuring of its indebtedness with certain of its creditors on the basis of an exchange of newly issued equity and debt securities for debt. If the Company is able to restructure its debt on such basis, a substantial portion of the NOL may not be available to reduce future U.S. taxable income. Additionally, due to recent changes in the U.S. Federal income tax laws, the timing of any such debt restructuring could further impact and reduce the amount of NOL. NOTE I Legal Proceedings Since August 1992, nineteen purported class action lawsuits have been filed against the Company arising out of the restatement of earnings, write-offs and losses announced by the Company on August 4, 1992 and October 2, 1992. Pursuant to Stipulation and Court Order on January 15, 1993, a single consolidated amended class action complaint (the "Complaint") was filed. The Complaint names as defendants the Company, certain former officers and directors, four current directors, a former subsidiary officer and the Company's then outside auditor, Ernst & Young. The Complaint alleges violations of Section 10(b) of the Securities and Exchange Act of 1934, Rule 10b-5 promulgated thereunder and common law fraud and deceit on the part of the Company and certain other defendants. Among other things, the Company is alleged to have intentionally and materially overstated its inventory, accounts receivable and earnings in various public disseminations during the purported class 4-67 period May 1, 1991 through October 2, 1992. The Complaint seeks an unspecified amount of damages. The Company denies the material allegations in the Complaint. The parties are now engaged in discovery proceedings. However, the Company expects that under the terms of its proposed Chapter 11 plan of reorganization, no damages will be recoverable from the Company by claimants in the class action litigation, although they will receive warrants to purchase the common stock of the reorganized Company. The Company has been informed by the Securities and Exchange Commission (the "SEC") that it was conducting a private investigation to determine whether there have been violations of certain provisions of the federal securities laws and/or the rules and regulations of the SEC in connection with the Company's financial records, reports and public disclosures. The Company has been cooperating with the SEC's staff and has voluntarily produced requested documents and information. On April 12, 1994, the SEC's staff informed the Company of its intention to recommend that the SEC file a civil injunction action against the Company. The Company is currently engaged in discussions with the SEC's staff concerning a possible consensual resolution of the matter. On December 22, 1993, JWS, the New York State Consumer Protection Board, Nassau County, certain other governmental bodies and a consumer advocate group executed an agreement that ended the several regulatory and legal proceedings against JWS. Subsequently, the agreement was approved by the PSC on February 2, 1994. The agreement provides for, among other things, a three year moratorium on rates charged by JWS, resolution of the economic issues raised by the PSC arising from its 1992 audit of JWS, settlement of related litigation and the dismissal of an action brought against JWS by Nassau County in the State of New York alleging violations of the Racketeer Influenced and Corrupt Organizations Act and common law fraud. JWS agreed, in consideration of avoided litigation and other costs associated with the proceedings, to make payments over the next three years totalling $11.7 million to customers in Nassau and Queens Counties in the State of New York. In connection with this settlement, the Company provided a pre-tax charge of $7.0 million in 1992. The agreement also provides that JWS will use its best efforts to bring about the separation of Jamaica Water Securities Corp., a subsidiary of the Company which holds substantially all the common stock of JWS, from the Company. In 1986, the State of New York enacted a statute requiring the City of New York (the "City") to acquire by condemnation all of the JWS property constituting or relating to its water distribution system located in the City only if a Supreme Court of the State of New York (the "Supreme Court") decides that the amount of compensation to be paid for the system is determined solely by the income capitalization method of valuation. If the Court determines compensation by a method other than the income capitalization method or the award is for more than the rate base of the condemned assets, the statute permits the City to withdraw the proceeding without prejudice or costs. In 1988, the City instituted a proceeding pursuant to the statute to acquire the system which constitutes approximately 75% of JWS' water utility plant. JWS argued at trial that the judicially recognized method for valuing public utility property is by the method known as "Reproduction Cost New, Less Depreciation". JWS also sought consequential and severance damages that would result from separating the JWS Nassau County water supply system from that in the City. The aggregate compensation sought by JWS as of December 31, 1987 was approximately $924 million. The City submitted its income capitalization valuation, as of December 31, 1987, at approximately $63 million. In June 1993, the Supreme Court dismissed the City's petition. The Supreme Court concluded, among other things, that the statute is unconstitutional because it directs the Court to render an advisory opinion. In February 1994, the New York Court of Appeals held constitutional a nearly-identical statute dealing with another water utility. In April 1994, upon a request for reconsideration by the City, the Supreme Court stated that it would reconsider its prior decision in light of the February decision of the Court of Appeals. The Company cannot predict when or if the Supreme Court will conduct further proceedings under the statute nor is it possible to predict what the decision of the Supreme Court might be if it decides to value the JWS property or the effect of the pending litigation on the proposed sale of JWS. 4-68 In 1993, the Company's French and Belgian information services subsidiaries filed petitions in their respective countries seeking relief from their creditors. The French and Belgian subsidiaries have outstanding unsecured credit facilities which are guaranteed by the Company aggregating approximately $5.9 million. Such amount was provided for as a loss in 1992. In August 1993, the Company sold its U.S. information services business. In October 1993, the subsidiary formerly carrying on this business filed a voluntary petition under Chapter 7 of the U.S. Bankruptcy Code. The Company owes $24.9 million to this subsidiary. In connection with an investigation of the plumbing industry being conducted by the New York County District Attorney's office, two related subsidiaries of the Company engaged in the plumbing business in New York City have received subpoenas for certain of their books and records. The subsidiaries have complied with those subpoenas. Additionally, certain employees of these subsidiaries have been subpoenaed to testify as witnesses before a grand jury and those employees have complied with the subpoenas. The Company is subject to other legal proceedings and claims which have arisen in the ordinary course of business and have not been adjudicated. The Company cannot predict the outcome of such litigation or the impact that an adverse result in such litigation will have upon the Company's financial position or results of operations. NOTE J Net Loss Per Share Net loss per share for the three months ended March 31, 1994 has been calculated based upon the weighted average number of shares of common stock outstanding and common stock equivalents relating to warrants and stock options outstanding when the effect of such equivalents are dilutive (40,715,541 shares). Because of the filing of a petition for relief under Chapter 11 of the U.S. Bankruptcy Code, the Company ceased accruing dividends on its preferred stock, accordingly no preferred stock dividends were utilized in the calculation of loss per share. As described in Note B, under the Company's proposed plan of reorganization, holders of the Company's preferred and common stock and warrants of participation will receive warrants to purchase common stock of the reorganized Company in exchange for their equity interests. NOTE K Impact of New Accounting Pronouncement The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 112 "Employers' Accounting for Postemployment Benefits" (SFAS 112), which was effective January 1, 1994. The Company is in process of developing the data necessary to adopt SFAS 112. Accordingly, the accompanying condensed consolidated financial statements do not include any effects of the adoption of SFAS 112. The Company does not anticipate that the adoption of SFAS 112 will have a material effect upon the Company's financial position or its results of operations. 4-69 Exhibit 5 LIQUIDATION ANALYSIS Most Likely Scenario. Set forth below is a liquidation analysis for JWP and its Nondebtor Subsidiaries, which was prepared by the Debtor with the assistance of Lazard Freres & Co. assuming a hypothetical Chapter 7 liquidation in which a Court-appointed trustee would liquidate the assets of JWP. There are a number of complex factors to consider when preparing a liquidation analysis of JWP and its Nondebtor Subsidiaries. Chief among them is the reaction of management, employees, customers and bonding companies to the liquidation process. Keeping these diverse constituencies together during a liquidation would be extremely difficult. Since the specialty contracting business is service oriented and depends upon the financial credibility of its businesses and its management's relationships, the assumptions regarding the values that can be obtained in a liquidation are highly speculative. The ability of the Nondebtor Subsidiaries to carry on their normal operations during a liquidation would be problematic, at best. JWP believes that the most likely scenario resulting from a failure of JWP to reorganize pursuant to Chapter 11-and the resulting need to liquidate the company, whether pursuant to Chapter 7 or Chapter 11-would be to precipitate a Chapter 11 or a Chapter 7 filing by each of the operating subsidiaries. These subsidiary filings would be forced by a liquidity crisis at the subsidiaries due to the collapse of the JWP cash management/funding system and would be necessary to protect the value of whatever assets could be gleaned from these businesses. Accompanying the bankruptcy filings of the subsidiaries would likely be a substantial exodus of key management personnel (few of whom are contractually tied to JWP or the subsidiaries). As a result of these bankruptcy filings, the bonding companies would cease to issue new bonds, would take over jobs wherever claims arose and would attempt to withdraw from bid bonds already written but not yet awarded. New contract awards would be scarce (in fact, JWP's subsidiaries, once in bankruptcy, may no longer be qualified for a substantial amount of, if not all, public work), suppliers would put the subsidiaries on a cash-on-demand basis with the requirement to bring current any outstanding balance, and receivable collections (which are essentially progress payments for jobs in process) would be substantially slowed, even beyond what JWP has already experienced as customers hold payments to assure job completion if the subsidiary defaults. If the subsidiaries which have filed for bankruptcy cannot be sold as going concerns, then in JWP's opinion, the liquidation of the domestic U.S. mechanical and electrical companies would produce no value at all for the estate of the Debtor, since the bonding companies would arrange to complete the unfinished projects and would be entitled to the related contract receivables. Other JWP operations-the Water Supply companies, the Canadian and the United Kingdom MES Companies (which currently have separate banking and bonding facilities), non-MES companies that do not require bonding, and certain corporate assets, such as notes and receivables-would still have a liquidation value of approximately $100 million. A substantial additional dilutive factor in a liquidation scenario from the perspective of JWP's unsecured creditors would be the substantial new claims against JWP resulting from the bonding companies pursuant to their respective JWP indemnification agreements. These proceeds would be used to satisfy the following secured or subsidiary claims in full:
Recovery: Net Proceeds Available for Distribution to Creditors...$100,000,000 Less: Priority Claims................................. (5,600,000) 100.0% Less: Subsidiary Secured Debt (UK and Canada).......... (2,900,000) 100.0% Less: Capitalized Leases and other Miscellaneous Debt.. (4,300,000) 100.0% ------------- Proceeds Available to JWP INC Claimants............... $87,200,000 ============= The remaining proceeds would be distributed to JWP INC. creditors as follows:
Recovery: Proceeds Available to JWP INC. Claimants..............$87,200,000 Less: Proceeds to General Unsecured Senior Claims.....(87,200,000) 14.0% Less: Proceeds to 12.00% Subordinated Notes due 1996.. 0 0.0% Less: Proceeds to Neeco 7.75% Convertible Sub Debt.... 0 0.0% ------------- Total Proceeds to Equity Holders...................... $0 =============
Alternative Liquidation Scenario As an alternative to the scenario described above, the bonding companies could give time to JWP and the Nondebtor Subsidiary managements to sell each of the individual businesses as going concerns. In the interim, new bonding capacity would be limited, and the subsidiaries' backlog would deteriorate significantly during the liquidation process, further reducing the "on-going" value of the subsidiaries. Quantifying the value of the individual businesses becomes difficult at best and must be made based upon a series of static assumptions. Changes in any of these underlying assumptions, or individual company operations or management would likely result in substantially lower valuations. The Debtor, with the assistance of Lazard, has estimated that a Chapter 7 trustee would receive $154,900,000 of net proceeds from the sale of the Nondebtor Subsidiaries' businesses as going concerns (after taking into account costs of disposition-the trustee at 5% of gross receipts and other fees at 2% of gross receipts-and income taxes related to the gains on the sales plus cash flow generated prior to the sales) to satisfy claims. These proceeds would be used to satisfy the following secured [or subsidiary] claims in full:
Recovery: Net Proceeds Available for Distribution to Creditors...$154,900,000 Less: Priority Claims.............................. (5,600,000) 100.0% Less: Subsidiary Secured Debt (UK and Canada)..........(2,900,000) 100.0% Less: Capitalised Leases and other Miscellaneous Debt..(4,300,000) 100.0% ------------- Proceeds Available to JWP INC Claimants................$142,100,000 ===========
The remaining proceeds would be distributed to JWP INC. creditors as follows:
Recovery: Proceeds Available to JWP INC. Claimants..............$142,100,000 Less: Proceeds to General Unsecured Senior Claims.....(142,100,000) 22.8% Less: Proceeds to 12.00% Subordinated Notes due 1996.. 0 0.0% Less: Proceeds to Neeco 7.75% Convertible Sub Debt.... 0 0.0% -------------- Total Proceeds to Equity Holders..................... $ 0 ==============
As can be seen, the recoveries under a Most Likely Chapter 7 liquidation are far below those expected to be realized under the Plan-even in the Alternative Liquidation Scenario. There can be no assurance that the values estimated in this liquidation analysis would be realized if the entities were in fact liquidated. Actual liquidation proceeds could be materially lower, or higher, than the amounts set forth above and no representation or warranty can be or is being made with respect to the actual proceeds that would be received in a Chapter 7 liquidation. HEARING DATE: September 28, 1994 TIME: 9:30 a.m. UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK - -----------------------------------X In re : CHAPTER 11 : JWP INC., : Case No. : 93-B-46404 (JHG) Debtor. : - -----------------------------------X NOTICE OF (A) SOLICITATION OF VOTES TO ACCEPT OR REJECT THE DEBTOR'S THIRD AMENDED PLAN OF REORGANIZATION AND (B) HEARING TO CONSIDER CONFIRMATION OF THE DEBTOR'S THIRD AMENDED PLAN OF REORGANIZATION TO: ALL CREDITORS, INDENTURE TRUSTEES, EQUITY SECURITY HOLDERS AND OTHER PARTIES-IN-INTEREST: PLEASE TAKE NOTICE that this Court has entered an order dated August 22, 1994 (the "Order") approving the Debtor's Third Amended Disclosure Statement (the "Disclosure Statement"). Pursuant to the Order, (i) copies of the Disclosure Statement together with the Third Amended Joint Plan of Reorganization proposed by the Debtor and its affiliate, SellCo Corporation, dated August 9, 1994 (the "Plan"), without exhibits which are available upon request, have been mailed to all known creditors and equity interest holders of the Debtor, (ii) ballots (which contain information as to voting instructions and deadlines) have been mailed to all known creditors and interest holders entitled to vote to accept or reject the Plan, and (iii) notifications of non-voting status have been mailed to all classes of creditors that are not entitled to vote to accept or reject the Plan. Pursuant to the Order, only ballots that are executed and received by the Debtor, c/o Donlin, Recano & Company, Inc. either by (i) first class mail, at P.O. Box 2034, Murray Hill Station, New York, New York 10156-0701, or (ii) hand-delivery, Federal Express, overnight mail or other courier service, at 419 Park Avenue South, Suite 1206, New York, New York 10016, no later than 5:00 p.m., New York time, on September 23, 1994, will be counted. PLEASE TAKE FURTHER NOTICE that a hearing to consider confirmation of the Plan (the "Confirmation Hearing") shall be held before the Honorable Jeffry H. Gallet, United States Bankruptcy Judge, Room 523 of the United States Bankruptcy Court, Alexander Hamilton Custom House, One Bowling Green, New York, New York 10004-1408 on September 28, 1994 at 9:30 a.m. or as soon thereafter counsel may be heard. PLEASE TAKE FURTHER NOTICE that objections, if any, to confirmation of the Plan shall be in writing, and shall (a) state the name and address of the objecting party and the nature of the claim or interest of such party, (b) state with particularity the basis and nature of each objection to the Plan and (c) be filed, together with proof of service, with the United States Bankruptcy Court (with a copy to the Judge's Chambers) and served so that such objections are received by 4:00 p.m., New York time, no later than September 13, 1994, by the Clerk of the Court, the Judge's Chambers and the following parties: (i) Stroock & Stroock & Lavan, Attorneys for the Debtor, Seven Hanover Square, New York, New York 10004, Attention: Lawrence M. Handelsman, Esq., (ii) Weil, Gotshal & Manges, Co-Counsel for the Official Committee of Unsecured Creditors, 767 Fifth Avenue, New York, New York 10153, Attention: Michael F. Walsh, Esq., (iii) Wachtell, Lipton, Rosen & Katz, Co-Counsel for the Official Committee of Unsecured Creditors, 51 West 52nd Street, New York, New York 10019, Attention: Chaim Fortgang, Esq., (iv) Tenzer, Greenblatt, Fallon & Kaplan, Attorneys for the Official Committee of Junior Creditors and Interest Holders, 405 Lexington Avenue, New York, New York 10174, Attention: James D. Glass, Esq., and (v) the Office of the United States Trustee, 80 Broad Street, New York, New York 10004, Attention: Craig Freeman, Esq. PLEASE TAKE FURTHER NOTICE that objections to the Plan which are not timely filed may not be considered by the Court. PLEASE TAKE FURTHER NOTICE that the Confirmation Hearing may be adjourned from time to time without further notice to holders of claims, holders of equity interests, or other parties-in-interest other than the announcement of the adjourned hearing date in open court. Dated: New York, New York August 22, 1994 By Order of the United States Bankruptcy Court for the Southern District of New York Stroock & Stroock & Lavan Attorneys for the Debtor 7 Hanover Square New York, New York 10004 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK X Chapter 11 Case No. 93 B 46404 (JHG) In re : : NOTIFICATION OF NON-VOTING STATUS JWP INC. : : Third Amended Joint Plan of Debtor. : Reorganization proposed by the X Debtor and its affiliate, SellCo Corporation dated August 9, 1994 On August 22, 1994, the United States Bankruptcy Court for the Southern District of New York (the "Court") approved the Third Amended Disclosure Statement filed by the above captioned Debtor and authorized the Debtor to solicit votes with regard to the acceptance or rejection of the Third Amended Joint Plan of Reorganization proposed by the Debtor and its affiliate, SellCo Corporation dated August 9, 1994 (the "Plan") attached as an exhibit thereto. UNDER THE TERMS OF THE PLAN, YOUR CLAIM(S) TO THE EXTENT ALLOWED WILL BE PAID IN FULL OR REINSTATED. AS A RESULT, YOUR CLAIM(S) IS/ARE NOT IMPAIRED AND YOU ARE NOT ENTITLED TO VOTE ON THE PLAN. THE DOCUMENTS ENCLOSED ARE PROVIDED, THEREFORE, FOR INFORMATIONAL PURPOSES ONLY. UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK X Chapter 11 Case No. In re : 93 B 46404 (JHG) : : BALLOT : JWP INC. : MUST BE RECEIVED BY : 5:00 P.M. NEW YORK TIME Debtor. : SEPTEMBER 23, 1994 X OLD NOTE CREDITORS (SEE REVERSE FOR DEFINITION OF OLD NOTES) JWP INC. OLD NOTEHOLDER BALLOT FOR ACCEPTING OR REJECTING THIRD AMENDED JOINT PLAN OF REORGANIZATION PROPOSED BY THE DEBTOR AND ITS AFFILIATE, SELLCO CORPORATION DATED AUGUST 9, 1994 ACCEPT REJECT CLASS PLAN OF REORG. PLAN OF REORG. 2 _____________ _____________ PLEASE SEE REVERSE SIDE FOR VOTING INFORMATION AND IMPORTANT INSTRUCTIONS BEFORE COMPLETING THIS BALLOT DATED: SIGNED: TITLE: (Please sign exactly as name or names appear hereon. Full title of one signing in representative capacity should be clearly designated after signature. Names of all joint holders should be written even if signed by only one.) PLEASE NOTE: ANY BALLOT WHICH IS EXECUTED AND DATED BUT WHICH DOES NOT INDICATE AN ACCEPTANCE OR REJECTION OF THE PLAN SHALL BE DEEMED TO BE AN ACCEPTANCE OF THE PLAN. On August 22, 1994, the United States Bankruptcy Court for the Southern District of New York (the "Court") approved the Third Amended Disclosure Statement filed by the Debtor and directed the Debtor to solicit votes with regard to the acceptance or rejection of the Third Amended Joint Plan of Reorganization proposed by the Debtor and its affiliate, SellCo Corporation dated August 9, 1994 (the "Plan") attached as an exhibit thereto. The Old Notes covered by this Ballot mean the notes issued by the Debtor in accordance with the Old Note Agreements. See Schedule 2 of the Plan for a complete list of Old Note Agreements. INSTRUCTIONS 1. TO HAVE YOUR VOTE COUNT, YOU MUST INDICATE ACCEPTANCE OR REJECTION OF THE PLAN IN THE BOX ON THE REVERSE SIDE AND SIGN AND RETURN THIS BALLOT IN THE ENCLOSED ENVELOPE (i) BY REGULAR MAIL TO: JWP INC., c/o DONLIN, RECANO, & COMPANY, INC., P.O. BOX 2034, MURRAY HILL STATION, NEW YORK, NY 10156-0701 OR (ii) BY HAND DELIVERY, FEDERAL EXPRESS OR OTHER COURIER SERVICE TO JWP INC. c/o DONLIN, RECANO & COMPANY, INC. 419 PARK AVENUE SOUTH, SUITE 1206, NEW YORK, NY 10016. ANY BALLOT WHICH IS EXECUTED BUT WHICH DOES NOT INDICATE AN ACCEPTANCE OR REJECTION OF THE PLAN SHALL BE DEEMED AN ACCEPTANCE OF THE PLAN. BALLOTS MUST BE RECEIVED NO LATER THAN 5:00 P.M., NEW YORK TIME ON SEPTEMBER 23, 1994. IF A BALLOT IS RECEIVED AFTER THIS TIME, IT MAY NOT BE COUNTED. BALLOTS RECEIVED BY FACSIMILE WILL NOT BE COUNTED. 2. It is important that you vote. The Plan can be confirmed by the Court and thereby made binding if it is accepted by the holders of at least 2/3 in amount and more than 1/2 in number of claims actually voting in each voting class of claims. The votes of the claims actually voted in your class will bind those in the class who do not vote. In the event that the requisite acceptances are not obtained, the Court may nevertheless confirm the Plan if the Court finds that it accords fair and equitable treatment to, and does not discriminate unfairly against, the class(es) rejecting it, and otherwise satisfies the requirements of Section 1129(b) of the Bankruptcy Code. 3. Your signature is required in order for your vote to be counted. Please sign exactly as your name or names appear on the ballot. Names of all joint holders should be written even if signed by only one. If the claim is held by a corporation, the ballot should be executed in the name of the corporation by an authorized officer. If the claim is held by a partnership, the ballot must be executed in the name of the partnership by a general partner. If you are signing in a representative capacity, indicate your title after your signature. 4. This ballot has been prepared to reflect the class in which you are eligible to vote. If you have claims in more than one class, you may, however, receive more than one ballot. IF YOU RECEIVE MORE THAN ONE BALLOT, YOU SHOULD ASSUME THAT EACH BALLOT IS FOR A CLAIM IN A SEPARATE CLASS AND SHOULD COMPLETE AND RETURN ALL OF THEM. 5. For administrative convenience, ballots are being sent to all holders of impaired Claims/Interests in Classes 2, 3, 4(B), 4(C), 6, 7, 8, 9, 10, and 11. However, pursuant to Section 1126 of the Bankruptcy Code, only the holders of Claims/Interests allowed under Section 502 of the Bankruptcy Code may vote to accept or reject the Plan. Thus, only the ballots of holders of Claims/Interests in Class 2, 3, 4(B), 4(C), 6, 7, 8, 9, 10, and 11 that are allowed (or temporarily allowed for the purpose of voting on the Plan), in a fixed amount as of September 23, 1994, the last day to return ballots, will be counted. 6. This ballot is for voting purposes only and does not constitute and shall not be deemed a proof of claim or an admission by the Debtor of the validity of a claim. UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK X Chapter 11 Case No. In re : 93 B 46404 (JHG) : : BALLOT : JWP INC. : MUST BE RECEIVED BY : 5:00 P.M. NEW YORK TIME Debtor. : SEPTEMBER 23, 1994 X CREDITORS UNDER AMENDED AND RESTATED CREDIT AGREEMENT DATED SEPTEMBER 11, 1992 JWP INC. OLD CREDIT AGREEMENT HOLDERS BALLOT FOR ACCEPTING OR REJECTING THIRD AMENDED JOINT PLAN OF REORGANIZATION PROPOSED BY THE DEBTOR AND ITS AFFILIATE, SELLCO CORPORATION DATED AUGUST 9, 1994 ACCEPT REJECT CLASS PLAN OF REORG. PLAN OF REORG. 3 _____________ _____________ PLEASE SEE REVERSE SIDE FOR VOTING INFORMATION AND IMPORTANT INSTRUCTIONS BEFORE COMPLETING THIS BALLOT DATED: SIGNED: TITLE: (Please sign exactly as name or names appear hereon. Full title of one signing in representative capacity should be clearly designated after signature. Names of all joint holders should be written even if signed by only one.) PLEASE NOTE: ANY BALLOT WHICH IS EXECUTED AND DATED BUT WHICH DOES NOT INDICATE AN ACCEPTANCE OR REJECTION OF THE PLAN SHALL BE DEEMED TO BE AN ACCEPTANCE OF THE PLAN. On August 22, 1994, the United States Bankruptcy Court for the Southern District of New York (the "Court") approved the Third Amended Disclosure Statement filed by the Debtor and directed the Debtor to solicit votes with regard to the acceptance or rejection of the Third Amended Joint Plan of Reorganization proposed by the Debtor and its affiliate, SellCo Corporation dated August 9, 1994 (the "Plan") attached as an exhibit thereto. INSTRUCTIONS 1. TO HAVE YOUR VOTE COUNT, YOU MUST INDICATE ACCEPTANCE OR REJECTION OF THE PLAN IN THE BOX ON THE REVERSE SIDE AND SIGN AND RETURN THIS BALLOT IN THE ENCLOSED ENVELOPE (i) BY REGULAR MAIL TO: JWP INC., c/o DONLIN, RECANO, & COMPANY, INC., P.O. BOX 2034, MURRAY HILL STATION, NEW YORK, NY 10156-0701 OR (ii) BY HAND DELIVERY, FEDERAL EXPRESS OR OTHER COURIER SERVICE TO JWP INC. c/o DONLIN, RECANO & COMPANY, INC. 419 PARK AVENUE SOUTH, SUITE 1206, NEW YORK, NY 10016. ANY BALLOT WHICH IS EXECUTED BUT WHICH DOES NOT INDICATE AN ACCEPTANCE OR REJECTION OF THE PLAN SHALL BE DEEMED AN ACCEPTANCE OF THE PLAN. BALLOTS MUST BE RECEIVED NO LATER THAN 5:00 P.M., NEW YORK TIME ON SEPTEMBER 23, 1994. IF A BALLOT IS RECEIVED AFTER THIS TIME, IT MAY NOT BE COUNTED. BALLOTS RECEIVED BY FACSIMILE WILL NOT BE COUNTED. 2. It is important that you vote. The Plan can be confirmed by the Court and thereby made binding if it is accepted by the holders of at least 2/3 in amount and more than 1/2 in number of claims actually voting in each voting class of claims. The votes of the claims actually voted in your class will bind those in the class who do not vote. In the event that the requisite acceptances are not obtained, the Court may nevertheless confirm the Plan if the Court finds that it accords fair and equitable treatment to, and does not discriminate unfairly against, the class(es) rejecting it, and otherwise satisfies the requirements of Section 1129(b) of the Bankruptcy Code. 3. Your signature is required in order for your vote to be counted. Please sign exactly as your name or names appear on the ballot. Names of all joint holders should be written even if signed by only one. If the claim is held by a corporation, the ballot should be executed in the name of the corporation by an authorized officer. If the claim is held by a partnership, the ballot must be executed in the name of the partnership by a general partner. If you are signing in a representative capacity, indicate your title after your signature. 4. This ballot has been prepared to reflect the class in which you are eligible to vote. If you have claims in more than one class, you may, however, receive more than one ballot. IF YOU RECEIVE MORE THAN ONE BALLOT, YOU SHOULD ASSUME THAT EACH BALLOT IS FOR A CLAIM IN A SEPARATE CLASS AND SHOULD COMPLETE AND RETURN ALL OF THEM. 5. For administrative convenience, ballots are being sent to all holders of impaired Claims/Interests in Classes 2, 3, 4(B), 4(C), 6, 7, 8, 9, 10, and 11. However, pursuant to Section 1126 of the Bankruptcy Code, only the holders of Claims/Interests allowed under Section 502 of the Bankruptcy Code may vote to accept or reject the Plan. Thus, only the ballots of holders of Claims/Interests in Class 2, 3, 4(B), 4(C), 6, 7, 8, 9, 10, and 11 that are allowed (or temporarily allowed for the purpose of voting on the Plan), in a fixed amount as of September 23, 1994, the last day to return ballots, will be counted. 6. This ballot is for voting purposes only and does not constitute and shall not be deemed a proof of claim or an admission by the Debtor of the validity of a claim. UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK X Chapter 11 Case No. In re : 93 B 46404 (JHG) : : BALLOT : JWP INC. : MUST BE RECEIVED BY : 5:00 P.M. NEW YORK TIME Debtor. : SEPTEMBER 23, 1994 X JWP INC. OTHER BORROWED MONEY BALLOT FOR ACCEPTING OR REJECTING THIRD AMENDED JOINT PLAN OF REORGANIZATION PROPOSED BY THE DEBTOR AND ITS AFFILIATE, SELLCO CORPORATION DATED AUGUST 9, 1994 ELECTION TO REDUCE CLAIM ACCEPT REJECT FOR CASH CLASS PLAN OF REORG. PLAN OF REORG. (see instruction 5 on reverse) 4B _____________ _____________ ____________ PLEASE SEE REVERSE SIDE FOR VOTING INFORMATION AND IMPORTANT INSTRUCTIONS BEFORE COMPLETING THIS BALLOT DATED: SIGNED: TITLE: (Please sign exactly as name or names appear hereon. Full title of one signing in repr- esentative capacity should be clearly designated after signa- ture. Names of all joint holders should be written even if signed by only one.) PLEASE NOTE: ANY BALLOT WHICH IS EXECUTED AND DATED BUT WHICH DOES NOT INDICATE AN ACCEPTANCE OR REJECTION OF THE PLAN SHALL BE DEEMED TO BE AN ACCEPTANCE OF THE PLAN. On August 22, 1994, the United States Bankruptcy Court for the Southern District of New York (the "Court") approved the Third Amended Disclosure Statement filed by the Debtor and directed the Debtor to solicit votes with regard to the acceptance or rejection of the Third Amended Joint Plan of Reorganization proposed by the Debtor and its affiliate, SellCo Corporation dated August 9, 1994 (the "Plan") attached as an exhibit thereto. INSTRUCTIONS 1. TO HAVE YOUR VOTE COUNT, YOU MUST INDICATE ACCEPTANCE OR REJECTION OF THE PLAN IN THE BOX ON THE REVERSE SIDE AND SIGN AND RETURN THIS BALLOT IN THE ENCLOSED ENVELOPE (i) BY REGULAR MAIL TO: JWP INC., c/o DONLIN, RECANO, & COMPANY, INC., P.O. BOX 2034, MURRAY HILL STATION, NEW YORK, NY 10156-0701 OR (ii) BY HAND DELIVERY, FEDERAL EXPRESS OR OTHER COURIER SERVICE TO JWP INC., c/o DONLIN, RECANO & COMPANY, INC. 419 PARK AVENUE SOUTH, SUITE 1206, NEW YORK, NY 10016. ANY BALLOT WHICH IS EXECUTED BUT WHICH DOES NOT INDICATE AN ACCEPTANCE OR REJECTION OF THE PLAN SHALL BE DEEMED AN ACCEPTANCE OF THE PLAN. BALLOTS MUST BE RECEIVED NO LATER THAN 5:00 P.M., NEW YORK TIME ON SEPTEMBER 23, 1994. IF A BALLOT IS RECEIVED AFTER THIS TIME, IT MAY NOT BE COUNTED. BALLOTS RECEIVED BY FACSIMILE WILL NOT BE COUNTED. 2. It is important that you vote. The Plan can be confirmed by the Court and thereby made binding if it is accepted by the holders of at least 2/3 in amount and more than 1/2 in number of claims actually voting in each voting class of claims. The votes of the claims actually voted in your class will bind those in the class who do not vote. In the event that the requisite acceptances are not obtained, the Court may nevertheless confirm the Plan if the Court finds that it accords fair and equitable treatment to, and does not discriminate unfairly against, the class(es) rejecting it, and otherwise satisfies the requirements of Section 1129(b) of the Bankruptcy Code. 3. Your signature is required in order for your vote to be counted. Please sign exactly as your name or names appear on the ballot. Names of all joint holders should be written even if signed by only one. If the claim is held by a corporation, the ballot should be executed in the name of the corporation by an authorized officer. If the claim is held by a partnership, the ballot must be executed in the name of the partnership by a general partner. If you are signing in a representative capacity, indicate your title after your signature. 4. This ballot has been prepared to reflect the class in which you are eligible to vote. If you have claims in more than one class, you may, however, receive more than one ballot. IF YOU RECEIVE MORE THAN ONE BALLOT, YOU SHOULD ASSUME THAT EACH BALLOT IS FOR A CLAIM IN A SEPARATE CLASS AND SHOULD COMPLETE AND RETURN ALL OF THEM. 5. Election for claim to be treated as a small unsecured claim. As provided in Article III, Section 4 1.(a) of the Plan, holders of Class 4 Claims against JWP allowed in an amount greater than $10,000.00 may elect to reduce the claim to $10,000.00 and in full satisfaction of such Claim be treated as a Class 4A claim. Acceptance of this election (and the reduction of your Claim) must be indicated by a check in the "Election To Reduce Claim For Cash" box on the reverse side. This will be your only opportunity to make this election. If you fail to elect, your allowed claim will be treated in the same manner as all other Class 4B allowed claims as provided under the Plan. Furthermore, taking the Cash Election constitutes a waiver and release of the holders claim(s) in excess of $10,000.00. 6. For administrative convenience, ballots are being sent to all holders of impaired Claims/Interests in Classes 2, 3, 4(B), 4(C), 6, 7, 8, 9, 10, and 11. However, pursuant to Section 1126 of the Bankruptcy Code, only the holders of Claims/Interests allowed under Section 502 of the Bankruptcy Code may vote to accept or reject the Plan. Thus, only the ballots of holders of Claims/Interests in Class 2, 3, 4(B), 4(C), 6, 7, 8, 9, 10, and 11 that are allowed (or temporarily allowed for the purpose of voting on the Plan), in a fixed amount as of September 23, 1994, the last day to return ballots, will be counted. 7. This ballot is for voting purposes only and does not constitute and shall not be deemed a proof of claim/interest or an admission by the Debtor of the validity of a claim. UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK X Chapter 11 Case No. In re : 93 B 46404 (JHG) : : BALLOT : JWP INC. : MUST BE RECEIVED BY : 5:00 P.M. NEW YORK TIME Debtor. : SEPTEMBER 23, 1994 X JWP INC. GENERAL UNSECURED CREDITOR BALLOT FOR ACCEPTING OR REJECTING THIRD AMENDED JOINT PLAN OF REORGANIZATION PROPOSED BY THE DEBTOR AND ITS AFFILIATE, SELLCO CORPORATION DATED AUGUST 9, 1994 ELECTION TO REDUCE CLAIM ACCEPT REJECT FOR CASH CLASS PLAN OF REORG. PLAN OF REORG. (see instruction 5 on reverse) 4C _____________ _____________ ____________ PLEASE SEE REVERSE SIDE FOR VOTING INFORMATION AND IMPORTANT INSTRUCTIONS BEFORE COMPLETING THIS BALLOT DATED: SIGNED: TITLE: (Please sign exactly as name or names appear hereon. Full title of one signing in representative capacity should be clearly designated after signature. Names of all joint holders should be written even if signed by only one.) PLEASE NOTE: ANY BALLOT WHICH IS EXECUTED AND DATED BUT WHICH DOES NOT INDICATE AN ACCEPTANCE OR REJECTION OF THE PLAN SHALL BE DEEMED TO BE AN ACCEPTANCE OF THE PLAN. On August 22, 1994, the United States Bankruptcy Court for the Southern District of New York (the "Court") approved the Third Amended Disclosure Statement filed by the Debtor and directed the Debtor to solicit votes with regard to the acceptance or rejection of the Third Amended Joint Plan of Reorganization proposed by the Debtor and its affiliate, SellCo Corporation dated August 9, 1994 (the "Plan") attached as an exhibit thereto. INSTRUCTIONS 1. TO HAVE YOUR VOTE COUNT, YOU MUST INDICATE ACCEPTANCE OR REJECTION OF THE PLAN IN THE BOX ON THE REVERSE SIDE AND SIGN AND RETURN THIS BALLOT IN THE ENCLOSED ENVELOPE (i) BY REGULAR MAIL TO: JWP INC., c/o DONLIN, RECANO, & COMPANY, INC., P.O. BOX 2034, MURRAY HILL STATION, NEW YORK, NY 10156-0701 OR (ii) BY HAND DELIVERY, FEDERAL EXPRESS OR OTHER COURIER SERVICE TO JWP INC. c/o DONLIN, RECANO & COMPANY, INC. 419 PARK AVENUE SOUTH, SUITE 1206, NEW YORK, NY 10016. ANY BALLOT WHICH IS EXECUTED BUT WHICH DOES NOT INDICATE AN ACCEPTANCE OR REJECTION OF THE PLAN SHALL BE DEEMED AN ACCEPTANCE OF THE PLAN. BALLOTS MUST BE RECEIVED NO LATER THAN 5:00 P.M., NEW YORK TIME ON SEPTEMBER 23, 1994. IF A BALLOT IS RECEIVED AFTER THIS TIME, IT MAY NOT BE COUNTED. BALLOTS RECEIVED BY FACSIMILE WILL NOT BE COUNTED. 2. It is important that you vote. The Plan can be confirmed by the Court and thereby made binding if it is accepted by the holders of at least 2/3 in amount and more than 1/2 in number of claims actually voting in each voting class of claims. The votes of the claims actually voted in your class will bind those in the class who do not vote. In the event that the requisite acceptances are not obtained, the Court may nevertheless confirm the Plan if the Court finds that it accords fair and equitable treatment to, and does not discriminate unfairly against, the class(es) rejecting it, and otherwise satisfies the requirements of Section 1129(b) of the Bankruptcy Code. 3. Your signature is required in order for your vote to be counted. Please sign exactly as your name or names appear on the ballot. Names of all joint holders should be written even if signed by only one. If the claim is held by a corporation, the ballot should be executed in the name of the corporation by an authorized officer. If the claim is held by a partnership, the ballot must be executed in the name of the partnership by a general partner. If you are signing in a representative capacity, indicate your title after your signature. 4. This ballot has been prepared to reflect the class in which you are eligible to vote. If you have claims in more than one class, you may, however, receive more than one ballot. IF YOU RECEIVE MORE THAN ONE BALLOT, YOU SHOULD ASSUME THAT EACH BALLOT IS FOR A CLAIM IN A SEPARATE CLASS AND SHOULD COMPLETE AND RETURN ALL OF THEM. 5. Election for claim to be treated as a small unsecured claim. As provided in Article III, Section 4 1.(a) of the Plan, holders of Class 4 Claims against JWP allowed in an amount greater than $10,000.00 may elect to reduce the claim to $10,000.00 and in full satisfaction of such Claim be treated as a Class 4A claim. Acceptance of this election (and the reduction of your Claim) must be indicated by a check in the "Election To Reduce Claim For Cash" box on the reverse side. This will be your only opportunity to make this election. If you fail to elect, your allowed claim will be treated in the same manner as all other Class 4C allowed claims as provided under the Plan. Furthermore, taking the Cash Election constitutes a waiver and release of the holders claim(s) in excess of $10,000.00. 6. For administrative convenience, ballots are being sent to all holders of impaired Claims/Interests in Classes 2, 3, 4(B), 4(C), 6, 7, 8, 9, 10, and 11. However, pursuant to Section 1126 of the Bankruptcy Code, only the holders of Claims/Interests allowed under Section 502 of the Bankruptcy Code may vote to accept or reject the Plan. Thus, only the ballots of holders of Claims/Interests in Class 2, 3, 4(B), 4(C), 6, 7, 8, 9, 10, and 11 that are allowed (or temporarily allowed for the purpose of voting on the Plan), in a fixed amount as of September 23, 1994, the last day to return ballots, will be counted. 7. This ballot is for voting purposes only and does not constitute and shall not be deemed a proof of claim/interest or an admission by the Debtor of the validity of a claim. UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK X Chapter 11 Case No. In re : 93 B 46404 (JHG) : : BALLOT : JWP INC. : MUST BE RECEIVED BY : 5:00 P.M. NEW YORK TIME Debtor. : SEPTEMBER 23, 1994 X JWP INC. SUBORDINATED DEBT CLAIMS BALLOT FOR ACCEPTING OR REJECTING THIRD AMENDED JOINT PLAN OF REORGANIZATION PROPOSED BY THE DEBTOR AND ITS AFFILIATE, SELLCO CORPORATION DATED AUGUST 9, 1994 ACCEPT REJECT CLASS PLAN OF REORG. PLAN OF REORG. 6 _____________ _____________ PLEASE SEE REVERSE SIDE FOR VOTING INFORMATION AND IMPORTANT INSTRUCTIONS BEFORE COMPLETING THIS BALLOT DATED: SIGNED: TITLE: (Please sign exactly as name or names appear hereon. Full title of one signing in representative capacity should be clearly designated after signature. Names of all joint holders should be written even if signed by only one.) PLEASE NOTE: ANY BALLOT WHICH IS EXECUTED AND DATED BUT WHICH DOES NOT INDICATE AN ACCEPTANCE OR REJECTION OF THE PLAN SHALL BE DEEMED TO BE AN ACCEPTANCE OF THE PLAN. On August 22, 1994, the United States Bankruptcy Court for the Southern District of New York (the "Court") approved the Third Amended Disclosure Statement filed by the Debtor and directed the Debtor to solicit votes with regard to the acceptance or rejection of the Third Amended Joint Plan of Reorganization proposed by the Debtor and its affiliate, SellCo Corporation dated August 9, 1994 (the "Plan") attached as an exhibit thereto. INSTRUCTIONS 1. TO HAVE YOUR VOTE COUNT, YOU MUST INDICATE ACCEPTANCE OR REJECTION OF THE PLAN IN THE BOX ON THE REVERSE SIDE AND SIGN AND RETURN THIS BALLOT IN THE ENCLOSED ENVELOPE (i) BY REGULAR MAIL TO: JWP INC., c/o DONLIN, RECANO, & COMPANY, INC., P.O. BOX 2034, MURRAY HILL STATION, NEW YORK, NY 10156-0701 OR (ii) BY HAND DELIVERY, FEDERAL EXPRESS OR OTHER COURIER SERVICE TO JWP INC. c/o DONLIN, RECANO & COMPANY, INC. 419 PARK AVENUE SOUTH, SUITE 1206, NEW YORK, NY 10016. ANY BALLOT WHICH IS EXECUTED BUT WHICH DOES NOT INDICATE AN ACCEPTANCE OR REJECTION OF THE PLAN SHALL BE DEEMED AN ACCEPTANCE OF THE PLAN. BALLOTS MUST BE RECEIVED NO LATER THAN 5:00 P.M., NEW YORK TIME ON SEPTEMBER 23, 1994. IF A BALLOT IS RECEIVED AFTER THIS TIME, IT MAY NOT BE COUNTED. BALLOTS RECEIVED BY FACSIMILE WILL NOT BE COUNTED. 2. It is important that you vote. The Plan can be confirmed by the Court and thereby made binding if it is accepted by the holders of at least 2/3 in amount of interests actually voting in each voting class of interests. The votes of the claims actually voted in your class will bind those in the class who do not vote. In the event that the requisite acceptances are not obtained, the Court may nevertheless confirm the Plan if the Court finds that it accords fair and equitable treatment to, and does not discriminate unfairly against, the class(es) rejecting it, and otherwise satisfies the requirements of Section 1129(b) of the Bankruptcy Code. 3. Your signature is required in order for your vote to be counted. Please sign exactly as your name or names appear on the ballot. Names of all joint holders should be written even if signed by only one. If the interest is held by a corporation, the ballot should be executed in the name of the corporation by an authorized officer. If the interest is held by a partnership, the ballot must be executed in the name of the partnership by a general partner. If you are signing in a representative capacity, indicate your title after your signature. 4. This ballot has been prepared to reflect the class in which you are eligible to vote. If you have claims in more than one class, you may, however, receive more than one ballot. IF YOU RECEIVE MORE THAN ONE BALLOT, YOU SHOULD ASSUME THAT EACH BALLOT IS FOR A CLAIM IN A SEPARATE CLASS AND SHOULD COMPLETE AND RETURN ALL OF THEM. 5. For administrative convenience, ballots are being sent to all holders of impaired Claims/Interests in Classes 2, 3, 4(B), 4(C), 6, 7, 8, 9, 10, and 11. However, pursuant to Section 1126 of the Bankruptcy Code, only the holders of Claims/Interests allowed under Section 502 of the Bankruptcy Code may vote to accept or reject the Plan. Thus, only the ballots of holders of Claims/Interests in Class 2, 3, 4(B), 4(C), 6, 7, 8, 9, 10, and 11 that are allowed (or temporarily allowed for the purpose of voting on the Plan), in a fixed amount as of September 23, 1994, the last day to return ballots, will be counted. 6. This ballot is for voting purposes only and does not constitute and shall not be deemed a proof of claim or an admission by the Debtor of the validity of a claim. UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK X Chapter 11 Case No. In re : 93 B 46404 (JHG) : : BALLOT : JWP INC. : MUST BE RECEIVED BY : 5:00 P.M. NEW YORK TIME Debtor. : SEPTEMBER 23, 1994 X JWP INC. CONTINGENT AND STATUTORY SUBORDINATED CLAIMS BALLOT FOR ACCEPTING OR REJECTING THIRD AMENDED JOINT PLAN OF REORGANIZATION PROPOSED BY THE DEBTOR AND ITS AFFILIATE, SELLCO CORPORATION DATED AUGUST 9, 1994 ELECTION TO RECEIVE CASH IN LIEU OF NEW SERIES Z ACCEPT REJECT WARRANT(s) (see CLASS PLAN OF REORG. PLAN OF REORG. instruction 6 on reverse) 7 _____________ _____________ ________________________ PLEASE SEE REVERSE SIDE FOR VOTING INFORMATION AND IMPORTANT INSTRUCTIONS BEFORE COMPLETING THIS BALLOT DATED: SIGNED: TITLE: (Please sign exactly as name or names appear hereon. Full title of one signing in representative capacity should be clearly designated after signature. Names of all joint holders should be written even if signed by only one.) PLEASE NOTE: ANY BALLOT WHICH IS EXECUTED AND DATED BUT WHICH DOES NOT INDICATE AN ACCEPTANCE OR REJECTION OF THE PLAN SHALL BE DEEMED TO BE AN ACCEPTANCE OF THE PLAN. On August 22, 1994, the United States Bankruptcy Court for the Southern District of New York (the "Court") approved the Third Amended Disclosure Statement filed by the Debtor and directed the Debtor to solicit votes with regard to the acceptance or rejection of the Third Amended Joint Plan of Reorganization proposed by the Debtor and its affiliate, SellCo Corporation dated August 9, 1994 (the "Plan") attached as an exhibit thereto. INSTRUCTIONS 1. TO HAVE YOUR VOTE COUNT, YOU MUST INDICATE ACCEPTANCE OR REJECTION OF THE PLAN IN THE BOX ON THE REVERSE SIDE AND SIGN AND RETURN THIS BALLOT IN THE ENCLOSED ENVELOPE (i) BY REGULAR MAIL TO: JWP INC., c/o DONLIN, RECANO, & COMPANY, INC., P.O. BOX 2034, MURRAY HILL STATION, NEW YORK, NY 10156-0701 OR (ii) BY HAND DELIVERY, FEDERAL EXPRESS OR OTHER COURIER SERVICE TO JWP INC. c/o DONLIN, RECANO & COMPANY, INC. 419 PARK AVENUE SOUTH, SUITE 1206, NEW YORK, NY 10016. ANY BALLOT WHICH IS EXECUTED BUT WHICH DOES NOT INDICATE AN ACCEPTANCE OR REJECTION OF THE PLAN SHALL BE DEEMED AN ACCEPTANCE OF THE PLAN. BALLOTS MUST BE RECEIVED NO LATER THAN 5:00 P.M., NEW YORK TIME ON SEPTEMBER 23, 1994. IF A BALLOT IS RECEIVED AFTER THIS TIME, IT MAY NOT BE COUNTED. BALLOTS RECEIVED BY FACSIMILE WILL NOT BE COUNTED. 2. It is important that you vote. The Plan can be confirmed by the Court and thereby made binding if it is accepted by the holders of at least 2/3 in amount and more than 1/2 in number of claims actually voting in each voting class of claims. The votes of the claims actually voted in your class will bind those in the class who do not vote. In the event that the requisite acceptances are not obtained, the Court may nevertheless confirm the Plan if the Court finds that it accords fair and equitable treatment to, and does not discriminate unfairly against, the class(es) rejecting it, and otherwise satisfies the requirements of Section 1129(b) of the Bankruptcy Code. 3. Your signature is required in order for your vote to be counted. Please sign exactly as your name or names appear on the ballot. Names of all joint holders should be written even if signed by only one. If the claim is held by a corporation, the ballot should be executed in the name of the corporation by an authorized officer. If the claim is held by a partnership, the ballot must be executed in the name of the partnership by a general partner. If you are signing in a representative capacity, indicate your title after your signature. 4. This ballot has been prepared to reflect the class in which you are eligible to vote. If you have claims in more than one class, you may, however, receive more than one ballot. IF YOU RECEIVE MORE THAN ONE BALLOT, YOU SHOULD ASSUME THAT EACH BALLOT IS FOR A CLAIM IN A SEPARATE CLASS AND SHOULD COMPLETE AND RETURN ALL OF THEM. 5. For administrative convenience, ballots are being sent to all holders of impaired Claims/Interests in Classes 2, 3, 4(B), 4(C), 6, 7, 8, 9, 10, and 11. However, pursuant to Section 1126 of the Bankruptcy Code, only the holders of Claims/Interests allowed under Section 502 of the Bankruptcy Code may vote to accept or reject the Plan. Thus, only the ballots of holders of Claims/Interests in Class 2, 3, 4(B), 4(C), 6, 7, 8, 9, 10, and 11 that are allowed (or temporarily allowed for the purpose of voting on the Plan), in a fixed amount as of September 23, 1994, the last day to return ballots, will be counted. 6. Pursuant to Article IV, Section J, 6. of the Plan, at the option of the holder of an allowed claim in Class 8, such holder shall be entitled to receive from Reorganized JWP $0.10 in lieu of each whole New Series Z Warrant such holder might otherwise be entitled to receive under the Plan provided, however, that Reorganized JWP shall not be obligated to distribute cash to such holder on account of such whole New Series Z Warrants unless such holder is entitled to receive in the aggregate at least $1.00 on account of such whole New Series Z Warrants. Acceptance of this election must be indicated by a check in the "Election to Receive Cash in Lieu of New Series Z Warrants" box on the reserve side. This will be your only opportunity to make this election. 7. This ballot is for voting purposes only and does not constitute and shall not be deemed a proof of claim or an admission by the Debtor of the validity of a claim. UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK X Chapter 11 Case No. In re : 93 B 46404 (JHG) : : BALLOT : JWP INC. : MUST BE RECEIVED BY : 5:00 P.M. NEW YORK TIME Debtor. : SEPTEMBER 23, 1994 X JWP INC. OLD PREFERRED STOCK BALLOT FOR ACCEPTING OR REJECTING THIRD AMENDED JOINT PLAN OF REORGANIZATION PROPOSED BY THE DEBTOR AND ITS AFFILIATE, SELLCO CORPORATION DATED AUGUST 9, 1994 ELECTION TO RECEIVE CASH IN LIEU OF NEW SERIES Z ACCEPT REJECT WARRANT(s) (see CLASS PLAN OF REORG. PLAN OF REORG. instruction 6 on reverse) 8 _____________ _____________ ________________________ PLEASE SEE REVERSE SIDE FOR VOTING INFORMATION AND IMPORTANT INSTRUCTIONS BEFORE COMPLETING THIS BALLOT DATED: SIGNED: TITLE: (Please sign exactly as name or names appear hereon. Full title of one signing in representative capacity should be clearly designated after signature. Names of all joint holders should be written even if signed by only one.) PLEASE NOTE: ANY BALLOT WHICH IS EXECUTED AND DATED BUT WHICH DOES NOT INDICATE AN ACCEPTANCE OR REJECTION OF THE PLAN SHALL BE DEEMED TO BE AN ACCEPTANCE OF THE PLAN. On August 22, 1994, the United States Bankruptcy Court for the Southern District of New York (the "Court") approved the Third Amended Disclosure Statement filed by the Debtor and directed the Debtor to solicit votes with regard to the acceptance or rejection of the Third Amended Joint Plan of Reorganization proposed by the Debtor and its affiliate, SellCo Corporation dated August 9, 1994 (the "Plan") attached as an exhibit thereto. INSTRUCTIONS 1. TO HAVE YOUR VOTE COUNT, YOU MUST INDICATE ACCEPTANCE OR REJECTION OF THE PLAN IN THE BOX ON THE REVERSE SIDE AND SIGN AND RETURN THIS BALLOT IN THE ENCLOSED ENVELOPE (i) BY REGULAR MAIL TO: JWP INC., c/o DONLIN, RECANO, & COMPANY, INC., P.O. BOX 2034, MURRAY HILL STATION, NEW YORK, NY 10156-0701 OR (ii) BY HAND DELIVERY, FEDERAL EXPRESS OR OTHER COURIER SERVICE TO JWP INC. c/o DONLIN, RECANO & COMPANY, INC. 419 PARK AVENUE SOUTH, SUITE 1206, NEW YORK, NY 10016. ANY BALLOT WHICH IS EXECUTED BUT WHICH DOES NOT INDICATE AN ACCEPTANCE OR REJECTION OF THE PLAN SHALL BE DEEMED AN ACCEPTANCE OF THE PLAN. BALLOTS MUST BE RECEIVED NO LATER THAN 5:00 P.M., NEW YORK TIME ON SEPTEMBER 23, 1994. IF A BALLOT IS RECEIVED AFTER THIS TIME, IT MAY NOT BE COUNTED. BALLOTS RECEIVED BY FACSIMILE WILL NOT BE COUNTED. 2. It is important that you vote. The Plan can be confirmed by the Court and thereby made binding if it is accepted by the holders of at least 2/3 in amount of interests actually voting in each voting class of interests. The votes of the interests actually voted in your class will bind those in the class who do not vote. In the event that the requisite acceptances are not obtained, the Court may nevertheless confirm the Plan if the Court finds that it accords fair and equitable treatment to, and does not discriminate unfairly against, the class(es) rejecting it, and otherwise satisfies the requirements of Section 1129(b) of the Bankruptcy Code. 3. Your signature is required in order for your vote to be counted. Please sign exactly as your name or names appear on the ballot. Names of all joint holders should be written even if signed by only one. If the interest is held by a corporation, the ballot should be executed in the name of the corporation by an authorized officer. If the interest is held by a partnership, the ballot must be executed in the name of the partnership by a general partner. If you are signing in a representative capacity, indicate your title after your signature. 4. This ballot has been prepared to reflect the class in which you are eligible to vote. If you have claims in more than one class, you may, however, receive more than one ballot. IF YOU RECEIVE MORE THAN ONE BALLOT, YOU SHOULD ASSUME THAT EACH BALLOT IS FOR A CLAIM IN A SEPARATE CLASS AND SHOULD COMPLETE AND RETURN ALL OF THEM. 5. For administrative convenience, ballots are being sent to all holders of impaired Claims/Interests in Classes 2, 3, 4(B), 4(C), 6, 7, 8, 9, 10, and 11. However, pursuant to Section 1126 of the Bankruptcy Code, only the holders of Claims/Interests allowed under Section 502 of the Bankruptcy Code may vote to accept or reject the Plan. Thus, only the ballots of holders of Claims/Interests in Class 2, 3, 4(B), 4(C), 6, 7, 8, 9, 10, and 11 that are allowed (or temporarily allowed for the purpose of voting on the Plan), in a fixed amount as of September 23, 1994, the last day to return ballots, will be counted. 6. Pursuant to Article IV, Section J, 6. of the Plan, at the option of the holder of an allowed interest in Class 8, such holder shall be entitled to receive from Reorganized JWP $0.10 in lieu of each whole New Series Z Warrant such holder might otherwise be entitled to receive under the Plan provided, however, that Reorganized JWP shall not be obligated to distribute cash to such holder on account of such whole New Series Z Warrants unless such holder is entitled to receive in the aggregate at least $1.00 on account of such whole New Series Z Warrants. Acceptance of this election must be indicated by a check in the "Election to Receive Cash in Lieu of New Series Z Warrants" box on the reserve side. This will be your only opportunity to make this election. 7. This ballot is for voting purposes only and does not constitute and shall not be deemed a proof of claim/interest or an admission by the Debtor of the validity of a claim. UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK X Chapter 11 Case No. In re : 93 B 46404 (JHG) : : BALLOT : JWP INC. : MUST BE RECEIVED BY : 5:00 P.M. NEW YORK TIME Debtor. : SEPTEMBER 23, 1994 X JWP INC. OLD COMMON STOCK AND RELATED INTERESTS BALLOT FOR ACCEPTING OR REJECTING THIRD AMENDED JOINT PLAN OF REORGANIZATION PROPOSED BY THE DEBTOR AND ITS AFFILIATE, SELLCO CORPORATION DATED AUGUST 9, 1994 ELECTION TO RECEIVE CASH IN LIEU OF NEW SERIES Z ACCEPT REJECT WARRANT(s) (see CLASS PLAN OF REORG. PLAN OF REORG. instruction 6 on reverse) 9 _____________ _____________ ________________________ PLEASE SEE REVERSE SIDE FOR VOTING INFORMATION AND IMPORTANT INSTRUCTIONS BEFORE COMPLETING THIS BALLOT DATED: SIGNED: TITLE: (Please sign exactly as name or names appear hereon. Full title of one signing in repr- esentative capacity should be clearly designated after signa- ture. Names of all joint holders should be written even if signed by only one.) PLEASE NOTE: ANY BALLOT WHICH IS EXECUTED AND DATED BUT WHICH DOES NOT INDICATE AN ACCEPTANCE OR REJECTION OF THE PLAN SHALL BE DEEMED TO BE AN ACCEPTANCE OF THE PLAN. On August 22, 1994, the United States Bankruptcy Court for the Southern District of New York (the "Court") approved the Third Amended Disclosure Statement filed by the Debtor and directed the Debtor to solicit votes with regard to the acceptance or rejection of the Third Amended Joint Plan of Reorganization proposed by the Debtor and its affiliate, SellCo Corporation dated August 9, 1994 (the "Plan") attached as an exhibit thereto. INSTRUCTIONS 1. TO HAVE YOUR VOTE COUNT, YOU MUST INDICATE ACCEPTANCE OR REJECTION OF THE PLAN IN THE BOX ON THE REVERSE SIDE AND SIGN AND RETURN THIS BALLOT IN THE ENCLOSED ENVELOPE (i) BY REGULAR MAIL TO: JWP INC., c/o DONLIN, RECANO, & COMPANY, INC., P.O. BOX 2034, MURRAY HILL STATION, NEW YORK, NY 10156-0701 OR (ii) BY HAND DELIVERY, FEDERAL EXPRESS OR OTHER COURIER SERVICE TO JWP INC. c/o DONLIN, RECANO & COMPANY, INC. 419 PARK AVENUE SOUTH, SUITE 1206, NEW YORK, NY 10016. ANY BALLOT WHICH IS EXECUTED BUT WHICH DOES NOT INDICATE AN ACCEPTANCE OR REJECTION OF THE PLAN SHALL BE DEEMED AN ACCEPTANCE OF THE PLAN. BALLOTS MUST BE RECEIVED NO LATER THAN 5:00 P.M., NEW YORK TIME ON SEPTEMBER 23, 1994. IF A BALLOT IS RECEIVED AFTER THIS TIME, IT MAY NOT BE COUNTED. BALLOTS RECEIVED BY FACSIMILE WILL NOT BE COUNTED. 2. It is important that you vote. The Plan can be confirmed by the Court and thereby made binding if it is accepted by the holders of at least 2/3 in amount of interests actually voting in each voting class of interests. The votes of the interests actually voted in your class will bind those in the class who do not vote. In the event that the requisite acceptances are not obtained, the Court may nevertheless confirm the Plan if the Court finds that it accords fair and equitable treatment to, and does not discriminate unfairly against, the class(es) rejecting it, and otherwise satisfies the requirements of Section 1129(b) of the Bankruptcy Code. 3. Your signature is required in order for your vote to be counted. Please sign exactly as your name or names appear on the ballot. Names of all joint holders should be written even if signed by only one. If the interest is held by a corporation, the ballot should be executed in the name of the corporation by an authorized officer. If the interest is held by a partnership, the ballot must be executed in the name of the partnership by a general partner. If you are signing in a representative capacity, indicate your title after your signature. 4. This ballot has been prepared to reflect the class in which you are eligible to vote. If you have claims in more than one class, you may, however, receive more than one ballot. IF YOU RECEIVE MORE THAN ONE BALLOT, YOU SHOULD ASSUME THAT EACH BALLOT IS FOR A CLAIM IN A SEPARATE CLASS AND SHOULD COMPLETE AND RETURN ALL OF THEM. 5. For administrative convenience, ballots are being sent to all holders of impaired Claims/Interests in Classes 2, 3, 4(B), 4(C), 6, 7, 8, 9, 10, and 11. However, pursuant to Section 1126 of the Bankruptcy Code, only the holders of Claims/Interests allowed under Section 502 of the Bankruptcy Code may vote to accept or reject the Plan. Thus, only the ballots of holders of Claims/Interests in Class 2, 3, 4(B), 4(C), 6, 7, 8, 9, 10, and 11 that are allowed (or temporarily allowed for the purpose of voting on the Plan), in a fixed amount as of September 23, 1994, the last day to return ballots, will be counted. 6. Pursuant to Article IV, Section J, 6. of the Plan, at the option of the holder of an allowed interest in Class 9, such holder shall be entitled to receive from Reorganized JWP $0.10 in lieu of each whole New Series Z Warrant such holder might otherwise be entitled to receive under the Plan provided, however, that Reorganized JWP shall not be obligated to distribute cash to such holder on account of such whole New Series Z Warrants unless such holder is entitled to receive in the aggregate at least $1.00 on account of such whole New Series Z Warrants. Acceptance of this election must be indicated by a check in the "Election to Receive Cash in Lieu of New Series Z Warrants" box on the reserve side. This will be your only opportunity to make this election. 7. This ballot is for voting purposes only and does not constitute and shall not be deemed a proof of claim/interest or an admission by the Debtor of the validity of a claim. UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK X Chapter 11 Case No. In re : 93 B 46404 (JHG) : JWP INC. : BALLOT : : MUST BE RECEIVED BY : 5:00 P.M. NEW YORK TIME Debtor. : SEPTEMBER 23, 1994 X JWP INC. SHAREHOLDER LITIGATION BALLOT FOR ACCEPTING OR REJECTING THIRD AMENDED JOINT PLAN OF REORGANIZATION PROPOSED BY THE DEBTOR AND ITS AFFILIATE, SELLCO CORPORATION DATED AUGUST 9, 1994 ELECTION TO RECEIVE CASH IN LIEU OF NEW SERIES Z ACCEPT REJECT WARRANT(s) (see CLASS PLAN OF REORG. PLAN OF REORG. instruction 6 on reverse) 10 _____________ _____________ ________________________ PLEASE SEE REVERSE SIDE FOR VOTING INFORMATION AND IMPORTANT INSTRUCTIONS BEFORE COMPLETING THIS BALLOT DATED: SIGNED: TITLE: (Please sign exactly as name or names appear hereon. Full title of one signing in repr- esentative capacity should be clearly designated after signa- ture. Names of all joint holders should be written even if signed by only one.) PLEASE NOTE: ANY BALLOT WHICH IS EXECUTED AND DATED BUT WHICH DOES NOT INDICATE AN ACCEPTANCE OR REJECTION OF THE PLAN SHALL BE DEEMED TO BE AN ACCEPTANCE OF THE PLAN. On August 22, 1994, the United States Bankruptcy Court for the Southern District of New York (the "Court") approved the Third Amended Disclosure Statement filed by the Debtor and directed the Debtor to solicit votes with regard to the acceptance or rejection of the Third Amended Joint Plan of Reorganization proposed by the Debtor and its affiliate, SellCo Corporation dated August 9, 1994 (the "Plan") attached as an exhibit thereto. INSTRUCTIONS 1. TO HAVE YOUR VOTE COUNT, YOU MUST INDICATE ACCEPTANCE OR REJECTION OF THE PLAN IN THE BOX ON THE REVERSE SIDE AND SIGN AND RETURN THIS BALLOT IN THE ENCLOSED ENVELOPE (i) BY REGULAR MAIL TO: JWP INC., c/o DONLIN, RECANO, & COMPANY, INC., P.O. BOX 2034, MURRAY HILL STATION, NEW YORK, NY 10156-0701 OR (ii) BY HAND DELIVERY, FEDERAL EXPRESS OR OTHER COURIER SERVICE TO JWP INC. c/o DONLIN, RECANO & COMPANY, INC. 419 PARK AVENUE SOUTH, SUITE 1206, NEW YORK, NY 10016. ANY BALLOT WHICH IS EXECUTED BUT WHICH DOES NOT INDICATE AN ACCEPTANCE OR REJECTION OF THE PLAN SHALL BE DEEMED AN ACCEPTANCE OF THE PLAN. BALLOTS MUST BE RECEIVED NO LATER THAN 5:00 P.M., NEW YORK TIME ON SEPTEMBER 23, 1994. IF A BALLOT IS RECEIVED AFTER THIS TIME, IT MAY NOT BE COUNTED. BALLOTS RECEIVED BY FACSIMILE WILL NOT BE COUNTED. 2. It is important that you vote. The Plan can be confirmed by the Court and thereby made binding if it is accepted by the holders of at least 2/3 in amount of interests actually voting in each voting class of interests. The votes of the interests actually voted in your class will bind those in the class who do not vote. In the event that the requisite acceptances are not obtained, the Court may nevertheless confirm the Plan if the Court finds that it accords fair and equitable treatment to, and does not discriminate unfairly against, the class(es) rejecting it, and otherwise satisfies the requirements of Section 1129(b) of the Bankruptcy Code. 3. Your signature is required in order for your vote to be counted. Please sign exactly as your name or names appear on the ballot. Names of all joint holders should be written even if signed by only one. If the interest is held by a corporation, the ballot should be executed in the name of the corporation by an authorized officer. If the interest is held by a partnership, the ballot must be executed in the name of the partnership by a general partner. If you are signing in a representative capacity, indicate your title after your signature. 4. This ballot has been prepared to reflect the class in which you are eligible to vote. If you have claims in more than one class, you may, however, receive more than one ballot. IF YOU RECEIVE MORE THAN ONE BALLOT, YOU SHOULD ASSUME THAT EACH BALLOT IS FOR A CLAIM IN A SEPARATE CLASS AND SHOULD COMPLETE AND RETURN ALL OF THEM. 5. For administrative convenience, ballots are being sent to all holders of impaired Claims/Interests in Classes 2, 3, 4(B), 4(C), 6, 7, 8, 9, 10, and 11. However, pursuant to Section 1126 of the Bankruptcy Code, only the holders of Claims/Interests allowed under Section 502 of the Bankruptcy Code may vote to accept or reject the Plan. Thus, only the ballots of holders of Claims/Interests in Class 2, 3, 4(B), 4(C), 6, 7, 8, 9, 10, and 11 that are allowed (or temporarily allowed for the purpose of voting on the Plan), in a fixed amount as of September 23, 1994, the last day to return ballots, will be counted. 6. Pursuant to Article IV, Section J, 6. of the Plan, at the option of the holder of an allowed interest in Class 10, such holder shall be entitled to receive from Reorganized JWP $0.10 in lieu of each whole New Series Z Warrant such holder might otherwise be entitled to receive under the Plan provided, however, that Reorganized JWP shall not be obligated to distribute cash to such holder on account of such whole New Series Z Warrants unless such holder is entitled to receive in the aggregate at least $1.00 on account of such whole New Series Z Warrants. Acceptance of this election must be indicated by a check in the "Election to Receive Cash in Lieu of New Series Z Warrants" box on the reserve side. This will be your only opportunity to make this election. 7. This ballot is for voting purposes only and does not constitute and shall not be deemed a proof of claim/interest or an admission by the Debtor of the validity of a claim. UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK X Chapter 11 Case No. In re : 93 B 46404 (JHG) : JWP INC. : BALLOT : : MUST BE RECEIVED BY : 5:00 P.M. NEW YORK TIME Debtor. : SEPTEMBER 23, 1994 X JWP INC. EQUITY INTEREST - WARRANTS OF PARTICIPATION BALLOT FOR ACCEPTING OR REJECTING THIRD AMENDED JOINT PLAN OF REORGANIZATION PROPOSED BY THE DEBTOR AND ITS AFFILIATE, SELLCO CORPORATION DATED AUGUST 9, 1994 ELECTION TO RECEIVE CASH IN LIEU OF NEW SERIES Z ACCEPT REJECT WARRANT(s) (see CLASS PLAN OF REORG. PLAN OF REORG. instruction 6 on reverse) 11 _____________ _____________ ________________________ PLEASE SEE REVERSE SIDE FOR VOTING INFORMATION AND IMPORTANT INSTRUCTIONS BEFORE COMPLETING THIS BALLOT DATED: SIGNED: TITLE: (Please sign exactly as name or names appear hereon. Full title of one signing in repr- esentative capacity should be clearly designated after signa- ture. Names of all joint holders should be written even if signed by only one.) PLEASE NOTE: ANY BALLOT WHICH IS EXECUTED AND DATED BUT WHICH DOES NOT INDICATE AN ACCEPTANCE OR REJECTION OF THE PLAN SHALL BE DEEMED TO BE AN ACCEPTANCE OF THE PLAN. On August 22, 1994, the United States Bankruptcy Court for the Southern District of New York (the "Court") approved the Third Amended Disclosure Statement filed by the Debtor and directed the Debtor to solicit votes with regard to the acceptance or rejection of the Third Amended Joint Plan of Reorganization proposed by the Debtor and its affiliate, SellCo Corporation dated August 9, 1994 (the "Plan") attached as an exhibit thereto. INSTRUCTIONS 1. TO HAVE YOUR VOTE COUNT, YOU MUST INDICATE ACCEPTANCE OR REJECTION OF THE PLAN IN THE BOX ON THE REVERSE SIDE AND SIGN AND RETURN THIS BALLOT IN THE ENCLOSED ENVELOPE (i) BY REGULAR MAIL TO: JWP INC., c/o DONLIN, RECANO, & COMPANY, INC., P.O. BOX 2034, MURRAY HILL STATION, NEW YORK, NY 10156-0701 OR (ii) BY HAND DELIVERY, FEDERAL EXPRESS OR OTHER COURIER SERVICE TO JWP INC. c/o DONLIN, RECANO & COMPANY, INC. 419 PARK AVENUE SOUTH, SUITE 1206, NEW YORK, NY 10016. ANY BALLOT WHICH IS EXECUTED BUT WHICH DOES NOT INDICATE AN ACCEPTANCE OR REJECTION OF THE PLAN SHALL BE DEEMED AN ACCEPTANCE OF THE PLAN. BALLOTS MUST BE RECEIVED NO LATER THAN 5:00 P.M., NEW YORK TIME ON SEPTEMBER 23, 1994. IF A BALLOT IS RECEIVED AFTER THIS TIME, IT MAY NOT BE COUNTED. BALLOTS RECEIVED BY FACSIMILE WILL NOT BE COUNTED. 2. It is important that you vote. The Plan can be confirmed by the Court and thereby made binding if it is accepted by the holders of at least 2/3 in amount of interests actually voting in each voting class of interests. The votes of the interests actually voted in your class will bind those in the class who do not vote. In the event that the requisite acceptances are not obtained, the Court may nevertheless confirm the Plan if the Court finds that it accords fair and equitable treatment to, and does not discriminate unfairly against, the class(es) rejecting it, and otherwise satisfies the requirements of Section 1129(b) of the Bankruptcy Code. 3. Your signature is required in order for your vote to be counted. Please sign exactly as your name or names appear on the ballot. Names of all joint holders should be written even if signed by only one. If the interest is held by a corporation, the ballot should be executed in the name of the corporation by an authorized officer. If the interest is held by a partnership, the ballot must be executed in the name of the partnership by a general partner. If you are signing in a representative capacity, indicate your title after your signature. 4. This ballot has been prepared to reflect the class in which you are eligible to vote. If you have claims in more than one class, you may, however, receive more than one ballot. IF YOU RECEIVE MORE THAN ONE BALLOT, YOU SHOULD ASSUME THAT EACH BALLOT IS FOR A CLAIM IN A SEPARATE CLASS AND SHOULD COMPLETE AND RETURN ALL OF THEM. 5. For administrative convenience, ballots are being sent to all holders of impaired Claims/Interests in Classes 2, 3, 4(B), 4(C), 6, 7, 8, 9, 10, and 11. However, pursuant to Section 1126 of the Bankruptcy Code, on the holders of Claims/Interests allowed under Section 502 of the Bankruptcy Code may vote to accept or reject the Plan. Thus, only the ballots of holders of Claims/Interests in Class 2, 3, 4(B), 4(C), 6, 7, 8, 9, 10, and 11 that are allowed (or temporarily allowed for the purpose of voting on the Plan), in a fixed amount as of September 23, 1994, the last day to return ballots, will be counted. 6. Pursuant to Article IV, Section J, 6. of the Plan, at the option of the holder of an allowed interest in Class 11, such holder shall be entitled to receive from Reorganized JWP $0.10 in lieu of each whole New Series Z Warrant such holder might otherwise be entitled to receive under the Plan provided, however, that Reorganized JWP shall not be obligated to distribute cash to such holder on account of such whole New Series Z Warrants unless such holder is entitled to receive in the aggregate at least $1.00 on account of such whole New Series Z Warrants. Acceptance of this election must be indicated by a check in the "Election to Receive Cash in Lieu of New Series Z Warrants" box on the reserve side. This will be your only opportunity to make this election. 7. This ballot is for voting purposes only and does not constitute and shall not be deemed a proof of claim/interest or an admission by the Debtor of the validity of a claim. -----END PRIVACY-ENHANCED MESSAGE-----