-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N/khZOtNsKNWdQRfx3F+uQP/EgSAF5P4KZw8QgmkDDuK4Yme7uqMvALBRdxZyHTL qXRSMUov4H/xcX1gc8NKXQ== 0000944209-98-001234.txt : 19980630 0000944209-98-001234.hdr.sgml : 19980630 ACCESSION NUMBER: 0000944209-98-001234 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980629 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED STATES FILTER CORP CENTRAL INDEX KEY: 0000318025 STANDARD INDUSTRIAL CLASSIFICATION: REFRIGERATION & SERVICE INDUSTRY MACHINERY [3580] IRS NUMBER: 330266015 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-09534 FILM NUMBER: 98657164 BUSINESS ADDRESS: STREET 1: 40-004 COOK ST CITY: PALM DESERT STATE: CA ZIP: 92211 BUSINESS PHONE: 7603400098 MAIL ADDRESS: STREET 1: 40-004 COOK STREET CITY: PALM DESERT STATE: CA ZIP: 92211 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN TOXXIC CONTROL INC DATE OF NAME CHANGE: 19910401 FORMER COMPANY: FORMER CONFORMED NAME: NOVAN ENERGY INC DATE OF NAME CHANGE: 19871227 10-K 1 FORM 10-K - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED MARCH 31, 1998 COMMISSION FILE NUMBER 1-10728 UNITED STATES FILTER CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 33-0266015 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 40-004 COOK STREET, PALM DESERT, CA 92211 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (760) 340-0098 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE 4 1/2% CONVERTIBLE SUBORDINATED NOTES DUE 2001 NEW YORK STOCK EXCHANGE (TITLE OF EACH CLASS) (NAME OF EACH EXCHANGE ON WHICH REGISTERED)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation 8-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in the definitive proxy statement incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 26, 1998 was approximately $3,641,104,471. The number of shares of Common Stock outstanding on June 26, 1998 was 161,565,388 shares. Documents incorporated by reference: Notice of 1998 Annual Meeting and Proxy Statement (Part III of Form 10-K). - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART I ITEM 1--BUSINESS GENERAL United States Filter Corporation (the "Company"), is a leading global provider of industrial, municipal, commercial and consumer water and wastewater treatment systems, products and services, with an installed base of systems that the Company believes is one of the largest worldwide. The Company offers a single-source solution to its customers through what the Company believes is the industry's broadest range of cost-effective systems, products, services and proven technologies. In addition, the Company markets a broad line of waterworks distribution products and services. The Company has one of the industry's largest networks of sales and service and distribution facilities through more than 2,000 locations, including over 1,100 franchised dealerships, 833 Company-owned or leased facilities and manufacturing plants in 94 countries. The Company capitalizes on its large installed base, extensive distribution network and manufacturing capabilities to provide customers with ongoing local service and maintenance. The Company is a leading provider of outsourced water services, including the operation of water and wastewater treatment systems at customer sites. In addition, the Company is actively involved in the development of privatization initiatives for municipal water treatment facilities throughout the world and, specifically, in the United States, Mexico and Canada. The Company also owns a significant amount of properties with appurtenant water rights in the Western and Southwestern United States, substantially all of which are leased to agricultural tenants. The Company's principal executive offices are located at 40-004 Cook Street, Palm Desert, California 92211 and its telephone number is (760) 340-0098. In this report, references to the Company or U.S. Filter shall mean United States Filter Corporation and its subsidiaries, unless the context requires otherwise. Since 1991, the Company has acquired more than 150 United States based and international businesses. These acquisitions have enabled the Company to expand significantly the segments of the water and wastewater treatment industry and water-related industries in which it participates, to complement its technologies, products or services, to enter into additional geographic areas and serve additional industries, municipalities, governments and other customers and to expand its installed base, service network, range of products and technologies and global distribution network. The Company intends to actively seek additional acquisitions that enhance its geographic network, customer base, and range of product offerings, technologies, markets and industries served, or that provide opportunities to implement the Company's one-stop-shop approach in terms of technology, distribution or service. Kinetics. Effective December 31, 1997, the Company acquired The Kinetics Group, Inc. ("Kinetics") in exchange for 5,803,803 shares of common stock of the Company. Kinetics is a leading United States manufacturer and supplier of sophisticated high-purity process piping systems for the handling of gases, water and chemicals. Such systems are provided primarily to the microelectronics, pharmaceutical and biotechnology industries, and are critical to these operations. For its fiscal year ended September 30, 1997, Kinetics' revenues were $387.8 million. Memtec. The Company completed the acquisition of Memtec Limited ("Memtec") in December 1997 for a total cash purchase price of $397.2 million. Memtec designs and manufactures large volume membrane-based systems featuring Memtec's proprietary microfiltration ("CMF") technology. It also designs and manufactures an extensive range of products and systems worldwide that are used in the filtration of liquid and gas streams in a wide variety of industrial, municipal and commercial applications. For its fiscal year ended June 30, 1997, Memtec's revenues were $243.6 million. Culligan. Subsequent to the Company's fiscal year end, on June 15, 1998, the Company acquired Culligan Water Technologies, Inc. ("Culligan"). Culligan is a leading manufacturer and distributor of water purification and treatment products and services for consumer, commercial and industrial applications. Products and services offered by Culligan range from those designed to solve residential water problems, such as filters for tap water 2 and household water softeners, to equipment and services for commercial and industrial customers, such as ultrafiltration and microfiltration products. Culligan also offers desalination systems and portable deionization services ("PDS") designed for commercial and industrial applications. In addition, Culligan sells and licenses dealers to sell five-gallon bottled water under the Culligan trademark. Culligan has been an active participant in the water purification and treatment industry since 1936, and its Culligan(R), Everpure(R), Ametek(R) and Bruner(R) brands are among the most recognized in the industry. For its fiscal year ended January 31, 1998, Culligan's revenues were $505.7 million. Bass Properties. In September 1997, the Company acquired more than 47,000 acres of land with appurtenant water rights (the "Properties") in the Western and Southwestern United States from interests principally owned by affiliates of the Bass family of Fort Worth, Texas. The Properties were acquired in exchange for 8,000,000 shares of the Company's common stock and non- transferable warrants to purchase 1,200,000 shares of common stock. The substantial majority of the Properties are located in Imperial County, California within the Imperial Irrigation District, and substantially all of the Properties are currently leased to agricultural tenants. THE WATER TREATMENT INDUSTRY Global population growth, economic expansion, scarcity of available water resources, heightened public concern about water quality and growing regulatory and legislative requirements have resulted in continued growth in demand for water and wastewater treatment. In addition to the need for potable water, industrial companies require treated water for most manufactured products, whether as an ingredient in the finished product or as part of the manufacturing process. Accordingly, most manufacturers utilize water treatment systems to purify their incoming, or "process", water. Public water departments and private water companies, responsible for providing potable water, employ water treatment technology to purify their water supply. Furthermore, government regulations require most industrial companies and municipalities to treat their outgoing wastewater. Customers of the water and wastewater treatment industry can be classified into three broad categories: (i) industrial and commercial businesses, which include companies in such markets as pharmaceuticals, microelectronics, automotive, power generation, chemical processing, oil and metal finishing; (ii) municipal and private suppliers of public water and wastewater services; and (iii) individual consumers of bottled water, household point-of-use products, such as domestic filtration systems and parts, and water softening and conditioning equipment. Industrial and Commercial Users. Industrial and commercial users have a significant need for treated water because it is a necessary component in many products and industrial and other processes. The quality of water varies dramatically across geographic regions, and water contains impurities that, if untreated, can render it effectively useless for most industrial purposes. The use of untreated water in manufacturing processes can result not only in inconsistent product quality, but also in substantial equipment degradation, which can lead to costly maintenance or replacement costs. Consequently, most manufacturers treat their process water in order to maintain a consistently acceptable degree of purity. For example, treated water is an integral component of many consumer goods and is used in the manufacture of pharmaceutical products, microelectronics and chemicals. Food and beverage manufacturers require water with consistent quality to preserve uniformity of taste and appearance in their products. As a result of these process specifications, industrial customers often require a broad range of treatment technologies to treat their process water. In addition to treating their process water to ensure product quality, industrial users are often required to treat their wastewater. Government regulations regarding the disposal of aqueous industrial waste, combined with public concern regarding industrial pollution, have led to increased awareness on the part of businesses and public utilities as to the benefits of wastewater treatment and waste minimization. In response to higher water prices and rising wastewater discharge fees, industrial manufacturers have also become aware of the cost-effectiveness of recycling their wastewater. As a result of these factors, industrial companies increasingly require complex systems and equipment to treat and recycle process water and wastewater. 3 Municipal Users. Public awareness and governmental concern regarding the increasing scarcity of water, the quality of drinking water, and the potential health hazards associated with waste products discharged into the environment, have resulted in legislation, regulation and enforcement requiring strict standards for potable water and restrictions on the discharge of pollutants in municipal wastewater. The Company believes that, in many areas of the United States and throughout the world, aged municipal water and wastewater treatment infrastructure is operating at or near capacity, is in need of substantial capital expenditures and is not well-equipped to satisfy increasing regulatory and legislative requirements. In addition, many municipalities are experiencing reduced economic resources. The Company believes that, as a result, many such customers are seeking innovative solutions to their water treatment needs, such as improved technologies and equipment, and various outsourcing and service options, such as contract operations and privatization. Privatization involves the transfer of ownership and operation of water and wastewater treatment facilities to companies capable of providing such services on a long-term basis. Individual Consumers. The market for individual consumers consists of bottled water, point-of-use products, such as residential filtration systems and parts, and water softening and conditioning equipment installed at the point of entry to a household water system. Consumers' needs vary by geographic location as a result of differing water qualities and level of economic development. This segment of the industry is highly fragmented, and the Company believes there are thousands of participants in the water conditioning and point-of-use products markets. PRODUCTS AND SERVICES NORTH AMERICAN PROCEsS WATER GROUP The Company's North American Process Water Group provides single-source solutions for the treatment of industrial process water through what the Company believes to be the industry's broadest range of treatment systems, services and proven technologies. Products The North American Process Water Group designs, engineers, manufactures and installs pre-engineered and customized systems for the treatment of industrial process water utilizing a broad range of physical, biological and chemical treatment technologies that can be combined and configured to meet wide- ranging customer needs. The Company's process water systems range from a pre- packaged 0.5 liter-per-minute laboratory unit to a custom-designed boiler feedwater system that delivers thousands of gallons of high-purity water per minute. The separation processes and technologies utilized by the Company in process water treatment equipment and systems include, among others, cross-flow filtration (including reverse osmosis, ultrafiltration and microfiltration), media filtration (including microfiltration, particle filtration and ceramic filtration), ion exchange, continuous deionization ("CDI"), electrodialysis, carbon adsorption, biological processes, oxidation, disinfection, aeration, coagulation, flocculation, evaporation and crystallization. The Company's proprietary CDI process uses ion exchange resins, ion exchange membranes and an electrical current to produce high-purity water continuously, without the need for strong chemicals such as sulfuric acid and caustic soda required in typical ion exchange regeneration systems. The water treatment equipment and systems sold by the North American Process Water Group are designed, engineered and assembled by the Company from one or more pieces of equipment and a variety of other components manufactured by the Company or purchased from third-party vendors. Larger industrial process water treatment systems can be trailer- or skid-mounted, or permanently installed on the customer's premises. Turnkey systems are generally designed and installed within 24 months following acceptance of a customer order. On such projects, the Company typically enters into lump-sum contracts under which the Company receives payments throughout the contract term based on a predetermined schedule. 4 The Company's principal United States manufacturing facilities for the design, engineering, fabrication and assembly of reverse osmosis, media filtration and ion exchange process water treatment systems are located in Rockford, Illinois; Whittier, California; Colorado Springs, Colorado; Plantsville, Connecticut; and St. Genevieve, Missouri. These facilities aggregate approximately 392,300 square feet, and typically include sales, service and office space in addition to manufacturing capacity. The Company's CDI equipment is assembled at its facility in Lowell, Massachusetts. Laboratory and analytical testing for the North American Process Water Group is done at the Rockford and Lowell facilities, and research and development is centered at Lowell. The North American Process Water Group also manufactures and sells replacement parts required to support treatment systems manufactured by both the Company and, to a limited extent, its competitors. In addition, the Company markets consumables, such as membranes, ion exchange resin and carbon, to its customers. Services The North American Process Water Group is a leading provider of SDI and PDS for industrial and commercial users. SDI and PDS are terms given to portable water deionization treatment equipment that uses ion exchange resins as the filtration medium to produce high-purity water. Resin is retrieved and transported by a Company service representative to a Company regeneration plant for chemical recharging when it is exhausted. In the United States, the Company operates 27 regeneration plants in 16 states. Deionization is widely- used in commercial and industrial applications and provides the Company with a recurring source of revenues and the opportunity to market its systems and other services to its existing service deionization customer base. The Company, through its carbon reactivation facility located in Parker, Arizona, also has the ability to recycle spent carbon utilized in water treatment systems sold by the Company. Customer Markets The markets for the North American Process Water Group's products and services span many industries. Systems and products manufactured at United States facilities are also marketed and sold throughout the world and, in particular, Europe, Asia and Latin America, as well as in North America. The North American Process Water Group's high-purity water treatment systems are marketed to customers in the pharmaceutical/biotechnology, food and beverage and medical/laboratory/research markets. Ultra-high-purity systems are offered for the microelectronics industry, where the removal of contaminants at a microscopic level is required. Other industrial markets for the Company's process water treatment products and technologies include a wide variety of applications in the automotive, chemical and petrochemical, metal finishing, power generation, oil field and refinery, pulp and paper and mining industries, all of which require improved or customized water in their manufacturing or other industrial processes. NORTH AMERICAN WASTEWATER GROUP The Company's North American Wastewater Group is a leading provider of systems and services to treat and recycle municipal and industrial wastewater, and for the treatment of drinking water. It also provides liquid hazardous waste treatment and recovery services. Products The North American Wastewater Group designs, engineers, manufactures and installs equipment and systems for wastewater treatment by municipalities and industrial and commercial customers, and for the treatment of drinking water, utilizing a wide range of treatment technologies, including many of those employed by the Company in process water applications. See "North American Process Water Group--Products". Systems and products also are offered for the treatment of municipal and industrial sludge and biosolids through dewatering, thickening, conditioning, composting and drying techniques. In addition, the Company provides systems to remove solids from liquid streams through the use of self-cleaning bar filter screens, grinders, macerators, conveyors and compactor systems. The Company also supplies material and equipment to wastewater customers for the control and monitoring of hydrogen sulfide odor. Time intervals for installation of 5 completed equipment and systems sold by the North American Wastewater Group can range from six months to two years after acceptance of the Company's bid, depending upon the nature and complexity of the project. Replacement parts and consumables are marketed and sold to North American Wastewater Group customers as well. The Company's broad range of technologies enables the North American Wastewater Group to offer industrial customers products and systems for removing from liquid waste streams heavy metals and other inorganic solids, organics, toxic wastes, nitrogen compounds and solids, and free and emulsified grease and oil. The Company's large volume fluid purification systems based on its proprietary CMF membranes are particularly effective in the removal of chlorine-resistant water-borne pathogens for both wastewater and potable water applications, while also providing high tolerance to feed stream variation and requiring minimal use of chemicals and human resources. Evaporation and crystallization technologies are used to clean and recycle wastewater, particularly in zero liquid discharge industrial applications. The Company's significant disinfection and biological treatment capabilities, including fixed-film and suspended growth systems that utilize microorganisms for nitrification and denitrification, specific organic destruction, BOD/COD reduction and nutrient removal, are critical in municipal wastewater and sewage treatment. The Company offers cryptosporidium giardia cyst removal, nitrate removal, reverse osmosis desalination and water softening technologies, as well as intake screens, aerators, clarifiers and disinfection feed equipment to private and municipal providers of drinking water. Biological, chemical, carbon adsorption and fluidized bed technologies are offered to customers which require groundwater remediation systems or landfill leachate treatment. Landfill leachate treatment systems are designed to treat or eliminate wastewater drainage into groundwater and surrounding waterways. The North American Wastewater Group manufactures a variety of equipment and products for inclusion in its systems. Components for these systems are also purchased from third party vendors. The Company's principal North American facilities for the manufacture and assembly of wastewater treatment products and systems are located in Madison, Indiana; Bradley, Illinois; Waukesha, Wisconsin; Rothschild, Wisconsin; Thomasville, Georgia; Vineland, New Jersey; Waterboro, South Carolina; Ames, Iowa; Edwardsville, Kansas; Warrendale, Pennsylvania; Billerica, Massachusetts; Sarasota, Florida and Holland, Michigan. These facilities aggregate approximately 1,030,000 square feet, including, in most cases, sales and office space as well as manufacturing capacity. Design and engineering for North American Wastewater Group products is performed at the Warrendale location, as well as at facilities in Naperville, Illinois and Pittsburgh, Pennsylvania. Laboratory and analytical testing, including treatability studies, are conducted at the Warrendale and Rothschild plants, and at Company facilities in Roseville, Minnesota; Parker, Arizona and Vernon, California. The Company also manufactures automation and control systems for municipal water and wastewater treatment equipment using liquid level pressure and flow sensors, automatic pump controllers/alternators and remote control technology capabilities at a plant in St. Paul, Minnesota. Services Contract Operations. The Company provides services under more than 200 municipal and industrial wastewater treatment plant maintenance and operation contracts, including plant start-up assistance, plant operations and maintenance, planning and management, training of plant supervisors, operators and laboratory and maintenance personnel, refining process systems, management systems for process control, and plant diagnostic evaluations and energy audits. The Company also provides specialty repair and cleaning services for industrial wastewater management equipment. The Company's maintenance and operation contracts generally range in length from three to 10 years and often provide the owner of the facility with renewal options. The majority of such contracts are fixed price or lump sum contracts. In addition to operation and maintenance of customer-owned facilities, the Company also offers the option of Company-owned wastewater treatment facilities designed, constructed, owned and operated by the Company adjacent to or within industrial customers' facilities. Privatization. The Company is actively involved in the development of privatization initiatives for municipal wastewater treatment facilities. In July 1995, a subsidiary of the Company was the first to acquire a publicly- owned wastewater treatment plant in the United States pursuant to Executive Order 12803 issued in 6 1992, which was intended to facilitate the privatization of municipal facilities. The agreement provides for a subsidiary of the Company to operate the 4.5 million gallon per day MCD Franklin Wastewater Treatment Plant in Franklin, Ohio for a period of 20 years and to expand the facility as needed to meet future population growth. Outsourced Water. The North American Wastewater Group's service business also includes short- and long-term contracts for the construction and operation of customer-owned process water treatment systems, ongoing service and maintenance of existing process water treatment systems and mobile process water treatment services. The Company's outsourcing programs involve standard products and custom-designed systems installed and operated on the customers' sites by the Company's trained service technicians. Service contracts range in length depending on type of service from one to five years and are on a fixed- price basis, subject to adjustments for inflation and other cost increases. The Company also offers customers the opportunity to outsource their water purification requirements through Company-owned and operated on-site water treatment systems. These contracts range in length from three to 20 years. In 1995, the Company formed Treated Water Outsourcing ("TWO"), a joint venture with Nalco Chemical Company ("Nalco"), to finance, build, own and operate process water treatment systems at customer sites under long-term contracts. Nalco, a leader in water chemistry, supplies the chemicals necessary for TWO's water treatment systems, while the Company supplies the capital equipment, design and service functions to meet TWO's customers' needs. TWO has access to Nalco's extensive sales force and customer base. Nalco and the Company each provide advisory and administrative services in order to assist TWO in bid and contract preparation and marketing. Resource Recovery. Another component of the Company's service business is its hazardous waste treatment facilities located in Roseville, Minnesota and Vernon, California. The Roseville facility operates a Resource Conservation and Recovery Act ("RCRA") permitted Part B centralized treatment and recovery facility. The Vernon facility operates a similar RCRA Part B facility. These facilities receive and treat wastes generated primarily by the metal finishing industry and printed circuit board manufacturers, and recover from these wastes and sell reusable chemicals and metals. These facilities offer the Company's customers a cost-effective recovery approach that reduces processing costs, the quantity of sludge generated and the environmental exposure associated with industrial waste. The Company also operates a facility in Parker, Arizona, which is authorized under Section 3005 of RCRA for the reactivation of spent carbon. The Company is currently negotiating the final terms and conditions for a RCRA Part B permit for such facility. Customer Markets Municipalities in North America, Europe, Asia and Latin America are a significant market for systems and products manufactured by the North American Wastewater Group in the United States. Municipal sewage plants often utilize three stages of treatment (primary, secondary and tertiary) before discharge to the environment. The Company offers wastewater and biosolids treatment systems to address those requirements. In addition, the Company's media filtration, reverse osmosis and ion exchange technologies have the capability of adding a fourth stage of treatment of municipal wastewater by removing remaining contaminants to a purity level that allows water to be recycled and reused in industrial applications. These technologies can reduce the impact of industrial growth in communities where water tables are low. Systems produced by the North American Wastewater Group are marketed to a variety of industrial customers. Markets include the pulp and paper, chemical, petrochemical, mining, power generation, meat and poultry, food processing, automotive, metal finishing and microelectronics industries. The recycle/reuse systems offered by the Company permit zero liquid discharge applications, providing industrial customers with the ability to circulate treated water back into plant processes, thereby reducing water usage, operating costs and discharges to the environment. The Company also offers outsourced water services to customers in these markets, including financing, operating and maintaining process water treatment systems at customer sites, and providing mobile water treatment services on an emergency or short-term basis. In addition, prepackaged sewage treatment systems are sold to commercial and residential land developers, as well as industrial plants. The North American Wastewater Group also sells both custom-engineered and pre-assembled treatment systems to municipal and private providers of drinking water. 7 WATERWORKS DISTRIBUTION GROUP The Company's Waterworks Distribution Group markets a broad line of water distribution and sewer and stormwater collection equipment and supplies, including underground pipe, pipe fittings, valves, fire hydrants, water meters and other related equipment necessary to underground construction. The Waterworks Distribution Group purchases more than 32,000 products from approximately 2,000 manufacturers and suppliers. Certain products manufactured by the Company also are sold by the Waterworks Distribution Group, as well as through the Company's other sales channels. The Company believes it is one of the largest suppliers of water distribution and sewer products in the United States. The Waterworks Distribution Group's products are marketed primarily to contractors and municipalities through a network in the United States of more than 135 service centers located in 30 states. Each service center covers a radius of up to 200 miles, and maintains an inventory of water and sewer products that are sold to the industry at large. More than 95% of orders are filled and shipped from the service centers on the date that the order is requested by the customer. Products are transported to customers through a fleet of more than 500 vehicles, with larger orders being shipped direct from the manufacturer. All of the Waterworks Distribution Group's locations are electronically linked through on-line systems. These systems give the individual service centers the ability to utilize inventory located throughout the United States to service their accounts. The system also includes an inventory management system which ensures that sufficient levels of inventory are available at each service center. The Waterworks Distribution Group also offers municipalities on-line computer access that allows the customer to place orders, review quotations, check inventory and shipment status and confirm invoices. The Waterworks Distribution Group also provides various services to its customers, including automatic meter reading installations; water meter testing, repair and certification; fire hydrant maintenance and replacement; manhole rehabilitation; pipeline taps; valve installations, repairs, replacement and testing; and on-the-job heavy duty polyethylene fusion capabilities. NORTH AMERICAN CONSUMER AND COMMERCIAL GROUP Consumer The Company's North American Consumer and Commercial Group is a leading manufacturer and distributor of water purification and treatment products to residential customers in North America. The Company's consumer products and services address residential water problems, including the removal of lead, cysts and other health-related contaminants, the elimination of chlorine and unpleasant odors and tastes and the softening of water by the ion exchange process. The North American Consumer and Commercial Group also bottles, sells and delivers five-gallon bottled water to homes and businesses, principally on a route basis. The Company also supplies water filtration products and systems to commercial enterprises. The North American Consumer and Commercial Group, through its independent dealers and Company-owned outlets, sells, installs and services a wide range of products which address household water problems. These products include point-of-use filtration units for improving the quality of drinking water, which utilize media filtration, reverse osmosis and/or carbon filter processes. These products are designed to be installed in basements or garages, under sinks or directly at the point of use. The Company also markets a line of point-of-use filtration systems for recreational vehicles. Point-of- use systems are designed to reduce or remove from household water dirt and other sediment, rust, lead, chlorine, sulfur, off-tastes, odors, and other chemicals and microscopic impurities, including parasitic protozoan cysts. In 1988, the Company's Culligan subsidiary became the first to receive certification from the independent National Sanitation Foundation ("NSF") under NSF's standard for residential reverse osmosis drinking water systems. Culligan has since developed many proprietary reverse osmosis systems to improve the quality of drinking water, including the latest model of The Good Water Machine(TM) Drinking Water System that utilizes the reverse osmosis process to filter tap water three times before it comes out of the faucet. 8 The North American Consumer and Commercial Group also sells water softening and conditioning equipment and other products installed at the point of entry to a residential water system, designed to soften hard water by reducing or removing minerals through ion exchange technology. Household automatic water softeners and portable exchange water conditioners have constituted a large portion of the business of the Company's Culligan subsidiary since its inception in 1936. The North American Consumer and Commercial Group also manufactures and sells a line of water filtration products for sale through department stores, mass retailers and home centers. These products include faucet mount filters, under-counter systems, refrigerator water/ice maker filter systems and a sediment and rust reduction whole-house filtration system. A designer glass pitcher filtration system and monitored faucet mount systems were introduced in the fiscal year ended March 31, 1998 ("fiscal 1998"). The Company's Culligan subsidiary has entered into marketing partnerships with a major appliance manufacturer to provide a refrigerator water/ice maker filtration system and with Moen Incorporated to develop Moen(R) faucet products incorporating the Company's water filtration assemblies. The North American Consumer and Commercial Group's more than 750 independent franchised dealers and more than 115 Company-owned businesses serving the North American market provide complete solutions to household water problems through testing, product selection, installation, monitoring and service. Franchised dealers generally purchase all their requirements for water treatment products from the Company, including equipment for sale, rental or use in their portable exchange service programs. Generally, approximately one- half of a franchised dealer's or Company-owned business' revenues are derived from rental and service income from existing customers. The Company also offers financing of systems to residential customers. The principal design, manufacturing and assembly facilities for consumer products in North America are located in Northbrook, Illinois; Wesmont, Illinois; Sheboygan, Wisconsin; Regina, Saskatchewan, Canada and Mississauga, Ontario, Canada. These facilities aggregate approximately 730,000 square feet. The Northbrook facility also includes approximately 100,000 square feet of office space and laboratories for testing and analysis of water samples. Household products for the European market are also manufactured and assembled at the Northbrook facility. The Company sells water in five-gallon bottles on a route basis through its residential and commercial distribution network, and in a limited number of shopping centers on a walk-up basis. Purified drinking water is produced at over 100 Company-owned, franchised or licensed bottling locations and sold through over 500 dealers and Company-owned branches in the United States. The Company receives royalty payments from its licensed producers and franchised dealers based on sales volume. The North American Consumer and Commercial Group's representatives typically pick up for refill and deliver the five- gallon bottles to a customer's home or office on a regular route. Customers rent the bottled water dispensers from the Company or the franchised dealers. In addition, at a small number of locations in Texas and Florida, the Company also sells purified water by refilling customer-supplied containers at shopping center locations. Consumer water filtration and water-quality related products are also sold at these locations. Through a recent acquisition, the Company also has established a base in the self-fill vend segment in food, drug and convenience stores. The Company currently does not participate to any significant extent in any other segment of the bottled water market. The North American Consumer and Commercial Group also assembles and sells water bottling plant equipment, including semi-automatic, adjustable fill tables, bottling machines, injection systems for minerals, chemicals and flavors, and ozone and repressurization post-treatment systems for bacterial control in a 4,800 square foot facility in Santa Ana, California. Commercial The North American Consumer and Commercial Group designs, manufactures, sells, installs and services a wide range of products to address the water problems of commercial enterprises. These products include filtration systems, reverse osmosis units, water softeners, deionizers and high quality ultrafiltration and microfiltration products capable of producing ultrapure water. 9 Commercial users require water treatment systems that remove dissolved minerals, such as calcium, magnesium, iron or manganese, and health-related contaminants from the available water supply and are capable of treating large quantities of water on a cost-effective basis. The Company's commercial products use technologies similar to its residential products, but that afford greater capacity, durability and effectiveness and allow customers increased flexibility for customization. For example, the Company's filters, deionizers and softeners provide food and beverage manufacturers with consistently high quality water enabling them to preserve uniformity of taste and appearance in their products, reduce health-related contaminants and minimize equipment maintenance costs. Other commercial enterprises such as airlines, hotels, restaurants, car washes, laundromats, office buildings and apartment complexes use the Company's products to condition, filter, deionize and otherwise treat large quantities of water. The Company's Everpure subsidiary is a leading supplier of water filtration products to the food service industry. Everpure's line of food service water filtration products includes systems for post-mix beverage dispensers, ice machines, coffee makers, steamers and vending machines that are designed to treat all levels of water contamination and to ensure that consumer products such as coffee, soups or ice are of the highest quality. Everpure(R) systems also decrease maintenance costs and extend the life of water-using equipment by removing dirt and other abrasive particles that can damage the internal workings of such equipment. Everpure(R) products are used extensively in many major food and beverage retailers, including McDonalds's(R), Burger King(R) and Starbucks(R), as well as convenience store chains around the world, including 7-Eleven(R) and Circle K(R). Sales, installation and service for the commercial market are primarily through the North American Consumer and Commercial Group's distribution network for consumer and commercial products. In addition, there are over 250 distributors and authorized agents in the United States, Western Europe and other locations that distribute Everpure(R) water filtration products and over 30 independent distributors throughout the United States that distribute the Novatech Water Filtration products. Products for the commercial market are manufactured and assembled at the Northbrook, Wesmont, Sheboygan and Mississauga facilities of the North American Consumer and Commercial Group. FILTRATION AND SEPARATION GROUP The Company's Filtration and Separation Group includes the businesses acquired through the acquisition of Memtec, other than the Memcor division (which is included in the North American Wastewater Group), and also includes the Company's ceramic membrane and metal screens businesses. The Filtration and Separation Group designs, engineers, manufactures and markets a broad range of proprietary and standard disposable filters and filter housings for the fine filtration of liquid and gas streams. The Company produces cartridge and bag filters in a variety of configurations using four primary types of filtration media: textile fibers, non-woven sheet, meltblown polymers and proprietary asymmetric membranes. The Company's filters and filter housings are sold primarily into the chemical processing, coatings, oil and gas, food and beverage and electronics markets. They are manufactured at Company facilities in Baltimore, Maryland and Lyon, France. The Filtration and Separation Group also designs and manufactures a wide range of fine metallic fiber filter media, elements, housings and valves for applications in environments where extreme heat, pressure or corrosive chemicals are present. These products currently are marketed principally to polymer manufacturers and airbag manufacturers. The Company's metallic fiber filters also are used in catalyst containment; in the filtration and purification of hot gases; in the filtration of ink in ink jet printer cartridges; and in a variety of non-filtration applications. These products are manufactured at an approximately 278,400 square foot facility in DeLand, Florida. The Filtration and Separation Group also manufactures and markets a wide range of depth filters, a targeted range of pre-filter cartridges in pleated and wound configurations, proprietary membrane filters and associated filtration products. These filters are manufactured at an approximately 245,600 square foot facility in Bad 10 Krenzbach, Germany, and are sold primarily into the food and beverage, fine chemicals and pharmaceuticals markets. The Company manufactures Membralox(R) ceramic membranes in France and Germany that are used to permit the achievement of selective separations in extreme operating environments. The Filtration and Separation Group produces and installs profile wire screens for groundwater applications, oil and gas wells, food processing and coal/mineral processing. These welded, continuous-slot screen products are designed and manufactured at a 188,800 square foot facility in New Brighton, Minnesota as well as facilities in Brisbane, Australia; Ternay, France; Ahmedabad, India; Hyderabad, India; Dublin, Ireland; Yokohama, Japan and Auckland, New Zealand. INDUSTRIAL PRODUCTS AND SERVICES GROUP The Company's Industrial Products and Services Group is the leading domestic producer of sophisticated high-purity process piping systems for the handling of gases, water and chemicals. The Company also performs retrofits and expansions of these systems for its installed base of customers, typically as recurring contract revenue. Such systems are provided primarily to the microelectronics, pharmaceutical and biotechnology industries, where they are critical to operations. The Company's orders and contracts for these systems range from several thousand to tens of millions of dollars and vary from components and fabricated assemblies to entire manufacturing systems. The Industrial Products and Services Group's piping assemblies must meet strict purity and documentation requirements and are typically pre-fabricated at a Company cleanroom and other fabricating facilities or on construction sites in cleanrooms. In order to meet the strict requirements for welding, the Company uses automatic orbital welding machines which employ microprocessors to control all aspects of the welding operation. The Company typically does not manufacture commodity pipes or fittings. The Industrial Products and Services Group offers its customers turnkey and design/build operations, including engineering and design, quality assurance and control and program management services and the manufacturing of specialty components. The Industrial Products and Services Group also manufactures a line of surface finishing and preparation systems for use by a variety of industrial customers, including foundries, steel processors, aircraft manufacturing, automobile producers and rubber and plastics producers, in cleaning and finishing metal and other materials. The Company manufactures portable, fully- enclosed units for finishing difficult-to-clean surfaces such as concrete surfaces, ship decks and hulls. These systems capture the emissions particulate generated by such operations, preventing contamination of the environment. INTERNATIONAL PROCESS AND WASTEWATER GROUP The Company has substantial sales and significant operations outside the United States, principally in Europe, the Asia Pacific region, Latin America and the Middle East. Information regarding the amounts of revenue, operating profit and identifiable assets attributable to each of the Company's geographic areas and export sales is described in the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K. Europe, the Middle East and Africa Process water and wastewater treatment equipment and systems are designed, engineered, serviced and manufactured at over 50 facilities in more than 15 countries throughout Europe, the Middle East and Africa. This broad presence allows the Company to provide systems that respond to important local differences in environmental legislation, water quality, availability and treatment cost. A wide range of separation processes and treatment technologies are employed in these systems, including most of those utilized by the North American Process Water Group and the North American Wastewater Group in the United States. The Company's systems and products are sold internationally to municipalities for drinking water purification, sewage treatment and sludge handling. The Company also has a wide variety of industrial customers in the pharmaceutical, food 11 and beverage, power generation, metal finishing, chemical, petrochemical and automotive markets. Manufacturing facilities in Europe for industrial and municipal water and wastewater treatment equipment and systems include plants in Tarbes, France; Almelo, the Netherlands; Stoke-on-Trent, United Kingdom; Ransbach-Baumbach, Germany; Soresina, Italy; and Madrid, Spain. The Company also provides deionization services for industrial and laboratory users throughout western Europe, operating regeneration plants in the United Kingdom, France, the Netherlands, Germany and Spain. Also as part of its service business in Europe, the Company operates two municipal water treatment plants in Italy serving more than 1.5 million people under long-term contracts. Asia Pacific Through manufacturing facilities in Australia, Singapore, Taiwan, Japan, and India, and regeneration facilities in Singapore, Malaysia and the Philippines, the Company supplies a variety of process water and wastewater treatment products and services, including SDI, to microelectronics manufacturers and other industrial, commercial and municipal customers in the Asia Pacific region. In addition, water, wastewater and sewage treatment systems designed and manufactured at these locations and in the United States and Europe are marketed through engineering and sales offices in Australia, New Zealand, Singapore, Malaysia, Australia, Indonesia, The Peoples Republic of China, Taiwan, Japan, Korea and India. Accordingly, the Company can offer a full range of project capabilities in the Asia Pacific region, from the supply of standard equipment to design/build and outsourcing projects. In addition to the Company's local engineering and sales offices, the Company's products and systems are marketed throughout the Asia Pacific region through a network of manufacturers' representatives. Latin America The Company markets process water and wastewater treatment systems engineered and assembled by the North American Process Water Group and the North American Wastewater Group, through sales locations in Mexico, Venezuela, Brazil, Puerto Rico and Argentina. In Mexico, the Company also has a manufacturing facility where pumps and other equipment are made for sale around the world. The Company operates an SDI business that is focused on industrial and commercial customers throughout Mexico. The Company also owns and operates two concessions for wastewater treatment facilities under long term contracts for the cities of Cuernavaca and Yautepec, Mexico. These wastewater systems were designed, manufactured, and installed by the Company. Consumer and Commercial Group The International Process and Wastewater Group also sells, installs and services a broad range of household and consumer water filtration products through a network of 240 independent dealers and distributors and 70 Company- owned businesses throughout Europe and in other international markets. In addition, the Company's Everpure subsidiary supplies water filtration equipment to the food service industry in most western European countries and Japan. Consumer and commercial water filtration equipment is manufactured by the Company at facilities in Bologna, Italy and Barcelona, Spain. Everpure has facilities in Atsugi, Japan and Hwertic, Belgium that do light assembly and also warehouse and sell products manufactured in the United States. SALES AND MARKETING The Company maintains a worldwide distribution network of sales and service facilities, a global network of manufacturers' representatives and international representatives, and numerous distributors and licensees. North American Process Water and Wastewater Groups. Sales and marketing responsibilities for the North American Process Water Group and North American Wastewater Group are divided across five geographic regions in the United States. Each industrial, commercial and municipal sales prospect is reviewed to determine which of the Company's engineering and manufacturing resources should be utilized to best meet the customer's 12 needs. Technical support is available across the Company to assist marketing personnel in working with the end-user to select the appropriate technology for a given application. North American Process Water Group products and systems are sold predominantly through a direct sales force. The North American Wastewater Group's sales are made principally through a network of independent manufacturer's representatives. The Company's manufacturer's representatives are independent businesses which are paid on a commission basis and in certain cases have the exclusive right to sell the Company's products and systems in a specified geographical area. The Company provides both engineering and marketing support to its manufacturer's representatives. A portion of the Company's revenues are derived from recommendations by independent engineers and consultants who advise the ultimate customer. North American Consumer and Commercial Group. The North American Consumer and Commercial Group distributes and services its products through a network of independent franchised dealers, Company-owned businesses, independent water treatment dealers, plumbing wholesalers, consumer retailers and food, drug and convenience stores operating throughout the United States and Canada. The franchised dealers range from small local operations involving only a few employees to large multiple-site operations. Each franchised dealer and Company-owned business is assigned a primary area of geographic responsibility (typically, a local community or metropolitan area), although the territories are not exclusive. Certain of the franchised dealers and Company-owned business locations, particularly the larger ones, are capable of providing standard and special order products and services to the commercial market. The Company also has a network of distributors and authorized agents for its Everpure(R) water filtration products. The Company provides its franchised dealers and branch operations with a variety of services, including training, education and technical assistance. The Company employs technical service engineers who travel throughout the United States assisting with water quality needs. Commercial job specifications and proposals are supported by applications and technical engineers located at the Northbrook facility. In addition, the Company provides the franchised dealers with significant marketing services and support, including an extensive co-operative advertising program. A finance subsidiary of the Company provides intermediate-term loans to franchised dealers for equipment placed on rental or lease. International Process and Wastewater Group. Sales of process water and wastewater treatment systems and products outside the United States are conducted through a direct sales force and international representatives. In addition, a number of licensees manufacture and sell certain of the Company's products in Europe, Asia, Africa, Australia and Mexico. The Company provides technical support to these licensees and is either paid a royalty on sales or participates in the sale directly. Consumer and commercial water filtration products are distributed throughout Europe and in other international locations through a network of independent dealers and distributors and Company-owned businesses. Water filtration equipment for the food service industry outside the United States is also marketed directly to fast food and convenience store chains and equipment manufacturers. Other Groups. The Waterworks Distribution Group's equipment and supplies are marketed by Company-employed salesmen. Salesmen call directly on customers within their assigned territories and work with architects, engineers and government agencies to assist customers in determining their product needs. The Filtration and Separation Group's products are distributed through a worldwide network of both independent distributors and Company-employed sales personnel. The Industrial Products and Services Group markets its systems principally through a direct sales force. Sales outside the United States may also be made by representatives of partnering companies. 13 RAW MATERIALS AND SUPPLIES Raw materials, primarily steel, plastics, filtration media, ion exchange resins, membranes, cartridges and component parts such as pumps and valves, and products purchased for resale by the Waterworks Distribution Group, are available from a number of sources. The Company has not experienced difficulty in obtaining the materials, components and supplies used in its operations. BACKLOG AND SEASONALITY The Company had the following backlog as of March 31, 1997 and 1998, which includes capital equipment purchase orders and revenues expected to be generated during the next 12 months under certain long-term contracts. The capital equipment orders are scheduled for delivery and installation during the following 12 months and are believed by management to be firm.
AMOUNT DATE (IN THOUSANDS) ---- -------------- March 31, 1997............................................ $783,217 March 31, 1998............................................ $944,869
The rate of booking new orders varies from month to month. In addition, the orders have varying delivery schedules, and the Company's backlog as of any particular date may not be representative of actual revenues for any succeeding period. There is no material backlog for water distribution equipment and supplies since these orders normally are shipped within one to ten days following receipt of an order. Backlog also is not a meaningful measure of ongoing business in the filtration and separation and the consumer and commercial water businesses. Certain of the Company's contracts for engineered products and services provide for progress payments during the engineering and manufacturing period. The balance is due upon acceptance or start-up, or, in the case of most municipal and governmental purchasers, 90 to 180 days after delivery and installation. Demand for most of the Company's products and services is not typically affected by seasonal changes. The Waterworks Distribution Group's operations are affected by winter weather in parts of the United States, and generally can be expected to generate lower sales in the third and fourth fiscal quarters. PRODUCT DEVELOPMENT; PATENTS, TRADEMARKS AND LICENSES In order to provide its customers with cost-effective water treatment solutions, the Company offers a wide variety of filtration and purification technologies. The Company uses its own research and development, augmented by customer-funded, vendor-funded and government-funded research spending, in order to provide its customers with advanced products. In addition, the Company uses its analytical laboratories to perform water analyses and to test the effectiveness of filtration media and techniques in order to enhance the Company's capability to design systems tailored specifically for the particular needs of customers. The Company's product development expenditures for the fiscal years ended March 31, 1996, 1997 and 1998 were approximately $6.5 million, $8.3 million and $15.9 million, respectively. The Company currently owns a significant number of patents in the United States and in various countries worldwide. Although the Company believes that the patents and trademarks associated with the Company's various product lines are of value, it does not consider any of them to be essential to its business. Trademarks and brand name recognition are important to the Company, particularly in the North American Consumer and Commercial Group. The Company has registered its trademarks and believes that there is significant value associated with them. The loss of the Culligan trademark could have a material adverse effect on the Company. 14 COMPETITION All of the industries in which the Company competes are highly competitive, and most are fragmented, with numerous regional and local participants. There are competitors of the Company in certain industries that are divisions or subsidiaries of companies that have significantly greater resources than the Company. The process water and wastewater treatment industry is fragmented, with numerous regional participants in the United States and in countries throughout the world that are limited in their current geographic focus. This fragmentation is primarily due to local differences in water quality and supply, different levels of demand for water resulting from varying concentrations of industry and population, customer relationships and local governmental regulation. Most participants in the water and wastewater treatment industry provide a limited number of treatment technologies, a limited number of products or services, or focus on a particular industry. While the number of industry participants ranges from several large companies to hundreds of small local companies, there are few competitors in the industry that offer a full range of water and wastewater treatment equipment, technologies and services. The Company believes it offers the industry's broadest range of cost-effective treatment systems, services and proven technologies. The process water and wastewater treatment industry is highly competitive. The Company knows of no reliable statistics that provide a basis from which to estimate the Company's relative competitive position in these industries. The Company's process water treatment business competes in the United States and internationally principally on the basis of product quality and specifications, technology, reliability, price, customized design and technical qualifications, reputation and prompt availability of local service. The Company's wastewater treatment business competes in the United States and internationally largely on the basis of the same factors, except that pricing considerations can be predominant among competitors that have sufficient technical qualifications, particularly in the municipal contract bid process. The residential water industry is also highly competitive and fragmented. The Company competes in this market with companies with national distribution networks, businesses with regional scope and local product assemblers or service companies, as well as retail outlets. The Company believes that there are thousands of participants in the residential water business. The consumer products business competes principally on the basis of price, product quality and "taste," service, distribution capabilities, geographic presence and reputation. In connection with the marketing of waterworks distribution equipment and supplies, the Company competes not only with a large number of independent wholesalers and with other distribution chains similar to the Company, but also with manufacturers who sell directly to customers. The principal methods of competition for the Company's waterworks distribution business include prompt local service capability, product knowledge by the sales force and service branch management, and price. Due to the various sources and methods of competition and types of products sold by the Company, the Company knows of no reliable statistics upon which there might be based an estimate of the Company's relative competitive position in this market. The Company's filtration and separation business competes in the United States and internationally principally on the basis of price, technical expertise, product quality and responsiveness to customer needs, including service and technical support. The high-purity process piping systems business within the Company's Industrial Products and Services Group competes in the United States and internationally principally on the basis of reputation, previous project experience, the ability to meet system specifications and project deadlines and price. The surface finishing and preparation business within that Group competes principally on the basis of reputation, product offering, service and technical capabilities. PRODUCT WARRANTIES; INsURANCE The Company generally offers one-year product warranties on its equipment, and many of the Company's consumer products carry a limited lifetime warranty. In some instances the warranties may be for shorter or longer periods, consistent with market practices. Performance guarantees apply to most of the Company's systems. The costs incurred by the Company to date under its product warranties and systems guarantees have not been material. 15 The Company maintains insurance for itself and its principal United States based and international subsidiaries in amounts and with coverages which the Company believes to be adequate and appropriate for the covered risks. EMPLOYEES As of March 31, 1998, the Company had approximately 18,500 full-time employees assigned to the Company's various worldwide offices and facilities. Certain of the Company's United States employees at 22 plants are covered by collective bargaining agreements, the terms of which expire between June 1998 and November 2003. Certain of the Company's non-United States based employees also are covered by statutory and other contractual arrangements. The Company believes that its relationships with the unions and with its non-represented employees are good. 16 EXECUTIVE OFFICERS The following table sets forth certain information regarding the executive officers of the Company:
NAME AGE POSITION ---- --- Richard J. Heckmann.............. 54 Chairman of the Board of Directors, Chief Executive Officer and President Nicholas C. Memmo................ 36 President and Chief Operating Officer-- North American Process Water Group Andrew D. Seidel................. 36 President and Chief Operating Officer-- North American Wastewater Group Harry K. Hornish, Jr. ........... 53 President and Chief Operating Officer-- Waterworks Distribution Group Calvin R. Hendrix................ 47 President and Chief Operating Officer-- North American Consumer and Commercial Group Kenneth I. Wellings.............. 51 President--U.S. Filter International Andrew Denver.................... 49 President and Chief Operating Officer-- Filtration and Separation Group David J. Shimmon................. 39 President and Chief Operating Officer-- Industrial Products and Services Group Thierry Reyners.................. 53 President and Chief Operating Officer-- European Water and Wastewater Group Kevin L. Spence.................. 41 Executive Vice President and Chief Financial Officer Damian C. Georgino............... 37 Executive Vice President, General Counsel and Corporate Secretary Michael J. Reardon............... 44 Executive Vice President and Chief Administrative Officer Tim L. Traff..................... 39 Executive Vice President--Corporate Development James W. Dierker................. 35 Vice President, Controller and Treasurer Michael E. Hulme, Jr. ........... 36 Assistant General Counsel and Assistant Secretary
Richard J. Heckmann was elected Chairman of the Board of Directors, Chief Executive Officer and President of the Company on July 16, 1990. Mr. Heckmann was a Senior Vice President at Prudential-Bache Securities in Rancho Mirage, California from January 1982 to August 1990. He joined the U.S. Small Business Administration in 1977 and served as Associate Administrator for Finance and Investment from 1978 to 1979. Prior thereto he was founder and Chairman of the Board of Tower Scientific Corporation, a manufacturer of custom prosthetic devices, which was sold to Hexcel Corporation in 1977. He is also a director of United Rentals, Inc., USA Waste Services, Inc. and K2, Inc. Nicholas C. Memmo was appointed President and Chief Operating Officer of the North American Process Water Group of the Company in February 1998. From July 1995 to February 1998, Mr. Memmo served as Executive Vice President--Process Water of the Company and from March 1994 to July 1995, Mr. Memmo served as Senior Vice President and General Manager of U.S. Filter/Ionpure Inc. From December 1992 to March 1994, Mr. Memmo served as Senior Vice President Sales & Marketing of the Company. Mr. Memmo received a B.S. degree in chemical engineering from Drexel University, and completed an M.B.A. program at the John E. Anderson Graduate School of Management at UCLA. Andrew D. Seidel was appointed President and Chief Operating Officer--North American Wastewater Group in February 1998, having previously served as Executive Vice President--Wastewater Group since July 1995, and as Senior Vice President--Wastewater Group and General Manager of U.S. Filter, Inc., Warrendale, 17 Pennsylvania, from September 1993 to July 1995. He had previously served as Vice President--Membralox Group of the Company since December 8, 1992. Mr. Seidel received a B.S. degree in chemical engineering from the University of Pennsylvania, and completed an M.B.A. program at the Wharton School, the University of Pennsylvania in 1990. Mr. Seidel is also a member of the management board of TWO. Harry K. Hornish, Jr. was appointed President and Chief Operating Officer-- Waterworks Distribution Group in February 1998, having previously served as Executive Vice President--Distribution Group since February 20, 1997. Beginning in November 1991, Mr. Hornish had served as President of the Utility Supply Group, Inc. ("USG") subsidiary of CertainTeed Corporation ("CertainTeed"), a leading manufacturer of building materials for new construction and remodeling. Mr. Hornish led a buyout of USG from CertainTeed in 1994. Mr. Hornish continued to serve as President of USG until October 25, 1996, when the Company acquired USG. Mr. Hornish holds a B.A. in Political Science and Business Administration from Marshall University. Mr. Hornish is also a director of Cameron Ashley Building Products Inc. Calvin R. Hendrix was appointed President and Chief Operating Officer--North American Consumer and Commercial Group in June 1998. Mr. Hendrix had previously served as Group President--North America of Culligan since February 1997. From September 1993 to January 1997, he served as Vice President-- General Manager of the Irrigation Division of The Toro Company, a leader in turf and landscape products and services. For more than five years previous to joining Toro, Mr. Hendrix was President of Thermador Corporation, a major kitchen appliance company; and Group Product Manager with the Frito-Lay division of PepsiCo. Mr. Hendrix received BBA and MBA degrees from the University of North Carolina at Charlotte. Kenneth I. Wellings was appointed President--U.S. Filter International in June 1998. Mr. Wellings had previously served as Group President-- International of Culligan since January 1997. From August 1995 to January 1997, Mr. Wellings served as Vice President, International of Culligan and from August 1994 to August 1995, he served as Vice President, European Operations. From 1991 to 1994, he was employed with Culligan as General Manager, Retail Division. Andrew Denver was appointed President and Chief Operating Officer-- Filtration and Separation Group in February 1998. In 1987 Mr. Denver joined Memtec Limited as President and Chief Operating Officer, where he was responsible for managing all aspects of Memtec's operation including research and development, manufacturing, marketing and sales. Mr. Denver graduated with Honors in Chemistry from the University of Manchester and achieved a Distinction in his MBA at the Harvard Business School. Mr. Denver was a founding member and Director of the Australian Environment Management Export Corporation (AUSTEMEX) and was inaugural Chairman of the Board for the first two years. He was a founding member and Director of the Environment Management Industry Association of Australia (EMIAA). David J. Shimmon was appointed President and Chief Operating Officer-- Industrial Products and Services Group in February 1998. Mr. Shimmon has served as President of Kinetics since March 1996, as Chief Operating Officer and a Director of Kinetics since October 1990, and had served as Chief Financial Officer of Kinetics since 1991 and as Executive Vice President of Kinetics from October 1990 to March 1996. Thierry Reyners was appointed President and Chief Operating Officer-- European Water and Wastewater Group in February 1998, having previously served as Executive Vice President--European Group since July 1995, and as Senior Vice President--Europe from March 1994 to July 1995. He had previously been Senior Vice President--European Sales since December 1, 1993, the date the Company acquired Ionpure. Mr. Reyners served as Vice President and General Manager--Europe of Ionpure Technologies Corporation from 1990 to December 1993. Mr. Reyners has a Ph.D. in Organic Chemistry from the Research Institute in Natural Substances, University of Orsay, France and an M.B.A. from INSEAD, Fontainebleau, France. Kevin L. Spence was appointed Executive Vice President and Chief Financial Officer of the Company in February 1998, having served as Vice President of the Company since December 1991 and as Chief Financial Officer of the Company since January 1992. Prior to that, Mr. Spence served as Treasurer of the Company from February 17, 1992 until June 9, 1995. Mr. Spence is a certified public accountant and received a B.S. in Business Administration in 1978 from the University of Southern California. 18 Damian C. Georgino was appointed Executive Vice President, General Counsel and Corporate Secretary of the Company in February 1998, having served as Vice President, General Counsel and Secretary of the Company since August 1995. From September 1992 through July 31, 1995, he served as General Attorney with Aluminum Company of America ("Alcoa"), where his primary responsibilities included mergers and acquisitions and serving as chief legal counsel for several growing international manufacturing and service businesses. Mr. Georgino received a B.S. degree in economics and political science from Dickinson College in 1982 and received a JD/MBA joint degree from Emory University in 1986. Michael J. Reardon was appointed Executive Vice President and Chief Administrative Officer of the Company in February 1998, having served as Executive Vice President of the Company since June 1995, and having previously served as Executive Vice President and Chief Operating Officer, and prior to that as the Chief Financial Officer and Secretary of the Company. From May 1995 to April 1996, Mr. Reardon served as President of Arrowhead Industrial Water, Inc. a subsidiary of the Company. He became President and General Manager of Illinois Water Treatment, Inc., a subsidiary of the Company, in March 1992. Mr. Reardon is a member of the management board of TWO. In June 1978, Mr. Reardon received a B.S. in Business Administration from California State Polytechnic University, and from 1994 to 1995 attended the Kellogg Management Institute, Northwestern University. Tim L. Traff was appointed Executive Vice President--Corporate Development in February 1998, having served as a Senior Vice President of the Company since December 1992, and as Vice President--Corporate Development since March 1992. Mr. Traff received a B.S. degree in business economics from the University of Minnesota. James W. Dierker was appointed Vice President, Controller and Treasurer on June 9, 1995. From July 1985 to June 1995 he was with KPMG Peat Marwick LLP, and was a senior manager with that firm at the time of his departure. Mr. Dierker is a certified public accountant, and received a B.S. degree in business administration with an emphasis in accounting from California State Polytechnic University. Michael E. Hulme, Jr. was appointed Assistant General Counsel and Assistant Secretary on February 13, 1996. From December 1994 through January 1996, he served as Vice President/Corporate Counsel of Forte Hotels, Inc., formerly a wholly owned subsidiary of Forte Plc, and from October 1992 through December 1994 as Corporate Counsel of Forte Hotels, Inc. His primary responsibilities included hotel and real estate development, acquisition and sale transactions. Mr. Hulme received a B.A. degree in economics from the University of California at Davis in 1983 and received a JD from the University of Southern California in 1986. ITEM 2--PROPERTIES The Company has a global network of approximately 833 sales, service and distribution facilities and 85 manufacturing plants. Because the Company has grown by acquisition, the Company's facilities vary in terms of age and condition, but management generally believes that these facilities are suitable and adequate for their respective operations. Many of the Company's manufacturing facilities operated at or near their productive capacities during fiscal 1998. The Company's corporate headquarters is located in a Company-owned office building in Palm Desert, California, with 20,500 square feet of floor space. A description of the Company's other principal facilities is included in Item 1 of this Form 10-K. Approximately 53% of the Company's manufacturing facilities are owned, with the remainder under leases expiring from July 31, 1998 through April 30, 2026, in most cases with Company options to renew. Of the Company's 36 regeneration plants, 12 are owned and the majority of the remainder are held under short-term leases. In most cases, the Company's 85 manufacturing and 36 regeneration plants include sales and service offices. The Company also owns or leases various small production facilities and numerous sales, service and warehousing facilities not described in this Form 10-K. A small number of the Company's facilities are subject to mortgages securing notes payable due in fiscal years 1999 and 2013. 19 ITEM 3--LEGAL PROCEEDINGS Various lawsuits, claims and proceedings have been or may be instituted or asserted against the Company, including those pertaining to environmental, product liability and safety and health matters. While the amounts claimed may be substantial, the ultimate liability cannot now be determined because of the considerable uncertainties that exist. Therefore, it is possible that results of operations or liquidity in a particular period could be materially affected by certain contingencies. However, based on facts currently available, management believes that the disposition of matters that are pending or asserted will not have a materially adverse effect on the financial position of the Company. Information regarding certain environmental contingencies is incorporated herein by reference to Item 7 of this Form 10-K under the caption "Certain Trends and Uncertainties--Potential Environmental Risks". ITEM 4--SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS None. PART II ITEM 5--MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS PRICE RANGE AND HOLDERS OF COMMON STOCK The common stock of the Company is listed on the New York Stock Exchange and traded under the symbol "USF." The following table sets forth for the fiscal periods indicated the high and low sales prices of the common stock as reported on the New York Stock Exchange Composite Tape. No cash dividends were paid on the common stock during such periods. The amounts below have been adjusted to reflect a three for two split of the common stock effective July 15, 1996.
HIGH LOW ---- --- Fiscal year ended March 31, 1997 1st Quarter................................................. $23.75 $18.42 2nd Quarter................................................. 34.75 18.50 3rd Quarter................................................. 36.25 30.38 4th Quarter................................................. 39.00 28.88 Fiscal year ended March 31, 1998 1st Quarter................................................. $33.38 $25.75 2nd Quarter................................................. 43.19 26.94 3rd Quarter................................................. 44.44 27.63 4th Quarter................................................. 36.44 28.75
On June 26, 1998, the last reported sales price for the common stock as reported on the New York Stock Exchange Composite Transactions Tape was $26.75 per share. The number of holders of record of the Common Stock on June 26, 1998 was approximately 4,258. DIVIDENDS The Company currently intends to retain earnings to provide funds for the operation and expansion of its business and accordingly does not anticipate paying cash dividends on the Common Stock in the foreseeable future. Any payment of cash dividends on the Common Stock in the future will depend upon the Company's financial condition, earnings, capital requirements and such other factors as the Board of Directors deems relevant. The Company's Amended and Restated Multicurrency Credit Agreement, dated as of October 20, 1997, imposes, and future debt or equity instruments or securities of the Company may impose, restrictions on the Company's ability to pay dividends. 20 ITEM 6--SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated financial data of the Company are derived from the Company's audited Consolidated Financial Statements and related Notes thereto. Each fiscal year of the Company is ended March 31. The selected consolidated financial data should be read in conjunction with and is qualified in its entirety by the Company's Consolidated Financial Statements and related Notes thereto and other financial information included elsewhere herein.
FISCAL YEAR ENDED MARCH 31,(1) -------------------------------------------------- 1994(2) 1995(3) 1996(4) 1997(5) 1998(6) -------- ------- --------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenues................... $620,709 830,765 1,090,745 1,764,406 3,234,580 Cost of sales.............. 500,731 658,834 836,973 1,376,615 2,456,173 -------- ------- --------- --------- --------- Gross Profit............. 119,978 171,931 253,772 387,791 778,407 Selling, general and administrative expenses... 115,979 131,210 192,387 316,190 573,002 Purchased in-process research and development.. -- -- -- -- 299,505 Merger, restructuring, acquisition and other related charges........... -- -- -- 5,581 141,109 -------- ------- --------- --------- --------- 115,979 131,210 192,387 321,771 1,013,616 -------- ------- --------- --------- --------- Operating income (loss).. 3,999 40,721 61,385 66,020 (235,209) Other income (expenses): Interest expense......... (5,570) (8,807) (16,280) (26,509) (53,887) Other.................... (6,953) 1,611 5,923 3,678 4,900 -------- ------- --------- --------- --------- (12,523) (7,196) (10,357) (22,831) (48,987) -------- ------- --------- --------- --------- Income (loss) before income tax expense (benefit)............... (8,524) 33,525 51,028 43,189 (284,196) Income tax expense (benefit)................. (5,751) 8,904 20,329 10,681 15,583 -------- ------- --------- --------- --------- Net income (loss)........ $ (2,773) 24,621 30,699 32,508 (299,779) ======== ======= ========= ========= ========= PER COMMON SHARE DATA: (7) Basic: Net income (loss)........ $ (0.11) 0.68 0.62 0.51 (3.13) ======== ======= ========= ========= ========= Weighted average number of common shares outstanding...... 31,267 35,198 48,369 64,082 95,909 ======== ======= ========= ========= ========= Diluted: Net income (loss)........ $ (0.11) 0.66 0.61 0.49 (3.13) ======== ======= ========= ========= ========= Weighted average number of common shares outstanding...... 31,267 43,707 49,668 66,531 95,909 ======== ======= ========= ========= ========= CONSOLIDATED BALANCE SHEET DATA (END OF PERIOD): Working capital............ $113,105 135,079 159,148 515,152 591,776 Total assets............... $430,206 583,633 1,003,316 2,397,563 3,597,844 Notes payable and long-term debt, including current portion................... $ 41,398 65,192 74,848 86,066 710,282 Convertible subordinated debt...................... $ 60,000 105,000 200,000 554,000 554,000 Shareholders' equity....... $171,758 200,548 407,390 1,045,830 1,293,410
21 - -------- (1) The historical consolidated financial data for the fiscal years ended March 31, 1994, 1995, 1996 and 1997 have been restated to include the accounts and operations of Kinetics which was merged with the Company in December 1997, and accounted for as a pooling of interests. Separate results of operations of each of the Company and Kinetics for the years ended March 31, 1994 through March 31, 1998 are presented below:
FISCAL YEAR ENDED MARCH 31 ------------------------------------------------- 1994(2) 1995(3) 1996(4) 1997(5) 1998(6) --------- ------- --------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) REVENUES Company (as previously reported)................. $ 475,236 600,832 812,322 1,376,601 3,234,580 Kinetics................... 145,473 229,933 278,423 387,805 -- --------- ------- --------- --------- --------- $ 620,709 830,765 1,090,745 1,764,406 3,234,580 ========= ======= ========= ========= ========= OPERATING INCOME (LOSS) Company (as previously reported)................. $ (2,358) 28,047 45,382 82,913 (235,209) Kinetics................... 6,357 12,674 16,003 (16,893) -- --------- ------- --------- --------- --------- $ 3,999 40,721 61,385 66,020 (235,209) ========= ======= ========= ========= ========= NET INCOME (LOSS) Company (as previously reported)................. $ (7,892) 15,267 21,967 46,197 (299,779) Kinetics................... 5,119 9,354 8,732 (13,689) -- --------- ------- --------- --------- --------- $ (2,773) 24,621 30,699 32,508 (299,779) ========= ======= ========= ========= ========= NET INCOME (LOSS) PER COMMON SHARE(7): Basic: As previously reported... $ (0.34) 0.50 0.50 0.79 (3.13) As restated.............. $ (0.11) 0.68 0.62 0.51 (3.13) Diluted: As previously reported... $ (0.34) 0.50 0.49 0.77 (3.13) As restated.............. $ (0.11) 0.66 0.61 0.49 (3.13)
(2) The fiscal year ended March 31, 1994 includes four months of results of Ionpure Technologies Corporation and IP Holding Company ("Ionpure"), acquired December 1, 1993 and accounted for as a purchase. Selling, general and administrative expenses for the year ended March 31, 1994 reflect four months of integration of Ionpure, certain charges totaling $2.4 million related to the rationalization of certain wastewater operations and write-off certain intangibles in the Company's Continental Penfield subsidiary totaling $3.7 million. In addition, the year ended March 31, 1994 includes a charge of $8.9 million to reflect a plan to shutdown and reorganize certain operations of Davis. (3) The fiscal year ended March 31, 1995 includes the results of operations of Smogless S.p.A., Crouzat S.A., Sation S.A., Seral Erich Alhauser GmbH and the Cereflo ceramic product line from the dates of their respective acquisitions, accounted for as purchases. (4) The fiscal year ended March 31, 1996 includes the results of operations of The Permutit Company Limited and The Permutit Company Pty Ltd., Interlake Water Systems, Arrowhead Industrial Water Inc. and Polymetrics Inc. from the dates of their respective acquisitions, accounted for as purchases. Selling, general and administrative expenses for the year ended March 31, 1996 includes charges totaling $3.2 million related to the write-down of certain patents and equipment of Zimpro. (5) The fiscal year ended March 31, 1997 includes the results of operations of USG, WaterPro, WSMG, and PED from the dates of their respective acquisitions, accounted for as purchases. The year ended March 31, 1997 also includes merger expenses of $5.6 million, related to the acquisition of Davis, which was accounted for as a pooling of interests. Costs of goods sold for the year ended March 31, 1997 including charges recorded by Kinetics totaling $26.0 million related to certain unreimbursed project costs. Selling, general and administrative expenses for the year ended March 31, 1997 includes charges totaling $6.8 million for increases in Kinetics allowance for doubtful accounts, the write-off of certain receivables the write-down of certain assets and the establishment of certain accruals. 22 (6) The fiscal year ended March 31, 1998 includes the results of operations for Memtec from the date of its acquisition on December 9, 1997, accounted for as a purchase. The year ended March 31, 1998 also includes a charge of $299.5 million related to the acquisition from Memtec of certain in- process research and development projects that had not reached technological feasibility and that had no alternative future uses. Additionally, the Company recorded charges totaling $141.1 million related to a restructuring plan that the Company implemented concurrent with the acquisitions of Memtec and Kinetics. Cost of goods sold for the year ended March 31, 1998 includes charges recorded by Kinetics totaling $13.7 million related to certain unreimbursed project costs. Selling, general and administrative expenses for the year ended March 31, 1998 includes charges recorded by Kinetics totaling $3.6 million related to increases in Kinetics allowance for doubtful accounts, the write-off of certain receivables, the write down of certain assets and the establishment of certain accruals. (7) Net income (loss) per common share amounts are computed in accordance with SFAS 128 after dividends on the Series A Preferred Stock of $.7 million for the fiscal year ended March 31, 1994, $.7 million for the fiscal year ended March 1995 and $.5 million for the Fiscal year ended March 31, 1997 The Series A Preferred Stock was converted into shares of Common Stock in March 1996. ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The discussion contained in this Item 7 should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto included elsewhere in this Form 10-K. GENERAL Since July 1991, the Company has acquired and integrated more than 150 businesses with substantial expertise in the design and manufacture of systems of the filtration and treatment of water and wastewater. Due to the magnitude of these acquisitions and the integration of the acquired operations with the Company's existing businesses, results of operations for prior periods are not necessarily comparable to or indicative of results of operation for current or future periods. RESULTS OF OPERATIONS In December 1997 a subsidiary of the Company merged with Kinetics, in a transaction accounted for as pooling of interests. Historical consolidated financial data for the fiscal years ended March 31, 1994 through March 31, 1997 have been restated to reflect this acquisition. The following table sets forth for the periods indicated certain items in the Selected Consolidated Financial Data as a percentage of total revenues:
FISCAL YEAR ENDED MARCH 31, ------------------- 1996 1997 1998 ----- ----- ----- Revenues.............................................. 100.0% 100.0% 100.0 % Cost of sales......................................... 76.7% 78.0% 75.9 % Gross profit.......................................... 23.3% 22.0% 24.1 % Selling, general and administrative expenses.......... 17.6% 17.9% 17.7 % Purchase in-process research and development.......... -- -- 9.3 % Merger, restructuring, acquisition and other related charges.............................................. -- 0.3% 4.4 % Operating income (loss)............................... 5.6% 3.7% (7.2)% Interest expense...................................... 1.5% 1.5% 1.7 % Net income (loss)..................................... 2.8% 1.8% (9.3)%
23 The following table sets forth a percentage breakdown of the Company's sales by product category for the past three fiscal years:
FISCAL YEAR ENDED MARCH 31, ---------------- 1996 1997 1998 ---- ---- ---- Sales by product category: Capital equipment......................................... 50% 52% 46% Services and operations................................... 25% 24% 25% Distribution.............................................. 25% 24% 27% Retail and consumer products.............................. -- -- 2%
TWELVE MONTHS ENDED MARCH 31, 1998 ("FISCAL 1998") COMPARED WITH TWELVE MONTHS ENDED MARCH 31, 1997 ("FISCAL 1997") Revenues Revenues for fiscal 1998 were $3.2 billion, an increase of $1.4 billion from $1.8 billion for the comparable period of the prior fiscal year. This 83.3% increase was due primarily to acquisitions completed by the Company after fiscal 1997. For fiscal 1998 revenues from capital equipment sales represented 46% of total revenues, while revenues from services and operations represented 25% of total revenues, revenues from distribution represented 27% of total revenues and revenues from retail and consumer products represented 2% of total revenues. The percentage of revenues from capital equipment sales decreased in the current year due to the Company's emphasis on the recurring revenues of the distribution business and the establishment of the higher margin retail and consumer products business. Gross Profit Gross profit increased 100.7% to $778.4 million for fiscal 1998 from $387.8 million for the comparable period of the prior fiscal year. Total gross profit as a percentage of revenue ("gross margin") was 24.1% for fiscal 1998 compared to 22.0% for the comparable period of the prior fiscal year. The increase in the gross margin can be attributed primarily to the incurrence of certain unreimbursed project costs at Kinetics during fiscal 1997 after restatement for the acquisition of Kinetics in the current period accounted for as a pooling of interests. Selling, General and Administrative Expenses For fiscal 1998, selling, general, and administrative expenses, excluding purchased in-process research and development and merger, restructuring, acquisition and other related charges ("certain charges"), increased $256.8 million to $573.0 million as compared to the $316.2 million in the comparable period in the prior year. The increase in these expenses can be attributed primarily to the addition of sales and administrative personnel accompanying the Company's acquisitions during the period. During fiscal 1998, selling, general and administrative expenses, excluding certain charges, were 17.7% of revenues compared to 17.9% for the comparable period in the prior year. Purchased In-Process Research and Development On December 9, 1997, the Company, through a wholly-owned subsidiary, completed its tender offer ("Offer") to purchase all of the outstanding ordinary shares of Memtec. The purchase price was $36.00 per share. The Company acquired certain shares in privately negotiated and open market purchases prior to the Offer resulting in a total cash purchase price of approximately $397.2 million (including transaction costs of $10.6 million). The purchase price was allocated to the assets and liabilities of Memtec based on their estimated respective fair values. The Company also acquired from Memtec certain in-process research and development projects that had not reached technological feasibility and that had no alternative future uses. Such projects were valued by an independent appraiser using a risk adjusted cash flow model under which expected future cash flows were discounted, taking into account risks related to existing and future markets and assessments of the life expectancy of such projects. The estimated market value of such in- process research and development (R&D) projects was $299.5 million and was expensed at the acquisition date. 24 In addition, the Company also acquired from Memtec and its subsidiaries (consisting of Memcor, Fluid Dynamics, Filterite, and Seitz) developed technologies including large volume purification product lines; membrane systems for water purification and waste treatment; metal fiber product lines for industrial applications involving elevated pressures, temperatures and corrosive environments; disposable product lines for industrial applications; and depth media product lines for the pharmaceutical and food and beverage industries. As a result of the degree of competition in the filtration industry and the use of technological change as a competitive tool, a significant proportion of Memtec's technology will be superseded, although the rate of change varies significantly across the markets addressed. Memtec's R&D initiatives are therefore targeted at superseding current products. Memtec has a range of ongoing R&D projects in each of its product lines. Certain of these projects are directed at next generation products for existing market applications while others are directed at new market opportunities where Memtec's technological base may be applicable. Memcor R&D projects are primarily directed at enhanced microfiltration products capable of cost effectively addressing larger scale applications or more chemically aggressive environments. These R&D projects are at the laboratory to pilot stage of development and require a number of years of additional work before full introduction to the market of a product is likely. Other Memcor R&D projects seek to utilize Memtec's knowledge of electrochemical processes to enter new markets ranging from high quality water production to environmental sensors. These R&D projects are also at the laboratory to pilot stage and similarly require a number of years of additional R&D before a product may be available for launching. Fluid Dynamics R&D projects are directed at developing new applications for Memtec's proprietary metallic media. The media enables precise fine filtration in a range of hostile environments as well as having unique conductive properties. These R&D projects are at the laboratory stage of development and require additional research ranging from twelve months to several years depending upon the particular product before any market launch is possible. Filterite R&D projects center around its two proprietary technologies--the unique Filterite highly assymetric membrane and the cold melt spinning technology. R&D projects are examining expansion of product offerings from these core technologies. These projects require further materials science laboratory work followed by manufacturing prototyping and tailoring to market applications--a process which will range from eighteen months to several years. Seitz R&D is directed at next generation filtration technologies for the food and beverage and chemicals industries drawing on the core technologies of Seitz. These R&D projects are predominantly at the pilot stage, requiring extensive trialing evaluation and development based on the trialing before market launches are possible. Failure to complete these R&D projects successfully and on time would open the way for competitors to introduce alternate technologies, with consequent implications for Memtec's revenues. To be successful in most cases, the R&D projects must be developed from laboratory or pilot scale models to full scale products capable of production within a quality accredited manufacturing process. The existing R&D projects are expected to be completed and commercialized over the next ten years with expected R&D and project related expenditures of approximately $275 million over such ten year period. The expenditures will be expensed or capitalized in accordance with generally accepted accounting principles. The valuation process distinguished between R&D projects with no alternate uses or values and those with alternate uses. Predominantly all R&D projects are at a stage of development where the progress to date is not applicable to any other use within Memtec nor is it saleable to any third party known to management. Merger, Restructuring, Acquisition and Other Related Charges As of December 31, 1997, the Company completed the acquisition of Kinetics in a tax-free reorganization, which was accounted for as a pooling of interests. Concurrent with the acquisitions of Kinetics and Memtec, the Company designed and implemented a restructuring plan to streamline its manufacturing and production base, improve efficiency and enhance its competitiveness. The restructuring plan resulted in a pre-tax charge of 25 $141.1 million. The plan identifies certain products and technologies acquired in conjunction with the Memtec transaction that supersede products and technologies acquired in earlier acquisitions of membrane related businesses. As a result certain carrying amounts of goodwill and other intangible assets were determined to be impaired by approximately $55.0 million in accordance with Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"). SFAS 121 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. In determining the amount of the impairment of these assets, the Company valued the assets using the present value of estimated expected future cash flows using discount rates commensurate with the risks involved. The restructuring plan also included closing or reconfiguring of certain facilities and reducing the work force by approximately 350 employees, most of whom work in the facilities to be closed. Included in merger, restructuring, acquisition and other related charges are the following:
(IN THOUSANDS) -------------- Write-down of goodwill and other intangible assets............ $ 54,950 Asset write-offs, including equipment and facilities.......... 47,887 Merger, integration and other acquisition costs............... 21,135 Severance and related costs................................... 17,137 -------- Total....................................................... $141,109 ======== Cash charges.................................................. $ 36,431 Non-cash charges.............................................. 104,678 -------- Total....................................................... $141,109 ========
After an income tax benefit of $34.5 million, the charges detailed above totaling $440.6 million reduced earnings by $406.1 million. Approximately $15.4 million of merger and restructuring related charges are included in accrued liabilities at March 31, 1998. Additional costs to complete the restructuring plan are not expected to be material. The write-down of assets as a result of the restructuring plan (including assets of business' whose products were superseded by Memtec's products) will not have a material affect on the Company's consolidated results of operations in the future. Operating Income (Loss) For fiscal 1998, the Company recorded an operating loss of $235.2 million as compared to operating income of $66.0 million in the comparable period in the prior year. The operating loss can be attributed to the recording of charges for purchased in-process research and development and merger, restructuring, acquisition and other related charges as detailed above. Before the impact of these charges, operating income for fiscal 1998 was $205.4 million or 6.4% of revenue. For fiscal 1997, operating income before merger expenses was 4.1% of revenues. The improvement in operating margin before certain charges can be attributed primarily to improvements in gross margin as described above. Interest Expense Interest expense increased to $53.9 million for fiscal 1998 from $26.5 million for the corresponding period in the prior year. Interest expense for fiscal 1998 consisted primarily of interest on the Company's: (i) 6% Convertible Subordinated Notes issued on September 18, 1995 due 2005; (ii) 4.5% Convertible Subordinated Debentures issued on December 11, 1996 due 2001; (iii) borrowings under Kinetics' long-term line-of-credit; (iv) 8.0% Senior Subordinated Debentures issued by Kinetics; (v) borrowings under Memtec's long-term line-of-credit; (vi) Senior Guaranteed Notes issued by Memtec bearing interest at rates ranging from 7.7% to 8.0%; 26 (viii) other long-term debt bearing interest at rates ranging from 2.0% to 10.1% and (viii) borrowings under the Company's Senior Credit Facility. At March 31, 1998, the Company had cash, cash equivalents and short-term investments of $48.9 million. Income Tax Expense Income tax expense increased to $15.6 million in fiscal 1998 from $10.7 million in the corresponding period in the prior year. Before certain charges the Company had income tax expense of $50.1 or an effective tax rate of 32.0% for fiscal 1998 as compared to 24.7% in the corresponding period in the prior year. Net Income (Loss) For fiscal 1998 net income before certain charges increased $69.8 million to $106.3 million from $36.5 million before certain charges for the same period in the prior year. After certain charges net loss in fiscal 1998 was $299.8 million as compared to net income of $32.5 million for fiscal 1997. Net income per common share for fiscal 1997 and 1998 were as follows:
1997 1998 ----- ------ Basic...................................................... $0.51 $(3.13) Diluted.................................................... $0.49 $(3.13)
TWELVE MONTHS ENDED MARCH 31, 1997 ("FISCAL 1997") COMPARED WITH TWELVE MONTHS ENDED MARCH 31, 1996 ("FISCAL 1996") Revenues Revenues for fiscal 1997 were $1,764.4 million, an increase of $673.7 million from $1,090.7 for the comparable period of the prior fiscal year. This 61.8% increase was due primarily to acquisitions completed by the Company after fiscal 1996. For fiscal 1997, revenues from capital equipment sales represented 52% of total revenues, while revenues from services and operations represented 24% of total revenues and revenues from distribution represented 24% of total revenues. Gross Profit Gross profit increased 52.8% to $387.8 million for fiscal 1997 from $253.8 million for the comparable period of the prior fiscal year. Total gross profit as a percentage of revenue ("gross margin") was 22.0% for fiscal 1997 compared to 23.3% for the comparable period of the prior fiscal year. The decrease in gross margin is due primarily to the incurrence of certain unreimbursed project costs at Kinetics during the fiscal year ended March 31, 1997 after restatement for the acquisition of Kinetics in the current period accounted for as a pooling of interests. Selling, General and Administrative Expenses For fiscal 1997, selling, general, and administrative expenses, excluding merger expenses, increased $123.8 million to $316.2 million as compared to the $192.4 million in the comparable period in the prior year. The increase in these expenses can be attributed primarily to the addition of sales and administrative personnel accompanying the Company's acquisitions after fiscal 1996. During fiscal 1997, selling, general and administrative expenses, excluding Davis merger expenses, were 17.9% of revenues compared to 17.6% for the comparable period in the prior year. The increase was primarily due to Kinetics recording certain charges in selling, general and administrative expenses during the fiscal year ended March 31, 1997 for the write-off of certain receivables, the write-down of certain assets, the increase in Kinetics allowance for doubtful accounts and the establishment of certain accruals. These charges are included in fiscal 1997 after restatement for the acquisition of Kinetics in the current period accounted for as a pooling of interests. Excluding Davis merger expenses, operating income as a percentage of revenues decreased to 4.1% for fiscal 1997 from 5.6% for the corresponding period in fiscal 1996 due primarily to the decrease in the gross margin. 27 Merger Expenses Merger expenses were incurred during fiscal 1997 relating to the Company's acquisition of Davis which was accounted for as a pooling of interests. These merger expenses, which totaled $5.6 million, consisted primarily of investment banking fees, printing, stock transfer fees, legal fees, accounting fees, governmental filing fees and certain other costs related to existing Davis pension plans and change of control payments. Interest Expense Interest expense increased to $26.5 million for fiscal 1997 from $16.3 million for the corresponding period in the prior year. Interest expense for fiscal 1997 consisted primarily of interest on the Company's: (i) 5% Convertible Debentures due 2000 (all of which were, as of October 25, 1996, converted into shares of Common Stock); (ii) 6% Convertible Subordinated Notes due 2005 issued on September 18, 1995; (iii) 4.5% Convertible Subordinated Debentures due 2001 issued on December 11, 1996; (iv) 8% Senior Subordinated Notes issued by Kinetics; (v) borrowings under the Company's bank line of credit and (vi) borrowings under Kinetics' line of credit. At March 31, 1997, the Company had cash, cash equivalents and short-term investments of $137.3 million. Income Tax Expense Income tax expense decreased to $10.7 million in fiscal 1997 from $20.3 million in the corresponding period in the prior year. The Company's effective tax rate for fiscal 1997 was 24.7% as compared to 39.8% in the corresponding period in the prior year. At March 31, 1997, the Company had net operating loss carryforwards of approximately $16.4 million in France for which financial statement benefit was recognized in fiscal 1997. Net Income For fiscal 1997, net income increased $1.8 million to $32.5 million from $30.7 million for the same period in the prior year. Excluding Davis merger expenses, net income totaled $36.5 million, an increase of 19.1% over fiscal 1996. LIQUIDITY AND CAPITAL RESOURCES The Company's principal sources of funds are cash and other working capital, cash flow generated from operations and borrowings under the Company's Senior Credit Facility. At March 31, 1998, the Company had working capital of $591.8 million including cash and short-term investments of $48.9 million. The Company's long-term debt at March 31, 1998, was $554.0 million consisting of $140.0 million of 6.0% Convertible Subordinated Notes due 2005 and $414.0 million of 4.5% Convertible Subordinated Notes due 2001. The Company also had other long-term debt totaling $135.5 million consisting of $60.0 million of Senior Guaranteed Notes issued by Memtec bearing interest at rates ranging from 7.7% to 8.0% and other long-term debt of $75.5 million bearing interest at rates ranging from 2.0% to 10.1%. As of March 31, 1998, the Company had a Senior Credit Facility which provides credit facilities to the Company of up to $750.0 million, of which there were outstanding borrowings of $544.1 million and outstanding letters of credit of $40.7 million. Borrowings under the Senior Credit Facility bear interest at variable rates of up to 0.45% above certain Eurocurrency rates or 0.15% above BankBoston's base rate. The Senior Credit Facility is subject to customary and usual terms. In connection with the acquisitions of Kinetics and Memtec, the Company assumed through its subsidiaries two additional loan agreements with banks. One agreement provides a revolving line-of-credit with borrowings of up to $100.0 million, of which no amounts were outstanding at March 31, 1998. Borrowings under this agreement bear interest at the bank's reference rate or other interest rate options that the subsidiary may select. The other agreement is a Multi-Option, Multi-Currency Master Facility that provides borrowings of up to $60.0 million, of which $30.7 million was outstanding as of March 31, 1998. Borrowings under this agreement bear interest at LIBOR plus 0.75%. The Company anticipates that it will terminate these two agreements during fiscal 1999. 28 Subsequent to the Company's Fiscal year end, on May 15, 1998, the Company issued $500,000,000 6.375% Remarketable or Redeemable Securities due 2011 (Remarketing Date May 15, 2001) and $400,000,000 6.50% Remarketable or Redeemable Securities due 2013 (Remarketing Date May 15, 2003) (collectively, the "ROARS"). The net proceeds from the sale of the ROARS, including a premium payment to the Company by NationsBanc Montgomery Securities LLC, were $913.6 million. The net proceeds were used to repay indebtedness outstanding under the Senior Credit Facility, indebtedness assumed in the acquisition of Memtec, and a portion of the indebtedness assumed in the acquisition of Culligan. The Company believes its current cash position, cash flow from operations, and available borrowings under the Company's line-of-credit will be adequate to meet its anticipated cash needs from working capital, revenue growth, scheduled debt repayment and capital investment objectives for at least the next twelve months. CERTAIN TRENDS AND UNCERTAINTIES The Company and its representatives may from time to time make written or oral forward-looking statements, including statements contained in the Company's filings with the United States Securities and Exchange Commission and in its reports to stockholders. In connection with the "Safe Harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company is hereby identifying important factors that could cause actual results to differ materially from those contained in any forward-looking statement made by or on behalf of the Company; any such statement is qualified by reference to the following cautionary statements. Acquisition Strategy. In pursuit of its strategic objective of becoming the leading global single-source provider of water and wastewater treatment systems and services, the Company has, since 1991, acquired more than 150 United States based and international businesses. The Company plans to continue to pursue acquisitions that expand the segments of the water and wastewater treatment and water-related industries in which it participates, complement its technologies, products or services, broaden its customer base and geographic areas served and/or expand its global distribution network, as well as acquisitions which provide opportunities to further and implement the Company's one-stop-shop approach in terms of technology, distribution or service. The Company's acquisition strategy entails the potential risks inherent in assessing the value, strengths, weaknesses, contingent or other liabilities and potential profitability of acquisition candidates and in integrating the operations of acquired companies. In addition, the Company's acquisition of Memtec was accomplished through an unsolicited tender offer, and the Company could make other such acquisitions. The level of risk associated with such acquisitions is generally greater because frequently they are accomplished, as was the case with the acquisition of Memtec, without the customary representations or due diligence typical of negotiated transactions. Although the Company generally has been successful in pursuing acquisitions, there can be no assurance that acquisition opportunities will continue to be available, that the Company will have access to the capital required to finance potential acquisitions, that the Company will continue to acquire businesses or that any business acquired will be integrated successfully or prove profitable. International Transactions. The Company has made and expects it will continue to make acquisitions and expects to obtain contracts in markets outside the United States. In addition, a substantial portion of the business of a wholly owned subsidiary of the Company includes non-U.S. sales. While these activities may provide important opportunities for the Company to offer its products and services internationally, they also entail the risks associated with conducting business internationally, including the risk of currency fluctuations, slower payment of invoices, the lack in some jurisdictions of well-developed legal systems, nationalization and possible social, political and economic instability. In particular, the Company has significant operations in Asia which have been and may in the future be adversely affected by current economic conditions in that region. While the full impact of this economic instability cannot be predicted, it could have a material adverse effect on the Company's revenues and profitability. Reliance on Key Personnel. The operations of the Company are dependent on the continued efforts of senior management, in particular Richard J. Heckmann, the Company's Chairman of the Board, President and Chief Executive Officer. The Company has entered into an employment agreement with Mr. Heckmann and the Company is considering employment agreements for other members of senior management, most of whom do 29 not currently have such agreements, although such members have yet to be determined. There can be no assurance that the Company will enter into employment agreements with members of senior management. Should any of the Company's senior managers be unable or choose not to continue in their present roles, the Company's prospects could be adversely affected. Profitability of Fixed Price Contracts. A significant portion of the Company's revenues are generated under fixed price contracts. To the extent that original cost estimates are inaccurate, scheduled deliveries are delayed or progress under a contract is otherwise impeded, revenue recognition and profitability from a particular contract may be adversely affected. The Company routinely records upward or downward adjustments with respect to fixed price contracts due to changes in estimates of costs to complete such contracts. There can be no assurance that future downward adjustments will not be material. Cyclicality, Seasonality and Possible Earnings Fluctuations. The sale of capital equipment within the water treatment industry is cyclical and influenced by various economic factors including interest rates and general fluctuations of the business cycle. A significant portion of the Company's revenues are derived from capital equipment sales. While the Company sells capital equipment to customers in diverse industries and in global markets, cyclicality of capital equipment sales and instability of general economic conditions, including those currently unfolding in Asian markets, could have a material adverse effect on the Company's revenues and profitability. The sale of water and wastewater distribution equipment and supplies is also cyclical and influenced by various economic factors including interest rates, land development and housing construction industry cycles. Sales of such equipment and supplies are also subject to seasonal fluctuation in temperate climates. The sale of water and wastewater distribution equipment and supplies is a significant component of the Company's business. Cyclicality and seasonality of water and wastewater distribution equipment and supplies sales could have a material adverse effect on the Company's revenues and profitability. The Company's high-purity process piping systems have been sold principally to companies in the semiconductor and, to a lesser extent, pharmaceutical and biotechnology industries, and sales of those systems are critically dependent on these industries. The success of customers and potential customers for high-purity process piping systems is linked to economic conditions in these respective industries, which in turn are each subject to intense competitive pressure and are affected by overall economic conditions. The semiconductor industry in particular has historically been, and will likely continue to be, cyclical in nature and vulnerable to general downturns in the economy. The semiconductor and pharmaceutical industries also represent significant markets for the Company's water and wastewater treatment systems. Downturns in these industries could have a material adverse effect on the Company's revenues and profitability. Operating results from the sale of high-purity process piping systems also can be expected to fluctuate significantly as a result of the limited pool of existing and potential customers for these systems, the timing of new contracts, possible deferrals or cancellations of existing contracts and the evolving and unpredictable nature of the markets for high-purity process piping systems. As a result of these and other factors, the Company's operating results may be subject to quarterly or annual fluctuations. There can be no assurance that at any given time the Company's operating results will meet or exceed stock market analysts' expectations, in which event the market price of the common stock could be adversely affected. Potential Environmental Risks. The Company's business and products may be significantly influenced by the constantly changing body of environmental laws and regulations, which require that certain environmental standards be met and impose liability for the failure to comply with such standards. The Company is also subject to inherent risks associated with environmental conditions at facilities owned, and the state of compliance with environmental laws, by businesses acquired by the Company. While the Company endeavors at each of its facilities to assure compliance with environmental laws and regulations, there can be no assurance that the 30 Company's operations or activities, or historical operations by others at the Company's locations, will not result in cleanup obligations, civil or criminal enforcement actions or private actions that could have a material adverse effect on the Company. In that regard, at a Connecticut ion exchange resin regeneration facility (the "South Windsor Facility") operated by a wholly owned subsidiary of the Company (the "South Windsor Subsidiary"), acquired by the Company in October 1995 from Anjou International Company ("Anjou"), U.S. federal and state environmental regulatory authorities issued certain notices of violation alleging multiple violations of applicable wastewater pretreatment standards. The South Windsor Subsidiary has reached an agreement with the U.S. Attorney's Office and the U.S. Environmental Protection Agency ("USEPA") to settle all agency claims and investigations relating to this matter entering into a plea agreement pursuant to which the South Windsor Subsidiary will plead guilty to a single violation of the Clean Water Act. The settlement includes a payment of $1.36 million, including a criminal penalty of $1.0 million and annual environmental compliance audits at the South Windsor Facility for five years. The Company believes that this settlement will conclude this matter in its entirety; however, the settlement does not include a formal release of all liabilities in this regard. The Company has certain rights of indemnification from Anjou which may be available with respect to this matter pursuant to the laws of the State of New York or the Stock Purchase Agreement dated as of August 30, 1995 among the Company, Anjou and Polymetrics, Inc. In addition to the foregoing, the Company's activities as owner and operator of certain hazardous waste treatment and recovery facilities are subject to stringent laws and regulations and compliance reviews. Failure of these facilities to comply with those regulations could result in substantial fines and the suspension or revocation of the facility's hazardous waste permit. The Company serves as contract operator of various municipal and industrial wastewater collection and treatment facilities, which were developed and are owned by governmental or private entities. The Company also operates other facilities, including service deionization centers and manufacturing facilities, that discharge wastewater in connection with routine operations. Under certain service contracts and applicable environmental laws, the Company as operator of such facilities may incur certain liabilities in the event those facilities experience malfunctions or discharge wastewater which does not meet applicable permit limits and regulatory requirements. In some cases, the potential for such liabilities depends upon design or operational conditions over which the Company has limited, if any, control. In other matters, the Company has been notified by the USEPA that it is a potentially responsible party under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA") at certain sites to which the Company or its predecessors allegedly sent waste in the past. It is possible that the Company could receive other such notices under CERCLA or analogous state laws in the future. Based on sites which are currently known to the Company that may require remediation, the Company does not believe that its liability, if any, relating to such sites will be material. However, there can be no assurance that such matters will not be material. In addition, to some extent, the liabilities and risks imposed by environmental laws on the Company's customers may adversely impact demand for certain of the Company's products or services or impose greater liabilities and risks on the Company, which could also have an adverse effect on the Company's competitive and financial position. In 1995, Culligan purchased an equity interest in Anvil Holdings, Inc. As a result of this transaction, Culligan assumed certain environmental liabilities associated with soil and groundwater contamination at Anvil Knitwear's Asheville Dyeing and Finishing Plant (the "Plant") in Swannanoa, North Carolina. Since 1990, Culligan has delineated and monitored the contamination pursuant to an Administrative Consent Order entered into with the North Carolina Department of Environment, Health and Natural Resources related to the closure of an underground storage tank at the site. Groundwater testing at the Plant and at two adjoining properties has shown levels of a cleaning solvent believed to be from the Plant that are above action levels under state guidelines. The Company has begun remediation of the contamination. The Company currently estimates that the costs of future site remediation will range from up to $1.0 million to $1.8 million and that it has sufficient reserves for the site cleanup. The Company anticipates that the potential costs of further monitoring and corrective measures to address the groundwater problem under applicable laws will not have a material adverse effect on the financial position or the results of operations of the Company. However, because the full extent of 31 the required cleanup has not been determined, there can be no assurance that this matter will not have a material adverse effect on the Company's financial position or results of operations. Certain of the Company's facilities contain or in the past contained underground storage tanks which may have caused soil or groundwater contamination. At one site formerly owned by Culligan, the Company is investigating, and has taken certain actions to correct, contamination that may have resulted from a former underground storage tank. Based on the amount of contamination believed to have been present when the tank was removed, and the probability that some of the contamination may have originated from nearby properties, the Company believes, although there can be no assurance, that this matter will not have a material adverse effect on the Company's financial position or results of operations. Competition. All of the markets in which the Company competes are highly competitive, and most are fragmented, with numerous regional and local participants. There are competitors of the Company in certain markets that are divisions or subsidiaries of companies that have significantly greater resources than the Company. Competitive pressures, including those described above, and other factors could cause the Company to lose market share or could result in significant price erosion, either of which could have a material adverse effect upon the Company's financial position, results of operations and cash flows. See "Business--Competition." Potential Risks Related to Water Rights and Water Transfers. The Company recently acquired more than 47,000 acres of agricultural land (the "Properties"), situated in the Southwestern United States, the substantial majority of which are in Imperial County, California (the "IID Properties") located within the Imperial Irrigation District (the "IID"). Substantially all of the Properties are currently leased to third party agricultural tenants, including prior owners of the Properties. The Company acquired the Properties with appurtenant water rights, and is actively seeking to acquire additional properties with water rights, primarily in the Southwestern and Western United States. The Company may seek in the future to transfer water attributable to water rights appurtenant to the Properties, particularly the IID Properties (the "IID Water"). However, since the IID holds title to all of the water rights within the IID in trust for the landowners, the IID would control the timing and terms of any transfers of IID Water by the Company. The circumstances under which transfers of water can be made and the profitability of any transfers are subject to significant uncertainties, including hydrologic risks of variable water supplies, risks presented by allocations of water under existing and prospective priorities, and risks of adverse changes to or interpretations of U.S. federal, state and local laws, regulations and policies. Transfers of IID Water attributable to water rights appurtenant to the IID Properties (the "IID Water Rights") are subject to additional uncertainties. Allocations of Colorado River water, which is the source of all water deliveries to the IID Properties, are subject to limitations under complex international treaties, interstate compacts, U.S. federal and state laws and regulations, and contractual arrangements and, in times of drought, water deliveries could be curtailed by the U.S. government. Further, any transfers of IID Water would require the approval of the U.S. Secretary of the Interior. Even if a transfer were approved, other California water districts and users could assert claims adverse to the IID Water Rights, including but not limited to claims that the IID has failed to satisfy U.S. federal law and California constitutional requirements that IID Water must be put to reasonable and beneficial use. A finding that the IID's water use is unreasonable or nonbeneficial could adversely impact title to the IID Water Rights and the ability to transfer IID Water. Water transferred by the IID to metropolitan areas of Southern California, such as San Diego, currently would be transported through aqueducts owned or controlled by the Metropolitan Water District, a quasi-governmental agency (the "MWD"). The transportation cost for any transfer of IID Water and the volume of water which the MWD can be required to transport at any time are subject to California laws of uncertain application, some aspects of which are currently in litigation. The uncertainties associated with water rights could have a material adverse effect on the Company's future profitability. Technological and Regulatory Risks. Portions of the water and wastewater treatment business are characterized by changing technology, competitively imposed process standards and regulatory requirements, each of which influences the demand for the Company's products and services. Changes in regulatory or industrial requirements may render certain of the Company's treatment products and processes obsolete. 32 Acceptance of new products may also be affected by the adoption of new government regulations requiring stricter standards. The Company's ability to anticipate changes in technological and regulatory standards and to develop successfully and introduce new and enhanced products on a timely basis will be a significant factor in the Company's ability to grow and to remain competitive. There can be no assurance that the Company will be able to achieve the technological advances that may be necessary for it to remain competitive or that certain of its products will not become obsolete. In addition, the Company is subject to the risks generally associated with new product introductions and applications, including lack of market acceptance, delays in development or failure of products to operate properly. The market growth potential of acquired in-process research and development is subject to certain risks, including costs to develop and commercialize such products, the cost and feasibility of production of products utilizing the applicable technologies, introduction of competing technologies and market acceptance of the products and technologies involved. There can be no assurance that the Company's existing or any future trademarks or patents will be enforceable or will provide substantial protection from competition or be of commercial benefit to the Company. In addition, the laws of certain non-United States countries may not protect proprietary rights to the same extent as do the laws of the United States. Successful challenges to certain of the Company's patents or trademarks could materially adversely affect its competitive and financial position. Municipal Water and Wastewater Business. A significant percentage of the Company's revenues is derived from municipal customers. While municipalities represent an important part of the water and wastewater treatment industry, contractor selection processes and funding for projects in the municipal sector entail certain additional risks not typically encountered with industrial customers. Competition for selection of a municipal contractor typically occurs through a formal bidding process which can require the commitment of resources and 33 greater lead times than industrial projects. In addition, this segment is dependent upon the availability of funding at the local level, which may be the subject of increasing pressure as local governments are expected to bear a greater share of the cost of public services. Year 2000 Risks. The Year 2000 issue concerns the potential exposures related to the automated generation of business and financial misinformation resulting from the application of computer programs which have been written using two digits, rather than four, to define the applicable year of business transactions. Most of the Company's operating systems with Year 2000 issues have been modified to address those issues; accordingly, management does not anticipate any significant costs, problems or uncertainties associated with becoming Year 2000 compliant. The Company is currently developing a plan intended to assure that its other internal operating systems with Year 2000 issues are modified on a timely basis. Suppliers, customers and creditors of the Company and Culligan also face similar Year 2000 issues. A failure to successfully address the Year 2000 issue could have a material adverse effect on the Company's business or results of operations. Impact of Recently Issued Accounting Standards. In June 1997, the Financial Accounting Standards Board ("FASB") issued a new statement titled "Reporting Comprehensive Income". The new statement is effective for fiscal years beginning after December 15, 1997. The Company is currently evaluating its options for disclosure under this new standard and will implement the statement during its fiscal year ending March 31, 1999. In June 1997, FASB also issued a new statement titled "Disclosures about Segments of an Enterprise and Related Information". The new statement is effective for fiscal years beginning after December 15, 1997. The Company is currently evaluating its options for disclosure under this new standard and will implement the statement during its fiscal year ending March 31, 1999. ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Reference is made to Part IV, Item 14 of this Annual Report for the information required by Item 8. 34 UNITED STATES FILTER CORPORATION AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS Independent Auditors' Report--KPMG Peat Marwick LLP......................... 36 Report of Independent Auditors--Ernst & Young LLP........................... 37 Financial Statements: Consolidated Balance Sheets as of March 31, 1997 and 1998................. 38 Consolidated Statements of Operations for the Years Ended March 31, 1996, 1997 and 1998............................................ 39 Consolidated Statements of Shareholders' Equity for the Years Ended March 31, 1996, 1997 and 1998................................ 40 Consolidated Statements of Cash Flows for the Years Ended March 31, 1996, 1997 and 1998............................................ 41 Notes to Consolidated Financial Statements................................ 42 Independent Auditors' Report on Schedule.................................... 67 Schedule: Schedule II -- Valuation and Qualifying Accounts.......................... 68
35 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders United States Filter Corporation: We have audited the accompanying consolidated balance sheets of United States Filter Corporation and subsidiaries as of March 31, 1997 and 1998, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the years in the three-year period ended March 31, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the consolidated financial statements of The Kinetics Group, Inc., a wholly owned subsidiary, as of March 31, 1997, which statements reflect total assets constituting 7 percent in 1997, and total revenues constituting 26 percent and 22 percent in 1996 and 1997, respectively, of the related consolidated totals. Those consolidated financial statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for The Kinetics Group, Inc., is based solely on the report of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of United States Filter Corporation and subsidiaries as of March 31, 1997 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended March 31, 1998, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Orange County, California June 1, 1998 36 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders The Kinetics Group, Inc. We have audited the consolidated balance sheets of the Kinetics Group, Inc. as of September 30, 1996 and 1997, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended September 30, 1997 (not presented separately herein). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Kinetics Group, Inc. at September 30, 1996 and 1997, and the consolidated results of its operations and its cash flows for each of the three years in the period ended September 30, 1997 in conformity with generally accepted accounting principles. Ernst & Young LLP Walnut Creek, California January 16, 1998 37 UNITED STATES FILTER CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS MARCH 31, 1997 AND 1998
1997 1998 ---------- --------- (IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents............................. $ 135,144 48,673 Short-term investments................................ 2,158 241 Accounts receivable, less allowance for doubtful accounts of $27,095 at March 31, 1997 and $33,370 at March 31, 1998....................................... 572,940 728,486 Costs and estimated earnings in excess of billings on uncompleted contracts................................ 130,310 217,935 Inventories........................................... 245,201 386,100 Prepaid expenses...................................... 8,931 15,481 Deferred taxes........................................ 53,152 131,618 Other current assets.................................. 17,086 47,416 ---------- --------- Total current assets................................ 1,164,922 1,575,950 ---------- --------- Property, plant and equipment, net...................... 319,687 806,475 Investment in leasehold interests, net.................. 23,230 21,699 Costs in excess of net assets of businesses acquired, net.................................................... 788,096 1,027,481 Other assets............................................ 101,628 166,239 ---------- --------- $2,397,563 3,597,844 ========== ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable...................................... $ 274,653 335,232 Accrued liabilities................................... 275,537 434,028 Current portion of long-term debt..................... 11,956 79,171 Billings in excess of costs and estimated earnings on uncompleted contracts................................ 61,441 90,073 Other current liabilities............................. 26,183 45,670 ---------- --------- Total current liabilities........................... 649,770 984,174 ---------- --------- Notes payable........................................... 42,646 574,806 Long-term debt, excluding current portion............... 31,464 56,305 Convertible subordinated debt........................... 554,000 554,000 Deferred taxes.......................................... 12,198 51,849 Other liabilities....................................... 61,655 83,300 ---------- --------- Total liabilities................................... 1,351,733 2,304,434 ---------- --------- Shareholders' equity: Preferred stock, authorized 3,000 shares.............. -- -- Common stock, par value $.01. Authorized 300,000 shares; issued and outstanding 80,334 and 107,422 at March 31, 1997 and 1998, respectively................ 803 1,074 Additional paid-in capital............................ 1,013,734 1,577,847 Currency translation adjustment....................... (19,491) (51,329) Retained earnings (accumulated deficit)............... 50,784 (234,182) ---------- --------- Total shareholders' equity.......................... 1,045,830 1,293,410 Commitments and contingencies........................... ---------- --------- $2,397,563 3,597,844 ========== =========
See accompanying notes to consolidated financial statements. 38 UNITED STATES FILTER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED MARCH 31, 1996, 1997 AND 1998
1996 1997 1998 ------------- ------------ ------------ (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues............................ $ 1,090,745 1,764,406 3,234,580 Costs of sales...................... 836,973 1,376,615 2,456,173 ------------- ------------ ------------ Gross profit.................... 253,772 387,791 778,407 ------------- ------------ ------------ Selling, general and administrative expenses........................... 192,387 316,190 573,002 Purchased in-process research and development........................ -- -- 299,505 Merger, restructuring, acquisition and other related charges.......... -- 5,581 141,109 ------------- ------------ ------------ 192,387 321,771 1,013,616 ------------- ------------ ------------ Operating income (loss)......... 61,385 66,020 (235,209) ------------- ------------ ------------ Other income (expense): Interest expense.................. (16,280) (26,509) (53,887) Interest and other income......... 5,923 3,678 4,900 ------------- ------------ ------------ (10,357) (22,831) (48,987) ------------- ------------ ------------ Income (loss) before income tax expense........................ 51,028 43,189 (284,196) Income tax expense.................. 20,329 10,681 15,583 ------------- ------------ ------------ Net income (loss)............... $ 30,699 32,508 (299,779) ============= ============ ============ Net income (loss) per common share: Basic........................... $ 0.62 0.51 (3.13) ============= ============ ============ Diluted......................... $ 0.61 0.49 (3.13) ============= ============ ============
See accompanying notes to consolidated financial statements. 39 UNITED STATES FILTER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED MARCH 31, 1996, 1997 AND 1998 (IN THOUSANDS)
PREFERRED STOCK COMMON STOCK RETAINED ------------------ ----------------- ADDITIONAL CURRENCY EARNINGS NUMBER OF NUMBER OF PAID-IN TRANSLATION (ACCUMULATED SHARES AMOUNT SHARES AMOUNT CAPITAL ADJUSTMENT DEFICIT) TOTAL --------- -------- --------- ------- ---------- ----------- ------------ --------- Balance at March 31, 1995................... 1,065 $ 25,577 30,054 $ 224 151,707 (2,026) 1,603 177,085 Restatement for acquisition of Kinetics acquired through pooling of interests... -- -- 5,804 58 18,984 -- 4,421 23,463 ----- -------- ------- ------- --------- ------- -------- --------- Balance at March 31, 1995, restated......... 1,065 25,577 35,858 282 170,691 (2,026) 6,024 200,548 Compensation related to excess of fair value of director stock options over exercise price.... -- -- -- -- 112 -- -- 112 Conversion of preferred shares to common shares................. (926) (22,936) 2,083 14 22,922 -- -- -- Redemption of Series B convertible preferred stock.................. (139) (2,641) -- -- (2,068) -- -- (4,709) Issuance of common stock in connection with acquisitions........... -- -- 2,453 16 36,284 -- -- 36,300 Shares issued through public offering net of offering costs of $6,106................. -- -- 10,350 69 97,325 -- -- 97,394 Conversion of subordinated debt to common stock........... -- -- 3,750 25 44,975 -- -- 45,000 Dividends paid on preferred stock........ -- -- -- -- -- -- (715) (715) Exercise of common stock options................ -- -- 488 3 3,678 -- -- 3,681 Issuances of common stock to acquire assets................. -- -- 224 2 2,974 -- -- 2,976 Currency translation adjustment............. -- -- -- -- -- 3,862 -- 3,862 Shareholders' equity transactions of Kinetics and other entities prior to merger................. -- -- -- -- 2,438 -- (10,196) (7,758) Net income.............. -- -- -- -- -- -- 30,699 30,699 ----- -------- ------- ------- --------- ------- -------- --------- Balance at March 31, 1996................... -- -- 55,206 411 379,331 1,836 25,812 407,390 Exercise of common stock options................ -- -- 659 7 6,081 -- -- 6,088 Issuance of common stock in connection with acquisitions........... -- -- 7,686 76 196,548 -- -- 196,624 Issuance of common stock to pay off indebtedness........... -- -- 271 2 6,741 -- -- 6,743 Par value of shares issued in connection with three-for-two stock split............ -- -- -- 143 (143) -- -- -- Shares issued through public offering, net of offering costs of $17,154................ -- -- 11,804 118 356,036 -- -- 356,154 Conversion of subordinated debt to common stock........... -- -- 4,389 43 58,535 -- -- 58,578 Issuance of common stock to acquire assets...... -- -- 319 3 5,894 -- -- 5,897 Shareholders' equity transactions of Kinetics and other entities prior to merger................. -- -- -- -- 4,711 -- (7,536) (2,825) Currency translation adjustment............. -- -- -- -- -- (21,327) -- (21,327) Net income.............. -- -- -- -- -- -- 32,508 32,508 ----- -------- ------- ------- --------- ------- -------- --------- Balance at March 31, 1997................... -- -- 80,334 803 1,013,734 (19,491) 50,784 1,045,830 Exercise of common stock options................ -- -- 506 5 5,536 -- 5,541 Issuance of common stock in connection with acquisitions........... -- -- 26,536 265 527,955 -- -- 528,220 Shareholders' equity transactions of Kinetics and other entities prior to merger................. -- -- -- -- 29,480 -- 14,813 44,293 Issuance of common stock to acquire assets...... -- -- 46 1 1,142 -- -- 1,143 Currency translation adjustment............. -- -- -- -- -- (31,838) -- (31,838) Net loss................ -- -- -- -- -- -- (299,779) (299,779) ----- -------- ------- ------- --------- ------- -------- --------- Balance at March 31, 1998................... -- $ -- 107,422 $ 1,074 1,577,847 (51,329) (234,182) 1,293,410 ===== ======== ======= ======= ========= ======= ======== =========
See accompanying notes to consolidated financial statements. 40 UNITED STATES FILTER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED MARCH 31, 1996, 1997 AND 1998
1996 1997 1998 -------- -------- -------- (IN THOUSANDS) Cash flows from operating activities: Net income (loss)............................... $ 30,699 32,508 (299,779) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Deferred income taxes......................... (4,932) 1,732 (27,308) Depreciation.................................. 25,224 35,969 64,682 Amortization.................................. 7,245 14,674 28,322 Write-off of purchased in-process research and development and goodwill..................... -- -- 352,025 Provision for doubtful accounts............... 5,929 5,536 7,620 (Gain) loss on sale or disposal of property and equipment................................ (260) (15) 11,549 Stock and stock option compensation........... 112 -- -- Increase in closure reserves and write-off of intangible assets............................ 768 -- -- Change in operating assets and liabilities: (Increase) decrease in accounts receivable.... (39,603) (23,364) 16,736 Increase in costs and estimated earnings in excess of billings on uncompleted contracts.. (8,471) (53,302) (37,337) Increase in inventories....................... (5,468) (29,136) (30,500) Increase in prepaid expenses and other assets. (5,359) (43,913) (46,658) Increase in accounts payable and accrued expenses..................................... 4,473 37,885 4,890 Increase (decrease) in billings in excess of costs and estimated earnings on uncompleted contracts.................................... (2,110) 8,182 (10,154) Increase (decrease) in other liabilities...... (1,612) (2,564) 2,063 -------- -------- -------- Net cash provided by (used in) operating activities................................. 6,635 (15,808) 36,151 -------- -------- -------- Cash flows from investing activities: Investment in leasehold interests............... (8,347) -- -- Purchase of property, plant and equipment....... (38,335) (56,834) (127,592) Proceeds from disposal of equipment............. 7,670 6,301 7,500 (Purchase) sale of short-term investments....... 9,871 (374) 1,923 Payment for purchase of acquisitions, net of cash acquired.................................. (206,936) (586,059) (461,174) -------- -------- -------- Net cash used in investing activities....... (236,077) (636,966) (579,343) -------- -------- -------- Cash flows from financing activities: Net proceeds from sale of common stock.......... 97,783 356,154 -- Net proceeds from sale of convertible subordinated debt.............................. 136,249 403,650 -- Proceeds from exercise of common stock options.. 3,681 6,088 5,541 Principal payments of debt...................... (71,909) (13,393) (51,885) Dividends paid on common and preferred stock.... (9,988) (3,901) (50) Payment to repurchase Series B preferred stock.. (4,709) -- -- Net proceeds from borrowings on notes payable... 76,990 11,590 503,115 -------- -------- -------- Net cash provided by financing activities... 228,097 760,188 456,721 -------- -------- -------- Net increase (decrease) in cash and cash equivalents................................ (1,345) 107,414 (86,471) Cash and cash equivalents at beginning of year... 29,075 27,730 135,144 -------- -------- -------- Cash and cash equivalents at end of year......... $ 27,730 135,144 48,673 ======== ======== ======== Supplemental disclosures of cash flow information: Cash paid during the year for interest.......... $ 16,463 21,472 45,548 ======== ======== ======== Cash paid during the year for income taxes...... $ 11,275 14,936 24,882 ======== ======== ======== Noncash investing and financing activities consisted of the following: Common stock issued: Conversion of subordinated debt............... $ 45,000 60,000 -- Purchase of property or equipment............. 2,976 5,897 1,143 Property, plant and equipment exchanged for receivables.................................... 5,318 -- -- -------- -------- -------- $ 53,294 65,897 1,143 ======== ======== ========
See accompanying notes to consolidated financial statements. 41 UNITED STATES FILTER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MARCH 31, 1996, 1997 AND 1998 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the financial statements of United States Filter Corporation and wholly owned subsidiaries (the "Company"). All significant intercompany accounts and transactions have been eliminated in consolidation. REVENUE RECOGNITION Method of Accounting for Contracts The accounting records of the Company are maintained and income is reported for financial reporting and income tax purposes for long-term contracts under the percentage-of-completion method of accounting. Under this method, an estimated percentage for each contract, based on the cost of work performed to date that has contributed to contract performance compared to the total estimated cost, is applied to the contract price and recognized as revenue. Provision is made for the entire amount of future estimated losses on contracts in progress in the period such losses are determined. Claims for additional contract compensation due the Company are not reflected in the accounts until the year in which such claims are allowed, except where contract terms specifically provide for certain claims. Contract costs include all direct material and labor and indirect costs related to contract performance. General and administrative expenses are charged to expense as incurred. Products and Services Sales of other products and services are recorded as products are shipped or services rendered. INCOME TAXES Deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using tax rates in effect for the year in which the differences are expected to reverse. United States income taxes are not provided on the undistributed earnings of its non-U.S. subsidiaries as such earnings are intended to be indefinitely reinvested in those operations. FOREIGN CURRENCY TRANSLATION Assets and liabilities denominated in a functional currency other than U.S. dollars are translated into U.S. dollars at the current rate of exchange existing at period-end and revenues and expenses are translated at the average monthly exchange rates. Translation adjustments are included as a separate component of shareholders' equity. Transaction gains and losses included in net income (loss) are immaterial. The effects of exchange rate changes on cash are immaterial as of March 31, 1997 and 1998 and for each of the years in the three year period ended March 31, 1998. INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. 42 UNITED STATES FILTER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost and depreciated on the straight-line method over the estimated useful lives of the respective assets which range from three to 25 years. Leasehold improvements are amortized on the straight-line method over the lesser of their estimated useful lives or the related lease term. COSTS IN EXCESS OF NET ASSETS OF BUSINESSES ACQUIRED Costs in excess of net assets of businesses acquired are amortized on the straight-line method over a 20- to 40-year life. The Company evaluates the recoverability of these costs based upon expectations of non-discounted cash flows of each subsidiary. INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES Investments in unconsolidated joint ventures are accounted for using the equity method. The Company's share of earnings or losses from these joint ventures is reflected in income and dividends are credited against the investment when received. NET UNAMORTIZED DEBT ISSUANCE COSTS Net unamortized debt issuance costs, aggregating $16.9 million and $11.2 million at March 31, 1997 and 1998, respectively, have been deferred and are being amortized over the term of the related debt ranging from five to ten years. WARRANTIES The Company's products are generally warrantied against defects in material and workmanship for a period of one year. The Company has accrued for estimated future warranty costs. ENVIRONMENTAL EXPENDITURES Expenditures for environmental protection are expensed or capitalized, as appropriate. Costs associated with remediation activities are expensed. Liabilities are recorded when remedial efforts are probable and the costs can be reasonably estimated. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of cash and cash equivalents, short-term investments, accounts receivable, accounts payable, and accrued liabilities approximate fair value because of the short maturity of these instruments. The carrying amount of the Company's revolving credit facility approximates its fair value because the interest rate on the instrument changes with market interest rates. The fair value of the Company's long-term debt (including current portion) is estimated to be equal to the carrying amounts based on quoted market prices for similar issues or on the current rates offered to the Company for debt of the same remaining maturities. 43 UNITED STATES FILTER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) INCOME (LOSS) PER COMMON SHARE Income (loss) per common share is computed based on the weighted average number of shares outstanding and in accordance with SFAS No. 128 "Earnings Per Share". Dilutive securities consisting of convertible preferred stock, convertible subordinated debt and common stock options are included in the computation of income (loss) per diluted share when their effect is dilutive. Accordingly, "Basic EPS" and "Diluted EPS" were calculated as follows:
1996 1997 1998 ------------- ------------ ------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) BASIC Net income (loss) applicable to common shares.................. $ 30,699 32,508 (299,779) Dividends on preferred stock.... (536) -- *** -- *** ------------- ----------- ------------- $ 30,163 32,508 (299,779) ============= =========== ============= Weighted average common shares outstanding.................... 48,369 64,082 95,909 ============= =========== ============= Basic income (loss) per common share.......................... $ 0.62 0.51 (3.13) ============= =========== ============= DILUTED Net income (loss) applicable to common shares.................. $ 30,163 32,508 (299,779) Add: Effect on net income (loss) of conversions of convertible subordinated debt............ -- * -- * -- * ------------- ----------- ------------- Adjusted net income (loss) applicable to common shares.... $ 30,163 32,508 (299,779) ============= =========== ============= Weighted average common shares outstanding.................... 48,369 64,082 95,909 Add: Exercise of options........... 1,299 2,449 -- ** Assumed conversion of subordinated debt............ -- * -- * -- * ------------- ----------- ------------- Adjusted weighted average common shares outstanding............. 49,668 66,531 95,909 ============= =========== ============= Diluted income (loss) per common share.......................... $ 0.61 0.49 (3.13) ============= =========== =============
- -------- * The calculation of diluted EPS for the years ended March 31, 1996, 1997 and 1998 does not assume conversion of subordinated debt as its effect would be antidilutive to income (loss) per common share. ** The calculation of diluted EPS for the year ended March 31, 1998 does not assume the exercise of options as the effect would be antidilutive to loss per common share. Under the treasury stock method, the exercise of all outstanding options would have increased the weighted average number of shares by 2,449 for the year ended March 31, 1998. *** On March 4, 1996, the preferred shareholder tendered its Series A Preferred Stock for conversion into Company common stock thus eliminating further dividends. RECLASSIFICATIONS Certain amounts in the 1997 consolidated financial statements have been reclassified to conform with the 1998 presentation. (2) CASH AND CASH EQUIVALENTS Cash equivalents consist of demand deposits and certificates of deposit with original maturities of 90 days or less. 44 UNITED STATES FILTER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (3) SHORT-TERM INVESTMENTS Short-term investments consist of highly liquid municipal issues available for sale with original maturities of more than 90 days when purchased, and are carried at amortized cost, which approximates market value. (4) INVENTORIES Inventories at March 31, 1997 and 1998 consist of:
1997 1998 --------- ------- (IN THOUSANDS) Raw materials.............................................. $ 56,830 108,870 Work-in-process............................................ 58,619 92,089 Finished goods............................................. 129,752 185,141 --------- ------- $ 245,201 386,100 ========= =======
(5) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment at March 31, 1997 and 1998 consist of:
1997 1998 --------- --------- (IN THOUSANDS) Land................................................... $ 20,697 250,668 Buildings and improvements............................. 110,925 262,520 Equipment.............................................. 199,240 333,190 Furniture and fixtures................................. 65,415 102,108 Vehicles............................................... 14,477 21,449 Construction in progress............................... 18,668 35,714 --------- --------- 429,422 1,005,649 Less accumulated depreciation.......................... (109,735) (199,174) --------- --------- $ 319,687 806,475 ========= =========
(6) INVESTMENT IN LEASEHOLD INTERESTS The Company has concession agreements to operate wastewater treatment plants in Mexico. The terms of the concessions are approximately 15 to 18 years, as amended, and include monthly payments to be received by the Company at various prices per cubic meter of sewage treated at the facilities based upon the Company's initial investments, fixed operating expenses and variable operating expenses. The Company is amortizing the investments on a straight-line basis over the terms of the concessions. Accumulated amortization at March 31, 1997 and 1998 totaled $3.2 million and $4.7 million, respectively. The investments are stated at cost which is not impaired based on projected non-discounted future cash flows. (7) COSTS IN EXCESS OF NET ASSETS OF BUSINESSES ACQUIRED Costs in excess of net assets of businesses acquired and accumulated amortization at March 31, 1997 and 1998 consists of the following:
1997 1998 --------- --------- (IN THOUSANDS) Costs in excess of net assets of businesses acquired............... $ 811,054 1,073,155 Less accumulated amortization........... (22,958) (45,674) --------- --------- $ 788,096 1,027,481 ========= =========
45 UNITED STATES FILTER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (8) OTHER ASSETS Other assets at March 31, 1997 and 1998 consist of:
1997 1998 --------- ------- (IN THOUSANDS) Investment in joint ventures at equity..................... $ 10,645 7,761 Long-term receivables and advances......................... 7,837 4,953 Other assets at amortized cost: Developed technology..................................... -- 56,587 Deferred debt costs...................................... 16,939 11,154 Operating permits and development costs.................. 5,994 10,054 Patents.................................................. 3,074 4,990 Other.................................................... 57,139 70,740 --------- ------- $ 101,628 166,239 ========= =======
The above amounts reflect accumulated amortization of $3.8 million and $7.4 million at March 31, 1997 and 1998, respectively. (9) ACQUISITIONS Fiscal 1998 Acquisitions As of December 31, 1997, a wholly-owned subsidiary of the Company completed the acquisition of The Kinetics Group, Inc. ("Kinetics") in a tax-free reorganization. In connection with the acquisition, the Company issued 5,803,803 shares of the Company's common stock for all of the outstanding common stock of Kinetics (0.5824 share of the Company's common stock for each outstanding share and each outstanding option or other right to acquire a share of Kinetics common stock). In addition, the Company assumed approximately $50.0 million of third party institutional debt. Kinetics, based in Santa Clara, California, is a provider and manufacturer of sophisticated high-purity process piping systems and is also a leading integrator in the United States of high-purity water, fluid and gas handling systems that are critical to the pharmaceutical, biotechnology and micro electronics industries. 46 UNITED STATES FILTER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) This transaction has been accounted for as a pooling of interests and, accordingly, the consolidated financial statements and notes thereto for all periods presented have been restated to include the accounts of Kinetics. In restating the Company's historical financial statements for the pooling of interests with Kinetics, the Company's balance sheet as of March 31, 1997 was combined with Kinetics audited balance sheet as of September 30, 1997. The results of the Company for the fiscal year ended March 31, 1997 were combined with historical results of Kinetics for the year ended September 30, 1997; historical results of the Company for the year ended March 31, 1996 were combined with historical results of Kinetics for the year ended September 30, 1996. Accordingly, results of Kinetics for the six month period ended September 30, 1995 (including revenue of $106.9 million and net income of $2.8 million) are not included in the combined results of operations presented herein. Concurrent with the Company's merger, Kinetics year end was recast to March 31. Accordingly, results of Kinetics for the six month period ended September 30, 1997 (including revenue of $227.4 million and a net loss of $8.5 million) are included in both the restated historical results for the year ended March 31, 1997 and the results for the year ended March 31, 1998. Separate results of operations of the combined entities for the years ended March 31, 1996 and 1997 are as follows:
YEAR ENDED MARCH 31, -------------------- 1996 1997 ---------- --------- (IN THOUSANDS) Revenues: U.S. Filter (as previously reported).................... $ 812,322 1,376,601 Kinetics................................................ 278,423 387,805 ---------- --------- Combined............................................ $1,090,745 1,764,406 ========== ========= Net income (loss): U.S. Filter (as previously reported).................... 21,967 46,197 Kinetics................................................ 8,732 (13,689) ---------- --------- Combined............................................ $ 30,699 32,508 ========== ========= Net income per common share: Basic: As previously reported................................ $ 0.50 0.79 ========== ========= As restated........................................... $ 0.62 0.51 ========== ========= Diluted: As previously reported................................ $ 0.49 0.77 ========== ========= As restated........................................... $ 0.61 0.49 ========== =========
Separate unaudited results of operations of U.S. Filter and Kinetics for the period during the year ended March 31, 1998 proceeding the mergers between U.S. Filter and Kinetics are included in the Consolidated Statement of Operations for the year ended March 31, 1998 as follows:
REVENUES NET LOSS ---------- -------- U.S. Filter................................................ $2,009,767 (325,791) Kinetics................................................... 336,786 (11,510) ---------- -------- Nine Months ended December 31, 1997...................... $2,346,553 (337,301) ========== ========
47 UNITED STATES FILTER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Merger expenses incurred to consummate the Kinetics transaction totaled $4.3 million consisting of investment banking, printing, stock transfer, legal, accounting, governmental filing fees and certain other transaction costs and are included in merger, restructuring, acquisition and other related charges in the accompanying Consolidated Statement of Operations for the year ended March 31, 1998. On December 9, 1997, the Company, through a wholly-owned subsidiary, completed its tender offer ("Offer") to purchase all of the outstanding ordinary shares of Memtec Limited ("Memtec"). The total cash purchase price was $397.2 million (including transaction costs of $10.6 million). Memtec is incorporated under the law of the State of New South Wales, Australia and has worldwide operations. Memtec is a leader in the designing, engineering, manufacturing and marketing of an extensive range of filtration products and systems, focusing on two principal areas of the filtration market: industrial filtration and water filtration. Memtec had revenues of approximately $243.6 million and net income of approximately $7.5 million for the year ended June 30, 1997. The purchase price was allocated to the assets and liabilities of Memtec based on their estimated respective fair values. The value of developed technology was approximately $57.2 million, and is being amortized on a straight-line basis over 25 years. The value of other intangible assets including patents, trademarks, license and distribution fees was approximately $7.3 million, and is being amortized over periods ranging from 5 to 12 years. The Company also acquired from Memtec certain in-process research and development projects that had not reached technological feasibility and that had no alternative future uses. Such projects were valued by an independent appraiser using a risk adjusted cash flow model under which expected future cash flows were discounted using rates ranging from 31.9% to 45.9%. The discount rates were determined by various internal and external factors including general economic and industry economic conditions, cost and availability of capital, product completion and technology risk, competition and market acceptance. The future cash flows were based on significant estimates of revenues, cost of goods sold, operating expenses, research and development expenses, capital expenditures, depreciation and interest charges on financed capital expenditures over the next ten years. The estimates of these items included significant assumptions regarding (i) revenue growth, which was assumed to grow from no revenue in the current period for the projects currently in-process to substantially all of the revenue for the Memtec subsidiary over the ten year period as the projects in-process supplant or supersede the current Memtec product offerings; (ii) gross margin, which is projected to improve approximately 5% by the end of the ten year period as the new projects with higher gross margins supplant or supersede the current Memtec product offerings; (iii) operating expenses as a percentage of sales, which were projected to be 20%. The estimated market value of such in-process research and development projects was $299.5 million and was expensed at the acquisition date. The allocation of the purchase price of Memtec is final and is not expected to change materially subsequent to March 31, 1998. The acquisition of Memtec has been accounted for as a purchase and, accordingly, the results of Memtec's operations have been included in the consolidated financial statements of the Company from the date of acquisition. Summarized below are the unaudited pro forma results of operations of the Company as though Memtec had been acquired as of April 1, 1997:
1998 --------------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues.............................................. $ 3,403,083 =========== Net loss.............................................. $ (309,170) =========== Net loss per common share: Basic............................................... $ (3.22) =========== Diluted............................................. $ (3.22) ===========
48 UNITED STATES FILTER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Concurrent with the merger with and into Kinetics and the acquisition of Memtec, the Company designed and implemented a restructuring plan to streamline its manufacturing and production base, improve efficiency and enhance its competitiveness. The restructuring plan resulted in a pre-tax charge of $141.1 million. The plan identifies certain products and technologies acquired in conjunction with the Memtec transaction that supersede products and technologies acquired in earlier acquisitions of membrane related businesses. As a result certain carrying amounts of goodwill and other intangible assets were determined to be impaired by approximately $55.0 million in accordance with SFAS No. 121, which requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. In determining the amount of the impairment of these assets, the Company valued the assets using the present value of estimated expected future cash flows using discount rates commensurate with the risks involved. The restructuring plan also included closing or reconfiguring of certain facilities and reducing the work force by approximately 350 employees, most of whom work in the facilities to be closed. Included in merger, restructuring, acquisition and other related charges are the following:
(IN THOUSANDS) Write-down of goodwill and other intangible assets........... $ 54,950 Asset write-offs, including equipment and facilities......... 47,887 Merger, integration and other acquisition costs.............. 21,135 Severance and related costs.................................. 17,137 -------- Total merger, restructuring, acquisition and other related charges................................................... $141,109 ======== Cash charges................................................. $ 36,431 Non-cash charges............................................. 104,678 -------- $141,109 ========
Approximately $15.4 million of merger and restructuring related charges are included in accrued liabilities at March 31, 1998. Additional costs to complete the restructuring plan are not expected to be material. After an income tax benefit of $34.5 million, the charges detailed above totaling $440.6 million reduced earnings by $406.1 million. During the year ended March 31, 1998, the Company completed other acquisitions with an aggregate purchase price, including acquisition costs, of approximately $861.0 million, consisting of $80.0 million in cash and the delivery of approximately 26,515,000 shares of Company common stock. The excess of fair value of net assets acquired was approximately $263.8 million, and is being amortized on a straight-line basis over 40 years. Fiscal 1997 Acquisitions On October 25, 1996, the Company acquired all of the outstanding capital stock of the Utility Supply Group, Inc. ("USG") pursuant to an Agreement and Plan of Merger. The purchase price for the acquisition of USG, including acquisition costs, was approximately $40 million, consisting of the repayment of $18.3 million of USG long-term debt paid in cash and the delivery of 771,157 shares of Company common stock. USG, headquartered in Waco, Texas, is a distributor of water and wastewater related products and services to industrial and municipal customers throughout the United States. The acquisition of USG has been accounted for as a purchase and, accordingly, the results of operations of USG are included in the Company's consolidated statements of operations from the date of acquisition. The excess of fair value of net assets acquired was approximately $18 million, and is being amortized on a straight-line basis over 40 years. 49 UNITED STATES FILTER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) On October 28, 1996, the Company acquired all of the outstanding capital stock of WaterPro Supplies Corporation ("WaterPro") pursuant to a Stock Purchase Agreement. The purchase price for the acquisition of WaterPro, including acquisition costs, was approximately $91 million, consisting of 3,201,507 shares of Company common stock. WaterPro, headquartered in Edina, Minnesota is a national distributor of water and wastewater related products and services for municipal water, sewer authorities and underground contractors, and has locations throughout the United States. The acquisition of WaterPro has been accounted for as a purchase and, accordingly, the results of operations of WaterPro are included in the Company's consolidated statements of operations from the date of acquisition. The excess of fair value of net assets acquired was approximately $29 million, and is being amortized on a straight-line basis over 40 years. On December 2, 1996, pursuant to an Amended and Restated Purchase and Sale Agreement dated September 14, 1996 between the Company and Wheelabrator Water Technologies Inc. ("Seller"), the Company completed the acquisition of the capital stock of certain of the Seller's subsidiaries and certain other entities, and substantially all of the assets and liabilities of certain other subsidiaries, collectively Wheelabrator's Water Systems and Manufacturing Group ("WSMG"). The purchase price, as amended, for the acquisition of WSMG, including acquisition costs, was approximately $374 million and was paid entirely in cash. WSMG provides a broad range of water and wastewater engineering, technology and systems. The acquisition of WSMG has been accounted for as a purchase and, accordingly, the results of operations of WSMG are included in the Company's consolidated statements of operations from the date of acquisition. The excess of fair value of net assets acquired was approximately $308 million and is being amortized on a straight-line basis over 40 years. On January 6, 1997, pursuant to a Purchase and Sale Agreement dated October 7, 1996, between the Company and United Utilities PLC ("Seller"), the Company completed the acquisition of the capital stock of certain other subsidiaries, collectively, the Process Equipment Division ("PED") of Seller. The purchase price for the acquisition of PED, including acquisition costs, was approximately $166 million in cash and 1,320,312 shares of Company stock. PED provides a broad range of water and wastewater engineering, technology and systems. The acquisition of PED has been accounted for as a purchase and, accordingly, the results of operations of PED are included in the Company's consolidated statements of operations from the date of acquisition. The excess of fair value of net assets acquired was approximately $108 million and is being amortized on a straight-line basis over 40 years. Supplementary information related to the acquisitions of USG, WaterPro, WSMG and PED is as follows:
(IN THOUSANDS) Assets acquired.................................................. $1,018,537 Liabilities assumed.............................................. (318,059) Common stock issued.............................................. (139,025) ---------- Cash paid........................................................ 561,453 Fees and expenses................................................ 3,001 Less cash acquired............................................... (11,039) ---------- Net cash paid.................................................. $ 553,415 ==========
50 UNITED STATES FILTER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Summarized below are the unaudited pro forma results of operations of the Company as though Memtec, USG, WaterPro, WSMG and PED had been acquired on April 1, 1996:
1997 --------------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues............................................... $2,743,614 ========== Net income............................................. $ 37,637 ========== Net income per common share: Basic................................................ $ 0.48 ========== Diluted.............................................. $ 0.46 ==========
During the year ended March 31, 1997, the Company completed other acquisitions with an aggregate purchase price, including acquisition costs, of approximately $77 million, consisting of $19.0 million in cash and the delivery of 2,392,768 shares of Company common stock. The excess of fair value of net assets acquired was approximately $65 million, and is being amortized on a straight-line basis over 40 years. (10) CONTRACT BILLING STATUS Information with respect to the billing status of contracts in process at March 31, 1997 and 1998 is as follows:
1997 1998 ---------- ---------- (IN THOUSANDS) Contract costs incurred to date..................... $ 971,292 1,348,386 Estimated profits................................... 160,949 255,347 ---------- ---------- Contract revenue earned to date..................... 1,132,241 1,603,733 Less billings to date............................... (1,063,372) (1,475,871) ---------- ---------- Cost and estimated earnings in excess of billings, net................................................ $ 68,869 127,862 ========== ========== The above amounts are included in the accompanying consolidated balance sheets as: Costs and estimated earnings in excess of billings on uncompleted contracts........................... $ 130,310 217,935 Billings in excess of costs and estimated earnings on uncompleted contracts........................... (61,441) (90,073) ---------- ---------- $ 68,869 127,862 ========== ==========
Accounts receivable include retainage which has been billed, but is not due pursuant to retainage provisions in construction contracts until completion of performance and acceptance by the customer. This retainage aggregated $21.7 million and $16.1 million at March 31, 1997 and 1998, respectively. Substantially all retained balances are collectible within one year. 51 UNITED STATES FILTER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (11) LONG-TERM DEBT Long-term debt at March 31, 1997 and 1998 consists of the following:
1997 1998 -------- ------- (IN THOUSANDS) Mortgage notes payable, secured by land and buildings, interest rates ranging from 2.0% to 10.0%, due in 1999 through 2013.......................................... $ 13,304 11,676 Guaranteed bank notes, interest rates ranging from 2.0% to 9.2%, due in 1999 through 2004..................... 1,631 61,416 Unsecured notes payable, interest rates ranging from 3.8% to 10.1%, due in 1999 through 2008............... 24,954 62,384 Other.................................................. 3,531 -- -------- ------- 43,420 135,476 Less current portion................................... (11,956) (79,171) -------- ------- $ 31,464 56,305 ======== =======
The aggregate maturities of long-term debt for each of the five years subsequent to March 31, 1998 are as follows: 1999, $79.2 million; 2000, $13.9 million; 2001, $9.1 million; 2002, $7.1 million; 2003, $4.2 million; and thereafter, $22.0 million. The Company has a long-term, unsecured revolving line of credit with a bank of up to $750.0 million, of which $544.1 million was outstanding at March 31, 1998 and is included in notes payable in the accompanying consolidated balance sheet. The line of credit expires December 2001 and bears interest at 0.15% above the bank's base rate or at variable rates of up to 0.45% above certain Eurocurrency rates. The line of credit is subject to certain covenants for which the Company was in compliance at March 31, 1998. At March 31, 1998, $40.7 million of standby letters of credit were issued under this line of credit. In connection with the acquisitions of Kinetics and Memtec, the Company assumed through its subsidiaries two additional loan agreements with banks. One agreement provides a revolving line-of-credit with borrowings of up to $100.0 million, of which no amounts were outstanding at March 31, 1998. Borrowings under this agreement bear interest at the banks reference rate or other interest rate options that the subsidiary may select. The other agreement is a Multi-Option, Multi-Currency Master Facility that provides borrowings of up to $60.0 million, of which $30.7 million was outstanding as of March 31, 1998. Borrowings under this agreement bear interest at LIBOR plus 0.75%. The Company anticipates that it will terminate these two agreements during fiscal 1999. (12) CONVERTIBLE SUBORDINATED DEBT On December 11, 1997, the Company sold $414.0 million aggregate principal amount of 4.5% Convertible Subordinated Debentures due December 15, 2001 (the "Debentures"). The Debentures are convertible into common stock at any time prior to maturity, redemption or repurchase at a conversion price of $39.50 per share, subject to adjustments in certain circumstances. The Debentures are not redeemable prior to December 15, 1999, at which time the Debentures become redeemable at the option of the Company, in whole or in part, at specified redemption prices plus accrued and unpaid interest to the date of redemption. Interest is payable semi-annually on June 15 and December 15, commencing June 15, 1997. On September 18, 1995 the Company sold $140.0 million aggregate principal amount of 6% Convertible Subordinated Notes due September 15, 2005 (the "Notes"). The Notes are convertible into common stock at any time prior to maturity, redemption or repurchase at a conversion price of $18.33 per share, subject to 52 UNITED STATES FILTER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) adjustment in certain circumstances. The Notes are not redeemable prior to September 23, 1998 at which time the Notes become redeemable at the option of the Company, in whole or in part, at specified redemption prices plus accrued and unpaid interest to the date of redemption. Interest is payable semi- annually on March 15 and September 15 of each year, commencing on March 15, 1996. Effective August 31, 1994, the Company issued $45.0 million of convertible subordinated debt with common stock purchase warrants in connection with the acquisition of Smogless. On September 18, 1995, these warrants to purchase 3.8 million shares of Company common stock were exercised in exchange for the delivery of the $45.0 million principal amount of subordinated debt. On October 20, 1993, the Company issued $60.0 million aggregate principal amount of 5% convertible subordinated debentures due October 15, 2000. As of October 25, 1996, all of such debentures were converted into a total of approximately 4.4 million shares of Company common stock pursuant to the terms of the debentures. (13) ACCRUED LIABILITIES Accrued liabilities at March 31, 1997 and 1998 consist of the following:
1997 1998 -------- ------- (IN THOUSANDS) Accrued job costs and customer deposits..................... $ 75,108 96,802 Payroll, benefits and related taxes......................... 71,157 95,504 Relocation and closure costs................................ 41,088 96,019 Warranty.................................................... 25,727 42,089 Future remediation.......................................... 10,625 2,760 Sales commissions........................................... 10,014 15,630 Sales, property and other taxes............................. 9,647 38,379 Interest.................................................... 7,978 9,494 Other....................................................... 24,193 37,351 -------- ------- $275,537 434,028 ======== =======
(14) INCOME TAXES Income tax expense (benefit) from continuing operations for the years ended March 31, 1996, 1997 and 1998 consist of:
1996 1997 1998 ------- ------ ------- (IN THOUSANDS) Federal: Current.......................................... $ 9,569 5,806 (10,091) Deferred......................................... 2,584 2,342 21,451 State: Current.......................................... 2,393 2,904 (1,442) Deferred......................................... (542) (768) 3,064 Non-U.S.: Current.......................................... 4,085 5,821 (7,123) Deferred......................................... 2,240 (5,424) 9,724 ------- ------ ------- $20,329 10,681 15,583 ======= ====== =======
53 UNITED STATES FILTER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Total income tax expense (benefit) differed from the amounts computed by applying the U.S. Federal corporate tax rate of 34% for 1996 and 35% for 1997 and 1998 to income (loss) from continuing operations before income taxes as a result of the following:
1996 1997 1998 ------- ------- ------- (IN THOUSANDS) Expected income tax provision.................... $17,350 15,116 (99,469) Permanent differences............................ 1,573 2,302 1,969 Non-deductible expenses related to purchased in- process research and development and merger, restructuring, acquisition and other related charges......................................... -- -- 113,949 State franchise tax, net of Federal tax benefit.. 1,641 1,937 1,623 Change in balance of valuation allowance......... (3,351) (10,796) (1,941) Difference in U.S. tax rate and foreign tax rates........................................... 2,032 1,762 (548) Other............................................ 1,084 360 -- ------- ------- ------- $20,329 10,681 15,583 ======= ======= =======
As of March 31, 1998, the Company has net operating loss carryforwards in France of approximately $14.0 million with an indefinite carryforward period for which income tax benefit was recognized during fiscal 1997. Any benefit of the French loss carryforward was required to be shared equally between the Company and Alcoa until March 31, 1997. As of March 31, 1998, the Company also had net operating loss carryforwards in other non-U.S. countries of approximately $126.5 million which expire from 1999 to indefinite. Additionally, as of March 31, 1998, the Company has recognized the future benefit of net operating loss carryforwards generated from Liquipure of $14.4 million. These loss carryforwards expire from 2002 to 2007. These operating loss carryforwards can be used only against future taxable income of Liquipure. The Company also has available, at March 31, 1998, other net operating loss carryforwards for U.S. Federal income tax purposes of approximately $68.3 million which expire in 2007 to 2011. 54 UNITED STATES FILTER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The sources and tax effects of temporary differences between the financial statement carrying amounts and tax basis of assets and liabilities are as follows:
1997 1998 -------- ------- (IN THOUSANDS) Deferred tax assets: Operating loss carryforwards............................ $ 36,514 87,449 Inventory............................................... 8,044 6,940 Allowance for doubtful accounts......................... 6,250 9,018 Warranty................................................ 2,656 6,793 Vacation................................................ 1,465 4,492 Other accruals.......................................... 33,495 51,268 Tax credits............................................. 276 258 Other................................................... 1,049 13,009 -------- ------- 89,749 179,227 Valuation allowance..................................... (20,659) (44,440) -------- ------- Total deferred tax assets............................. 69,090 134,787 Deferred tax liabilities: Depreciation and amortization........................... 12,658 33,292 Prepaid expenses........................................ 353 360 Long-term contracts..................................... 11,123 4,625 Other................................................... 4,002 16,741 -------- ------- 28,136 55,018 -------- ------- Net deferred tax assets............................... $ 40,954 79,769 ======== =======
The Company believes that it is more likely than not that the net deferred tax assets, including Federal net operating loss carryforwards, will be realized prior to their expiration. This belief is based on recent and anticipated future earnings and, in part, on the fact that the Company has completed several acquisitions during and including the three years ended March 31, 1998 of companies with strong earnings potential. A valuation allowance of $44.4 million at March 31, 1998 has been provided primarily for state and foreign net operating losses which may not be realized prior to expiration. (15) SHAREHOLDERS' EQUITY CONVERTIBLE PREFERRED STOCK In January 1992 and September 1994, the Company issued 880,000 shares of a new Series A Cumulative Convertible Preferred Stock and 185,185 shares of a new Series B Convertible Preferred Stock, respectively, in connection with acquisitions. On September 18, 1995, the Company repurchased and canceled 139,518 shares of Series B Preferred stock for $4.7 million and converted 45,667 shares of Series B Preferred Stock into 102,750 shares of Company common stock. On March 4, 1996, the holder of the Company's Series A Preferred Stock tendered the 880,000 preferred shares for conversion into 1,980,000 shares of Company Common Stock pursuant to terms of the security. COMMON STOCK On July 15, 1996, the Company paid in the form of stock dividends a three- for-two split of the Company's common stock. All references herein to income (loss) per common share and other common stock information in the accompanying consolidated financial statements and notes thereto have been restated to reflect those splits. 55 UNITED STATES FILTER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) On December 11, 1996, the Company sold 11,804,206 shares of its common stock at $31.625 per share. The net proceeds to the Company, after underwriting discounts and commissions and other related expenses, were $356.1 million. On May 3, 1995, the Company sold 10,350,000 shares of its common stock at $10.00 per share. The net proceeds to the Company, after underwriting discounts and commissions and other related expenses, were $97.3 million. OPTIONS Under the Company's 1991 Employee Stock Option Plan (the "Plan"), the exercise price of options granted is equal to their fair market value at the date of grant and the maximum term of the option may not exceed 10 years. If the optionee is a holder of more than 10% of the outstanding common stock of the Company, the option price per share is increased to at least 110% of fair market value, and the option term is limited to 5 years. The total number of shares of common stock available under the Plan is 7,131,250 shares. Each option granted becomes exercisable on a cumulative basis, 25% six months following the date of grant and 25% on each subsequent anniversary of the grant date until fully vested. Under the Company's 1991 Director Stock Option Plan (the "Directors Plan"), the exercise price of options granted was equal to the higher of $2.00 below the market price or 60% of the market price on the date of grant. Effective April 1, 1996 the Directors Plan was amended to grant options equal to their fair market value at the date of grant. Under the Plan, each director of the Company who is not a full-time employee of the Company will receive each year an option to purchase 12,000 shares of common stock. The total number of shares available under the Directors Plan is 562,500 shares. Compensation expense of $.1 million was recorded in fiscal 1996 related to the Directors Plan. The per share weighted-average fair value of stock options granted during fiscal 1996, 1997 and 1998 was $5.93, $9.49 and $12.87 respectively, on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions for 1996, 1997 and 1998:
1996 1997 1998 ---- ---- ---- Risk-free interest rate.................................... 6.3% 6.3% 5.7% Expected dividend yield.................................... -- -- -- Expected stock price volatility............................ 41.9% 41.9% 44.9% Expected remaining life in years........................... 5 5 5
56 UNITED STATES FILTER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Company continues to apply APB Opinion No. 25 in accounting for its Plan and the Directors' Plan and, accordingly, no compensation cost has been recognized for its stock options in the consolidated financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's net income (loss) and net income (loss) per common share would have been reduced to the pro forma amounts indicated below:
YEAR ENDED MARCH 31, -------------------------------------- 1996 1997 1998 ------------ ------------------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net income (loss) As reported....................... $ 30,699 32,508 (299,779) ============ =========== ============= Pro forma......................... $ 28,057 23,650 (311,899) ============ =========== ============= Net income (loss) per common share: Basic: As reported..................... $ 0.62 0.51 (3.13) ============ =========== ============= Pro forma....................... $ 0.58 0.37 (3.25) ============ =========== ============= Diluted: As reported..................... $ 0.61 0.49 (3.13) ============ =========== ============= Pro forma....................... $ 0.56 0.36 (3.25) ============ =========== =============
Pro forma net income (loss) and net income (loss) per common share reflects only options granted after April 1, 1995. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro forma net income (loss) and net income (loss) per common share amounts presented above because compensation reflected over the options' vesting period of 10 years and compensation cost for options granted prior to April 1, 1995 is not considered. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that do not have vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the value of an estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. 57 UNITED STATES FILTER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Transactions involving the Plan and Directors Plan are summarized as follows:
NUMBER OF AGGREGATE SHARES EXERCISE PRICE VALUE --------- -------------- -------------- (IN THOUSANDS) Balance at March 31, 1995........... 2,636,058 $1.35 to 10.95 $ 27,038 Options granted..................... 1,425,759 1.35 to 18.67 14,838 Options exercised................... (487,886) 1.35 to 10.95 (3,678) Options canceled.................... (20,626) 8.53 to 10.58 (183) --------- -------------- -------- Balance at March 31, 1996........... 3,553,305 1.35 to 18.67 38,015 Options granted..................... 2,129,572 12.02 to 34.88 39,909 Options exercised................... (659,210) 1.35 to 26.25 (11,886) Options canceled.................... (27,415) 4.97 to 13.83 (309) --------- -------------- -------- Balance at March 31, 1997........... 4,996,252 1.35 to 34.88 65,729 Options granted..................... 1,656,850 26.00 to 37.75 49,220 Options exercised................... (505,846) 1.35 to 27.25 (5,539) Options canceled.................... (20,976) 13.83 to 30.25 (417) --------- -------------- -------- Balance at March 31, 1998........... 6,126,280 $1.35 to 37.75 $108,993 ========= ============== ========
At March 31, 1997 and 1998, the number of options exercisable was 2.2 million and 3.0 million, respectively. The following table summarizes certain information regarding options outstanding at March 31, 1998:
WEIGHTED WEIGHTED RANGE OF NUMBER AVERAGE AVERAGE EXERCISE PRICE OF OPTIONS REMAINING LIFE EXERCISE PRICE -------------- ---------- -------------- -------------- $ 1.35 to 11.63 1,860,274 6.1 years $ 7.62 12.02 to 22.75 2,092,856 8.4 15.88 26.00 to 37.75 2,173,150 9.0 28.33 -------------- --------- --------- ------ $ 1.35 to 37.75 6,126,280 7.9 years 17.79 ============== ========= ========= ======
In connection with the options and convertible subordinated debt, the Company has reserved approximately 19.1 million shares at March 31, 1998 for future issuance. (16) RETIREMENT PLANS Pursuant to the terms of a collective bargaining agreement, one of the Company's U.S. subsidiaries has a defined benefit pension plan covering substantially all of its hourly employees. Pension plan benefits are generally based upon years of service and compensation. The Company's funding policy is to contribute at least the minimum amounts required by the U.S. Employee Retirement Income Security Act of 1974 ("ERISA") or additional amounts to assure that plan assets will be adequate to provide retirement benefits. Plan assets are invested in broadly diversified portfolios of government obligations, mutual funds and fixed income and equity securities. The accumulated benefit obligation under this plan is not material to the consolidated financial statements. A subsidiary of the Company provides pension and health and welfare benefits to employees who are members of the United Association of Journeymen and Apprentices of the Plumbing and Pipefitting Industry of 58 UNITED STATES FILTER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) the United States and Canada (the "Pipefitters Union") under multiemployer defined benefit plans. Contributions to the Pipefitters Union pension and health and welfare plans were not material to the Company's financial position as of March 31, 1997 and 1998 nor to its results of operations for each of the years in the three year period ended March 31, 1998. The Company has a defined contribution plan (under IRC Section 401(k)) covering substantially all U.S. salaried and hourly participating employees which provide for contributions based primarily upon compensation levels and employee contributions. The Company funds its contributions to these plans as provided by ERISA. Defined contribution plan expense to the Company was $1.6 million, $3.8 million and $7.6 million for the years ended March 31, 1996, 1997 and 1998, respectively. (17) BUSINESS SEGMENT DATA AND EXPORT SALES The Company's sole business segment is the design, manufacture, operation, distribution and service of equipment and supplies for filtration, water treatment and wastewater treatment for industrial, municipal, commercial and retail customers. No individual customers accounted for 10% or more of revenue in fiscal 1996, 1997 and 1998. Export sales were $58.6 million, $85.4 million and $112.7 million in fiscal 1996, 1997 and 1998, respectively. Information about the Company's operations in different geographic locations for the years ended March 31, 1996, 1997 and 1998 is as follows:
1996 1997 1998 ---------- --------- --------- (IN THOUSANDS) Revenues from unaffiliated customers: United States.............................. $ 875,792 1,342,496 2,384,744 Non-U.S.................................... 214,953 421,910 849,836 ---------- --------- --------- $1,090,745 1,764,406 3,234,580 ========== ========= ========= Operating income (loss): United States.............................. $ 44,565 38,535 66,628 Non-U.S.................................... 16,820 27,485 (301,837) ---------- --------- --------- $ 61,385 66,020 (235,209) ========== ========= ========= Income (loss) before income taxes United States.............................. $ 37,635 21,578 22,449 Non-U.S.................................... 13,393 21,611 (306,645) ---------- --------- --------- $ 51,028 43,189 (284,196) ========== ========= ========= Identifiable assets: United States.............................. $ 701,649 1,695,336 2,374,206 Non-U.S.................................... 301,667 702,227 1,223,638 ---------- --------- --------- $1,003,316 2,397,563 3,597,844 ========== ========= =========
(18) COMMITMENTS AND CONTINGENT LIABILITIES COMMITMENTS The Company and its subsidiaries lease certain facilities and equipment under various noncancelable long term and month-to-month leases. These leases are accounted for as operating leases. Rent expense aggregated $10.5 million, $16.3 million and $41.9 million in 1996, 1997 and 1998, respectively. 59 UNITED STATES FILTER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) A summary of the future minimum annual rental commitments as of March 31, 1998, under operating leases follows:
OPERATING LEASES -------------- (IN THOUSANDS) Fiscal year ending: 1999...................................................... $ 32,119 2000...................................................... 25,649 2001...................................................... 19,227 2002...................................................... 14,452 2003...................................................... 10,279 Thereafter................................................ 33,102 -------- Total minimum lease payments................................ $134,828 ========
CONTINGENT LIABILITIES In December of 1995, allegations were made by federal and state environmental regulatory authorities of multiple violations in connection with wastewater discharges at a facility owned by the Company. The Company as part of its acquisition of Polymetrics, Inc. on October 2, 1995 acquired the facility. The Company has rights of indemnity from the seller which could be available if monetary damages and penalties are incurred in connection with any alleged violations occurring prior to the Company's acquisition of Polymetrics. In the opinion of management, the ultimate liability that may result from the above matter will not have a material adverse effect on the Company's consolidated financial position or results of operations. Legal proceedings pending against the Company consist of litigation incidental to the Company's business and in the opinion of management, based in part upon the opinion of counsel, the outcome of such litigation will not materially affect the Company's consolidated financial position or results of operations. (19) QUARTERLY FINANCIAL DATA (UNAUDITED)
NET INCOME (LOSS) PER SHARE NET INCOME ------------------- REVENUES GROSS PROFIT (LOSS) BASIC DILUTED -------- ------------ ---------- -------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) 1997 First quarter............. $295,153 71,707 9,379 0.17 0.16 Second quarter............ $336,060 69,488 71 -- -- Third quarter............. $463,423 93,687 6,328 0.10 0.09 Fourth quarter............ $669,770 152,909 16,730 0.21 0.20 1998 First quarter............. $693,533 150,314 12,703 0.15 0.15 Second quarter............ $823,593 190,110 24,091 0.27 0.26 Third quarter............. $829,427 207,534 (374,095) (3.71) (3.71) Fourth quarter............ $888,027 230,449 37,522 0.35 0.34
60 UNITED STATES FILTER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (20) SUBSEQUENT EVENTS Remarketable or Redeemable Securities Issuance. On May 15, 1998, the Company issued $500,000,000 6.375% Remarketable or Redeemable Securities due 2011 (Remarketing Date May 15, 2001) and $400,000,000 6.50% Remarketable or Redeemable Securities due 2013 (Remarketing Date May 15, 2003) (collectively, the "ROARS"). The net proceeds from the sale of the ROARS, including a premium payment to the Company by NationsBanc Montgomery Securities LLC, were $913.6 million. The net proceeds were used to repay indebtedness outstanding under the Senior Credit Facility, indebtedness assumed in the acquisition of Memtec, and a portion of the indebtedness assumed in the acquisition of Culligan. Culligan Acquisition. On June 15, 1998, a wholly owned subsidiary of the Company and Culligan Water Technologies, Inc. ("Culligan") consummated a merger and acquisition in a tax-free reorganization contemplated under and pursuant to a definitive Agreement and Plan of Merger (the "Merger Agreement") by and among the Company, Palm Water Acquisition Corp. ("Merger Sub"), a wholly owned subsidiary of the Company and Culligan. Pursuant to the Merger Agreement, Merger Sub has been merged with and into Culligan (the "Merger"). The Company issued approximately 48.5 million shares of the Company's common stock for all of the outstanding common stock of Culligan (1.875 shares of the Company's common stock for each outstanding share and each outstanding option or other right to acquire a share of Culligan common stock, par value $.01). In addition, the Company assumed approximately $491.7 million of third party institutional debt. The Merger will be accounted for as a pooling of interests. Culligan is a leading manufacturer and distributor of water purification and treatment products and services for household, consumer, and commercial applications. Products and services offered by Culligan range from those designed to solve residential water problems, such as filters for tap water and household softeners, to equipment and services, such as ultrafiltration and microfiltration products. Culligan also offers desalination systems and protable deionization services ("PDS"), designed for commercial and industrial applications. In addition, Culligan sells and licenses its dealers to sell under the Culligan trademark five-gallon bottled water. 61 ITEM 9--CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY The information required by this Item (other than the information regarding executive officers set forth at the end of Item 1 of Part I of this Form 10-K) will be contained in the Company's definitive Proxy Statement for its 1998 Annual Meeting of Stockholders under the captions "Election of Directors" and "Security Ownership--Section 16(a) Beneficial Ownership Reporting Compliance," and is incorporated herein by reference. ITEM 11--EXECUTIVE COMPENSATION The information required by this Item will be contained in the Company's definitive Proxy Statement for its 1998 Annual Meeting of Stockholders under the captions "Election of Directors" and "Executive Compensation," and is incorporated herein by reference. ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item will be contained in the Company's definitive Proxy Statement for its 1998 Annual Meeting of Stockholders under the caption "Security Ownership," and is incorporated herein by reference. ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable. 62 PART IV ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K (A)(1) FINANCIAL STATEMENTS: The following report and financial statements are filed as part of this Form 10-K:
PAGE ---- Independent Auditors' Report--KPMG Peat Marwick LLP.................. 36 Report of Independent Auditors--Ernst & Young LLP.................... 37 Consolidated Balance Sheets as of March 31, 1997 and 1998............ 38 Consolidated Statements of Operations--Years Ended March 31, 1996, 1997 and 1998....................................................... 39 Consolidated Statements of Shareholders' Equity--Years Ended March 31, 1996, 1997 and 1998....................................................... 40 Consolidated Statements of Cash Flows--Years Ended March 31, 1996, 1997 and 1998....................................................... 41 Notes to Consolidated Financial Statements........................... 42
(A)(2) FINANCIAL STATEMENT SCHEDULE: See (d) below. (A)(3) EXHIBITS: The following exhibits are filed herewith or incorporated by reference herein: 2.1 Stock Purchase Agreement dated August 30, 1995 among United States Filter Corporation, Anjou International Company and Polymetrics, Inc. (incorporated by reference to Exhibit 1.0 to Form 8-K dated October 2, 1995 (File No. 1-10728)).* 2.2 Offer by USFC Acquisition Inc., a wholly owned subsidiary of United States Filter Corporation to purchase all of the ordinary shares and American Depositary Shares in Memtec Limited dated as of October 25, 1997 (incorporated by reference to Exhibit 2.1 to Form 8-K dated September 19, 1997 (File No. 1-10728)).* 2.3 Agreement for Sale and Purchase of Partnership Interests by and among Western Farm & Cattle Company, California Land & Cattle Company, N.N. Investors, L.P., ST Ranch GenPar, Inc., FW Ranch Partners, L.P. and United States Filter Corporation dated as of August 3, 1997 (incorporated by reference to Exhibit 2.1 to Form 8-K dated August 4, 1997 (File No. 1-10728)).* 2.4 Merger Agreement dated as of December 31, 1997, among United States Filter Corporation, U.S. Filter/KG Acquisition Corp., The Kinetics Group, Inc., The Bianco Family 1991 Trust Dated February 1, 1991, David J. Shimmon and BT Capital Partners, Inc. (incorporated by reference to Exhibit 2.1 to Form 8-K dated January 16, 1998 (File No. 1-10728)).* 2.5 Agreement and Plan of Merger, dated as of February 9, 1998, by and among United States Filter Corporation, Palm Water Acquisition Corp. and Culligan Water Technologies, Inc. (incorporated by reference to Exhibit 2.1 to Form 8-K dated February 9, 1998 (File No. 1-10728)).* 3.0 Restated Certificate of Incorporation, as amended (incorporated by reference to Exhibit 3.01 to Quarterly Report on Form 10-Q for the quarter ended September 30, 1997 (File No. 1-10728)). 3.1 Restated Bylaws (incorporated by reference to Exhibit 3.3 to Registration Statement on Form S-1 (No. 33-41089)). 4.0 6% Convertible Subordinated Notes Indenture dated as of September 18, 1995 between United States Filter Corporation and The First National Bank of Boston, as Trustee (incorporated by reference to Exhibit 4.3 to Registration Statement on Form S-3 (No. 33-63281)).
63 4.1 4 1/2 % Convertible Subordinated Notes Indenture dated as of December 17, 1996 between United States Filter Corporation and State Street Bank and Trust Company of California, N.A., as Trustee (incorporated by reference to Exhibit 4.1 to Registration Statement on Form S-3 (No. 333-14281)). 4.2 Debt Securities Indenture dated as of May 19, 1998 between United States Filter Corporation and The Bank of New York, as Trustee. 4.3 First Supplemental Indenture dated as of May 19, 1998, between United States Filter Corporation and The Bank of New York, supplementing the Indenture dated as of May 19, 1998. 4.4 Amended and Restated Multicurrency Credit Agreement, dated as of October 20, 1997, among United States Filter Corporation, BankBoston, N.A. ("BKB"), DLJ Capital Funding, Inc. ("DLJ"), ABN AMRO Bank N.V., Los Angeles International Branch, Banque Paribas ("Paribas"), The Bank of New York ("BNY"), Bank of America National Trust and Savings Association ("BOA"), The Sumitomo Bank, Limited (Los Angeles Branch), Fleet Bank, N.A. ("Fleet"), The Industrial Bank of Japan, Limited (Los Angeles Agency), Banque Nationale De Paris ("BNP"), Deutsche Bank AG, New York and/or Cayman Islands Branches ("Deutsche Bank"), The Long- Term Credit Bank of Japan Ltd. (Los Angeles Agency), Union Bank of California, N.A. ("Union"), The Sanwa Bank Limited, Los Angeles Branch ("Sanwa"), NationsBank, N.A. ("NationsBank"), BHF-BANK Aktiengesellschaft, The Sakura Bank, Limited and Credito Italiano, with DLJ as Documentation Agent, NationsBank as Syndication Agent, BOA, Deutsche Bank and Union as Co-Agents, BNY, Fleet, Paribas, BNP and Sanwa as Lead Managers and BKB as Managing Agent (incorporated by reference to Exhibit 4.01 to Registration Statement on Form S-4 dated November 6, 1997 (File No. 333-39711)). 4.5 Transfer, Registration and Other Rights Agreement dated as of August 31, 1994 by and among United States Filter Corporation, Laidlaw International Investments (Luxembourg) S.A., Laidlaw Investments (Barbados) Ltd., Marfit, S.p.A., Laidlaw, Inc. and Ing. Gilberto Cominetta (incorporated by reference to Exhibit 2.5 to Form 8-K dated October 4, 1994 (File No. 1-10728)). 4.6 Letter Dated May 29, 1996 from Laidlaw Inc. to United States Filter Corporation, amending the Transfer, Registration and Other Rights Agreement dated as of August 31, 1994 (incorporated by reference to Exhibit 4.4 to Form 10-K for the year ended March 31, 1996 (File No. 1-10728)). 4.7 Transfer, Registration Rights and Governance Agreement among United States Filter Corporation, Western Farm & Cattle Company, N.N. Investors, L.P., California Land & Cattle Company, ST Ranch GenPar, Inc. and FW Ranch Partners, L.P. dated as of September 17, 1997 (incorporated by reference to Exhibit 2.2 to Form 8-K dated as of September 17, 1997 (File No. 1-10728)). 4.8 Warrant Agreement dated as of September 17, 1997 by and among United States Filter Corporation, Western Farm & Cattle Company, California Land & Cattle Company, N.N. Investors, L.P., ST Ranch GenPar, Inc. and FW Ranch Partners, L.P. (incorporated by reference to Exhibit 4.1 to Form 8-K dated September 17, 1997 (File No. 1-10728)). 4.9 Registration Rights Agreement dated as of February 9, 1998 by and among United States Filter Corporation, Apollo Investment Fund, L.P. and Lion Advisors, L.P. (incorporated by reference to Exhibit 99.4 to Form 8-K dated February 9, 1998 (File No. 1-10728)). 4.10 First Amendment to Amended and Restated Multicurrency Credit Agreement dated as of February 3, 1998. 4.11 Second Amendment to Amended and Restated Multicurrency Credit Agreement dated as of March 20, 1998. 10.1 License Agreements dated November 22, 1989 between Millipore Corporation, Millipore Investment Holdings Limited and IP Holding Company (incorporated by reference to Exhibit 10.4 to Form 10-K for the year ended March 31, 1994 (File No. 1-10728)). 10.2 United States Filter Corporation 1991 Employees Stock Option Plan, as amended through June 12, 1997 (incorporated by reference to Exhibit 4.02 to Form 10-Q for the quarter ended September 30, 1997 (File No. 1-10728)).**
64 10.3 United States Filter Corporation 1991 Directors Stock Option Plan, as amended through September 13, 1996 (incorporated by reference to Exhibit 10.0 to Form 10-Q for the quarter ended September 30, 1996 (File No. 1-10728)).** 10.4 Form of Executive Retention Agreement (incorporated by reference to Exhibit 10.6 to Form 10-K for the year ended March 31, 1995 (File No. 1-10728)).** 10.5 Form of Executive Retirement Plan (incorporated by reference to Exhibit 10.7 to Form 10-K for the year ended March 31, 1995 (File No. 1-10728)).** 10.6 Annual Incentive Compensation Plan Summary (incorporated by reference to Exhibit 10.6 to Form 10-K for the year ended March 31, 1996 (File No. 1-10728)).** 10.7 Employment Agreement dated October 25, 1996 between Harry K. Hornish, Jr. and United States Filter Corporation (incorporated by reference to Exhibit 10.7 to Form 10-K for the year ended March 31, 1997 (File No. 1-10728)).** 10.8 Employment Agreement dated as of January 1, 1998 between Richard J. Heckmann and United States Filter Corporation.** 10.9 United States Filter Corporation Management Deferred Compensation Plan, as amended through January 1, 1998.** 10.10 United States Filter Corporation Executive Severance Pay Plan.** 10.11 Employment Agreement dated September 19, 1997 between Thierry Reyners and USF Euroholding, S.A. (incorporated by reference to Exhibit 10.1 to Form 10-Q for the quarter ended December 31, 1997 (File No. 1- 10728)).** 12.1 Statement re computation of ratio of earnings to fixed charges. 21.0 Schedule of Subsidiaries. 23.0 Independent Auditors' Consent--KPMG Peat Marwick LLP. 23.1 Report of Independent Auditors'--Ernst & Young LLP. 27.0 Financial Data Schedule.
- -------- * Certain exhibits and schedules to the Exhibits incorporated by reference herein have been omitted in accordance with Item 601(b)(2) of Regulation S- K. A copy of any omitted exhibit or schedule will be furnished to the Commission upon request. ** Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10-K. (B) REPORTS ON FORM 8-K: The Company filed two reports on Form 8-K (and four amendments to reports on Form 8-K) during the quarter ended March 31, 1998 as follows: Form 8-K dated January 16, 1998 (as amended on Forms 8-K/A dated February 6, 1998 and March 4, 1998); Amendments to Form 8-K dated December 9, 1997 on Forms 8-K/A dated February 6, 1998 and March 4, 1998. 65 The first report, dated January 16, 1998, reported the consummation of the acquisition by the Company of all of the outstanding capital stock of The Kinetics Group, Inc. ("Kinetics") pursuant to Item 2. Two amendments to this report (and two amendments to a report on Form 8-K dated December 9, 1997 relating to the acquisition of the outstanding capital stock of Memtec Limited ("Memtec")) were filed on February 6 and March 4, 1998. The two amendments filed on February 6, 1998 included the following financial statements (and notes thereto) of Memtec and Kinetics: Memtec Consolidated Statements of Income for the years ended June 30, 1995, 1996 and 1997 Consolidated Balance Sheets as of June 30, 1996 and 1997 Consolidated Statements of Shareholders' Equity for the years ended June 30, 1995, 1996 and 1997 Consolidated Statements of Cash Flows for the years ended June 30, 1995, 1996 and 1997 Condensed Consolidated Statements of Operations for the three months ended September 30, 1996 and 1997 (unaudited) Condensed Consolidated Balance Sheets as of June 30, 1997 (audited) and September 30, 1997 (unaudited) Condensed Consolidated Statements of Cash Flows for the three months ended September 30, 1996 and 1997 (unaudited) Kinetics Consolidated Balance Sheets as of September 30, 1997 and 1996 Consolidated Statements of Operations for the years ended September 30, 1997 and 1996 Consolidated Statements of Stockholders' Equity for the years ended September 30, 1997 and 1996 Consolidated Statements of Cash Flows for the years ended September 30, 1997 and 1996 The two amendments filed on February 6, 1998 also included pro forma financial information (and notes thereto) for the Company, including an Unaudited Pro Forma Combined Balance Sheet as of September 30, 1997; Unaudited Pro Forma Combined Statement of Operations for the fiscal years ended March 31, 1997, June 30, 1997 and September 30, 1997 and the six months ended September 30, 1997. The two amendments filed on March 4, 1998 amended such pro forma financial information. Form 8-K dated February 9, 1998. The second report, dated February 9, 1998, reported that the Company, a wholly-owned subsidiary of the Company and Culligan Water Technologies, Inc., had entered into an Agreement and Plan of Merger dated as of February 9, 1998. This report was filed pursuant to Item 5. (C) EXHIBITS: See (a) (3) above. (D) FINANCIAL STATEMENT SCHEDULE:
PAGE ---- Independent Auditors' Report on Schedule............................ 67 SCHEDULE II Valuation and Qualifying Accounts............................... 68
All other schedules for which provision is made in the applicable accounting regulations of the United States Securities and Exchange Commission have been omitted because such schedules are not required under the related instructions or are inapplicable or because the information required is included in the consolidated financial statements or notes thereto. 66 INDEPENDENT AUDITORS' REPORT ON SCHEDULE To the Board of Directors and Shareholders United States Filter Corporation: The audits referred to in our report dated June 1, 1998 included the related financial statement schedule as of March 31, 1997 and 1998, and for each of the years in the three-year period ended March 31, 1998, included in the annual report on Form 10-K of United States Filter Corporation. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits and the report of other auditors. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. KPMG Peat Marwick LLP Orange County, California June 26, 1998 67 SCHEDULE II--UNITED STATES FILTER CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS THREE-YEARS ENDED MARCH 31, 1998 (IN THOUSANDS)
BALANCE AT ACQUIRED AMOUNTS BALANCE BEGINNING THROUGH CHARGED TO AMOUNTS AT END DESCRIPTION OF PERIOD ACQUISITION EXPENSE WRITTEN OFF OF PERIOD ----------- ---------- ----------- ---------- ----------- --------- Year Ended March 31, 1998: Allowance for Doubtful Accounts............... $27,095 $ 7,159 $7,620 $(8,504) $33,370 ======= ======= ====== ======= ======= Year Ended March 31, 1997: Allowance for Doubtful Accounts............... $11,365 $14,437 $5,536 $(4,243) $27,095 ======= ======= ====== ======= ======= Year Ended March 31, 1996: Allowance for Doubtful Accounts............... $ 5,528 $ 2,063 $5,929 $(2,155) $11,365 ======= ======= ====== ======= =======
68 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the United States Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized. UNITED STATES FILTER CORPORATION By: /s/ Richard J. Heckmann ----------------------------------- Richard J. Heckmann Chairman of the Board, Chief Executive Officer and President Date: June 29, 1998 Pursuant to the requirements of the United States Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Richard J. Heckmann Chairman of the Board, Chief June 29, 1998 ____________________________________ Executive Officer and Richard J. Heckmann President and a Director /s/ Kevin L. Spence Executive Vice President and June 29, 1998 ____________________________________ Chief Financial Officer Kevin L. Spence (Principal Accounting Officer) /s/ Michael J. ReaRdon Executive Vice President and June 29, 1998 ____________________________________ Chief Administrative Officer Michael J. Reardon and a Director /s/ Nicholas C. Memmo President and Chief June 29, 1998 ____________________________________ Operating Officer-North Nicholas C. Memmo American Process Water Group and a Director /s/ James E. Clark Director June 29, 1998 ____________________________________ James E. Clark /s/ John L. Diederich Director June 29, 1998 ____________________________________ John L. Diederich /s/ Robert S. Hillas Director June 29, 1998 ____________________________________ Robert S. Hillas /s/ Arthur B. Laffer Director June 29, 1998 ____________________________________ Arthur B. Laffer
69
SIGNATURE TITLE DATE --------- ----- ---- /s/ Ardon E. Moore Director June 29, 1998 ____________________________________ Ardon E. Moore /s/ Alfred E. Osborne, Jr. Director June 29, 1998 ____________________________________ Alfred E. Osborne, Jr. /s/ J. Danforth Quayle Director June 29, 1998 ____________________________________ J. Danforth Quayle /s/ C. Howard Wilkins, Jr. Director June 29, 1998 ____________________________________ C. Howard Wilkins, Jr.
70 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT ----------- ---------------------- 4.2 Debt Securities Indenture dated as of May 19, 1998 between United States Filter Corporation and The Bank of New York, as Trustee. 4.3 First Supplemental Indenture dated as of May 19, 1998, between United States Filter Corporation and The Bank of New York, supplementing the Indenture dated as of May 19, 1998. 4.10 First Amendment to Amended and Restated Multicurrency Credit Agreement dated as of February 3, 1998. 4.11 Second Amendment to Amended and Restated Multicurrency Credit Agreement dated as of March 20, 1998. 10.8 Employment Agreement dated as of January 1, 1998 between Richard J. Heckmann and United States Filter Corporation.** 10.9 United States Filter Corporation Management Deferred Compensation Plan, as amended through January 1, 1998.** 10.10 United States Filter Corporation Executive Severance Pay Plan.** 12.1 Statement re computation of ratio of earnings to fixed charges. 21.0 Schedule of Subsidiaries. 23.0 Independent Auditors' Consent--KPMG Peat Marwick LLP. 23.1 Consent of Independent Auditors--Ernst & Young LLP. 27.0 Financial Data Schedule.
- -------- ** Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10-K. 71 EX-4.2 2 INDENTURE EXHIBIT 4.2 UNITED STATES FILTER CORPORATION AND THE BANK OF NEW YORK, AS TRUSTEE --------------- INDENTURE --------------- Dated as of May 19, 1998 DEBT SECURITIES ================================================================================ UNITED STATES FILTER CORPORATION RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT OF 1939 AND INDENTURE, DATED AS OF MAY 19, 1998
TRUST INDENTURE ACT SECTION INDENTURE SECTION - --------------------------- ----------------- (S)310(a)(1)..................................... 608 (a)(2)..................................... 608 (a)(3).......................... Not Applicable (a)(4).......................... Not Applicable (a)(5)..................................... 608 (S)311(a)........................................ 609 (b)........................................ 605 (S)312(a)................................... 605, 703 (b)................................... 701, 702 (c)........................................ 702 (S)313(a)..................................... 703(a) (b)(1).......................... Not Applicable (b)(2).................................. 703(b) (c)..................................... 703(c) (d)..................................... 703(c) (S)314(a)(1)..................................... 704 (a)(2)..................................... 704 (a)(3)..................................... 704 (a)(4).................................... 1005 (b)............................. Not Applicable (c)(1)..................................... 102 (c)(2)..................................... 102 (c)(3).......................... Not Applicable (d)............................. Not Applicable (e)........................................ 102 (S)315(a)..................................... 601(a) (b)........................................ 602 (c)..................................... 601(b) (d)..................................... 601(c) (d)(1)....................... 601(a)(1), (c)(1) (d)(2)............................... 601(c)(2) (d)(3)............................... 601(c)(3) (e)........................................ 514 (S)316(a)(1)(A)............................. 502, 512 (a)(1)(B).................................. 513 (a)(2).......................... Not Applicable (b)........................................ 508 (c)............................. Not Applicable (S)317(a)(1)..................................... 503 (a)(2)..................................... 504 (b)....................................... 1003 (S)318(a)........................................ 108 - ------------------
Note: This reconciliation and tie shall not, for any purpose, be deemed to be a part of the Indenture. TABLE OF CONTENTS -----------------
PAGE ---- PARTIES................................................... 1 RECITALS.................................................. 1 ARTICLE ONE............................................... 1 DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION... 1 SECTION 101. Definitions................................. 1 Act.................................................. 2 Additional Amounts................................... 2 Affiliate............................................ 2 Agent Member......................................... 2 Authenticating Agent................................. 2 Authorized Newspaper................................. 2 Bankruptcy Law....................................... 2 Bearer Security...................................... 2 Board of Directors................................... 2 Board Resolution..................................... 3 Business Day......................................... 3 Capital Stock........................................ 3 Commission........................................... 3 Company.............................................. 3 Company Request and Company Order.................... 3 Consolidated Net Worth............................... 3 Corporate Trust Office............................... 3 Corporation.......................................... 3 Coupon............................................... 3 Default.............................................. 3 Defaulted Interest................................... 4 Disqualified Capital Stock........................... 4 Dollars" or "$....................................... 4 Event of Default..................................... 4 Exchange Act......................................... 4 Global Securities.................................... 4 GAAP................................................. 4 Holder............................................... 4 Indenture............................................ 4 Interest............................................. 4 Interest Payment Date................................ 4 Institutional Accredited Investor.................... 5 Issue Date........................................... 5 Maturity............................................. 5 Non-U.S. Person...................................... 5 Officers' Certificate................................ 5 Offshore Physical Securities......................... 5 Opinion of Counsel................................... 5 Original Issue Discount Security..................... 5 Outstanding.......................................... 5 Paying Agent......................................... 6 Person............................................... 6 Physical Securities................................. 6
i Place of Payment.................................... 6 Predecessor Security................................ 7 Preferred Stock..................................... 7 Private Placement Legend............................ 7 Qualified Institutional Buyer or QIB................ 7 Redemption Date..................................... 7 Redemption Price.................................... 7 Registered Security................................. 7 Regular Record Date................................. 7 Regulation S........................................ 7 Responsible Officer................................. 7 Restricted Security................................. 7 Resale Restriction Termination Date................. 8 Security or Securities.............................. 8 Securities Act...................................... 8 Security Register and Security Registrar............ 8 Special Record Date................................. 8 Stated Maturity..................................... 8 Subsidiary.......................................... 8 Trustee............................................. 8 Trust Indenture Act................................. 8 United States....................................... 9 United States Alien................................. 9 U.S. Depository or Depository....................... 9 U.S. Government Obligation.......................... 9 U.S. Physical Securities............................ 9 Vice President...................................... 9 Voting Stock........................................ 9 SECTION 102. Compliance Certificates and Opinions....... 10 SECTION 103. Form of Documents Delivered to Trustee..... 10 SECTION 104. Acts of Holders............................ 11 SECTION 105. Notices etc. to Trustee and Company........ 13 SECTION 106. Notice to Holders of Securities; Waiver.... 14 SECTION 107. Language of Notices, etc................... 15 SECTION 108. Conflict with Trust Indenture Act.......... 15 SECTION 109. Effect of Headings and Table of Contents... 15 SECTION 110. Successors and Assigns..................... 15 SECTION 111. Separability Clause........................ 15 SECTION 112. Benefits of Indenture...................... 15 SECTION 113. Governing Law.............................. 16 SECTION 114. Legal Holidays............................. 16 ARTICLE TWO.............................................. 16 SECURITY FORMS........................................... 16
ii SECTION 201. Forms Generally..............................................................16 SECTION 202. Form of Trustee's Certificate of Authentication..............................17 ARTICLE THREE..............................................................................20 THE SECURITIES.............................................................................20 SECTION 301. Amount Unlimited; Issuable in Series.........................................20 SECTION 302. Denominations................................................................23 SECTION 303. Execution, Authentication, Delivery and Dating...............................23 SECTION 304. Temporary Securities.........................................................25 SECTION 305. Registration, Transfer and Exchange..........................................25 SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.............................29 SECTION 307. Payment of Interest; Interest Rights Preserved...............................30 SECTION 308. Persons Deemed Owners........................................................32 SECTION 309. Cancellation.................................................................32 SECTION 310. Computation of Interest......................................................32 SECTION 311. Cusip Numbers................................................................33 ARTICLE FOUR...............................................................................33 DEFEASANCE, SATISFACTION AND DISCHARGE.....................................................33 SECTION 401. Legal Defeasance and Covenant Defeasance......................................33 SECTION 403. Satisfaction and Discharge of Indenture......................................35 SECTION 404. Application of Trust Money...................................................37 ARTICLE FIVE...............................................................................37 REMEDIES...................................................................................37 SECTION 501. Events of Default............................................................37 SECTION 502. Acceleration of Maturity; Rescission and Annulment...........................39 SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee..............40 SECTION 504. Trustee May File Proofs of Claim.............................................41 SECTION 505. Trustee May Enforce Claims Without Possession of Securities or Coupons.......42 SECTION 506. Application of Money Collected...............................................42 SECTION 507. Limitation on Suits..........................................................42 SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and Interest....43
iii SECTION 509. Restoration of Rights and Remedies........................................... 43 SECTION 510. Rights and Remedies Cumulative............................................... 44 SECTION 511. Delay or Omission Not Waiver................................................. 44 SECTION 512. Control by Holders of Securities............................................. 44 SECTION 513. Waiver of Past Defaults...................................................... 44 SECTION 514. Undertaking for Costs........................................................ 45 SECTION 515. Waiver of Stay, Extension or Usury Laws...................................... 45 ARTICLE SIX................................................................................ 46 THE TRUSTEE................................................................................ 46 SECTION 601. Certain Duties and Responsibilities.......................................... 46 SECTION 602. Notice of Defaults........................................................... 47 SECTION 603. Certain Rights of Trustee.................................................... 47 SECTION 604. Not Responsible for Recitals or Issuance of Securities....................... 49 SECTION 605. May Hold Securities.......................................................... 49 SECTION 606. Money Held in Trust.......................................................... 49 SECTION 607. Compensation and Reimbursement............................................... 49 SECTION 608. Corporate Trustee Required; Eligibility...................................... 50 SECTION 609. Resignation and Removal; Appointment of Successor............................ 50 SECTION 610. Acceptance of Appointment by Successor....................................... 52 SECTION 611. Merger, Conversion, Consolidation or Succession to Business.................. 53 SECTION 612. Appointment of Authenticating Agent.......................................... 54 SECTION 613. Trustee's Application for Instructions from the Company...................... 56 ARTICLE SEVEN.............................................................................. 56 HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY.......................................... 56 SECTION 701. Company to Furnish Trustee Names and Addresses of Holders.................... 56 SECTION 702. Preservation of Information; Communications to Holders....................... 56 SECTION 703. Reports by Trustee........................................................... 57 SECTION 704. Reports by Company........................................................... 57 ARTICLE EIGHT.............................................................................. 58
iv MERGER, CONSOLIDATION AND SALE OF ASSETS............................. 58 SECTION 801. Merger, Consolidation and Sale of Assets................ 58 SECTION 802. Rights and Duties of Successor Corporation............. 59 SECTION 803. Officers' Certificate and Opinion of Counsel........... 60 ARTICLE NINE......................................................... 60 SUPPLEMENTAL INDENTURES.............................................. 60 SECTION 901. Supplemental Indentures without Consent of Holders..... 60 SECTION 902. Supplemental Indentures with Consent of Holders........ 61 SECTION 903. Execution of Supplemental Indentures................... 62 SECTION 904. Effect of Supplemental Indentures...................... 62 SECTION 905. Conformity with Trust Indenture Act.................... 63 SECTION 906. Reference in Securities to Supplemental Indentures..... 63 ARTICLE TEN.......................................................... 63 COVENANTS............................................................ 63 SECTION 1001. Payment of Principal, Premium, if any, and Interest... 63 SECTION 1002. Maintenance of Office or Agency....................... 63 SECTION 1003. Money for Securities Payments to be Held in Trust..... 65 SECTION 1004. Additional Amounts.................................... 66 SECTION 1005. Statement as to Compliance............................. 67 SECTION 1006. Waiver of Certain Covenants........................... 67 SECTION 1007......................................................... 68 ARTICLE ELEVEN....................................................... 68 REDEMPTION OF SECURITIES............................................. 68 SECTION 1101. Applicability of Article.............................. 68 SECTION 1102. Election to Redeem; Notice to Trustee................. 68 SECTION 1103. Selection by Trustee of Securities to be Redeemed..... 68 SECTION 1104. Notice of Redemption.................................. 69 SECTION 1105. Deposit of Redemption Price........................... 70 SECTION 1106. Securities Payable on Redemption Date................. 70 SECTION 1107. Securities Redeemed in Part........................... 71
v ARTICLE TWELVE....................................................................... 71 SINKING FUNDS........................................................................ 71 SECTION 1201. Applicability of Article.............................................. 71 SECTION 1202. Satisfaction of Sinking Fund Payments with Securities................. 72 SECTION 1203. Redemption of Securities for Sinking Fund............................. 72 ARTICLE THIRTEEN..................................................................... 73 REPAYMENT AT THE OPTION OF HOLDERS................................................... 73 SECTION 1301. Applicability of Article.............................................. 73 ARTICLE FOURTEEN..................................................................... 73 MEETINGS OF HOLDERS OF SECURITIES.................................................... 73 SECTION 1401. Purposes for Which Meetings May Be Called............................. 73 SECTION 1402. Call, Notice and Place of Meetings.................................... 73 SECTION 1403. Persons Entitled to Vote at Meetings.................................. 74 SECTION 1404. Quorum; Action........................................................ 74 SECTION 1405. Determination of Voting Rights; Conduct and Adjournment of Meetings... 75 SECTION 1406. Counting Votes and Recording Action of Meetings....................... 75 ARTICLE FIFTEEN...................................................................... 76 MISCELLANEOUS PROVISIONS............................................................. 76 SECTION 1501 Securities in Foreign Currencies....................................... 77
vi INDENTURE, dated as of May 19, 1998 between UNITED STATES FILTER CORPORATION, a Delaware corporation (hereinafter called the "Company"), having its principal office at 40-004 Cook Street, Palm Desert, California 92211, and THE BANK OF NEW YORK, a New York banking corporation, as Trustee (hereinafter called the "Trustee"), having its Corporate Trust Office at 101 Barclay Street, Floor 21 West, New York, New York 10286. RECITALS OF THE COMPANY The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of its debentures, notes or other evidences of indebtedness (hereinafter called the "Securities"), unlimited as to principal amount, to bear such rates of interest, to mature at such time or times, to be issued in one or more series, and to have such other provisions as shall be fixed as hereinafter provided. The Company has duly authorized the execution and delivery of this Indenture and all things necessary to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done. NOW, THEREFORE, in consideration of the premises and the sum of one dollar duly paid by the Company to the Trustee, the receipt of which is hereby acknowledged, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders, as follows: ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 101. Definitions. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (1) the terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular; (2) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; (3) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles and, except as otherwise herein expressly provided, the term "generally accepted accounting principles" with respect to any computation required or permitted hereunder shall mean such accounting principles as are generally accepted at the date of such computation; and (4) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. Certain terms used principally in Article Four or Six are defined in those Articles. "Act", when used with respect to any Holder, has the meaning specified in Section 104. "Additional Amounts" means any additional amounts which are required by a Security or pursuant to a Board Resolution, under circumstances specified therein, to be paid by the Company in respect of certain matters, including, without limitation, taxes imposed on certain Holders, and liquidated damages in connection with any registration rights. "Affiliate" has the same meaning as given to that term in Rule 405 under the Securities Act or any successor rule thereunder. "Agent Member" means a member of, or participant in, the Depository. "Authenticating Agent" means any Person authorized by the Trustee pursuant to Section 612 to act on behalf of the Trustee to authenticate Securities of one or more series. "Authorized Newspaper" means a newspaper, in an official language of the country of publication or in the English language, customarily published on each Business Day, whether or not published on Saturdays, Sundays or holidays, and of general circulation in the place in connection with which the term is used or in the financial community of such place. Where successive publications are required to be made in Authorized Newspapers, the successive publications may be made in the same or in different newspapers in the same city meeting the foregoing requirements and in each case on any Business Day. "Bankruptcy Law" means Title 11, U.S. Code or any similar Federal, state or foreign law for relief of debtors. "Bearer Security" means any Security in the form established pursuant to Section 201 which is payable to its bearer. "Board of Directors" means either the Board of Directors of the Company or a committee thereof authorized to take action with respect to matters arising under this Indenture. 2 "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification and delivered to the Trustee. "Business Day" means any day other than a day on which banking institutions in The City of New York, New York or in the City of Palm Desert, California are authorized or required by law to close, except as may otherwise be provided in the form of Securities of any particular series pursuant to the provisions of this Indenture. "Capital Stock" of any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of such Person, including any Preferred Stock, but excluding any debt securities convertible or exchangeable into such equity. "Commission" means the U.S. Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties on such date. "Company" means the Person named as the "Company" in the first paragraph of this instrument until a successor corporation shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor corporation. "Company Request" and "Company Order" mean, respectively, a written request or order signed in the name of the Company by the Chairman of the Board, the President, a Vice President or the Treasurer, and by an Assistant Treasurer, the Secretary or an Assistant Secretary of the Company, and delivered to the Trustee. "Consolidated Net Worth" of any Person means the stockholders' equity of such Person, determined on a consolidated basis in accordance with GAAP, less (without duplication) amounts attributable to Disqualified Capital Stock of such Person. "Corporate Trust Office" means the office of the Trustee at which at any particular time its corporate trust business shall be administered, which office on the date of this Indenture is located at 101 Barclay Street, Floor 21 West, New York, New York 10286. "Corporation" includes corporations, associations, limited liability companies and business trusts. "Coupon" means any interest coupon appertaining to a Bearer Security. "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. 3 "Defaulted Interest" has the meaning specified in Section 307. "Disqualified Capital Stock" means, with respect to any Person, Capital Stock of such Person that, by its terms or by the terms of any security into which it is convertible or exchangeable or for which it is exercisable, is, or upon the happening of an event or the passage of time or both would be, required to be redeemed or repurchased (including at the option of the holder thereof) by such Person or any of its Subsidiaries, in whole or in part, on or prior to the Stated Maturity of the applicable series of Securities. "Dollars" or "$" or any similar reference means the currency of the United States, except as may otherwise be provided in the form of Securities of any particular series pursuant to the provisions of this Indenture. "Event of Default" has the meaning specified in Section 501. "Exchange Act" means the U.S. Securities Exchange Act of 1934, as amended. "Global Securities" means Securities issued in global form. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, as are in effect from time to time. "Holder", when used with respect to any Security, means in the case of a Registered Security, a Person in whose name the Security is registered in the Security Register and in the case of a Bearer Security, the bearer thereof and, when used with respect to any coupon, means the bearer thereof. "Indenture" means this instrument as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof, and includes each Officers' Certificate delivered to the Trustee pursuant to Section 303. "Interest", when used with respect to an Original Issue Discount Security which by its terms bears interest only after Maturity, means interest payable after Maturity, and, when used with respect to a Security which provides for the payment of Additional Amounts pursuant to Section 1004, includes such Additional Amounts. "Interest Payment Date" means the Stated Maturity of an installment of interest on the applicable Securities. 4 "Institutional Accredited Investor" means an institution that is an "accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act. "Issue Date" means the date of original issuance of a Security. "Maturity", when used with respect to any Security, means the date on which the principal of such Security or an installment of such principal becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, notice of redemption, request for redemption or otherwise. "Non-U.S. Person" means a person who is not a U.S. Person, as defined in Regulation S. "Officers' Certificate" means a certificate signed by the Chairman of the Board, the President, a Vice President or the Treasurer, and by an Assistant Treasurer, the Secretary or an Assistant Secretary of the Company, and delivered to the Trustee. "Offshore Physical Securities" means Securities offered and sold in offshore transactions in reliance on Regulation S, issued in registered form. "Opinion of Counsel" means a written opinion of counsel, who may (except as otherwise expressly provided in this Indenture) be an employee of or counsel for the Company or other counsel reasonably acceptable to the Trustee. "Original Issue Discount Security" means a Security issued pursuant to this Indenture which provides for declaration of an amount less than the principal thereof to be due and payable upon acceleration pursuant to Section 502. "Outstanding", when used with respect to Securities means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except: (i) Securities theretofore cancelled by the Trustee or delivered to the Trustee for cancellation; (ii) Securities for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities and any coupons thereto appertaining; provided, that if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; and 5 (iii) Securities which have been paid pursuant to Section 306 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall be presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company; provided, however, that in determining whether the Holders of the requisite principal amount of Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder or are present at a meeting of Holders of Securities for quorum purposes, the principal amount of an Original Issue Discount Security that may be counted in making such determination and that shall be deemed to be Outstanding for such purposes shall be equal to the amount of the principal thereof that could be declared to be due and payable pursuant to the terms of such Original Issue Discount Security at the time of the taking of such action by the Holders (assuming that an event giving rise to such declaration had occurred) of such requisite principal amount is evidenced to the Trustee as provided in Section 104(a); and, provided further, that Securities owned beneficially by the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor, other than Securities purchased in connection with the distribution or trading thereof, shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which a Responsible Officer of the Trustee actually knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor. "Paying Agent" means any Person authorized by the Company to pay the principal of (and premium, if any) or interest on any Securities on behalf of the Company. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Physical Securities" means the Offshore Physical Securities and the U.S. Physical Securities. "Place of Payment" when used with respect to the Securities of any series, means the place or places where the principal of (and premium, if any) and interest on the Securities of that series are payable as specified pursuant to Section 301. 6 "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 306 in exchange for or in lieu of a lost, destroyed, mutilated or stolen Security or a Security to which a mutilated, destroyed, lost or stolen coupon pertains shall be deemed to evidence the same debt as the lost, destroyed, mutilated or stolen Security or the Security to which a mutilated, destroyed, lost or stolen coupon pertains. "Preferred Stock", as applied to the Capital Stock of any corporation or the equity securities of any trust, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends or distributions or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such corporation or trust over shares of Capital Stock of any other class of such corporation or trust. "Private Placement Legend" has the meaning specified in Section 203. "Qualified Institutional Buyer" or "QIB" has the meaning specified in Rule 144A under the Securities Act. "Redemption Date", when used with respect to any Security to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price",when used with respect to any Security to be redeemed, means the price at which it is to be redeemed as determined pursuant to the provisions of this Indenture. "Registered Security" means any Security established pursuant to Section 201 which is registered in a Security Register. "Regular Record Date" for the interest payable on a Registered Security on any Interest Payment Date means the date, if any, specified in such Security as the "Regular Record Date". "Regulation S" means Regulation S under the Securities Act. "Responsible Officer", when used with respect to the Trustee, means any vice president (whether or not designated by a number or a word or words added before or after the title "vice president"), the secretary, any assistant secretary, the treasurer, any assistant treasurer, any trust officer or assistant trust officer, or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. 7 "Restricted Security" has the meaning assigned to such term in Rule 144(a)(3) under the Securities Act; provided that the Trustee shall be entitled to request and conclusively rely on an Opinion of Counsel with respect to whether any Security constitutes a Restricted Security. "Resale Restriction Termination Date" means, in the case of a series of Securities sold without registration under the Securities Act, the date which is two years after the date of original issue of such series of Securities. "Security" or "Securities" means any Security or Securities, as the case may be, authenticated and delivered under this Indenture. "Securities Act" means the U.S. Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder. "Security Register" and "Security Registrar" have the respective meanings specified in Section 305. "Special Record Date" for the payment of any Defaulted Interest on the Registered Securities of any series means a date fixed by the Trustee pursuant to Section 307. "Stated Maturity", when used with respect to any Security or any installment of principal thereof or interest thereon, means the date specified in such Security or a coupon representing such installment of interest as the fixed date on which the principal of such Security or such installment of principal or interest is due and payable. "Subsidiary" means, in respect of any Person, any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of Capital Stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by (i) such Person, (ii) such Person and one or more Subsidiaries of such Person or (iii) one or more Subsidiaries of such Person. "Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such with respect to one or more series of Securities pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean each Person who is then a Trustee hereunder, and if at any time there is more than one such Person, "Trustee" as used with respect to the Securities of any series shall mean the Trustee with respect to the Securities of that series. "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended, and any reference herein to the Trust Indenture Act or a particular provision thereof shall mean such Act or provision, as the case may be, as amended or replaced from time to time or as 8 supplemented from time to time by rules or regulations adopted by the Commission under or in furtherance of the purposes of such Act or provision, as the case may be. "United States" means the United States of America (including the States and the District of Columbia), its territories and possessions and other areas subject to its jurisdiction. "United States Alien" means any Person who, for U.S. Federal income tax purposes, is a foreign corporation, a non-resident alien individual, a non- resident alien fiduciary of a foreign estate or trust, or a foreign partnership one or more of the members of which is, for U.S. Federal income tax purposes, a foreign corporation, a non-resident alien individual or a nonresident alien fiduciary of a foreign estate or trust. "U.S. Depository" or "Depository" means, with respect to the Securities of any series issuable or issued in whole or in part in the form of one or more Global Securities, the Person designated as U.S. Depository by the Company pursuant to Section 301, which must be a clearing agency registered under the Exchange Act, and, if so provided pursuant to Section 301 with respect to the Securities of any series, any successor to such Person. If at any time there is more than one such Person, "U.S. Depository" shall mean, with respect to any series of Securities, the qualifying entity which has been appointed with respect to the Securities of that series. "U.S. Government Obligation" means non-callable direct obligations of, and non-callable obligations guaranteed by, the United States of America for the payment of which the full faith and credit of the United States of America is pledged. "U.S. Physical Securities" means Securities offered and sold in reliance on any other exemption from registration other than exemption from registration in reliance on Rule 144A, and Securities offered and sold in reliance on Rule 144A, in the form of permanent certificated Securities in registered form. "Vice President" when used with respect to the Company shall mean any Vice President of the Company whether or not designated by a number or a word or words added before or after the title "Vice President". "Voting Stock" means stock of the class or classes having general voting power under ordinary circumstances to elect at least a majority of the board of directors, managers or trustees of a corporation; provided that, for the purposes hereof, stock which carries only the right to vote conditionally on the happening of an event shall not be considered voting stock whether or not such event shall have happened. SECTION 102. Compliance Certificates and Opinions. 9 Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (1) a statement that each individual signing such certificate or opinion has read such condition or covenant and the definitions herein relating thereto; (2) 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; (3) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such condition or covenant has been complied with; and (4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. SECTION 103. Form of Documents Delivered to Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to matters upon which his certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care 10 should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 104. Acts of Holders. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing. If, but only if, Securities of a series are issuable as Bearer Securities, any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders of Securities of such series may, alternatively, be embodied in and evidenced by the record of Holders of Securities of such series voting in favor thereof, either in person or by proxies duly appointed in writing, at any meeting of Holders of Securities of such series duly called and held in accordance with the provisions of Article Fourteen, or a combination of such instruments and any such record. Except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments or record or both are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments and any such record (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments and so voting at any such meeting. Proof of execution of any such instrument or of a writing appointing any such agent, or of the holding by any Person of a Security, shall be sufficient for any purpose of this Indenture and (subject to Section 601) conclusive in favor of the Trustee and the Company and any agent of the Trustee or the Company, if made in the manner provided in this Section. The record of any meeting of Holders of Securities shall be proved in the manner provided in Section 1406. Without limiting the generality of this Section 104, unless otherwise established in or pursuant to a Board Resolution or set forth or determined in an Officers' Certificate or established in one or more indentures supplemental hereto pursuant to Section 301, a Holder, including a U.S. Depository that is a Holder of a Global Security, may make, give or take, by a proxy or proxies duly appointed in writing, any request, demand, authorization, direction, notice, consent, waiver or other action provided in this Indenture to be made, given or taken by Holders, and a U.S. Depository that is a Holder of a Global Security may provide its proxy or proxies to the beneficial owners of interests in any such Global Security through such U.S. Depository's standing instructions and customary practices. 11 The Company may fix a record date for the purpose of determining the Persons who are beneficial owners of interests in any permanent Global Security held by a U.S. Depository entitled under the procedures of such U.S. Depository to make, give or take, by a proxy or proxies duly appointed in writing, any request, demand, authorization, direction, notice, consent, waiver or other action provided in this Indenture to be made, given or taken by Holders. If such a record date is fixed, the Holders on such record date or their duly appointed proxy or proxies and only such Persons shall be entitled to make, give or take such request, demand, authorization, direction, notice, consent, waiver or other action, whether or not such Holders remain Holders after such record date. No such request, demand, authorization, direction, notice, consent, waiver or other action shall be valid or effective if made, given or taken more than 90 days after such record date. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved in any reasonable manner which the Trustee deems sufficient and in accordance with such reasonable rules as the Trustee may determine; and the Trustee may in any instance require further proof with respect to any of the matters referred to in this Section. (c) The ownership of Registered Securities and the principal amount and serial numbers of Registered Securities held by any Person and the date of holding the same shall be proved by the Security Register. (d) The principal amount and serial numbers of Bearer Securities held by any Person and the date of holding the same may be proved by the production of such Bearer Securities or by a certificate executed, as depositary, by any trust company, bank, banker or other depositary reasonably acceptable to the Company, wherever situated, if such certificate shall be deemed by the Trustee to be satisfactory, showing that at the date therein mentioned such Person had on deposit with such depositary, or exhibited to it, the Bearer Securities therein described; or such facts may be proved by the certificate or affidavit of the Person holding such Bearer Securities, if such certificate or affidavit is deemed by the Trustee to be satisfactory. The Trustee and the Company may assume that such ownership of any Bearer Security continues until (1) another certificate or affidavit bearing a later date issued in respect of the same Bearer Security is produced, or (2) such Bearer Security is produced to the Trustee by some other Person, or (3) such Bearer Security is surrendered in exchange for a Registered Security, or (4) such Bearer Security is no longer Outstanding. The principal amount and serial numbers of Bearer Securities held by the Person so executing such instrument or writing and the date of holding the same may also be proved in any other manner which the Trustee deems sufficient. 12 (e) If the Company shall solicit from the Holders of any Registered Securities any request, demand, authorization, direction, notice, consent, waiver or other Act, the Company may, at its option, by Board Resolution, fix in advance a record date for the determination of Holders of Registered Securities entitled to give such request, demand, authorization, direction, notice, consent, waiver or other Act, but the Company shall have no obligation to do so. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other Act may be given before or after such record date, but only the Holders of Registered Securities of record at the close of business on such record date shall be deemed to be Holders for the purposes of determining whether Holders of the requisite proportion of Outstanding Securities have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other Act, and for that purpose the Outstanding Securities shall be computed as of such record date; provided that no such authorization, agreement or consent by the Holders of Registered Securities on such record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than six months after the record date. (f) Any request, demand, authorization, direction, notice, consent, waiver or other action by the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done or suffered to be done by the Trustee, any Security Registrar, any Paying Agent or the Company in reliance thereon, whether or not notation of such action is made upon such Security. SECTION 105. Notices etc. to Trustee and Company. Any request, demand, authorization, direction, notice, consent, waiver or other Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (1) the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, or (2) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, postage prepaid, via certified mail, return receipt requested, to the Company addressed to the attention of its Treasurer at the address of its principal office specified in the first paragraph of this instrument or at any other address previously furnished in writing to the Trustee by the Company. SECTION 106. Notice to Holders of Securities; Waiver. 13 Except as otherwise expressly provided herein or in the form of Securities of any particular series pursuant to the provisions of this Indenture, where this Indenture provides for notice to Holders of Securities of any event, (1) such notice shall be sufficiently given to Holders of Registered Securities if in writing and mailed, first-class postage prepaid, to each Holder of a Registered Security affected by such event, at his address as it appears in the Security Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice; and (2) such notice shall be sufficiently given to Holders of Bearer Securities, if any, if published in an Authorized Newspaper in The City of New York and, if the Securities of such series are then listed on any stock exchange outside the United States, in an Authorized Newspaper in such city as the Company shall advise the Trustee that such stock exchange so requires, on a Business Day at least twice, the first such publication to be not earlier than the earliest date and not later than the latest date prescribed for the giving of such notice. In any case where notice to Holders of Registered Securities is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder of a Registered Security shall affect the sufficiency of such notice with respect to other Holders of Registered Securities or the sufficiency of any notice to Holders of Bearer Securities given as provided herein. In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder. In case by reason of the suspension of publication of any Authorized Newspaper or Authorized Newspapers or by reason of any other cause it shall be impracticable to publish any notice to Holders of Bearer Securities as provided above, then such notification to Holders of Bearer Securities as shall be given with the approval of the Trustee shall constitute sufficient notice to such Holders for every purpose hereunder. Neither failure to give notice by publication to Holders of Bearer Securities as provided above, nor any defect in any notice so published, shall affect the sufficiency of any notice mailed to Holders of Registered Securities as provided above. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders of Securities shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. SECTION 107. Language of Notices, etc. 14 Any request, demand, authorization, direction, notice, consent, election or waiver required or permitted under this Indenture shall be in the English language, except that, if the Company so elects, any published notice may be in an official language of the country of publication. SECTION 108. Conflict with Trust Indenture Act. If any provision hereof limits, qualifies or conflicts with another provision hereof which is required to be included in this Indenture by any of the provisions of the Trust Indenture Act or with a provision of the Trust Indenture Act, the latter provision shall control. SECTION 109. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 110. Successors and Assigns. All covenants and agreements in this Indenture by the parties hereto shall bind the successors and assigns of such parties, whether so expressed or not. SECTION 111. Separability Clause. In case any provision in this Indenture or in the Securities or coupons 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 112. Benefits of Indenture. Nothing in this Indenture or in the Securities or coupons, express or implied, shall give to any Person, other than the parties hereto, any Security Registrar, any Paying Agent and their successors hereunder and the Holders of Securities or coupons, any benefit or any legal or equitable right, remedy or claim under this Indenture. SECTION 113. Governing Law. This Indenture and the Securities and coupons shall be governed by and construed in accordance with the laws of the State of New York without regard to the conflicts of laws provisions thereof. SECTION 114. Legal Holidays. 15 In any case where any Interest Payment Date, Redemption Date or Stated Maturity of any Security shall not be a Business Day at any Place of Payment, then (notwithstanding any other provision of this Indenture or the Securities or coupons other than a provision in the Securities which specifically states that such provision shall apply in lieu of this Section) payment of interest or any Additional Amounts or principal (and premium, if any) need not be made at such Place of Payment on such date, but may be made on the next succeeding Business Day, except that if such next succeeding Business Day is in the next succeeding calendar year, then on the immediately preceding Business Day, at such Place of Payment with the same force and effect as if made on the Interest Payment Date or Redemption Date or at the Stated Maturity, and no interest shall accrue on the amount so payable for the period from and after such Interest Payment Date, Redemption Date or Stated Maturity, as the case may be. ARTICLE TWO SECURITY FORMS SECTION 201. Forms Generally. The Registered Securities, if any, of each series and the Bearer Securities, if any, of each series, the related coupons, if any, and temporary Global Securities, if any, shall be in the form established by or pursuant to a Board Resolution or in one or more indentures supplemental hereto, shall have appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture or any indenture supplemental hereto and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may, consistently herewith, be determined by the officers executing such Securities, as evidenced by their execution of such Securities. Unless otherwise provided as contemplated by Section 301 with respect to any series of Securities, the Securities of each series shall be issuable in registered form without coupons. If so provided as contemplated by Section 301, the Securities of a series also shall be issuable in bearer form, with or without interest coupons attached. The definitive Securities and coupons shall be printed, lithographed or engraved or produced by any combination of these methods on a steel engraved border or steel engraved borders or may be produced in any other manner, all as determined by the officers executing such Securities or coupons, as conclusively evidenced by their execution of such Securities or coupons. SECTION 202. Form of Trustee's Certificate of Authentication. This is one of the Securities of the series designated herein referred to in the within-mentioned Indenture. 16 THE BANK OF NEW YORK, as Trustee Dated: By ------------------ -------------------------- Authorized Signatory SECTION 203. Restrictive Legend. Each Restricted Security will contain a restrictive legend (the "Private Placement Legend") containing substantially the following language: THE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE ISSUE DATE HEREOF, ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, OR (D) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT UPON THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO THE TRUSTEE AND THE COMPANY, SUBJECT IN EACH OF THE FOREGOING CASES, TO A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY BEING COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. 17 SECTION 204. Special Transfer Provisions. (a) The following provisions shall apply with respect to the registration of any proposed transfer of a Security constituting a Restricted Security to any Institutional Accredited Investor which is not a QIB or to any Non-U.S. Person: (i) the Security Registrar shall register the transfer of any Security constituting a Restricted Security, whether or not such Security bears the Private Placement Legend, if (x) the requested transfer is after the applicable Resale Restriction Termination Date and the transferor certifies that the Restricted Security was not acquired from the Company or an Affiliate of the Company less than two years prior to the date of the proposed transfer or (y) in the case of a transfer to an Institutional Accredited Investor which is not a QIB (excluding Non-U.S. Persons) or a transfer to a Non-U.S. Person, the proposed transferee has delivered to the Security Registrar a certificate in the form approved by the Company; and (ii) if the proposed transferor is an Agent Member holding a beneficial interest in the Global Security, upon receipt by the Security Registrar of (x) the certificate, if any, required by paragraph (i) above and (y) instructions given in accordance with the Depository's and the Security Registrar's procedures, whereupon (a) the Security Registrar shall reflect on its books and records the date and (if the transfer does not involve a transfer of outstanding Physical Securities) a decrease in the principal amount of the applicable Global Security in an amount equal to the principal amount of the beneficial interest in such Global Security to be transferred, and (b) the Company shall execute and the Trustee shall authenticate and deliver one or more Physical Securities of like tenor and amount. (b) The following provisions shall apply with respect to the registration of any proposed transfer of a Security constituting a Restricted Security to a QIB (excluding transfers to Non-U.S. Persons) (i) the Security Registrar shall register the transfer of any Security constituting a Restricted Security, whether or not such Security bears the Private Placement Legend, if (x) the requested transfer is after the second anniversary of the Issue Date; provided, however, that neither the Company nor any Affiliate of the Company has held any beneficial interest in such Security, or portion thereof, at any time on or prior to the second anniversary of the Issue Date or (y) such transfer is being made by a proposed transferor who has checked the box provided for on the form of Security stating, or has otherwise advised the Company and the Security Registrar in writing, that the sale has been made in compliance with the 18 provisions of Rule 144A to a transferee who has signed the certification provided for on the form of Security stating, or has otherwise advised the Company and the Security Registrar in writing, that it is purchasing the Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a QIB within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as it has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A; and (ii) if the proposed transferee is an Agent Member, and the Securities to be transferred consist of Physical Securities which after transfer are to be evidenced by an interest in the Global Security, upon receipt by the Security Registrar of written instructions given in accordance with the Depository's and the Security Registrar's procedures, the Security Registrar shall register the transfer and reflect on its books and records the date and an increase in the principal amount of the Global Security in an amount equal to the principal amount of the Physical Securities to be transferred, and the Trustee shall cancel the Physical Securities so transferred. (c) Upon the registration of transfer, exchange or replacement of Securities not bearing the Private Placement Legend, the Security Registrar shall deliver Securities that do not bear the Private Placement Legend. Upon the registration of transfer, exchange or replacement of Securities bearing the Private Placement Legend, the Security Registrar shall deliver only Securities that bear the Private Placement Legend unless (i) the circumstance contemplated by paragraph (a) (i) (x) of this Section 204 exist or (ii) there is delivered to the Security Registrar an Opinion of Counsel satisfactory to the Company and the Trustee to the effect that neither such legend nor the related restrictions on transfer are required in order to maintain compliance with the provisions of the Securities Act or (iii) such Security has been sold pursuant to an effective registration statement under the Securities Act. (d) By its acceptance of any Security bearing the Private Placement Legend, each Holder of such a Security acknowledges the restrictions on transfer of such Security set forth in this Indenture and in the Private Placement Legend and agrees that it will transfer such Security only as provided in this Indenture. The Security Registrar shall retain copies of all letters, notices and other written communications received pursuant to this Section 204 for a period of three years. The Company shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable written notice to the Security Registrar. 19 ARTICLE THREE THE SECURITIES SECTION 301. Amount Unlimited; Issuable in Series. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is unlimited. The Securities may be issued in one or more series. There shall be established in or pursuant to a Board Resolution and set forth in an Officers' Certificate or established in one or more indentures supplemental hereto: (1 the title of the Securities and the series in which such Securities shall be included; (2 any limit upon the aggregate principal amount of the Securities of such title or the Securities of such series which may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of the series pursuant to Section 304, 305, 306, 906 or 1107); (3 whether Securities of the series are to be issuable as Registered Securities, Bearer Securities (with or without coupons) or both; any restrictions applicable to the offer, sale or delivery of Bearer Securities and the terms upon which Bearer Securities of the series may be exchanged for Registered Securities of the series and vice versa; and whether any Securities of the series are to be issuable initially in global form and, if so, (i) whether beneficial owners of interests in any such Global Security may exchange such interests for Securities of such series of like tenor of any authorized form and denomination and the circumstances under which any such exchanges may occur, if other than in the manner specified in Section 305, and (ii) the name of the depository or the U.S. Depository, as the case may be, with respect to any Global Security; (4 the date as of which any Bearer Securities of the series and any temporary Global Security representing Outstanding Securities of the series shall be dated if other than the date of original issuance of the first Security of the series to be issued; (5 if Securities of the series are to be issuable as Bearer Securities, whether interest in respect of any portion of a temporary Bearer Security in global form (representing all of the Outstanding Bearer Securities of the series) payable in respect of an Interest Payment Date prior to the exchange of such temporary Bearer Security for 20 definitive Securities of the series shall be paid to any clearing organization with respect to the portion of such temporary Bearer Security held for its account and, in such event, the terms and conditions (including any certification requirements) upon which any such interest payment received by a clearing organization will be credited to the Persons entitled to interest payable on such Interest Payment Date; (6 the date or dates on which the principal of such Securities is payable; (7 the rate or rates at which such Securities shall bear interest, if any, or any method by which such rate or rates shall be determined, the date or dates from which such interest shall accrue, the Interest Payment Dates on which such interest shall be payable and the Regular Record Date for the interest payable on Registered Securities on any Interest Payment Date, whether and under what circumstances Additional Amounts on such securities shall be payable in respect of specified taxes, assessments or other governmental charges withheld or deducted and, if so, whether the Company has the option to redeem the affected Securities rather than pay such Additional Amounts, and the basis upon which interest shall be calculated if other than that of a 360 day year of twelve 30-day months; (8 the place or places, if any, in addition to or other than the Borough of Manhattan, The City of New York, where the principal of (and premium, if any) and interest on or Additional Amounts, if any, payable in respect of such Securities shall be payable; (9 the period or periods within which, the price or prices at which and the terms and conditions upon which such Securities may be redeemed, in whole or in part, at the option of the Company; (10 the obligation, if any, of the Company to redeem or purchase such Securities pursuant to any sinking fund or analogous provisions or at the option of a Holder thereof and the period or periods within which, the price or prices at which and the terms and conditions upon which such Securities shall be redeemed or purchased, in whole or in part, pursuant to such obligation, and any provisions for the remarketing of such Securities; (11 the denominations in which Registered Securities of the series, if any, shall be issuable if other than denominations of $1,000 and any integral multiple thereof, and the denominations in which Bearer Securities of the series, if any, shall be issuable if other than the denomination of $5,000; (12 if other than the principal amount thereof, the portion of the principal amount of such Securities which shall be payable upon declaration of acceleration of the Maturity thereof pursuant to Section 502; 21 (13 if other than such coin or currency of the United States of America as at the time of payment is legal tender for payment of public or private debts, the coin or currency, including composite currencies, in which payment of the principal of (and premium, if any) and interest, if any, on and Additional Amounts in respect of such Securities shall be payable; (14 if the principal of (and premium, if any) or interest, if any, on and Additional Amounts in respect of such Securities are to be payable, at the election of the Company or a Holder thereof, in a coin or currency, including composite currencies, other than that in which the Securities are stated to be payable, the period or periods within which, and the terms and conditions upon which, such election may be made; (15 if the amount of payments of principal of (and premium, if any) or interest, if any, on and Additional Amounts in respect of such Securities may be determined with reference to an index, formula or other method or based on a coin or currency other than that in which the Securities are stated to be payable, the manner in which such amounts shall be determined; (16 the right, if any, of the Company to defer payments of interest by extending the interest payment periods and specify the duration of such extension, the Interest Payment Dates on which such interest shall be payable and whether and under what circumstances additional interest on amounts deferred shall be payable; (17 the limitation, if any, on the Company's right to pay dividends on, make distributions with respect to, or redeem, purchase or acquire, or make a liquidation payment with respect to, any of its Capital Stock or comparable equity interest; (18 if the Securities of such series are to be issuable in definitive form (whether upon original issue or upon exchange of a temporary Security of such series) only upon receipt of certain certificates or other documents or satisfaction of other conditions, then the form and terms of such certificates, documents or conditions; and (19 any other terms of such Securities (which terms shall not be inconsistent with the provisions of this Indenture). All Securities of any one series and the coupons appertaining to Bearer Securities of such series, if any, shall be substantially identical except as to denomination and the rate or rates of interest, if any, Stated Maturity, the date from which interest, if any, shall accrue and except as may otherwise be provided in or pursuant to such Board Resolution and set forth in such Officers' Certificate or in any such indenture supplemental hereto. All Securities of any 22 one series need not be issued at the same time, and unless otherwise provided, a series may be reopened for issuances of additional Securities of such series. If any of the terms of the Securities of any series are established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Officers' Certificate setting forth the terms of such series. SECTION 302. Denominations. Unless other denominations and amounts may from time to time be fixed by or pursuant to a Board Resolution or an indenture supplemental hereto, the Registered Securities of each series, if any, shall be issuable in registered form without coupons in denominations of $1,000 and any integral multiple thereof and the Bearer Securities of each series, if any, shall be issuable in the denomination of $5,000. SECTION 303. Execution, Authentication, Delivery and Dating. The Securities shall be executed on behalf of the Company by its Chairman of the Board, President, Chief Financial Officer, a Vice President or its Treasurer and attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Securities may be manual or facsimile. Coupons shall bear the facsimile signature of the Treasurer or any Assistant Treasurer of the Company. Securities and coupons bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities of any series, together with any coupons appertaining thereto, executed by the Company to the Trustee for authentication, together with the Board Resolution and Officers' Certificate or supplemental indenture with respect to such Securities referred to in Section 301 and a Company Order for the authentication and delivery of such Securities, and the Trustee in accordance with the Company Order and subject to the provisions hereof shall authenticate and make available for delivery such Securities. In authenticating such Securities, and accepting the additional responsibilities under this Indenture in relation to such Securities, the Trustee shall be entitled to receive, and (subject to Section 601) shall be fully protected in relying upon, an Opinion of Counsel stating, (a) the form and terms of such Securities and coupons, if any, have been established in conformity with the provisions of this Indenture; 23 (b) that all conditions precedent to the authentication and delivery of such Securities, together with the coupons, if any, appertaining thereto, have been complied with and that such Securities and coupons, when authenticated and delivered by the Trustee and issued by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute valid and legally binding obligations of the Company, enforceable in accordance with their terms, subject to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting the enforcement of creditors' rights and to general equity principles, (c) that all laws and requirements in respect of the execution and delivery by the Company of such Securities and coupons, if any, have been complied with; and (d) as to such other matters as the Trustee may reasonably request. The Trustee shall not be required to authenticate such Securities if the issue of such Securities pursuant to this Indenture will affect the Trustee's own rights, duties or immunities under the Securities and this Indenture or otherwise in a manner which is not reasonably acceptable to the Trustee or if the Trustee being advised by counsel determines that such action may not lawfully be taken. Each Registered Security shall be dated the date of its authentication. Each Bearer Security and any temporary Bearer Security in global form shall be dated as of the date specified as contemplated by Section 301. No Security or coupon appertaining thereto shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose, unless there appears on such Security a certificate of authentication substantially in the form provided for in Section 202 or 612 executed by or on behalf of the Trustee by the manual signature of one of its authorized signers, and such certificate upon any Security shall be conclusive evidence and the only evidence that such Security has been duly authenticated and delivered hereunder. Except as permitted by Section 306 or 307, the Trustee shall not authenticate and deliver any Bearer Security unless all appurtenant coupons for interest then matured have been detached and cancelled. SECTION 304. Temporary Securities. Pending the preparation of definitive Securities of any series, the Company may execute and deliver to the Trustee, and upon Company Order the Trustee shall authenticate and make available for delivery in the manner provided in Section 303, temporary Securities of such series which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued, in registered form, or, if authorized, in bearer form with one or more 24 coupons or without coupons, and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities. In the case of Bearer Securities of any series, such temporary Securities may be in global form, representing all of the Outstanding Bearer Securities of such series. Except in the case of temporary Securities in global form, which shall be exchanged in accordance with the provisions thereof, if temporary Securities of any series are issued, the Company will cause definitive Securities of that series to be prepared without unreasonable delay. After the preparation of definitive Securities, the temporary Securities of such series shall be exchangeable for definitive Securities of such series containing identical terms and provisions upon surrender of the temporary Securities of such series at an office or agency of the Company maintained for such purpose pursuant to Section 1002, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities of any series (accompanied by any unmatured coupons appertaining thereto), the Company shall execute and the Trustee shall authenticate and make available for delivery in exchange therefor a like principal amount of definitive Securities of authorized denominations of the same series containing identical terms and provisions; provided, however, that no definitive Bearer Security, except as provided pursuant to Section 301, shall be delivered in exchange for a temporary Registered Security; and provided, further, that a definitive Bearer Security shall be delivered in exchange for a temporary Bearer Security only in compliance with the conditions set forth therein. Unless otherwise specified as contemplated by Section 301 with respect to a temporary Global Security, until so exchanged the temporary Securities of any series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of such series. SECTION 305. Registration, Transfer and Exchange. With respect to the Registered Securities of each series, if any, the Company shall cause to be kept at an office or agency of the Company maintained pursuant to Section 1002, a register (herein sometimes referred to as the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of the Registered Securities of each series and of transfers of the Registered Securities of each series. Such office or agency shall be the "Security Registrar" for the Registered Securities, if any, of each series of Securities. In the event that the Trustee shall not be the Security Registrar, it shall have the right to examine the Security Register at all reasonable times. Upon surrender for registration of transfer of any Registered Security of any series at any office or agency of the Company maintained for that series pursuant to Section 1002, the Company shall execute, and the Trustee shall authenticate and make available for delivery, in the name of the designated transferee or transferees, one or more new Registered Securities of the same series, of any authorized denominations, of a like aggregate principal amount bearing a number not contemporaneously outstanding and containing identical terms and provisions. 25 At the option of the Holder, Registered Securities of any series may be exchanged for other Registered Securities of the same series containing identical terms and provisions, in any authorized denominations, and of a like aggregate principal amount, upon surrender of the Securities to be exchanged at any such office or agency. Whenever any Registered Securities are so surrendered for exchange, the Company shall execute and the Trustee shall authenticate and make available for delivery the Registered Securities which the holder making the exchange is entitled to receive. At the option of the Holder, Bearer Securities of any series may be exchanged for Registered Securities of the same series containing identical terms and provisions, of any authorized denominations and aggregate principal amount, upon surrender of the Bearer Securities to be exchanged at any such office or agency, with all unmatured coupons and all matured coupons in default thereto appertaining. If the Holder of a Bearer Security is unable to produce any such unmatured coupon or coupons or matured coupon or coupons in default, such exchange may be effected if the Bearer Securities are accompanied by payment in funds acceptable to the Company and the Trustee in an amount equal to the face amount of such missing coupon or coupons, or the surrender of such missing coupon or coupons may be waived by the Company and the Trustee if there is furnished to them such security or indemnity as they may require to save each of them and any Paying Agent harmless. If thereafter the Holder of such Security shall surrender to any Paying Agent any such missing coupon in respect of which such a payment shall have been made, such Holder shall be entitled to receive the amount of such payment; provided, however, that, except as otherwise provided in Section 1002, interest represented by coupons shall be payable only upon presentation and surrender of those coupons at an office or agency located outside the United States. Notwithstanding the foregoing, in case a Bearer Security of any series is surrendered at any such office or agency in exchange for a Registered Security of the same series and like tenor after the close of business at such office or agency on (i) any Regular Record Date and before the opening of business at such office or agency on the relevant Interest Payment Date, or (ii) any Special Record Date and before the opening of business at such office or agency on the related date for payment of Defaulted Interest, such Bearer Security shall be surrendered without the coupon relating to such Interest Payment Date or proposed date of payment, as the case may be (or, if such coupon is so surrendered with such Bearer Security, such coupon shall be returned to the person so surrendering the Bearer Security), and interest or Defaulted Interest, as the case may be, will not be payable on such Interest Payment Date or proposed date for payment, as the case may be, in respect of the Registered Security issued in exchange for such Bearer Security, but will be payable only to the Holder of such coupon when due in accordance with the provisions of this Indenture. If expressly provided with respect to the Securities of any series, at the option of the Holder, Registered Securities of such series may be exchanged for Bearer Securities upon such terms and conditions as may be provided with respect to such series. 26 Whenever any Securities are so surrendered for exchange, the Company shall execute and the Trustee shall authenticate and deliver the Securities which the Holder making the exchange is entitled to receive. Notwithstanding the foregoing, except as otherwise specified as contemplated by Section 301, any Global Security shall be exchangeable only if (i) the Depository is at any time unwilling or unable to continue as Depository and a successor depository is not appointed by the Company within 60 days, (ii) the Company executes and delivers to the Trustee a Company Order to the effect that such Global Security shall be so exchangeable, or (iii) an Event of Default has occurred and is continuing with respect to the Securities of the applicable series. If the beneficial owners of interests in a Global Security are entitled to exchange such interests for Securities of such series, of like tenor and principal amount and of any authorized form and denomination, as specified as contemplated by Section 301, then without unnecessary delay but in any event not later than the earliest date on which such interests may be so exchanged, the Company shall deliver to the Trustee definitive Securities of that series in aggregate principal amount equal to the principal amount of such Global Security executed by the Company. On or after the earliest date on which such interests may be so exchanged, such Global Securities shall be surrendered from time to time by the U.S. Depository or such other depository as shall be specified in the Company Order with respect thereto or pursuant to Section 204, and in accordance with instructions given to the Trustee and the U.S. Depository or such depository, as the case may be (which instructions shall be in writing but need not comply with Section 102 or be accompanied by an Opinion of Counsel), as shall be specified in the Company Order or pursuant to Section 204 with respect thereto to the Trustee, as the Company's agent for such purpose, to be exchanged, in whole or in part, for definitive Securities of the same series without charge. The Trustee shall authenticate and make available for delivery, in exchange for each portion of such surrendered Global Security, a like aggregate principal amount of definitive Securities of the same series of authorized denominations and of like tenor as the portion of such Global Security to be exchanged which (unless the Securities of the series are not issuable both as Bearer Securities and as Registered Securities, in which case the definitive Securities exchanged for the Global Security shall be issuable only in the form in which the Securities are issuable, as specified as contemplated by Section 301) shall be in the form of Bearer Securities or Registered Securities, or any combination thereof, as shall be specified by the beneficial owner thereof; provided, however, that no such exchanges may occur during a period beginning at the opening of business 15 days before any selection of Securities of that series to be redeemed and ending on the relevant Redemption Date; and provided, further, that (unless otherwise specified as contemplated by Section 301) no Bearer Security delivered in exchange for a portion of a Global Security shall be mailed or otherwise delivered to any location in the United States. Promptly following any such exchange in part, such Global Security shall be returned by the Trustee to such depository or the U.S. Depository, as the case may be, or such other depository or U.S. Depository referred to above in accordance with the instructions of the Company referred to above. If a Registered Security is issued in exchange for any portion of a Global Security after the close of business at the office or agency where such exchange occurs on (i) any Regular Record Date and before the opening of business at 27 such office or agency on the relevant Interest Payment Date, or (ii) any Special Record Date and before the opening of business at such office or agency on the related proposed date for payment of interest or Defaulted Interest, as the case may be, interest will not be payable on such Interest Payment Date or proposed date for payment, as the case may be, in respect of such Registered Security, but will be payable on such Interest Payment Date or proposed date for payment, as the case may be, only to the Person to whom interest in respect of such portion of such Global Security is payable in accordance with the provisions of this Indenture. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. Every Registered Security presented or surrendered for registration of transfer or for exchange or redemption shall (if so required by the Company or the Security Registrar for such series of Security presented) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and such Security Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange or redemption of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 304, 906 or 1106 not involving any transfer. The Company shall not be required (i) to issue, register the transfer of or exchange any Securities of any series during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Securities of that series selected for redemption under Section 1103 and ending at the close of business on the day of such mailing, or (ii) to register the transfer of or exchange any Registered Security so selected for redemption in whole or in part, except, in the case of any Security to be redeemed in part, the portion thereof not to be redeemed, or (iii) to exchange any Bearer Security so selected for redemption except that such a Bearer Security may be exchanged for a Registered Security of that series, provided that such Registered Security shall be immediately surrendered for redemption with written instruction for payment consistent with the provisions of this Indenture. SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities. If any mutilated Security or a Security with a mutilated coupon appertaining to it is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and make available for delivery in exchange therefor a new Security of the same series containing identical terms and of like principal amount and bearing a number not contemporaneously 28 outstanding, with coupons corresponding to the coupons, if any, appertaining to the surrendered Securities. If there be delivered to the Company and to the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security or coupon, and (ii) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Security or coupon has been acquired by a bona fide purchaser, the Company shall execute and upon its request the Trustee shall authenticate and make available for delivery, in lieu of any such destroyed, lost or stolen Security or in exchange for the Security to which a destroyed, lost or stolen coupon appertains (with all appurtenant coupons not destroyed, lost or stolen), a new Security of the same series containing identical terms and of like principal amount and bearing a number not contemporaneously outstanding, with coupons corresponding to the coupons, if any, appertaining to such destroyed, lost or stolen Security or to the Security to which such destroyed, lost or stolen coupon appertains. In case any such mutilated, destroyed, lost or stolen Security or coupon has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security or coupon; provided, however, that payment of principal of (and premium, if any) and any interest on Bearer Securities shall, except as otherwise provided in Section 1002, be payable only at an office or agency located outside the United States and, unless otherwise specified as contemplated by Section 301, any interest on Bearer Securities shall be payable only upon presentation and surrender of the coupons appertaining thereto. Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee and its counsel) connected therewith. Every new Security of any series, with its coupons, if any, issued pursuant to this Section in lieu of any destroyed, lost or stolen Security, or in exchange for a Security to which a destroyed, lost or stolen coupon appertains, shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security and its coupons, if any, or the destroyed, lost or stolen coupon shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities of that series and their coupons, if any, duly issued hereunder. The provisions of this Section 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 or coupons. SECTION 307. Payment of Interest; Interest Rights Preserved 29 Interest on any Registered Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall, if so provided in such Security, be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest. In case a Bearer Security of any series is surrendered in exchange for a Registered Security of such series after the close of business (at an office of agency in a Place of Payment for such series) on any Regular Record Date and before the opening of business (at such office or agency) on the next succeeding Interest Payment Date, such Bearer Security shall be surrendered without the coupon relating to such Interest Payment Date and interest will not be payable on such Interest Payment Date in respect of the Registered Security issued in exchange for such Bearer Security, but will be payable only to the Holder of such coupon when due in accordance with the provisions of this Indenture. Any interest on any Registered Security of any series which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date for such Registered Security (herein called "Defaulted Interest") shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in Clause (1) or (2) below: (1 The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Registered Securities affected (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each such Registered Security and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder of such Registered Securities at his address as it appears in the Security Register not less than 10 days prior to such Special Record Date. The Trustee may in the name and at the expense of the Company, cause a similar notice to be published at least once in a newspaper, customarily published in the English language on each Business Day and of general circulation in the Borough of Manhattan, The City of New 30 York, but such publication shall not be a condition precedent to the establishment of such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the Persons in whose names such Registered Securities (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following Clause (2). In case a Bearer Security of any series is surrendered at the office or agency in a Place of Payment for such series in exchange for a Registered Security of such series after the close of business at such office or agency on any Special Record Date and before the opening of business at such office or agency on the related proposed date for payment of Defaulted Interest, such Bearer Security shall be surrendered without the coupon relating to such proposed date of payment and Defaulted Interest will not be payable on such proposed date of payment in respect of the Registered Security issued in exchange for such Bearer Security, but will be payable only to the Holder of such coupon when due in accordance with the provisions of this Indenture. (2 The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such payment shall be deemed practicable by the Trustee. At the option of the Company, interest on Registered Securities of any series that bear interest may be paid by mailing a check to the address of the person entitled thereto as such address shall appear in the Security Register. Subject to the foregoing provisions of this Section and Section 305, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue interest, which were carried by such other Security. SECTION 308. Persons Deemed Owners. Prior to due presentment of a Registered Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Registered Security is registered as the owner of such Registered Security for the purpose of receiving payment of principal of (and premium, if any) and (subject to Sections 305 and 307) interest on and Additional Amounts with respect to such Registered Security and for all other purposes whatsoever, whether or not such Registered Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. 31 The Company, the Trustee and any agent of the Company or the Trustee may treat the bearer of any Bearer Security and the bearer of any coupon as the absolute owner of such Security or coupon for the purpose of receiving payment thereof or on account thereof and for all other purposes whatsoever, whether or not such Security or coupon be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. SECTION 309. Cancellation. All Securities and coupons surrendered for payment, redemption, registration of transfer or exchange or for credit against any sinking fund payment shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee, and any such Securities and coupons and Securities and coupons surrendered directly to the Trustee for any such purpose shall be promptly cancelled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Securities so delivered shall be promptly cancelled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities cancelled as provided in this Section, except as expressly permitted by this Indenture. All cancelled Securities and coupons held by the Trustee shall be returned by the Trustee to the Company. SECTION 310. Computation of Interest. Except as otherwise specified as contemplated by Section 301 for Securities of any series, or as set forth in any supplemental indenture, interest on the Securities of each series shall be computed on the basis of a 360 day year of twelve 30-day months or, for any period shorter than a full three months, on the basis of the actual number of days elapsed in such period. SECTION 311. Cusip Numbers The Company in issuing Securities may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; provided that any such notice may 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 and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in "CUSIP" numbers. ARTICLE FOUR DEFEASANCE, SATISFACTION AND DISCHARGE 32 SECTION 401. Legal Defeasance and Covenant Defeasance. (a) The Company may, at its option, by a Board Resolution, at any time, elect to have either paragraph (b) or (c) below be applicable to all outstanding Securities of a series upon compliance with the conditions set forth in Section 402. (b) Upon the Company's exercise of the option set forth in this paragraph (b), the Company shall, subject to the satisfaction of the conditions set forth in Section 402, be deemed to have been discharged from its obligations with respect to all Outstanding Securities of a series on and after the date that the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the Outstanding Securities of a series, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 404 hereof and the other Sections of this Indenture referred to in clauses (i) and (ii) below, and to have satisfied all its other obligations under and with respect to such Securities and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions, which shall survive until otherwise terminated or discharged hereunder: (i) the rights of Holders of such Securities to receive solely from the trust fund described in Section 404 hereof, and as more fully set forth in such Section, payments in respect of the principal of and premium, if any, and interest on such Securities when such payments are due and (ii) the Company's obligations with respect to such Securities under Sections 305, 306, 404 and 606. The Company may exercise its option under this paragraph (b) notwithstanding the prior exercise of its option under paragraph (c) hereof. (c) Upon the Company's exercise of the option set forth in this paragraph (c), the Company shall, subject to the satisfaction of the conditions set forth in Section 402, be released from its obligations under the covenants contained in Article Ten hereof and which may be contained in any Supplemental Indenture with respect to all Outstanding Securities of a series on and after the date that the conditions set forth below are satisfied (hereinafter, "Covenant Defeasance"), and such Securities shall thereafter be deemed not to be "outstanding" for the purposes of any Act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed to be "outstanding" for all other purposes hereunder (it being understood that such Securities shall not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the Outstanding Securities of a series, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event or Default under Section 501 hereof, but, except as specified above, the remainder of this Indenture and such Securities shall be unaffected thereby. In addition, upon the Company's exercise of the option set forth in this paragraph (c), subject to the satisfaction of the conditions set forth in Section 402 hereof, those 33 events described in Section 501 (except those events described in Sections 501(1), (2), (5) and (6)) shall not constitute Events of Default. SECTION 402. Conditions to Legal Defeasance and Covenant Defeasance The following shall be the conditions to the application of either Section 401(b) or 401(c) hereof to the Outstanding Securities of a series: (a) The Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders, U.S. Dollars or U.S. Government Obligations, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on such Securities on the stated date for payment thereof or on the applicable redemption date, as the case may be, of such principal or installment of principal of or interest on such Securities; provided, that the Trustee shall have received an irrevocable written order from the Company instructing the Trustee to apply such U.S. Dollars or the proceeds of such U.S. Government Obligations to said payments with respect to such Securities; (b) In the case of an election under Section 401(b) hereof, the Company shall have delivered to the Trustee an Opinion of Counsel confirming that (A) the Company has received from, or there has been published by, the U.S. Internal Revenue Service a ruling or (B) since the date of the Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (c) In the case of an election under Section 401(c) hereof, the Company shall have delivered to the Trustee an Opinion of Counsel confirming that the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (d) No Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the incurrence of Indebtedness all or a portion of the proceeds of which will be used to defease the Securities of a series pursuant to this Article Four concurrently with such incurrence or with respect to Sections 501(5) and (6), at any time in the period ending on the 91st day after the date of such deposit); (e) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of or constitute a default under this Indenture or any other material agreement or 34 instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (f) the Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders over any other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company; (g) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent (other than, in the case of such legal opinion, paragraph (f) as to which such counsel need express no opinion) provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with; and (h) the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that assuming no intervening bankruptcy or insolvency of the Company between the date of deposit and the 91st day following the deposit and that no Holder is an insider of the Company, after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable Bankruptcy Law. SECTION 403. Satisfaction and Discharge of Indenture. Upon the direction of the Company by a Company Order, this Indenture shall cease to be of further effect (except as to any surviving rights of registration of transfer or exchange of Securities herein expressly provided for and any right to receive Additional Amounts, as provided in Section 1004), and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when (1 either (A all Securities theretofore authenticated and delivered and all coupons appertaining thereto (other than (i) coupons appertaining to Bearer Securities surrendered for exchange for Registered Securities and maturing after such exchange, whose surrender is not required or has been waived as provided in Section 305, (ii) Securities and coupons which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 306, (iii) coupons appertaining to Securities called for redemption and maturing after the relevant Redemption Date, whose surrender has been waived as provided in Section 1106, and (iv) Securities and coupons for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 1003) have been delivered to the Trustee for cancellation; or 35 (B all such Securities and, in the case of (i) or (ii) below, any such coupons appertaining thereto not theretofore delivered to the Trustee for cancellation (i) have become due and payable, or (ii) will become due and payable at their Stated Maturity within one year, or (iii) if redeemable at the option of the Company, are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company, in the case of (i), (ii) or (iii) above, has deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose an amount sufficient to pay and discharge the entire indebtedness on such Securities and coupons not theretofore delivered to the Trustee for cancellation, for principal (and premium, if any) and interest and any Additional Amounts with respect thereto to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be; (2 the Company has paid or caused to be paid all other sums payable hereunder by the Company; and (3 the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. In the event there are Securities of two or more series hereunder, the Trustee shall be required to execute an instrument acknowledging satisfaction and discharge of this Indenture only if requested to do so with respect to Securities of all series as to which it is Trustee and if the other conditions thereto are met. In the event there are two or more Trustees hereunder, then the effectiveness of any such instrument shall be conditioned upon receipt of such instrument from all Trustees hereunder. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 607 and, if money shall have been deposited with the Trustee pursuant to subclause (B) of Clause (1) of this Section, the obligations of the Trustee under Section 404 and the last paragraph of Section 1003 shall survive such satisfaction and discharge. 36 SECTION 404. Application of Trust Money. Subject to the provisions of the last paragraph of Section 1003, all money deposited with the Trustee pursuant to Sections 402 and 403 shall be held in trust and applied by it, in accordance with the provisions of the Securities, the coupons and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and any interest and Additional Amounts for whose payment such money has been deposited with the Trustee; but such money need not be segregated from other funds except to the extent required by law. ARTICLE FIVE REMEDIES SECTION 501. Events of Default. "Event of Default", wherever used herein with respect to Securities of any series, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) default in the payment of any interest upon or any Additional Amounts payable in respect of any Security of that series when such interest or Additional Amounts becomes due and payable, and continuance of such default for a period of 30 days; or (2) default in the payment of the principal of (and premium, if any, on) any Security of that series when it becomes due and payable at Maturity; or (3) default in the deposit of any sinking fund payment, when and as due by the terms of a Security of that series; or (4) default in the performance or breach of any covenant or warranty of the Company in this Indenture (other than a covenant or warranty a default in whose performance or whose breach is elsewhere in this Section specifically dealt with or which has been expressly included in this Indenture solely for the benefit of Securities of series other than that series), and continuance of such default or breach for a period of 60 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in principal amount of the Outstanding Securities of that series a written notice specifying 37 such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or (5) a court having jurisdiction in the premises shall enter a decree or order for relief in respect of the Company in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Company or for any substantial part of its property, or ordering the winding-up or liquidation of its affairs, and such decree or order shall remain unstayed and in effect for a period of 60 consecutive days; or (6) the Company shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case under any such law, or shall consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or similar official) of the Company or for any substantial part of its property, or shall make any general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due or shall take any corporate action in furtherance of any of the foregoing; or (7) a default occurs under any bond, mortgage, indenture (including this Indenture) or instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for money borrowed of the Company or any Subsidiary of the Company, whether such indebtedness now exists or shall hereafter be created, which default (a) is caused by a failure to pay principal on such indebtedness prior to the expiration of the grace period provided in such indebtedness (a "Payment Default") or (b) results in the acceleration of such indebtedness, prior to its express maturity, and in each case, the principal amount of any such indebtedness together with the principal amount of any other such indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $25 million or more; or (8) any other Event of Default provided with respect to Securities of that series. SECTION 502. Acceleration of Maturity; Rescission and Annulment. If an Event of Default with respect to Securities of any series at the time Outstanding occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities of that series may declare the principal of all the Securities of that series, or such lesser amount as may be provided for in the Securities of that series, to be due and payable immediately, by a notice in writing to the 38 Company (and to the Trustee if given by the Holders), and upon any such declaration such principal or such lesser amount shall become immediately due and payable. At any time after such a declaration of acceleration with respect to Securities of any series has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in principal amount of the Outstanding Securities of that series, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if (1) the Company has paid or deposited with the Trustee a sum sufficient to pay (A) all overdue installments of interest on and any Additional Amounts payable in respect of all Securities of that series, (B) the principal of (and premium, if any, on) any Securities of that series which have become due otherwise than by such declaration of acceleration and interest thereon at the rate or rates borne by or provided for in such Securities, (C) to the extent that payment of such interest is lawful, interest upon overdue installments of interest and Additional Amounts at the rate or rates borne by or provided for in such Securities, and (D) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and (2) all Events of Default with respect to Securities of that series, other than the non-payment of the principal of Securities of that series which has become due solely by such declaration of acceleration, have been cured or waived as provided in Section 513. No such rescission shall affect any subsequent default or impair any right consequent thereon. SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee. The Company covenants that if (1) default is made in the payment of any instalment of interest on or any Additional Amounts payable in respect of any Security when such interest or Additional 39 Amounts shall have become due and payable and such default continues for a period of 30 days, or (2) default is made in the payment of the principal of (or premium, if any, on) any Security at its Maturity, the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Securities and coupons, if any, the whole amount then due and payable on such Securities and coupons for principal (and premium, if any) and interest and Additional Amounts, if any, with interest upon the overdue principal (and premium, if any) and, to the extent that payment of such interest shall be legally enforceable, upon overdue installments of interest or any Additional Amounts, at the rate or rates borne by or provided for in such Securities, and, in addition thereto, 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. If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, and may prosecute such proceeding to judgment or final decree, and may enforce the same against the Company or any other obligor upon such Securities and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon such Securities, wherever situated. If an Event of Default with respect to Securities of any series occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities of such series and any related coupons by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein or to enforce any other proper remedy. SECTION 504. Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise, 40 (i) to file and prove a claim for the whole amount, or such lesser amount as may be provided for in the Securities of that series, of principal (and premium, if any) and interest and any Additional Amounts owing and unpaid in respect of the Securities and to file such 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 and its agents or counsel) and of the Holders allowed in such judicial proceeding, and (ii) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any receiver, assignee, trustee, liquidator, sequestrator (or other similar official) in any such judicial proceeding is hereby authorized by each Holder of Securities and coupons 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 of Securities and coupons, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee and its agents and counsel and any other amounts due the Trustee under Section 607. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder of a Security or coupon any plan of reorganization, arrangement, adjustment or composition affecting the Securities or coupons or the rights of any Holder thereof or to vote in respect of the claim of any Holder of a Security or coupon in any such proceeding. SECTION 505. Trustee May Enforce Claims Without Possession of Securities or Coupons. All rights of action and claims under this Indenture or any of the Securities or coupons may be prosecuted and enforced by the Trustee without the possession of any of the Securities or coupons or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery or judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee and its agents and counsel, be for the ratable benefit of the Holders of the Securities and coupons in respect of which such judgment has been recovered. SECTION 506. Application of Money Collected. Any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal (and premium, if any), interest or any Additional 41 Amounts, upon presentation of the Securities or coupons, or both, as the case may be, and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee and its agents and counsel under Section 607; SECOND: To the payment of the amounts then due and unpaid upon the Securities and coupons for principal (and premium, if any) and interest and any Additional Amounts payable in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the aggregate amounts due and payable on such Securities and coupons for principal (and premium, if any), interest and Additional Amounts, respectively; THIRD: The balance, if any, to the Company. SECTION 507. Limitation on Suits. No Holder of any Security of any series or any related coupons shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (1) such Holder has previously given written notice to the Trustee of a continuing Event of Default with respect to the Securities of that series; (2) the Holders of not less than 25% in principal amount of the Outstanding Securities of that series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities of that series; it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other such Holders or Holders of any other series or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right 42 under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all such Holders. SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and Interest. Notwithstanding any other provision in this Indenture, the Holder of any Security or coupon shall have the right, which is absolute and unconditional, to receive payment of the principal of (and premium, if any) and (subject to Sections 305 and 307) interest on and any Additional Amounts in respect of such Security or payment of such coupon on the respective Stated Maturity or Maturities expressed in such Security or coupon (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment, and such right shall not be impaired without the consent of such Holder. SECTION 509. Restoration of Rights and Remedies. If the Trustee or any Holder of a Security or coupon has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders of Securities and coupons shall be restored severally and respectively to their former positions hereunder and all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. SECTION 510. Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities or coupons in the last paragraph of Section 306, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders of Securities or coupons is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 511. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Security or coupon to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders of Securities or coupons may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders of Securities or coupons, as the case may be. 43 SECTION 512. Control by Holders of Securities. The Holders of a majority in principal amount of the Outstanding Securities of any series shall have the right to 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 the Trustee with respect to the Securities of such series; provided that (1) such direction shall not be in conflict with any rule of law or with this Indenture, (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction, and (3) such direction is not unduly prejudicial to the rights of other Holders of Securities of such series. SECTION 513. Waiver of Past Defaults. The Holders of not less than a majority in principal amount of the Outstanding Securities of any series may on behalf of the Holders of all the Securities of such series and any related coupons waive any past default hereunder or under any Supplemental Indenture with respect to such series and its consequences, except a default (1) in the payment of the principal of (and premium, if any) or interest on or Additional Amounts payable in respect of any Security of such series, or (2) in respect of a covenant or provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding Security of such series affected. Upon any such waiver, such default shall cease to exist, and 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 514. Undertaking for Costs. All parties to this Indenture agree, and each Holder of any Security or coupon by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, 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, suffered or omitted by it as Trustee, the filing by any party litigant in such suit, other than the Trustee, of an undertaking to pay the costs of such 44 suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant in such suit, including the Trustee, having due regard to the merits and good faith of the claims or defenses made by such party litigant, but the provisions of this Section shall not apply to any suit instituted by the Company, the Trustee or by any Holder, or group of Holders, holding in the aggregate more than 10% in principal amount of the Outstanding Securities of any series or to any suit instituted by any Holder of any Security or coupon for the enforcement of the payment of the principal of (and premium, if any) or interest on or any Additional Amounts in respect of any Security or the payment of any coupon on or after the respective Stated Maturities expressed in such Security (or, in the case of redemption, on or after the Redemption Date) or interest on any overdue principal of any Security. SECTION 515. Waiver of Stay, Extension or Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) 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. ARTICLE SIX THE TRUSTEE SECTION 601. Certain Duties and Responsibilities. (a) Except during the continuance of an Event of Default, (1) the Trustee undertakes to perform such duties, and only such duties, as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee or any predecessor Trustee; and (2) 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 (whether in their original or facsimile form) furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provisions hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same 45 to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of any facts or mathematical calculations stated therein). (b) In case 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. (c) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own wilful misconduct, except that (1) this Subsection shall not be construed to limit the effect of Subsection (a) of this Section; (2) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; (3) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of a majority in principal amount of the Outstanding Securities of any series, relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred upon the Trustee under this Indenture with respect to the Securities of such series; and (4) no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (d) Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section. SECTION 602. Notice of Defaults. Within 90 days after the occurrence of any default hereunder with respect to the Securities of any series, the Trustee shall transmit by mail to all Holders of Securities of such 46 series entitled to receive reports pursuant to Section 703(c) notice of such default hereunder known to the Trustee, unless such default shall have been cured or waived; provided, however, that, except in the case of a default in the payment of the principal of (and premium, if any) or interest on or any Additional Amounts with respect to any Security of such series or in the payment of any sinking fund instalment with respect to Securities of such series, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors and/or Responsible Officers of the Trustee in good faith determine that the withholding of such notice is in the interests of the Holders of Securities and coupons of such series; and provided, further, that in the case of any default of the character specified in Section 501(4) with respect to Securities of such series, no such notice to Holders shall be given until at least 30 days after the occurrence thereof. For the purpose of this Section, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default with respect to Securities of such series. SECTION 603. Certain Rights of Trustee. Except as otherwise provided in Section 601: (a) the Trustee may conclusively rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note or other paper or document (in its original or facsimile form) reasonably believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order (other than delivery of any Security to the Trustee for authentication and delivery pursuant to Section 303 which shall be sufficiently evidenced as provided therein) and any resolution of the Board of Directors shall be sufficiently evidenced by a Board Resolution; (c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, conclusively rely upon an Officers' Certificate; (d) the Trustee may consult with counsel of its selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; 47 (e) 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 of Securities of any series or any related coupons pursuant to this Indenture, unless such Holders shall have offered to the Trustee security or indemnity satisfactory to it against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company personally or by agent or attorney at the sole cost of the Company and shall incur no additional liability of any kind by reason of such inquiry or investigation; (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. SECTION 604. Not Responsible for Recitals or Issuance of Securities. The recitals contained herein and in the Securities, except the Trustee's certificate of authentication, and in any coupons shall be taken as the statements of the Company, and the Trustee or any Authenticating Agent assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities or coupons. The Trustee or any Authenticating Agent shall not be accountable for the use or application by the Company of Securities or the proceeds thereof. SECTION 605. May Hold Securities. The Trustee, any Authenticating Agent, any Paying Agent, any Security Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities and coupons and, subject to Sections 310(b) and 311 of the Trust Indenture Act, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Security Registrar or such other agent. SECTION 606. Money Held in Trust. 48 Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the Company. SECTION 607. Compensation and Reimbursement. The Company agrees (1) to pay to the Trustee from time to time such compensation as the parties shall agree to in writing from time to time for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance attributable to its negligence or bad faith; and (3) to indemnify each of the Trustee, any predecessor Trustee and their respective agents for, and to hold them harmless against, any and all loss, liability, claim, damage or expense (including taxes other than taxes based on the income of the Trustee) incurred without negligence, bad faith or intentional misconduct on their part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the costs and expenses of defending themselves against any claim or liability in connection with the exercise or performance of any of their powers or duties hereunder. As security for the performance of the obligations of the Company under this Section the Trustee shall have a lien prior to the Securities of any series upon all property and funds held or collected by the Trustee as such, except funds held in trust for the payment of principal of (or premium, if any) or interest on Securities. SECTION 608. Corporate Trustee Required; Eligibility. There shall at all times be a Trustee hereunder that is a corporation (or other person permitted to so act by the Commission) permitted by the Trust Indenture Act to act as trustee under an indenture qualified under the Trust Indenture Act and that has a combined capital and surplus (computed in accordance with Section 310(a)(2) of the Trust Indenture Act) of at least $50,000,000. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section or Section 310(a)(5) of the Trust Indenture Act, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. 49 SECTION 609. Resignation and Removal; Appointment of Successor. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee under Section 610. (b) The Trustee may resign at any time with respect to the Securities of one or more series by giving written notice thereof to the Company. If the instrument of acceptance by a successor Trustee required by Section 610 shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may at the expense of the Company petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to such series. (c) The Trustee may be removed at any time with respect to the Securities of any series by the Act of the Holders of a majority in principal amount of the Outstanding Securities of such series delivered to the Trustee and to the Company. If the instrument of acceptance by a successor Trustee required by Section 610 shall not have been delivered to the Trustee within 30 days after the giving of such notice of removal, the removed Trustee may at the expense of the Company petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to such series. (d) If at any time: (1) the Trustee shall fail to comply with the obligations imposed upon it under Section 310(b) of the Trust Indenture Act with respect to Securities of any series after written request therefor by the Company or by any Holder of a Security who has been a bona fide Holder of a Security for at least six months, or (2) the Trustee shall cease to be eligible under Section 608 and shall fail to resign after written request therefor by the Company or by any such Holder of a Security, or (3) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (i) the Company by a Board Resolution may remove the Trustee with respect to all Securities or the Securities of such series, or (ii) subject to Section 50 315(e) of the Trust Indenture Act, any Holder of a Security who has been a bona fide Holder of a Security of any series for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee with respect to all Securities of such series and the appointment of a successor Trustee or Trustees. (e) If the Trustee shall resign, be removed or become incapable of acting or if a vacancy shall occur in the office of Trustee for any other cause, with respect to the Securities of one or more series, the Company, by a Board Resolution, shall promptly appoint a successor Trustee or Trustees with respect to the Securities of that or those series (it being understood that any such successor Trustee may be appointed with respect to the Securities of one or more or all of such series and that at any time there shall be only one Trustee with respect to the Securities of any particular series) and shall comply with the applicable requirements of Section 610. If, within one year after such resignation, removal or incapacitation, or the occurrence of such vacancy, a successor Trustee with respect to the Securities of any series shall be appointed by the Act of the Holders of a majority in principal amount of the Outstanding Securities of such series delivered to the Company and the then Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment in accordance with the applicable requirements of Section 610, become the successor Trustee with respect to the Securities of such series and to that extent supersede the Trustee appointed by the Company. If no successor Trustee with respect to the Securities of any series shall have been so appointed by the Company or the Holders of Securities and accepted appointment in the manner required by Section 610, any Holder of a Security who has been a bona fide Holder of a Security of such series for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series. (f) The Company shall give notice of each resignation and each removal of the Trustee with respect to the Securities of any series and each appointment of a successor Trustee with respect to the Securities of any series by mailing written notice of such event by first-class mail, postage prepaid, to the Holders of Registered Securities, if any, of such series as their names and addresses appear in the Security Register and, if Securities of such series are issued as Bearer Securities, by publishing notice of such event once in an Authorized Newspaper in each Place of Payment located outside the United States. Each notice shall include the name of the successor Trustee with respect to the Securities of such series and the address of its Corporate Trust Office. SECTION 610. Acceptance of Appointment by Successor. 51 (a) In case of the appointment hereunder of a successor Trustee with respect to all Securities, every such successor Trustee so appointed shall execute, acknowledge and deliver to the Company and to the predecessor Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the predecessor Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the predecessor Trustee; but, on the request of the Company or the successor Trustee, such predecessor Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the predecessor Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such predecessor Trustee hereunder. (b) In case of the appointment hereunder of a successor Trustee with respect to the Securities of one or more (but not all) series, the Company, the predecessor Trustee and each successor Trustee with respect to the Securities of one or more series shall execute and deliver an indenture supplemental hereto wherein each successor Trustee shall accept such appointment and which (1) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Trustee all the rights, powers, trusts and duties of the predecessor Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates, (2) if the predecessor Trustee is not resigning or being removed with respect to all Securities, shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the predecessor Trustee with respect to the Securities of that or those series as to which the predecessor Trustee is not resigning or being removed shall continue to be vested in the predecessor Trustee, and (3) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust, that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee and that no Trustee shall be responsible for any notice given to, or received by, or any act or failure to act on the part of any other Trustee hereunder, and upon the execution and delivery of such supplemental indenture the resignation or removal of the predecessor Trustee shall become effective to the extent provided therein, such predecessor Trustee shall with respect to the Securities of that or those series to which the appointment of such successor Trustee relates have no further responsibility for the exercise of rights and powers or for the performance of the duties and obligations vested in the Trustee under this Indenture other than as hereinafter expressly set forth, and each such successor Trustee without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the predecessor Trustee with respect to the Securities of that or those series to which the appointment of such predecessor Trustee relates; but, on request of the Company or any successor Trustee, such predecessor 52 Trustee shall duly assign, transfer and deliver to such successor Trustee, to the extent contemplated by such supplemental indenture, the property and money held by such retiring Trustee hereunder with respect to the Securities of that or those series to which the appointment of such successor Trustee relates. (c) Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts referred to in paragraph (a) or (b) of this Section, as the case may be. (d) No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article and the Trust Indenture Act. SECTION 611. Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article and the Trust Indenture Act, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities. SECTION 612. Appointment of Authenticating Agent. The Trustee may appoint an Authenticating Agent or Agents with respect to one or more series of Securities which shall be authorized to act on behalf of the Trustee to authenticate Securities of such series issued upon original issue, exchange, registration of transfer, partial redemption or pursuant to Section 306, and Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Wherever reference is made in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent must be acceptable to the Company and shall at all times be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of not less than $50,000,000 and subject to supervision or examination by Federal or State authority. 53 If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Authenticating Agent 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 an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section. Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent. An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee may appoint a successor Authenticating Agent which must be acceptable to the Company and shall (i) mail written notice of such appointment by first-class mail, postage prepaid, to all Holders of Registered Securities, if any, of the series with respect to which such Authenticating Agent will serve, as their names and addresses appear in the Security Register, and (ii) if Securities of the series are issued as Bearer Securities, publish notice of such appointment at least once in an Authorized Newspaper in the place where such successor Authenticating Agent has its principal office if such office is located outside the United States. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section. The Trustee agrees to pay each Authenticating Agent from time to time reasonable compensation for its services under this Section, and the Trustee shall be entitled to be reimbursed for such payments, subject to the provisions of Section 607. The provisions of Sections 308, 604 and 605 shall be applicable to each Authenticating Agent. 54 If an appointment with respect to one or more series is made pursuant to this Section, the Securities of such series may have endorsed thereon, in addition to the Trustee's certificate of authentication, an alternate certificate of authentication in the following form: This is one of the Securities of the series designated herein referred to in the within-mentioned Indenture. THE BANK OF NEW YORK, as Trustee Dated: ................. By ............................ As Authenticating Agent By ............................ Authorized Signatory If all of the Securities of any series will not be originally issued at one time, and if the Trustee does not have an office capable of authenticating Securities upon original issuance located in a Place of Payment where the Company wishes to have Securities of such series authenticated upon original issuance, the Trustee, if so requested in writing (which writing need not comply with Section 102) by the Company, shall appoint in accordance with this Section 612 an Authenticating Agent having an office in such Place of Payment designated by the Company with respect to such series of Securities. SECTION 613. Trustee's Application for Instructions from the Company. Any application by the Trustee for written instructions from the Company may, at the option of the Trustee, set forth in writing any action proposed to be taken or omitted by the Trustee under this Indenture and the date on and/or after which such action shall be taken or such omission shall be effective. Subject to Section 601 hereof and the Trust Indenture Act, the Trustee shall not be liable for any action taken by, or any omission of, the Trustee in accordance with such application on or after the date specified in such application (which date shall not be less than three business days after the date any officer of the Company actually receives such application, unless any such officer shall have consented in writing to any earlier date) unless prior to taking any such action (or the effective date in the case of an omission), the Trustee shall have received written instructions in response to such application specifying the action to be taken or omitted. ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 701. Company to Furnish Trustee Names and Addresses of Holders. 55 The Company will furnish or cause to be furnished to the Trustee (a) semi-annually, not later than fifteen days after the Regular Record Date for interest for each series of Securities, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders of Registered Securities of such series as of such Regular Record Date, or if there is no Regular Record Date for interest for such series of Securities, semi-annually, upon such dates as are set forth in the Board Resolution or indenture supplemental hereto authorizing such series, and (b) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished, provided, however, that, so long as the Trustee is the Security Registrar, no such list shall be required to be furnished. SECTION 702. Preservation of Information; Communications to Holders. The Trustee shall comply with the obligations imposed upon it pursuant to Section 312 of the Trust Indenture Act. Every Holder of Securities or coupons, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company, the Trustee, any Paying Agent or any Security Registrar shall be held accountable by reason of the disclosure of any information as to the names and addresses of the Holders of Securities in accordance with Section 312 of the Trust Indenture Act, regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under Section 312(b) of the Trust Indenture Act. SECTION 703. Reports by Trustee. (a) Within 60 days after April 30 of each year commencing with April 30, 1999 if required by Section 313(a) of the Trust Indenture Act, the Trustee shall transmit, pursuant to Section 313(c) of the Trust Indenture Act, a brief report dated as of such date with respect to any of the events specified in said Section 313(a) which may have occurred since the later of the immediately preceding April 30 and the date of this Indenture. (b) The Trustee shall transmit the reports required by Section 313(b) of the Trust Indenture Act at the times specified therein. (c) Reports pursuant to this Section shall be transmitted in the manner and to the Persons required by Sections 313(c) and 313(d) of the Trust Indenture Act. The 56 Company will notify the Trustee when any series of Securities are listed on any securities exchange. SECTION 704. Reports by Company. The Company shall: (1) File with the Trustee, within 30 days after the Company is required to file the same with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which the Company may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Exchange Act; or, if the Company is not required to file information, documents or reports pursuant to either of said sections, then it shall prepare in accordance with the rules and regulations prescribed from time to time by the Commission, such of the supplementary and periodic information, documents and reports which would have been required pursuant to Section 13 of the Exchange Act, in respect of a security listed and registered on a national securities exchange and shall file a copy thereof with the Trustee within 30 days after such supplementary and periodic information, documents and reports would have been required to be filed with the Commission; (2) File with the Trustee and the Commission, in accordance with the rules and regulations prescribed from time to time by the Commission, such additional information, documents and reports with respect to compliance by the Company with the conditions and covenants of this Indenture as may be required from time to time by such rules and regulations; and (3) Transmit within 30 days after the filing thereof with the Trustee, in the manner and to the extent provided in Section 703(c) with respect to reports pursuant to Section 703(a), such summaries of any information, documents and reports required to be filed by the Company pursuant to paragraphs (1) and (2) of this Section as may be required by rules and regulations prescribed from time to time by the Commission. (4) Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). 57 ARTICLE EIGHT MERGER, CONSOLIDATION AND SALE OF ASSETS SECTION 801. Merger, Consolidation and Sale of Assets. The Company shall not, in a single transaction or series of related transactions, consolidate or merge with or into any Person, or sell, assign, transfer, lease, convey or otherwise dispose of (or cause or permit any Subsidiary of the Company to sell, assign, transfer, lease, convey or otherwise dispose of) all or substantially all of the Company's assets (determined on a consolidated basis for the Company and the Company's Subsidiaries) to any Person, unless: (i) either (a) the Company shall be the surviving or continuing corporation or (b) the Person (if other than the Company) formed by such consolidation or into which the Company is merged or the Person which acquires by sale, assignment, transfer, lease, conveyance or other disposition all or substantially all of the Company's assets (the "Surviving Entity") (x) shall be a corporation organized and validly existing under the laws of the United States or any state thereof or the District of Columbia and (y) expressly assumes, by supplemental indenture (in form and substance satisfactory to the Trustee) executed and delivered to the Trustee, the due and punctual payment of the principal of, (and premium, if any) and interest on and Additional Amounts with respect to all of the Securities and the performance of every covenant of the Securities, this Indenture and any related agreement referred to herein, in a Board Resolution or in any indenture supplemental hereto on the part of the Company to be performed or observed; (ii) immediately after giving effect to such transaction and the assumption provided for in clause (i)(b)(y) above, the Company or such Surviving Entity, as the case may be, shall have a Consolidated Net Worth equal to at least 90% of the Consolidated Net Worth of the Company immediately prior to such transaction; (iii) immediately before and immediately after giving effect to such transaction and the assumption provided for in clause (i)(b)(y) above, no default or Event of Default shall have occurred and be continuing; and (iv) the Company or the Surviving Entity shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, sale, assignment, transfer, lease, conveyance or other disposition, and if a supplemental indenture is required in connection with such transaction, such supplemental indenture, comply with the applicable provisions of this Indenture and that all conditions precedent in this Indenture relating to such transaction have been satisfied. The transfer (by lease, assignment, sale or otherwise in a single transaction or series of transactions) of all or substantially all of the assets of one or more Subsidiaries of the Company, the Capital Stock of which constitutes all or substantially all of the assets of the Company, shall be deemed to be the transfer of all or substantially all of the assets of the Company. 58 SECTION 802. Rights and Duties of Successor Corporation. In case of any such consolidation, merger, sale, assignment, transfer, lease, conveyance or other disposition and upon any such assumption by the Surviving Entity, such Surviving Entity shall succeed to and be substituted for the Company, with the same effect as if it had been named herein as the party of the first part, and the predecessor corporation, except in the event of a lease, shall be relieved of any further obligation under this Indenture and the Securities and coupons. Such Surviving Entity thereupon may cause to be signed, and may issue either in its own name or in the name of the Company, any of the Securities and coupons issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee; and, upon the order of such Surviving Entity instead of the Company, and subject to all the terms, conditions and limitations in this Indenture prescribed, the Trustee shall authenticate and shall deliver any Securities and coupons which previously shall have been signed and delivered by the officers of the Company to the Trustee for authentication, and any Securities or coupons which such Surviving Entity thereafter shall cause to be signed and delivered to the Trustee for that purpose. All the Securities and coupons so issued shall in all respects have the same legal rank and benefit under this Indenture as the Securities and coupons theretofore or thereafter issued in accordance with the terms of this Indenture as though all of such Securities and coupons had been issued at the date of execution hereof. In case of any such consolidation, merger, sale, assignment, transfer, lease, conveyance or other disposition, such changes in phraseology and form (but not in substance) may be made in the Securities and coupons thereafter to be issued as may be appropriate. SECTION 803. Officers' Certificate and Opinion of Counsel. The Trustee, subject to the provisions of Sections 601 and 603, may receive an Officers' Certificate and an Opinion of Counsel as conclusive evidence that any such consolidation, merger, sale, assignment, transfer, lease, conveyance or other disposition, and any such assumption, complies with the provisions of this Article. ARTICLE NINE SUPPLEMENTAL INDENTURES SECTION 901. Supplemental Indentures without Consent of Holders. Without the consent of any Holders of Securities or coupons, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: 59 (1) to evidence the succession of a Surviving Entity to the Company, and the assumption by any such Surviving Entity of the covenants of the Company herein and in the Securities contained; or (2) to add to the covenants of the Company, for the benefit of the Holders of all or any series of Securities (and if such covenants are to be for the benefit of less than all series of Securities, stating that such covenants are expressly being included solely for the benefit of such series) or to surrender any right or power herein conferred upon the Company; or (3) to add to or change any of the provisions of this Indenture to provide that Bearer Securities may be registrable as to principal, to change or eliminate any restrictions on the payment of principal of (or premium, if any, on) Registered Securities or of principal of (or premium, if any) or any interest on Bearer Securities, to permit Registered Securities to be exchanged for Bearer Securities or to permit the issuance of Securities in uncertificated form, provided, that any such action shall not adversely affect the interests of the Holders of Securities of any series or any related coupons in any material respect; or (4) to establish the form of terms of Securities of any series as permitted by Sections 201 and 301; or (5) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities of one or more series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, pursuant to the requirements of Section 610 (b); or (6) to cure any ambiguity, to correct or supplement any provision herein which may be defective or inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture and which shall not be inconsistent with the provisions of this Indenture which shall not adversely affect the interest of the Holders of Securities of any series or any related coupons in any material respect; or (7) to add to, delete from or revise the conditions, limitations and restrictions on the authorized amount, terms or purposes of issue, authentication and delivery of Securities, as herein set forth. SECTION 902. Supplemental Indentures with Consent of Holders. With the consent of the Holders of not less than a majority in aggregate principal amount of the Outstanding Securities of each series affected by such supplemental indenture, 60 by the Act of said Holders delivered to the Company and the Trustee, the Company, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of Securities of such series under this Indenture or any Supplemental Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby, (1) other than in the manner specified in any agreement entered into contemporaneously with the issuance of such series of Securities, change the Stated Maturity of the principal of or any installment of principal of or interest on any Security; or reduce the principal amount thereof or the rate of interest thereon or any Additional Amounts payable in respect thereof or any premium payable upon the redemption thereof; or change the obligation of the Company to pay Additional Amounts pursuant to Section 1004 (except as contemplated by Section 801(i) and permitted by Section 901(1)); or reduce the amount of the principal of an Original Issue Discount Security that would be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 502; or change any Place of Payment where or the coin or currency in which any Security or any principal therefor, premium or interest thereon is payable; or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date); or (2) reduce the percentage in principal amount of the Outstanding Securities of such series, the consent of whose Holders is required for any such supplemental indenture or the consent of whose Holders is required for any waiver of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences provided for in this Indenture; or reduce the requirements of Section 1404 for quorum or voting, or (3) modify any of the provisions of this Section, or Section 513, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby. A supplemental indenture which changes or eliminates any covenant or other provision of this Indenture which has expressly been included solely for the benefit of one or more particular series of Securities, or which modifies the rights of the Holders of Securities of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities of any other series. 61 It shall not be necessary for any Act of Holders of Securities under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. SECTION 903. Execution of Supplemental Indentures. In executing or accepting the additional trusts created by any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 601) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. SECTION 904. Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder and of any coupons appertaining thereto shall be bound thereby. SECTION 905. Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act as then in effect. SECTION 906. Reference in Securities to Supplemental Indentures. Securities of any series authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities of any series so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities of such series. ARTICLE TEN COVENANTS SECTION 1001. Payment of Principal, Premium, if any, and Interest. 62 The Company, for the benefit of the Holders of each series of Securities, will duly and punctually pay the principal of (and premium, if any) and interest on and any Additional Amounts payable in respect of the Securities of such series in accordance with the terms of such series of Securities, any coupons appertaining thereto and this Indenture. Any interest due on and any Additional Amounts payable in respect of Bearer Securities on or before Maturity, other than Additional Amounts, if any, payable as provided in Section 1004 in respect of principal of (or premium, if any, on) such a Security, shall be payable only upon presentation and surrender of the several coupons for such interest installments as are evidenced thereby as they severally mature. SECTION 1002. Maintenance of Office or Agency. The Company will maintain in each Place of Payment for any series of Securities an office or agency where Securities of that series (but not Bearer Securities, except as otherwise provided below, unless such Place of Payment is located outside the United States) may be presented or surrendered for payment, where Securities of that series may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Securities of that series and this Indenture may be served. If Securities of a series are issuable as Bearer Securities, the Company will maintain, subject to any laws or regulations applicable thereto, an office or agency in a Place of Payment for such series which is located outside the United States where Securities of such series and the related coupons may be presented and surrendered for payment (including payment of any Additional Amounts payable on Securities of such series pursuant to Section 1004); provided, however, that if the Securities of such series are listed on The Stock Exchange of the United Kingdom and the Republic of Ireland or the Luxembourg Stock Exchange or any other stock exchange located outside the United States and such stock exchange shall so require, the Company will maintain a Paying Agent in London, Luxembourg or any other required city located outside the United States, as the case may be, so long as the Securities of such series are listed on such exchange. The Company will give prompt written notice to a Responsible Officer of 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, except that Bearer Securities of that series and the related coupons may be presented and surrendered for payment (including payment of any Additional Amounts payable on Bearer Securities of that series pursuant to Section 1004) at the place specified for the purpose pursuant to Section 301, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. Except as otherwise provided in the form of Bearer Security of any particular series pursuant to the provisions of this Indenture, no payment of principal, premium or interest on Bearer Securities shall be made at any office or agency of the Company in the United States or by check mailed to any address in the United States or by transfer to an account maintained 63 with a bank located in the United States; provided, however, that payment of principal of and any premium and interest in U.S. dollars (including Additional Amounts payable in respect thereof) on any Bearer Security may be made at the Corporate Trust Office of the Trustee in the Borough of Manhattan, The City of New York if (but only if) payment of the full amount of such principal, premium, interest or Additional Amounts at all offices outside the United States maintained for the purpose by the Company in accordance with this Indenture is illegal or effectively precluded by exchange controls or other similar restrictions. The Company may also from time to time designate one or more other offices or agencies where the Securities of one or more series 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 each Place of Payment for Securities of a series for such purposes. The Company will 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. Unless otherwise set forth in a Board Resolution or indenture supplemental hereto with respect to a series of Securities, the Company hereby designates as the Place of Payment for each series of Securities the Borough of Manhattan, The City of New York, and initially appoints the Trustee at its Corporate Trust Office as the Company's office or agency for each of such purposes in such city. SECTION 1003. Money for Securities Payments to be Held in Trust. If the Company shall at any time act as its own Paying Agent with respect to any series of Securities, it will, on or before each due date of the principal of (and premium, if any) or interest on any of the Securities of that series, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal (and premium, if any) or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided, and will promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents for any series of Securities, it will, on or prior to each due date of the principal of (and premium, if any) or interest on any Securities of that series, deposit with a Paying Agent a sum sufficient to pay the principal (and premium, if any) or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium or interest, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act. The Company will cause each Paying Agent for any series of Securities other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will 64 (1) hold all sums held by it for the payment of the principal of (and premium, if any) or interest on Securities of that series in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (2) give the Trustee notice of any default by the Company (or any other obligor upon the Securities of that series) in the making of any payment of principal (and premium, if any) or interest on the Securities of that series; and (3) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Except as otherwise provided in the form of Securities of any particular series pursuant to the provisions of this Indenture, any money deposited with the Trustee or any Paying Agent or then held by the Company, in trust, for the payment of the principal of (and premium, if any) or interest on any Security of any series and remaining unclaimed for two years after such principal (and premium, if any) or interest has become due and payable shall be paid to the Company on Company Request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security or any coupon appertaining thereto shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof and all liability of the Trustee or such Paying Agent with respect to such trust money and all liability of the Company as trustee thereof shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once in an Authorized Newspaper in each Place of Payment or to be mailed to Holders of Registered Securities, or both, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication or mailing, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 1004. Additional Amounts. (a) If the Securities of a series provide for the payment of Additional Amounts, the Company will pay to the Holder of any Security of such series or any coupon appertaining thereto Additional Amounts as provided therein. Whenever in this Indenture there is 65 mentioned, in any context, the payment of the principal of (or premium, if any) or interest on or in respect of any Security of any series or any related coupon or the net proceeds to be received on the sale or exchange of any Security of any series, such mention shall be deemed to include mention of the payment of Additional Amounts provided for in this Section to the extent that, in such context, Additional Amounts are, were or would be payable in respect thereof pursuant to the provisions of this Section and such Security and express mention of the payment of Additional Amounts (if applicable) in any provisions hereof shall not be construed as excluding Additional Amounts in those provisions hereof where such express mention is not made. (b) If the Securities of a series are issuable as Bearer Securities and provide for the payment of Additional Amounts, at least 10 days prior to the first Interest Payment Date with respect to that series of Securities (or if the Securities of that series will not bear interest prior to Maturity, the first day on which a payment of principal (and premium, if any) is made), and at least 10 days prior to each date of payment of principal (and premium, if any) or interest if there has been any change with respect to the matters set forth in the below-mentioned Officers' Certificate, the Company will furnish the Trustee and the Company's principal Paying Agent or Paying Agents, if other than the Trustee, with an Officers' Certificate instructing the Trustee and such Paying Agent or Paying Agents whether such payment of principal (and premium, if any) or interest on the Securities of that series shall be made to Holders of Securities of that series or the related coupons who are United States Aliens without withholding for or on account of any tax, assessment or other governmental charge described in the Securities of that series. If any such withholding shall be required, then such Officers' Certificate shall specify by country the amount, if any, required to be withheld on such payments to such Holders of Securities or coupons and the Company will pay to the Trustee or such Paying Agent the Additional Amounts required by this Section. The Company will indemnify the Trustee and any Paying Agent for, and hold them harmless against, any loss, liability or expense reasonably incurred without negligence, bad faith or intentional misconduct on their part arising out of or in connection with actions taken or omitted by any of them in reliance on any Officers' Certificate furnished pursuant to this Section. SECTION 1005. Statement as to Compliance The Company will deliver to the Trustee, within 120 days after the end of each fiscal year, a written statement, which need not comply with Section 102, signed by the Chairman of the Board, the President or a Vice President and by the Treasurer, an Assistant Treasurer, the Controller or an Assistant Controller of the Company, stating, as to each signer thereof, that (a) a review of the activities of the Company during such year and of performance under this Indenture has been made under his supervision, and (b) to the best of his knowledge, based on such review, (i) the Company has fulfilled all of its obligations under this Indenture throughout such year, or, if there has 66 been a default in the fulfillment of any such obligation, specifying each such default known to him and the nature and status thereof, and (ii) no event has occurred and is continuing which is, or after notice or lapse of time or both would become, an Event of Default, or, if such an event has occurred and is continuing, specifying each such event known to him and the nature and status thereof. SECTION 1006. Waiver of Certain Covenants. The Company may omit in any particular instance to comply with any term, provision or condition set forth in Sections 1003 to 1005, inclusive or any covenants contained in any Supplemental Indenture, with respect to the Securities of any series if before the time for such compliance the Holders of at least a majority in principal amount of the Outstanding Securities of such series shall, by Act of such Holders, either waive such compliance in such instance or generally waive compliance with such term, provision or condition, but no such waiver shall extend to or affect such term, provision or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such term, provision or condition shall remain in full force and effect. SECTION 1007. Calculation of Original Issue Discount. The Company shall file with the Trustee promptly at the end of each calendar year (i) a written notice specifying the amount of original issue discount (including daily rates and accrual periods) accrued on the Outstanding Securities of any series as of the end of such year and (ii) such other specific information relating to such original issue discount as may then be relevant under the Internal Revenue Code of 1986, as amended from time to time. ARTICLE ELEVEN REDEMPTION OF SECURITIES SECTION 1101. Applicability of Article. Redemption of Securities of any series at the option of the Company as permitted or required by the terms of such Securities shall be made in accordance with the terms of such Securities and this Article. SECTION 1102. Election to Redeem; Notice to Trustee. The election of the Company to redeem any Securities shall be evidenced by a Company Order. In case of any redemption at the election of the Company of less than all of the Securities of any series with the same issue date, interest rate and Stated Maturity, the Company shall, at least 60 days prior to the Redemption Date fixed by the Company (unless a 67 shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount of Securities of such series to be redeemed. SECTION 1103. Selection by Trustee of Securities to be Redeemed. If less than all the Securities of any series with the same issue date, interest rate and Stated Maturity are to be redeemed, the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee from the Outstanding Securities of such series not previously called for redemption by such method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions of the principal amount of Registered Securities of such series; provided, however, that no such partial redemption shall reduce the portion of the principal amount of a Registered Security of such series not redeemed to less than the minimum denomination for a Security of that series established pursuant to Section 302. The Trustee shall promptly notify the Company and the Security Registrar (if other than itself) in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Securities redeemed or to be redeemed only in part, to the portion of the principal of such Securities which has been or is to be redeemed. SECTION 1104. Notice of Redemption. Notice of redemption shall be given in the manner provided in Section 106, not less than 30 nor more than 60 days prior to the Redemption Date, unless a shorter period is specified in the Securities to be redeemed, to the Holders of Securities to be redeemed. Failure to give notice by mailing in the manner herein provided to the Holder of any Registered Securities designated for redemption as a whole or in part, or any defect in the notice to any such Holder, shall not affect the validity of the proceedings for the redemption of any other Securities or portions thereof. Any notice that is mailed to the Holder of any Registered Securities in the manner herein provided shall be conclusively presumed to have been duly given, whether or not such Holder receives the notice. All notices of redemption shall fully identify the Securities (including the Cusip Number), if any, and shall state: (1) the Redemption Date, (2) the Redemption Price, 68 (3) if less than all Outstanding Securities of any series are to be redeemed, the identification (and, in the case of partial redemption, the principal amount) of the particular Securities to be redeemed, (4) in case any Registered Security is to be redeemed in part only, the notice which relates to such Security shall state that on and after the Redemption Date, upon surrender of such Security, the Holder of such Security will receive, without charge, a new Registered Security or Registered Securities of authorized denominations for the principal amount thereof remaining unredeemed, (5) that on the Redemption Date the Redemption Price will become due and payable upon each such Security to be redeemed, and, if applicable, that interest thereon shall cease to accrue on and after said date, (6) the place or places where such Securities, together in the case of Bearer Securities with all coupons appertaining thereto, if any, maturing after the Redemption Date, are to be surrendered for payment of the Redemption Price, and (7) that the redemption is for a sinking fund, if such is the case. A notice of redemption published as contemplated by Section 106 need not identify particular Registered Securities to be redeemed. Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. SECTION 1105. Deposit of Redemption Price. On or prior to any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1003) an amount of money sufficient to pay the Redemption Price of and (except if the Redemption Date shall be an Interest Payment Date) accrued interest on and any Additional Amounts with respect to all the Securities or portions thereof which are to be redeemed on that date. SECTION 1106. Securities Payable on Redemption Date. Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall on the Redemption Date become due and payable at the Redemption Price therein specified, and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Securities shall cease to bear interest and the coupons for such interest appertaining to any Bearer Securities so to be redeemed, except to 69 the extent provided below, shall be void. Upon surrender of any such Security for redemption in accordance with said notice, together with all coupons, if any, appertaining thereto maturing after the Redemption Date, such Security shall be paid by the Company at the Redemption Price, together with accrued interest (and any Additional Amounts) to the Redemption Date; provided, however, that installments of interest on Bearer Securities whose Stated Maturity is on or prior to the Redemption Date shall be payable only upon presentation and surrender of coupons for such interest at an office or agency located outside the United States except as otherwise provided in Section 1002; and provided, further, that installments of interest on Registered Securities whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 307. If any Bearer Security surrendered for redemption shall not be accompanied by all appurtenant coupons maturing after the Redemption Date, such Security may be paid after deducting from the Redemption Price an amount equal to the face amount of all such missing coupons, or the surrender of such missing coupon or coupons may be waived by the Company and the Trustee if there be furnished to them such security or indemnity as they may require to save each of them and any Paying Agent harmless. If thereafter the Holder of such Security shall surrender to the Trustee or any Paying Agent any such missing coupon in respect of which a deduction shall have been made from the Redemption Price, such Holder shall be entitled to receive the amount so deducted; provided, however, that interest (and any Additional Amounts) represented by coupons shall be payable only upon presentation and surrender of those coupons at an office or agency located outside of the United States except as otherwise provided in Section 1002. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal (and premium, if any) shall, until paid, bear interest from the Redemption Date at the rate prescribed therefor in the Security. SECTION 1107. Securities Redeemed in Part. Any Registered Security which is to be redeemed only in part shall be surrendered at any office or agency of the Company maintained for that purpose pursuant to Section 1002 (with, if the Company or the Trustee so requires, due endorsement by or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by the Holder thereof or his attorney duly authorized in writing) and the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Registered Security or Securities of the same series, containing identical terms and provisions, of any authorized denomination as requested by such Holder in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered. If a Security in global form is so surrendered, the Company shall execute, and the Trustee shall authenticate and deliver to the U.S. Depository or other depository for such 70 Security in such global form as shall be specified in the Company Order with respect thereto to the Trustee, without service charge, a new Security in global form in a denomination equal to and in exchange for the unredeemed portion of the principal of the Security in global form so surrendered. ARTICLE TWELVE SINKING FUNDS SECTION 1201. Applicability of Article. The provisions of this Article shall be applicable to any sinking fund for the retirement of Securities of a series, except as otherwise permitted or required by any form of Security of any series issued pursuant to this Indenture. The minimum amount of any sinking fund payment provided for by the terms of Securities of any series is herein referred to as a "mandatory sinking fund payment", and any payment in excess of such minimum amount provided for by the terms of Securities of such series is herein referred to as an "optional sinking fund payment". If provided for by the terms of Securities of any series, the cash amount of any sinking fund payment may be subject to reduction as provided in Section 1202. Each sinking fund payment shall be applied to the redemption of Securities of any series as provided for by the terms of Securities of such series. SECTION 1202. Satisfaction of Sinking Fund Payments with Securities. The Company may, in satisfaction of all or any part of any sinking fund payment with respect to the Securities of any series, if provided for by the terms of such series, (1) deliver Outstanding Securities of such series (other than any of such Securities previously called for redemption or any of such Securities in respect of which cash shall have been released to the Company), together in the case of any Bearer Securities of such series with all unmatured coupons appertaining thereto, and (2) apply as a credit Securities of such series which have been redeemed either at the election of the Company pursuant to the terms of such series of Securities or through the application of optional sinking fund payments pursuant to the terms of such Securities or otherwise acquired by the Company; provided that such Securities have not been previously so credited. Such Securities shall be received and credited for such purpose by the Trustee at the Redemption Price specified in such Securities for redemption through operation of the sinking fund and the amount of such sinking fund payment shall be reduced accordingly. If as a result of the delivery or credit of Securities of any series in lieu of cash payments pursuant to this Section 1202 the principal amount of Securities of such series to be redeemed in order to exhaust the aforesaid cash payment shall be less than $100,000, the Trustee need not call Securities of such series for redemption, except upon Company Request, and such cash payment shall be held by the Trustee or a Paying Agent and applied to the next succeeding sinking fund payment; provided, however, that the Trustee or such Paying Agent 71 shall at the request of the Company from time to time pay over and deliver to the Company any cash payment so being held by the Trustee or such Paying Agent upon delivery by the Company to the Trustee of Securities of that series having an unpaid principal amount equal to the cash payment requested to be released to the Company. SECTION 1203. Redemption of Securities for Sinking Fund. Not less than 60 days prior to each sinking fund payment date for any series of Securities, the Company will deliver to the Trustee an Officers' Certificate specifying the amount of the next ensuing mandatory sinking fund payment for that series pursuant to the terms of that series, the portion thereof, if any, which is to be satisfied by payment of cash and the portion thereof, if any, which is to be satisfied by delivering and crediting Securities of that series pursuant to Section 1202, and the optional amount, if any, to be added in cash to the next ensuing mandatory sinking fund payment, and will also deliver to the Trustee any Securities to be so credited and not theretofore delivered. If such Officers' Certificate shall specify an optional amount to be added in cash to the next ensuing mandatory sinking fund payment, the Company shall thereupon be obligated to pay the amount therein specified. Not less than 30 days before each such sinking fund payment date the Trustee shall select the Securities to be redeemed upon such sinking fund payment date in the manner specified in Section 1103 and cause notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in Section 1104. Such notice having been duly given, the redemption of such Securities shall be made upon the terms and in the manner stated in Sections 1106 and 1107. ARTICLE THIRTEEN REPAYMENT AT THE OPTION OF HOLDERS SECTION 1301. Applicability of Article. Securities of any series which are repayable at the option of the Holders thereof before their Stated Maturity shall be repaid in accordance with the terms of the Securities of such series. The repayment of any principal amount of Securities pursuant to such option of the Holder to require repayment of Securities before their Stated Maturity, for purposes of Section 309 shall not operate as a payment, redemption or satisfaction of the indebtedness represented by such Securities unless and until the Company, at its option, shall deliver or surrender the same to the Trustee with a directive that such Securities be cancelled. Notwithstanding anything to the contrary contained in this Article Thirteen, in connection with any repayment of Securities, the Company may arrange for the purchase of any Securities by an agreement with one or more investment bankers or other purchasers to purchase such Securities by paying to the Holders of such Securities on or before the close of business on the repayment date an amount not less than the repayment price payable by the Company on repayment of such 72 Securities, and the obligation of the Company to pay the repayment price of such Securities shall be satisfied and discharged to the extent such payment is so paid by such purchasers. ARTICLE FOURTEEN MEETINGS OF HOLDERS OF SECURITIES SECTION 1401. Purposes for Which Meetings May Be Called. If Securities of a series are issuable as Bearer Securities, a meeting of Holders of Securities of such series may be called at any time and from time to time pursuant to this Article to make, give or take any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be made, given or taken by Holders of Securities of such series. SECTION 1402. Call, Notice and Place of Meetings. (a) The Trustee may at any time call a meeting of Holders of Securities of any series for any purpose specified in Section 1401, to be held at such time and at such place as the Trustee shall determine. Notice of every meeting of Holders of Securities of any series, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting, shall be given, in the manner provided in Section 106, not less than 21 nor more than 180 days prior to the date fixed for the meeting. (b) In case at any time the Company, pursuant to a Board Resolution, or the Holders of at least 25% in principal amount of the Outstanding Securities of any series shall have requested the Trustee to call a meeting of the Holders of Securities of such series for any purpose specified in Section 1401, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have arranged the first publication of the notice of such meeting within 21 days after receipt of such request or shall not thereafter proceed to cause the meeting to be held as provided herein, then the Company or the Holders of Securities of such series in the amount above specified, as the case may be, may determine the time and the place for such meeting and may call such meeting for such purposes by giving notice thereof as provided in subsection (a) of this Section. SECTION 1403. Persons Entitled to Vote at Meetings. To be entitled to vote at any meeting of Holders of Securities of any series, a Person shall be (1) a Holder of one or more Outstanding Securities of such series, or (2) a Person appointed by an instrument in writing as proxy for a Holder or Holders of one or more Outstanding Securities of such series by such Holder or Holders. The only Persons who shall 73 be entitled to be present or to speak at any meeting of Holders of Securities of any series shall be the Persons entitled to vote at such meeting and their counsel, any representatives of the Trustee and its counsel and any representatives of the Company and its counsel. SECTION 1404. Quorum; Action. The Persons entitled to vote a majority in principal amount of the Outstanding Securities of a series shall constitute a quorum for a meeting of Holders of Securities of such series; provided, however, that if any action is to be taken at such meeting with respect to a consent or waiver which this Indenture expressly provides may be given by the Holders of a specified percentage in aggregate principal amount of the Outstanding Securities of a series that is less or greater than a majority in principal amount of the Outstanding Securities of such series, then, with respect to such action (and only such action) the Persons entitled to vote such lesser or greater percentage in principal amount of the Outstanding Securities of such series shall constitute a quorum. In the absence of a quorum within 30 minutes of the time appointed for any such meeting, the meeting shall, if convened at the request of Holders of Securities of such series, be dissolved. In any other case the meeting may be adjourned for a period of not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such meeting. In the absence of a quorum at any such reconvened meeting, such reconvened meeting may be further adjourned for a period of not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such reconvened meeting. Notice of the reconvening of any adjourned meeting shall be given as provided in Section 1402(a), except that such notice need be given only once not less than five days prior to the date on which the meeting is scheduled to be reconvened. Notice of the reconvening of an adjourned meeting shall state expressly the percentage, as provided above, of the principal amount of the Outstanding Securities of such series which shall constitute a quorum. Except as limited by the proviso to Section 902, any resolution presented to a meeting or adjourned meeting duly reconvened at which a quorum is present as aforesaid may be adopted by the affirmative vote of the Holders of a majority in principal amount of the Outstanding Securities of that series; provided, however, that, except as limited by the proviso to Section 902, any resolution with respect to any request, demand, authorization, direction, notice, consent, waiver or other action which this Indenture expressly provides may be made, given or taken by the Holders of a specified percentage, which is less or greater than a majority in principal amount of the Outstanding Securities of a series, may be adopted at a meeting or an adjourned meeting duly reconvened and at which a quorum is present as aforesaid by the affirmative vote of the Holders of such specified percentage in principal amount of the Outstanding Securities of that series. Any resolution passed or decision taken at any meeting of Holders of Securities of any series duly held in accordance with this Section shall be binding on all the Holders of Securities of such series and the related coupons, whether or not present or represented at the meeting. 74 SECTION 1405. Determination of Voting Rights; Conduct and Adjournment of Meetings. (a) Notwithstanding any other provisions of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of Holders of Securities of any series in regard to proof of the holding of Securities of such series and of the appointment of proxies and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall deem appropriate. Except as otherwise permitted or required by any such regulations, the holding of Securities shall be proved in the manner specified in Section 104 and the appointment of any proxy shall be proved in the manner specified in Section 104 or by having the signature of the person executing the proxy witnessed or guaranteed by any trust company, bank or banker authorized by Section 104 to certify to the holding of Bearer Securities. Such regulations may provide that written instruments appointing proxies, regular on their face, may be presumed valid and genuine without the proof specified in Section 104 or other proof. (b) The Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by the Company or by Holders of Securities as provided in Section 1402(b), in which case the Company or the Holders of Securities of the series calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by vote of the Persons entitled to vote a majority in principal amount of the Outstanding Securities of such series represented at the meeting. (c) At any meeting of the Holders of Securities of a series, each Holder of a Security of such series or proxy shall be entitled to one vote for each $1,000 principal amount of Securities of such series held or represented by him; provided, however, that no vote shall be cast or counted at any meeting in respect of any Security challenged as not Outstanding and ruled by the chairman of the meeting to be not Outstanding. The chairman of the meeting shall have no right to vote, except as a Holder of a Security of such series or proxy. (d) Any meeting of Holders of Securities of any series duly called pursuant to Section 1402 at which a quorum is present may be adjourned from time to time by Persons entitled to vote a majority in principal amount of the Outstanding Securities of such series represented at the meeting; and the meeting may be held as so adjourned without further notice. SECTION 1406. Counting Votes and Recording Action of Meetings. 75 The vote upon any resolution submitted to any meeting of Holders of Securities of any series shall be by written ballots on which shall be subscribed the signatures of the Holders of Securities of such series or of their representatives by proxy and the principal amounts and serial numbers of the Outstanding Securities of such series held or represented by them. The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in triplicate of all votes cast at the meeting. A record, at least in triplicate, of the proceedings of each meeting of Holders of Securities of any series shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was given as provided in Section 1402 and, if applicable, Section 1404. Each copy shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one such copy shall be delivered to the Company, and another to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting. Any record so signed and verified shall be conclusive evidence of the matters therein stated. ARTICLE FIFTEEN MISCELLANEOUS PROVISIONS SECTION 1501 Securities in Foreign Currencies. Whenever this Indenture provides for (i) any action by, or the determination of any of the rights of, Holders of Securities of any series in which not all of such Securities are denominated in the same currency, or (ii) any distribution to Holders of Securities, in the absence of any provision to the contrary in the form of Security of any particular series, any amount in respect of any Security denominated in a currency other than United States dollars shall be treated for any such action or distribution as that amount of United States dollars that could be obtained for such amount on such reasonable basis of exchange and as of the record date with respect to Registered Securities of such series (if any) for such action, determination of rights or distribution (or, if there shall be no applicable record date, such other date reasonably proximate to the date of such action, determination of rights or distribution) as the Company may specify in a written notice to the Trustee or, in the absence of such written notice, as the Trustee may determine. * * * * * This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. 76 IN WITNESS WHEREOF, the parties hereto have caused this Indenture, to be duly executed as of the day and year first above written: UNITED STATES FILTER CORPORATION By: ------------------------- Name: Attest: ------------------- Secretary THE BANK OF NEW YORK, as Trustee By: ------------------------- Name: Title: Attest: ------------------- 77 EX-4.3 3 SUPPLEMENTAL INDENTURE EXHIBIT 4.3 UNITED STATES FILTER CORPORATION AND THE BANK OF NEW YORK Trustee _________________________________________ FIRST SUPPLEMENTAL INDENTURE Dated as of May 19, 1998 Supplementing the Indenture Dated as of May 19, 1998 _________________________________________ $900,000,000 $500,000,000 6.375% Remarketable or Redeemable Securities ("ROARS/SM/") Due 2011 (Remarketing Date May 15, 2001) $400,000,000 6.50% Remarketable or Redeemable Securities ("ROARS/SM/") Due 2013 (Remarketing Date May 15, 2003) /SM/ Service mark of NationsBanc Montgomery Securities LLC SUPPLEMENTAL INDENTURE, dated as of the 19th day of May, 1998, between United States Filter Corporation, a Delaware corporation (the "Company"), and The Bank of New York, a New York banking corporation, as trustee (the "Trustee"). WHEREAS, the Company has heretofore executed and delivered to the Trustee an Indenture dated as of May 19, 1998 (the "Original Indenture" and, together with this First Supplemental Indenture, the "Indenture") providing for the issuance by the Company from time to time of its debt securities to be issued in one or more series (in the Original Indenture and herein called the "Securities"); and WHEREAS, the Company, in the exercise of the power and authority conferred upon and reserved to it under the provisions of the Original Indenture, has duly determined to make, execute and deliver to the Trustee this First Supplemental Indenture to the Original Indenture in order to establish the forms and terms of, and to provide for the creation and issue of two series of Securities designated as the 6.375% Remarketable or Redeemable Securities (the "6.375% ROARS/SM/")/1/ due May 15, 2011 (the "6.375% ROARS Maturity Date") and the 6.50% Remarketable or Redeemable Securities (the "6.50% ROARS") due May 15, 2013 (the "6.50% ROARS Maturity Date") under the Original Indenture in the aggregate principal amount of $900,000,000; and WHEREAS, all things necessary to make the 6.375% ROARS and the 6.50% ROARS, when executed by the Company and authenticated and delivered by the Trustee and issued upon the terms and subject to the conditions hereinafter and in the Indenture set forth, against payment therefor, the valid, binding and legal obligations of the Company and to make this First Supplemental Indenture a valid, binding and legal agreement of the Company, have been done; NOW, THEREFORE, THIS FIRST SUPPLEMENTAL INDENTURE WITNESSETH that, in order to establish the terms of two series of Securities designated as the "6.375% Remarketable or Redeemable Securities due May 15, 2011" and the "6.50% Remarketable or Redeemable Securities due May 15, 2013", and for, and in consideration of, the premises and of the covenants contained in the Original Indenture and in this First Supplemental Indenture and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, it is covenanted and agreed as follows: - -------------- /1/"ROARS/SM/" is a Service mark owned by NationsBanc Montgomery Securities LLC 2 ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 101. Definitions. Each capitalized term that is used herein ----------- and is defined in the Original Indenture shall have the meaning specified in the Original Indenture unless such term is otherwise defined herein. "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 specified 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. "Applicable Spread" has the meaning specified in Section 204. "Attributable Debt" in respect of a Sale/Leaseback Transaction means, at the time of determination, the present value (discounted at the interest rate implicit in such transaction in accordance with GAAP) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale/Leaseback Transaction (including any period for which such lease has been extended). "Base Rate" has the meaning specified in Section 204. "Bid" has the meaning specified in Section 204. "Beneficial Owner" has the meaning specified in Section 204. "Board of Directors" means the Board of Directors of the Company or any committee thereof duly authorized to act on behalf of such Board. "Business Day" has the meaning specified in Section 203. "Capital Lease Obligation" means an obligation that is required to be classified and accounted for as a capital lease for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligation 3 shall be the capitalized amount of such obligation determined in accordance with GAAP. "Comparable Treasury Issues" has the meaning specified in Section 204. "Comparable Treasury Price" has the meaning specified in Section 204. "Consolidated Tangible Assets" means Total Assets less the sum of (a) the total book value of all assets of the Company and its Subsidiaries properly classified as intangible assets under GAAP, including such items as goodwill, the purchase price of acquired assets in excess of the fair market value thereof, trademarks, trade names, service marks, customer lists, brand names, copyrights, patents and licenses, and rights with respect to the foregoing, and (b) all amounts representing any write-up in the book value of any assets of the Company or its Subsidiaries resulting from a revaluation thereof subsequent to the date of the Company's then most recent audited financial statements. "Convertible Notes" means the 6% Convertible Subordinated Notes due 2005 of the Company and the 4 1/2% Convertible Subordinated Notes due 2001 of the Company. "Currency Agreement" means, with respect to any Person, any foreign exchange contract, currency swap agreement or other similar agreement to which such Person is a party or of which such Person is a beneficiary. "Determination Date" has the meaning specified in Section 204. "Dollar Price" has the meaning specified in Section 204. "DTC" has the meaning specified in Section 204. "DTC Participant" shall mean any person that has an account with DTC through which a Beneficial Owner may acquire, directly or indirectly, an interest in the ROARS. "Hedging Obligations" of any Person means the obligations of such Person pursuant to any Interest Rate Agreement or Currency Agreement. "Incur" means issue, assume, guarantee, incur or otherwise become liable for; provided, however, that any Indebtedness or Capital Stock of a Person existing at the time such Person becomes a Subsidiary of another Person (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred by such Person at the time it becomes such a Subsidiary; provided, further, however, that in the case of a discount security, neither the accrual of interest nor the accretion 4 of original issue discount shall be considered an Incurrence of Indebtedness, but the entire face amount of such security shall be deemed Incurred upon the issuance of such security. The term "Incurrence" when used as a noun shall have a correlative meaning. "Indebtedness" means, with respect to any Person on any date of determination (without duplication), (i) the principal of and premium (if any) in respect of (A) indebtedness of such Person for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable; (ii) all Capital Lease Obligations of such Person and all Attributable Debt in respect of Sale/Leaseback Transactions entered into by such Person; (iii) the amount of all obligations of such Person with respect to the redemption, repayment or other repurchase of any Disqualified Capital Stock or, with respect to any Subsidiary of such Person, any Preferred Stock (but excluding, in each case, any accrued dividends); and (iv) all obligations of the type referred to in clauses (i) and (iii) of other Persons and all dividends of other Persons for the payment of which, in either case, such Person is responsible or liable, directly or indirectly, as obligor, guarantor or otherwise. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations as described above at such date; provided, however, that the amount outstanding at any time of any Indebtedness issued with original issue discount shall be deemed to be the face amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness at such time as determined in conformity with GAAP. "Interest Payment Date" has the meaning specified in Section 203. "Interest Rate Agreement" means any interest rate swap agreement, interest rate cap agreement or other financial agreement or arrangement designed to protect the Company or any Subsidiary of the Company against fluctuations in interest rates. "Interest Rate to Maturity" has the meaning specified in Section 203. "Issue Date" means the date on which the ROARS are originally issued. "Joint Venture" means a joint venture, partnership or other similar arrangement, whether in corporate, partnership or other legal form; provided, however, that, as to any such arrangement in corporate form, such corporation shall 5 not, as to any Person of which such corporation is a Subsidiary, be considered to be a Joint Venture to which such Person is a party. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof). "Notification Date" has the meaning specified in Section 204. "Offering Circular" has the meaning specified in Section 205. "Permitted Liens" means any (i) Liens arising by reason of (x) operation of law in favor of carriers, warehousemen, landlords, mechanics, materialmen, laborers, employees or suppliers in existence for less than 120 days or for more than 120 days which are not yet delinquent or are being contested in good faith by negotiations or by appropriate proceedings which suspend the collection thereof or (y) any interest or title of a lessor under any lease; (ii) Liens in favor of the Company; (iii) Liens on property of a Person existing at the time such Person is acquired by, merged into or consolidated with the Company or any Subsidiary of the Company; provided that such Liens were not incurred in contemplation of such acquisition, merger or consolidation and do not extend to any assets other than those of the Person acquired by, merged into or consolidated with the Company or any such Subsidiary; (iv) Liens on property existing at the time of acquisition thereof by the Company or any Subsidiary of the Company; provided that such Liens were not incurred in contemplation of such acquisition; (v) Liens existing on the date of the Indenture; (vi) Liens to secure taxes, assessments and other government charges or claims for labor, material or supplies (x) in respect of obligations which are not overdue or (y) which are currently being contested in good faith by appropriate proceedings if the Company has set aside on its books adequate reserves with respect thereto, if required, and if no proceedings have been commenced to foreclose any such Lien; (vii) deposits or pledges made in connection with, or to secure payment of, workmen's compensation, unemployment insurance, old age pensions or other social security obligations; (viii) Liens in respect of judgments or awards which have been in force for less than the applicable period for taking an appeal, so long as execution is not levied thereunder, or in respect of which the Company or one of its Subsidiaries, as the case may be, at the time in good faith is prosecuting an appeal or proceedings for review and in respect of which the Company and its Subsidiaries have maintained reserves in an amount satisfactory to the Company; (ix) encumbrances consisting of easements, rights of way, zoning restrictions, restrictions on the use of real property and defects and irregularities in the title thereto, landlord's or lessor's Liens under leases to which the Company or any Subsidiary of the Company is a party, and other minor liens or encumbrances none of which in the opinion of the Company or such Subsidiary interferes materially 6 with the use of the property affected in the ordinary conduct of the business of the Company or such Subsidiary and which defects do not individually or in the aggregate have a material adverse effect on the business of the Company and its Subsidiaries on a consolidated basis; (x) Liens securing Indebtedness in respect of performance bonds, bankers' acceptances, and surety or appeal bonds entered into by the Company or its Subsidiaries in the ordinary course of their business; (xi) Liens securing Hedging Obligations consisting of Interest Rate Agreements and Currency Agreements entered into in the ordinary course of business and not for the purpose of speculation; (xii) Liens securing Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business; provided that such Indebtedness is extinguished within five business days of Incurrence; (xiii) Liens securing Indebtedness of the Company and its Subsidiaries arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, in any case Incurred in connection with the disposition of any assets of the Company or any such Subsidiary (other than guarantees of Indebtedness Incurred by any Person acquiring all or any portion of such assets for the purpose of financing such acquisition), in a principal amount not to exceed the gross proceeds actually received by the Company or any such Subsidiary in connection with such disposition; and (xiv) Liens securing Indebtedness in an aggregate principal amount together with all Liens securing other Indebtedness of the Company and its Subsidiaries outstanding on the date of such Incurrence (other than Liens set forth in clauses (i) through (xiii) above), not exceeding 15% of Consolidated Tangible Assets. "Principal" of any Indebtedness (including a ROARS) means the principal of such Indebtedness plus the premium, if any, payable on such Indebtedness which is due or overdue or is to become due at the relevant time. "Reference Corporate Dealer" has the meaning specified in Section 204. "Reference Treasury Dealer" has the meaning specified in Section 204. "Reference Treasury Dealer Quotations" has the meaning specified in Section 204. "Regular Record Date" has the meaning specified in Section 203. "Remaining Scheduled Payments" has the meaning specified in Section 204. 7 "Remarketing Agreement" means the agreement, dated as of May 19, 1998, which sets forth the rights and obligations of the Company and the Remarketing Dealer with respect to the remarketing of the ROARS. "Remarketing Dates" means May 15, 2001 for the 6.375% ROARS and May 15, 2003 for the 6.50% ROARS. "Remarketing Dealer" means NationsBanc Montgomery Securities LLC or its successors. "ROARS" has the meaning specified in Section 201. "Sale/Leaseback Transaction" means an arrangement relating to property now owned or hereafter acquired whereby the Company or one of its Subsidiaries transfers such property to a Person and the Company or such Subsidiary leases it from such Person. "Stated Maturity" means, with respect to any instrument, the date specified in such instrument as the fixed date on which the final payment of principal of such instrument is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase, redemption or repayment of such instrument at the option of the holder thereof upon the happening of any contingency unless such contingency has occurred). "Stated Maturity Date" means either May 15, 2011 for the 6.375% ROARS or May 15, 2013 for the 6.50% ROARS. "Total Assets" means the total consolidated assets of the Company and its Subsidiaries, as shown on the most recent balance sheet (excluding the footnotes thereto) of the Company. "Treasury Rate" has the meaning specified in Section 204. SECTION 102. Section References. Each reference to a particular ------------------ section set forth in this First Supplemental Indenture shall, unless the context otherwise requires, refer to this First Supplemental Indenture. 8 ARTICLE TWO TITLE AND TERMS OF THE ROARS SECTION 201. Title of the ROARS. Pursuant to Sections 301 and 901 of ------------------ the Original Indenture, this First Supplemental Indenture hereby establishes two series of Securities designated as the "6.375% Remarketable or Redeemable Securities due May 15, 2011" and the "6.50% Remarketable or Redeemable Securities due May 15, 2013" of the Company (collectively, the "ROARS"). SECTION 202. Amount and Denominations; DTC. The aggregate principal ----------------------------- amount of ROARS that may be issued under this First Supplemental Indenture is limited to $500,000,000 for the 6.375% ROARS and $400,000,000 for the 6.50% ROARS. The ROARS shall be issuable only in fully registered global book-entry form and shall initially be registered in the name of The Depositary Trust Company ("DTC") or its nominee which shall be the "U.S. Depository" and sole "Holder" thereof. SECTION 203. Interest To Remarketing Date. The 6.375% ROARS and the ---------------------------- 6.50% ROARS shall bear interest at 6.375% and 6.50% per annum, respectively, for the period from May 19, 1998 to the Remarketing Date applicable to such series of ROARS. If a series of ROARS is purchased by the Remarketing Dealer on the applicable Remarketing Date, on and after such Remarketing Date such series of ROARS shall bear interest at the rate determined by the Remarketing Dealer in accordance with the procedures set forth below (the "Interest Rate to Maturity"). The ROARS shall bear interest from May 19, 1998 payable semi-annually on May 15 and November 15 of each year (each an "Interest Payment Date"), commencing November 15, 1998, to the persons in whose name the ROARS are registered at the close of business on the preceding May 1 and November 1, respectively (whether or not a Business Day) (each a "Regular Record Date"); provided, however, that interest payable on the applicable Remarketing Date and on the applicable Stated Maturity Date shall be paid to the person to whom principal is payable. Interest payments shall be in the amount of interest accrued from and including the next preceding Interest Payment Date (or from and including May 19, 1998 if no interest has been paid or duly provided for with respect to the ROARS) to but excluding the relevant Interest Payment Date, Remarketing Date or Stated Maturity Date, as the case may be. "Business Day" means any day that is not a day on which banking institutions in New York, New York are authorized or obligated by law or executive order to close. SECTION 204. Remarketing and Determination of Interest Rate to ------------------------------------------------- Maturity. The Remarketing Dealer's obligations set forth herein shall be - -------- performed pursuant to the Remarketing Agreement. 9 (a) Mandatory Tender. If the Remarketing Dealer gives notice to the ---------------- Company and the Trustee no earlier than the tenth Business Day and no later than 4:00 p.m., New York City time, on the fifth Business Day prior to the Remarketing Date applicable to a series of ROARS, of its intention to purchase such series of ROARS for remarketing (the "Notification Date"), each of the ROARS in such series shall be automatically tendered, or deemed tendered, to the Remarketing Dealer for purchase on such Remarketing Date, except in certain circumstances described in Section 205. The applicable ROARS Purchase Price shall be paid by the Remarketing Dealer and the Company shall pay accrued interest, if any, on such series of ROARS to such the Remarketing Date. If a series of ROARS is tendered for remarketing, the Remarketing Dealer shall sell the total aggregate principal amount of such series of ROARS on the applicable Remarketing Date for the applicable Dollar Price to the Reference Corporate Dealer providing the lowest Bid. If two or more Reference Corporate Dealers provide the lowest Bid, the Remarketing Dealer shall sell such series of ROARS to such of those Reference Corporate Dealers as it determines in its sole discretion. If the Remarketing Dealer elects to remarket a series of ROARS, the obligation of the Remarketing Dealer to purchase such series of ROARS on the applicable Remarketing Date is subject to the conditions set forth in the Remarketing Agreement. If for any reason the Remarketing Dealer does not purchase all of such series of ROARS on the applicable Remarketing Date, the Company shall be required to redeem such series of ROARS at a price equal to the principal amount thereof plus all accrued and unpaid interest, if any, on such series of ROARS to such Remarketing Date. (b) Remarketing. The Interest Rate to Maturity shall be established by ----------- the Remarketing Dealer in accordance with the following procedures: (i) Interest Rate to Maturity. The Interest Rate to Maturity on a ------------------------- series of ROARS purchased by the Remarketing Dealer on the applicable Remarketing Date shall be determined by the Remarketing Dealer by 3:30 p.m., New York City time, on the third Business Day immediately preceding such Remarketing Date (the "Determination Date") to the nearest one hundred-thousandth (0.00001) of one percent per annum, and shall be equal to the sum of 5.6825% per annum in the case of the 6.375% ROARS (the "6.375 % ROARS Base Rate") and 5.6825% per annum in the case of the 6.50% ROARS (the "6.50% ROARS Base Rate" and, together with the "6.375% ROARS Base Rate", each a "Base Rate") and the Applicable Spread, which shall be based on the Dollar Price of the applicable series of ROARS, except under certain circumstances, as set forth in Section 12 of the Remarketing Agreement. 10 For this purpose, the following terms shall have the following meanings: "Applicable Spread" for a series of ROARS shall be the lowest Bid, expressed as a spread (in the form of a percentage or in basis points) above the Base Rate, obtained by the Remarketing Dealer at 3:30 p.m., New York City time, on the relevant Determination Date from the Bids quoted to the Remarketing Dealer by five Reference Corporate Dealers. A "Bid" shall be an irrevocable offer to purchase the total aggregate outstanding principal amount of the applicable series of ROARS at the relevant Dollar Price, but assuming (i) an issue date that is the Remarketing Date applicable to such series of ROARS, with settlement on such date without accrued interest, (ii) a maturity date that is the Stated Maturity Date applicable to such series of ROARS and (iii) a stated annual interest rate equal to the relevant Base Rate plus the spread bid by the applicable Reference Corporate Dealer. If fewer than five Reference Corporate Dealers submit bids as set forth in this subsection (b) (i) of Section 204, then the Applicable Spread shall be the lowest such Bid obtained as set forth in this subsection (b) (i) of Section 204. The Interest Rate to Maturity for each series of ROARS announced by the Remarketing Dealer, absent manifest error, shall be binding and conclusive upon the actual purchasers of such series of ROARS (the "Beneficial Owners") and Holders of such series of ROARS, the Company and the Trustee. "Comparable Treasury Issues" for a series of ROARS means the U.S. Treasury security or securities selected by the Remarketing Dealer as having an actual or interpolated maturity or maturities comparable to the remaining term of the series of ROARS being purchased by the Remarketing Dealer. "Comparable Treasury Price" for a series of ROARS means, with respect to the applicable Remarketing Date, (i) the offer prices for the Comparable Treasury Issues (expressed in each case as a percentage of its principal amount) at 12:00 noon, New York City time, on the applicable Determination Date, as set forth on "Telerate Page 500" (or such other page as may replace Telerate Page 500); or (ii) if such page (or any successor page) is not displayed or does not contain such offer prices on such Determination Date, (a) the average of the Reference Treasury Dealer Quotations (as defined) for such Remarketing Date, after excluding the highest and lowest such Reference Treasury Dealer Quotations, or (b) if the Remarketing Dealer obtains fewer than four such Reference Treasury Dealer Quotations, the average of all such Reference Treasury Dealer Quotations. "Telerate Page 500" means the display designated as "Telerate Page 500" on Dow Jones Markets (or such other page as may replace Telerate Page 500 on such service) or such other service displaying the offer prices described in clause (i) above as may replace Dow Jones Markets. "Reference Treasury Dealer Quotations" means, with 11 respect to each Reference Treasury Dealer and the applicable Remarketing Date, the offer prices for the Comparable Treasury Issues (expressed in each case as a percentage of its principal amount) quoted in writing to the Remarketing Dealer by such Reference Treasury Dealer by 3:30 p.m., New York City time, on the applicable Determination Date. "Dollar Price" means, with respect to each series of ROARS, the present value, as of the applicable Remarketing Date, of the Remaining Scheduled Payments for such series of ROARS discounted to the applicable Remarketing Date, on a semi- annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate. "Reference Corporate Dealer" means five leading dealers of publicly traded debt securities, including debt securities of the Company, which shall be selected by the Company. The Company shall advise the Remarketing Dealer of its selection of the Reference Corporate Dealers no later than five Business Days prior to the applicable Remarketing Date. One of such Reference Corporate Dealers selected by the Company shall be NationsBanc Montgomery Securities LLC if it then is the Remarketing Dealer. "Reference Treasury Dealer" means each of NationsBanc Montgomery Securities LLC; Donaldson, Lufkin & Jenrette Securities Corporation; Salomon Brothers Inc; Merrill Lynch, Pierce, Fenner & Smith Incorporated and another dealer to be selected by the Company and their respective successors; provided, that if any of the foregoing or their affiliates ceases to be a primary U.S. Government securities dealer (a "Primary Treasury Dealer"), the Remarketing Dealer shall substitute therefor another Primary Treasury Dealer. "Remaining Scheduled Payments" means, with respect to a series of ROARS, the remaining scheduled payments of the principal thereof and interest thereon, calculated at the Base Rate only, that would be due after the applicable Remarketing Date to and including the applicable Stated Maturity Date; provided that if the applicable Remarketing Date is not an Interest Payment Date with respect to such series of ROARS, the amount of the next succeeding scheduled interest payment thereon, calculated at the Base Rate, shall be reduced by the amount of interest accrued thereon, calculated at such Base Rate only, to the applicable Remarketing Date. "Treasury Rate" for a series of ROARS means, with respect to the applicable Remarketing Date, the rate per annum equal to the semi-annual equivalent yield to maturity or interpolated (on a day count basis) yield to maturity of the Comparable Treasury Issues, assuming a price for the Comparable Treasury Issues 12 (expressed as a percentage of their principal amounts) equal to the Comparable Treasury Price for such Remarketing Date. (ii) Notification of Results; Settlement. Provided the Remarketing ----------------------------------- Dealer has previously notified the Company and the Trustee on the relevant Notification Date of its intention to purchase a series of ROARS on the applicable Remarketing Date, the Remarketing Dealer shall notify the Company, the Trustee and the Depository by telephone, confirmed in writing, by 4:00 p.m., New York City time, on the applicable Determination Date, of the Interest Rate to Maturity for such series of ROARS. SECTION 205. Redemption of ROARS. (a) Mandatory Redemption. The ------------------- -------------------- Company shall be required to redeem a series of ROARS as a whole on the applicable Remarketing Date at a price equal to 100% of the aggregate principal amount of such series of ROARS plus all accrued and unpaid interest, if any, on such series of ROARS to the applicable Remarketing Date (the "ROARS Purchase Price") in the event that (i) the Remarketing Dealer for any reason does not notify the Company of the Interest Rate to Maturity by 4:00 p.m., New York City time, on the applicable Determination Date, or (ii) prior to such Remarketing Date, the Remarketing Dealer has resigned and no successor has been appointed on or before such Determination Date, or (iii) at any time after the Remarketing Dealer elects on the applicable Notification Date to remarket such series of ROARS, the Remarketing Dealer elects to terminate the Remarketing Agreement in accordance with the terms thereof, or (iv) the Remarketing Dealer does not give notice to the Company and the Trustee on such Notification Date of its intention to purchase such series of ROARS for remarketing on such Remarketing Date, or (v) the Remarketing Dealer for any reason does not deliver the applicable ROARS Purchase Price to the Trustee by 2:00 p.m., New York City time, on the Business Day immediately preceding such Remarketing Date or does not purchase all of such series of ROARS by 2:00 p.m., New York City time, on such Remarketing Date, or (vi) the Company for any reason fails to redeem such series of ROARS following its election to effect such redemption as set forth in Section 205(b) below. (b) Optional Redemption. If the Remarketing Dealer elects to remarket a -------------------- series of ROARS, the Company shall notify the Remarketing Dealer and the Trustee, not later than 4:00 p.m., New York City time, on the Business Day immediately preceding the applicable Determination Date, if the Company irrevocably elects to exercise its right to redeem such series of ROARS, in whole, on the applicable Remarketing Date. If the Company so elects to redeem a series of ROARS, the Company shall redeem such series of ROARS as a whole on the applicable Remarketing Date at a price equal to 100% of the aggregate principal 13 amount of such series of ROARS plus all accrued and unpaid interest, if any, on such series of ROARS to such Remarketing Date. SECTION 206. Form and Other Terms of the ROARS. Attached hereto as --------------------------------- Exhibit A is a form of the ROARS, which form is hereby established as the form in which the ROARS shall be executed, authenticated and delivered in accordance with the provisions of, and shall in all respects be subject to, the terms, conditions and covenants of the Indenture and this First Supplemental Indenture. All of the terms and provisions set forth in Exhibit A are incorporated herein by reference. SECTION 207. Culligan Repurchase Right. If the merger of Palm Water ------------------------- Acquisition Filter Corporation, a Delaware corporation and wholly-owned subsidiary of the Company ("Subcorp"), into Culligan Water Technologies, Inc., a Delaware corporation ("Culligan"), has not been consummated on or before December 31, 1998 on terms substantially similar to those contained in the Agreement and Plan of Merger, dated as of February 9, 1998 (the "Culligan Merger Agreement"), by and among the Company, Subcorp and Culligan, except for such changes therein as would not materially adversely affect the Holders of the ROARS, (the "Culligan Event"), each Holder of ROARS shall have the right (the "Repurchase Right"), at such Holder's option, to require the Company to repurchase all of such Holder's ROARS, or any portion thereof, on the date (the "Repurchase Date") fixed by the Company that is not less than 45 days nor more than 60 days after the date of the Company Notice (as defined below) at a price equal to 100% of the principal amount of the ROARS validly tendered and not withdrawn, plus accrued and unpaid interest, if any, to the Repurchase Date (the "Repurchase Price"). Within 30 days after the occurrence of the Culligan Event, the Company shall send, by first class mail, to the Trustee and to each Holder of the ROARS a notice (the "Company Notice") of the occurrence of the Culligan Event and the Repurchase Right arising as a result thereof, setting forth, among other things, the terms and conditions of, and the procedures required for the exercise of, the Repurchase Right (the "Repurchase Offer"). Such Company Notice shall contain all instructions and materials necessary to enable the Holders to tender ROARS pursuant to the Repurchase Offer. Such notice shall state: (1) that the Repurchase Offer is being made pursuant to this Section 207 and that all ROARS validly tendered and not withdrawn will be accepted for payment; (2) the Repurchase Price and the Repurchase Date; (3) that any ROARS not tendered will continue to accrue interest if interest is then accruing; 14 (4) that, unless the Company defaults in making payment therefor, any ROARS accepted for payment pursuant to the Repurchase Offer shall cease to accrue interest after the Repurchase Date; (5) that Holders electing to have ROARS purchased pursuant to the Repurchase Offer will be required to deliver at or before the close of business on the Repurchase Date a written notice either to the Company or an agent designated by the Company for such purpose (the "Offer Agent") and the Trustee of the Holder's exercise of the Repurchase Right specifying the ROARS with respect to which such right is being exercised; (6) that Holders will be entitled to withdraw their election if the Offer Agent receives, not later than close of business on the Repurchase Date, a written notice setting forth the name of the Holder, the principal amount of the ROARS the Holder delivered for repurchase and a statement that such Holder is withdrawing its election to have such ROARS purchased; (7) that Holders whose ROARS are purchased only in part will be issued new ROARS in a principal amount equal to the unpurchased part or of the ROARS surrendered; provided, however, that each new ROARS issued shall be in a principal amount of $100,000 or integral multiples of $1,000 for amounts in excess thereof; and (8) the circumstances and relevant facts regarding such Culligan Event. On or before the Repurchase Date, the Company shall (i) accept for payment ROARS or portions thereof tendered pursuant to the Repurchase Offer, (ii) deposit with the Offer Agent U.S. Dollars sufficient to pay the Repurchase Price of all ROARS or portions thereof so tendered and accepted and (iii) deliver to the Trustee ROARS so accepted together with an Officers' Certificate stating the ROARS or portions thereof being purchased by the Company. The Offer Agent shall promptly mail or deliver to the Holders of ROARS so accepted payment in an amount equal to the Repurchase Price and the Company shall execute and issue, and the Trustee shall promptly authenticate and mail or deliver to such Holders, new ROARS equal in principal amount to any unpurchased portion of the ROARS surrendered. Any ROARS not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. The Company shall publicly announce the results of the Repurchase Offer as soon as practicable after the Repurchase Date. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of 15 ROARS pursuant to the Repurchase Offer. To the extent that the provisions of any securities laws or regulations conflict with the "Culligan Repurchase Right" provisions of this Supplemental Indenture, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations relating to such Repurchase Offer by virtue thereof. ARTICLE THREE ADDITIONAL COVENANTS With respect to the ROARS, the following shall be additional covenants: SECTION 301. Limitation on Liens. The Company shall, and shall -------------------- cause each of its Subsidiaries to, promptly secure (on the basis set forth below) the Company's obligations under the ROARS in the event that the Company or such Subsidiary creates, incurs or suffers to exist a Lien of any nature whatsoever, other than a Permitted Lien, on any property of the Company or any Subsidiary of the Company (including Capital Stock of any such Subsidiary), whether owned at the Issue Date or thereafter acquired, which secures Indebtedness that ranks pari passu with or is subordinated to the ROARS. In the event such Lien secures Indebtedness that ranks pari passu with the ROARS, the ROARS shall be secured on an equal and ratable basis with the obligation so secured until such time as such obligation is no longer secured by such Lien. In the event such Lien secures Indebtedness that ranks subordinate to the ROARS, the ROARS shall be secured on a basis senior to the obligation so secured to the same extent as the ROARS rank senior in right of payment to such subordinated Indebtedness, until such time as such obligation is no longer secured by such Lien. SECTION 302. Limitation on Affiliate Transactions. (a) The Company ------------------------------------- shall not, and shall not permit any Subsidiary of the Company to, enter into or permit to exist any transaction or series of related transactions (including the purchase, sale, lease or exchange of any property, employee compensation arrangements or the rendering of any service) with any Affiliate of the Company (an "Affiliate Transaction") unless the terms thereof (i) are materially no less favorable to the Company or such Subsidiary than those that could be obtained at the time of such transaction in arm's-length dealings with a Person who is not such an Affiliate, (ii) if such Affiliate Transaction (or series of related Affiliate Transactions) involve aggregate payments in an amount in excess of $10,000,000 in any one year, (x) comply with the terms set forth in clause (i) and (y) have been approved by a majority of the disinterested members of the Board of Directors and (iii) if 16 such Affiliate Transaction (or series of related Affiliate Transactions) involve aggregate payments in an amount in excess of $20,000,000 in any one year, (x) comply with the terms set forth in clause (ii) and (y) have been determined by a nationally recognized investment banking, accounting or qualified appraisal firm to be fair, from a financial standpoint, to the Company and its Subsidiaries. (b) The provisions of Section 302(a) shall not prohibit (i) any issuance of securities or any payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock option and stock ownership plans and other stock-based employee compensation in the ordinary course of business and approved by the Board of Directors, (ii) the grant of stock options or similar rights to employees, officers and directors of the Company or any Subsidiary of the Company in the ordinary course of business and pursuant to plans approved by the Board of Directors, (iii) loans or advances to employees, officers or directors in the ordinary course of business of the Company and its Subsidiaries, (iv) fees, compensation or employee benefit arrangements paid to and indemnity provided for the benefit of directors, officers or employees of the Company or any Subsidiary of the Company in the ordinary course of business, (v) any Affiliate Transaction between the Company and a Subsidiary or Joint Venture of the Company, or between any such Subsidiaries or Joint Ventures (so long as the other stockholders of any such participating Subsidiaries or Joint Ventures which are not wholly owned Subsidiaries of the Company are not themselves Affiliates of the Company) and (vi) any transactions effected pursuant to agreements in effect on the Issue Date; provided, that such transactions are effected pursuant to the terms of such agreements as in effect on the Issue Date. SECTION 303. Maintenance of ROARS in Book-Entry Form. --------------------------------------- Notwithstanding any provision to the contrary set forth in the Indenture, the Company shall (i) use its best efforts to maintain the ROARS in book-entry form with DTC or any successor thereto and to appoint a successor Depository to the extent necessary to maintain the ROARS in book-entry form, and (ii) waive any discretionary right it otherwise has under the Indenture to cause the ROARS to be issued in certificated form. ARTICLE FOUR MISCELLANEOUS PROVISIONS Neither the Company nor any of its Subsidiaries or Affiliates shall defease, purchase or otherwise acquire, or enter into any agreement to defease, 17 purchase or otherwise acquire, any of the ROARS prior to the remarketing thereof by the Remarketing Dealer. The Trustee makes no undertakings or representations in respect of, and shall not be responsible in any manner whatsoever for and in respect of, the validity or sufficiency of this First Supplemental Indenture or the proper authorization or the due execution hereof by the Company or for or in respect of the recitals and statements contained herein, all of which are made solely by the Company. Except as expressly amended hereby, the Indenture shall continue in full force and effect in accordance with the provisions thereof and the Indenture is in all respects hereby ratified and confirmed. This First Supplemental Indenture and all its provisions shall be deemed a part of the Indenture in the manner and to the extent herein and therein provided. This First Supplemental Indenture shall be governed by, and construed in accordance with, the laws of the State of New York. This First Supplemental Indenture may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. 18 IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. UNITED STATES FILTER CORPORATION By: ________________________________ Name: Title: ATTEST: By: ________________________________ (Corporate Seal) THE BANK OF NEW YORK, As Trustee By: ________________________________ Name: Title: ATTEST: By: ________________________________ (Corporate Seal) 19 STATE OF _______________) COUNTY OF ______________) On the _____ day of ________, 1998, before me personally came _______________________, to me known, who, being by me duly sworn, did depose and say that he is _________________ of United States Filter Corporation, one of the corporations described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation, and he signed his name thereto by like authority. _________________________________ Notary Public, State of _________ [Notarial Seal] STATE OF NEW YORK ) ) COUNTY OF ___________ ) On the ___ day of _______, 1998, before me personally came _____________________, to me known, who, being by me duly sworn, did depose and say that he is _________________ of ______________ _______________ one of the corporations described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation, and he signed his name thereto by like authority. ________________________________ Notary Public, State of New York [Notarial Seal] 20 Exhibit A FORM OF ROARS [TO COME] 21 EX-4.10 4 1ST AMENDMENT TO MULTICURRENCY CREDIT AGREEMENT Exhibit 4.10 FIRST AMENDMENT TO AMENDED AND RESTATED MULTICURRENCY CREDIT AGREEMENT This FIRST AMENDMENT TO AMENDED AND RESTATED MULTICURRENCY CREDIT AGREEMENT (this "First Amendment") is made and entered into as of February 3, 1998, by and among UNITED STATES FILTER CORPORATION, a Delaware corporation with its chief executive office at 40-004 Cook Street, Palm Desert, California 92211 (the "Borrower"), BANKBOSTON, N.A., f/k/a The First National Bank of Boston, a national banking association having its principal place of business at 100 Federal Street, Boston, Massachusetts 02110 ("BKB"), DLJ CAPITAL FUNDING, INC. ("DLJ"), ABN AMRO BANK N.V., LOS ANGELES INTERNATIONAL BRANCH, BANQUE PARIBAS ("Paribas"), THE BANK OF NEW YORK ("BNY"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, successor by merger to Bank of America Illinois ("BOA"), THE SUMITOMO BANK, LIMITED (LOS ANGELES BRANCH), FLEET BANK, N.A. ("Fleet"), NATIONSBANK, N.A. ("NationsBank"), THE INDUSTRIAL BANK OF JAPAN, LIMITED (LOS ANGELES AGENCY), BANQUE NATIONALE DE PARIS ("BNP"), DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN ISLANDS BRANCHES ("Deutsche Bank"), THE LONG-TERM CREDIT BANK OF JAPAN LTD. (LOS ANGELES AGENCY), UNION BANK OF CALIFORNIA, N.A. ("Union"), THE SANWA BANK LIMITED, LOS ANGELES BRANCH ("Sanwa"), BHF-BANK AKTIENGESELLSCHAFT, THE SAKURA BANK, LIMITED, CREDITO ITALIANO, THE FUJI BANK, LIMITED, WELLS FARGO BANK, NATIONAL ASSOCIATION, and any other financial institutions which become party to the Credit Agreement (defined below) in accordance with (S)22 thereof (each a "Lender" and, collectively, the "Lenders"), BKB as Managing Agent, DLJ as Documentation Agent, NATIONSBANK as Syndication Agent, BOA, DEUTSCHE BANK, and UNION as Co-Agents, and BNY, FLEET, PARIBAS, BNP, and SANWA as Lead Managers. Capitalized terms used herein without definition shall have the meanings assigned to such terms in the Credit Agreement. WHEREAS, the Borrower, the Lenders, and the Agents entered into an Amended and Restated Multicurrency Credit Agreement dated as of October 20, 1997 (as amended and in effect from time to time, the "Credit Agreement"), pursuant to which the Lenders extended credit to the Borrower on the terms set forth therein; WHEREAS, the Borrower, the Lenders, and the Agents have agreed to amend the Credit Agreement as set forth herein; -2- NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree to amend the Credit Agreement as follows: 1. Amendment to (S)11.1(f) (Restrictions on Indebtedness). Section ------------------------------------------------------ 11.1(f) is hereby amended by inserting the words "or subordinate" after the words "pari passu" therein. 2. Amendment to (S)11.5 (Restricted Distributions and Redemptions). --------------------------------------------------------------- Section 11.5 is hereby amended by adding the following proviso to the end of the last sentence thereof: "provided, however, that to the extent such provisions -------- -------- exist in any documents governing Indebtedness of acquired companies, the Borrower shall have six (6) months to cause such provisions to be removed from such documents or to discharge the Indebtedness evidenced thereby." 3. Amendment to (S)11.7 (Negative Pledges). Section 11.7 is hereby --------------------------------------- amended by adding the following to the end thereof: "provided, however, that to -------- ------- the extent such provisions exist in the documents governing Indebtedness of acquired companies, the Borrower shall have six (6) months to cause such provisions to be removed from such documents or to discharge the Indebtedness evidenced thereby, provided further, that notwithstanding the foregoing, the -------- ------- Borrower shall not be required to discharge such Indebtedness or to cause such provisions to be removed from such documents within such six month period if prepayment is prohibited under such documents or would result in a prepayment penalty (including any cash collateral required to secure outstanding letters of credit) in excess of $5,000,000, and if such provisions are enforceable under applicable law. Notwithstanding the foregoing, any Indebtedness which is permitted under this (S)11.7, together with other Indebtedness permitted under (S)11.1(g), shall not exceed in the aggregate the greater of $100,000,000 or 5% of Consolidated Tangible Assets of the Borrower and its Subsidiaries." 4. Waiver. The Agents and the Lenders agree to waive any past Default or ------ Event of Default due to noncompliance with (S)(S)11.5 and 11.7 as a result of the Borrower's acquisitions of ownership interests in Memtec Limited and The Kinetics Group, Inc., provided that the Borrower is in full compliance with all -------- ---- other provisions of the Credit Agreement, and provided further that the Borrower -------- ------- is hereinafter in full compliance with (S)(S)11.5 and 11.7 as amended hereby. 5. No Event of Default. The Borrower represents and warrants to the ------------------- Agents and the Lenders that no Default or Event of Default has occurred and is continuing other than those expressly waived under (S)4 hereof. 6. Ratification, etc. Except as expressly amended hereby, the Credit ------------------ Agreement, the other Loan Documents and all documents, instruments and agreements related thereto are hereby ratified and confirmed in all respects and shall continue in -3- full force and effect. This First Amendment and the Credit Agreement shall hereafter be read and construed together as a single document, and all references in the Credit Agreement, any other Loan Document or any agreement or instrument related to the Credit Agreement shall hereafter refer to the Credit Agreement as amended by this First Amendment. 7. GOVERNING LAW. THIS FIRST AMENDMENT SHALL BE GOVERNED BY AND ------------- CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (WITHOUT REFERENCE TO CONFLICT OF LAWS) AND SHALL TAKE EFFECT AS A SEALED INSTRUMENT IN ACCORDANCE WITH SUCH LAWS. 8. Counterparts. This First Amendment may be executed in any number of ------------ counterparts and by different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which counterparts taken together shall be deemed to constitute one and the same instrument. 9. Effectiveness. This First Amendment shall become effective upon its ------------- execution and delivery by the Borrower and the Majority Lenders. [Signature Pages Follow] -4- IN WITNESS WHEREOF, each of the undersigned has duly executed this First Amendment under seal as of the date first set forth above. THE BORROWER - ------------ UNITED STATES FILTER CORPORATION By: /s/ Kevin L. Spence ------------------------ Kevin L. Spence Senior Vice President THE LENDERS: - ----------- BANKBOSTON, N.A., f/k/a DLJ CAPITAL FUNDING, INC., The First National Bank of Boston, individually and as individually and as Managing Agent Documentation Agent By: /s/ Lindsay W. McSweeney By: ------------------------ ------------------------ Lindsay W. McSweeney Name: Vice President Title: ABN AMRO BANK N.V., LOS DEUTSCHE BANK AG, NEW ANGELES INTERNATIONAL YORK AND/OR CAYMAN BRANCH ISLANDS BRANCHES, individually and as Co-Agent By: By: ------------------------ ------------------------ Name: Name: Title: Title: By: By: ------------------------ ------------------------ Name: Name: Title: Title: -5- THE BANK OF NEW YORK, BANK OF AMERICA individually and as Lead Manager NATIONAL TRUST AND SAVINGS ASSOCIATION (successor by merger to By: /s/ Jonathan Rollins Bank of America Illinois), ------------------------ individually and as Co-Agent Jonathan Rollins Assistant Vice President By: ------------------------ Name: Title: THE SUMITOMO BANK, LIMITED FLEET BANK, N.A., individually (LOS ANGELES BRANCH) and as Lead Manager By: By: ------------------------ ------------------------ Name: Name: Title: Title: CREDITO ITALIANO BANQUE NATIONALE DE PARIS, individually and as Lead Manager By: By: ------------------------ ------------------------ Name: Name: Title: Title: By: By: ------------------------ ------------------------ Name: Name: Title: Title: NATIONSBANK, N.A., THE LONG-TERM CREDIT individually and as Syndication Agent BANK OF JAPAN LTD. (LOS ANGELES AGENCY) By: By: ------------------------ ------------------------ Name: Name: Title: Title: -6- UNION BANK OF THE SANWA BANK LIMITED, CALIFORNIA, N.A., LOS ANGELES BRANCH, individually and as Co-Agent individually and as Lead Manager By: By: ------------------------ ------------------------ Name: Name: Title: Title: BANQUE PARIBAS, BHF-BANK individually and as Lead Manager AKTIENGESELLSCHAFT By: /s/ Lynne A. Lueders By: ------------------------ ------------------------ Lynne A. Lueders Name: Director Title: By: /s/ Stanley P. Berkman By: ------------------------ ------------------------ Stanley P. Berkman Name: Managing Director Title: Western Region THE SAKURA BANK, LIMITED THE INDUSTRIAL BANK OF JAPAN, LIMITED (LOS ANGELES AGENCY) By: By: ------------------------ ------------------------ Name: Name: Title: Title: WELLS FARGO BANK THE FUJI BANK, LIMITED By: By: ------------------------ ------------------------ Name: Name: Title: Title: EX-4.11 5 2ND AMENDMENT TO MULTICURRENCY CREDIT AGREEMENT Exhibit 4.11 SECOND AMENDMENT TO AMENDED AND RESTATED MULTICURRENCY CREDIT AGREEMENT ------------- ------ --------- This SECOND AMENDMENT TO AMENDED AND RESTATED MULTICURRENCY CREDIT AGREEMENT (this "Second Amendment") is made and entered into as of March 20, 1998, by and among UNITED STATES FILTER CORPORATION, a Delaware corporation with its chief executive office at 40-004 Cook Street, Palm Desert, California 92211 (the "Borrower"), BANKBOSTON, N.A., f/k/a The First National Bank of Boston, a national banking association having its principal place of business at 100 Federal Street, Boston, Massachusetts 02110 ("BKB"), DLJ CAPITAL FUNDING, INC. ("DLJ"), ABN AMRO BANK N.V. (f/k/a ABN Amro Bank N.V., Los Angeles International Branch), Banque Paribas ("Paribas"), THE BANK OF NEW YORK ("BNY"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, successor by merger to Bank of America Illinois ("BOA"), THE SUMITOMO BANK, LIMITED (LOS ANGELES BRANCH), FLEET BANK, N.A. ("Fleet"), NATIONSBANK, N.A. ("NationsBank"), THE INDUSTRIAL BANK OF JAPAN, LIMITED (LOS ANGELES AGENCY), BANQUE NATIONALE DE PARIS ("BNP"), DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN ISLANDS BRANCHES ("Deutsche Bank"), THE LONG- TERM CREDIT BANK OF JAPAN LTD. (LOS ANGELES AGENCY), UNION BANK OF CALIFORNIA, N.A. ("Union"), THE SANWA BANK LIMITED, LOS ANGELES BRANCH ("Sanwa"), BHF-BANK AKTIENGESELLSCHAFT, THE SAKURA BANK, LIMITED, CREDITO ITALIANO, THE FUJI BANK, LIMITED, WELLS FARGO BANK, NATIONAL ASSOCIATION, and any other financial institutions which become party to the Credit Agreement (defined below) in accordance with (S)22 thereof (each a "Lender" and, collectively, the "Lenders"), BKB as Managing Agent, DLJ as Documentation Agent, NATIONSBANK as Syndication Agent, BOA, DEUTSCHE BANK, and UNION as Co-Agents, and BNY, FLEET, PARIBAS, BNP, and SANWA as Lead Managers. Capitalized terms used herein without definition shall have the meanings assigned to such terms in the Credit Agreement. WHEREAS, the Borrower, the Lenders, and the Agents entered into an Amended and Restated Multicurrency Credit Agreement dated as of October 20, 1997 (as amended and in effect from time to time, the "Credit Agreement"), pursuant to which the Lenders extended credit to the Borrower on the terms set forth therein; WHEREAS, the Borrower, the Lenders, and the Agents have agreed to amend the Credit Agreement as set forth herein; -2- NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree to amend the Credit Agreement as follows: 1. Amendment to Definitions. Section 1.1 is hereby amended by adding the ------------------------ following definition in proper alphabetical order: Year 2000 Problem. The risk that computer applications used by the ----------------- Borrower may be unable to recognize and properly perform date- sensitive functions involving certain dates prior to, and any date after, December 31, 1999. 2. Amendment to (S)10.4 (Financial Statements, Certificates and ------------------------------------------------------------ Information). Section 10.4(b) is hereby amended by substituting "60" for "45" - ------------ therein, and Section 10.4(d) is hereby amended by substituting the words "within 60 days of" for the words "promptly with." 3. Amendment to (S)9 (Representations and Warranties). Section 9 is -------------------------------------------------- hereby amended by adding the following (S)9.19 to the end thereof: (S)9.19 Year 2000 Problem. The Borrower is in the process of ----------------- reviewing the areas within its business and operations that could be adversely affected by, and is developing strategies to deal with, the Year 2000 Problem. Based on such review, the Borrower has formed the business judgment that the Year 2000 Problem will not have a material adverse effect on the business and operations of the Borrower. 4. Amendment to (S)11.1 (Restrictions on Indebtedness). Section 11.1(g) --------------------------------------------------- is hereby amended by substituting "$150,000,000" for "$100,000,000" and by substituting "7%" for "5%" therein. Section 11.1 is further amended by adding the following subsection (h) to the end thereof: (h) to the extent not otherwise permitted under (S)11.1(g), Indebtedness of any Person acquired by the Borrower in a Permitted Acquisitions, provided that (i) after giving effect to such Permitted Acquisition, no Default or Event of Default shall then exist, (ii) such Indebtedness was in existence prior to such Permitted Acquisition and was not incurred in contemplation thereof, (iii) such Indebtedness is discharged no later than six months after consummation of the Permitted Acquisition, and (iv) at no time shall such -3- Indebtedness, together with all Indebtedness permitted under (S)11.1(g), exceed 10% of Consolidated Tangible Assets. 5. Amendment to (S)11.2 (Restrictions on Liens). Section 11.2 is hereby -------------------------------------------- amended by adding the following subsection (i) to the end thereof: (i) Liens securing Indebtedness permitted by (S)11.1(h), provided that such liens encumber only the assets of such Person acquired by the Borrower in a Permitted Acquisition and provided further that such liens shall be discharged no later than six months after consummation of the Permitted Acquisition, and satisfactory evidence of such discharge shall be delivered to the Agent promptly thereafter. 6. Waiver. The Agents and the Lenders agree to waive, only for the ------ fiscal quarter ending December 31, 1997, any Default or Event of Default which occurred in such quarter due to noncompliance with (S)11.1(g) solely to the extent that such noncompliance resulting from the assumption of Indebtedness in an aggregate amount of $119,036,000 in connection with the Borrower's acquisitions of ownership interests in Memtec Limited and The Kinetics Group, Inc., as reflected in Schedule D to the Borrower's Compliance Certificate for the quarter ending December 31, 1997, provided that the Borrower is in full -------- ---- compliance with all other provisions of the Credit Agreement, and provided -------- further that the Borrower is in full compliance with (S)11.1 as amended hereby. - ------- 7. No Event of Default. The Borrower represents and warrants to the ------------------- Agents and the Lenders that no Default or Event of Default has occurred and is continuing other than that expressly waived under (S)6 hereof. 8. Ratification, etc. Except as expressly amended hereby, the Credit ------------------ Agreement, the other Loan Documents and all documents, instruments and agreements related thereto are hereby ratified and confirmed in all respects and shall continue in full force and effect. This Second Amendment and the Credit Agreement shall hereafter be read and construed together as a single document, and all references in the Credit Agreement, any other Loan Document or any agreement or instrument related to the Credit Agreement shall hereafter refer to the Credit Agreement as amended by this Second Amendment. 9. GOVERNING LAW. THIS SECOND AMENDMENT SHALL BE GOVERNED BY AND ------------- CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (WITHOUT REFERENCE TO CONFLICT OF LAWS) AND SHALL TAKE EFFECT AS A SEALED INSTRUMENT IN ACCORDANCE WITH SUCH LAWS. -4- 10. Counterparts. This Second Amendment may be executed in any number of ------------ counterparts and by different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which counterparts taken together shall be deemed to constitute one and the same instrument. 11. Effectiveness. This Second Amendment shall become effective upon its ------------- execution and delivery by the Borrower and the Majority Lenders. [Signature Pages Follow] -5- IN WITNESS WHEREOF, each of the undersigned has duly executed this Second Amendment under seal as of the date first set forth above. THE BORROWER - ------------ UNITED STATES FILTER CORPORATION By: /s/ Kevin L. Spence --------------------- Kevin L. Spence Senior Vice President THE LENDERS: - ----------- BANKBOSTON, N.A., f/k/a DLJ CAPITAL FUNDING, INC., The First National Bank of Boston, individually and as individually and as Managing Agent Documentation Agent By: By: --------------------- --------------------- Lindsay W. McSweeney Name: Vice President Title: ABN AMRO BANK N.V., LOS DEUTSCHE BANK AG, NEW ANGELES INTERNATIONAL YORK AND/OR CAYMAN BRANCH ISLANDS BRANCHES, individually and as Co-Agent By: By: --------------------- --------------------- Name: Name: Title: Title: By: By: --------------------- --------------------- Name: Name: Title: Title: -6- THE BANK OF NEW YORK, BANK OF AMERICA individually and as Lead Manager NATIONAL TRUST AND SAVINGS ASSOCIATION (successor by merger to By: /s/ Jonathan Rollins Bank of America Illinois), ------------------------ individually and as Co-Agent Jonathan Rollins Assistant Vice President By: ------------------------ Name: Title: THE SUMITOMO BANK, LIMITED FLEET BANK, N.A., individually (LOS ANGELES BRANCH) and as Lead Manager By: By: ------------------------ ------------------------ Name: Name: Title: Title: CREDITO ITALIANO BANQUE NATIONALE DE PARIS, individually and as Lead Manager By: By: ------------------------ ------------------------ Name: Name: Title: Title: By: By: ------------------------ ------------------------ Name: Name: Title: Title: NATIONSBANK, N.A., THE LONG-TERM CREDIT individually and as Syndication Agent BANK OF JAPAN LTD. (LOS ANGELES AGENCY) By: By: ------------------------ ------------------------ Name: Name: Title: Title: -7- UNION BANK OF THE SANWA BANK LIMITED, CALIFORNIA, N.A., LOS ANGELES BRANCH, individually and as Co-Agent individually and as Lead Manager By: /s/ A. Pasha Moghaddam By: ------------------------ ------------------------ Name: A. Pasha Moghaddam Name: Title: V.P. Title: BANQUE PARIBAS, BHF-BANK individually and as Lead Manager AKTIENGESELLSCHAFT By: By: ------------------------ ------------------------ Name: Name: Title: Title: By: By: ------------------------ ------------------------ Name: Name: Title: Title: THE SAKURA BANK, LIMITED THE INDUSTRIAL BANK OF JAPAN, LIMITED (LOS ANGELES AGENCY) By: By: ------------------------ ------------------------ Name: Name: Title: Title: WELLS FARGO BANK, NATIONAL ASSOCIATION THE FUJI BANK, LIMITED By: By: ------------------------ ------------------------ Name: Name: Title: Title: SUNTRUST BANK, CENTRAL FLORIDA, N.A. By: ------------------------ Name: Title: EX-10.8 6 EMPLOYMENT AGREEMENT EXHIBIT 10.8 THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated as of January 1, 1998, between United States Filter Corporation (the "Company") and Richard J. Heckmann (the "Employee"). WITNESSETH WHEREAS, Employee is currently Chairman of the Board of Directors, Chief Executive Officer and President of the Company; and WHEREAS, the Company desires to insure the continued availability to the Company of the Employee's services, managerial skills and business experience, and the Employee is willing to render such services, all upon and subject to the terms and conditions contained in this Agreement; NOW THEREFORE, in consideration of the premises and the mutual covenants set forth in this Agreement, the Company and the Employee agree as follows: 1. EMPLOYMENT AND EMPLOYMENT TERM. ------------------------------ (a) EMPLOYMENT. Subject to the terms and provisions set forth in this Agreement, the Company hereby employs the Employee during the Employment Term (as hereinafter defined) as the Chief Executive Officer and President of the Company, and agrees 1 to use its best efforts to cause the Employee to be a director and Chairman of the Board of Directors of the Company (the "Board") during the Employment Term, and the Employee hereby accepts such employment. (b) EMPLOYMENT TERM. The period of employment under this Agreement (the "Employment Term") shall be deemed to have commenced as of January 1, 1998 (the "Effective Date") and shall continue for a period of sixty-three (63) full calendar months thereafter, as herein provided. On May 1, 1998, and on the first day of each month thereafter, the Employment Term shall be automatically extended by one full calendar month. The Employment Term shall continue until the expiration of all automatic extensions affected as aforesaid unless and until it ceases or is terminated sooner as provided in this Agreement. 2. POSITIONS, RESPONSIBILITIES AND DUTIES. -------------------------------------- (a) IN GENERAL. During the Employment Term, the Employee shall be employed as, and the Company shall at all times cause the Employee to be, the Chief Executive Officer and President of the Company. In addition to such positions, the Company shall use its best efforts to ensure that the Employee is at all 2 times during the Employment Term a director and the Chairman of the Board. In such positions, the Employee shall have the duties, responsibilities and authority normally associated with the office and position of chairman, director, chief executive officer and president of a publicly traded corporation. No other employee of the Company shall have authority and responsibilities that are equal to or greater than those of the Employee. The Employee shall report solely and directly to the Board and all other officers and other employees shall report directly to the Employee or the Employee's designees. (b) TIME. During the Employment Term, the Employee shall devote such time as is reasonably necessary to perform the duties associated with his offices and positions as set forth herein and shall use his best efforts to perform faithfully and efficiency the duties and responsibilities contemplated by this Agreement; provided however, that the Employee shall not be required to perform any duties and responsibilities which would be likely to result in non-compliance with or violation or breach of any applicable law or regulation. Notwithstanding the foregoing, the Employee may devote reasonable time to activities other than those required under this Agreement, including the 3 supervision of his personal investments, and activities involving professional, charitable, educational, religious and similar types of organizations, speaking engagements, membership on the boards of directors of other orations, and similar type activities, to the extent that such over activities do not materially inhibit or prohibit the performance of the Employee's duties under this Agreement or conflict in any material way with the business of the Company; provided however, that the Executive shall not serve on the board of any business or hold any over position unto any business without the consent of the Board. 3. COMPENSATION AND BENEFITS. ------------------------- (a) BASE SALARY. During the Employment Term, the Employee shall receive a base salary ("Base Salary"), payable in accordance with the Company's payroll practices generally applicable to the Company's senior executives, of $500,000 per annum. Such Base Salary shall be reviewed for increase (but not decrease) in the sole discretion of the Compensation Committee of tile Board not less frequently the annually during the Employment Term. In conducting any such annual review, the Compensation Committee of the Board shall take 4 into account any change in the Employee's responsibilities, increases in the compensation of other senior executives of the Company or of its competitors or over comparable executes and companies, the performance of the Employee and other pertinent factors. If so increased, such increased Base Salary shall then constitute "Base Salary" for purposes of this Agreement. (b) INCENTIVE COMPENSATION. (i) During the Employment Term, the Employee shall be entitled to participate in all incentive compensation plans and programs maintained by the Company for the benefit of senior executives. Such plans and programs, in the aggregate, shall provide the Employee win compensation opportunities at least as favorable as the most favorable of such opportunities provided by the Company to the Employee under such plans and programs as in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Employee, as provided at any time thereafter to the Employee or other senior executives of the Company. (ii) Without limiting the foregoing, for each fiscal year of the Company ending with or within the Employment Term, the Employee shall be paid an annual incentive of not less than sixty percent (60%) of his base salary 5 (subject to such performance goals as the Company and the Employee may from time to time negotiate in good faith). Each such annual incentive shall be paid at the same time that annual incentives are generally paid to the Company's other senior executives, but no later than the end of the third month of the fiscal year next following the fiscal year for which such annual incentive is paid, unless the Employee shall elect to defer the receipt thereof. (c) EMPLOYEE BENEFITS. During the Employment Term, the Employee and/or the Employee's family, as the case may be, shall be entitled to participate in all employee benefit plans and programs provided or maintained by the Company (including, without limitation, pension, profit sharing, savings, medical, disability, life and accident plans and programs and the United States Filter Corporation Executive Severance Pay Plan). Such plans and programs, in the aggregate, shall provide the Employee and/or the Employee's family, as the case may be, with benefits at least as favorable as the most favorable of such benefits provided by the Company to or in respect of the Employee under such plans and programs as in effect at 6 any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Employee, as provided at any time thereafter to or in respect of the Employee or over senior executives of the Company. (d) VACATION AND FRINGE BENEFITS. (i) During the Employment Term, the Employee shall be entitled to paid vacation and fringe benefits at least as favorable as the most favorable plans and programs of the Company for the Employee under such plans and programs as in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Employee, as in effect at any time thereafter for the Employee or other senior executives of the Company. (ii) Without limiting the foregoing, during the Employment Tenn, the Company will lease the Employee an automobile for the Employee's business and private use, the make and model of which shall be at least comparable to the make and model provided to the Employee immediately preceding the Effective Date, and the Company will pay all deposit requirements, servicing and maintenance costs, insurance premiums and the cost of the 7 gasoline for authorized business use. (The term of any one such automobile lease shall not exceed thirty-six months other than at the discretion of the Employee.) (e) OFFICE AND SUPPORT STAFF. During the Employment Term, the Employee shall be entitled to an office or offices of a size and with furnishings and other appointments, and to personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Employee by the Company at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Employee, as provided at any time thereafter to the Employee or other senior executives of the Company. (f) EXPENSE REIMBURSEMENT During the Employment Term, the Employee shall be entitled to receive prompt reimbursement for all usual, customary and reasonable, business-related expenses incurred by the Employee in performing his duties and responsibilities hereunder in accordance with the practices and procedures of the Company as in effect and applied immediately prior to the Effective Date, or, if more favorable to the Employee, as in effect at any time thereafter with respect to the Employee or other senior Executives of the Company. 8 (g) INDEMNIFICATION. The Company shall maintain directors and officers liability insurance in commercially reasonable amounts (as reasonably determined by the Board), and the Employee shall be covered under such insurance to the same extent as other directors and senior executives of the Company. The Employee shall be eligible for indemnification by the Company under the Company by-laws as currently in effect, and the Company agrees that it shall not take any action that would impair the Employee's rights to indemnification under the Company by-laws, as currently in effect. 4. TERMINATION OF EMPLOYMENT. ------------------------- (a) TERMINATION DUE TO DEATH OR DISABILITY. The Company may terminate the Employee's employment hereunder due to Disability (as hereinafter defined). In the event of the Employee's death or a termination of the Employee's employment by the Company due to Disability, the Employee or his estate or his legal representative, as the case may bet shall be entitled to receive: (i) any unpaid Base Salary through the Date of Termination; (ii) an immediate prorated annual incentive for the fiscal year in which the Date of 9 Termination occurs equal to the minimum annual incentive (determined without regard to any performance goals) provided by Section 3(b)(ii) multiplied by a fraction, the numerator of which is the number of days such fiscal year through the Date of Termination and the denominator of which is 365; (iii) an immediate lump sum amount equal to the sum of (A) two times the minimum annual incentive (determined without regard to any performance goals) provided by Section 3(b)(ii) plus (B) twenty-four (24) times the monthly rate of Base Salary at the rate in effect on the Date of Termination; (iv) any deferred compensation (including, without limitation, interest or other credits on such deferred amounts), any accrued vacation pay and any reimbursement for expenses incurred but not yet paid prior to such Date of Termination; and (v) any other compensation or benefits which may be owed or provided to or in respect of the Employee in accordance with the terms and provisions of this Agreement or any plans and programs of the Company. For purposes of this Agreement, "Disability" means the Employee's inability to render, for a period 10 of six consecutive months, services hereunder by reason of permanent disability, as determined by the written medical opinion of an independent medical physician mutually acceptable to the Employee and the Company. If the Employee and the Company cannot agree as to such an independent medical physician each shall appoint one medical physician and those two physicians shall appoint a third physician who shall make such determination. (b) TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate the Employee's employment hereunder for Cause (as hereinafter defined). If the Company terminates the Employee's employment hereunder for Cause, the Employee shall be entitled to receive; (i) any unpaid Base Salary through the Date of Termination; (ii) an immediate prorated annual incentive for the fiscal year in which the Date of Termination occurs, equal to the minimum annual incentive (determined without regard to any performance goals) provided by Section 3(b)(ii) multiplied by a fraction, the numerator of which is the number of days in such fiscal year through the Date of Termination and the denominator of which is 365; (iii) any deferred compensation (including, 11 without limitation, interest or other credits on such deferred amounts), any accrued vacation pay and any reimbursement for expenses incurred but not yet paid prior to such Date of Termination; and (iv) any other compensation or benefits which may be owed or provided to or in respect of the Employee in accordance with the terms and provisions of this Agreement or any plans and programs of the Company. The Employee shall be given written notice authorized by a vote of at least a majority of the members of the Board that the Company intends to terminate the Employee's employment for Cause; provided, however, that following a Change of Control (as hereinafter defined), such written notice must be authorized by a vote of at least 75% of the members of the Board. Such written notice shall specify the particular act or acts, or failure to act, which is/are the basis for the decision to so terminate the Employee's employment for Cause. The Employee, together with his legal counsel, shall be given the opportunity within thirty (30) calendar days of the receipt of such notice to meet with the Board to defend such act or acts, or failure to act, and, if such act or failure to act is correctable, the Employee shall 12 be given 30 business days after such meeting to correct such act or failure to act. If such act or failure to act is not correctable or upon failure of the Employee, within such latter thirty (30) day period, to correct such act or failure to act, the Employee's employment by the Company shall automatically be terminated for Cause as of the date determined in accordance with this Agreement. Anything herein to the contrary notwithstanding, if, following a termination of the Employee's employment by the Company for Cause based upon the conviction of the Employee for a felony, such conviction is overturned on appeal, the Employee shall be entitled to the payments and benefits that the Employee would have received as a result of a termination of the Employee's employment by the Company without Cause. For the purposes of this Agreement, "Cause" means (A) the Employee is convicted of a felony involving moral turpitude or (B) the Employee, in carrying out his duties and responsibilities under this Agreement, is guilty of gross neglect or gross misconduct resulting, in either case, in material economic harm to the Company, and such conduct is not cured within thirty (30) days of the Company providing written notice to the Employee, unless such act, or failure to act, was believed by the Employee in good faith to be in 13 the best interests of the Company. (c) TERMINATION WITHOUT CAUSE OR TERMINATION FOR GOOD REASON. The Company shall be permitted to terminate the Employee's employment hereunder without Cause, and the Employee shall be permitted to terminate his employment hereunder for Good Reason (as hereinafter defined). If the Corporation terminates the Employee's employment hereunder without Cause, other than due to death or Disability, or if the Employee effects a termination for Good Reason, the Employee shall be entitled to receive: (i) any unpaid Base Salary through the Date of Termination; (ii) an annual incentive for the fiscal year in which the Date of Termination occurs; (iii) any deferred compensation (including, without limitation, interest or other credits on the deferred amounts, any accrued vacation pay and reimbursement for expenses incurred but not paid prior to such termination of employment; and (iv) any other compensation or benefits which may be owed or provided to the Employee in accordance with the terms and provisions of this Agreement or any plans and programs of the Company, including but not limited to the 14 United States Filter Corporation Executive Severance Pay Plan. For purposes of this Agreement, "Good Reason" means and shall be deemed to exist if, without the prior express written consent of the Employee, (A) the Employee suffers a reduction in duties, responsibilities or effective authority associated with his titles and positions as set forth and described in this Agreement or is assigned any duties or responsibilities inconsistent in any material respect therewith; (B) the Company fails to substantially perform any material term or provision of this Agreement; (C) the Employee's compensation or benefits provided for hereunder is decreased; (D) the Company's principal execute office or the Employee's office is relocated to a location more than fifty (50) miles from its location on the Effective Date; (E) the Company fails to obtain the full assumption of this Agreement by a successor entity in accordance with the Agreement; (F) the Company purports to terminate the Employee's employment for Cause and such purported termination of employment is not effected in accordance with the requirements of this Agreement. The determination of the amount of any compensation and benefits or other payments to be paid or provided to or in respect of the Employee hereunder shall be determined without 15 regard to any reduction therein constituting Good Reason. (d) VOLUNTARY TERMINATION The Employee may effect a Voluntary Termination of his employment hereunder. A "Voluntary Termination" shall mean a termination of employment by the Employee on his own initiative other than (i) a termination due to Disability or (ii) a termination for Good Reason. A Voluntary Termination shall not be deemed to be a breach of this Agreement and shall entitle the Employee to all of the rights and benefits which the Employee would be entitled in the event of a termination of his employment by the Company for Cause. (e) CHANGE OF CONTROL (i) In the event the Employee's employment with the Company is terminated without Cause or for Good Reason following a Change of Control, Employee shall receive the compensation and benefits under this Agreement as if he had terminated his employment hereunder for Good Reason, (except that the amounts payable is accordance untie Sections 4(c)(i) and (ii) shall be paid within five days of such termination in an undiscounted lump sum). (ii) "Change of Control" shall mean the occurrence of any of the following: 16 (A) the acquisition by any person (including any syndicate or group deemed to be a "person" under Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any successor provision to either of the foregoing, of "beneficial ownership" directly or indirectly, of shares of capital stock of the Company entitling such person to exercise 50% or more of the total voting power of all "Voting Shares" of the Company; (B) during any year or any period of two consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (i), (iii) or (iv) of this definition) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning 17 of the period or whose election or nomination for election was previously so approved (hereinafter referred to as "Continuing Directors"), cease for any reason to constitute at least a majority thereof; (C) any consolidation of the Company with, or merger of the Company into, any other person, any merger of another person into the Company, or any sale or transfer of all or substantially all of the assets of the Company to another person (other than (x) a consolidation or merger which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of capital stock other than shares of capital stock owned by any of the parties to the consolidation or merger or (y) a merger which is effected solely to change the jurisdiction of incorporation of the Company or (z) any consolidation with or merger of the Company into a wholly owned subsidiary, or any sale or transfer by the Company of all of substantially all of its assets to one or more of its wholly owned subsidiaries in any one 18 transaction or a series of transactions; or (D) the stockholders of the Company approve a plan of complete liquidation of the Company. Notwithstanding the foregoing, unless otherwise determined by the Board of Directors, no change in control of the Company shall be deemed to have occurred if (x) the Employee is a member of a group which first announces a proposal which, if successful, would result in a Change of Control, which proposal (including any modifications thereof) is ultimately successful, or (y) the Executive acquires a two percent or more equity interest in the entity which ultimately acquires the Company pursuant to the transaction described in (x) of this paragraph. "Beneficial Ownership" shall be determined in accordance with Rule 13d-3 promulgated under the Exchange Act, except that a person shall be deemed to be the "beneficial owner" of all securities that such person has the right to acquire, whether such right is exercisably immediately or only after the passage of time. "Voting Share" means all outstanding shares 19 of any class or classes (however designated) of capital stock of the Company entitled to vote generally in the election of the Board of Directors of the Company. (iii) If any payment or benefit to which the Employee becomes entitled pursuant to this Agreement will be subject to the tax imposed by section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") (or any similar tax that may hereafter be imposed) (the "Excise Tax"), the Company shall pay to the Employee at the time specified below, an additional amount (the "Gross-up Payment") such that the net amount retained by the Employee, after deduction of any Excise Tax on the Total Payments (as hereinafter defined) and any federal, state and local income tax and Excise Tax upon the payment provided for by this subsection, shall be equal to the Total Payments. For purposes of determining whether any of such payments or benefits will be subject to the Excise Tax, and the amount of such Excise Tax, (if) any over payments or benefits received or to be received by the Employee in connection with a Change 20 of Control or his termination of employment, whether pursuant to the terms of this Agreement or otherwise (which together with the payments and benefits pursuant to this Agreement, constitute the "Total Payments") shall be treated as "parachute payments" within the meaning of section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of section 280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Company's independent auditors and acceptable to the Employee such other payments or benefits (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of section 280G(b)(4) of the Code in excess of the base amount within the meaning of section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax, (B) the amount of the Total Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser 21 of (1) the total amount of the Total Payments or (2) the amount of excess parachute payments within the meaning of section 280G(b)(l) (after applying paragraph (A), above), and (C) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Compass independent auditors in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Employee shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the sate and locality of his residence on the Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of his employment, the Employee shall repay 22 to the Company at the time that the amount of such reduction in Excise Tax is finally determined the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal and state and local income tax imposed on the Gross-Up Payment being repaid by him if such repayment results in reduction in Excise Tax and/or a federal and state and local income tax deduction) plus interest on the amount of such repayment at the rate provided in section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the Employee's termination of employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined. If the mounts of any payments under this Agreement cannot 23 be finally determined on or before the payment date otherwise scheduled for payment, the Company shall pay to the Employee on such date an estimate, as determined in good faith by the Company, of the minimum amount of such payment and shall pay the reminder of such payments (together with interest at the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined, but in no event later than the thirtieth day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Employee payable on the fifth day after demand by the Company (together with interest at the rate provided in section 1274(b)(2)(B) of the Code). (f) CONTINUATION OF EMPLOYEE BENEFITS. Upon the termination of the Employee's employment hereunder for whatever reason, the Company shall continue, for such period after the Date of Termination as it is required (or would be required absent the requirement in Section 4(e)(i) to pay a lump sum) in accordance with this Section 24 4, to continue to pay Base Salary to or in respect of the Employee, to cover the Employee and/or the Employee's family under Dose life, disability, accident and health insurance benefits that revere applicable to the Employee on the Date of Termination at the same benefit levels and on the same terms and conditions then in effect; provided however, that such coverage shall be no less favorable than that to which the Employee and/or his family was entitled immediately prior to his Date of Termination or, if applicable, the occurrence of any event constituting Good Reason; and further provided that in the event Employee's employment hereunder is terminated for Disability, such coverage shall continue for twenty-four (24) months following the Date of Termination. In the event that the Employee and/or the Employee's family's participation in any such program is barred, the Company shall arrange to provide the Employee and/or the Employee's family with benefits substantially similar to those which the Employee and/or the Employee's family would otherwise have been entitled to receive under such plans and programs Mom which continued participation is barred. Following the continuation period described in this subsection, the Employee and the Employee's family shall be entitled to elect continuation coverage under 25 Section 601 et. seq. of the Employee Retirement Income Security Act. (g) EQUITY BASED AWARDS. In the event of the termination of the Employee's employment hereunder other than pursuant to Section 4(b) or (d), any vesting or service requirements under any outstanding stock option or restricted stock awards then held by the Employee shall be deemed fully satisfied as of the Date of Termination. Anything herein or in any other agreement, plan or program to the contrary notwithstanding, in the event of the termination of the Employee's employment hereunder for whatever reason, all outstanding vested stock options held by the Employee as of the Date of Termination, including any for which vesting has been accelerated pursuant to this Section, shall remain exercisable for the balance of the respective terms thereof. (h) NO MITIGATION OR OFFSET. The Company agrees that, if the Employee's employment with the Company terminates, the Employee is not required to seek other employment or to attempt in any way to reduce any amounts payable to or in respect of the Employee by the Company pursuant to this Agreement. Further, the amount of any payment or benefit provided for in this Agreement shall not be reduced by an 26 compensation earned by the Employee as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Employee to the Company, or otherwise. (i) NOTICE OF TERMINATION. (i) Any termination of the Employee's employment by the Company (over than due to death) shall be communicated by a notice of termination to the other party hereto given in accordance with this Agreement (the "Notice of Termination"). The Notice of Termination shall be given (A) in the case of a termination for Cause, within 90 business days after a director of the Company (excluding the Employee) has actual knowledge of the events giving rise to such purported termination, (B) in the case of a termination for Good Reason, within 180 days of the Employee's having actual knowledge of the event or events constituting Good Reason; (C) in the case of termination for Disability, not later than 30 days prior to the date the Company reasonably expects the six month period referred to in Section 4(a) to expire; and (D) in the case of Voluntary Termination, not later than 150 days prior to the date of termination specified in such notice. Such notice shall (X) indicate the specific termination provision in this Agreement relied 27 upon, (Y) set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee's employment uncles the provision so indicated, as applicable, and (Z) if the Date of Termination is other than the date of actual receipt of such notice, specify the date on which the Employee's employment is to be terminated (which date shall not be earlier than the date on which such notice is actually received). (ii) If within fifteen (15) days after any Notice of Termination is given, or, if later, prior to the Date of Termination (as determined without regard to this Section) the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be extended until the earlier of (A) the date on which the Employment Term ends or (B) the date on which the dispute is finally resolved, either by mutual written agreement of the parties or by a final judgment, order or decree of an arbitrator or a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided however, that the Date 28 of Termination shall be extended by a notice of dispute given by the Employee only if such notice is given in good faith and the Employee pursues the resolution of such dispute with reasonable diligence. If the Date of Termination is extended in accordance with this Section, the Company shall continue to pay the Employee his full compensation and benefits in effect when the notice giving rise to the dispute was given (including, but not limited to, Base Salary) and continue the Employee's participation in all employee benefit plans in which the Employee was participating and, on the same terms and conditions as, when the notice giving rise to the dispute was given, until the Date of Termination, as determined in accordance with this Section. The determination of the amount of any compensation and benefits or odder payments to be paid or provided to or in respect of the Employee hereunder shall be determined without regard to any reduction therein constituting Good Reason. Amounts paid under this Section are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. (iii) For purposes of this Agreement, "Date of 29 Termination" means (A) in the case of a termination for which a Notice of Termination is required the date of actual receipt of such Notice of Termination, or if later, the date specified therein, as the case may be, (B) in the case of Disability, the last day of the six month period referred to in Section 4(a), and (C) in all other cases, the actual date on which the Executive's employment terminates during the Term of Employment. 5. ENFORCEMENT OF AGREEMENT; DEFENSE OF ACTIONS. -------------------------------------------- If the Employee determines that it is necessary or desirable for him to retain legal counsel or incur other costs and expenses in connection with either enforcing party and all of his rights under this Agreement or defending against any allegations by the Company of breach of this Agreement by him, the Employee shall be entitled to recover from the Company reasonable attorneys' fees, costs and expenses incurred by him in connection with such enforcement or defense. Such payments shall be made by the Company to the Employee (or directly to the Employee's attorney) promptly following submission to the Company of appropriate documentation evidencing the incurrence of such attorneys' fees, costs, and expenses. The Employee's rights to payments under this Section shall not be affected by the final outcome of any dispute with the Corporation; provided however, 30 that to the extent that the court shall determine that under the circumstances recovery by the Employee of all or a part of any such fees and costs and expenses would be unjust or inappropriate, the Employee shall not be entitled to such recovery. 6. PROTECTIVE COVENANTS. -------------------- (a) COMPENSATION BENEFITS IF SECTION 6 (b) OR (c) ARE BREACHED. The Employee agrees that if during the Employment Term, and for a period of one year thereafter, he (i) in any manner (except as provided below), directly or indirectly, though any parson, firm or corporation, alone or as a member of a partnership or as an officer, director, stockholder, investor or employee of or consultant to any other corporation or enterprise or otherwise engages or assists any other person, firm, corporation or enterprise in engaging in any business then being conducted by the Company (but not later than as of the Date of Termination) in any geographic area in which the Company is then conducting such business or (ii) breaches his obligations under Section 6(b) or (c), any compensation benefits to which the Employee would otherwise have been entitled shall be suspended for one year, or, if less, the remaining balance of the period unto respect to which the Employee, 31 would be so entitled to such payment and benefits, which payments and benefits shall be deemed immediately forfeited. Nothing herein shall prohibit the Employee from being a stockholder in a mutual fund or a diversified investment company or a passive owner of not more than two percent of the outstanding stock of any class of a corporation any equity securities of which are publicly traded, so long as the Employee has no active participation in the business of such corporation. Clause (i) of this subsection shall not apply following the Employment Term if the Employee is terminated without Cause or terminates for Good Reason following a Change of Control. (b) NO SOLICITATION OF EMPLOYEES. The Employee further agrees that during the Employment Term and for one year thereafter, he shall not, in any manner, directly or indirectly induce or attempt to induce any employee of the Company to terminate or abandon his or her employment for any purpose whatsoever. This subsection (b) shall not apply following the Employment Term if the Employee is terminated without Cause or terminates for Good Reason following a Change of Control. (c) NON-DISCLOSURE. The Employee shall not, at any time during the Employment Term or thereafter, make use of or 32 disclose, directly or indirectly, any trade secret, customer lists or other confidential or secret information of the Company not available to the public generally or to the competitors of the Company ("Confidential information), except to the extent that such Confidential Information becomes a matter of public record or is otherwise available to the general public, other than as a result of any act or omission of the Employee, or is required to be disclosed by any law, regulation or order of any court or regulatory commission, department or agency. Promptly following the Date of Termination, the Employee shall surrender to the Company all records, memoranda, notes, plans, reports, computer tapes and software and other documents and data relating to any Confidential Information or the business of the Company that he may then possess or have under his control (together with all copies thereon; provided however, that the Employee may retain copies of such documents as are necessary for the preparation of his federal or state income tax returns. (d) FALSE, DEFAMATORY, OR DISPARAGING STATEMENTS. The Employee agrees that, while he is employed by the Company, and after his Date of Termination, he shall not make any false, defamatory or disparaging statements about the Company, or the 33 officers or directors of the Company that are reasonably likely to cause material damage to the Company, or the officers or directors of the Company. While the Employee is employed by the Company, and after his Date of Termination, the Company agrees that neither the officers nor the directors of the Company shall make any false, defamatory or disparaging statements about the Employee that are reasonably likely to cause material damage to the Executive. (e) INJUNCTIONS TO PREVENT BREACHES OF PROTECTIVE COVENANTS. The parties hereto agree that the Company would be damaged irreparably in the event of any provision of paragraphs (b), (c) or (d), next above, were not performed by the Employee in accordance with their respective terns or were otherwise breached and that money damages would be an inadequate remedy for any such nonperformance or breach. Therefore, the Company or its successors or assigns shall be entitled, in addition to any other rights and remedies existing in their favor, to an injunction or injunctions to prevent any breach or threatened breach of any such provisions and to enforce such provisions specifically (without posting a bond or other security). The parties hereto agree that the Employee would be damaged irreparably in the event of any provision 34 of paragraph (d), next above, were not performed by the Company in accordance with its or were otherwise breached and that money damages would be an inadequate remedy for any such nonperformance or breach. Therefore, the Employee shall be entitled, in addition to any other rights and remedies existing in his favor, to an injunction or injections to prevent any breach or threatened breach of any such provisions and to enforce such provision specifically (without posting a bond or other security). 7. SUCCESSORS. ---------- (a) THE EMPLOYEE. This agreement is personal to the Employee and, without the prior express written consent of the Company, shall not be assignable by the Employee, except that the Employee's rights to receive any compensation or benefits under this Agreement may be transferred or disposed of pursuant to testamentary disposition, intestate succession or pursuant to a domestic relations order of a court of competent jurisdiction. This Agreement shall inure to the benefit of and be enforceable by the Employee's heirs, beneficiaries and/or legal representatives. (b) THE COMPANY. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and 35 assigns. The Company shall require any successor to all or substantially all of the business and/or assets of the Company, whether direct or indirect, by purchase, merger, consolidation, acquisition of stock, or otherwise, by an agreement in form ant substance satisfactory to the Employee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent as the Company would be required to perform if no such succession had taken place. 8. MISCELLANEOUS. ------------- (a) APPLICABLE LAW. This Agreement shell be governed by and construed in accordance with the laws of the State of California, applied without reference to principles of conflict of laws. (b) AMENDMENTS. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (c) NOTICES. All notices and other communications hereunder shall be in writing and shall be given by hand-delivery to the other park or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: 36 If to Employer: UNITED STATES FILTER CORPORATION 40-004 Cook Street Palm Desert, CA 92211 If to Employee: RICHARD J. HECKMANN 72551 Clancy Lane Rancho Mirage, CA 92270 With a Copy to: LAZOF & COSS Attn: Ronald C. Lazof, Esq. 4590 MacArthur Boulevard, Suite 390 Newport Beach, CA 92660 or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notices and communications shall be effective when actually received by the addressee. (d) WITHHOLDING. The Company may withhold from any amounts payable under this Agreement such federal, state or local income taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) SEVERABILITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (f) CAPTIONS. The captions of this Agreement are not part of the 37 provisions hereof and shall have no force or effect. (g) BENEFICIARIES/REFERENCES. The Employee shall be enabled to select (and change) a beneficiary or beneficiaries to receive any compensation or benefit payable hereunder following the Employee's death, and may change such election, in either case by giving the Company written notice thereof. In the event of the Employee's death or a judicial determination of his incompetence, reference in this Agreement to the Employee shall be deemed, where appropriate, to refer to other beneficiary(ies), estate or his legal representative(s). (h) ENTIRE AGREEMENT. This Agreement will contain the entire agreement between the parties concerning the subject matter hereof and will supersede all prior agreements, understandings, discussions, negotiations and undertakings, whether written or oral, between the parties with respect to the subject matter hereof, other than the Executive Retention Agreement (to the extent provided herein). However, nothing in this Agreement shall adversely affect the Employee's rights to benefits accrued prior to the Effective Date, and, except as contemplated hereby, the Employee's rights with respect to stock options and restricted stock granted prior 38 to the Effective Date shall be governed by the respective stock options and restricted stock agreements relating thereto. (i) ARBITRATION. Company and Employee agree that any controversy or dispute arising out of or in connection with this Agreement, its interpretation, performance of termination, shall upon demand of a party, be submitted to and decided by binding arbitration. The arbitration shall be conducted pursuant to Part 3, Title 9 of the California Code of Civil Procedure Sections 1280-1288.8. ------------------------------------------------------- Discovery, including depositions for the purpose of discovery, shall be broadly permitted, and the provisions of the California ---------- Code of Civil Procedure Section 1283.05 shall apply. Any demand ----------------------- to arbitrate shall be deemed to have been made on the date actually received by the party upon whom it is served, and, for the purposes of the statute of limitations, shall have the same effect as it suit had been filed on the date the demand is made. The arbitration shall occur in Orange County, California, before a single retired or former judge of the Superior Court of the State of California, or the Court of Appeals of the State of California. The parties shall agree upon an arbitrator within ten (10) days after the demand is made, and if the parties fail to so agree, then 39 any of them may apply to the Court for an order appointing an arbitrator meeting the requirements of this section. The arbitrator's decision shall be rendered in ninety (90) days after the hearing and the decision of the arbitrator shall be final and binding and shall be subject to confirmation, correction or vacation in accordance with the provisions of California Code of ------------------ Civil Procedure Sections 1285-1287.4. Any application, petition, --------------- or other proceeding (A) to enforce the award or the provisions of this Agreement, (B) to the extent that the arbitrator does not have the power or authority to resolve or grant the relief sought, and/or (C) for provisions or equitable relief pending appointment of the arbitrator, shall be commenced in the appropriate State or Federal Court having jurisdiction in Orange County, California, and the parties hereby consent to jurisdiction and venue in such Courts. (j) REPRESENTATION. The Company represents and warrants that it is fully authorized and empowered to enter into this Agreement and Mat the performance of its obligations under this Agreement will not violate any agreement between the Company and any other person, firm or organization or any applicable laws or regulations. (k) SURVIVORSHIP. 40 The respective rights and obligations of the parties hereunder shall survive any termination of this Agreement or the Employee's employment hereunder to the extent necessary to the intended preservation of such rights and obligations. 41 IN WITNESS WHEREOF, the parties have executed this Agreement on the date set forth opposite their signatures herein below. EMPLOYER: -------- UNITED STATES FILTER CORPORATION, a California corporation DATED: ____________, 1998 By:_______________________________ Its:______________________________ (title) EMPLOYEE: -------- DATED: ____________, 1998 By:_______________________________ RICHARD J. HECKMANN 42 EX-10.9 7 PARTICIPATION AGREEMENT EXHIBIT 10.9 PARTICIPATION AGREEMENT AND DEFERRAL ELECTION U.S.FILTER Management Deferred Compensation Plan * * * 1997 - -------------------------------------------------------------------------------- Please print your full name below: Print your Social Security Number below: _________________________________ ________________________________________ - -------------------------------------------------------------------------------- This Agreement is entered into between United States Filter Corporation (the "Company") and the Employee, pursuant to the United States Filter Corporation Management Deferred Compensation Plan (the "Plan"). =====================================------------------------------------------- 1. Provisions of the Plan I hereby acknowledge receipt of a copy of the Plan Highlights. In addition, I acknowledge having read and understood the provisions of the Plan respecting the entitlement to and calculation of benefits, and that the Plan may be amended or terminated only by the Board of Directors at any time in accordance with its terms. All of the terms and conditions of the Plan are contained in the Plan Document. =====================================------------------------------------------- 2. Election to Participate I hereby elect to defer the following portion of my compensation, which is to be credited to my Account (minimum annual total deferral of $5,000; specify a dollar or percentage amount): Deferral of Base Compensation: You may defer up to 25% of your total 1997 ----- base compensation. __________ of annual base compensation, (optional) not to exceed: $_______. Deferral of Bonus: Beginning in the December enrollment period you will be able to defer bonuses. =====================================------------------------------------------- 3. Expected Deferral Level For Company planning purposes, I expect to defer the following amounts and understand that this estimate is non-binding (minimum annual total deferral of $5,000; specify a dollar or percentage amount. Although you will not be permitted to make your election to defer bonuses until the December enrollment period, please estimate how much of your bonus you will likely elect defer in December.): Salary:____________ for _______ years beginning in 1998. Bonus: ____________ for _______ years beginning in 1998. ====================================-------------------------------------------- 4. Investment Selection I hereby designate the following investment selection for amounts to be contributed to my Account and acknowledge that I may change my investment mix on a quarterly basis. I also acknowledge that no money is actually being contributed to the funds I designate, and that my investment selection is used solely as an index for determining earnings or losses on my Account. (Investment allocations must be in whole percents, and your total investment allocation must equal 100%. See the Portfolio Roadmap accompanying your enrollment materials and the Manulife prospectus for complete information about each portfolio.)
Equity Index, Balanced and Equity funds: Money Market and Fixed Income funds: Equity Index (S&P 500): % Money Market (Manulife): % ----------- ---------- Balanced fund (Founders): % Investment Quality Bond (Wellington): % ----------- ---------- Value Fund (MAS*): % Strategic Bond (Solomon Brothers): % ----------- ---------- Blue Chip Growth Fund (T. Rowe Price): % High Yield Bond (MAS*): % ----------- ---------- Emerging Growth (Walburg Pincus): % Real Estate Securities (Manulife): % ----------- ---------- Science & Technology (T. Rowe Price): % ----------- Worldwide Growth (Founders): % ----------- International Stock Fund (T. Rowe Price): % * Miller Anderson & Sherrerd, LLP -----------
(over) =====================================------------------------------------------- 5. Retirement Income Benefit I acknowledge that this election may be changed no more than once yearly, and that it must be at least one year prior to the first day of the year of my retirement to make a change. I further acknowledge that, under Treasury Department regulations adopted in 1996, there may be potential adverse income tax consequences if I elect to receive a lump sum of 5 annual payments (see the Plan Highlights, question 30). I hereby request that my Retirement Income Benefit be paid in the following manner (check one); [_] Lump-sum Payment [_] 5 Annual Payments* [_] 10 Annual Payments* [_] 15 Annual Payments* * If you choose a stream of payments, your declining Account balance will continue to earn interest based upon your chosen investment mix. If, at retirement or any time after retirement, you wish to change your designation from annual payments to a sump-sum payment, your distribution will be subject to a 10% penalty, which will be forfeited to the Company. =====================================------------------------------------------- 6. In-service Distributions I hereby elect to receive payments from this Plan as specified below. Any amounts not paid as in-service, termination or survivor benefit distributions are paid as retirement benefits pursuant to my Retirement Income Benefit election in item 5. In addition, I acknowledge that I may not receive more than one In-service Distribution in any one calendar year and that all In-service Distributions are subject to income taxes in effect during the year received. (If more space is needed, attach a separate sheet. Distributions may be scheduled for any date on or after January 1, 2000. Note that this is an election you may only make upon your initial enrollment in the Plan; therefore, you should take into account the amount of future deferrals you will make when scheduling your In-service Distributions.) Amount of Distribution Distribution Date (mo/yr) (specify either a dollar or percentage amount) - ------------------------- ---------------------------------------------- ___________/_____________ _____________________ of Account Balance. ___________/_____________ _____________________ of Account Balance. ___________/_____________ _____________________ of Account Balance. ___________/_____________ _____________________ of Account Balance. Note: At any time, you may, at your sole discretion, withdrawn up to an amount equal to your Account Balance minus a penalty of 10% of the amount withdrawn (the amount of the penalty is forfeited to the Company). You may also extend or cancel any In-service Distribution at least one year prior to the first day of the calendar year in which the originally scheduled distribution would take place. =====================================------------------------------------------- 7. Pre-retirement Termination Payout I hereby request that, in the event that I terminate employment with the Company for reasons other than death or disability prior to eligibility for retirement benefits, my Account Balance should be paid in the following manner and acknowledge that I may not change this election after I make it (check one): --- [_] Lump sum [_] 3 annual installments* * Your Account Balance will continue to earn interest based upon your chosen investment mix, and you will be permitted to change your investment mix quarterly. =====================================------------------------------------------- 8. Acknowledgement of Benefits I hereby agree on my own behalf and on behalf of ny Beneficiaries to accept those benefits under the Plan to which I and my Beneficiaries may become entitled and to be bound by all of the terms and conditions of the Plan. I acknowledge that I may look solely to the Company for payment of all benefits under the Plan and that, to the extent that the Company has set aside any assets to pay benefits in the future, the assets are subject to the claims of general creditors of the Company. __________________________________________________ Employee Signature Date _______________________________________________________________________ Employer Signature Title Date Please send this form to: Joy Gaetano Vice President Human Resources United States Filter Corporation 40-004 Cook Street Palm Desert, CA 92211 EX-10.10 8 EXECUTIVE SEVERANCE PAY PLAN EXHIBIT 10.10 UNITED STATES FILTER CORPORATION EXECUTIVE SEVERANCE PAY PLAN THIS UNITED STATES FILTER CORPORATION EXECUTIVE SEVERANCE PAY PLAN (this "PLAN"), adopted on June 9, 1998 effective as of January 1, 1998, by UNITED STATES FILTER CORPORATION, a Delaware corporation (the "COMPANY"), is a welfare benefit plan which is designed to provide payments upon severance to certain executives of the Company. W I T N E S S E T H: ARTICLE I TITLE AND DEFINITIONS 1.1 TITLE. This Plan shall be known as the "United States Filter Corporation Executive Severance Pay Plan." 1.2 DEFINITIONS. Whenever the following terms are used in this Plan, with the first letter capitalized, they shall have the meanings specified below. "Cause" shall mean (a) for an Eligible Executive other than the Company's Chief Executive Officer, a termination of employment on the grounds of the Eligible Executive's personal dishonesty, willful misconduct, breach of fiduciary duty involving personal profit, intentional and continuing failure to perform stated duties or willful violation of any law, rule or regulation (other than traffic violations or similar minor offenses) and (b) for the Company's Chief Executive Officer, "Cause" as defined in the Employment Agreement between the Company and the Chief Executive Officer. For purposes hereof, no act or failure to act, on the part of an Eligible Executive, shall be considered "willful" unless it is done, or omitted to be done, by an Eligible Executive in bad faith or without reasonable belief that an 2 Eligible Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based on authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or based upon the advice of counsel to the Company shall be conclusively presumed to be done, or omitted to be done, by an Eligible Executive in good faith and in the best interests of the Company. In addition, if the Eligible Executive's employment is terminated for Cause within one year following a Change of Control, an Eligible Executive other than the Company's Chief Executive Officer shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to the Eligible Executive a copy of a resolution, duly adopted by the affirmative vote of not less than 75% of the entire membership of the Board of Directors of the Company (the "Board") at a meeting of the Board (after reasonable notice to the Eligible Executive and an opportunity for the Eligible Executive, together with his or her counsel, to be heard by the Board), finding that, in the good faith opinion of the Board, the Eligible Executive's termination is for Cause and specifying the particulars thereof in detail. Such finding shall be subject to a complete and de novo review as to reasonableness and good faith. For the Company's Chief Executive Officer, the procedure contained in the Employment Agreement between the Company and the Chief Executive Officer shall apply in determining whether termination was for "Cause." "Change of Control" shall mean the occurrence of any of the following: (i) the acquisition by any person (including any syndicate or group deemed to be a "person" under Section 13(d)(3) or 14(d)(2) of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any successor provision to either of the foregoing) of "beneficial ownership" (as determined in accordance with Rule 13d-3 promulgated under the Exchange Act, except that a person shall be deemed to be a "beneficial owner" of all securities that such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of shares of capital stock of the Company entitling such person to exercise 50% or more of the total voting power of all outstanding shares of any class or classes (however designated) of capital stock of the Company entitled to vote generally in the election of the Board; 3 (ii) during any year or any period of two consecutive years (not including any period prior to the execution of this Plan), individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (i), (iii) or (iv) of this definition) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; (iii) any consolidation of the Company with, or merger of the Company into, any other person, any merger of another person into the Company, or any sale or transfer of all or substantially all of the assets of the Company to another person, other than (x) a consolidation or merger that does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of capital stock other than shares of capital stock owned by any of the parties to the consolidation or merger; (y) a merger that is effected solely to change the jurisdiction of incorporation of the Company; or (z) any consolidation with or merger of the Company into a wholly-owned subsidiary, or any sale or transfer by the Company of all or substantially all of its assets to one or more of its wholly-owned subsidiaries in any one transaction or a series of transactions; or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company. Notwithstanding the foregoing, unless otherwise determined by the Board, no change in control of the Company shall be deemed to have occurred for purposes of determining an Eligible Executive's eligibility to receive Severance Benefits under this Plan if (x) the Eligible Executive is a member of a group that first announces a proposal which, if successful, would result in a Change of Control, which proposal (including any modifications thereof) is ultimately successful, or (y) the Eligible Executive acquires a two percent or more equity 4 interest in the entity that ultimately acquires the Company pursuant to the transaction described in (x) of this paragraph. "Committee" shall mean the committee appointed by, and serving at the pleasure of, the Compensation Committee of the Board. "Company" shall mean United States Filter Corporation, a Delaware corporation, and any subsidiary of United States Filter Corporation. "Base Salary" shall mean an Eligible Executive's rate of base pay from the Company which is set forth in the Eligible Executive's Employment Agreement, as adjusted from time to time. "Eligible Executive" shall mean an employee of the Company whose name appears on the list of Company executives, attached hereto as Exhibit A, which shall be updated from time to time. To receive Severance Benefits, an Eligible Executive must also meet the requirements set forth in Section 2.1. "Employment Agreement" shall mean the agreement between the Company and an Eligible Executive, setting forth the terms of his or her employment. "ERISA" shall mean the U.S. Employee Retirement Income Security Act of 1974, as amended from time to time. "Good Reason" shall mean (a) for an Eligible Executive other than the Company's Chief Executive Officer, without the prior written consent of an Eligible Executive, (i) an Eligible Executive's compensation or benefits is decreased, other than an immaterial decrease in benefits uniformly applicable to substantially all full-time Company employees, (ii) an Eligible Executive suffers a reduction in duties, responsibilities or effective authority associated with his or her titles and 5 positions as set forth and described in an Eligible Executive's Employment Agreement or is assigned any duties or responsibilities inconsistent in any material respect therewith, (iii) the Company fails to substantially perform any material term or provision in the Plan or an Eligible Executive's Employment Agreement, (iv) the principal office of an Eligible Executive is relocated by more than fifty (50) miles from its location as of the date this Plan is executed, (v) the Company fails to obtain the full assumption of the Plan and an Eligible Executive's Employment Agreement by a successor entity, or (vi) the Company purports to terminate an Eligible Executive's employment for Cause and such purported termination of employment is not effected in accordance the terms of an Eligible Executive's Employment Agreement or this Plan, and (b) for the Company's Chief Executive Officer, "Good Reason" as defined in the Employment Agreement between the Company and the Chief Executive Officer. "Plan" shall mean the United States Corporation Executive Severance Pay Plan, now in effect or hereafter amended. "Severance Benefit" shall mean the benefit provided under Section 3.1. "Severance Date" shall mean the last day on which an Eligible Executive of the Company completes an hour of service for the Company. 6 ARTICLE II ELIGIBILITY 2.1 ELIGIBILITY REQUIREMENTS. An Eligible Executive shall be entitled to a Severance Benefit hereunder only if: (a) The Committee determines, pursuant to its powers and duties under Section 4.1, that the Eligible Executive's employment with the Company was terminated (i) by the Company without Cause, or (ii) by the Eligible Executive for Good Reason. An Eligible Executive shall not be entitled to a Severance Benefit if his or her employment with the Company terminated as a result of death or disability. (b) During the term of his employment with the Company and for a period of 12 months from the date of termination, the Eligible Executive does not (except as provided below) in any manner directly or indirectly, though any person, firm or corporation, alone or as a member of a partnership or as an officer, director, stockholder, investor or employee of or consultant to any other corporation or enterprise or otherwise engage or assist any other person, firm, corporation or enterprise in engaging in any business then being conducted by the Company (but not later than as of the date of termination) in any geographic area in which the Company is then conducting such business. This subsection (b) shall not apply following the term of employment if the Eligible Executive is terminated without Cause or terminates for Good Reason following a Change of Control. (c) The Eligible Executive does not (except as provided below) during the term of his employment with the Company and for one year thereafter, in any manner, directly 7 or indirectly induce or attempt to induce any employee of the Company to terminate or abandon his or her employment for any purpose whatsoever (other than for poor performance of an employee employed by the Company at such time). This subsection (c) shall not apply following the term of employment if the Eligible Executive is terminated without Cause or terminates for Good Reason following a Change of Control. (d) The Eligible Executive shall not, at any time during the term of his employment with the Company or thereafter, make use of or disclose, directly or indirectly, any trade secret, customer lists or other confidential or secret information of the Company not available to the public generally or to the competitors of the Company ("Confidential Information"), except to the extent that such Confidential Information becomes a matter of public record or is otherwise available to the general public, other than as a result of any act or omission of the Eligible Executive, or is required to be disclosed by law, regulation or order of any court or regulatory commission, department or agency. ARTICLE III BENEFITS PAYABLE UNDER THE PLAN 3.1 SEVERANCE BENEFITS PAYABLE UNDER THE PLAN. (a) GENERALLY APPLICABLE BENEFIT. The Severance Benefit payable to an Eligible Executive (other than the Chief Executive Officer) shall be sum of the amounts described in (1) and (2) below: (1) The sum of his Base Salary for the balance of the term of his Employment Agreement, plus the target annual incentive bonus scheduled for the year in which employment terminated (determined without regard to any performance goals) times the number of full and partial years (determined on the basis of days, assuming a year of 365 days) remaining in the term of the Employment Agreement. 8 (2) If an Eligible Executive becomes entitled to severance benefits hereunder, the Company shall, at its expense, engage a nationally recognized employee benefits consulting firm to estimate the value of the health, life insurance, disability and accident insurance plans or programs covering the Eligible Executive and his dependents prior to the termination of employment. The amount payable under this subsection (3) shall be a cash lump sum equal to the greater of the present value of such coverage for the remaining term of the Eligible Executive's Employment Agreement, or 1.5 times the present value of one year of such coverage. (b) BENEFIT FOR CHIEF EXECUTIVE OFFICER. The Severance Benefit payable to the Chief Executive Officer shall be the sum of his Base Salary for the balance of the term of his Employment Agreement, plus the target annual incentive bonus scheduled for each year following the year in which employment terminated for the balance of the term of the Employment Agreement (determined without regard to any performance goals.) 9 3.2 PAYMENT OF SEVERANCE BENEFITS. (a) Payment of the Severance Benefit under this Plan to an Eligible Executive shall be made within thirty (30) days after the Eligible Executive's termination of employment. The Severance Benefit shall be paid in the form of a single lump sum in cash. (b) If the Eligible Executive does not comply with any or all of the requirements of Sections 2.1(c), 2.1(d) or 2.1(e), any remaining unpaid Severance Benefit shall be irrevocably forfeited. (c) If the Eligible Executive dies after a qualifying termination of employment but before his or her entire Severance Benefit has been paid, the Severance Benefit shall be paid within thirty (30) days from the date of death to the estate or personal representative of the Eligible Executive. 10 ARTICLE IV PLAN ADMINISTRATION 4.1 POWERS AND DUTIES OF THE COMMITTEE. The Company shall be the Plan Administrator (as defined in Section 3(16)(A) of ERISA). The Company delegates its duties under the Plan to the Committee. The Committee and its delegates shall be named fiduciaries of this Plan to the extent required by ERISA. The Committee shall enforce this Plan in accordance with its terms, and shall be charged with the general administration of this Plan. The Committee shall have all powers and duties necessary to accomplish its purposes, including but not by way of limitation, the power to do any of the following: (a) To determine all questions relating to the eligibility of Eligible Executives to receive payments hereunder; (b) To construe and interpret the terms and provisions of this Plan in accordance with Section 4.5; (c) To determine and compute the amount and timing of payments payable to Eligible Executives; (d) To issue directions to the Company concerning all benefits that are to be paid from the Company's general assets pursuant to the provisions of this Plan, and warrant that all such directions are in accordance with this Plan; (e) To maintain all the necessary records for the administration of this Plan; 11 (f) To provide for disclosure of all information and filing or provision of all reports and statements to Eligible Executives or governmental bodies as shall be required by ERISA; (g) To make and publish such rules for the regulation of this Plan as are not inconsistent with the terms hereof; and (h) To establish claims procedures consistent with regulations of the Secretary of Labor for presentation of claims by Eligible Executives for Plan benefits, consideration of such claims, review of claim denials and issuance of decisions on review. Such claims procedures at a minimum shall consist of the following: (1) The Committee or its delegates shall notify Eligible Executives of their right to claim benefits under the claims procedures, shall make forms available for filing of such claims, and shall provide the name of the person or persons with whom such claims should be filed. (2) The Committee or its delegates shall establish procedures for action upon claims initially made and the communication of a decision to the claimant promptly and, in any event, not later than 90 days after the date of the claim, unless special circumstances require an extension of time for processing the claim. If an extension is required, notice of the extension shall be furnished to the claimant prior to the end of the initial 90-day period, which notice shall indicate the reasons for the extension and the expected decision date. The extensions shall not exceed 90 days. The claim may be deemed by the claimant to have been denied for purposes of further review described below in the event a decision is not furnished to the claimant within the period described in the preceding three sentences. Every claim for benefits which is denied shall be denied by written notice setting forth in a manner calculated to be understood by the claimant (i) the specific reason or reasons for the denial, (ii) specific reference to any provisions of this Plan on which denial is based, (iii) description of 12 any additional material or information necessary for the claimant to perfect his or her claim with an explanation of why such material or information is necessary, and (iv) an explanation of the procedure for further review of the denial of the claim under this Plan. (3) The Committee shall establish a procedure for review of claim denials, such review to be undertaken by the Committee. The review given after denial of any claim shall be a full and fair review with the claimant or the claimant's duly authorized representative having 60 days after receipt of denial of the claim to request such review, having the right to review all pertinent documents and having the right to submit issues and comments in writing. (4) The Committee shall establish a procedure for issuance of a decision by it not later than 60 days after receipt of a request for a review of a claim denial by a claimant unless special circumstances exist, such as the need to hold a hearing or require a longer period of time, in which case a decision shall be rendered as soon as possible but not later than 120 days after receipt of the claimant's request for review. The decision on review shall be in writing and shall include specific reasons for the decision written in a manner calculated to be understood by the claimant with specific reference to any provisions of this Plan on which the decision is based. 4.2 TRANSMITTAL OF INFORMATION. In order to enable the Committee to perform its functions under this Plan, the Company shall supply full and timely information to the Committee on all matters relating to the Base Salary of Eligible Executives, their employment, retirement, death, or the cause for termination of employment and such other pertinent facts as may be required. 13 4.3 REPORTS. Upon request of the Company, the Committee shall prepare, or cause to be prepared, and shall submit to the Chief Executive Officer of the Company a report with respect to the administration of this Plan that fully informs the Chief Executive Officer of the discharge by the Committee of its responsibilities under this Plan. 4.4 COMPENSATION, EXPENSES, INDEMNITY AND LIABILITY. (a) The members of the Committee and its delegates shall serve without compensation for their services hereunder. (b) The Committee is authorized at the expense of the Company to employ such legal counsel, and make use of such clerical or other personnel, as it may deem advisable to assist in the performance of its duties hereunder. (c) To the extent permitted by applicable law, the Company shall indemnify and save harmless the Committee and each member thereof, and any person to whom the Committee has delegated its duties under this Plan against any and all expenses, liabilities and claims, including legal fees paid to defend against such liabilities and claims, arising out of their discharge of responsibilities in good faith under this Plan, excepting only expenses, liabilities and claims arising out of willful misconduct. This indemnity shall not preclude such further indemnities as may be available under insurance purchased by the Company or provided by the Company under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, as such indemnities are permitted under state law. Payments with respect to the indemnity and payments of expenses or fees shall be made from the general assets of the Company. 14 4.5 MANNER OF ADMINISTERING. Prior to a Change of Control, the Committee shall have full discretion to construe and interpret the terms and provisions of this Plan and to determine the eligibility for and amount of benefits under this Plan, which interpretation or construction shall be final and binding on all parties, including but not limited to the Company and any Eligible Executive, except as otherwise provided by law. Following a Change of Control, the Committee shall not have discretionary authority concerning this Plan, and any determinations of the Committee following a Change of Control shall be reviewed on a de novo basis. 4.6 ARBITRATION. Any disputes arising under this Plan shall be resolved in accordance with the arbitration provisions of the Eligible Executive's Employment Agreement. ARTICLE V AMENDMENT AND SUCCESSION 5.1 AMENDMENTS. The Board shall have the right to amend this Plan from time to time and to amend further or cancel any such amendment; provided, however, that the Board shall not have the right to amend this Plan, nor shall the Board amend, discontinue, cancel or terminate this Plan without the prior written approval of an Eligible Executive. Any such amendment shall be effective in the manner and at the time therein set forth, and the Company and all employees of the Company shall be bound thereby; provided, however, that no such amendment shall be effective with respect to an Eligible Executive whose employment was terminated prior to the date of adoption of such amendment, and no such amendment following a Change of Control may (a) reduce any benefit to which an Eligible Executive is or may become entitled, or (b) change the eligibility requirements for benefits hereunder. 15 5.2 SUCCESSORS. This Plan shall inure to the benefit of and be binding upon the Company and its successors and assigns. Upon a Change of Control, the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Plan in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. For purposes hereof, the "Company" shall be deemed to include any successor to the Company's business and/or assets as aforesaid which assumes and agrees to perform this Plan or an Eligible Executive's Employment Agreement by operation of law or otherwise. ARTICLE VI MISCELLANEOUS 6.1 LIMITATION ON ELIGIBLE EXECUTIVES' RIGHTS. Neither eligibility nor payments made under this Plan shall give any Eligible Executive the right to be retained in the Company's employ. Inclusion under this Plan will not give any Eligible Executive any right to claim any benefit hereunder except to the extent such right is expressly provided herein or in an Eligible Executive's Employment Agreement. 16 6.2 UNSECURED GENERAL CREDITOR. All Eligible Executives and their heirs, successors, assigns and personal representatives shall have no legal or equitable rights, claims or interest in any specific property or assets of the Company with respect to benefits payable under this Plan. No assets of the Company shall be held under any trust, or held in any way as collateral security for the fulfillment of the obligations of the Company under this Plan. The Company's assets shall be, and remain, the general, unpledged, unrestricted assets of the Company. The Company's obligation under this Plan shall be merely that of an unfunded and unsecured promise of the Company to pay money in the future, and the rights of all Eligible Executives shall be no greater than those of unsecured general creditors. 6.3 WITHHOLDING. There shall be deducted from each payment under this Plan all taxes that are required by applicable law or regulation to be withheld by the Company with respect to such payment. The Company shall have the right to reduce any payment by the amount of cash sufficient to provide the amount of said taxes. 6.4 RESTRICTION AGAINST ALIENATION. None of the benefits, payments, proceeds or claims of any Eligible Executive shall be subject to any claim of any creditor and, in particular, the same shall not be subject to attachment or garnishment or other legal process by any creditor, nor shall any such Eligible Executive have any right to alienate, anticipate, commute, pledge, encumber or assign any of the benefits or payments or proceeds which he or she may expect to receive, contingently or otherwise, under this Plan. 6.5 GOVERNING LAW. This Plan shall be construed, administered, and governed in all respects under 17 applicable federal law, and to the extent that federal law is inapplicable, under the laws of the State of California; provided, however, that if any provision is susceptible to more than one interpretation, such interpretation shall be given thereto as is consistent with this Plan being a welfare benefit plan within the meaning of Section 3(1) of ERISA. If any provision of this Plan shall be held by a court of competent jurisdiction to be invalid or unenforceable, the remaining provisions hereof shall continue to be fully effective. Although it is intended that this entire Plan constitutes a welfare plan within the meaning of Section 3(1) of ERISA, if this Plan is deemed to provide pension benefits to any Eligible Executive, then the portion of the Plan providing pension benefits shall be deemed a separate plan. Such separate plan, if any, is intended to satisfy Section 201(2) of ERISA. 6.6 HEADINGS, ETC., NOT PART OF AGREEMENT. Headings and subheadings in this Plan are inserted for convenience of reference only and are not to be considered in the construction of the provisions hereof. 6.7 REORGANIZATION OF COMPANY. In the event of the dissolution, merger, consolidation, or reorganization of the Company, this Plan shall (subject to the right of the Company to amend or terminate this Plan) continue to be maintained by the Company's successor which upon such succession, shall be deemed the Company hereunder. 6.8 CONSTRUCTION. As used in this Plan, the masculine gender shall include the feminine and the singular may include the plural, unless the context clearly indicates to the contrary. 18 IN WITNESS WHEREOF, the undersigned has caused these presents to be executed by its duly authorized officers and its corporate seal to be hereunto affixed as of the date first set forth above. UNITED STATES FILTER CORPORATION By: ----------------------------- Name: --------------------------- Title: -------------------------- 19 EXHIBIT "A" ELIGIBLE EXECUTIVES Richard J. Heckmann EX-12.1 9 COMPUTATION OF RATIO OF EARNINGS EXHIBIT 12.1 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (DOLLARS IN THOUSANDS)
FISCAL YEAR ENDED MARCH 31, ----------------------------- 1995 1996 1997 1998 ------ ------ ------ -------- Operating income (loss)......................... 40,721 61,385 66,020 (235,209) Portion of rental expenses deemed to represent interest....................................... 3,167 3,500 5,433 13,967 ------ ------ ------ -------- Earnings (loss) before fixed charges............ 43,888 64,885 71,453 (221,242) ====== ====== ====== ======== Interest expense................................ 8,807 16,280 26,509 53,887 Portion of rental expenses deemed to represent interest....................................... 3,167 3,500 5,433 13,967 ------ ------ ------ -------- Fixed charges................................... 11,974 19,780 31,942 67,854 ====== ====== ====== ======== Ratio of earnings to fixed charges.............. 3.7x 3.3x 2.2x na ====== ====== ====== ======== Deficiency of earnings to fixed charges......... na na na $289,096 ====== ====== ====== ========
EX-21 10 LIST OF SUBSIDIARIES EXHIBIT 21.0 LIST OF SUBSIDIARIES OF THE COMPANY The following lists the subsidiaries of United States Filter Corporation as of March 31, 1998. The subsidiaries listed are all wholly owned, either directly or indirectly.
STATE (COUNTRY) NAME OF INCORPORATION ---- ---------------- 1258010 Ontario Inc. Canada ARI Chemicals India Private Limited India Abrasive Products, Inc. Indiana Adaline Water Systems, Inc. Texas Advanced Microtherm, Inc. California Akvapur Sweden Alfred Gutmann Gesellschaft fur Maschinenbau hbH Germany American Water Systems, Inc. Nebraska Arrowhaas Mexico, S.A. de C.V. Mexico Asdor, Inc. Delaware Ashland Municipal Supplies Co. Ohio Astre S.A. France Autocon Industries, Inc. Minnesota BCT Spares Ltd. UK BS Smogless S.A. Italy Bayard S.C.I. France Bayard, S.A. France Bekox S.A. Spain Best Water Treatment Company, Inc. Illinois Bio Con. S.p.A. Italy BioKinetics, Inc. Delaware Blastrac Europe Ltd. UK Buckeye Water Conditioning, Inc. Ohio CIDA HIDROQUIMICA S.A. Spain CJT Enterprises, Inc. Missouri CM Services, Inc. Kentucky California Farms, L.P. Delaware Chester Engineers of Michigan, Inc., The Pennsylvania Chester Engineers, Inc. Pennsylvania Chester Environmental Ohio, Inc. Pennsylvania Chester Environmental, Ltd. British Columbia Continental Trade Corporation Texas Continental Water Conditioning of Jacksonville, Inc. Florida Cord Chemcial Co Ltd UK Cove Water, Inc. California Coyanosa Operations Company, Inc. Texas D.S.K. Enterprises, Inc. California Darchet (M) Sdn Bhd Malaysia Darchet Industrial Water (M) Sdn Bhd Malaysia Darchet Industrial Water (Penang) Sdn Bhd Malaysia Darchet Industrial Water Pte. Ltd. Singapore Diversified Water Systems, Inc. Delaware
STATE (COUNTRY) NAME OF INCORPORATION ---- ---------------- Douglas L. Windover, Inc. New York EBE Netherland B.V. Netherlands ETI S.r.l. Italy Ecogest S.r.l. Italy Edwards & Jones GmbH Germany Edwards & Jones Inc. Delaware Edwards & Jones, Ltd. UK Edwards and Jones Pension Trustees Limited UK Envirex Inc. Delaware Envirex and General Filter (Europe) Limited UK Eurofiltec Deutschland GmbH Germany Europeenne de Grenaillage S.A. France FPD S.r.l. Italy FW Ranchlands, L.P. Texas Fife Industrial Pipe Company Florida Filtration Seco Inc. Canada Fletcher Filtration Limited UK Florida Springs Distributors, Inc. Florida Gawa Gesellschaft fur Automatische Wasseraufbereitung MbH Germany Gene McVety, Inc. Arizona General Filter Company Delaware Geopure Systems & Services, Inc. Florida Giesseci S.r.l. Italy Grupo de Tratamiento de Aguas Davis, S.A. de C.V. Mexico HPD/Evatherm A.G. Switzerland HTI Vehicle Acquisition Corp. Texas Heinrick Schlick GmbH Germany Hi-Tech Tool Rental, Inc. California Hunter Screen Management Pty Limited Australia Hunter Screen Products Pty Limited Australia IP Holding Company Delaware Idrofoglia International S.p.A. Italy Illinois Water Treatment, Inc. Delaware Interpure L.L.C. Delaware Ionpure Aktiebolag Sweden Ionpure Foreign Sales Corporation Virgin Islands Ionpure L.L.C. Delaware Ionpure Technologies (Ireland) Limited Ireland Ionpure Technologies A.B. Sweden Ionpure Technologies Limited UK Ionpure Technologies Oy Finland Ionpure Technologies S.A. Spain Johnson Filtration Systems (Australia) Pty Australia Ltd Johnson Filtration Systems (France) S.A. France Johnson Filtration Systems (India) Limited India Johnson Filtration Systems (Japan) Ltd. Japan Johnson Filtration Systems Limited Ireland K.M.I. Micro Electronics, Ltd Israel KSI Mechanical SDN BHD Malaysia
STATE (COUNTRY) NAME OF INCORPORATION ---- ---------------- KSI Mexico, S.A. de C.V. Mexico KSI West Coast Mfg., Inc. California Kinetic Systems Caribe, Inc. Delaware Kinetic Systems France SARL France Kinetic Systems International, Inc. California Kinetic Systems Italy S.r.l. Italy Kinetic Systems Netherlands B.V. Netherlands Kinetic Systems Singapore Pte. Ltd Singapore Kinetic Systems de Mexico, S.A. de C.V. Mexico Kinetic Systems, Inc. California Kinetics Brazil Ltd Brazil Kinetics Ireland Limited Ireland Kinetics Management Group, Inc. California Kinetics Mechanical Service, Inc. California Kinetics Mechanical, Inc. California Kinetics Nexus LLC, A California Limited Liability Company California Kinetics Process Piping S.A. Switzerland Kinetics Products, Inc. California Lazers H2O, Inc. Minnesota Lindsay Soft Water of Northern Iowa, Inc. Iowa London, London & Klugherz, Inc. California Lone Star Water, Inc. Texas Mass Ionpure de Mexico S.A. de C.V. Mexico Memcor Ltd UK Memtec (UK) Limited UK Memtec BV Netherlands Memtec China Pty Ltd Australia Memtec Europe Limited UK Memtec Filtertechnik GmbH Germany Memtec Finance Inc Delaware Memtec France SA France Memtec GmbH Germany Memtec Japan Limited Japan Memtec Limited Australia Memtec Research Pty Limited Australia Meter Box Equipment Corporation Washington MicroKinetics, Inc. California Miller Rossmark Ltd. UK Nelco Porta-Blast Corp. Oklahoma Neptune Nichols Limited UK Niagara Screen Products Limited Canada North West Water Holding GmbH Germany Northedge Limited UK Northwest Continental Systems, Inc. Washington OT GmbH Germany Oberflachen-Luft-und Tfocknungstechmik GmbH Germany P.V. Pacific (Malaysia) Sdn. Bhd. Malaysia P.V. Pacific Private Ltd. Singapore Pacific Water Works Supply Co., Inc. Washington
STATE (COUNTRY) NAME OF INCORPORATION ---- ---------------- Paice Nanco, Inc. Nevada Palm Water Acquisition Corp. Delaware Panborn Europe SpA Italy Permtek Ltd. Hong Kong Permutit (Egypt) Limited Egypt Permutit Company Pty Limited, The Australia Permutit New Zealand Limited New Zealand Perrier Equipment S.A. France Polymetrics Inc. of Delaware Delaware Polymetrics, Inc. California Polyteknika Engineering S.r.l. Italy Posey Pure Corporation Texas Presian Pty Limited Australia ProComp, Inc. Delaware Processos y Systemas de Separacion S.A. Spain Puro Water Group, Inc. Delaware Quality Assurance Management Ireland Ltd Ireland Quality Assurance Management, Inc. California R.B.S. Pension Trustees Limited UK R.F. Schneider Pipe and Supply Company Pennsylvania RJ Environmental, Inc. California RWB Beheer B.V. Netherlands RWB Belgium N.V./S.A. Belgium Recon Verfahrenstechnik GmbH Germany Ropes Corporation Indiana Rossmark-van Wijk & Boerma Water Behandeling B.V. Netherlands S.B. Technologies SARL F.G.P. Chaudronnerie France SARL FGP France SARL Traitement des eaux standard France SMAR S.p.A. Italy Sabino Water Treatment, Inc. Illinois San Marco Bioenergie S.r.l. Italy Sanilo, S.A. France Sanitech Ireland Sation S.L. Spain Schlick Engineering Conin Sp.Z.oo Poland Schlick France Sarl France Schlick Polonia Sp.Z.oo Poland Schlick-OLT, Prahs Spol.Sr.O. Czech Republic Schlick-Roto-Jet Maschinenbau GmbH Germany Schmidt Manufacturing, Inc. Texas Sda Scarl Italy Seitz Filtration (GB) Limited UK Seitz Iberica SA (Spain) Spain Seitz-Filter-Werke GmbH Germany Seral Erich Alhuaser GmbH & Co. KG Germany Servicios Filtermex, S.A. de C.V. Mexico Sidener Supply Company Missouri Silver Springs Water Co., Inc. Nevada
STATE (COUNTRY) NAME OF INCORPORATION ---- ---------------- Societe HPD S.A. France Societe des Ceramiques Techniques France Spencer & Halstead Ltd. UK St. George's Engineers Limited UK Stammhaus Beteiligungs GmbH & Co KG Germany Stranco Australia Pty Limited Australia Stranco Credit Corp. Illinois Stranco Foreign Sales Corporation Virgin Islands Stranco Ltd UK Stranco, Inc. Delaware Submicron Products, Inc. California Surface Finishing Company Kansas Technipure, Inc. New Mexico The International Water and Wastewater Treatment Co. Limited Egypt The Kinetics Group, Inc. Delaware Thomas Willett & Co Limited UK Tilghman (1988) Ltd UK Tilghman (Broadheath) Ltd UK Tilghman (Engineers) Limited UK Tilghman Wheelabrator Limited UK Tilghman Wheelabrator Ltd and Michael Charles Edward Stuart UK Tilghman Wheelabrator Special Products Ltd. UK Transwater NWWPEL Sdn Bhd Malaysia Tratax S.L. Spain Trident Separation Technologies, Inc. Texas Trinity Coast Sales Incorporated Texas Trupar, Incorporated Ohio Tyzack Maschinenmesser GmbH Germany U.S. Filter (Australia)Pty Ltd Australia U.S. Filter (Hong Kong) Limited Hong Kong U.S. Filter (Malaysia) Sdn Bhd Singapore U.S. Filter (Philippines), Inc. Philippines U.S. Filter (Taiwan) Corporation Taiwan U.S. Filter Argentina S.A. Argentina U.S. Filter Asia Pacific Pte. Ltd. Singapore U.S. Filter Asia Pte. Ltd. Singapore U.S. Filter Capital Corporation Delaware U.S. Filter Chile Limitada (Limited Liability Company U.S. Filter Consumer Products, Inc. Delaware U.S. Filter Control Systems, Inc. Delaware U.S. Filter Cuernavaca S.A. de C.V. Mexico U.S. Filter Distribution Acquisition Corporation Delaware U.S. Filter Distribution Group, Inc. Georgia U.S. Filter Do Brasil Ltda Brazil U.S. Filter Farms GP, Inc. Delaware U.S. Filter Farms LP, Inc. Delaware U.S. Filter Finance, BV Netherlands U.S. Filter Gestion Integral del Agua, S.A. de C.V. Mexico U.S. Filter Latin America, Inc. Delaware
STATE (COUNTRY) NAME OF INCORPORATION ---- ---------------- U.S. Filter Operating Services of Wilmington, Inc. Delaware U.S. Filter Operating Services, Inc. Delaware U.S. Filter Recovery Services (California), Inc. Delaware U.S. Filter Recovery Services (Mid-Atlantic), Inc. Delaware U.S. Filter Recovery Services (Southwest), Inc. Delaware U.S. Filter Recovery Services, Inc. Delaware U.S. Filter Servicios S.A. Argentina U.S. Filter Servicos Ltda Brazil U.S. Filter Sistemas de Colombia Colombia U.S. Filter Sistemas de Venezuela, S.A. Venezuela U.S. Filter Surface Preparation Group, Inc. Delaware U.S. Filter Transportation Company Delaware U.S. Filter Tratamento e Recuperacao de Residous Ltda Brazil U.S. Filter Wastewater Group, Inc. Delaware U.S. Filter Water Technologies (Shanghai) Co., Ltd China U.S. Filter de Mexico, S.A. de C.V. Mexico U.S. Filter/Acumem, Inc. Delaware U.S. Filter/Asdor Limited Canada U.S. Filter/BCP Acquisition Corporation Delaware U.S. Filter/BZ Acquisition Corporation Delaware U.S. Filter/Canada, Inc. Canada U.S. Filter/Castalloy, Inc. Delaware U.S. Filter/EOS of Ohio, Inc. Delaware U.S. Filter/EOS of Wilmington L.L.C Delaware U.S. Filter/Ionpure Inc. Massachusetts U.S. Filter/JWI, Inc. Michigan U.S. Filter/MPF Engineered Filter Products (Canada) Inc. Canada U.S. Filter/Marlboro, Inc. New Jersey U.S. Filter/PETWA Ltd. Canada U.S. Filter/PolyOzone, Inc. Colorado U.S. Filter/Puerto Rico, Inc. Delaware U.S. Filter/TWC Acquisition Corporation Delaware U.S. Filter/USW, Inc. Delaware U.S. Filter/VL Rampe, Inc. Michigan U.S. Filter/Wallace & Tiernan, Inc. Delaware U.S. Filter/Wheelabrator (Canada) Inc. Canada U.S. Filter/Whittier, Inc. Delaware U.S. Filter/Zimpro, Inc. Delaware USF (Switzerland) Ltd. Switzerland USF Acquisition Limited UK USF Aquaflow OY Finland USF Benelux BV Netherlands USF Canada Inc. Canada USF Deutschland GmbH Prozeb-und Abwasseraufbereitungssysteme Germany USF Euroholding S.A. Spain USF Euroholding S.A. (Sociedad Unipersonal) Spain USF Europe, A.E.I.E. Spain USF Filtration and Separations Group, Inc. Delaware
STATE (COUNTRY) NAME OF INCORPORATION ---- ---------------- USF Finance B.V. Netherlands USF France S.A. France USF Gutling GmbH Germany USF Home Waterbehandeling BV Netherlands USF Houseman B.V. Netherlands USF Johnson and Mohammed Ali Barwani LLC Oman USF Limited UK USF Oberflachentechnik Beteiligungs GmbH Germany USF Ponzini Acque S.r.l. Italy USF Real Estate B.V. Netherlands USF Smogless S.p.a. Italy USF Spain S.A. Spain USF Sverige Sweden USF Two, Inc. Delaware USF WaterGroup, Inc. Canada USF/DLW Acquisition Corporation Delaware USFC Acquisition Inc. Delaware Vacu-Blast International Limited UK Vessel Aircomp Srl Italy Vessel Srl Italy WMW Industries, Inc. Texas Wallace & Tiernan Canada, Inc. Canada Wallace & Tiernan GmbH Germany Wallace & Tiernan Ltd. UK Wallace & Tiernan Pacific Pty Ltd. Australia Wallace & Tiernan SARL France Water Systems, Inc. Nebraska WaterGroup Inc. Nebraska West Coast Holdings, Inc. California Westates Carbon-Arizona, Inc. Arizona Western Farms. L.P. California Weylin Pty Limited Australia Wheelabrator Asia-Pacific (Pte) Ltd. Singapore Wheelabrator Clean Air Systems, Inc. Delaware Wheelabrator Engineered Systems (Poland) Spoka z organiczona odpowiedzialnoscia Poland Wheelabrator Mexicana, S.A. de C.V. Mexico Wheelabrator Servicios Ambientales, S.A. de C.V. Mexico Wheelabrator Sisson Lehman S.A. France Wheelabrator Technologies (UK) Limited UK Wheelabrator Water Technologies (M) Sdn Bhd Malaysia Wheelabrator Water Technologies (T) Co. Ltd. Taiwan Wheelabrator Water Technologies International Holdings, Inc. Delaware Wheelabrator-Berger (Maschinenfabriken) GmbH Germany Wheelabrator-Berger Stiftung GmbH Germany
EX-23 11 CONSENT OF AUDITORS (KPMG) EXHIBIT 23.0 INDEPENDENT AUDITORS' CONSENT To the Board of Directors and Shareholders United States Filter Corporation: We consent to incorporation by reference in the Registration Statements (No. 333-30783 and No. 333-45955) on Form S-8, the Registration Statements (No. 333-24465, No. 333-07759 and No. 333-45981) on Form S-3 and the Registration Statements (No. 333-35189, No. 333-39711, No. 333-42463, No. 333-52487 and No. 333-52717) on Form S-4 of United States Filter Corporation of our report dated June 1, 1998, relating to the consolidated balance sheets of United States Filter Corporation as of March 31, 1997 and 1998, and the related consolidated statements of operations, shareholders' equity, and cash flows and related schedule for each of the years in the three-year period ended March 31, 1998, which report appears in the March 31, 1998 Annual Report on Form 10-K of United States Filter Corporation. KPMG Peat Marwick LLP Orange County, California June 26, 1998 EX-23.1 12 CONSENT OF AUDITORS (E&Y) EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to incorporation by reference in the Registration Statements (No. 333-30783, No. 333-45955) on Form S-8, the Registration Statement (No. 333- 24465, No. 333-07759, No. 333-45981) on Form S-3 and the Registration Statements (No. 333-35189, No. 333-39711, No. 333-42463, No. 333-52487, No. 333-52717) on Form S-4 of United States Filter Corporation of our report dated January 16, 1998, relating to the consolidated balance sheets of The Kinetics Group, Inc. as of September 30, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended September 30, 1997, included in the Annual Report (Form 10-K) of United States Filter Corporation for the year ended March 31, 1998. Ernst & Young LLP Walnut Creek, California June 26, 1998 EX-27 13 ARTICLE 5 FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS OF UNITED STATES FILTER CORPORATION AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS MAR-31-1998 APR-01-1997 MAR-31-1998 48,673 241 761,856 (33,370) 386,100 1,575,950 1,005,649 (199,174) 3,597,844 984,174 689,476 0 0 1,074 1,292,336 3,597,844 3,234,580 3,234,580 2,456,173 2,456,173 0 7,620 53,887 (284,196) 15,583 (299,779) 0 0 0 (299,779) (3.13) (3.13)
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